Winter 2016

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


The NAIC Fall 2016 National Meeting—held earlier this month in Miami—was the last meeting before Jan. 1, 2017, when principle-based reserving (PBR) will become effective for 46 states. Several groups addressed PBR items at the meeting as various parts of the new reserving requirements are finalized.

The PBR Pilot Project—intended to aid in training regulators, improving review procedures, and identifying needs to clarify communication between regulators and insurers—continues. The submissions of all 11 participating companies have now been reviewed by regulators. The next phase of the project will involve a survey of the companies asking if they expect to offer products in 2017 that utilize VM-20, and requesting feedback and recommendations for clarifying VM-20, VM-31, and the VM-20 blanks supplement. It is expected that a final report will be provided to the PBR Implementation (EX) Task Force by the end of January 2017. According to a report by the Society of Actuaries, in a survey with 72 responses from companies, 15 companies said they are planning to calculate reserves under VM-20 requirements for at least one product next year.

The NAIC’s newly formed Valuation Analysis (E) Working Group has lined up 10 regulatory actuaries to serve on the working group and will next develop a list of chief examiners to serve on the group. All are subject to approval by the Financial Condition (E) Committee.

The Life Actuarial (A) Task Force (LATF) continues to discuss modifications to the small company exemption; under current consideration is a threshold of companies with less than $50 million of ordinary premium regardless of the company’s risk-based capital (RBC) ratio. The current small-company exemption stands at insurers with less than $300 million in ordinary life premiums and $600 million for an insurance group.


Update on C1 Factors for Corporate Bonds
Nancy Bennett, the Academy’s senior life fellow and co-chairperson of the C1 Work Group, and Rich Owens, member of the work group, presented an update on portfolio adjustments to the C1 factors for corporate bonds to the NAIC Investment Risk-Based (E) Capital Working Group in December.

Update on Guaranteed Issue, Preneed, Simplified Issue, and Accelerated Underwriting
Mary Bahna-Nolan, chairperson of the Joint Academy Life Experience Committee and Society of Actuaries (SOA) Preferred Mortality Oversight Group, presented to LATF in December an update on the new joint initiative of the Academy and the SOA in formulating a work group to address a LATF request for information on accelerated underwriting mortality under VM-20. She also presented an update to LATF at its meeting in Miami on guaranteed and simplified issue and preneed mortality tables.

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

Update on RBC, Longevity Risk
Tricia Matson, chairperson of the Longevity Risk Task Force, gave an update at the December NAIC meeting on the task force’s work to LATF, including creating a methodology for recognizing longevity risk in statutory reserves and risk-based capital (RBC), and reviewing regulatory and company approaches to longevity risk.

Model Governance Checklist
The Principle-Based Reserves Checklist Subgroup released in December a Model Governance Checklist, offered as a resource for practicing life actuaries involved in actuarial model governance.

PBR Model Governance Practice Note
The Principle-Based Reserves Model Governance Practice Note Subgroup released in December a draft model governance practice note to provide additional information for practicing life actuaries seeking to better understand models, model risks, model governance, and related issues in implementing PBR. The deadline for comments is Jan. 2, 2017.

Academy PBR Update at NCOIL
Academy Senior Life Fellow Nancy Bennett gave a presentation on Nov. 18 to the National Conference of Insurance Legislators National Meeting that provided an update and background on the implementation of PBR. Her presentation noted that different variations of model-based valuation approaches have been considered over the past 15-plus years, with a PBR framework first implemented for variable annuities in the mid-2000s.

AG43 and C-3 Phase II Exposure
The AG 43/C-3 Phase II Work Group submitted comments in November to the NAIC’s Variable Annuities Issues (E) Working Group on the exposed proposal to revise Actuarial Guideline 43 (AG 43) and C-3 Phase II.

VM-22 Maximum Valuation Exposure Draft Comments
The SVL Interest Rate Modernization Work Group submitted comments to the NAIC’s VM-22 (A) Subgroup in November on its exposure draft on the VM-22 maximum valuation interest rates for income annuities.

Comments on PBR in Issue Paper No. 15X
The Tax Work Group submitted comments to the NAIC’s Statutory Accounting Principles (E) Working Group in October in response to Issue Paper No. 15X concerning the implementation of PBR.


The Executive (EX) Committee and Plenary adopted:

  • Term and Universal Life Insurance Reserve Financing Model Regulation.

  • Amendments to Actuarial Guideline 48 (AG 48).

LATF exposed:

  • American Council of Life Insurers (ACLI) proposal to modify the timing of the VM-20 quarterly investment spread tables through Jan. 13.

  • ACLI proposal to modify AG 38 to align its requirements with the version of the Valuation Manual in effect on the valuation date through Jan. 20.

The Financial Regulation Standards and Accreditation (F) Committee exposed the Part A: Laws and Regulations Liabilities and Reserves Accreditation Standard for a 60-day public comment period until Feb. 8.


To date, 46 states representing nearly 86 percent of U.S. direct written premiums have adopted a new Standard Valuation Law (SVL) to enact principle-based reserving. This exceeds the threshold of 42 states and territories with 75 percent of written premium set by the NAIC for implementation of the Valuation Manual, and life insurers will be able to start utilizing PBR on Jan. 1. Legislation was pending in Massachusetts to adopt a new SVL as of Dec. 20, and the remaining three states are likely to consider adoption in 2017.

STATES NOT YET ADOPTING NEW SVL (percent of direct written premium as of December 20, 2016)

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

*Percentage of U.S. life underwriting


Post-NAIC Webinar
The Life Practice Council will hold a post-NAIC webinar on Jan. 5 from 1:30 p.m. to 3 p.m. EST. Dave Neve, chairperson of the Academy Life Reserves Work Group, will moderate the discussion that will provide an account of the LATF meeting, report on activity in other groups regarding principle-based reserving and related considerations for reinsurance, share updates on variable annuity and life risk-based capital issues, and cover other major topics. Speakers will include Mike Boerner, chair of LATF; Philip Barlow, chair of the NAIC Life RBC (E) Working Group; and Richard Daillak, chairperson of the Academy’s Life Reinsurance Work Group. For more information on the webinar, please click here.