The third phase of a new way of determining capital that would apply to all in-force life insurance is a dramatic shift from the way that insurers currently determine capital set aside and requires companies to start looking at the issue now, according to discussions held during the winter meeting of the National Association of Insurance Commissioners here.
If all goes as planned, the C-3 Phase III project would take effect at year-end 2008. It is the third leg of a multi-year capital assessment project that regulators, with the help of the American Academy of Actuaries, Washington, are developing. C-3 Phase I applies to general account, fixed annuity business. C-3 Phase II applies to capital requirements for variable annuities with guarantees such as death and living benefits. C-3 Phase III assesses interest rate and market risk.
As part of the effort to establish the C-3 Phase III of the project, Peter Boyko, chair of the Academy's Life Capital Working Group, described elements of the project to members of the Life Risk-based Capital working group. Among the current recommendations is to include single premium life business in the C-3 Phase III component of the project and to remove it from C-3 Phase I, as well as to eliminate the current C1 required capital on expense allowance for variable products.
According to the presentation, projections would reflect prudent best estimate assumptions, and asset projections would reflect a company's reinvestment and disinvestment policies. Treatment of hedges, according to the presentation, would be directly reflected in the C3P3 calculation based on a C-3 Phase II framework.
