With the full adoption of a more flexible reserving guideline for variable annuities by state insurance regulators, companies will now start adjusting their reserving to reflect this new approach.
During its fall meeting, the National Association of Insurance Commissioners, Kansas City, Mo., fully adopted Actuarial Guideline VA-CARVM on Sept. 24. It will become effective on Dec. 31, 2009.
The new reserving approach relies less on reserving formulas and more on actuarial judgment. However, the approach also has a standard scenario that can be used to establish minimum reserving requirements for companies as well as regulatory discretion of state insurance commissioners.
In an interview, Tom Campbell, a life actuary with Hartford Life Insurance Company, Simsbury, Conn., who spearheaded the effort by the American Academy of Actuaries, Washington, in working with the regulators, described how the guideline will affect companies.
"The guideline will align the value of reserves with the risk management that the company is taking. It will allow companies to do a better job of assessing risks and how to manage those risks."
For instance, the introduction of C3-Phase II, the guidelines for capital for VAs with guarantees that is in place has helped Hartford Life better manage risk through hedging and modeling, he explains.
VA-CARVM will not necessarily change variable annuities with guarantees because the industry is already creating products to meet consumer needs, according to Campbell.
But it will make it easier to make a cogent case for putting the principles-based project in place, he adds.
What will help companies prepare for VA-CARVM is an effective date at the end of 2009 and the fact that C3-Phase II is already in place, Campbell says.
