Life insurers are having trouble using VM-20, a section of a draft valuation manual that applies a principles-based approach to reserving.

John Bruins, a representative from the American Council of Life Insurers (ACLI), Washington, reported that finding in a presentation given to the Life Actuarial Task Force, an arm of the National Association of Insurance Commissioners (NAIC), Kansas City, Mo

The NAIC has been working on principles-based reserving (PBR) projects for years.

A shift to a PBR approach would involve a move away from reliance on unchanging financial safety formulas, toward analyses based on modern statistical forecasting techniques and actuarial judgment.

The VM-20 draft gives life insurers advice on how to put a PBR approach into actual use.

“There are a significant number of issues that will need to be reviewed and potentially revised for PBR to function well,” Bruins says in the presentation.

Life insurers are not sure whether the term life reserves they are computing are correct, and they also would like to have a better understanding of the margins being used, Bruins says.

Some of the calculations, which involve net premium reserves, are “complicated and difficult to implement, particularly for fund-based products with secondary guarantees,” Bruins says.

Other VM-20 coverage from National Underwriter Life & Health: