Work continues on a new draft of the Standard Valuation Law, with the intent to advance the project by December, according to a discussion among regulators during a conference call of the National Association of Insurance Commissioners, Kansas City, Mo.
The SVL is the backbone for valuing and reserving for life insurance products. A revised SVL will also play an important role as regulators try to put the new principles-based reserving project in place.
The current work is being conducted by a subgroup of the NAIC’s Life & Health Actuarial Task Force. The subgroup’s chair, Katie Campbell, a regulator with the Alaska insurance department, says the subgroup’s goal is to have the draft adopted by LHATF at the December NAIC meeting. The draft would then have to move through the NAIC process and be adopted by the NAIC’s executive committee and plenary before becoming a fully-endorsed NAIC model.
The December timeframe would make it possible to make the changes available for states’ legislative processes in 2008, Campbell explained.
The current exposure draft includes a recently inserted Section 11, which details standards prescribed in the valuation manual, what the valuation manual must specify, the operative dates of the valuation manual, and what companies that are using a principles-based valuation must do. For example, a company would be required to “use assumptions that are set toward the conservative end of the range of plausible scenarios, to the extent that relevant and credible empirical data over the range of plausible scenarios is not available.”
One of the issues discussed was whether there should be a transition period between when the revised Standard Valuation Law is adopted and principles-based reserving and the risk-based capital components of the new system start to be implemented.
Regulators generally supported the concept of a phased-in approach. A period of transition would give both states and companies time to gear up, according to John Rink, a Nebraska regulator.
Alaska’s Campbell noted that when the 2001 CSO Tables were implemented, there was a phase-in period.
One possibility would be to phase products into the new system, added Sheldon Summers, a California regulator.
Additionally, Larry Bruning, a Kansas regulator and LHATF chair, suggested that a transition could take place over a 3-year period.
Another discussion focused on whether actuarial tables would have to be put in place by regulation or whether they could simply be approved by a state’s commissioner.
Mike Bohner, a regulator in Texas, said that by adopting the Valuation Manual, a state would also be adopting actuarial tables since they would be in the manual.