A “geography of law” needs to be developed so that it is clear how principles-based reserving fits into a new Standard Valuation Law, says Larry Bruning, a Kansas regulator who is spearheading an effort by the National Association of Insurance Commissioners to change the law.
Mapping that geography entails answering a host of questions, he says. They include: how to ensure sound oversight; whether changes should be by law, regulation or other form of guidance; whether changes should be applied to products that are written after enactment of a change or all products; and how to ensure uniformity, discussions among regulators and actuaries during the NAIC’s SVL II subgroup of the Life & Health Actuarial Task Force suggests.
Bruning says that basic questions need to be answered in order to have a clear direction over how to proceed. Among the questions, he cited, are: what is the purpose of the law; who will monitor it; and, what remedies are there for cases of noncompliance.
Related issues, he continued, are whether a valuation actuary’s work is just accepted, whether there is peer review, and if there is regulatory review, is that in the state of domicile or the state of filing.
Starting with business going forward and then bringing in existing business over time, said Sheldon Summers, a life actuary with the California insurance department. “Since this is so new, we may not want to apply this all at once,” he added.
Achieving uniformity in the law will also be an important point, according to Summers. And, added Bruning, uniformity includes both uniformity of adoption as well as uniformity in compliance with the changes to the SVL.
In order to facilitate uniformity, John Bruins, a life actuary with the American Council of Life Insurers, Washington, suggested the development of a valuation manual which could become a technical basis for uniform adoption.
The idea of a valuation manual was first suggested by Summers over two years ago when the issue of uniformity became an important one at the NAIC.
During the discussion, it was suggested that the actuarial guidelines and regulations could conceivably become part of the manual and become part of the NAIC’s accreditation process. States go through an accreditation process developed by the NAIC to make sure that they are compliant with financial and market conduct oversight standards.
Bill Weller, a health actuary, asked whether it was contemplated that health reserves would also be amended to be consistent with a new SVL. “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 D.I. in particular,” he added.
Among the points raised during the discussion was the creation of a system that uses independent actuaries similar to accountants who audit financial statements.
It is critical if this new approach is to work that there be uniformity, according to Joe Musgrove, director of the life and health division of the Arkansas insurance department. Without uniformity, he continued, companies could go “scurrying around from one state to another” seeking a state with a version of the SVL that it prefers. “We need to adopt a national standard and adhere to it.”
There needs to be inclusion of something in any new law in addition to a manual and peer review that would ensure governance, according to Denis Lauzon, a New York regulator. This is needed in order for regulators to “take comfort that companies are structured to manage risk since that is what we are turning over to them.”
Mike Batte, a New Mexico regulator and LHATF co-chair, suggested
Notes from meeting