The last major piece of the principles-based approach (PBA) to reserving is ready for its road test.
An RFP is being put out to test a key part of the Valuation Manual, VM-20, according to Larry Bruning, chief actuary with the Kansas insurance department and chair of the Life & Health Actuarial Task Force of the National Association of Insurance Commissioners, Kansas City, Mo. VM-20 establishes requirements for principles-based reserves for life products. Bruning offered the update during the summer NAIC meeting here.
The Valuation Manual is the roadmap that provides directions for complying with another component of PBA, the revised Standard Valuation Law. The model law was passed in 2009 and is the backbone of PBA. SVL is being held until the Valuation Manual is adopted by the full NAIC body. Together, the two components of PBA will be brought to state legislatures.
Bruning offered details of the RFP to LHATF regulators. A universe of over 60 companies that have over $100 million in new life premium will represent the universe of companies to be tested, according to Bruning. The companies were selected to represent a spectrum of businesses including small companies and reinsurers, he said. Products covered in the test will include different term products, various universal life products, indexed life products, variable universal life products, and participating and non-participating whole life products, Bruning added.
The consultant will manage the process on a day-to-day basis and industry will select scenarios, build financial models, set assumptions run models, and compile results, he said. It is scheduled to be selected by the end of August and a final report is anticipated by the end of 2010.
Paul Graham, chief actuary with the American Council of Life Insurers, Washington, told regulators that the proposed schedule is aggressive since work would probably not begin until the end of September. He suggested that companies on the list should be told as soon as possible so that they could be ready if they are asked to participate in the test. If the test runs into 2011, he continued, the first three months will probably not produce results because companies will be preparing their annual filings. The project could spill over into May or June, he added.