The American Council of Insurers is proposing a framework of coordinated industry-regulator oversight to be used under the principles-based reserving (PBR) approach so that companies would be comfortable that the methods they are using to calculate insurer reserves are actually in compliance with legal requirements, actuarial standards and basically, make sense.
This follows discussions held by the NAIC this week at its Fall National Meeting on whether companies are selling universal life products with secondary guarantees in a manner that leaves them under-reserved. According to discussions on the matter by the NAIC’s life actuarial task force (LATF), the companies are “artificially” increasing premiums used in the reserve calculations above the minimum premiums needed to keep the policy in force. This would reduce insurer reserves below the minimum statutory requirement.
The proposed ACLI framework would involve a third-party review process with a continuous feedback loop to identify what is working well and what is not, as PBR evolves over time, said the ACLI’s chief actuary, Paul Graham.
Graham spoke to state regulators at the NAIC’s fall national meeting in the Maryland harbor, across the river from Washington.
The framework would serve as a reality-check for companies’ reserving assumptions and methodologies and serve as a way for the industry to wean itself from prescriptive reserving methods.
A principles-based approach uses assumptions and methods that are more closely tied to individual company experience than to broad industry benchmarks, Graham said in a letter to the NAIC PBR working group that was to have been presented during the cancelled summer national meeting in Philadelphia.
It is the life actuarial task force which is tasked with developing and submitting proposals to facilitate the implementation of a principles-based approach to valuation.
Graham went so far as to suggest that a single independent reviewer or auditor be considered.