NAIC Panel Considers Principles-based Reserving Pilot Program
February 10, 2014 by Thomas Harman, associate editor, BestWeek: Tom.Harman@ambest.com
WASHINGTON – A National Association of Insurance Commissioners task force is considering creating a pilot program to help states and regulators manage implementation of principles-based reserving for certain life insurers.
The idea to consider a pilot was presented to the Principles-based Reserving Task Force by Andrew Rarus, a member of the principles-based reserving company outreach subgroup, during a conference call Feb. 6. Task force Co-chairwoman Julie Mix McPeak, Tennessee’s insurance commissioner, supported the plan in concept.
Principles-based reserving was approved by the NAIC in December 2012 after years of debate, leaving lawmakers in 43 jurisdictions to approve it before it could become a national standard. Supporters of the approach say principles-based reserving is needed to reduce redundant reserves in the XXX and AXXX reserving tools used by companies that sell term-life insurance and universal life insurance with secondary guarantees. To date, however, only seven states have ratified it, although many are expected to in 2014. Apart from the pilot study, the task force is already considering a measure that would provide a exemption from principles-based reserving for certain small businesses in order to help state ratification (Best’s News Service, Feb. 6, 2014).
Rarus told Best’s News Service in an email the consideration of the pilot was one of 10 charges presented to the subgroup. “We felt that a pilot project/study would help flush out unanticipated issues,” he said. “We could then document, possibly in the form of a practice note, the resolution to these issues as well as other aspects of PBR implementation.”
Rarus told the task force the pilot could involve partnership with companies that participated in a prior impact study involving Valuation Manual 20 — considered a possible interim standard for use until states implement principles-based reserving — if they had made significant progress on principles-based reserving since the VM-20 study was completed.
Task force Co-Chairman Joe Torti, Rhode Island’s insurance superintendent, voiced his support. The subgroup was directed to draft a comprehensive plan to perform the pilot and the subgroup is expected to have a draft completed in time for the task force’s mid-March conference call.
McPeak said the pilot program was a great idea and that a similar pilot program involving implementation of the Own Risk and Solvency Assessment Model Act has been successful. The ORSA pilot is moving into its third year as states continue to move toward ratification of the model act in time for a Jan. 1, 2015 start date for insurers to begin filing assessments (Best’s News Service, Jan. 30, 2014).
If the task force believes the principles-based reserving pilot idea worthy, it will seek to gain NAIC approval during that group’s Spring National Meeting, scheduled to run from March 29-April 1 in Orlando, Fla., Rarus said.
