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

Small-Company Exemption Moves Forward

The National Association of Insurance Commissioners’ (NAIC) Executive Committee approved at its Spring 2015 National Meeting in March a small-company exemption from principle-based reserving (PBR) requirements in VM-20 for insurers with less than $300 million in ordinary life premiums and $600 million for an insurance group. The proposed exemption will now go before the NAIC Plenary for a vote at its Summer 2015 National Meeting in August.

The $300 million/$600 million thresholds—proposed by the American Council of Life Insurers (ACLI)—were adopted by the Principle-Based Reserving Implementation (EX) Task Force in February. The task force earlier had proposed an exemption for insurers with premium levels of less than $50 million individually and $300 million for a group.

The task force sent a letter to all NAIC members on March 16 asking commissioners not to include small-company exemption language in their Standard Valuation Laws, as doing so could complicate determination of “substantially similar” terms and provisions for the purpose of PBR becoming operative, and asked instead that the exemption be included in the Valuation Manual. “Inclusion of a small-company exemption in a state’s laws that is inconsistent with the Valuation Manual’s small-company exemption could potentially be an issue in considering whether a state’s laws are substantially similar for purposes of the Valuation Manual operative date,” the letter said.

PBR for life insurers will not become operative until 42 jurisdictions representing at least 75 percent of premium enact the NAIC-adopted Standard Valuation Law (SVL), which contains language specifying that only jurisdictions that enact the model law or enact a law that has “substantially similar terms and provisions” will be counted toward the jurisdiction and premium thresholds. However, the SVL does not define those terms and provisions.

At its meeting in March, co-chair Superintendent Joseph Torti III (Rhode Island) said the task force needs to determine how to make the “substantially similar” assessment. Torti reiterated that the task force will need to resolve this issue before the operative date of the Valuation Manual, which is likely to be Jan. 1, 2017, or Jan. 1, 2018.


PBR Discussion
The Principle-Based Reserving Implementation Task Force discussed the Valuation Manual operative date, criteria for “substantially similar,” and Principle-Based Reserving (PBR) Implementation State Survey results. The task force also adopted the revised PBR Implementation Plan.

VM-20 Spreads
The Life Actuarial Task Force (LATF) adopted the updated VM-20 benchmark spread tables that were exposed in January.

VBT and Relative Risk Tables
LATF asked for the 2014 VBT and Relative Risk Tables to be projected to 2015. The tables will be exposed after the 2015 projections are completed.


Mortality Table Development
The American Academy of Actuaries and Society of Actuaries 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.

XXX/AXXX Reinsurance Proposal
The PBR Strategy Subgroup and Life Reinsurance Work Group sent a comment letter to the NAIC PBR Implementation (EX) Task Force on Feb. 23 regarding the XXX/AXXX reinsurance supplemental proposal.

XXX/AXXX Framework
The Life Capital Adequacy Committee (LCAC) sent a comment letter to the NAIC Life Risk-Based Capital (E) Working Group on Jan. 30 regarding exposure drafts related to the XXX/AXXX reinsurance framework.

The Life Practice Council sent a legislation-in-brief and FAQ in January supporting the adoption of the NAIC model Standard Valuation Law and Principle-Based Reserves to all state insurance departments and legislatures that had not yet enacted the revised SVL.

PBR ASOP Exposure Draft
The Life Practice Council (LPC) submitted comments to the Actuarial Standards Board on Dec. 15 regarding an exposed actuarial standard of practice (ASOP) on Principle-Based Reserves for Life Products.


Post-NAIC Webinar
The Life Practice Council will hold a post-NAIC webinar on April 17 from noon to 1:30 p.m. EDT. Moderator Dave Neve, chairperson of the Academy Life Reserves Work Group, will lead a discussion of topics covered at the NAIC spring meeting, including overviews of the Life Actuarial Task Force and the Life Risk-Based Capital Working Group meetings, and an update on the C1 project. Speakers will include Mike Boerner, chair of the NAIC’s Life Actuarial (A) Task Force, Mark Birdsall, chair of the NAIC’s Life Risk-Based Capital (E) Working Group, and Jerry Holman, co-chairperson of the Academy’s C1 Work Group. 

PBR Progress

Twenty-six states representing more than 40 percent of U.S. direct written premiums as of April 15 have adopted new Standard Valuation Laws that would allow life insurers to start using PBR. Twelve additional states have introduced legislation in 2015 to change their SVLs. 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.


Arizona 1.73%*
Arkansas 0.62   
Colorado 1.69   
Connecticut 1.78   
Florida 6.77   
Hawaii 0.59   
Indiana 1.81   
Iowa 1.01   
Kansas 0.88   
Kentucky 1.09   
Louisiana 1.31   
Maine 0.40   
Michigan 3.74   
Mississippi 0.60   
Nebraska 0.59   
New Hampshire 0.45   
New Jersey 3.97   
New Mexico 0.59   
North Dakota 0.23   
Ohio 4.15   
Oklahoma 0.87   
Rhode Island 0.49   
South Dakota 0.27   
Tennessee 1.79   
Virginia 2.54   
West Virginia 0.50   

*Percentage of U.S. life underwriting