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NAIC Postpones VA Guarantee Implementation

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NU Online News Service, June 4, 2004, 6:27 p.m. EDT – Regulators at the National Association of Insurance Commissioners have decided against trying to implement new guidelines for variable annuity product guarantees this year.[@@]

But regulators at the Kansas City, Mo., group say they still hope to complete their work on the C3, Phase II project by the end of the year and have the recommendations implemented by the end of 2005.

C-3 risk is the risk of underestimating liabilities for existing business or business to be written during the year that RBC is to be measured.

The members of the C-3, Phase II project team want to establish risk-based capital criteria for variable annuities with guarantees.

Some regulators have expressed disappointment at the move to postpone implementation, but none objected when a colleague commented that the project is not ready advance at the June 12-15 NAIC summer meeting.

- Bill Carmello, a New York regulator, said his state could not support adoption of recommendations this year unless the recommendations include a standard investment scenario. New York officials say the standard scenario would create reasonable constraints on actuarial judgment, but regulators have commented that the standard scenario proposal is not yet ready for adoption.

- Some observers asked whether insurance departments would have the resources necessary to review C-3, Phase II program results.

Larry Gorski, chair of the American Academy of Actuaries’ group working on the project and an actuary in the New Berlin, Ill.-office of Claire Thinking Inc., said that an actuarial practice note could be a way to provide such knowledge.

Someone should use the delay in C-3 project implementation to take the time to create a structure that actuaries can use to validate company results, Gorski said.

- When should insurers be able to use hedging to reduce capital requirements? Dennis Lauzon, a New York regulator, suggested that wording could be included that would allow a commissioner to disallow any hedging that is not found to be appropriate for capital relief.


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