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Summer Meeting Canceled— Click here to read this article.
Life Actuarial (A) Task Force— Click here to read this article.
VM-20 Impact Study— Click here to read this article.
As our readers are undoubtedly aware, the NAIC summer national meeting that had been scheduled to take place August 29th through September 1st in Philadelphia was canceled due to Hurricane Irene. It is our understanding that the NAIC will be holding virtual meetings of its committees, task forces, and working groups via conference calls over the next several weeks; indeed, several have been scheduled to take place this week.
The Barnert Reports plans to cover those meetings that are of interest to its readers and will be publishing reports of each such meeting soon after it occurs. While covering meetings by listening in on conference calls is not as productive as attending in person, we hope that our articles will be helpful.
Life Actuarial (A) Task Force
(Please note that there may be changes to this report after a review of the August 30th LATF conference call) VM-20 Impact Study: There was a conference call on August 31st to review the summary of and comments on Phase I results received on the NAIC VM-20 Impact Study that was compiled by Towers Watson. (http://www.naic.org/documents/committees_a_latf_110831_vm20_impact_study_towers_watson.pdf)
Leslie Jones (SC) chaired the meeting and Jason Kehrberg (Towers Watson) reviewed the VM-20 Impact Study. Jones gave an overview of the work to date on exposure draft VM-20: Requirements for Principle-Based Reserves for Life Products. Pete Weber (OH), chair of the LATF Impact Study Work Group, said the VM-20 study was commissioned by the NAIC and is the focus of this meeting. Weber emphasized that the other study, which had been distributed to the LATF, was compiled by Milliman for the ACLI and should be viewed only as ACLI comments and not as a second report for LATF.
Kehrberg said that getting participants familiar with VM-20 and getting the models up and running was Phase I and the focus of the presentation, which is “what we are seeing.” Phase II will be a sensitivity analysis and currently Towers Watson needs more results. Phase I looked at one year and five years and Phase II will look at ten years and 15 years. The results for Phase II are coming in more quickly than the Phase I results so hopefully by the end of September all the results will be in and October will be spent crunching the numbers and finishing the analysis.
Several points made during the presentation:
- There were a surprisingly high number of resubmission for Phase I
- The resubmissions did not cause significant changes in the data
- Indexed Universal Life products are not included due to lack of participation
- Not all companies provided all aspects of VM-20
- The greatest reserve is usually the NPR, except for Universal Life with Secondary Guarantees (ULSG) and Term 30
- All USLG participants and most Term 30 products failed the Stochastic Reserve Exclusion Test (SRET)
- All USLG participants and some Term participants failed the Deterministic Reserve Exclusion Test (DRET) for one year of business
- Results for Alternative 2 are almost identical to Alternative 1
- Exclusivity testing was very consistent for one year and five year
- For Term, one large company had an increase in reserves, but if that participant is excluded the Aggregate Term reserves decreased, which is more in line with the Term results
- There will be further investigation about the increase
- The SRET statistic is most pronounced on ULSG and Term 30
- There is a drafting note in the exposure draft regarding treatment of YRT because it is a problem
- Regarding the DRET, more work has to be done on product design to determine why products fail
- The NPR is usually the greatest reserve except for ULSG and Term 30
Kehrberg concluded by saying that a lot of people are going to think reserves are higher or lower than they would like to see.
John Bruins (ACLI) said the intention of the Milliman study is not to compete with the NAIC/Towers Watson study but to provide as much information as possible to LATF. An ACLI memo sent to LATF outlines some of the ACLI/Milliman study. (http://www.naic.org/documents/committees_a_latf_110831_acli_letter.pdf)
Bruins added that since Whole Life, Simplified Issue, and Accumulation UL products generally pass the exclusion tests perhaps it would be appropriate to initially exclude them. Paul Graham (ACLI) said that the numbers for the ACLI/Milliman study are not significantly different than the numbers for the NAIC/Towers Watson study.
The Task Force wanted time to read the reports and arrangements will be made for Milliman and Towers Watson to discuss the differences between their studies. No changes will be made to the exposure draft until the results of Phase II are in. The Society of Actuaries will have a Valuation Actuary Symposium on September 12-13, 2011 in Florida where the Towers Watson study will be presented and the Task Force is interested to hear the feedback from the Symposium’s Q&A session.
Starting on September 8th, there will be a LATF call at 11:00 a.m. CDT on every Thursday in September. Milliman and Towers Watson will discuss the differences in their studies on September 15th. There will be Life Principles Based Reserves Subgroup calls on September 22nd and 29th.
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