Rifts Over Reopening Triple-X

Speaking of the need for flexibility in product development, he adds, “We dont need another law or regulation that possibly limits what companies can do.” And noting projects such as the current C-3, Phase II, which relies more on actuarial judgment and modeling than formulas, he says a “similar approach is needed rather than squeezing a product into a formulaic approach.”

Many insurers agree that the guideline should not be reopened citing concerns such as a provision to make most of the new requirements retroactive. “Actuarial Guideline 38 stands by itself. What is really needed is local supervision and a gathering of facts,” says Michael Streck, vice president and actuary in charge at Principal Life Insurance Company, Des Moines, Iowa. “There is no proof that a company has violated the letter or spirit of the law.”

Streck says the New York proposal focuses on reserving for lifetime guarantees when, in fact, 50%-70% of consumers buy policies that are term to 65, 75, or 85 years of age.

Ten insurers signed a letter questioning the need to reopen the regulation, including: AmerUS Group, Jefferson-Pilot Financial, Lincoln National Life Insurance Company, Midland National Life Insurance Company, Mutual of Omaha Insurance Company, North American Company for Life & Health Insurance, Pacific Life Insurance Company, Principal Life, Protective Life Insurance Company, and Trustmark Insurance Cos.

A new regulation is needed, says Bill Koenig, a senior vice president and chief actuary with Northwestern Mutual. The principle of Triple-X and AG 38 is that reserves should be the difference between the present value of future guaranteed benefits less the present value of future premiums needed to support those benefits, he says.

“This is an urgent matter,” he explains. “It is important that companies are regulated on a uniform basis and not on a state-by-state basis.” If there is an economic reason why companies feel that reserve requirements are too high, they should address the issue rather than creating new products that circumvent current regulation, he adds.

New Yorks proposal is not a change but a clarification of existing regulation, says Scott Berlin, vice president and actuary with New York Life. And, Jim Van Elsen of Van Elsen Consulting, Pella, Iowa, says that even though Triple-X is a “flawed regulation,” it still “works better than most things on the table.” He says that reopening the model would not be healthy for companies. “The more time you spend defining what companies cant do, the more they will find ways around it.”

Another approach, an attained age level reserve approach, is an approach that regulators should review, according to Kory Olsen, a life actuary with Allstate, Northbrook, Ill. The approach, as described in a letter from Olsen and Edward Robbins, funds the secondary guarantee on a levelized basis, would offer consistent treatment of specified premium vs. shadow account secondary guarantees, and is “relatively easy to audit and doesnt appear to have generated significant abuses.”

The American Academy of Actuaries, Washington, also is working on a solution, says Dave Nave, co-chair of an AAA universal life working group. The work examines an approach that is principle-based and uses stochastic modeling as opposed to a focus on formulas.

William Schreiner, a life actuary with the American Council of Life Insurers, Washington, warns that “stochastic determined reserves are not deductible for tax purposes,” an issue he says is “a very serious problem” that needs to be considered as this approach is developed.

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.