Premium Bucket Nonforfeiture Approach Moves Ahead

Regulators debated whether the premium bucket approach would fit in with the current nonforfeiture law or whether it would fit in better if a new nonforfeiture law is developed.

Mike Batte, a New Mexico regulator, suggested that a better approach might be to work on a regulation specifically addressing variable annuities.

Greater flexibility is important given changes such as work on the C-3, Phase II project for reserving and risk-based capital for annuities and changes in the accounting system, according to John Hartnedy, a regulator from Arkansas.

The important thing, he continued, is that a consumer understands what was purchased. It is important to establish that they were told enough to understand the product, Hartnedy adds.

Bill Schreiner, a life actuary with the American Council of Life Insurers, Washington, argued for the premium bucket approach. Schreiner told regulators that it would allow for better matching of credit promises with current investment rates, and limit solvency concerns because of the ability to better match nonforfeiture and investment return rates. The approach is used for premium crediting rates and should be used for nonforfeiture crediting rates, he adds. Because it is already being done, there would not be added complexity for using the approach for nonforfeiture.

Reproduced from National Underwriter Edition, September 16, 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.