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Sides Split On Direction Of Preferred Mortality Table

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Should actuaries develop an interim mortality table for preferred life insurance products or split the existing life mortality table into preferred and non-preferred tables?

Members of the Life & Health Actuarial Task Force at the National Association of Insurance Commissioners, Kansas City, Mo., are considering that question as they work on a proposed model regulation that would permit recognition of preferred mortality tables for use in determining minimum reserve liabilities.

The American Academy of Actuaries, Washington, and the Society of Actuaries, Schaumburg, Ill., are working on an interim preferred mortality table, and there are also plans to develop a new, permanent mortality table.

The American Council of Life Insurers, Washington, is asking actuaries to use an existing table as the basis for a new preferred/non-preferred split table.

The ACLI is promoting the creation of the split table as an alternative to the development of an interim table.

Instead of developing an interim table, actuaries should focus on developing a new permanent table that will incorporate a principles-based approach to reserving, the ACLI says.

The ACLI made the request Monday during an LHATF session.

The ACLI is recommending that the AAA be asked to develop a practice note to cover this topic and that the Actuarial Standards Board be asked to expand the scope of Actuarial Standard of Practice Number 40.

The draft regulation would refer to the practice note and the ASOP, and they would pave the way for the use of existing mortality data.

The LHATF is establishing a subgroup that will try to get ready to expose the draft actuarial guideline for public comment in early August.

Several regulators and one consumer advocate are raising questions about the draft regulation and also about the idea of referring to actuarial guidelines in a regulation.

New York regulator and life actuary Bill Carmello says he is “uncomfortable ceding what is our responsibility [to actuaries].”

“They can’t make the rules,” Carmello says. “If there are rules in a regulation, we need to make them.” The answer, he adds, is not to refer to an actuarial standard of practice, but to develop a guideline simultaneously with the draft regulation.

“I would not be comfortable at the thought of a guideline that would still have to be developed,” Carmello says.

Sheldon Summers, a California regulator, has written a memorandum expressing reservations about the ACLI proposal. He questions the use of lapse assumptions in the calculation of universal life reserves and the use of the 2001 CSO Table in what appears to be a principles-based way.

“Whereas, the choice of using a smoker and a non-smoker table is based on objective criteria, and that is whether someone smokes or not, the choice of using a preferred version of the split smoker or nonsmoker tables is based on the actuary’s judgment,” Summers writes.

“The ACLI proposal consists of allowing mortality assumptions to be principles-based without being subject to the various requirements that are being proposed for a principles-based approach,” Summers concludes.

Birny Birnbaum, an NAIC-funded consumer advocate and executive director of the Center for Economic Justice, Austin, Texas, is objecting to the idea of adopting a regulation without understanding the implications of internal references to a guideline.

The proposed regulation is “a bald attempt by industry to eliminate reasonable regulatory oversight” Birnbaum writes in a comment letter.

“It appears to us that LHATF is putting forth the American Council of Life Insurers … proposal with little regulatory input, guidance or comment,” Birnbaum writes.