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July 30, 2010 at 08:00 PM
The National Association of Insurance Commissioners (NAIC) wants an actuarial consulting firm to help it study the effects of a proposed shift to a principles-based approach to valuations.
The shift would lead to use of principles-based analysis of the reserves for life insurance products.
Advocates of principles-based reserving (PBR) 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.
