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Life Health > Life Insurance

PBR Valuation Manual Adopted by Lead NAIC Committee

By Elizabeth D. Festa

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The Principle-Based Reserves (PBR) Valuation Manual finally got the nod from the NAIC’s Life Insurance and Annuities (A) Committee when it was adopted by teleconference today after almost seven years to the day of work by regulators and interested parties at the task force level. 

The motion passed with a “No” vote by New York and abstentions from Minnesota and California.

“It’s been around since Moses was clean shaven,” said Adam Hamm, in reference to all the work done on the manual and PBR. Hamm is the North Dakota Commissioner, former Life Committee chair and NAIC Vice President. “It’s high time we put in place [a system] that right-size reserves.” he said, noting it will keep the life insurance  industry solvency and will help companies price their products, which will  in turn help consumers.

The American Council of Life Insurers CEO Dirk Kempthorne said that the ACLI was supportive of PBR – and is committed to continue to work through those issues to make PBR a better product.

Kempthorne said that the ACLI has devoted much effort to the issue over the past seven years.

Cande Olson, a top life actuary with the American Academy of Actuaries (AAA) said that the AAA supports adoption of the manual with an ongoing review and improvement of  its methodology. 

“There is not a single NAIC project in which the ACLI and its member companies have devoted more resources.  And I am sure that if you asked LATF members that they would all agree that this is the most time intensive project that they have worked on, and I hear that from our member companies,” Kempthorne said.

PBR is the calculation of statutory reserves for life insurance under what many in the industry have called a more modern method to “right-size” reserves rather than the traditional, formulaic, approach, which doesn’t anticipate unusual events. The manual, as adopted by the Life Committee, has PBR and non-PBR components. The manual has a three year transition. It also offers an opportunity for uniformity.

Life Committee Chair Julie Mix McPeak called the manual “a living, breathing document.” Some states still have some issues that still need to be addressed, as do members of the industry, McPeak said, noting it is not perfect today, but it is an improvement upon what is available today. 

New York voted “no, at this juncture” because its regualtors have reservations about the current state of the manual.

The New York lead regulator on  insurance  brought up the  controversial actuarial guideline 38 for universal life insurance with secondary guarantees (USLG)  as an issue where the commissioners have come in and taken some of the development work from the actuaries.“It does seem a bit hasty to put it to have a vote today,” said  the New York deputy superintendent, insurance division  Rob Easton. Citing Wisconsin’s predicament, he said, “many states are going to have resource issues with regard to implementation.” 

Wisconsin went on the record on the call as having a resource issue with implementing the manual because of a dearth of actuaries on staff, according to its insurance regulator.

Connecticut Commissioner Tom Leonardi agreed with the concerns of the different states, but said there should be sufficient time for the states and the NAIC to address issues before 2015.  

According to the NAIC, the Valuation Manual will define the methods used by regulators and insurers to calculate the reserves of insurance companies. The manual incorporates elements of the NAIC’s Solvency Modernization Initiative designed to improve regulators’ ability to protect consumers from insurer insolvency, as the NAIC described earlier. “In particular, PBR is intended to better identify tail risks, which are rare and extreme events that are not accounted for with current methods.” 

The manual was adopted by the  Life Actuarial Task Force (LATF) earlier this month. LATF members had been looking at a March adoption, and then, when that was not done, by a mid- to late June time frame for the LATF adoption and August, during the past NAIC national meeting in Atlanta, for full NAIC for adoption. Connecticut voted yes that this was going to continue to work to get the manual to where they all think it should be. 

It remained important for the NAIC to have adoption this year in time for consideration by state legislatures in 2013, when most meet, many have said. Forty-two state legislatures are needed to get the PBR valuation manual officially passed, and implementation is seen by many as three years away, or January 2015, under this scenario.

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