Regulators have decided to seek public comments on a second proposal for establishing reserving guidelines for universal life products with secondary guarantees.[@@]
Members of the Life and Health Actuarial Task Force at the National Association of Insurance Commissioners, Kansas City, Mo., have voted unanimously to put the second draft out for exposure alongside the first.
Commissioners could take action on either draft in June at the NAIC’s summer meeting.
The LHATF is looking at a model to establish guidelines that would help companies properly reserve for term and universal life products.
Many major life insurers are saying that regulators need to focus on a “principle-based” approach rather than spend any more time on solutions based on traditional formulas. Members of the NAIC’s “A” Committee have agreed, calling for a principle-based solution that would seek a solution that would allow for flexibility and also require proper reserving.
The newly exposed draft presents a new version of Actuarial Guideline 38, the Application of the Valuation of Life Insurance Policies model regulation. The draft, submitted by William Carmello, a New York regulator, incorporates suggestions that top executives of 10 major life insurers recommended in a letter to Frank Keating, president of the American Council of Life Insurers, Washington.
Among those suggestions are a July 1, 2005, effective date for short-term solutions, which would include a 7% load on the net single premium used in the denominator in one of the steps used to calculate reserves; an April 1, 2007, sunset; and a commitment to development of a long-term, principle-based solution.
However, language was added to the sunset provision that would create an alternative to creation of a final, principle-based solution on the sunset date. Regulators also could come up with an interim step that would be more “readily achievable” while providing “relief from overly conservative requirements,” such as valuation mortality requirements, according to the new language.