Regulators are trying to narrow the set of concerns that is delaying the advancement of an actuarial guideline that establishes reserving requirements for variable annuities with guarantees.
During the spring meeting of the National Association of Insurance Commissioners here, regulators discussed the possibility of advancing the model out of the Life & Health Actuarial Task Force either by the summer meeting or later this fall. The timing depends on how quickly accord can be reached on issues including the use of a standard scenario along with stochastic modeling envisioned in the model. Other issues that were broached included revenue sharing, and the inclusion of an option pricing floor requirement into the standard scenario. Stochastic modeling is a system that creates many iterations of possible outcomes in order to get a sense of the risk in a product and in its guarantees. The standard scenario is a proposal developed by the New York insurance department that creates a reserving floor.
AG-CARVM is an attempt to create guidelines that incorporate more flexible stochastic modeling that create an ease of mind among regulators that guaranteed death and living benefits have sufficient reserves.
The reserving for these products follows risk-based capital requirements that were put in place at the end of 2005. The reserving component is currently being developed by the American Academy of Actuary’s Variable Annuity Reserve working group, headed by Tom Campbell, a life actuary with Hartford Life Ins. Co., Simsbury, Conn.