NAIC moves closer to finalizing AG 49-A, new reinsurance guideline

A National Association of Insurance Commissioners’ group took another step Thursday toward finalizing a pair of key guidelines.

The Life Actuarial Task Force posted Actuarial Guideline 49-A and the new AG 55 for a 21-day comment period following the meeting. Minor language tweaks are involved with the former guideline, while regulators seek comment on draft templates for AG 55.

But there remains a bigger issue still to be resolved with AG 49-A.

Approved in 2020, AG 49-A limits the maximum illustrated rate that insurers can use in policy projections to prevent unrealistic growth assumptions. It includes restrictions on exaggerated benefits from indexed loans, a strategy that previously allowed aggressive return assumptions.

Illustration irregularities were uncovered after regulators reviewed illustrations from 13 companies, which prompted regulators to attempt a quick fix.

Regulators found that insurers often displayed multiple historical averages over different timeframes, often side-by-side with the maximum illustrated rate, regulators noted. The historical averages were sometimes two to four times the maximum illustrated rate.

In addition to discouraging side-by-side comparisons, regulators aim to standardize the historical period for index components that lack 25 years of historical data. Regulators discussed setting the minimum historical period at five years, but some regulators preferred ten.

Rachel Hemphill, chief actuary at the Texas Department of Insurance, is chair of LATF. She supports holding a final exposure for comment on the 5- or 10-year issue.

“That would be a decision for LATF to decide, once we had all our exposures and we didn't feel like other tweaking needed to meet made, and that was just really the remaining decision,” she said during Thursday’s call.

New reinsurance guideline

LATF worked for about 18 months to create AG 55, an asset adequacy testing guideline for reinsurance agreements.

Regulators want to require initial data reporting by April 1, 2026. The guideline is completely disclosure-based, a concession to industry, regulators have said.

The initial proposal to tighten the reins on reinsurers was made in February 2024 by David Wolf, acting assistant commissioner for the New Jersey Department of Banking and Insurance, and Kevin Clark, chief accounting and reinsurance specialist with the Iowa Insurance Division.

U.S. life insurers have nearly doubled their ceded reserves since 2019, increasing from $710 billion to $1.3 trillion in 2023, Fitch Ratings noted in a recent report. During the same period, reserves ceded to offshore jurisdictions nearly quadrupled, exceeding $450 billion.

State regulators always have the option to require more reserves from an insurance company, Wolf noted during meetings.

Comments on both AG 49-A and AG 55 are due by Oct. 15.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.