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Insurers May Accept Simple Annuity Guarantee Floor

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Regulators are still hoping to move a draft of Actuarial Guideline VACARVM out of the Life & Health Actuarial Task Force sometime this summer or fall.

The actuarial guideline would affect reserving practices for variable annuities that come with guaranteed death benefits and guaranteed living benefits.

Discussion here at an LHATF session at the spring meeting of the National Association of Insurance Commissioners, Kansas City, Mo., focused on the lingering debate about whether to include a traditional “standard scenario” in the guidelines, in addition to reliance on stochastic statistical analysis methods and actuarial judgment.

Stochastic modeling is a method for using hundreds or thousands of possible scenarios to assess how a product or product feature might perform under a wide range of conditions.

The New York State Insurance Department has developed the standard scenario proposal to create a floor for VA guarantee reserves.

The life insurance industry supports a standard scenario, but the standard scenario adopted must be a simple, tax-friendly floor, according to John Bruins, a life actuary with the American Council of Life Insurers, Washington.

It is a “major issue” for insurers that reserves remain tax deductible, Bruins said.

Bruins also emphasized the importance of simplicity.

Although capital filings are completed annually, reserving would be conducted quarterly, and insurers would have little time to complete their filings, Bruins said.

The more complicated a filing is, the more time both companies and regulators will have to spend preparing and reviewing it, Bruins said.

William Carmello, a life actuary with the New York department, said prudent use of stochastic modeling should lead to more security than reliance on a standard scenario, but he said features such as an option floor, which uses an option to create another level of safety, could also provide important protection.


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