The South Carolina Department of Insurance spoke out last week about some elements in the insurance commissioner-led working group’s draft framework unveiled Jan. 13 to address issues in determining statutory reserve requirements under actuarial guideline AG 38.
Leslie Jones, deputy director and actuary with the South Carolina Department, wrote to Texas Insurance Commissioner Eleanor Kitzman chair of the NAIC’s Joint Working Group of the Life Insurance and Annuities Committee and the Financial Condition Committee, that South Carolina’s valuation laws must trump any uniform regulatory guidance, and the framework for applying AG 38 must have issues resolved before it can be applied to companies licensed in the state.
Jones is chair of the NAIC’s Life Actuarial Task Force (LATF), which adopted a controversial statement Nov. 1, 2011 for insurers offering universal life with secondary guarantees (ULSG) and term UL products.
Jones said South Carolina, which now has an acting director after David Black stepped down abruptly in late December, stands by the LATF statement until the effective date of Principles-Based Reserving (PBR), a stance many, but not all, insures oppose–they want PBR sooner and LATF’s statement not at all.
“However, we do not believe that the Framework will assure us if compliance with our SVL for in-force business,” Jones stated in the letter.
The LATF statement, which many insurers called unclear and possibly a new interpretation of AG 38, was crafted by a group of state actuaries to prevent some insurers from possibly under-reserving for these products by using higher premiums to produce reserves for two-tier UL policies.
Not all on the LATF task force are opposed to the Framework, so Jones is speaking clearly for the state of South Carolina in her letter. However, the Alaska Department of Insurance also provided a statement to Kitzman that clearly backed the LATF statement and its work, as well as the Standard valuation Law.
See the draft unveiled here.
The Kitzman framework proposed a bifurcated approach to old business and prospective business, which the industry embraced immediatley.
Jones suggested that the in-force blocks of business should be evaluated as to whether reserves for the company are at least as large a those required by standard valuation law, noting the frameworks; approach may not be sufficient.
The Framework calls for state commissioners to also have the authority to apply “moderately adverse” conditions in figuring out reserves in an sset adequacy test, rather than an evaluation on the basis of total reserves in the aggregate, as required by SVL, Jones noted.
With regard to prospective business, South Carolina must also interpret its own valuation laws, Jones said, although it supports the development of a mechanism that leads to uniform regulatory guidance.
But even new asset adequacy requirements must not be too onerous, according to the industry.
In-force asset adequacy testing with excessively conservative requirements would have significant negative financial consequences,” warned The Principal Life Insurance Co. corporate actuary Michael Streck in a letter to Kitzman Jan. 30, when comments were due to the NAIC. “The criteria for this should be a commissioner-level decision,” he said.