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Life Health > Life Insurance

Regulators Clash With Actuaries Over Reserves

By Jim Connolly

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Key insurance commissioners want a task force to keep working on a model guideline for universal life secondary guarantee reserves.[@@]

Commissioners here at the winter meeting of the National Association of Insurance Commissioners, Kansas City, Mo., said the actuaries should focus more on reserving strategies based on actuarial models and less on traditional, formula-based methods.

The commissioners were reacting to a draft of Actuarial Guideline 38, a model that would set reserve requirements for UL secondary guarantees.

The commissioners, members of the NAIC’s “A” Committee, voted to ask members of the NAIC’s Life & Health Actuarial Task Force, the actuaries working on AG 38, to come up with an approach that uses models and asset-adequacy analysis as a basis for establishing reserves.

Committee members say shifting to a model-based approach would give insurance product developers more flexibility and reduce the future need to tinker with actuarial rules.

Committee members talked bluntly about insurers’ split on the reserving issue.

Nebraska Director Tim Wagner said he has seen nothing that has so polarized the industry since he began attending NAIC meetings in 1968.

“Somehow government has got to be an umpire,” Wagner said.

Wagner compared proponents and opponents of AG 38 to “2 cats using the same litterbox.”

Because reserving is one of the largest components in pricing, in a sense “we are price fixing,” Wagner said. “We are harming the insurance-buying public. I cannot continue to support a pricing process that is driven by actuarial tables when an oversight process is available.”

The actuaries’ work on AG 38 “does point out why actuaries need guidance,” Wagner said. “They are more concerned with rules and order and precision than [with] protecting the public.”

But Sheldon Summers, a life actuary with the California insurance department, told commissioners that LHATF members already have rejected the idea of taking the asset adequacy analysis route.

Gayle Yeomans, a representative for New York Life Insurance Company, New York, accused the “A” Committee of micromanaging the LHATF actuaries’ decisions on an actuarial issue.

“For you at this hour not to proceed with what is being exposed is ironic,” Yeomans said. “It is a terrible, terrible mistake.”

Blaine Shepherd, a life actuary and Minnesota insurance regulator, told insurance commissioners that just because no companies have failed recently as a result of reserving issues does not mean that solvency issues cannot be an issue in the future.

Whether UL secondary guarantees will lead to solvency concerns in the future “is difficult to determine now because of the length of secondary guarantees,” Shepherd said.

Shepherd said he has seen insurers include certain UL policy provisions solely to lower reserve requirements.

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