NAIC preview: PBR implementation plan gets serious

Based upon premium math, only New York state, whose top regulators remain concerned about solvency practices, opposed PBR. It could move forward, but if California, where lead regulators are worried about sufficient state resources, and Texas both declined, then the critical threshold would not be reached.

The planned staffing at the NAIC level, if robust, may assuage some concerns on both coasts, or perhaps in Washington, D.C., if New York is not convinced. Under PBR, reserves will decrease and the risk of insurer insolvency in the life insurance industry will increase warned New York Department of Financial Services (DFS) Superintendent Benjamin Lawsky last year. 

Advocates say a PBR approach would replace reliance on static formulas with use of modern statistical forecasting methods and reliance on actuarial judgment. Supporters say a shift to PBR would force insurers to think about their assets and liabilities more carefully and, in some cases, free them from the need to keep unnecessarily large reserves to satisfy the demand of an unrealistically conservative formula. However, the life industry has said it will continue the controversial use of captives and special purpose vehicles for reinsuring reserves as the practice is deeply embedded in the industry.

Captive reinsurance arrangements "will likely be useful into the future since they support a pledge of assets to a particular block of business," the life insurance industry has said.

The recommendations will be considered and likely adopted by the executive committee Aug. 25 in Indianapolis.