Why The Rush To Change Guideline AXXX?

Our industry must compete effectively in the broader financial services industry, and these unnecessary increases to cost hamper our ability to help solve Americas growing needs (saving for retirement, protection, estate planning, etc.). Further, as solvency is the issue that reserve regulations should address, it is worth noting that there is a substantial body of law already in place to equip insurers and the regulatory community with the ability to measure this risk. The Standard Valuation Law provides for formulaic reserves, and, more important, requires a thorough asset adequacy analysis. This is a robust and appropriately conservative analysis that allows our industry to recognize problems and take necessary actions well before real problems manifest themselves. Thus, there is no imminent solvency crisis.

Requiring highly redundant reserves for secondary guarantee UL products will likely result in a situation akin to that experienced in the term insurance world. Redundant reserves (Regulation XXX) are not being held by the term writers, but rather are being “off-loaded” through various reinsurance or capital markets transactions. The capital market solutions, by the way, are premised on the fact that XXX reserves are so redundant that they will never be needed. The result is increased cost, complexity and risk, with no corresponding solvency benefit. We need to learn from our mistakes, not repeat them.

The debate surrounding changes to AXXX should be in an open, balanced forum. It should center on finding a balance between adequate solvency to ensure the long-term protection of policyholders and providing value to consumers. Unfortunately, proponents of the change to AXXX have a different goal in mind and seem unwilling to open the debate more broadly. To date, activities have been rapid and closed to real debate.

We believe the responsible course at the present time is to keep AG38 in place as currently adopted and allow the Academy of Actuaries to complete its analysis of the appropriate method of reserves for UL products. This analysis is scheduled to be completed by year-end 2005 and should be concluded before moving forward with action on AG38.

While that analysis is being conducted, it is our hope that the insurance community can work together to come to a consensus on appropriate reserve standards. We are part of a group of at least 13 highly respected companies working together to promote the concept of a reasoned, comprehensive analysis of this issue. We will be glad to participate in a balanced industrywide discussion to determine if any changes are necessary.

Lets work together to achieve a balance between adequate reserves and value so we can keep life insurance affordable for consumers.

Mark Konen is executive vice president of life and annuity manufacturing for Jefferson Pilot Financial, Greensboro, N.C. He can be reached via e-mail at [email protected].

Reproduced from National Underwriter Edition, November 24, 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.