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FALL 2014

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.

PBR Start More Likely in 2017

The most likely effective date for the enactment of the Standard Valuation Law (SVL) and accompanying Valuation Manual (VM) will be January 2017 or later, said Julie Mix McPeak, co-chair of the Principle-Based Reserving Implementation (EX) Task Force of the National Association of Insurance Commissioners at its Summer 2014 National Meeting in Louisville, Ky.

Eighteen states representing approximately 28 percent of U.S. direct written premiums have adopted the new SVL (see story below). According to McPeak, an additional 12 states either introduced SVL legislation this year without success or plan to introduce it next year. If adopted by all, that would bring the state total to 30 and the premium total to about 60 percent. However, principle-based reserving (PBR) will be effective only after a supermajority of states and territories (42), representing 75 percent of written premiums, adopt the revised law.

The task force’s tally comprises states that have revised their SVL and Standard Nonforfeiture Laws, McPeak said, but that tally can only include only those states with laws that are the same or “substantially similar” to the associated NAIC model law. The task force plans to discuss what qualifies as substantially similar at the NAIC’s Fall National Meeting in November.

With a now-anticipated 2017 operating date for the SVL’s accompanying VM, Mike Boerner, who chairs the NAIC’s Life Actuarial Task Force, recommended changing some target dates for the completion of certain tasks. Completing the Valuation Basic Table (VBT) and Commissioners Standard Ordinary (CSO) tables could be pushed back until summer 2015, and the target date of modifications for small-company considerations changed to fall 2014, although efforts should be made to finish these items earlier. The 10 major items that have been identified as necessary to be accomplished before the VM becomes operational are:

  • Governance revisions to VM-00  regarding the process for updating the valuation manual (completed);
  • Small-company exemption considerations (exposed);
  • Complete 2014 VBT mortality table (exposed);
  • VM changes needed to support the experience data collection process;
  • Definition of products included in VM-20 (Requirements for Principle-Based Reserves for Life Products), Section 3, for the Net Premium Reserve calculation;
  • Maintenance procedures to annually update asset spreads and default costs in VM-20;
  • Treatment of commercial mortgage defaults in VM-20;
  • Accounting smoothing mechanism to address reserve volatility;
  • Review of VM-31 (PBR Report Requirements for Business Subject to a Principle-Based Reserve Valuation) documentation requirements; and
  • Provide CSO mortality tables based on the 2014 VBT.

McPeak also suggested that the Task Force update the PBR Implementation Plan, describing it as a roadmap that should be kept current. The plan was adopted last year.


VM-22 Update

The Academy’s Annuity Reserve Work Group presented an update to LATF on efforts to develop VM-22, Requirements for Principle-based Reserves for Non-variable Annuity Products. LATF’s VM-22 Subgroup will review revisions and expects to complete it and forward it to the VM-22 (A) Subgroup in the October timeframe.

Rector Report Comments

The Principle-Based Reserves Strategy Subgroup sent a comment letter in August to the NAIC Life Actuarial Task Force on the Net Premium Reserve component of the Rector report. This letter followed a June Life Practice Council comment letter to the NAIC Principle-Based Reserving Implementation (EX) Task Force on its June 4 exposure of the Rector Report.

VBT Development Presentation

The American Academy of Actuaries/Society of Actuaries Joint Project Oversight Group presented in August to the NAIC’s Life Actuarial Task Force on development of the 2014 VBT Primary Tables.

Revised RBC C-1 Presentation

The Academy’s C-1 Work Group made a presentation in August to the NAIC’s Investment Risk-Based Capital Working Group on C-1 factors.

PBR Update at NCOIL

Academy Senior Life Fellow Nancy Bennett presented to state legislators on the safeguards included in the VM and PBR methodology at the National Conference of Insurance Legislators’ summer meeting in Boston in July. The presentation also covered the Life Practice Council’s legislation-in-brief document and FAQs.


Upcoming Events

Post-NAIC Update/PBA Webinar

The Academy will host a Post-NAIC Update/PBA Webinar on Sept. 24 that will feature presentations from Mike Boerner, chair of the NAIC’s Life Actuarial Task Force, Mark Birdsall, chair of the NAIC’s Life Risk-Based Capital Working Group, and Rich Daillak, Chairperson of the Academy’s Life Reinsurance Work Group. Moderated by Dave Neve, Chairperson of the Academy’s Life Financial Soundness/Risk Management Committee, the webinar will include an account of the most recent Life Actuarial (A) Task Force meeting, as well as recent capital developments and other relevant topics. Register here.


XXX/AXXX Reinsurance Framework

The NAIC adopted the XXX/AXXX Reinsurance Framework at the Summer National Meeting that changes the types of assets or securities needed to back reserve liabilities and requires the ceding company to disclose the assets and securities used to support the reserves and hold a risk-based capital (RBC) cushion if the captive does not file an RBC report. NAIC committees and working groups have been tasked with developing the details for the framework.

PBR Blanks Changes Exposed

The NAIC’s PBR Review (EX) Working Group exposed draft principle-based reserving (PBR) blanks changes, supplements and revised blanks instructions. Comments are due by September 29.

NAIC Summer Meeting Exposures


Hawaii adopted revisions this summer to its Standard Valuation Law (SVL), which brings the total to 18 states representing about 28 percent of U.S. direct written premiums that have adopted new SVLs and the VM needed to allow life insurers to institute PBR

States adopting new SVL

% of U.S. life underwriting
Connecticut 1.78%
Arizon 1.73   
Florida 6.77   
Hawaii 0.59   
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   
2014 Academy Annual Meeting