Fall 2016

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

PBR Implementation Launch Nearing

As the Jan. 1, 2017, launch date nears for principle-based reserving (PBR) to go into effect, the National Association of Insurance Commissioners (NAIC) continued addressing various PBR-related items at the NAIC Summer 2016 National Meeting in San Diego in August. Forty-six states—in which there is nearly 86 percent of the nation’s written premium—now have enacted PBR Standard Valuation Law enabling legislation. After more than a decade of effort, principle-based reserving for life insurance products will become effective in those 46 states on Jan. 1, although insurers still have a three-year transition option of whether to employ PBR until it becomes mandatory in 2020.

To help both insurers and regulators get ready for the implementation of PBR next year, the NAIC’s PBR Review (EX) Working Group is conducting a PBR pilot project. Six of the 12 companies involved in the project have submitted their filings as of Aug. 25. The working group will follow up with state regulators from the domiciles of the remaining five companies (one company has dropped out).

During the summer meeting, the NAIC Executive Committee and Plenary adopted numerous Valuation Manual (VM) amendments, including:

  • VM-20 product aggregation changes that:
    • require the deterministic reserve for term and universal life with secondary guarantees (ULSG).
    • clarify that a company may elect to apply the stochastic reserve for term and ULSG without applying and failing a stochastic exclusion test.
  • VM-20 modification of post-term profits to eliminate the use of post-level term profits in the deterministic reserve calculation.
  • VM-G combined proposal that clarifies guidance for the board and senior management, and Qualified Actuaries’ responsibilities. The proposal also makes clear that VM-G applies to PBR in VM-20 and VM-21, and applies to any aggregation of both Actuarial Guideline XLIII (AG43) and VM-21 business.
  • VM-21 change to allow aggregation of AG43 and VM-21 issues and provides a guidance note that VM-G will apply to such aggregation.
  • VM-20 Section 6B changes that allow the use of default costs and reinvestment earnings assumptions from asset adequacy analysis in the Stochastic Exclusion Ratio Test.
  • VM-31 Enterprise Risk Management (ERM) revisions to provide more reasonable disclosure of key valuation assumptions that are materially inconsistent with the company’s overall risk assessment process.
  • VM-30 requirement of AG48 in VM-30 as applicable for actuarial opinions pursuant to the Valuation Manual.

Also at the summer meeting, the Life Actuarial (A) Task Force (LATF):

  • Provided direction to the Joint Academy Life Experience Committee and SOA Preferred Mortality Oversight Group to:
    • use 2017 CSO loading of 17% and to develop a definition for “guaranteed issue.”
    • use a 35% loading for the SI composite table and to develop a definition of SI composite business.
    • collaborate with the LATF Experience Reporting (A) Subgroup to develop a procedure for determining the mortality and loading for SI and for SI AUW.
    • develop a definition for “simplified issue.”
  • Directed the oversight group to make a technical change to the 2017 CSO Composite Mortality Table and have the revised rates replace the 2017 CSO ultimate composite rates currently on the SOA website.
  • Adopted the VM-20 Annual Default Costs using data through 2015 and also adopted the proposed 6/30/16 investment spreads.
  • Adopted a report of the VM-22 (A) Subgroup that included a discussion of testing a simplified floor reserve for non-variable annuities and modifying the methodology for determining valuation interest rates for income annuities.
  • Exposed the accreditation standard for PBR and the Standard Valuation Law through September 26.

The Statutory Accounting Principles (E) Working Group:

  • Adopted substantive revisions to SSAP No. 51—Life Contracts to provide guidance on how to determine the change in valuation basis for PBR.
  • Exposed Implementation of Principle-Based Reserving, an issue paper that documents substantive revisions to SSAP No. 51 and other changes to facilitate the implementation of PBR.


PBR ‘Boot Camp’
The Academy’s Life Practice Council (LPC) held its second PBR Boot Camp Sept. 21-23 in Orlando, Fla. The event was attended by about 140 actuaries and featured two dozen sessions devoted to modeling and assumptions, including sessions using case studies related to PBR. Attendees received instruction and participated in intensive, focused work groups providing insight and hands-on model governance instruction to use once the VM becomes operational next year.

Post-NAIC Update Webinar
The LPC held a webinar on Sept. 15 that provided an overview of the NAIC summer meeting. The webinar explored some of the top life issues discussed at the meeting, including an account of the LATF meeting, activity in other groups regarding PBR and related considerations for reinsurance, and updates on variable annuity and other major topics.

Guaranteed Issue, Preneed Mortality
Mary Bahna-Nolan, chairperson of the Life Experience Committee, presented an update on guaranteed issue and preneed mortality table to LATF in August.

Non-Variable Annuity PBR Update
John Miller, chairperson of the Annuity Reserves Work Group, provided a non-variable annuity PBR update to LATF’s VM-22 Subgroup in August.

Comments on AG 49
The Life Illustrations Work Group submitted comments in August to the NAIC's IUL Illustrations (A) Subgroup regarding the extension of AG49 to all inforce life insurance illustrations.


To date, 46 states representing nearly 86 percent of U.S. direct written premiums, have adopted a new Standard Valuation Law (SVL). This exceeds the threshold of 42 states and territories with 75 percent of written premium set by the NAIC for implementation of the VM, and insurers will be able to start utilizing PBR on Jan. 1 for life products. Legislation was pending in Massachusetts to adopt a new SVL as of Oct. 5, and the remaining three states are likely to consider it next year.


Alaska 0.16%*
Massachusetts 3.27%
New York 9.20%
Wyoming 0.13%

*Percentage of U.S. life underwriting


Annual Meeting/Public Policy Forum
Hear from experts, network with fellow actuaries from across the country, and earn valuable continuing education credit at the Academy’s 2016 Annual Meeting and Public Policy Forum to be held in Washington, D.C. on Nov. 3 and 4. More than 40 experts will be on hand to provide in-depth looks at the top public policy issues facing the actuarial profession. For life actuaries, breakout sessions will focus on longevity risk, Own Risk and Solvency Assessment (ORSA) implementation, and ethical considerations regarding genetic testing and life underwriting. Plenary speakers include former Sen. Chris Dodd, who will discuss the upcoming election and share his insights on insurance and banking system oversight and health policy, and Congressional Budget Office Dir. Keith Hall who will discuss government programs’ sustainability. The full agenda, including speakers, is available online. This two-day event is approaching quickly, and registration rates will increase after Oct. 21. Register today.