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Life Health > Life Insurance

Annuity Guideline Exposed For Adoption

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After nearly a decade of re-writes, a model guideline, AG VACARVM, which establishes reserving requirements for variable annuities with guarantee provisions, has been exposed for possible adoption.

The vote was taken here during a meeting of the Life & Health Actuarial Task Force during the fall meeting of the NAIC.

The exposure comes after regulators were urged by Tom Campbell, the long-time chair of the Washington-based American Academy of Actuaries VA CARVM work group and a life actuary with Hartford Life, as well as the American Council of Life Insurers, that the model be exposed and ultimately adopted so that what they believe is more effective regulation would be in place when a sunset provision of Actuarial Guideline 39 is triggered on Jan. 1, 2008.

AG 39, a temporary guideline for reserving of annuities with guarantees, was adopted in 2002 for a 2-year period and then renewed for more than 2 years.

A number of regulators argued during the Life & Health Actuarial Task Force that since AG VACARVM is a principles-based proposal it might be better to include it in the development of a valuation manual that will be a guide to principles-based reserving, should that reserving approach be adopted.

But Hartford Life’s Campbell countered that it would be best to adopt a better proposal.

“AG 39 doesn’t work,” said John Bruins, an ACLI life actuary. Although, he said that VA CARVM is a principles-based approach to reserving, Bruins added that immediate action is needed.

Fred Anderson, a New York regulator, suggested waiting until after the law changes because there is not yet a structure in place. New York proposes, he said, to use the Academy document and temporarily strengthen a standard scenario which creates a minimum reserving floor until regulators see fit to relax it in the future.

ACLI’s Bruins suggested that if AG VACARVM could not be made effective in early 2008, then the following changes should be made to AG 39, so that regulation reflecting the current market will be in place. Such changes would include a quarterly release of 2.5% of the accumulated reserve for reporting quarters beginning Jan. 1, 2008. Accumulated charges net of this release trigger would be subject to asset adequacy analysis.

If AG VACARVM is not adopted in early 2008, ACLI plans to recommend modifying AG 39 to allow credit for more forms of reinsurance and credit for hedging programs.

Nebraska regulator John Rink asked “when is someone going to come to the plate and get this finished?” He offered a motion to have a final extension to Jan. 1, 2009, but it was not seconded.


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