Wednesday, June 23, 2010

AG 38 Sunset Request Gets Weak Response

A sunset provision in Actuarial Guideline 38, a guideline for UL policies with secondary guarantees, will go away at the end of the year unless regulators agree to extend it.

But during a June 22 session of the Life & Health Actuarial Task Force, the group of the National Association of Insurance Commissioners, Kansas City, Mo., showed lukewarm interest in extending the provision.

The 2010 sunset was put in place because regulators, actuaries and industry anticipated that a principles-based approach to reserving would be in place by the time of the sunset.

The development of PBA has taken longer to develop than initially thought. According to John Bruins, a representative with the American Council of Life Insurers, Washington, who requested the proposal to remove the sunset provision, its removal would give all parties working on PBA the flexibility to continue work without having to address renewal of a sunset date if work extended beyond the next sunset.

He said that it could be a process of about five to six years before PBA would become effective. The reason, according to Bruins, is that it would take at least 3 years at best to get adopted in the 42 states necessary before it could become a requirement. After such adoption, there would be a necessary transition period, he added.

Nebraska regulator John Rink asked why the sunset needed to be removed completely and whether PBR is moving forward. And, he raised the issue of whether removing the sunset provision entirely would remove the incentive to get the project completed. Bruins replied that he did not think that was the case.

When Larry Bruning, Kansas chief actuary and chair of LHATF, asked for a motion, his request was met by a long silence. The ACLI’s Paul Graham then asked if LHATF would at least make the motion to expose the proposal for 30 days. The motion was made by Nebraska and seconded. Graham added that the ACLI would not have a problem with a proposal that included a definite sunset. He said that it could be six to eight years before PBA was fully in place and said that if LHATF wanted to put a six to eight year sunset in the actuarial guideline, that would be acceptable to ACLI.

The motion to expose the proposal for 30 days was carried with one objection from New York’s Bill Carmello.

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