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NAIC OKs Guarantee Proposals

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Members of the National Association of Insurance Commissioners today approved measures that will affect standards for variable annuities with performance guarantees, universal life policies with guarantees, and life insurance policies with small face amounts.[@@]

The NAIC, Kansas City, Mo., dealt with the measures during an executive committee meeting and a “plenary meeting,” or meeting of all member commissioners, held on a conference call.

The NAIC had hoped to address the issues during its fall meeting, but the meeting was scheduled to take place in New Orleans, and Hurricane Katrina forced the cancellation of the meeting.

The VA measure approved, a product of the C-3 Phase II project, will establish a modeling approach for risk-based capital requirements for VA product guarantees.

The new RBC modeling approach will combine use of a traditional “standard scenario” with a more flexible, “principles-based” approach to analyzing exposure to risk.

Lou Felice, a New York regulator and chair of the NAIC’s Capital Adequacy Task Force, said the inclusion of a standard scenario will continue to create a minimum RBC requirement.

The standard scenario requirement will help maintain enough conservatism to satisfy regulators while regulators learn more about the new approach to analyzing risk, Felice said.

The American Academy of Actuaries, Washington, is developing another C3-Phase II measure that will affect VA guarantee reserves.

Actuarial Guideline 38, another measure adopted, is supposed to tighten the rules for calculating the amount of reserves needed to back UL products that come with performance guarantees.

Some insurers are pushing for adoption of a flexible, principles-based approach to calculating UL guarantee reserves.

The AG 38 measure just adopted is a temporary solution that could be replaced by a permanent, principles-based solution, regulators said.

Another model that passed today, a 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.