LATF (and a Bit on Other NAIC meetings) Update – March 26 -27, 2015 Meeting
By Donna R. Claire
The Spring 2015 LATF meeting was held in Phoenix. (It was 90 degrees and sunny – a little different than my weather in the Northeast.) Below are the highlights:
LIFE ACTUARIAL TASK FORCE MEETING: Chaired by Mike Boerner (TX)
PBR Adoption Update: John Bruins of the ACLI gave an update on the state adoption of PBR. It has been adopted by 22 states, with the legislation on the governor’s desks in 3 additional states. There are an additional 13 states where there is active legislation. There is also work being done in 7 additional states. The current estimate is that the legislation will be adopted in enough places to have PBR in effect on 1/1/17. It’s been a long slog, but it does look like an adoption is in sight (Yeah!!!)
Mortality Table Development Update 2014 VBT/CSO : Mary Bahna-Nolan gave an update of the mortality work being done by the SOA and American Academy of Actuaries. There are 2014 VBT Basic Tables that were released by LATF in August of 2014 and the Relative Risk tables that were released on the SOA website. The “2014” Tables can be used for AG38 and for VM-20 deterministic and stochastic reserves. LATF voted to update these tables to 2015, and voted to expose these tables for comment. The group intends to have the same 10 non-smoker/4 smoker tables; male/female and unisex tables as the 2008 Valuation Basic Table, but the percentage of baseline mortality varied; e.g., the best mortality class was 50% of baseline mortality as opposed to 70% in the 2008 VBT. The AAA/SOA group suggested wear-off factors for the preferred mortality by age 95.
There is work being done on the 2017 CSO Tables, for use in net premium reserves, tax reserves, nonforfeiture and 7702/7702(A) work. At this time, the expectation is that the 2017 CSO table will have 3 non-smoker and 2 smoker tables. The group suggested that the proposed margins be based on percentage load graded by age (e.g. the load may be 23% below age 20, grading to 17% at age 80, with further reductions after that age). The preliminary results of using the suggested 2017 CSO versus the 2001 CSO for Whole Life insurance varied by sex, age and smoker status: at age 25, male NS, the reserves decreased an average of 9.1%, for Female Smokers at age 65, the average reserve actually increased by 1.4%. For XXX term reserve products, the percentage change was more dramatic, e.g., for duration 1 for a Male Super Preferred NS age 40. the reserve decrease was 72.1% – but this was a drop of only $0.18 per thousand. The SOA/AAA group also developed PBR margins, which range from 20.4% for issue attained ages 0-45 and credibility of 0-19% to 0.6% for attained ages 106+ and credibility of 99+% using Buhlmann credibility. They also developed separate proposed margins if one used a Limited Credibility method.
The SOA/AAA group is working is working with a group of 11 companies to see the impact of the tables/margins on reserves. Milliman (Karen Rudolph is the lead) is doing the work on this. Note that the goal is to have the CSO Table ready in the summer of 2015.
Update on 2012 IAR Adoptions: John Bruins (ACLI) gave an update on the adoption of the new Individual Annuity mortality table. It has been adopted by 30 states, with 28 states having a mandatory 1/1/15 implementation date. There is pending legislation in 8 states, with 2 additional states currently considering it. (If you are not using the 2012 IAR because your state has not adopted it, you still need to note the effect of adopting it.)
PBR Valuation Manual Proposed Changes: John Bruins (ACLI) reported on changes suggested to the PBR Valuation Manual. These included changes to VM-31, which includes elimination of certain requirements and reduction of certain data requirements. There are a total of 61 changes suggested. There will be a follow-up conference call on this.
The ACLI also proposed changes to the Commercial Mortgage default chart in VM-20. LATF exposed this change for comment for 30 days.
The ACLI found that PBR Reserve volatility was impacted most by changes in interest rates. The ACLI proposes that this item be studied. However, since PBR is purely prospective on new issues, it doesn’t need to be solved before PBR goes live. It will be taken off of the top 10 lists of things that need to be solved before PBR operational date.
Another issue is what constitutes a PBR “Change in Basis”, needing to be reported in Exhibit 5A of the Annual Statement. The PBR reserve is partly a formulaic reserve and partly a modeled excess. The ACLI recommends that the formulaic reserve follow the general “Change in Basis” rules and that the additional piece, e.g. updating a mortality or lapse assumption, generally not be considered a “Change in Basis”.
In the net premium reserve, what products are covered may be changed. The ACLI is considering whether all products should be covered.
Bill Weller (Omega Squared) asked about changes to the Valuation Manual for Health products, e.g., mentioning the new Group LTD tables. He wanted to know when the changes should be brought up so that they would be included in the Valuation Manual. The answer is that the final adoption would be needed by the Summer before the implementation date (e.g., Summer of 2016 for the 1/1/17 implementation.)
CDA: Tomasz Serbinowski (UT) chairs the Contingent Deferred Annuities Subgroup. The group brought 2 items before LATF: 1) exemption of CDAs from the nonforfeiture law – they suggested a revision to the Model nonforfeiture law to do so (although there is some feeling that they may need nonforfeiture in the future). This proposed revision was exposed for comments by LATF. 2) Changes needed to the Synthetic GIC Model Regulation. Tomasz’s group recommended changes to the Regulation to eliminate the possibility that this Model be applied to CDAs. The changes were exposed for comment by LATF.
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 their effectiveness. The group is developing a project plan which may require additional resources, possibly a consultant, and the group is working on a RFP.
Indexed UL Guideline: Fred Andersen (MN) gave an update on a proposed Indexed UL guideline. Fred has done a great job bringing together people on all sides of this issue. The proposed Guideline states that certain provisions would go into effect for policies sold after September 1, 2015, with other sections being applicable to illustrations provided on or after March 1, 2016. There was a 2 hour discussion on this Guideline, and a few tweaks were made. An updated proposed Guideline was exposed for comment.
Compact (IIPRC): Alice Fontaine 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. They have product standards. Currently they are working on the Individual Disability standards. They do a review every 5 years of standards. Certain annuity products/features are currently being reviewed. Everything is posted on the IIPRC website (
http://ift.tt/1GahZJw).
Aggregate Margins: Mark Birdsall (KS) chairs a work group on this subject. Steve Stommen gave a talk on using aggregate margins for level term insurance. The group will continue its work.
VM-22 Subgroup Report: Felix Schirripa (NJ) heads a LATF group looking at VM-22 (general account annuities). He gave an update on the work of his group. They are working on determining which of the 3 approaches is the best approach for reserves, e.g., having an approach similar to VM-20, using a representative scenario method (RSM), or developing modernized SVL formulas. The regulatory group is working closely with the Annuity Reserve Working Group of the American Academy of Actuaries led by Chris Olechowski and John Miller. They are also looking at weaknesses in the current SVL and will be looking at fixes to these. This includes reserves for fixed annuities with GLIBs and to improve the SVL interest rate development process. This is still a work in progress – more to come.
Indexed Linked Variable Annuities : Fred Andersen (MN) chairs a LATF subgroup on this. This product has more risks and higher potential returns than traditional fixed annuities. They are looking at this in terms of illustrations, potential limitations, and reserves.
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 such as variable annuities and Long Term Care.
AG 38 8(D) Reports: These reports on Universal Life with Secondary Guarantees under Section 8(D) of the Actuarial Guideline had all been reviewed by a NAIC Financial Analysis Work Group (FAWG). However, it was determined that FAWG will request specific companies rather than have every company sent in.
Nonforfeiture: Tom Berry gave the Academy update on this. The major issue currently being worked on is whether cash surrender values (versus benefits such as paid up insurance) are needed. LATF had a discussion as to whether changes to nonforfeiture laws are actually needed given that neither the companies nor regulators seem to look for changes. LATF plans on taking up these issues in a conference call.
AG33: Actuarial Guideline 33 is CARVM reserving for deferred annuities. Changes were needed because there were some companies that got unusual reserving results for deferred annuities with multiple benefit guarantees such as Guaranteed Living Income Benefits of various types, where more benefits actually LOWERED the reserve due to considering “non-elective” incidence rates. Changes were proposed and exposed by LATF, but LATF has not reached a final accord on this. LATF will have a call shortly on this matter.
Professionalism: Mary Miller (President of the Academy), Sheila Kalkunte (lawyer for the Academy), Keith Passwater (chair of the Committee on Qualifications), and Tricia Matson (chair of the ASB) gave reports. Keith mentioned that the Academy has recently finished a report of the qualification standards for PBR; they are not recommending a separate qualification standards, but are recommending that those actuaries in PBR make sure they are qualified to do the work. They added an answer in the Frequently Asked Questions section of the website that steps through what actuaries should do to be qualified to do PBR work (
http://ift.tt/1GahZJy). Tricia updated the ASoPs. There is a draft ASoP on Principles-Based Reserving which has been updated based on comment received. There is a proposed ASoP on modeling that was again out for comment. ASoP 21 on working with auditors is being revised. Tricia also mentioned that they have launched a new website and app on ASoP. Mary discussed a draft Qualification Standards attestation form that will be on the Academy website shortly.
EMERGING ACTUARIAL ISSUES: Mike Boerner (TX) chair
Emerging Actuarial Issues (On Actuarial Guideline 38 Q&A): Mike Boerner (TX) chaired a meeting on emerging actuarial issues on AG 38. This group is continuing to answer questions submitted on the new AG 38 rules for Universal Life products with secondary guarantees. There was a discussion regarding the calculation of the pre-funding ratio. There is a proposed answer which would make this apply to policies in 2016 and later only. This was exposed for comment.
There was also a question regarding pre-tax IMR. The ACLI is working on this item with the intent of developing a proposed answer soon.
PBA REVIEW (EX) WORKING GROUP: Mike Boerner (TX) Chairs
There are proposed changes to the Annual Statement for PBR that have been recommended. These are being exposed for comment for 60 days.
There is a subgroup on PBR Reporting Review Procedures. Pete Weber (OH) leads this group. This work includes changes that may be needed to the Financial Condition Examiners Handbook and the Financial Analysis Handbook. Work is still being done.
There was also a discussion of NAIC reviews/State Insurance Department Staffing 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.
Andy Rarus (CT) heads a PBR Company Outreach group which are working on several projects, with the help of the SOA: (a) There is a draft report in process on data from 38 companies regarding PBR readiness; many companies are actively working on this – a report will be available soon; (b) they are also working to develop Durable Educational Components (modules) on PBR in conjunction with the SOA, with the first module possibly be available in June 2015; they will be free at first but since they will need to be continually updated, there may be a cost eventually. (c) there will also be work with some Companies on PBR starting in June 2015 with a report due by June of 2016.
There was a survey on the collection of Company experience data and an experience reporting agent with regard to PBR. About 35 states responded to a survey on this topic.
LONG TERM CARE: Perry Kupferman (CA) Chairs
There was a report of the LTC Pricing Subgroup under Jan Graeber (TX). They have draft of the Guidance Manual. Major changes are an addition of an assumption template for a rate filing/increase request. The comment period ran until March 23. Some changes will be made to the Guidance Manual due to the comments received. This group also wants a charge to look at remaining issues relating to inforce blocks of business, such as what to do regarding rate increases on SMALL remaining blocks of business.
Warren Jones gave the Academy’s update on products: (a) LTC terminations: e.g. on lapses (which equal total terminations less mortality terminations based on the 1994 GAM and 2012 IAM). The group concluded that the 2012 IAM (with no projection) is a better fit than the 1994 GAM. They expect to have a report on terminations by the end of 2015. (b) There is a LTC PBR work group that is discussing PBR and LTC. This group is in the process of writing a report that includes considerations of stochastic modeling. (c) There is a LTC Credibility Monograph Work Group that expects to have a draft out in the second quarter of 2015.
Bill Weller gave a presentation on LTC and PBR. He had some concerns using a VM-20 approach of the CTE 70 stochastic reserves. However, this is not a requirement of PBR. The point is to get a right sizing of reserves, which may be a simple as doing GPV modeling, perhaps with sensitivity tests for major assumptions. Or, as noted by Mark Birdsall (KS), perhaps using a representative scenario method (RSM) that VM-22 is exploring.
Vince Bognar, formerly of Towers Watson, gave an update on the SOA LTC Experience Table. They are in the process of created basic tables for claim terminations, claim incidence and claim utilization/salvage. The aggregate databases of experience are available on the SOA website so that companies could play with it. The report on basic tables is expected soon. Matthew Morton of Towers Watson gave a report on the claim incidence model. The end result is an Excel model to predict claim modeling that will be made available to people shortly.
HEALTH ACTUARIAL TASK FORCE MEETING: Steve Ostlund (AL) chairs
Cancer Claim Cost Table Work Group: Brad Spenney gave the Academy of Actuaries/SOA update. There was a cancer data call, of which 13 companies responded. This includes hospital confinement and first occurrence claim data. The data is being scrubbed. The goal is to be able to replace the 1985 Cancer Claim Cost Table. He expects to provide some information such as graduated experience tables by the Summer NAIC meeting, and does expect updated valuation tables to be available in late 2015. Tomasz Serbinowski (UT) is heading a regulatory subgroup that is working with the AAA/SOA group on this project.
Professionalism: (This was similar to the report this group gave to LATF) Mary Miller (President of the Academy), Sheila Kalkunte (lawyer for the Academy), John Purple (on the ABCD), and Tricia Matson (chair of the ASB) gave reports. Tricia updated the ASoPs. There is a draft ASoP on Principles-Based Reserving that has been updated based on comments received. There is a proposed ASoP on modeling that was again out for comment. ASoP 49 (Medicaid) is being released and ASoP 5 is up for possible revision. Tricia also mentioned that they have launched a new website and app for ASOP. John Purple mentioned that the updated ABCD statistics on cases handled and types of complaints and requests for guidance is available on the website. Mary discussed a draft Qualification Standards attestation form that will be on the Academy website shortly.
Academy’s Health Practice Council Report: Sheri Westerfield gave an update on the Academy’s Health Practice Council. This includes continuing work on ACA. There is also work on Health Care Costs. They are also working on International Health Care issues. Mark Birdsall (KS) mentioned that the recent data breaches at Anthem indicate that perhaps the Academy should relook at an IT factor for C4 RBC. Sheri said she will pass it on.
Long Term Care: This group heard a brief summary of the LTC working group (see above).
Health Care Reform Actuarial (B) Working Group: Kevin Dyke (MI) chairs this group. One issue is that the companies have to file their rates before the Supreme Court makes a ruling on federal subsidies in 34 states. The subgroup is continuing work.
Analysis of Statutory Annual Statement Changes Regarding Health Insurance: Changes to statutory accounting due to SSAP 107 – Accounting for the Risk-Sharing Provisions of the Affordable Care Act and the three R’s (reinsurance, risk corridors and risk adjustments)
NEXT MEETING
The next NAIC meeting is in August in Chicago. Stay tuned!
