A model regulation that impacts reserving for universal life products with secondary guarantees and is part of a broader effort to create a reserving system based on established principles moved closer to full endorsement by state insurance regulators.
During a session of the Life & Health “A” Committee, a committee of the National Association of Insurance Commissioners, Kansas City, Mo., a draft of an amended Actuarial Guideline 38 was adopted in a 10-3 vote. All members of “A” Committee were present and voted.
The draft that was adopted had been deferred during the summer NAIC meeting after being adopted and passed up by the Life & Health Actuarial Task Force. The draft is considered a short-term solution while a long-term principle-based approach is developed.
Efforts have been under way since February to reach common ground on the contentious issue. In February, the Affordable Life Insurance Alliance, Washington, offered a solution focusing on asset adequacy analysis and in April, the American Council of Life Insurers, Washington, offered a compromise proposal that embraced the work of LHATF in the short term while a long-term resolution is developed. That compromise, developed by leading life insurance CEOs, was endorsed late last month by the ACLI board.
Part of the draft of AG 38 as well as the ACLI compromise both call for an effective date of July 1, 2005, a cause of concern among some regulators on “A” Committee.
Alabama Insurance Commissioner Walter Bell offered to delay the effective date until Jan. 1, 2006, but was defeated in a 10-3 vote.
Following the vote to advance AG 38 to the NAIC’s executive and possibly plenary committee, Jim Poolman, North Dakota insurance commissioner and “A” Committee chair, called on regulators to adopt AG 38 uniformly if passed by the NAIC.
Poolman urged states to pass AG 38 as uniformly as possible. “Financial solvency and product regulation are the hallmarks of state solvency. If we are not working together uniformly, it will be a death nail to state regulation.”
Connecticut regulator Allen Elstein, warned that the use of the term “overly redundant reserves” that is being used to advocate a principle-based system needs to be used carefully. He cites the example of products with low cash value that are only supportable if there are no lapses. If there are not sufficient reserves, there could be a risk of financial insolvencies, he adds.
“Financial solvency and product regulation is the hallmark of state solvency. If we are not working together uniformly, it will be a death nail to state regulation.”–North Dakota Insurance Commissioner Jim Poolman