New York Implements New UL Reserving Requirements

The reserving issue has been hotly debated at the National Association of Insurance Commissioners. During the NAIC meeting in December 2004, efforts to advance Actuarial Guideline 38 caused such consternation among insurers that regulators intervened in the process.

The decision reached by commissioners was to wait for the American Academy of Actuaries, Washington, to finish a project in 2005 that would offer a more long-term solution to capital and reserving for life insurance products including variable products and UL products with secondary guarantees. The C-3, Phase II project is a major undertaking of the Academy that has been ongoing for the last several years.

Commissioners did not preclude advancing an actuarial guideline that established reserving for products including UL products with secondary guarantees.

The guideline, AG 38, or the amendments to the Application of the Valuation of Life Insurance Policies model regulation, will continue to be exposed by the NAIC and could be advanced. AG 38 is the second incarnation of Guideline Triple-X. Guideline AXXX was developed to eliminate loopholes that regulators maintained some insurers were using to avoid reserving requirements. AG 38 was a further effort by regulators to eliminate any existing loopholes.

The change in New York Rule 147 will not affect Northwestern Mutuals financials but will impact the financials of some companies, says William Koenig, a senior vice president and chief actuary with Northwestern Mutual, Milwaukee. "It is a little unusual [to advance a change] so late in the year," he adds. Companies will need to consider the change when they are putting together their financial statements for 2004, he explains, adding it is "unusual and unfortunate."

The New York proposal will create certainty in the level of reserves, he says. The work of the Academy and the efforts by both regulators and actuaries to create a long-term solution is important, he says, but for the time being, it is important to have reserve requirements for policies that are paid up that provide reserves that are consistent with the 1980 CSO Tables.

Jefferson-Pilot Financial, Greensboro, N.C., is reviewing the new requirements and is deferring comment for now, says Paul Mason, a company spokesman. Jeff-Pilot was one of many companies that spoke out against AG 38 during the NAIC winter meeting.

But, Scott Harrison, who represents a group of insurers who also oppose implementation of AG 38, expressed concern over the action. He questioned the "unilateral action taken while the NAIC process is under way."

The action, he says, is "bad for consumers" because it will make insurance "less available and more expensive."

New York has been a leading advocate of uniformity of regulation and such action could be misconstrued by those who are in favor of more federal control as a lack of commitment to the NAIC process, Harrison adds.

Reproduced from National Underwriter Edition, January 27, 2005. Copyright 2005 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.