NU Online News Service, March 15, 2004, 5:52 p.m. EST, New York – Insurers still are thinking about 2 proposals that would affect the capital adequacy rules for variable annuity guarantees.[@@]
Regulators and others considered the VA capital adequacy jigsaw puzzle here at the spring meeting of the National Association of Insurance Commissioners, Kansas City, Mo.
The NAIC could adopt one proposal, the risk-based capital component of the C-3, Phase II project, as early as June. The NAIC could adopt the other proposal, which deals with reserves, in December.
Insurers agree that the NAIC approach to VA guarantee capital adequacy is promising, but they say they want to see how the pieces fit together before they throw their support behind the proposals.
The NAIC could use the capital adequacy regulatory system for VA guarantees for other products, such as variable universal life insurance, says Tom Campbell, chair of the academy’s variable annuity reserve working group and a life actuary with Hartford Life Insurance Company, Hartford. Campbell says the idea is to try to move away from a strictly formulaic approach to determining reserves.
Regulators have fleshed out the risk-based capital proposal by completing work on actuarial factors for an alternate method for determining RBC for variable annuities. Actuaries can use the alternate RBC calculation method on VA products that include guaranteed minimum death benefits. The proposal allows companies to determine RBC for variable annuities with guarantees either through scenario testing or a factor approach.
Bob Brown, a life actuary with CIGNA Corp., Philadelphia, who is chairing the RBC group, says there is enough conservatism in the way that a company could select scenarios. Companies could not just pick and choose which scenarios they wanted to use, he says.
New York actuaries Dennis Lauzon and William Carmello have described a standard scenario that they say is needed to act as a floor for RBC and reserving. The academy should incorporate the scenario into its work, the actuaries say.