Work on the fundamental underpinnings of a system of principles-based reserving continues so that state insurance regulators can actually begin to move the project toward completion later this year.
Among the work is a review of the Standard Valuation Law, the creation of a statistical agent to meet a new regulation allowing companies to use preferred mortality tables and a review of how reinsurance guidelines would be incorporated into a new Valuation Manual that is being developed for PBR. The work is currently being discussed by members of the Life & Health Actuarial Task Force of the National Association of Insurance Commissioners, Kansas City, Mo.
One area of discussion on Jan. 31 was VM 50 and 51, pieces of the proposed Valuation Manual that address the creation of statistical agents to manage data required by regulation.
The requirements of a new model, Regulation 815, permit the use of mortality tables that reflect differences in mortality between preferred and standard lives in determining minimum reserve liabilities. The model took effect on Jan. 1, 2007 and has been enacted in roughly 40 states.
As part of this new model, insurers are required to file annually with the commissioner, the NAIC or a statistical agent, statistical reports showing mortality and other information deemed necessary by the commissioner to meet the requirements of the regulation.
Regulators and industry continue to discuss how to do this efficiently and in a way that companies can provide data seamlessly if PBR becomes effective. The Jan. 31 discussion centered on whether the NAIC could put out request for proposals for statistical agents that individual states could use in an effort to create efficiency and uniformity. The conclusion was that because of individual state requirements; this would be difficult and probably not possible.
However, the possibility of the NAIC creating a methodology for establishing approved statistical agents similar to the Insurance Services Office, Jersey City, N.J., or the MIB, Braintree, Mass., which states could then contract with, was also raised.
Different states are at different places in their collection of data. For instance, New York is near finalizing an RFP and is on target to collect all necessary mortality data in 2008, according to Fred Andersen, a New York regulator.
Industry representatives voiced concern that they would be required to provide data to multiple statistical agents as well as to the Society of Actuaries, Schaumburg, Ill. They urged regulators to make sure that data could be filed with one agent for different statistical studies, such as one for life and one for property-casualty insurance. However, they also said that they wanted to be able to have a choice of statistical agents with which a company could contract.
Regulators also asserted that whatever system was ultimately put in place would need to allow regulators to access data. John Bruins, an actuary with the American Council of Life Insurers, Washington, said that for exam purposes regulators always have the right to ask a company for data, but that they should ask for it directly rather than through a statistical agent. When pressed to offer a reason, Bruins cited the construction of law in most states and also noted that it would allow for better protection from Freedom of Information requests.
Tom Rhodes, a representative with MIB, said the system should be established so that statistical agents do not inadvertently get caught in the middle of such a request.
Another part of the Valuation Manual that received discussion is VM 20 and how it will impact reinsurance.
The effectiveness of modeling in assessing actual risk transfer was one concern raised by regulators during a discussion of Section 20 of the proposed Valuation Manual being developed as a piece of PBR.