LATF (and a Bit on Other NAIC meetings) Update – November 17-18, 2015 Meeting
By Donna R. Claire
By Donna R. Claire
The Fall 2015 LATF meeting was held in Washington D.C. (really National Harbor Maryland.)
Note: Mike Boerner (TX) was awarded the American Academy of Actuaries’ 2015 Robert Myers award for outstanding public service. Congratulations to Mike – well deserved! (And separately the next day the NAIC give Mike the Dineen Award for outstanding contribution to state regulation of insurance.)
Below are highlights:
LIFE ACTUARIAL TASK FORCE MEETING: Chaired by Mike Boerner (TX)
PBR Status: As on 11/12/15: 39 states, 71.78% of premium threshold: need 42 states, and 75% of premiums. Massachusetts still working on this year – could bring it up to 40 states and 75.05% of premium. There are plans in place for 8 states to introduce in 2016. Many of these states meet in the Spring of 2016, so the strong expectation is that it will go 1/1/17.
Professionalism: Mary Miller (just ex-President of the Academy), John Purple (member of the ABCD) and Tricia Matson (just-ex chair of the ASB) gave reports. Tricia gave an update on standards of practice: there are updates to ASoP 21 on responding to auditors and ASoP 23 on Data Quality that are out for comments. Work is being done on an ASoP on Pricing as well as on Modeling and on Assumptions Setting Standards. There was an Academy webcast on modeling with 4,000 people listening in. John gave an update on ABCD issues: there have been a number of calls on whether specific actuaries are qualified in certain areas. The Academy is a webinar on December 9 on “Facing a Dilemma? The ABCD Can Help”. There is also an attestation form regarding qualification of actuaries, e.g., for statutory opinion qualifications for signing that will be on the Academy website by early January for 2015 year-end testing.
Simplified Issue/Guaranteed Issue and Preneed Mortality Update: Mary Bahna-Nolan gave an update on this topic. This will be the first time that there will be separate tables on this 3 businesses. For Guaranteed Issue there were 11 companies’ data used, with 220,000 claims. The range of results by company was quite wide. For Simplified Issue, there were 30 companies that provided data, with 270,000 claims included. The loading to cover 70% to 80% of the data is about 8% to 16%. The mortality table being developed for Simplified Underwriting would be good for “traditional” Simplified Issue. However, there are new forms of Simplified Issue, known as Accelerated Underwriting which is simplified underwriting, but uses more electronic data collection – e.g., pharmacy data collection, so the experience will likely be better. More discussion is needed. For Preneed, they had 11 companies contribute to the study, with 640,000 claims. There will be LATF conference calls on issues for these businesses, such as loading margins, in the next few months.
PBR Valuation Manual Proposed Changes: There were a number of proposed amendments to the Valuation Manual that were discussed. Some of these were to remove some unintended consequences from certain formulas or requirements in the Manual, others were to clarify or simplify certain items.
Mary Bahna-Nolan discussed amendment proposal forms to the Valuation Manual to adopt the 2017 CSO mortality table for reserves and nonforfeiture inside and outside PBR. These amendments were adopted by LATF.
John Bruins (ACLI) discussed 6 amendment proposal forms. The first involved changes to the Net Premium Reserve methods – mostly editorial changes. The second were changes to the determination exclusion test; also mostly editorial changes. These two amendment forms were exposed for comment – the hope is that there will be companies that have looked at these changes and figured out how much difference it would make in their reserving. The third amendment would allow actuarial judgement to supplement or replace the Underwriter Criteria Scoring tool; this was not exposed for comment, but discussions will continue on this topic. The fourth amendment is for default costs for commercial mortgages; these are mostly editorial changes and were exposed for comment. The last two were on VM-31 (reporting). One of the amendments cover what a company has to document if they pass the deterministic and stochastic exclusion tests – it requires a short report. (If a company passes the small company exclusion test, this documentation is not needed). The sixth amendment would allow reliance on the new PBR charts that will be in the Annual Statement as opposed to having similar tables in the VM-31 report; LATF exposed this amendment, with the addition that the PBR Supplement tables be brought into the VM-31 report. The LATF exposures were through January 8, 2016.
Dave Neve, chair of the Academy’s UL work group, presented two amendments. One contains editorial changes to eliminate the seriatim reserve calculation under the deterministic method. The other amendment was to make the editorial changes needed to define a “modeled reserve.” LATF exposed these amendments for comment until January 8, 2016.
Larry Bruning (NAIC) gave an update on the VM-20 proposed baseline annual default costs, which were developed at the NAIC. These default costs were adopted by LATF. These default costs would be used for those companies that are developing reserves under AG 48.
SOA Research Update: Dale Hall (SOA) gave an update on the SOA research projects. The SOA has done a number of experience studies on various products as well as certain research projects of interest. One of the projects is to update the PBR Implementation Guide. These can be found on the SOA website.
Update on PBR Training And Net Premium Reserve Durable Education Component: Dale Hall also gave an update on the project between the SOA and NAIC developing on-line education modules on PBR. There is a sample of the Durable Education Component on the Net Premium Reserve, which is on the SOA website: http://ift.tt/1Hjdjoc.
Valuation Manual: The latest Valuation Manual is available on-line at the naic.org website.
PBR Pilot Project: There will be a pilot project where about 10 companies will work with associated domiciliary regulators to do sample term and UL/ULSG products under PBR. This project is to shake out any potential problems/place where more clarity is needed under PBR. The Company work is expected to be done March-June, 2016, with the regulators reviewing after this.
Actuarial Streamlining Project: ArcVal was hired by the NAIC to consider streamlining the actuarial reports. Tom Campbell gave an update on this. There are currently up to19 actuarial reports; the goal is to reduce this to one unified reporting structure. The project is to come up with draft of submission and implement a test run. Phase I was to review current reports. There were 10 companies in 8 states that volunteered to submit their reports for the project. The goal is to develop template and instructions. The group came up with a “packaging submitter” to combine e.g., the AOMR, RAAIS, Exhibit 5 Interrogatories, the AG35 (EIA) certification, the aggregate AG36 (IUL) certification, AG38 reports, AG43 certification and memo; RBC C-3 Phase I and II, Guaranteed Separate Accounts (Model 200), Life Illustrations, the MGA (Model 255) opinion, Preferred Mortality (Model 815), Synthetic GICs (Model 695) opinion and memo, Regulation XXX X-factor (Model 830) opinion and report; Annuity NF (Model 806). Phase II is to submit this for 2015 reports for most of the 10 companies. These will be reviewed and changes made as needed. Should be done by the end of August 2016.
VM-22 Subgroup Report: Felix Schirripa (NJ) gave an update of the LATF VM-22 (general account annuities) subgroup. There is a slight bias on the regulatory group to only change what is not working, as opposed to completely overhauling the annuity reserving system. The basic concept is that there would be a floor reserve and a modeled reserve. There would be exclusion tests, where it is expected that most current products would pass this test. The exclusion test would be, for example, that 90% of the MV of assets would exceed the cash values and the actuary certifies that the modeled reserves are unlikely to go below the floor reserve amount.
Chris Conrad gave an update on the Academy’s work on the SVL Interest Rate Modernization subgroup. They suggest that for products with premiums greater than $100 million would use a daily calculation of the interest rate; smaller amount policies would have a quarterly rate. The rate would be consistent with the rates in VM-20.
John Miller and Chris Olenchowski, co-chairs of the Academy’s Annuity Reserve Work Group, gave an update of their group’s work. They have been working a number of years on this project. It was noted that the group had been working on what had been called the RSM (Representative Scenario Modeled Reserve methodology – an aggregate reserving method). It has been determined that, although this method has merit, there is not an easy way to get this method to work for all the products at this time; therefore at this time, they will not be recommending the RSM as the reserve methodology for annuities from day 1. (More work may be done in the future on RSM for applicable products in the future).
Work is continuing on a more simplified approach to annuity reserving. One item that will also be looked at is converging the reserving methodology for general account annuities with variable account products.
Nonforfeiture: Tom Berry gave the Academy update on this. The group has developed a Gross Premium Nonforfeiture Method (GPNM). The nonforfeiture would be based on the pre-funded portion of the risks, and the nonforfeiture benefits would be guaranteed. The group developed a comparison of what the nonforfeiture values would be under current products versus what it would be under GPNM is in the marketplace. The actual NY values using the approach the nonforfeiture group came up with would depend on whether there would be minimums and maximums on factors regarding mortality, interest and expenses. LATF will have a conference call to follow up on this.
Compact (IIPRC): Jeanne Daharsh provided an update on the work of the Interstate Insurance Product Regulation Commission. This is an interstate commission that can be used for certain life, annuity and LTC product filings. This Commission covered about 40 states, and is an efficient way to get product approval. Katie Campbell (who had been an Alaska regulatory actuary) joined the staff of the Compact to review mostly annuity filings. The group is currently working on Group Disability Income standards. The MVA standard and GLB standards are undergoing their 5 year review, and the Individual LTC review is also underway. They are working on rules for filing products under the 2017 CSO table. Everything is posted on the IIPRC website (http://ift.tt/1GahZJw).
Indexed UL Guideline: Fred Andersen (MN) gave an update on the Indexed UL illustration guideline. Phase I of the illustration guideline went into effect on September 1, 2015. There are some issues that needed addressing. One issue is how to address a product which has two different accounts within one policy when caps/charges for the accounts are not the same. Another issue is how to handle products that contain bonuses. A third issue is that some companies have gotten rid of their traditional benchmark accounts (e.g., S&P 500) in order to bump down to the “hypothetical” benchmark account which can illustrate at a higher rate; should anything be done about this? Also discussed is a bigger issue as to whether the illustration regulation itself should be opened up to cover other issues, e.g., bonuses on non-IUL products. Fred stated that these issues will be discussed further on future calls.
CDAs: Tomasz Serbinowski (UT) chairs the Contingent Deferred Annuities Subgroup. The group had 4 conference calls in September and October to discuss prescribed assumptions under Actuarial Guideline 43 (e.g., lapses). The subgroup decided that there wasn’t enough data to make assumptions different than the variable annuities under the Guideline. The subgroup also determined that no changes to the Annual Statement Blanks were needed specifically for CDAs at this point. The subgroup recommended this decision be forwarded to the parent committee. It is noted that Felix Schirrapa mentioned that the RBC group is looking at a C-2 risk charge based on payout annuity amounts, so this may be needed to be added to the Blanks in the future. The total amount covered by this product in 2014 were $370 million of coverage, with reserves of less than $1 million.
Experience Reporting Under PBR: Fred Andersen (MN) chairs this group for LATF. They are looking to expand where experience reporting requirements will be needed in the NY/Kansas requests. Fred is looking at expanding to different products, although they acknowledge that it is tough to get info on dynamic lapses for annuities that are in the money when the market has only been generally going up for the last 7-8years; similarly it is hard to determine what lapses would do when interest rates go up since the rates have generally been going down for a couple of decades. Fred’s group is coordinating with SOA and LIMRA on the data collection. There may be variable annuities and deferred annuity and some more health data collection efforts in the relatively near future.
Status Report on the RBC C-3 Phase 2/AG 43 Subgroup: Pete Weber (OH) gave an update from the subgroup on RBC C-3 Phase 2/AG 43 regulatory work on the implementing a new variable annuity framework into RBC C-3 Phase 2 and AG43. This framework will be developed by Oliver Wyman, who has been hired by 15 companies and the NAIC.
International Matters: Josh Windsor (NAIC) gave an update on international matters, e.g., the International Association of Insurance Supervisors. This group has worked on Insurance Core Principles – as of now, there are 408 pages of “core” principles. Some of these principles would apply to all insurers, some only to global insurers. Work is continuing on these. There are also International Capital Standards that are being field tested. Since what is going on in the International front can impact just about all companies, it is worthwhile to follow what is going on.
PBA REVIEW (EX) WORKING GROUP: Mike Boerner (TX) Chairs
There is a subgroup working on proposed changes to the Annual Statement for PBR. Kaj Samson (VT) leads this effort. There is a 3rd draft which was exposed for comment until December 18, 2015. Work on this subject is continuing on conference calls.
There is a subgroup on PBR Reporting Review Procedures. Pete Weber (OH) leads this group looking at the Financial Condition Examiners Handbook and the Financial Analysis Handbook. Work had been done on revisions to the Financial Analysis Handbook. Revisions were proposed and exposed for comment. These comments were reviewed and changes made. The revised Financial Analysis Handbook was exposed for comment until December 8, 2015. Work is being done on the Financial Examiners Handbook. The group will have more conference calls.
There will be a pilot project involving about 10 companies and their associated domestic regulators (also mentioned above). The companies will do a 12/31/15 PBR analysis on one or more products. This is to have both sides shake out issues, focusing on process rather than numbers. The companies would volunteer by year-end 2015, and do the work in the March-June 2016 time period.
Larry Bruning (NAIC) discussed NAIC support of States for PBR; the NAIC is staffing up, with the expectation of having several actuaries to support the states by 1/1/17, the expected date of PBR implementation. In addition, they are looking at the second of third party vendor models for PBR.
I gave a brief update of a new Academy workgroup I now chair on PBR Modeling Governance. Its goal is to figure the holes, e.g., develop a checklist for regulators looking at PBR; determining responsibilities of actuaries vs companies in the process; seeing whether more guidance is needed on assumption setting and modeling; and a possible intensive e.g. 3 day seminar for companies and regulators on PBR, going through actual examples.
LONG TERM CARE: Perry Kuperferman (CA) Chairs
Marianne Purushotham (LIMRA) gave a SOA/LIMRA presentation of information on industry experience for 2004-2011. The lapses at later durations went up a bit, but overall lapses are still 1% or less. The mortality table they compared to was the 1983 GAM, with Actual/Expected in the neighborhood around 80% (?) This study is available on the SOA website.
Bob Yee gave an update of the Academy’s LTC’s work. They expect to have a report out by the end of 2015. This report will go through some of the issues with modeling LTC under PBR. It does discuss stochastic modeling.
Bob Yee also gave an update on the credibility monograph. This will discuss mis-estimation risk and how applications of various credibility methodologies can address risks.
Perry gave an update on the LTC valuation subgroup. Rhonda Ahrens (NE) stated that they are looking at PBR reserves for LTC. They determined that claim reserves are already principles-based; they are determining what direction should be done for PBR active life reserves. The group has been meeting by conference calls and will continue to meet.
Fred Andersen discussed the work of LTC rate increase group. There was a meeting with companies and developed a draft of the Collaborative LTC Rate Increase Review Method. This methodology benchmarks to the original pricing and looks at “if you knew then what you know now” premium (updated assumptions). The states would allow increases somewhere in between these two numbers. In addition, there was a draft of “Talking points for discussion on long term rate increase filing”, a memo that could be sent to insurance companies on possible items that the state would like to see, e.g., the original memorandum and pricing documentation; why the increase is requested, and the actual experience on lapse, morbidity, mortality, etc.
Perry mentioned that California sent out their 2015 Holiday letter last week. One of the issues is that they will ask companies to volunteer how their reserves would look under the SOA morbidity factors compared to the factors the Company used.
NEXT MEETING
The next NAIC meeting is in New Orleans in April 2016. Stay tuned!
LATF (and a Bit on Other NAIC meetings) Update – November, 2015