In a letter to state insurance commissioners, the American Council of Life Insurers (ACLI) called the top New York insurance regulator’s remarks on life insurance reserving “irresponsible” and inaccurate, the former because they erode trust in the state regulatory system and the industry and the latter for actuarial reasons.
The letter was written by ACLI President Dirk Kempthorne in response to a warning last week from New York Banking and Insurance Superintendent Ben Lawsky.
“I felt it necessary to not only express our profound disappointment but also set the record straight,” Kempthorne stated.
The reserving matter concerns a retroactive test for Actuarial Guideline 38 (AG 38), which establishes reserve requirements for certain types of life insurance policies.
The solution forged among regulators through the bulk of 2012 is based upon a cornerstone of life insurance modernization, principle-based reserves (PBR).
New York’s Lawsky cried foul on the method, saying it leaves the life industry under-reserved by billions. New York will no longer implement the formerly agreed-upon AG 38 solution that addresses the universal life products with secondary guarantees (ULSG) products’ reserves and many ULSG life insurers such as Lincoln National, Genworth Financial and AIG in New York will be told to increase their reserves by billions overall.
Specifically, Lawsky reported a “widely estimated $10 billion” in reserve increases expected with the application of the new AG 38 fix for in-force policies. He had called the industry under-reserved by $20 billion and noted that only $1 billion in reserve increases had shown up under the NAIC’s AG 38 solution for in-force business for ULSG products.
However, “his letter is the first time that any number, much less $10 billion, has ever been mentioned,” Kempthorne said.
“The form of the requirements developed in AG 38 required company-specific modeling, and until the companies submitted their results, nothing other than a guess could have been made about the magnitude of any change,” Kempthorne explained. “To be clear, a targeted reserve increase was never a stated or agreed upon goal by regulators. Never.”