The National Association of Insurance Commissioners may need a reserve valuation office that would be similar to the NAIC’s securities valuation office.[@@]

Larry Bruning, chief actuary with the Kansas Insurance Department, and other speakers discussed that possibility during a recent Webcast sponsored by the Affordable Life Insurance Alliance, Washington, that focused on the concept of “principles-based” reserving.

The NAIC, Kansas City, Mo., and the American Academy of Actuaries, Washington, have been working on principles-based reserving efforts that could end up reducing the industry’s reliance on static formulas for setting minimum reserve levels. Instead, insurers and regulators would rely on actuaries’ judgment and use of statistical forecasting techniques.

In addition to the “RVO” proposal, Webcast participants talked about the possibility of using the current individual state filing system for actuarial attestations and a “state of domicile” approach, which would require insurers to file reserve valuation information with their home state insurance departments.

Yet another strategy might be to make a reserve valuation body part of an “interstate compact” that the NAIC is organizing, Webcast participants said. The NAIC needs to sign up 26 states before it can set up the interstate compact. At this point, 20 states have agreed to join the compact.

Any governance process adopted would have to work to achieve the goals of principles-based reserving, including identifying risks, performing proper sensitivity testing and providing extensive documentation of how actuarial assumptions were developed, Bruning said.

Burning said setting up a successful governance process could eliminate state filing variations, reduce regulatory resource requirements in poorer states, reduce insurers’ filing costs, and increase the amount of expertise that could be applied to evaluating actuarial filings.