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Regulators Pursue Two Reserving Approaches

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Salt Lake City

Regulators overwhelmingly voted to continue work on an actuarial guideline detailing how to reserve for universal life products with secondary guarantees.

In an 11-3 vote, regulators, many of whom are actuaries, voted down a motion to stop work on Actuarial Guideline 38 with its formula approach and only pursue a reserving solution that would involve asset adequacy testing. The vote was taken by the Life & Health Actuarial Task Force during the spring meeting of the National Association of Insurance Commissioners. The motion was called for by retiring Arkansas Deputy Commissioner John Hartnedy. Arkansas was joined by Nebraska and North Dakota in supporting the motion.

The motion was based on a directive from LHATFs parent committee, the Life “A” Committee, to seek a long-term solution based on asset adequacy rather than formulas. But it did not specifically prohibit LHATF from continuing work on AG 38.

Regulators decided to make changes to the AG 38 draft that would move away from a retroactive requirement. Instead the new draft would leave existing requirements in place for contracts issued between 2003 through July 1, 2005, and would have separate language reflecting proposed changes for contracts issued after July 1, 2005. Because the changes to the draft will require a new exposure period, LHATF members voted to change the effective date to Jan. 1, 2006, from July 1, 2005.

In addition, it was decided to hold a conference call to discuss more long-term changes including an asset adequacy approach being offered by Scott Harrison, ALIA executive director, on behalf of several life insurers who say implementing AG 38 would create a burdensome and unnecessary reserving requirement. The call will look at many options for a more permanent solution to life product reserving.

Reproduced from National Underwriter Edition, March 17, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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