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Regulators Talk About PBR Nuts And Bolts

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Should principles-based reserving permit regulators to look at the riskiness of an individual block of business, or should regulators have to look at an insurance company as a whole?

The subject of aggregation came up recently when members of the Life & Health Actuarial Task Force at the National Association of Insurance Commissioners, Kansas City, Mo., talked about a Valuation Manual that would help insurers and others implement a revised Standard Valuation Law.

Advocates of a PBR system want regulators, insurers and others to move toward relying on basic financial principles, actuarial judgment and statistical modeling methods, and away from the traditional reliance on detailed reserving rules and static reserving formulas.

Revising the Standard Valuation Law is an important step in shifting the U.S. insurance industry toward a PBR system.

Breaking down PBR analysis by block of business would help regulators audit an insurer’s filings, according to Fred Andersen, an actuary with the New York State Insurance Department.

Representatives for insurers contended that, in some cases, looking at total risk exposure might be more appropriate.

If a high interest rate environment hurts one product line but helps another product line offered by the same company, looking at each line separately could lead to an unnecessarily conservative approach to reserving, industry reps said.