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Regulators Advance Several Issues

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Regulators adopted motions on several issues including an interim solution on reserving for universal life products, release of a draft on life settlement guidelines, and agreement on a definition for hybrid securities.

The actions were taken in preparation for the fall meeting of the National Association of Insurance Commissioners, which takes place Sept. 9-12 in St. Louis.

The Life and Annuities “A” Committee adopted a package that included Actuarial Guideline 38 for UL products with secondary guarantees. The proposal uses lapse support assumptions in establishing reserves. The package, developed with assistance from the American Council of Life Insurers, also includes splitting the current 2001 CSO mortality table in order to create preferred mortality tables.

Jim Poolman, North Dakota insurance commissioner and chair of the “A” committee, added two provisions including a Dec. 31, 2010 sunset in anticipation of development of a full-fledged principles-based reserving system. He also included a proposal to include asset adequacy testing to give regulators greater comfort that there was enough conservatism in the provision.

The motion was adopted and will in all likelihood go before the executive and plenary committee in St. Louis.

The measure was adopted by the Life & Health Actuarial Task Force on Aug. 29 amid concern that lapse-supported assumptions are not consistent with the Standard Valuation Law and that it would have been preferable to wait 3-6 months until new preferred mortality tables were developed with newer data. During the call, the issue of “political expediency” versus actuarial science was raised.

Poolman also released a draft of proposed amendments to the Viatical Settlement Model Act, which include a 5- year moratorium on entering into a viatical settlement contract after a policy is issued.

Poolman says the draft he developed can be used to advance discussion in St. Louis.

Additionally, the hybrid RBC “E” working group adopted a definition of hybrid securities that will be used when it reviews various short-term scenarios that can be put in place until a long-term hybrid securities decision is made.

The group, under the direction of Lou Felice, a New York regulator, agreed to a “broader” definition of hybrid securities, choosing 1 of 3 options. The definition, as voted by the group, was amended to exclude perpetual preferred securities and surplus notes.

The definition states that hybrid securities are those securities accorded some degree of equity treatment by one or more nationally recognized statistical rating organizations or which are recognized as regulatory capital by the issuer’s regulatory authority. The definition excludes subordinated debt issues with no coupon deferral features and “traditional” preferred stocks.


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