Valuation Manual heads to NAIC meeting with fingers crossed

Actuaries from New York, Bill Carmello and Amanda Fenwick, have previously expressed concern for proposed reserving methodology, and, more recently, Rob Easton, the deputy superintendent for insurance, has been on Valuation Manual teleconference calls, as well.

“It’s been around since Moses was clean-shaven,” said Adam Hamm back in August, 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, about to move into the NAIC president-elect slot. “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 life insurance industry has been supportive of PBR—and has said it is committed to continue to work through those issues to make PBR a better product.

The Valuation Manual could still pass through for 2013 legislative consideration if there is a full plenary vote by phone in December or very early January.

Late last month, the Life Actuarial Task Force, adopted seven amendments and the Life Committee adopted them on a Nov. 13 conference call, according to the minutes. Significant amendments included those related to mortality, credibility percentages and economic scenarios.

Certain items dealing with things such as determining reserve liabilities for an effective date of Jan. 1, 2014, were adopted this fall to clear the path for adoption of the revised model by the Executive (EX) Committee and Plenary at the Fall National Meeting. 

The Valuation Manual will allow a company in its financial statements to use principles-based reserving (PBR) methodology and its own computer models to figure out required reserves.

“As insurance products have increased in their complexity, and as companies have developed new and innovative product designs that change their risk profile, the need to develop new valuation methodologies or revisions to existing requirements to address these changes has led to the development of the Valuation Manual,” the NAIC document on the subject states.

In addition, the NAIC has stated, the “Valuation Manual addresses the need to develop a valuation standard that enhances uniformity among the principle-based valuation requirements across states and insurance departments. Finally, the Valuation Manual defines a process to facilitate future changes in valuation requirements on a more uniform, timely and efficient basis.”

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 but is much more readable and rote to regulators.

The Manual has PBR and non-PBR components. The Manual consolidates into one document the minimum reserve requirements for life insurance contracts, accident and health insurance contracts and deposit-type contracts pursuant to the SVL, including those products subject to principle- based valuation requirements and those not subject to principle-based valuation requirements.

The manual has a three-year transition.

McPeak has called the manual “a living, breathing document.”

NAIC members will also consider at the Fall National Meeting the 2013 proposed budget and will conduct the 2013 Officer Election, ushering in the era of Louisiana Insurance Commissioner Jim Donelon.