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NAIC to Consider Impact of Principles-based Reserving on Life Industry

Source: NAIC

Posted on 07 Jun 2010

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A task force of the National Association of Insurance Commissioners (NAIC) appointed a new subgroup today to study the impact of principles-based reserving (PBR) on the life insurance industry. The NAIC Life and Health Actuarial Task Force (LHATF) formed the PBR Testing Subgroup to provide recommendations for consideration by the Principles-Based Reserving Working Group and the Life Insurance and Annuities Committee.

"As we near completion of the NAIC Valuation Manual, it seems prudent to study its impact on all major lines of life insurance to avoid different sets of rules among insurers writing different lines of products," said Adam Hamm, Chair of the Principles-Based Reserving Working Group and North Dakota Insurance Commissioner. "Regulators believe that principles-based reserving will foster a more competitive playing field with better insurance products and prices for consumers."

When complete, the NAIC Valuation Manual will define the methods used by regulators and insurers to calculate the reserves of insurance companies. The manual incorporates elements of the NAIC’s Solvency Modernization Initiative, particularly principles-based reserving, designed to improve regulators’ ability to protect consumers from insurer insolvency.

PBR more completely identifies the obligations created by every insurance policy written by an insurer. It would provide regulators new information about how much insurers must hold in reserve. In particular, PBR is intended to better identify tail risks, which are rare and extreme events that are not accounted for with current methods.

Recommendations from LHATF will address the scope of the study, how the study should be conducted, qualifications of any third-party consultants, product lines to be reviewed and the number and type of insurers involved in the study.