Term Writers Watching Work On CSO Model Reg

Gorski says that Triple-X is a temporary solution until a more permanent answer is developed. He also noted that some regulators are questioning use of X-factors in determining basic reserves.

Industry representatives will offer their input during a discussion to be held at the spring NAIC meeting that begins this week.

For term products with 10 to 20 year guarantees, there won't be much impact on reserving but for products with longer guarantees, there could be more of an impact, says Doug Doll, principal Tillinghast-Tower Perrin in Atlanta. UL products with secondary guarantees could also be affected, he adds.

Use of ultimate/select for basic reserves will temper better mortality and lower reserving requirements reflected in the 2001 CSO Table, says Mark Abraham, vice president with Transamerica Insurance and Investment Group in Los Angeles.

Use of the ultimate option for deficiency reserves would "not be viable" because reserves would be so high, Abraham says.

If one option is required, then a 30-year, fully guaranteed product will be harder to offer, he adds.

Jimmy Atkins, executive vice president and chief actuary of the Indpendent Brokerage Group of GE Financial, Richmond, Va., says that if a company uses X-factors to modify the mortality used for alternative minimum reserves, it must use the select and ultimate table.

But different sections of the draft make different requirements including using the same table for both purposes, permitting the use of X-factors for deficiency reserves, and using the same table but reversing out the effect of X-factors, he adds.

If the same tables are used, the basic reserves would be higher at later durations, reducing some of the relief 2001 CSO is targeted to provide, he explains. One table may produce higher early year reserves but lower later year reserves and vice versa, he says.

"In the second case, applying the X-factors to the basic reserve calculation will in some cases substantially lower the basic reserves and make the whole reserve picture fair, reasonable and responsible," he adds.

"So, until the contradictory language is resolved we cannot speculate on whether the proposed regulation will influence prices higher or lower," Atkins says.

Reproduced from National Underwriter Life & Health/Financial Services Edition, March 11, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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