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March 13, 2007 at 01:28 PM
Some New York officials have expressed skepticism about doing away entirely with traditional reserving formulas, but Eric Dinallo, the state’s acting insurance superintendent, says principles-based reserving is here to stay.
Principles-based reserving is “the future for the [life] industry to a large degree,” Dinallo said here during a welcome speech at the spring meeting of the National Association of Insurance Commissioners, Kansas City, Mo.
Dinallo ranked principles-based reserving with transparency and suitability as issues of great importance to the New York State Insurance Department.
Advocates of principles-based actuarial reserving want to move away from reliance on simple, static formulas and minimum reserving levels for insurance products. Instead, insurance companies would rely on actuaries to set reserving levels by developing and testing customized statistical models to show how products might perform under a wide range of conditions.
Donna Claire, a life actuary who is spearheading principles-based reserving efforts at the American Academy of Actuaries, Washington, said at the spring meeting that her team might have a good draft of the Valuation Manual, a key component of the principles-based reserving project, ready in time for the NAIC’s June meeting.
The team could have a new Standard Valuation model law draft ready by the end of the year, and it could have the C-3 capital component ready by the end of 2008, Claire said.
But regulators continued to bring up old questions about principles-based reserving and raise new questions here during at Life & Health Actuarial Task Force session.
Actuaries are just starting to talk with officials at the U.S. Treasury Department about the tax implications of a major shift in reserving methods, according to Dave Neve, co-chair of the AAA’s life reserves working group.
