Industry Split On UL Reserving Change Will Be Out In The Open At NAIC
Regulators deciding whether to advance changes to an actuarial guideline impacting Universal Life reserving will hear two messages from an industry that is split on the issue. One side is saying that better efforts need to be made to ensure that companies do not underreserve, while the other side contends that care needs to be taken not to price a popular product out of the market.
At press time, the National Association of Insurance Commissioners was scheduled to discuss the changes on Dec. 2. The NAIC says it is unclear what action will be taken on the changes: adoption, modification or re-exposure of the draft. If the revisions to Actuarial Guideline 38 are advanced by the Life & Health Actuarial Task Force, they would then go to the Life Insurance and Annuities (A) Committee on Dec. 6. Adoption by the A Committee could result in full adoption by the March 2005 NAIC meeting.
The proposed changes introduced by William Carmello, a New York regulator, were exposed by LHATF on Nov. 19 in an 11-6 vote.
The proposal establishes actuarial requirements that would seek to ensure that companies comply with the intent of Guideline AXXX, the Application of the Valuation of Life Insurance Policies model regulation. Guideline AXXX was a response to regulators concerns that some companies were avoiding proper reserving required by the Valuation of Life Insurance Policies model regulation, commonly called Guideline Triple-X.
Insurers are divided over whether the changes should be advanced, abandoned or delayed until a report from the American Academy of Actuaries, Washington, is completed. The report is due at the end of 2005.
In fact, the American Council of Life Insurers, Washington, is taking a neutral stance on the issue because its members are weighing in on both sides of the issue, according to Bruce Ferguson, ACLIs senior vice president-state relations.
Among companies that are concerned about changes are AmerUS Life Insurance Company, Lincoln National Life Insurance Company, John Hancock Life Insurance Company, Mutual of Omaha Insurance Company, Principal Life Insurance Company, Jefferson-Pilot Financial and Prudential Financial.
Among the concerns enumerated in their written comments are the belief that the changes are more than a clarification of the guideline and that the proposal increases the secondary guarantee UL reserves.
In an opinion piece in the Nov. 29 edition of National Underwriter, Mark Konen, executive vice president-life and annuity manufacturing, for Jefferson-Pilot Financial, Greensboro, N.C., wrote that the popularity of secondary guarantee UL products has “caught the eye of competitors who do not manufacture the product.”
Konen also wrote that the focus should be on adequate reserves and not on creating a level playing field. He warned that “redundant reserves” will require greater use of reinsurance or securitizations in order to relieve capital strain.