FALL 2015

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

NAIC Task Force Works on Defining ‘Substantially Similar’

At the National Association of Insurance Commissioners (NAIC) Summer 2015 National Meeting in August, the NAIC’s Principle-Based Reserving Implementation (EX) Task Force exposed a proposal to determine which states had adopted “substantially similar” standard valuation laws (SVL) for the purpose of meeting the threshold for the Valuation Manual (VM) to become operative.

The SVL states that the threshold will be met after 42 states and territories, representing 75 percent of direct written premium, adopt new SVLs that include “substantially similar terms and provisions” to the NAIC’s model law. The phrase in the SVL model law—“including substantially similar terms and provisions”—is not defined in the law nor used in other insurance-related state laws, according to the task force.

No entity has thus far been designated by the NAIC to determine when that threshold of states has been met. Many expect the threshold could be reached before June 30, 2016, which would allow life insurers to start implementing principle-based reserving (PBR) at the beginning of 2017. To date, 36 states with 60 percent of direct written premiums have adopted new SVLs. (See “PBR Progress” below.)

To ascertain if or when that threshold is met, the task force developed a proposal to determine whether states have enacted legislation that contains “substantially similar terms and provisions” related to the NAIC’s model law (#820). The proposal’s steps include:

  • States completing a survey to document their conformances with and deviations from the model SVL.
  • The task force establishing a small group to validate conformances and deviations. This will be followed by the task force creating 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 task force proposal was exposed until Sept. 16. The Academy submitted comments in support of the proposal overall and suggested that an outcome-based criteria based on reserve levels is an important element in defining “substantially similar.”

Additionally, the task force asked its PBR Review (EX) Working Group to plan and conduct a PBR pilot project next year similar to the final Own Risk and Solvency Assessment (ORSA) pilot conducted in 2014. In cooperation with the NAIC and state insurance departments, the working group is seeking companies to participate in the pilot.


Update on Mortality Tables
Mary Bahna-Nolan, the Academy’s vice president for life issues, provided an update on the development of the Guaranteed Issue, Simplified Issue, and Preneed mortality tables by the Joint Academy/SOA Preferred Mortality Oversight Group at the Life Actuarial (A) Task Force (LATF) meeting. She noted that accelerated underwriting is an emerging trend.

LATF Adopts VM-20 Modifications
LATF adopted amendment proposals from the Joint Academy/SOA Preferred Mortality Oversight Group for modifications to VM-20 section 9.C.3.a, Section 9.C.3.g and VM-M section 2. The modifications update VM-20 to reference the 2015 Valuation Basic Table (VBT) and remove reference to the 2008 VBT and updates VM-M to include the 2015 VBT.

LATF Exposures

  • Academy proposal to modify treatment of YRT in the Stochastic Exclusion Ratio Test. Exposure ended Oct. 2.
  • Academy 2017 CSO Valuation Manual Amendment proposals for nonforfeiture and valuation, which include changes to the VM-02, VM-20, VM-A, and VM-M. Exposure ended Sept. 17.
  • Amendment proposal from the Joint Academy/SOA Preferred Mortality Oversight Group for modifications to VM-20 section 9.C.3.d defining the underwriting criteria scoring procedure to be used by companies to score every risk class for preferred risk class structure. Exposure ended Sept. 18.
  • Two amendment proposals regarding VM-31, including one on the requirements of VM-31 and a second on documentation of items in the PBR Actuarial Report. Exposures ended Sept. 18.
  • Proposal to allow for the election of the 2017 CSO mortality table for companies that elect to use current reserve formulas during the three-year PBR transition period. Exposure ended Sept. 17.


Post-NAIC Update Webinar
The Life Practice Council held a post-NAIC meeting webinar on Aug. 27 that provided an overview of the NAIC Summer 2015 National Meeting. The webinar included an account of the LATF meeting, the Life Risk-Based Capital (E) Working Group meeting, an update on mortality, and other topics.

PBR Panel Discussion at NCOIL
Academy Senior Life Fellow Nancy Bennett discussed PBR at a Life Insurance & Financial Planning Committee panel discussion at the National Conference of Insurance Legislators (NCOIL) Summer Meeting in July.


ASB Adopts Draft ASOP on PBR
The Actuarial Standards Board (ASB) adopted a draft of an actuarial standard of practice (ASOP) in August titled Principle-Based Reserves for Life Products. The ASOP provides guidance to actuaries when performing actuarial services in connection with developing or opining on PBR for life insurance that are reported by companies in compliance with the NAIC’s SVL and the VM as adopted in December 2012.

Because the standard involves compliance with a regulation that has not yet taken effect and may undergo changes before it takes effect, the standard will remain in draft form until the VM is adopted. When the VM and the enabling SVL take effect, the standard will be released or, possibly, modified and re-exposed, as further changes may be necessary.


Annual Meeting and Public Policy Forum
In celebration of its 50 years of service to the public and the U.S. actuarial profession, the Academy is holding its 50th Anniversary Gala in conjunction with its Annual Meeting and Public Policy Forum Nov. 12-13 at the Washington Marriott Wardman Park. Session topics at the Public Policy Forum will include:

  • Professionalism Issues Related to PBR
  • Captives, Past and Future: XXX, AXXX, and Others
  • The Path of PBR Adoption and Implementation—The When and How of Day 1.

To register or for more information, please visit the Academy’s website.


Thirty-six states, representing more than 60 percent of U.S. direct written premiums, have adopted new Standard Valuation Laws (SVL) as of Oct. 5 that would allow life insurers to start using PBR calculations. Additionally, legislatures in California and North Carolina passed SVL bills but they had not been signed by governors to date. 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
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 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

*Percentage of U.S. life underwriting