Actuaries and regulators are continuing their quest for a more flexible reserving system for life insurance products.[@@]
Dave Neve, chairman of the universal life working group at the American Academy of Actuaries, Washington, says the academy is studying a “principle-based” approach to reserving for term products, variable universal life products, and UL products that offer secondary guarantees.
Eventually, the reserving project could create a framework for all life insurance products, Neve says.
In recent months, advocates of traditional, relatively simple formulas for calculating minimum reserves have squared off against advocates of “stochastic-based modeling,” who say actuaries should come up with reserve requirements for a particular product by using sophisticated mathematical models to determine how that product might behave under a wide variety of market conditions.
Neve is quick to state that principle-based reserving is not synonymous with stochastic-based modeling.
Principle-based reserving strategies could use traditional formulas as well as stochastic models, but stochastic models might be especially useful in the analysis of products that are difficult to evaluate with traditional formulas, Neve says.