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Life Health > Life Insurance

NAIC Panel Prepares To Test PBR Manual

By Allison Bell

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The National Association of Insurance Commissioners is getting ready to alpha test a new, possibly more flexible approach to setting and assessing life insurance company reserves.

The Life and Health Actuarial Task Force at the NAIC, Kansas City, Mo., has prepared for the arrival of the NAIC Valuation Manual, which will reflect a principles-based reserving philosophy, by creating a PBR Testing Subgroup.

The testing subgroup will advise the NAIC’s Principles-Based Reserving Working Group and the Life Insurance and Annuities Committee, officials say.

The NAIC helps state insurance regulators develop and standardize insurance regulations and legislative proposals.

Advocates of a PBR approach want insurers and regulators to make more use of actuarial judgment and modern statistical forecasting methods when setting reserves, and less use of static, one-size-fits-most formulas.

Advocates say a PBR approach would force insurers to think harder about their reserves and do a better job of reserving adequately for rare, extreme “tail events.”

Some critics worry that a PBR approach might be too complicated for smaller insurers to use, and other critics fear that a PBR approach would give struggling insurers the freedom to cut reserves to unrealistically low levels.

Now that the NAIC is getting close to completing the Valuation Manual, “it seems prudent to study its impact on all major lines of life insurance to avoid different sets of rules among insurers writing different lines of products,” Adam Hamm, chair of the PBR Working Group, says in a statement.

LHATF will provide recommendations about the scope of the study, how the study should be conducted, the qualifications of any outside consultants to be hired, product lines to be reviewed, and the number and type of insurers involved in the study, officials say.

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