How PBR will Affect Life Insurers
June 2017, EY Technical Line
Life Insurance Revamp Arriving
NAIC Adopts Valuation Manual
Map of State Adoption
Principle-Based Reserving (PBR) Implementation Plan
As adopted 4/10/17
Small Company Exemption Letter
PBR Legislative Brief
PBR Educational Brief
Valuation Manual (no APFS)
Principle-Based Reserving Pilot Project and Implementation Process
March 2017, CIPR Newsletter
Roadmap to the Future
March 2016, CIPR Newsletter
Emerging Regulatory Issues in 2015
February 2015, CIPR Newsletter
The Future of Life Insurance Regulation – Principle-Based Reserves
January 2013, CIPR Newsletter
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Kris DeFrain, FCAS, MAAA, CPCU
Director, Research and Actuarial Department
Director, Fin Reg Services
Last Updated 12/12/17
The NAIC adoption of the Standard Valuation Law (SVL) in 2009 introduced a new method for calculating life insurance policy reserves. This new method, referred to as Principle-Based Reserving, or PBR, replaces the current formulaic approach to determining policy reserves with an approach that more closely reflects the risks of the highly complex products. The improved calculation is expected to "right-size reserves," reducing reserves that are too high for some products and increasing reserves that are too low for other products.
The NAIC adoption of the Valuation Manual referenced in the 2009 version of the SVL marked a major milestone in the move from formulaic rules to PBR. The Valuation Manual begins the process of revising reserving requirements to be more dynamic to meet the needs for today's variety of products and helps to mitigate the need for insurers to modify products in ways that avoid the formulaic regulatory requirements. The Valuation Manual was initially adopted by a supermajority of NAIC members in December 2012, which paved the way for states to begin adopting revisions to the SVL in their legislative sessions.
On June 10, 2016, the NAIC agreed that the threshold to make the Valuation Manual operative (when at least 42 states representing at least 75% of total U.S. premium have adopted revisions to the SVL using substantially similar terms and provision) was met. The NAIC adopted a recommendation for states with the revised SVL to activate PBR on January 1, 2017. As of January 31, 2017, 46 states have adopted the revised model laws, representing 85.7% of the U.S. life insurance market. This marked an historic accomplishment and the beginning of a new policy valuation system that can adapt to new and innovative life insurance products benefiting consumers and life insurers.
What is PBR?
Why is PBR needed?
Status: Developing a principle-based approach to life insurers' reserving methods has been an NAIC priority in recent years. PBR is designed to maintain strong solvency oversight by regulators while helping ensure that companies will fulfill obligations to policyholders. The NAIC Principle-Based Reserving Implementation (EX) Task Force (Task Force) serves as the coordinating body with all NAIC technical groups involved with projects related to the PBR initiative for life and health policies. The Task Force is finalizing important work before implementation, including: refining the PBR methodology, managing the pilot actuarial surveillance project, developing regulatory review and analysis procedures, developing additional training materials and working on experience data collection and review. In addition, on April 10, 2017, the Task Force revised its Principle-Based Reserving Implementation Plan. The implementation plan provides a framework for implementation and is a working document to be modified as necessary to meet the challenges ahead.