ACLI Board OKs Principle-Based Approach

By Jim Connolly

June 27, 2005 at 08:00 PM

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The American Council of Life Insurers is urging state insurance regulators to come up with a principle-based approach for evaluating life insurance company reserves and risk-based capital levels.[@@]

The board of the ACLI, Washington, voted at its board meeting Friday to endorse a principle-based proposal offered by a group of 10 top insurance company executives.

The executives' companies developed the proposal as an alternative to a draft of Actuarial Guideline 38, or AG 38. AG 38 is supposed to set rules for reserving for universal life contracts with secondary guarantees.

Many actuaries and some regulators want to shift to a flexible approach for monitoring capital levels that would emphasize use of fundamental actuarial principles rather than traditional formulas. Other actuaries and some regulators say they are still more comfortable with the traditional formulas for calculating RBC requirements.

The proposal that the 10 insurance companies developed calls for regulators to adopt short-term solutions and long-term solutions.

The 10-insurer group recommends that regulators adopt the current draft of AG 38 with an April 1, 2007, sunset provision. The 10-insurer group also recommends including an actuarial 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.

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