Putting the final touches on the Valuation Manual, the roadmap for a principles-based approach to reserving and capital, is the significant task that still awaits regulators when they meet early next month during the winter meeting of the National Association of Insurance Commissioners, Kansas City, Mo.
Technically, the Manual needs to be completed by year-end but will probably be finished in 2010 before it is brought before the full NAIC body for possible adoption. It will then be brought to legislatures along with the revised Standard Valuation Law which was passed by NAIC in September. The SVL was passed on condition that the Manual be completed by the end of December but so much work has been invested in the project that in all likelihood, that deadline could be extended.
At the annual meeting of the National Conference of Insurance Legislators, Troy, N.Y., last week, Larry Bruning, chief actuary in Kansas and chair of the NAIC’s Life and Health Actuarial Task Force and Nancy Bennett, a fellow with the American Academy of Actuaries, Washington, testified before state legislators. The testimony was both an update and an explanation of why the project is a public policy issue that should receive serious consideration when it hits their state houses.
Bruning is confident that the issues that still remain concerning the Manual will be resolved. Bennett said that are some major issues such as a net premium floor that need to be finalized but said that she believes the Manual can be completed. The net premium floor is being added at the request of life insurers to address potential tax issues that could impact life insurance products. Bennett added, “What does it mean to have the Valuation Manual done. Technically, it is a living, breathing document.” Pieces that are still being worked on include VM 20 which addresses reinsurance, among other points.
Bennett says that if too many restrictions are placed on PBA, then it defeats the intent of the project, to accurately reflect the capital and reserves of a company. However, she said that formulaic requirements may act as “training wheels” to make regulators and others comfortable with the system. At some point, those “training wheels” can be removed when there is more comfort with the new approach, she added.