The National Association of Insurance Commissioners (NAIC) has picked Towers Watson & Company to help it assess the possible effects of shifting to a principles-based approach to setting life insurer reserves.
The NAIC, Kansas City, Mo., has been working on the principles-based reserving (PBR) project for years.
Advocates say a PBR approach would replace reliance on static formulas with use of modern statistical forecasting methods and reliance on actuarial judgment.
Supporters say a shift to PBR would force insurers to think about their assets and liabilities more carefully and, in some cases, free them from the need to keep unnecessarily large reserves to satisfy the demand of an unrealistically conservative formula.
Critics say some insurers could use PBR flexibility as an excuse to reduce reserves to unsafe levels.