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

NAIC’s PBR Implementation Tasks
on Track for Expected Operative Date

The National Association of Insurance Commissioners’ (NAIC) threshold for insurers to start employing principle-based reserving (PBR) is close to being met as 39 states, representing nearly 72 percent of written premiums, have passed new Standard Valuation Laws. A handful of items still need to be completed before the anticipated implementation date of Jan. 1, 2017, including a 2016 PBR pilot project.

The NAIC’s PBR Review (EX) Working Group is recruiting at least 10 companies for the pilot project to value products under PBR, and the working group expects the effort to be finished between March and June of 2016. The companies will complete the PBR Blanks Supplement and VM-31 reporting requirements, which are expected to be updated by spring 2016. Regulator evaluations will follow and the project’s results are expected to be presented at the NAIC’s 2016 fall meeting in December. The project’s focus is on the process rather than the numbers, and its results could spur adjustments prior to the start of 2017.

Other items that still must be completed include:

  • Adoption of the Financial Analysis Handbook Procedures, Financial Examiner Handbook Procedures, and Valuation Analysis Working Group Procedures, which support state review of PBR filings.
  • Changes to the NAIC’s Accounting Practices and Procedures Manual to coordinate it with the Valuation Manual (VM). Modifications are expected to be proposed at the NAIC’s spring meeting.
  • Changes to PBR Reporting in Blanks, which is targeted for completion in the spring.
  • Review of the VM's NPR calculation in light of the recently adopted 2017 CSO mortality tables.


At the NAIC’s 2015 Fall National Meeting, the PBR Implementation (EX) Task Force adopted an amended plan for evaluating whether new state laws contain “substantially similar terms and provisions” to the NAIC’s model Standard Valuation Law (SVL) for the purpose of meeting the threshold for the VM to become operative. The plan will be considered for adoption by the Executive Committee and Plenary at the 2016 spring meeting. The proposal establishes several steps to ensure that state laws contain substantially similar provisions, including:

  • States completing a survey to document their conformances with and deviations from the model SVL.
  • The task force establishing a review group to validate conformances and deviations. Afterwards, the task force will create a list of states deemed to be substantially similar to count toward the threshold.
  • The NAIC’s Plenary determining the final list of states that will count toward the threshold.

The Life Actuarial Task Force (LATF) adopted amendments incorporating the 2017 Commissioners Standard Ordinary (CSO) mortality table, which includes coordination with the 2001 CSO table. These amendments are reflected in the VM:

  • VM-A, Appendix A—Requirements, adds Appendix A-814 to appendix references to recognize the 2001 CSO tables for valuation and nonforfeiture.
  • VM-M, Appendix M—Mortality Tables, defines the 2017 CSO tables for use in other sections for valuation and nonforfeiture.
  • VM-02, Minimum Nonforfeiture Mortality and Interest, Section 5A adopts the 2017 tables for nonforfeiture, available for policies issued on or after Jan. 1, 2017, and required for policies issued after Jan. 1, 2020.
  • VM-20, Requirements for Principle-Based Reserves for Life Products, Section 3 and Section 6, provides direction for valuation for products—other than term and universal life policies with secondary guarantees (ULSG)—and small companies to use methods from VM-A and VM-C, Appendix C—Actuarial Guidelines, but mortality from VM-20 Section 3C(1) and to define conditions for mortality tables. For all products VM-20, Section 3C(1) allows the use of the 2017 tables for valuation for policies issued prior to Jan. 1, 2020, and requires the 2017 tables for policies issued on or after Jan. 1, 2020.¬†
  • VM-00, Valuation Manual, allows the election of the 2017 CSO tables by a company that has elected to use the PBR transition to remain with current reserve formulas.

The Executive Committee and Plenary adopted the Disclosure of XXX/AXXX Reinsurance Framework Impact on RBC on Dec. 17. Developed by the Principle-Based Reserving Implementation (EX) Task Force, the disclosure will provide transparency to the financial statements regarding the use of XXX/AXXX captives and show the impact of the framework collateral requirements on life insurer RBC.


  • Modifications to the requirements of VM-31, which are exposed through Jan. 8, 2016.
  • Scope of companies/requirements of the PBR actuarial report. Exposed through Jan. 8, 2016.
  • Removal of references to “seriatim reserve” and replaced by “model reserve” where appropriate. Exposed through Jan. 8, 2016.
  • PBR Blanks changes exposed through Jan. 8, 2016.
  • PBR-related edits to the Financial Analysis Handbook. Exposed through Jan. 8.


Post-NAIC Update Webinar
The Life Practice Council (LPC) held a webinar on Dec. 7 that provided an overview of the NAIC fall meeting. The webinar included updates on PBR, LATF decisions, the Life Risk-Based Capital (E) Working Group meeting, and variable annuity issues. Read the Academy’s Post-NAIC alert here.

Update on GI/SI/Preneed Tables
Mary Bahna-Nolan, chairperson of the Joint American Academy of Actuaries Life
Experience Committee and Society of Actuaries Preferred Mortality Oversight Group, provided an update on guaranteed issue, simplified issue, and preneed to LATF.

Non-Variable Annuity PBR Update
John Miller and Chris Olechowski, co-chairpersons of the Academy’s Annuity Reserves Work Group, provided a non-variable annuity PBR update to the LATF VM-22 Subgroup.

LTC PBR Update
Bob Yee, representing the Academy’s Health Practice Council, provided an update to the Health Actuarial Task Force on the progress of the Long-term Care Principle-Based Work Group that is expected to issue a report in early 2016.

Comment Letter on XXX/AXXX Credit for Reinsurance
The Principle-Based Reserves Strategy Subgroup submitted comments in September to the NAIC’s Reinsurance Task Force on the exposure draft, Non-Universal Life and Universal Life with Secondary Guarantees Credit for Reinsurance Model Regulation.

Comments on “Substantially Similar” Draft
The LPC submitted comments in September to the NAIC’s Principle-Based Reserving Implementation (EX) Task Force on its “Substantially Similar Terms and Provisions” to Determine the Valuation Manual Operative Date exposure draft.


NAIC Spring 2016 National Meeting
The National Association of Insurance Commissioners Spring 2016 Meeting will be held April 3-6 (LATF expected to meet April 1-2) in New Orleans.


The finish line for PBR is in sight: Thirty-nine states, representing nearly 72 percent of U.S. direct written premiums, have adopted new SVLs as of Dec. 21 that would allow life insurers to start using PBR calculations. Legislation was introduced in Massachusetts this year but did not get enacted. PBR will be effective only after a supermajority of states and territories (42), representing 75 percent of written premium, adopt the revised law. It will apply only to new life insurance business.


Arizona 1.73%
Arkansas 0.62
California 6.79
Colorado 1.69
Connecticut 1.78
Delaware 0.58
Florida 6.77
Georgia 2.57
Hawaii 0.59
Illinois 4.01
Indiana 1.81
Iowa  1.01
Kansas 0.87
Kentucky 1.09
Louisiana 1.31
Maine 0.40
Maryland 1.88
Michigan 3.74
Mississippi 0.60
Missouri 2.00
Montana 0.22
Nebraska 0.59
Nevada 0.69
New Hampshire 0.45
New Jersey 3.96
New Mexico 0.59
North Carolina 2.54
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 0.50
Wisconsin 2.20

*Percentage of U.S. life underwriting