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Life Health > Life Insurance

ACLI Briefs Treasury On New Approach To Reserving

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Actuaries at the American Council of Life Insurers are talking to Bush administration officials about efforts to modernize U.S. life and annuity reserving rules.

Paul Graham, a life actuary with the American Council of Life Insurers, Washington, described the talks here at the fall meeting of the National Association of Insurance Commissioners, Kansas City, Mo., at a Life & Health Actuarial Task Force session.

The session focused on efforts to shift to flexible, “principles-based reserving” methods that rely on modern statistical forecasting techniques, rather than relying on unchanging formulas.

In the past, life insurance tax experts have suggested that life insurers and life industry regulators should proceed carefully with efforts to rewrite reserving rules to avoid disrupting tax rules based on the existing reserving rules.

The ACLI has been working with U.S. Treasury Department officials by providing information about AG VACARVM, a proposed reserving guideline for variable annuities with secondary guarantees and about various principles-based reserving proposals that would affect life insurance products, Graham said.

The ACLI has been explaining how the proposed rules would be different from the current rules and how the rules for variable annuities would be different from the rules for life insurance policies, Graham said.

The Treasury Department already has a good handle on principles-based reserving efforts and expects that it soon will offer feedback on the proposed changes, Graham said.

In other developments at the LHAFT session, regulators said they still have concerns about efforts to apply the principles-based reserving approach to life insurance reserves.

When LHATF Chair Larry Bruning, the Kansas chief actuary, asked regulators here at the session which of them would adopt the current life reserve working group reserving proposal now, as is, no regulators raised their hands.

Some regulators said they want to know more about how a shift might affect small and midsize companies, and some said they want to feel more comfortable about how matters such as discounting and reinsurance might be handled.

Other regulators said they want to know whether reserving would be based on individual lines of business or aggregated business.

New York insurance regulators, who traditionally have supported the idea of at least temporarily sticking with standard formulas for calculating minimum reserve levels, said they would like to run the new system alongside the current system until they are comfortable with both.


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