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


The National Association of Insurance Commissioners’ (NAIC) Life Actuarial (A) Task Force (LATF) is tackling 10 major items to make the Valuation Manual (VM) ready for principle-based reserving for life insurers, according to Mike Boerner, who chairs the task force. LATF has a goal of January 1, 2016, to complete all 10 items, he said.

“January 1, 2016, is assumed to be the earliest possible operative date for principle-based reserving (PBR) and the Valuation Manual. If LATF works toward having this done by January 2016, then PBR and the Valuation Manual will be ready for use whether the operative year is 2016 or 2017,” said Boerner, who also chairs the PBR Review (EX) Working Group.

Before life insurers can start using PBR for life products, a supermajority of states must adopt changes to the Standard Valuation Law (see PBR Progress article below). LATF expects to have the VM ready before that occurs, Boerner explained. The task force’s goal is to complete several of these items by the end of this year, including:

  • Develop VM changes needed to support the experience data collection process.
  • Clarify the definition of products included in VM-20, Section 3, for the Net Premium Reserve calculation.
  • Develop maintenance procedures to annually update asset spreads and default costs in VM-20.
  • Consider small-company issues that may include modifications to the stochastic exclusion test and other additional exemptions to VM-20.
  • Revise governance provisions in VM-00 regarding the process for updating the Valuation Manual (completed).

Next year, LATF has as its goal: complete the 2014 Valuation Basic Table (VBT); consider the treatment of commercial mortgage defaults in VM-20; develop an accounting smoothing mechanism to address reserve volatility; review VM-31 documentation requirements; and develop Commissioners Standard Ordinary (CSO) mortality tables based on the 2014 VBT. “All in all, I think this is doable, but we have plenty in front of us,” said Boerner.

Academy Activity

Economic Scenario Generator

The Academy and SOA released a new version of the Economic Scenario Generator (V7.1.201406) and accompanying FAQ in June.


The C-3 Work Group released a report in June on a recommended approach for updating regulatory Risk-based Capital requirements for interest rate risk for fixed annuities and single premium life insurance (C-3 Phase I).

VM-20 Small Company Exemption

The Academy’s Life Practice Council sent a comment letter in May to the NAIC Life Actuarial Task Force on the American Council of Life Insurers' proposed small company exemption to VM-20.

Comments on Rector Report

The Principle-Based Reserve Strategy Subgroup in April provided clarifying comments to  Commissioner Julie Mix McPeak and Superintendent Joseph Torti III, co-chairs of the NAIC Principle-based Reserving Implementation (EX) Task Force, on the subgroup’s suggestion to eliminate the net premium reserve component of VM-20 in earlier comments on the Feb. 17 Report of Rector & Associates Inc. to the Principle-Based Reserving Implementation (EX) Task Force.

PBR Meeting Discussion Topics

The Principle-Based Reserve Strategy Subgroup submitted in April a comment letter to the NAIC that suggests discussion topics for a potential interim meeting of the PBR Implementation (EX) Task Force.

Upcoming Events

PBR How-to Seminar

The Academy will host “Implementing VM-20: A Practical Approach,” a seminar on August 27 in New York to provide practical information, with examples, on implementing the new life PBR methodology. Basic sessions will be offered for those with limited prior familiarity with the VM-20 requirements and will focus on performing a VM-20 calculation.  Advanced sessions will be held for those with a more extensive exposure to VM-20, concentrating on more complex requirements and strategies for complying with VM-20. The seminar will follow the Valuation Actuary Symposium. More details to come.

Post-NAIC Webinar

The Academy will host a Post-NAIC Update/PBA Webinar after the NAIC national meeting in Louisville, Ky., in mid-August. Look for a webinar date in coming publications.

PBR Progress

Seventeen states where more than 27 percent of U.S. direct premiums are written have adopted revisions to their Standard Valuation Law (SVL). SVL legislation is also awaiting the governor’s signature in Hawaii as of June 16, and was introduced in several additional states in 2014.

PBR headed to the states after the NAIC adopted the Valuation Manual (VM) in December 2012. State legislatures must enact the new SVL (and the accompanying VM), which requires principle-based reserving for all life insurance policies issued after the effective date, subject to the conditions in the SVL. PBR will be effective only after a supermajority of states and territories (42), representing 75% of written premium, adopt the revised law and will apply only to new life insurance business.

States that have adopted THE SVL

% of U.S. life underwriting
Arizona 1.73%
Connecticut 1.78   
Florida 6.77   
Indiana 1.81   
Iowa 1.01   
Louisiana 1.31   
Maine 0.40   
Mississippi 0.60   
Nebraska 0.59   
New Hampshire 0.45   
New Mexico 0.59   
Ohio 4.15   
Oklahoma   0.87   
Rhode Island 0.49   
Tennessee 1.79   
Virginia 2.54   
West Virginia  0.50   

Recent Events

Post-NAIC Update/PBA Webinar

The Life Practice Council’s April 22 “Post-NAIC Update/PBA” webinar reviewed the NAIC Spring 2014 National Meeting, including an account of the most recent Life Actuarial (A) Task Force meeting, a discussion of activities at the Life Risk-Based Capital (E) Working Group meeting, an update on VM-22 development, and a review of the recently exposed Life Principle-Based Reserves Practice Note.