The American Council of Life Insurers, Washington, reiterated its support for a principle-based reserving system and promised to present a short-term solution for term and universal life products with secondary guarantees to state insurance regulators by the end of 2005.
The ACLI presented its views during a two-day interim meeting held by the National Association of Insurance Commissioners, Kansas City, Mo., on Aug. 22-23. The meeting drew approximately 100 interested parties including some 9 state insurance commissioners, as well as actuaries and industry representatives.
Commissioners in attendance included Jim Poolman of North Dakota, Julie Benafield Bowman of Arkansas, Kevin McCarty of Florida, Susan Voss of Iowa, Glenn Jennings of Kentucky and Tim Wagner of Nebraska, who are all members of the NAIC’s Life & Annuities “A” Committee where the issue is under discussion, according to interviews.
They are interested in seeing how more efficient reserving for life insurance products can be developed. The system currently uses formulaic reserves which some maintain are inefficient, while others say it affords a degree of conservatism and safety into the system. The “A” Committee interim session in Minneapolis was held so that a dialogue could lead to a general discussion of a work timetable that could advance these objectives, Poolman told National Underwriter (see NU, Aug. 22/29).
The issue has implications for consumers, the life insurance market and solvency oversight, Poolman told NU.
The solution ACLI says it will develop will be advanced even as another short-term solution that sunsets in 2007, Actuarial Guideline 38, is readied for review and possible adoption by the NAIC.
The effort will be parallel to the work being done on principle-based reserving by the American Academy of Actuaries, Washington, says Paul Graham, ACLI vice president-insurance regulation and chief actuary. If the Academy’s work advances more quickly, then the ACLI will put its work aside, he explains.
But the need to work on an immediate solution is important because the earliest that changes in states’ standard valuation law could be in place would be 2009 and in the interim the ability to offer reasonably priced products to the underinsured continues, Graham says. While 2009 might not seem a long way off, it represents 4 years in which it is more difficult to offer these products to consumers.
The effort will look at the current Valuation of Life Insurance Policies model regulation, better known as Guideline Triple-X, and see where “small tweaks” can be made, Graham says.
Efforts will be made to keep it “relatively simple, something that is easy to adopt,” he continues. “It will provide relief where reserves are more redundant than necessary,” he adds. Mortality, interest rates and how reserves are developed will be among the areas that are examined, Graham says.
The work will have to fit in with Standard Valuation Law and the federal tax code, he adds. The effort could be a way to test the concept of principle-based reserving, Graham says. ACLI is committed to working with the Treasury Department and the Internal Revenue Service, he adds.