The Academy has been instrumental in the effort begun more than 20 years ago to modernize the framework for determining life insurers' statutorily required reserves and capital in the United States. The Academy has been the technical architect behind principle-based reserving (PBR), helping to shape PBR into the valuation standard for life insurance issued after Jan. 1, 2017. PBR uses risk management techniques to capture an individual insurer’s unique risks underlying its life insurance business more accurately than the preexisting requirements based on prescribed, static methods and assumptions.

Utilizing stochastic projection models to establish valuation and capital standards was first tested with variable annuities in the early 2000s. This approach was later expanded to capital and reserve requirements for variable annuities. After validation by these smaller pilot efforts, the National Association of Insurance Commissioners (NAIC) and the Academy focused on modernizing the entire valuation process for all life insurance.

Thus, this move toward a fully modernized valuation system for life insurers started taking place on Jan. 1, 2017, in the 46 states that have passed standard valuation PBR-enabling legislation. Insurers can begin to offer policies whose reserves are calculated using PBR while regulators will begin a new approach to analyze the valuation results. There is a three-year voluntary transition for insurers that ends Dec. 31, 2019.

The Academy has assembled the following materials to assist actuaries and regulators as the U.S. moves into the implementation phase of PBR for life insurance.
(Please note that this draft was exposed for comment through Monday, Jan. 2, 2017.)
(Please note that this draft was exposed for comment in February 2014. An updated version will be available in 2017.)

PBR Overview and Implementation Update
Academy Senior Life Fellow Nancy Bennett presentation to the National Conference of Insurance Legislators (NCOIL) National Meeting that provides an update and background on the implementation of principle-based reserving (PBR). (November 18, 2016)

PBR for Regulatory Actuaries
Academy members Dave Neve and Cande Olsen led a PBR webinar for regulatory actuaries that included a VM-20 overview with detailed examples and a summary of the PBR actuarial standard of practice exposure draft. (November 20, 2013)

More Presentations
Read all Academy public statements related to PBR
Draft Model Governance Practice Note (Please note that this draft was exposed for comment through Monday, Jan. 2, 2017.)
Principle-Based Reserves for Life Products (second exposure draft dated June 2014)

More ASOPs
Qualification Standards Response on PBR
What are the minimum requirements an actuary should consider to be qualified to render opinions related to PBR under the U.S. Qualification Standards? This question and answer came from the Academy’s Committee on Qualifications, which developed a list of frequently asked questions for actuaries.