Work Starts To Bring Form To Concept

The draft act, dubbed the principles-based law, would apply to life, annuity and health insurance products as well as individual, group and fixed and variable products. It would apply to insurers and reinsurers.

The draft defines a principles-based approach as including valuation and nonforfeiture values which would include mortality, interest, lapse and other assumptions.

The draft also reinforces state insurance commissioners’ authority to determine valuation requirements.

In written comments New York regulator Denis Lauzon broaches 3 objectives to be considered in the act’s development: providing for reserve and RBC principle-based valuations; providing for oversight; and, tracking the conceptual thinking of the Financial Accounting Standards Board, Norwalk, Conn., and the International Accounting Standards Board, London.

Among the governance points covered in the initial New York proposal are: the establishment of a risk management system that would provide timely information and have a process to validate assumptions, models and the results of principle-based valuations.

During a discussion on the issue Lauzon noted that any guideline would need to cover items such as company governance, peer review, process method and assumption.

Several regulators and Paul Graham, a life actuary with the American Council of Life Insurers, Washington, said it would make sense to separate the valuation and nonforfeiture pieces of work on the project. Graham noted that possible tax issues related to the Standard Nonforeiture Law could slow the project down considerably.

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