A minimum floor is now part of the C-3, Phase II project proposal
Variable annuity risk-based capital requirements that have a minimum floor cleared a key hurdle here and are poised to take effect at year-end 2005.
At the summer meeting of the National Association of Insurance Commissioners here, the Financial Conditions ‘E’ Committee adopted a motion to receive the proposal, known as the C-3, Phase II project.
It could be adopted by the full NAIC at the fall meeting in September.
The Phase II project seeks to address the equity, interest rate and expense recovery risks associated with variable annuities, and group annuities that contain death benefits or living benefit guarantees.
A second project for reserving for these products–using a principle-based rather than a formulaic approach–is also currently under way.
Insurers and some regulators argued that the proposal should be adopted without the minimum floor, which is called the Standard Scenario proposal. They argued that there needs to be a commitment to principle-based RBC and reserving requirements. Principle-based reserving relies on actuarial judgment rather than on formulas.
Commissioners, the American Academy of Actuaries and many companies in the life insurance industry are calling for a new system that will rely on principles. The issue now is being debated regarding reserving for universal life products with secondary guarantees. The UL model under discussion is Actuarial Guideline 38.