NAIC Adopts Models On VAs, UL

It was good to hear regulators say there is still a lot of work to do before the project is complete, said Scott Harrison, executive director of Affordable Life Insurance Alliance, Washington. The guideline is an interim solution while work is done to complete a long-term solution, he adds.

It was also a positive that the C-3, Phase II RBC project was referenced as being consistent with the principles-based approach, Harrison says.

The C-3 project will have immediate implications for companies that sell products that are covered by it, Harrison says, but both the adoption of AG 38 and the C-3, RBC project signifies “a very strong commitment to move the NAIC in a direction for principles-based valuation.”

A “belt and suspenders approach” that resulted in inclusion of a minimum RBC requirement called the ‘standard scenario’ is something members would have preferred had not been included in C-3, Harrison continues. However, he also noted that regulators are taking an untested path and want to ensure that they are sufficiently conservative in their initial approach. During the discussion, he says, regulators indicated that the standard scenario was a temporary requirement until they become more comfortable with the approach.

“It was a compromise that everyone wanted,” says Scott Cipinko, counsel with Lord Bissell & Brook, LLP, and interim executive director of the Life Insurers Council, both in Atlanta. There was a realization that regulators wanted the issue addressed and this was a solution that everyone could agree to, he adds. Now companies will have to deploy resources to start changing their systems to incorporate disclosure requirements, Cipinko adds.

With regard to AG 38, Cipinko says regulators stepped up, addressed the issue and dealt with it quickly. However, he expressed some concern over the July 1 effective date of the regulation, saying it will require vigilance to ensure that the use of a retroactive date is not something that is regularly used.

More generally, Cipinko says insurers should be aware that the principles-based approach will not just affect Triple-X products but all products. “We are literally revamping the way that policies are written. It is important that everyone offer input in the process. It is like changing the rules of gravity. Everyone on earth is going to be impacted.”

The Small Face Amount Life Insurance Policies model act will require insurers to warn consumers about the date when premium payments for a small life policy will exceed the anticipated death benefits.

In states that adopt the model, sellers of small policies also will have to give purchasers of the policies 10 days to ask for full premium refunds.

‘A very strong commitment to move the NAIC in a direction for principles-based valuation’