VA Reserving Timetable: Adopt In 04, Implement In 05

By

Regulators at the National Association of Insurance Commissioners have decided to postpone implementation of a risk-based capital and reserving project for variable annuities with guarantees. Instead of taking place at year-end 2004, implementation will occur at year-end 2005.

Regulators said they still intend to complete work on the C-3, Phase II project by the end of this year. The project examines C-3 risk, the risk of underestimating liabilities for existing business or business to be written during the year RBC is to be measured.

Although some regulators expressed “disappointment” that after more than 2 years of work the project could not be put in place this year, there was no objection raised to the comment that the project was not ready to be advanced during the NAIC summer meeting this week.

In response to a comment that the standard scenarioa proposal introduced by New York that seeks reasonable constraints to actuarial judgmentwas not ready at this point, New York regulator Bill Carmello said the state could not support a 2004 year-end adoption without its inclusion.

There also was concern raised that insurance departments may not have the resources to oversee results that are produced.

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, said an actuarial practice note could be a way to provide such knowledge.

Gorski said that if implementation of the project had to be delayed, then he hoped the extra time would be used to create a structure for actuaries to validate company results.

When the issue of when to allow hedging as a way to reduce capital requirements was raised, Dennis Lauzon, a New York regulator, suggested that wording could be included that would allow a commissioner to disallow any hedging that is found not to be appropriate for capital relief.

Concern also was expressed that a level playing field be maintained when the Guaranteed Minimum Death Benefit mortality table in an existing actuarial guideline, Guideline 34, is used as a benchmark to measure reserving.

Doug Barnert, representing the National Alliance of Life Companies, Rosemont, Ill., said the decision to postpone was the correct one to make because work had not been completed. Issues such as how to treat hedging as it relates to RBC and reserving continued to come up, he said.

Other issues such as whether the Internal Revenue Service would allow modeling rather than results based on formulas for reserving still need to be looked at, he added.


Reproduced from National Underwriter Edition, June 11, 2004. Copyright 2004 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.