As part of the effort to update the Standard Valuation Law in anticipation of moving to a principles-based reserving system, regulators and actuaries are currently developing a Valuation Manual to organize current reserving requirements for products.
Members of a subgroup of the National Association of Insurance Commissioners’ Life & Health Actuarial Task Force and the American Academy of Actuaries, Washington, are preparing a draft for discussion during the summer national meeting of the NAIC.
The draft covers points such as reserve guidance and templates for experience reporting, according to Mike Boerner, a life actuary and Texas regulator.
The LHATF work, as developed through its SVL II-subgroup, is being coordinated with NAIC accounting working groups so that reserving guidance in the Accounting Practices and Procedure Manual would ultimately defer to guidance in the Valuation Manual, according to the discussion.
A discussion on the inclusion of a credit life insurance standard in the revised SVL raised the issue of whether more flexible or more ‘hard coated’ language is preferable. While some regulators believe language should be more flexible so that future changes can be easily incorporated, others say some states have laws that reference older versions of mortality tables for this product, and consequently a change would have to be made in the law. The reason, according to Katie Campbell, a life actuary and Alaska regulator who is heading up the subgroup, is that a regulation cannot supersede a law.
A discussion about when the Valuation Manual will become operative and what level of state participation would trigger its implementation was put on hold because of an anticipated May 3 conference call of commissioners regarding guidelines on model implementation going forward.
The reason for the May 3 commissioner call is the track record for enacting models adopted by the NAIC in state legislatures. Since 1996, according to the discussion, only 3 of 35 models have been adopted in a uniform manner in more than 26 states.
During a recent panel discussion at the Life Insurance Conference, it was noted that the proposed change could entail a two-thirds vote by commissioners at the executive and plenary sessions for a model to be implemented as well as a pledge by commissioners voting for the model to introduce it in their respective legislatures (see National Underwriter, April 23).
The LHATF subgroup also had a discussion about whether the Valuation Manual would have to be completed or nearly completed and introduced along with an amended SVL draft, or whether a more bare bones version could be introduced and developed over time.
Regulators expressed differing viewpoints, with some, such as Kentucky, stating that a “fairly completed” version of the manual would be needed in order for the legislature to pass it, while others, such as Florida, said that if at least one product line in the manual could be completed, then additional product lines consistent with the initial manual could be added as they are developed.
During the discussion, Alaska’s Campbell said language would have to be flexible enough so that regulators would not have to go back to the legislature every time a standard was added to the manual.