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February 15, 2007 at 12:25 PM
If and when states adopt a flexible, principles-based approach to reserving, some products may come under the reach of the new system earlier than others.
Members of the Life & Health Actuarial Task Force of the National Association of Insurance Commissioners, Kansas City, Mo., talked about the possible timing of principles-based reserving compliance during a recent conference call.
The new reserving system could apply to all life products right out of the gate. But the system could be phased in, with some products coming first and other products added later, according to Pamela Hutchins, chief actuary of Government Personnel Mutual Life Insurance Company, San Antonio.
Task force members talked about several different ways to phase in use of a principles-based reserving system.
1. Regulators could decide what products must conform first to the principles-based reserving framework now being developed by the life reserve working group at the American Academy of Actuaries, Washington.
Sheldon Summers, a California regulator, and Mike Bohner, a Texas regulator, asked with dividing line regulators would use to make such a determination.
2. Insurance company actuaries could choose to avoid the complexities of meeting principles-based system standards by developing, and justifying, simplified reserving approaches for particular products.
3. An insurance company could get an initial actuarial opinion classifying its products as being best matched with formulaic, deterministic or stochastic reserving approaches.
The formulaic approach – the approach used today – would fit with simpler products.
