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CFOs Worry About Principles-Based Reserving

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North American life insurance company chief financial officers say they have mixed feelings about a likely shift in regulation of insurers’ reserves and capital levels.

Researchers in the Stamford, Conn., office of Tillinghast, a unit of Towers Perrin Inc., have published that finding in a report based in an informal survey 25 North American life company CFOs.

State regulators have been working to move toward a flexible, “principles-based” approach that will rely heavily on statistical modeling methods, and away from relying on simple formulas for computing minimum reserve and capital levels.

Although 80% of the Tillinghast survey participants said they favor the shift to principles-based regulation, only 37% said they like the way the framework is currently being implemented.

About 80% of the participants say the shift will create opportunities for insurers to use the new flexibility to manipulate the system, and about 80% say the shift may increase the difficulty of comparing results for one company with results for another company, according to Tillinghast researchers.


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