Product reserving that uses principles rather than formulas got another show of support in the form of a brand new industry group, the Affordable Life Insurance Alliance, Washington.[@@]
The American Academy of Actuaries, Washington, has been advancing the approach for 10 years, and the National Association of Insurance Commissioners, Kansas City, Mo., is working on several projects that use a principle-based approach as a keystone for reserving requirements.
The Alliance, launched on March 8, includes AmerUs Life Insurance Group, Jefferson Pilot Financial, Lincoln Financial Group, Midland National Life Insurance Company, North American Company for Life & Health Insurance, Pacific Life Insurance Company, the Penn Mutual Insurance Company and Protective Life Corp.
Dennis Glass, president and CEO of Jefferson-Pilot Financial, Greensboro, N.C., said that the new group wants to ensure that “Americans have safe and affordable insurance” based on modern state laws that reflect a principle-based approach to reserving. A fundamental goal, he continued, was to offer “properly reserved, innovative, affordable life insurance products.”
John D. Johns, chairman, president and CEO of Protective Life Corp., Birmingham, Ala., said that principle-based reserving “has been identified as a top priority for over a decade but little has been done to date” because there have been more pressing issues the industry has faced or, in some instances a reluctance to change.
“Excessively redundant reserves,” he noted, could discourage product innovation without providing additional solvency benefits. He says that the new group supports and will work with the Academy as well as the American Council of Life Insurers, Washington, and the National Association of Insurance Commissioners, Kansas City, Mo.
ALIA is seeking a broad based reform to address many insurance products and is not concerned specifically with universal life insurance with secondary guarantees, according to Bill O’Connor, an ALIA senior consultant. In response to a request to define “proper reserving,” he said that it is “reserving to reflect the economic risk inherent in any product.”
Scott Harrison, the new group’s executive director, said that it is “our objective is to spend the first few months developing information not just for regulators but also for legislators.” He emphasized that ALIA’s efforts will be educational and that it will work with the Academy, the ACLI, the NAIC and the National Conference of Insurance Legislators, Troy, N.Y. ALIA is not trying to replace the work of any of these groups, he added.
Academy President Robert Wilcox says that while the Academy is interested in creating a dialogue with those interested in a principle-based approach, it also will not be tightly linked with any group in order to maintain a professional stance.