Work Continues on Actuarial Guidance38
This is a follow up to the “Reserving for Universal Life Policies with Secondary Guarantees and the Evolution of AG 38” article that appeared in the January 2012 CIPR newsletter. The purpose of this update is to inform our readers on the continuing discussion on the application of the Actuarial Guideline XXXVIII (AG 38) to universal life insurance products with secondary guarantees.
The Joint (A/E) Working Group of the Life Insurance and Annuities (A) Committee and Financial Condition (E) Committee, which was created at the 2011 Fall National Meeting to address the issues surrounding AG 38 and to examine the adequacy of the reserve requirements for universal life with secondary guarantee (ULSG) and term UL products, has been very active since its formation. The Joint Working Group—having engaged all resources necessary to assist with analysis and preparation of guidelines or regulatory tools to aid regulators in evaluating reserves for these products—considered a bifurcated approach in order to resolve this issue; i.e., looking for solutions regarding (1) in-force business; and (2) prospective business from a date certain in the future.
• DRAFT FRAMEWORK
On Jan. 13 2012, the Joint Working Group exposed for a 30-day comment period the Draft Framework, which was developed to address the treatment of in-force and prospective business. Following comment letters from regulators and interested parties, on Feb. 21 the Joint Working Group adopted the Phase I Decisions of the Sequence of Key Decisions of the Draft Framework (the process toward resolution is organized in three separate phases, based on the order in which the key decisions should be made).
The Phase I decisions, as they were adopted by the Joint Working Group, are as follows: a) adopt bifurcated approach to in-force and prospective business in concept; and b) the NAIC will retain one or more independent, consulting actuaries to advise the Joint Working Group with respect to the issues identified in the Draft Framework and Appendix I—Issues to be Addressed. Actuaries will be selected with input from the Life Actuarial (A) Task Force/regulatory actuaries and interested parties. Because independent, consulting actuaries may be deemed necessary for subsequent issues, a pool of consultants should be identified. These Phase I Decisions of the Sequence of Key Decisions were also unanimously adopted by the Executive (EX) Committee and Plenary when they met March 6 in joint session at the NAIC Spring National Meeting in New Orleans.
The Appendix I—Issues to be Addressed covers the determination of the specifics on how to identify in-force business that will be subject to actuarial evaluations, the methodologies and/or assumptions to be used and by which actuary (regulatory or independent).
Following the adoption of the Phase I Decisions by the full NAIC membership and the selection of the consulting actuaries, the Joint (A/E) Working Group will work on adopting the Framework and the Phase II Decisions.
On April 5 2012, the Joint Working Group announced the selection of John MacBain of Actuarial Resources Corp. as a consulting actuary whose focus will be the Phase II Decisions. This will include decisions on the following issues: a) date on which the block of in-force business is considered closed and on which the prospective business requirements commence; b) policy decisions regarding the scope of products and companies covered by the actuarial evaluations; e.g., types of products, whether evaluations cover all such products (whenever written) or only those written after specified dates, etc. c) development of assumptions and methodologies to be used on the actuarial evaluations; and d) finalization of formulaic approach to AG 38 for prospective business consistent with the Life Actuarial (A) Task Force interpretation of AG 38, as modified.
The Joint Working Group will be working diligently over the next several months on this important initiative and will report on the progress at the NAIC Summer National Meeting. The CIPR intends to monitor all future developments until the final resolution of the issue and publish updates as needed..