Close Close

Life Health > Life Insurance

Task Force To Release Reserving Proposals

Your article was successfully shared with the contacts you provided.

A National Association of Insurance Commissioners panel is ready for public feedback on 2 long-running efforts to update life and annuity actuarial standards.[@@]

Members of the panel, the Life and Health Actuarial Task Force, voted 8-4 at a meeting here to expose a draft of an actuarial guideline that deals with reserves for variable annuities with living benefits for public comment.

That draft, which incorporates the work of the American Academy of Actuaries, Washington, and the American Council of Life Insurers, Washington, would emphasize use of “stochastic models,” or models that show how benefits guarantees would work under a wide variety of circumstances. The draft would shift the industry away from use of static formulas for setting minimum reserve levels.

When members of the LHATF approved exposure of the VA guarantee reserve for public comment, they left out a proposal by New York regulators to use a “standard scenario” to set a floor for VA guarantee reserves.

The ACLI and some insurers have objected to the possibility that adopting New York’s standard scenario approach might make the resulting model too conservative and too hard to use.

An executive at Life Investors Insurance Company of America, Cedar Rapids, Iowa, has written a comment letter suggesting that adopting the New York standard scenario approach would require the calculation of a capital markets option cost for embedded guarantees.

That cost calculation requirement “is particularly troubling since it assumes the ease of being able to determine the fair market value of option costs driven by mortality rates, highly complex policyholder behaviors, and offsetting revenue streams,” the Life Investors executive writes.

In related news, members of the LHATF voted 12-1 here to expose the work of the life reserve working group at the American Academy of Actuaries on efforts to move away from use of static formulas in setting life insurance reserves, toward use of a more flexible, “principles-based” approach that would depend more heavily on the judgment of the actuaries setting the reserve levels.

The life reserve working group originally was focusing on universal life policies with secondary guarantees, but the working group recently has expanded its focus to include all individual life products.

The life reserve working group is considering the possibility of creating an actuarial standard of practice rather than a regulation or actuarial guideline. The group also is looking at methods used to determine earned rates and discount rates.

The LHATF also saw a presentation about an ACLI plan to use existing Commissioners Standard Ordinary mortality tables to create new preferred and standard risk classes.

Michael Taht, a life actuary in the Atlanta office of Towers Perrin-Tillinghast, said the plan would split the existing 2001 non-smoker CSO Table into super preferred non-smoker, preferred non-smoker and residual standard non-smoker.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.