In the discussions held by the Life Actuarial Task Force (LATF) of the National Association of Insurance Com- missioners (NAIC) last spring and summer to consider the final set of amendments to the Valuation Manual
that sets forth the process that will underpin principle-based
reserving (PBR) for life insurance, the authors heard a
regulatory actuary ask a question that provoked heated
discussion: Does a qualified actuary who is assisting or
advising a company regarding its responsibility to establish principle-based reserves represent the interest of the
company, or that of the state insurance commissioner?
The task force member who raised the question pointed out
that, under the revised model Standard Valuation Law (SVL) that
has been adopted in 46 states as of year-end 2016, the commissioner
has the responsibility for either valuing the company’s insurance
liabilities or causing them to be valued. In most cases, the commissioner in turn requires the company to value its liabilities, but
the commissioner has the right to hire an independent actuary to
carry out the valuation. If the company has policies that are subject
to principle-based valuation, it must in turn assign certain responsibilities to a “qualified” actuary, including the responsibility for
overseeing the valuation. Thus, the company must, under the law,
assign oversight responsibility to a qualified actuary for a function
that it is carrying out on behalf of the commissioner. Moreover,
the commissioner could, at his or her discretion, hire a qualified
actuary directly. Does this mean that the qualified actuary in some
sense represents the interest of the commissioner?
LATF decided to ask for public comment on this question. Before reporting on the responses to this request, we will give some
background on what the authors understand to be the responsibilities of the various parties involved in a principle-based valuation
of life insurance policies.
As stated above, the SVL approaches the valuation of insurance liabilities by giving that responsibility to the commissioner.
Actuaries have several new
responsibilities under principle-
based reserving, and many
resources to draw upon.
—WHO, WHAT, AND HOW