By Elizabeth D. Festa
Insurance commissioners have made a stab at the contentious issue of reserving for universal life with secondary guarantee (ULSG) and Term UL products with a new draft framework that addresses both in-force business and prospective business.
It is unclear what the impact to reserves will be on business already in force, but there may be some potential for a hit to reserves if stand-alone evaluations show companies need to add to reserves
However, it seems that the framework offers a reprieve for the most life insurers who have already underwritten many of these products using looser actuarial guidelines than some state actuaries deemed proper.
The formulaic approach consistent with the Life Actuarial Task Force’s
(LATF’s) interpretation of AG 38 won’t be applied to in-force business, as some insurers had feared, according to the draft. Instead, closed blocks of in-force business would be evaluated by actuaries on a stand- alone basis, the draft states.
“The evaluations would consist of asset adequacy analyses incorporating moderately adverse scenarios,” the commissioners of the Joint Working Group of the Life Insurance and Annuities (A) Committee and the Financial Condition (E) Committee said in the draft.
Insurers had pushed for an asset adequacy test instead for in-force business, and that approach had been rejected by LATF.
LATF is comprised of staff-level career actuaries from several states, including South Carolina, New York and Kansas, and its approach and concerns set off a chain of events that threw AG 38 into the spotlight, and then catapulted it into the hand of the commissioners in order to smooth things over.
“While the framework raises a number of questions, this seems to be a positive step forward and we look forward to continuing to work with the NAIC
for a satisfactory conclusion,” said Scott Harrison, executive director of the Affordable Life Insurance Alliance.
Originally published on LifeHealthPro.com