Principles-Based Reserving (EX) Working Group
December 3, 2007
The Principles-Based Reserving (EX) Working Group met on Monday, December 3, 2007. During this meeting, the Working Group:
- Received status updates from the Life & Health Actuarial Task Force (LHATF) regarding:
- Standard Valuation Law-The report indicated LHATF completed a review of the amendments to the Standard Valuation Law (SVL) and will expose a new draft on a conference call later this month. LHATF decided to delete from the amended Standard Valuation Law the requirement that an insurance company get an opinion from an independent reviewing actuary. LHATF plans to adopt the new Standard Valuation Law by the 2008 Spring National Meeting.
- Valuation Manual-The report indicated LHATF had utilized 6 subgroups to begin reviewing the Valuation Manual, and spent considerable time reviewing it over the last three days as well as through numerous conference calls over the last quarter. The Subgroups will continue that effort in the first quarter of 2008.
- Other issues–Asked for direction on the following issues:
- Confirm that a Standard Valuation Law that references a Valuation Manual can function legally;
- Confirm 75% adoption by states and certain market participation is appropriate to establish the operative date of the Valuation Manual;
- Confirm that it is appropriate to allow the NAIC to license with a statistical agent(s) on behalf of the states;
- Confirm that the NAIC will commit sufficient resources for completing work on principles-based reserving by the 2008 Summer National Meeting;
- Consider options for assurance of company reserve calculations (e.g central review office, independent 3rd party reviews, etc.);
- Determine whether the initial scope of the Valuation Manual should be limited to certain products;
- Confirm that the Valuation Manual on its operative date can be modified from what is initially presented to legislatures.
- Received a status update from the newly established Corporate Governance Subgroup. The update included a summary of the discussions that took place on a Nov. 14, 2007 joint conference call with the Capital Adequacy (E) Task Force, and a Nov. 27, 2007 call. It was reported that the Subgroup would devote its immediate attention to the development of corporate governance needed for reserves and capital requirements under a new principles-based approach, as opposed to the more broad focus of good risk management practices for all types of insurers, but the later will remain a long-term goal.
- Modified the principles and action item document to incorporate the definition of principles-based valuation as included in the standard valuation law.
- Discussed comments on the preliminary timeline. It was acknowledged that adoption of the Standard Valuation Law and a framework Valuation Manual by June 2008 was aggressive, but an appropriate goal.
Action Items:
- Received report from the Life and Health Actuarial Task Force;
- Received report from the Corporate Governance Subgroup;
- Charged NAIC legal staff with reviewing the Standard Valuation Law to determine if states can legally defer their authority to the Valuation Manual.
- Charged NAIC legal staff with reviewing an option to allow the NAIC to license with a statistical agent(s) on behalf of the states.
- Agreed the Valuation Manual on its operative date can be modified from what is initially adopted.