Regulators continued taking steps to make sure products are financially sound.
During the winter meeting of the National Association of Insurance Commissioners here, regulators fully adopted Actuarial Guideline 34, which addresses variable annuity guaranteed minimum death benefit reserves. The guideline requires a stand-alone asset adequacy analysis be performed for VAs with GMDBs. Asset adequacy tests determine whether a companys assets are sufficient to back the obligations it has assumed.
Guaranteed minimum death and living benefits recently became an issue when the stock market fell and these guarantees became burdensome for many companies. Regulators were concerned that there be proper reserving for these guarantees.
The NAIC adopted the GMDB guideline even as the American Academy of Actuaries was fine-tuning a proposal for guaranteed living benefits. The proposal, which would establish reserving guidelines, will be exposed for comment in anticipation it can be fully adopted by year-end 2004.
It is related to a risk-based capital proposal, called the C-3, Phase II project, which seeks to establish risk-based capital criteria for variable products with guarantees.
Representatives of the AAA successfully argued that even if factors that would determine RBC were not ready, the NAIC should change the coding in a filing diskette in anticipation it would be ready and acceptable to regulators. The diskette needs to be changed in order for the RBC change to take place by year-end 2004. The factors and RBC instructions need to be approved by mid-year 2004 in order for them to take effect. The diskette change is in effect a bookmarker in anticipation that that will happen.
Northwestern Mutual Life Insurance Company, Milwaukee, objected to the complexity of the actuarial method selected, said Robert Meilander, vice president and corporate actuary, as a method that could create volatile results.
The project needs more time so the RBC factors can be reviewed by insurers, says Douglas Barnert, representing the National Alliance of Life Companies, Rosemont, Ill. Barnert recommended a 2005 implementation time frame.
Regulators also addressed reserving for long term care products. The recommendation of the AAA would increase reserving requirement by roughly 5%-8%. However, based on data from 11 LTC insurers, it found they were reserved at between 109% and 143% of what was required.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 12, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.