NAIC Approves AG 38’s Application to Life Products

Members of a National Association of Insurance Commissioners' joint working group voted in favor of an initial approach to addressing ongoing concerns about how Actuarial Guideline 38 should apply to certain universal life with secondary guarantee and term universal life products.

During a Feb. 21 conference call, members of the joint working group approved taking a bifurcated approach in setting up different evaluation standards for "closed blocks of business" policies that were written before a specified date and for policies deemed to be new business, or those that were written after the decided upon date.

They also approved a proposal to bring in an outside actuary to aid in their fact-finding mission. The joint working group did not approve the full contents of a framework for applying AG 38, instead limiting today's vote to two issues.

The conference call vote, which marks the initial move toward sorting out the AG 38 issue, comes after the NAIC's Executive Committee created a joint working group made up of members of the Life Insurance and Annuities Committee and the Financial Condition Committee, which is chaired by Texas Insurance Commissioner Eleanor Kitzman. The joint committee was formed in November in an effort to scale back the debate on the issue that was set off last year after some state regulators questioned the legality of how companies were setting up reserves for certain universal life insurance products (Best's News Service, Nov. 5, 2011).

The debate centers on how AG 38 should apply to universal life insurance policies with secondary guarantees and term universal life products. According to the NAIC's proposed interpretation framework, closed blocks of business policies would be evaluated by actuaries on a stand-alone basis. The evaluations would consist of asset adequacy analyses incorporating "moderately adverse scenarios." If it is determined the reserves are adequate on that basis, the company would not need to make an adjustment to its in-force reserves (Best's News Service, Jan. 16, 2012).

During the conference call, Alaska Insurance Commissioner Linda Hall urged members of the joint working group to change the title of the proposal from framework to explicitly include the words "bifurcated approach." Hall said while she had no objection to either the bifurcated approach or the idea of using an outside actuary, she was concerned that voting in favor of something called a "framework" would send the wrong message about where the working group was procedurally.

The proposal, which is now titled "Draft Bifurcated Approach to AG 38," will be sent to members of the full Life Insurance and Annuities Committee and the Financial Condition committees for further consideration. Kitzman said she hopes to have the NAIC's Executive Committee and plenary consider the proposal during the organization's upcoming spring meeting in New Orleans, which will run from March 3 through March 6.

(By Jeff Jeffrey, Washington Correspondent: [email protected])