New SVL Moves Closer To Reality

Revisions to the Standard Valuation Law, or SVL in shorthand for those who have been following the issue for the last several years, moved closer to reality earlier this afternoon. The model progressed when members of the Life Insurance and Annuities “A” Committee of the National Association of Insurance Commissioners, Kansas City, Mo., passed it in an 11-1 vote. New York abstained.

The vote gives the model the two-thirds committee majority it needs under NAIC rules to be considered for full adoption as a model law rather than simply NAIC guidance.

The new SVL and an accompanying Valuation Manual are considered lynchpins to a movement that would allow more flexibility for product reserves. The Valuation Manual is the roadmap of practical, specific guidance that makes the SVL work. Flexibility is considered important because regulators said that they were continually called upon to develop new models to reflect either changing products or skirting around existing reserving requirements. The new SVL version would take a more holistic approach, looking at all the risks of an insurer and the products it sold rather than strictly using formulas to determine reserves.

The conference call discussion included reservations expressed both by the American Council of Life Insurers, Washington, as well as state insurance commissioners, but for different reasons.

John Bruins, a life actuary with the ACLI raised the first issue of making sure that the proposed law would ensure uniformity both at adoption and during its implementation. Different requirements in different states would result in companies having to run multiple actuarial scenarios, an “expensive and very time consuming process,” he explained.

But regulators including New York life actuary Bill Carmello and Connecticut Insurance Commissioner Tom Sullivan said that commissioners should be able to challenge any assumption made by a company when preparing reserving scenarios. Sullivan pointed out similar commissioner discretion in the Accounting Practices and Procedures Manual which he called “tried, true and tested.”

The discussion then addressed prescribing assumptions in the Valuation Manual if there is no company data available to create assumptions in the actuarial testing process or if the assumptions are outside company control such as estimating future interest rates. The ACLI’s Bruins asked if that would draw in other unknowns such as the choice of premium mode consumers make.

Larry Bruning, chair of the NAIC’s Life & Health Actuarial Task Force, and a Kansas life actuary, said that any “hole” could be filled by the Valuation Manual. Paul Graham, chief actuary with the ACLI, said that the Valuation Manual might ultimately catch up with a brand new product but until that point, companies would be left without guidance.

Donna Claire, who is spearheading the whole effort for the American Academy of Actuaries, Washington, said that while the Academy had some concern, it wholeheartedly supports the SVL proposal and believes that the Valuation Manual could be used to address this issue.

However, Wisconsin Insurance Commissioner Sean Dilweg expressed concern over passing a model law when the content which would be in the Valuation Manual was not yet developed. Adam Hamm, North Dakota insurance commissioner moved that the model be advanced with the condition that the Valuation Manual must be passed by the end of 2009.

Dilweg also was concerned that the proposal encompasses health, disability income and annuities as well as life insurance products. He said that it was important that the new model law have “guardrails” and expressed reservations that reserving floors were only for life insurance products. But Kansas’ Bruning explained that if the model is limited to life insurance products then it would require a change in law each time another product such as fixed annuities was added. And, in response to other regulators such as New York’s Carmello, Bruning said that the proposed model law would leave in place existing state reserving laws for products until new guidelines are put in the Valuation Manual, so there would be guidance for these products.

Wisconsin’s Dilweg said he would raise the issue of including health, long term care and disability insurance in the model at a later point in the process.