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The American Council of Life Insurers will introduce several new proposals geared at advancing a principles-based reserving system during the winter meeting of the National Association of Insurance Commissioners in Chicago.

Other issues include how market conduct initiatives that the NAIC developed can be used to reduce the number of market conduct exams not initiated for cause, as well as the relationship of the National Insurance Producer Registry with the NAIC.

During the discussions on principles-based reserving, the ACLI will offer an interim reserve proposal that includes implementation of a revised 2001 CSO mortality table that will be split into preferred underwriting classes, says Paul Graham, ACLI vice president of insurance regulation and chief actuary. Those classes will include 3 non-smoker and 2 smoker classes, he explains. The discussion will take place at the Life & Health Actuarial Task Force of the NAIC.

The new table will bring relief to companies that write term products, Graham says.

In addition, ACLI will propose changes to Actuarial Guideline 38 that reduces a portion of reserving of UL with secondary guarantees, he continues. There would be no impact on term or whole life products with these changes, he adds.

As for the timetable for changes to the CSO Table, he says ACLI is hoping to see is an exposure period that would end with advancement through the NAIC’s LHATF and “A” Life & Annuities Committee in June 2006, followed by a September 2006 adoption by NAIC. This timetable, he explains, would make it possible for the changes to be brought before state legislatures for the 2007 legislative calendar.

The proposed changes to AG 38 are now completely supported by ACLI members, according to Graham. This differs from the previous discussion on AG 38 which did not have consensus, he continues.

The changes being advanced by ACLI have been examined to make sure there are no tax issues, Graham says. That does not mean tax issues might not come up in other proposals and discussions being advanced, he says, but ACLI plans to hold discussions with the Treasury department in 2006 to address any tax issues that do arise.

Dave Neve, co-chair of the universal life working group of the American Academy of Actuaries, Washington, will present the Academy’s final work product during the LHATF meeting on Dec. 1. Neve says the work will be presented in the form of a model regulation and 3 actuarial guidelines. The essence of the work is the same as in previous versions the Academy has been working on over the past year, he says.

Neve says the draft to be discussed in Chicago expands the scope of a principles-based solution to all individual life insurance products. The expansion follows a discussion with regulators prior to work on a revision, he explains.

Another point that will be discussed, he continues, is including the work under an actuarial standard of practice rather than as a regulation or an actuarial guideline.

The reason, Neve says, is that a principles-based approach will rest on the fundamental judgment of actuaries.

Market conduct work at the NAIC will also be activity that the ACLI hopes to weigh in on, according to Linda Lanam, ACLI vice president-annuities and market regulation.

During an anticipated discussion on the progress of NAIC’s market conduct program, ACLI intends to ask regulators how the work that has been done can be used to make market conduct regulation more efficient for companies, Lanam says. So, for instance, ACLI will ask how work such as market conduct analysis can reduce the number of market conduct examinations that companies currently experience.

Lanam distinguished between companies that receive market conduct exams in the regular course of business and companies that are specifically examined because of concerns over particular activity such as unexplained increases or decreases in business or a rise in complaints. She emphasizes that the ACLI is not proposing that states refrain from action against companies that have market conduct examinations called for cause.

Lanam says that anecdotally, she has been told of examinations that have cost companies between $100,000 to as much as $250,000. ACLI has not conducted a cost survey but may survey members to determine the number of examinations that they are experiencing, she continues. Examinations range from partial to comprehensive examinations, she explains.

A discussion over the independence of the National Insurance Producer Registry, a joint regulatory-industry body to oversee matters including producer fingerprinting, will also be broached during the NAIC meeting, according to Michael Lovendusky, ACLI’s associate general counsel.

The NIPR is envisioned as the body that would oversee storage of producer digital fingerprints and insurers do not want to see that function fully assumed by the NAIC, Lovendusky explains.

NIPR fees currently total $5 million in the NAIC budget, he adds. Over time, that total is expected to grow as the database is more widely used, he continues.

He says insurers would like to see it used more widely in conjunction with regulatory modernization. But, he adds, insurers also need to continue to maintain joint authority over that body.

Andrew Beal, NAIC general counsel, says that NIPR and NAIC remain separate operations. The NAIC is a Delaware-based 501c(3) organization while NIPR is a Missouri-based 501c(6) organization that is also a non-profit, he continues.

The fees received from NIPR are attributable to services that the NAIC provides for the operation of NIPR, Beal says. NAIC is in the process of working on a new licensing agreement with NIPR, he adds.

A decision by the NAIC was made months ago to keep the fingerprint repository under the auspices of the NAIC because of the confidential nature of the information being collected, Beal says. It was decided that to ensure this confidentiality, this information needed to be under NAIC authority, he adds.

ACLI will offer an interim reserve proposal that includes implementation of a revised 2001 CSO mortality table that will be split into preferred underwriting classes

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