Companies Call On ACLI To Act Regarding UL Reserving
Even as regulators consider adoption of a current reserving proposal for universal life contracts with secondary guarantees, 13 industry leaders from 10 major insurers wrote a letter to American Council of Life Insurers President Frank Keating, calling on the ACLI to take action on the issue.
The Washington-based ACLI has maintained, until recently, a neutral position on Actuarial Guideline 38, a model regulation for UL reserving at the National Association of Insurance Commissioners, Kansas City, Mo. Now, in response to the April 5 letter, ACLI is promising to act as a “forum” on the issue.
ACLI has members who support and oppose the Application of the Valuation of Life Insurance Policies model regulation, known as AG 38. AG 38 is the second retooling of the Valuation of Life Insurance Policies model regulation, more familiarly known as Guideline Triple-X. The retooling of Triple-X was deemed necessary by regulators and industry representatives to prevent the use of new product designs to work around the reserving intent in the original model.
The latest model draft currently is being exposed by the NAICs Life & Health Actuarial Task Force and could be adopted by the task force next month, and then advanced to its parent “A” Committee. Mike Batte, LHATF chairman and a New Mexico regulator, says it is his sense the group feels its work on the model is done and that it could be adopted if a motion is made on May 9.
Several commissioners on the “A” Committee including its chair, North Dakota Insurance Commissioner Jim Poolman; and Nebraska Insurance Director Tim Wagner, oppose the model and instead, favor devoting resources to a long-term solution. LHATF has responded that it, too, favors a long-term solution, but a short-term answer also is needed in the interim.
In their letter to Keating, the company leaders asked the full ACLI board to endorse principles including “addressing promptly any differences of opinion arising among segments of our industry.” It also requests that “a board-level steering committee or similar group” be established.
The letter proposes short-term and long-term solutions. In the short term, it recommends adopting the current AG 38 with the following modifications: applying it from July 1, 2005; labeling it “temporary” and creating an April 1, 2007, sunset; and, including an actuarial reserving calculation that would “add a 7% load to the net single premium used in the denominator in one of the steps used in calculating reserves.”
In the long term, it recommends that the NAIC, companies and the American Academy of Actuaries develop a Modern Valuation model law and regulation, replacing at least Guideline Triple-X.
The MVL, according to the letter, would among other points: employ a “principle-based” reserving rather than a formulaic reserving approach; recognize the need to use stochastic testing, commonly known as an asset adequacy approach; use guidelines supporting appropriate federal income tax deductions and regulatory transparency; include an NAIC coordinated review process; be responsive to environmental changes; and be consistent among all states.