An arm of the National Association of Insurance Commissioners is seeking comments on a report that could lead to changes in reserving rules for life and annuity products.
The Life Risk-Based Capital Working Group, part of the Financial Conditions Committee at the NAIC, Kansas City, Mo., says it is exposing the C-3 Phase III proposal from the American Academy of Actuaries, Washington, for 60 days.
The C-3 Phase III project is an effort to apply the “principles-based approach” to calculating the “C-3″ component – or interest-rate and market-risk component – of life insurance product reserves.
Advocates of a principles-based approach to reserving want to shift toward reliance on general principles, modern statistical forecasting methods and actuarial judgment, and away from reliance on static formulas.
The C-3 Life and Annuity Capital Work Group, part of the AAA, “is working on a proposal for a single C3 framework that covers interest rate risk and market risk for both life insurance and annuities,” the AAA work group says in a report presented to the NAIC’s Life Risk-Based Capital Working Group earlier this month at the NAIC’s spring meeting. “It is envisioned that, in the future, C3 risk for both life and annuities will be determined under a single combined framework, perhaps with separate nuances within that framework that reflect product differences.”
The new version of the report is similar to a draft presented in September 2008, but some of the terms are more similar to those used in another document, the NAIC Requirements for Principles-Based Reserves for Life Products, or VM-20, and another document, VM-01, that defines the terms used on VM-20, the AAA work group writes in the introduction to the new report.