Life insurers are sparring with regulators over a draft actuarial guideline that could affect issuers of variable annuities that come with guarantees.
Members of the Life & Health Actuarial Task Force at the National Association of Insurance Commissioners, Kansas City, Mo., are working on the draft of Actuarial Guideline VACARVM with representatives from the American Academy of Actuaries, Washington, and the American Council of Life Insurers, Washington.
The finished guideline is supposed to help insurers and actuaries implement the NAIC’s Commissioners Annuity Reserve Valuation Method for Variable Annuities.
In the latest draft, regulators have tightened some standards.
Regulators say they are simply trying to protect consumers, but insurers say the changes violate the spirit of efforts to move toward a “principles-based” approach to reserving.
Advocates of the principles-based approach want the insurance industry to rely less on static ratios and formulas and more on statistical modeling and actuarial judgment.
Tom Campbell, a life actuary with Hartford Life Insurance Company, Simsbury, Conn., and chair of the variable reserve working group at the AAA, says guideline draft issues that concern actuaries include contract holder behavior; the revenue-sharing mechanisms that mutual fund companies use to pay insurers for administrative and distribution services; and the level of conservatism expressed in requirements for the “conditional tail expectation,” or CTE.
- Contract holder behavior: New York regulators want insurers to assume in their models that policyholders will make the most efficient possible use of guaranteed living benefits.
But Mike Sparrow of Nationwide Financial Services Inc., Columbus, Ohio, says making accurate assumptions about contract holder behavior is difficult, because insurers still have little guaranteed living benefits experience.