The National Association of Insurance Commissioners has updated the Standard Valuation Law to reflect “principles based” reserving ideas.

Members of the NAIC, Kansas City, Mo., approved the changes at a joint session of the group’s executive committee and its plenary, a group that includes all voting members of the NAIC.

The NAIC held the session at its fall meeting in National Harbor, Md.

The SVL is a model that states can use when setting standards for life reserve calculations. If the proposed revisions are approved, the SVL would embody a “principles-based” approach to calculating reserves.

Advocates of principles-based reserving want life insurance reserving decisions to be based on modern statistical forecasting techniques and sound actuarial judgment, rather than on static formulas.

Members of the NAIC’s Life Insurance and Annuities Committee endorsed the proposed SVL revisions Sept. 9.

Before the SVL revisions can have much effect, the NAIC must change the Valuation Manual used by actuaries to interpret the SVL when set reserves.

To implement the SVL revisions and any Valuation Manual changes, individual state regulators and legislators must change the laws and regulations in their jurisdictions to reflect the NAIC’s recommendations.

The SVL changes made this week will increase reserve requirements for some benefits, options and guarantees that involve significant risks, but previously had little or no reserves required under static formulas, NAIC officials say.

The changes also will reduce what insurers’ believe to be excessively conservative reserves for other products, officials say.

Regulators have been working on the SVL changes since 2004, and officials say work on the Valuation Manual changes could be completed by the end of the year.

Critics of principles-based reserving have argued that some insurers may use the flexibility of a PBR system to cut reserves to unrealistically low levels.

NAIC President Roger Sevigny, the New Hampshire insurance commissioner, says in a statement that encouraging use of sophisticated risk-analysis techniques will encourage insurers to “better capture the various risks inherent in establishing adequate reserves.”

“Modernizing these methods provides regulators with better tools to protect insurance consumers,” Sevigny says.