State insurance regulators are starting long-planned efforts to write a model act that could create a principles-based reserving system.[@@]
Mike Boerner, a Texas regulator, is leading the team that is writing the draft, and members of the draft team updated other regulators on the team’s progress at a recent meeting of the Life & Health Actuarial Task Force of the National Association of Insurance Commissioners, Kansas City, Mo.
Drafting is far enough along that Thomas Rhodes, actuarial director of MIB Group Inc., Westwood, Mass., has asked the NAIC for $500,000 in 2006 funding to cover the cost of the actuarial experience studies needed to support work on the model.
Advocates of a principles-based approach to calculating life insurance company reserves say it would put more emphasis on reserving principles, rather than on static formulas, in efforts to calculate solvency reserve requirements.
Company actuaries would have to exercise more judgment when coming up with the assumptions used in reserving calculations.
Critics of the principles-based reserving effort wonder whether a shift could lead to problems with insurer solvency, but supporters say a shift would increase life insurers’ flexibility and help life insurers use capital more efficiently.
The current model draft, dubbed the principles-based law, would apply to annuity issuers, health insurers and life reinsurers as well as to direct writers of life insurance.
The draft emphasizes that state insurance commissioners would continue to have the authority to determine valuation requirements.