By Jim Connolly
A proposal that would create a minimum floor for reserving for variable annuities with guarantees will not receive the support of the American Academy of Actuaries in its current form.
The Academy, based in Washington, discussed a standard scenario reserving approach as well as its work on Actuarial Guideline VACARVM during the winter meeting of the National Association of Insurance Commissioners here.
The Academys VA reserve work group is spearheaded by Tom Campbell, the groups chair.
VACARVM is the second piece of a project that relies on stochastic modeling rather than on formulaic reserving techniques. It is related to the C-3, Phase II project, which takes the modeling approach and uses it to establish risk-based capital requirements for VAs with guarantees. That project is headed by Bob Brown, the Academys representative. Many actuaries are advocating a more flexible approach to reserving, suggesting this will allow companies more freedom in the type of products delivered to consumers.
During the development of the VACARVM project, the New York insurance department expressed concern that a minimum floor was needed to ensure proper reserving for these products. Consequently, a standard scenario was developed.
The scenario would provide a way for companies to establish reserves if they did not want to create stochastic modeling but is also considered by some to be more conservative and produce results that require higher reserves.