An actuarial firm has come out with software that insurers can use to help the National Association of Insurance Commissioners (NAIC) analyze a possible overhaul of reserve-setting methods.
Milliman Inc., Seattle, is adding a VM-20 feature to its MG-ALFA financial projection system
The NAIC, Kansas City, Mo., has hired an outside firm to study the possible effects of VM-20, a life products reserving valuation manual section draft, on life insurers and their reserves.
VM-20 would give life insurers, their actuaries and others advice on how to apply the principles-based reserving (PBR) approach to setting reserves for life insurance products.
Advocates of the PBR approach want to shift toward use of statistical forecasting techniques and actuarial judgment to set reserves, and away from reliance on static formulas.
Critics argue that insurers may use the flexibility of the PBR approach as an excuse to set reserves at low levels.
Some critics also have asked whether the statistical forecasting techniques required by VM-20 would be too difficult for smaller insurers to use.
The core of the new MG-ALFA feature is a set of tools that can help insurers calculate the “stochastic reserve” and “deterministic reserve” figures requested by the NAIC.
Milliman will organize user group meetings for the companies that participate in the NAIC study, the firm says.
- Allison Bell