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Life Health > Life Insurance

Principles-Based Movement Takes On Valuations

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Regulators at the National Association of Insurance Commissioners and outside actuaries are starting to decide how to apply the flexible, principles-based approach to actuarial work to a new life policy Standard Valuation Law.

Larry Bruning, a Kansas regulator who is leading efforts by the NAIC’s SVL II panel to change the law, says the work involves seeking answers to a number of basic questions, including:

- What is the purpose of the revised law?

- Who will monitor compliance?

- What will the remedies be for cases of noncompliance?

- Will there be peer review of actuaries’ work?

- Will any regulatory reviews that occur take place in the state of domicile or the state of filing?

The effort eventually could lead to changes in the rules for health reserves as well as life reserves, according to Bill Weller, a health actuary.

“It does seem that if there is going to be a valuation manual, that there may need to be consideration over how to deal with life-like health lines, long term care and [disability insurance] in particular,” Weller says.

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.


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