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Life Health > Life Insurance

Small Insurers Seek Better Reserving Rule Fit

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Actuaries are looking for ways to tailor the new “principles-based approach” to their art to suit the Davids of the insurance industry as well as the Goliaths.

Speakers talked about applying the principles-based approach to reserving to smaller companies during two recent Webcasts.

One of the discussions was presented by the American Academy of Actuaries, Washington, and the other by the Affordable Life Insurance Alliance, Washington.

During the AAA Webcast, speakers reaffirmed the group’s commitment to developing a principles-based approach by December.

Speakers also reviewed changes requested by smaller insurers that were incorporated in drafts of a model regulation and actuarial guidelines exposed for comment during the fall national meeting of the National Association of Insurance Commissioners, Kansas City, Mo.

One change was an added option for a state to exempt a form or product from the principles-based reserve calculation, and another has clarified that a simplified approach to determine the net asset earned rates can be used, speakers said, according to a written version of the Webcast.

A third would allow a company to increase the required minimum deterministic reserve, a component of the overall reserving requirement, in order to meet the stochastic modeling exclusion, speakers said.

During the ALIA Webcast, participants talked about the possibility that the new system would work against the interests of smaller insurers, because meeting credibility requirements would be too difficult for insurers with small actuarial staffs.

Small insurers would have to hire more actuaries, Webcast participants said.

In some cases, small companies might not receive reserving credit for meeting the requirements in a new principles-based system, the participants worried.

Larry Bruning, chief actuary with the Kansas insurance department and a co-chair of the Life and Health Actuarial Task Force at the NAIC, said the challenge for insurers of all sizes comes down to efforts to compare asset and liability cash flows.

If a company is performing asset adequacy analysis, the essentials for principles-based reserving should be in place, Bruning said.

Other participants countered that, while all companies perform mortality studies, the need to model policyholder behavior and perform other tasks required by a principles-based approach would create additional work for small insurers.


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