The principles-based reserving project may be experiencing a hiccup, according to authorities speaking at the spring meeting of the National Association of Insurance Commissioners here.

Actuaries, regulators and insurers continue their work on the effort. However, a CEO compromise reached by top executives of the American Council of Life Insurers, Washington, is at a delicate point, according to discussions held at the NAIC’s “A” Committee meeting. The compromise, reached in April 2005, stated a new system should include development of preferred mortality tables and incorporate lapse rates into the reserving calculation for universal life with secondary guarantees.

Before the compromise, the industry had been engaged in a fractious argument over Actuarial Guideline 38 and how it should be enforced. But intervention by commissioners, commitment from the American Academy of Actuaries, Washington, and the CEO compromise helped direct these different stake holders toward the principles-based approach.

During the Life & Health Actuarial Task Force meeting, regulators asked actuaries to review preferred actuarial tables developed by the ACLI. But the hiccup is the use of lapse rates in the reserving formula. The LHATF did not support the use of the lapse rates in the formula.

North Dakota Insurance Commissioner Jim Poolman, chair of the “A” Committee, directed regulators to find a solution.

“If the lapse piece does not work, then find something that does,” he said. “The lapse rate piece won’t look the same but will meet the necessary timelines.”

Paul Graham, an ACLI life actuary, said there is no substitute solution at this point but one will be developed because of the project’s importance.