Principles-Based Movement Takes On Valuations

Corporate governance may be another key concern if actuaries and insurers are to succeed at reducing reliance on static formulas.

Regulators want to “take comfort that companies are structured to manage risk, since that is what we are turning over to them,” says Denis Lauzon, a New York regulator.

State-to-state uniformity is also an important concern, says Joe Musgrove, an Arkansas life actuary and regulator. Without uniformity, companies could go “scurrying around from one state to another” seeking a state with the version of the SVL that it prefers, Musgrove warns. “We need to adopt a national standard and adhere to it.”

Sheldon Summers, a life actuary with the California Department of Insurance, suggested the creation of a valuation manual 2 years ago, when the issue of uniformity began attracting more attention at the NAIC.

John Bruins, a life actuary with the American Council of Life Insurers, Washington, says the development of a valuation manual could become the technical basis for uniform adoption.

The NAIC could accelerate adoption of the valuation manual by making state use of the manual part of the NAIC accreditation process, regulators say.

“Since this is so new, we may not want to apply this all at once,” Summers says.

Summers recommends that regulators apply a principles-based valuation approach by starting with new business and then bringing in existing business over time.