NAIC Delays Work On Accounting System Shift

State lawmakers "say show me the law, and I don't have the law," Thomas Hampton, District of Columbia commissioner and chair of the Principles-Based Working Group, said at a working group session. "I need something concrete."

Advocates of a PBR system want to shift insurers and regulators away from use of static reserving formulas, toward reliance on actuarial judgment and use of modern statistical forecasting techniques.

Critics say a PBR system could give insurers the ability to skimp on reserves; supporters say a PBR system would help insurers tailor reserves to more accurately fit the risks they are taking.

Speakers at the session emphasized the need to take the time necessary to get the details, such as provisions relating to income taxes, right.

"No one wants to get this done faster than the industry," said Paul Graham, a life actuary with the American Council of Life Insurers, Washington. "But let's get this done right."

If regulators and insurers to go legislatures "with a manual that is still squishy," insurers might not lend much support, and lawmakers might find PBR proposals easy to kill, Graham said.

Graham noted that the Treasury Department recently raised "more issues than it answered" in Internal Revenue Service Notice 2008-18, which included questions about the tax rules governing insurance reserves.