Standard Valuation Law Advances to NAIC Executive Committee

The Life Insurance and Annuities Committee of the National Association of Insurance Commissioners endorsed revisions to the Standard Valuation Law aimed at providing more uniformity in life insurance reserve requirements across states.

Meeting via conference call, the committee approved without opposition changes that include establishing a reserve system and defining a framework that supporters say will allow companies to price products with reserves more closely aligned to assumed risks. The changes will be on the NAIC's Executive Committee and Plenary agenda at the association's fall meeting, Sept. 21-24, NAIC spokesman Steven Cohen said.

The American Academy of Actuaries supported the revisions, saying the proposed reserve system recognizes all benefits, guarantees and funding associated with life insurance contracts and their risks.

"Overall, the actuaries are pleased with the passage of the SVL as it is a milestone toward implementing a principle-based approach," Tom Campbell, vice president of the academy's Life Practice Council, said in a statement.

Following Executive/Plenary approval, next steps include finalization of a valuation manual, Campbell said.

If "appropriately but not excessively conservative" reserve requirements are developed, a package of laws and regulations could be ready for individual states' consideration sometime in 2010, American Council of Life Insurers Senior Actuary John Bruins wrote in a letter to the committee.

An A.M. Best Co. special report at the start of the year recognized that principles-based approaches to capital and reserves were picking up. A.M. Best anticipated that PBA could be implemented fully in the United States between 2012 and 2013, which could coincide with implementation of Solvency II in Europe, with the earliest effective date for PBA for life reserves expected to be Jan. 1, 2012. The timeline for life reserves depends on adoption of a new Standard Valuation Law and a new Valuation Manual by at least 42 states (BestWire, June 15, 2009).

The report said A.M. Best expects PBA to yield more volatile financial results, especially for leading writers of variable annuity living benefits. It may take several years, however, for the impact of the new reserve requirements for life insurance products to be fully felt, because the new standards will only apply to new issues (BestWire, Jan. 26, 2009).