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Life Health > Life Insurance

Regulators Wont Change Guideline On UL Reserving

By Jim Connolly

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San Francisco

Regulators say the language in a model regulation establishing reserving guidelines for universal life products with shadow accounts is clear and that it is up to actuaries to discipline any potential gaming of the model.

At the summer meeting of the National Association of Insurance Commissioners, regulators declined to send out a survey designed to determine if there is growing abuse of the Application of the Valuation of Life Insurance Policies model reg, known as Guideline AXXX.

Regulators have reacted a couple of times to abuses and can?t be expected to rewrite the guideline every time a way is found to circumvent it, said Frank Dino, a Florida regulator. Rather than approach regulators for a new fix, he said, anyone who knows of a violation should bring the matter to the ABCD, an actuarial disciplinary board.

The first attempt to stop abuses in the marketplace was the development of the Valuation of Life Insurance Policies model regulation. It was later followed by Guideline AXXX.

Regulators said that even if they were inclined to revisit the guideline, to date only one example of an alleged violation has been presented to them.

Even though regulators decided not to take action on the request or to open up the model again, they did discuss a proposal to create a valuation manual that would incorporate actuarial guidelines, and model regulations and laws.

The proposal by Sheldon Summers, a life actuary with the California insurance department, would allow regulators to make changes to models through the manual. The changes could then be made without having to go to state legislatures to amend a regulation or act, and timing of implementation would be uniform, he said.

Among the questions raised was whether there would be an opt-out provision for states, and, if so, what would happen if a state decided to opt out of risk-based capital standards.

Paul Graham, an actuary with the American Council of Life Insurers, Washington, noted that actuarial guidelines already are being included in the NAIC?s Accounting Practices and Procedures Manual. He asked why there was a need to create a new manual when one was already in existence.

There is a lot of work involved in maintaining a manual, said Julia Philips, a life actuary and Minnesota regulator. It could lead to procedural delays in getting changes made, she said. Actuaries have other tools including actuarial standards of practice and actuarial practice notes, a type of nonbinding suggestion.

Reproduced from National Underwriter Edition, June 18, 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.

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