C-3PhaseIIjc –75 lines
Enter Brave New Reserving World, But In Smaller Steps
A mechanism that would add a reserving floor to a new flexible reserving methodology for variable annuities is being opposed by a number of large life insurers as well as some insurance regulators.
The issue will receive more discussion at the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo. But initial reaction to a standard scenario reserving methodology which tries to add a degree of conservatism to stochastic modeling was that if the floor is used, it should be used only for informational and not for risk-based capital purposes. Stochastic modeling runs iterations of scenarios that may occur rather than relying on a deterministic, formulaic approach for reserving.
The issue arises as regulators and insurers search for a way that will create proper reserving for life insurance products while allowing for greater flexibility. That flexibility, according to discussions, makes it possible for regulators to safeguard solvency and insurers to develop new products and to use capital more efficiently. The C3-Phase II project, as it is called, is seen by many as a way to achieve this goal.
A number of large companies including Lincoln Financial Life Ins. Co., Pacific Life Ins. Co., and John Hancock Life Ins. Co. were part of the discussion.