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SUMMER 2015

PBA Perspectives is designed to keep you up to date on activities surrounding the implementation of the principle-based approach for life insurance.

LATF Focuses on PBR Mortality Tables

The National Association of Insurance Commissioners’ (NAIC) Life Actuarial Task Force (LATF) is actively considering adoption of mortality tables in conjunction with principle-based reserving (PBR) for life insurance in advance of the NAIC’s Summer 2015 National Meeting in August, according to Mary Bahna-Nolan, vice president of the Academy’s Life Practice Council. She also heads the joint Academy Life Experience Committee/SOA Project Oversight Group that is developing these tables. LATF’s focus on mortality tables includes:

  • 2014 valuation basic tables (VBT) and relative risk (RR) tables. These tables, last updated in 2008, will be used to determine the Valuation Manual Section 20 (VM-20) deterministic reserve and stochastic reserve, respectively, as well as for Actuarial Guideline (AG) 38 calculations (pertaining to reserve requirements for universal life products that employ secondary guarantees). The tables have been projected to 2015, per LATF’s request from the March NAIC meeting, exposed, and are expected to be adopted at the NAIC’s Executive (EX) Committee/Plenary at the August meeting, after which they will become effective.
  • 2017 Commissioners Standard Ordinary (CSO) and CSO Preferred Structure tables, which have been developed and put through an impact study. LATF has subsequently been having discussions about some modifications, which could be exposed in early July for possible adoption in August. These tables, which have not been updated since 2001, are intended to be used to calculate the net premium reserve (NPR) under VM-20, and nonforfeiture values and tax reserves, subject to the provisions of the Valuation Manual.
  • PBR margin tables. They have also been developed and are expected to be exposed in early July for potential adoption in August. The margins are specific to VM-20 and will be used to develop the prudent, best estimate mortality assumption used in the modeled reserve calculations. Because these margin tables are specific to PBR, they have never been developed before.
  • Guaranteed issue/simplified issue/preneed (GI/SI/Preneed) tables to be used in Commissioners’ Annuity Reserve Valuation Method calculations. It is not yet clear when development of those tables will be completed. LATF’s timetable for adoption has also not been determined.


The most likely date for PBR implementation continues to be Jan. 1, 2017, because the requisite number of states did not enact legislation necessary by July 1 that would have enabled PBR to begin by Jan. 1, 2016, according to Mike Boerner, who chairs LATF. Work continues on other PBR-related items, although having a specific operational date for the start of PBR would make it easier to schedule a timeline for tasks needed to be completed.

LATF is stepping up work on PBR review procedures and developing tools that could be used by state examiners when reviewing PBR filings, according to Boerner. It hasn’t been decided whether technical references should be a part of or outside the NAIC’s Financial Examiner’s Handbook.

Finally, the PBR Outreach Subgroup is working to enlist regulators and companies for help on a PBR pilot project, which is expected to run 12 months.

LIFE PRACTICE COUNCIL UPDATE

RSM Uses for Annuity Reserves
The Annuity Reserves Work Group submitted a report on June 23 to the NAIC’s VM-22 (A) Subgroup outlining the potential uses of the representative scenarios method (RSM) in calculating annuity reserves.

Mortality Table Development
The Academy/SOA Joint Project Oversight Group gave a presentation to LATF on March 26 on the development of the 2014 VBT tables, 2017 CSO tables, and PBR margins.

For all Academy work on PBA, visit the Academy’s PBA webpage.

UPCOMING EVENTS

Vrmm, Vrmm, VM-20—Start Your Engines, the Race to the PBR Finish Line Is On!
Get set for the latest Academy/SOA seminar on principle-based reserving as it moves closer to becoming a reality. The seminar, scheduled for Sept. 2 at the Westin Boston Waterfront following the SOA Valuation Actuary Symposium, will offer basic and advanced sessions to assist those with varying experience with VM-20. The basic sessions are designed for those with little or no understanding of the VM-20 requirements and will focus on the fundamentals of performing a VM-20 calculation. The advanced sessions will target more complex VM-20 requirements and strategies for implementing VM-20 successfully. Registration available soon!

Annual Meeting and Public Policy Forum
The Academy’s Annual Meeting and Public Policy Forum, on Nov. 12-13 at the Washington Marriott Wardman Park, will mark the Academy’s 50 years of service to the public and the U.S. actuarial profession. Two sessions are planned on PBR—one on implementation and reporting issues still to be resolved before PBR becomes effective, and the second on professionalism aspects of PBR. Also expected are sessions on AG 48 and related requirements, Own-Risk and Solvency Assessment (ORSA), cybersecurity, and other professionalism topics. Please register here.

PBR Progress

Thirty-three states, representing nearly 54 percent of U.S. direct written premium, have adopted new Standard Valuation Laws (SVL) as of July 1 that would allow life insurers to start using PBR calculations. PBR will be effective only after a supermajority of states and territories (42), representing 75 percent of written premium, adopt the revised law and will apply only to new life insurance business.

STATES ADOPTING NEW SVL

Arizona 1.73%*
Arkansas 0.62   
Colorado 1.69   
Connecticut 1.78   
Florida 6.77   
Georgia 2.57   
Hawaii 0.59   
Indiana¬† 1.81   
Iowa 1.01   
Kansas 0.87   
Kentucky 1.09   
Louisiana 1.31   
Maine 0.4     
Maryland 1.88   
Michigan 3.74   
Mississippi 0.6     
Montana 0.22   
Nebraska 0.59   
Nevada 0.69   
New Hampshire 0.45   
New Jersey 3.96   
New Mexico 0.59   
North Dakota 0.23   
Ohio 4.15   
Oklahoma 0.87   
Oregon 1.41   
Rhode Island 0.49   
South Dakota 0.26   
Tennessee 1.79   
Texas 6.27   
Vermont 0.19   
Virginia 2.54   
West Virginia 0.5     

*Percentage of U.S. life underwriting