Regulators, actuaries and others squared off Thursday over reserving requirements for universal life products with secondary guarantees.[@@]
Regulators voted 10-5 here at the winter meeting of the National Association of Insurance Commissioners, Kansas City, Mo., to continue to expose a proposed actuarial guideline revision to further discussion rather than advancing it to a higher level.
One state abstained from the vote.
Regulators also asked the American Academy of Actuaries, Washington, to look at how revisions to the guarantee guideline, Actuarial Guideline 38, would affect UL products with secondary guarantees.
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The regulators who voted are members of the NAIC’s Life & Health Actuarial Task Force.
The proposed revision to AG 38 is the culmination of years of efforts by regulators to make sure that life insurers set aside enough reserves to support level-premium products.
The first effort was adoption of the Valuation of Life Insurance Policies model regulation, also known as Guideline Triple-X. Regulators later adopted the Application of the Valuation of Life Insurance Policies model regulation, known as Guideline AXXX. AXXX, in turn, has established Actuarial Guideline 38.
The current debate is over changes to AG 38. The changes were prompted by concerns that companies are still sidestepping the spirit of the guideline with products that reduce reserving requirements. Some companies that sell large amounts of universal life insurance say other companies are reacting to the fact that UL products account for a growing share of life insurance sales.
The life actuarial task force gave members of the public, including a number of company actuaries, a chance to line up at a microphone to make their case about why changes to UL secondary reserving requirements should or should not be made and whether the changes should apply retroactively.
Here’s a sampling of reactions to the proposed reserving changes.
- John Hartnedy, an Arkansas regulator: Insurer insolvencies usually result from the types of assets that an insurer holds, not from problems with reserve levels, Hartnedy said at the life actuarial task force meeting.
In the UL market, “we don’t have any insolvency,” Hartnedy said. “No customer is getting shafted. If anything, they are getting lower prices.”
If any actuaries did skirt the existing reserving guideline, the actuarial professional could take disciplinary action, Hartnedy said.
If insurers do not want to sell UL products, that is their prerogative, but those insurers should not be able to stifle innovation at the companies that do want to sell the new products, Hartnedy added.
- North Dakota Insurance Commissioner Jim Poolman: Poolman said he thinks the debate about AG 38 has more to do with competition than with solvency.
- Mike Batte, a New Mexico regulator: Batte said he would vote against exposing the current AG 38 revision draft further because “regulators’ time would be much better spent on a valuation system that makes more sense, especially when the product is one that has appeal.”