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Old 08-26-2013, 02:34 PM
DonnaClaire DonnaClaire is offline
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Default LATF (and a Bit on Other NAIC meetings) Update – August 2013 Meeting

LATF (and a Bit on Other NAIC meetings) Update – August 2013 Meeting
By Donna R. Claire

The Summer 2013 NAIC LATF meeting was held in Indianapolis, IN., the same hotel the Valuation Actuary Symposium will be held in September.

Below are the highlights from LATF, EAIWG, JQA, LTCAWG and HATF:

LIFE ACTUARIAL TASK FORCE MEETING:
Chaired by Mike Boerner (TX)

VM-20 Amendments: As expected, as people go through the Valuation Manual, some areas needing changes were discovered. Specifically in VM-20 on life insurance, Dave Neve presented some changes recommended by the Academy of Actuaries group.
• Dave suggested changes as to how due premiums are treated. (http://www.actuary.org/files/APF_Tre...ums_8-6-13.pdf )
• A second amendment proposed a change to specifically allow Letters of Credit to be counted as an asset in the reserve calculations. (http://www.actuary.org/files/APF_Tre...OCs_8-6-13.pdf )
• A third proposed amendment is to include group contracts that are individually underwritten in the scope of VM-20. (http://www.actuary.org/files/APF_VM20_Scope_8-6-13.pdf )
The first and third proposal above were exposed for comment; the LOC proposal will be discussed on a conference call soon after this meeting.

Other proposed amendments:
• For the ACLI, John Bruins proposed that small companies, defined as premiums less than $500 million, could have a longer (5 year vs. 3 year) transition period. This was exposed for comment.
• Proposed amendments that had been previously discussed on conference calls, e.g., an alternate approach to calculate the deterministic reserve called the Direct Iteration Method. (http://www.naic.org/documents/commit..._iteration.pdf ) Originally the thought was this simpler method was identical to a more complex method and there had been a proposal to make the simpler method the ONLY method. However, the Academy group has determined that the results of the simpler method are only identical under certain assumptions. So this amendment is still up for discussion.
• A proposed amendment that had been exposed on recognizing the IMR all at once in the net asset earned rate, rather than amortize it. This will be discussed further on a conference call. (http://www.naic.org/documents/commit...dification.pdf )
• A proposed amendment regarding the treatment of policy loans; the wording change is to clarify the VM-20 calcs treat policy loan cash flows as liability, not asset, cash flows. In other words, policy loans would not affect the earned rate. This is considered a clarification of the methodology, not a change. LATF accepted this amendment. (http://www.naic.org/documents/commit..._cash_flow.pdf )

Companies with ULSG products are keeping on eye on VM-20 changes because the AG-38 8D reserve is based on “the same requirements for determining the deterministic reserve in…any version [of the Valuation Manual] subsequently adopted by the NAIC as of the July 1 preceding the valuation date…”

Nonforfeiture Interest Rate: John Bruins (ACLI) has asked that the law be changed to make 4% the floor of the maximum nonforfeiture rate for life insurance. If the valuation rate dropped to 3%, under current law the maximum nonforfeiture rate would be 3.75% and certain life insurance policies would not meet the IRS definition of life insurance, which uses a 4% rate. However, since the life valuation rate for 2014 is already known (i.e., remaining at 3.50%) and since there is a one year lag in the NF rate change, this would not be a crucial concern until 2016 or later. LATF is taking no action now.

Mortality Table Development Update 2014 VBT/CSO & Preneed/GI/SI: Mary Bahna-Nolan gave an update of the mortality work being done by the SOA and Academy. For the 2014 VBT, the Select and Ultimate table and report is close to finalized and then work can begin on the CSO. The expectation is that there will also be a separate Limited Underwriting table. Work on the Preferred Structure tables will follow on VBT and CSO. One major open issue is the margins to the VBT for CSO, as well as what type of margins should be added to experience studies for prudent estimates under PBR. The Guaranteed Issue/Simplified Issue/Pre-Need Tables work will be in the fall. LATF will have conference calls, probably starting in early October on mortality.

Aggregate Margin Subgroup: There is an LATF task force and an Academy task force that are looking at eliminating individual margins in the PBR testing and substituting an aggregate margin. Mark Birdsall (KS) and Tricia Matson gave an update on the work these groups have been doing (http://www.actuary.org/files/AMTF_Up...TF_8-22-13.pdf ). The Academy group issued a report on this (http://www.actuary.org/files/Aggrega...TF_8-22-13.pdf ), and the LATF has been educating themselves on the issue. The plan is to have the regulatory group discuss the Academy report on conference calls after this meeting. Background: Concern had been expressed on individual margins. The Academy group reviewed and researched some various alternative aggregate margin approaches. The two leading methods considered were a confidence interval of the projected cash flows (e.g., CTE (70)), and cost of capital methodology. The group is leaning to a cost of capital approach. Work will continue, with periodic conference calls with LATF subgroup.

VM-22 Subgroup Report: Felix Schirripa (NJ) heads a LATF group looking at the VM-22 (general account annuities). They are working closely with the Annuity Reserve Working Group of the Academy led by Jim Lamson. Felix gave an update on the work followed by Jim’s presentation (http://www.actuary.org/files/ARWG_VM...TF_8-22-13.pdf ) on the Academy report
(http://www.actuary.org/files/ARWG_VM...rt_8-22-13.pdf ) group. Included is a possibility that lapses may be considered in VM-22 Floor reserves (No decision yet on this). Mark Birdsall (KS) discussed the field test by the Kansas department. This field test is being done by two companies. They are testing the practicality of the approach for deferred annuities, using current AG-33, AG-43 Standard Scenario calculations as well as new approaches proposed in VM-22. The goal is to have results of the field test available by the Fall NAIC meeting.

Nonforfeiture Modernization: A status report from the Academy’s nonforfeiture modernization work group was given by John McBain. They are in the process of developing a possible methodology to change nonforfeiture which is a retrospective gross premium formula. The group has recently looked at deferred annuity nonforfeiture (http://www.actuary.org/files/NF_Upda...es_8-22-13.pdf ). The group found that the proposed cash value formula would work well for traditional deferred annuities, but discussed that such formula does not for benefits such as GLIBs.

Modeling Efficiency Work Group: Tony Dardis, chair of the Academy Model Efficiency Work Group, gave an update on the work of his group (http://www.actuary.org/files/Modelin...TF_8-22-13.pdf ). The purpose of the group is to explore various methodologies to make modeling more efficient, e.g., by scenario reduction techniques. They also explore software and hardware considerations. They have created a bibliography of published materials on modeling efficiency that is available on the Academy website. They have also done two industry surveys.

Status Report on the RBC C-3 Phase 2/AG 43 Subgroup: Fred Andersen (NY) gave an update on the work of the subgroup on RBC C-3 Phase 2/AG 43 – e.g., updating the assumptions being used. Dave Hippen (MO) will be chairing this group after this meeting. There are short term action items being considered, included revisions to the calibration criteria and adjusting lapses for deep-in-the-money contracts. An Academy group under Tom Campbell looked at the mean and volatility scenario criteria.(http://www.actuary.org/files/VAREQ_E...sis_6-4-13.pdf ) It concluded the current calibration criteria, since their selection was a bit more extreme than historical experience, encompassed such scenarios as the experience of the past 10 years. Fred, though, still has concerns about recent volatility. The regulatory group has a long-term job to better align the C-3 Phase 2 and AG 43. David Hippen plans on having conference calls of his subgroup soon.

Guaranteed Living Income Benefits: LATF voted to look into whether AG33 should be changed to address Guaranteed Living Income Benefits on non-variable annuities, e.g., by adding incidence and/or lapse rates for GLIBs. The vote was 4 for, 1 against, 5 abstentions – which means the proposal to examine possible changes was defeated.

Compact (IIPRC): Jeanne Daharsh and Alice Fontaine provided an update on the work of the Interstate Insurance Product Regulation Commission. A couple of new states joined IIPCR, including Montana (but you still must do unisex) and Arkansas. The group is working on incidental death benefits for variable annuities and group term life accelerated death benefits ( last of the group term standards). The life product rules are going to be reviewed, since they review rules after 5 years.

AOMR Discussion Group: Andy Rarus (CT) gave an update (http://www.actuary.org/files/AOMR_Li...te_8-22-13.pdf ) on the Academy of Actuaries’ group of both regulators and industry on the Actuarial Opinion and Memorandum. They are discussing ways of improving communication in the memorandum and related documents. Andy is co-chair of the AOMR Links subgroup of this group; e.g., suggesting Tables of Contents with links to key topics. A second sub-group in the Consolidation and Standardization of AOMs that is working to minimize multiple submissions and organize the information. A third sub-group is the Communication of Enhanced RAAIS Subgroup; with a goal to provide enough information in the RAAIS that the AOM will not need to be requested as often. To communicate these ideas, one idea is to come up with a paper with a “suggested best practices” for actuaries to follow. Note: at the Valuation Actuary Symposium, there will be two sessions with regulators discussing some ideas, specifically one on ULSG and AG38 and one on Variable Annuities and AG43. Note: the group is always looking for input – contact John Meetz at the Academy at meetz@actuary.org.

Joint Qualified Actuary A/B/C Subgroup: Richard Marcks (CT) presented a summary of his joint qualified actuary’s (Life, Health, P&C) group’s work on possible changes regarding consistency between the three areas on the definition of qualified actuary, possibly defining qualified actuaries for other regulatory items such as rate filings, and what actions should be taken when unprofessional work is received. Because of varying views in the subgroup and concern about possible inaccuracies in the document, the final version is called “a discussion draft”, not a “report”. Also the sections usually contain two broad categories: “Measured Approach” vs. “Substantial Action”. LATF received the document and it is exposed for comments through September 27. Read it to see what is suggested (such as making public the CE of qualified actuaries) and also to get a feel for the frustration of some regulators. [Here is an earlier version. The only difference is that in the final, the word “Report” is “Discussion Draft”. http://www.naic.org/documents/commit...814_report.pdf ]

Professionalism: Karen Terry VP of Academy’s Professional Council of the Academy, Tricia Matson, vice-chair of the Actuarial Standards Board, and Curtis Huntington, member of the ABCD gave reports. As has been done at prior NAIC meetings, they invited the actuarial regulators to a breakfast at this meeting so regulators can discuss issues with members of the ASB, ABCD, and Professionalism. For example of what might be discussed - one regulator brought up Annotation 10-5 of the Code of Professional Conduct which says “When a Principal has given consent for a new or additional actuary to consult with an Actuary with respect to a matter for which the Actuary…has provided Actuarial Services, the Actuary shall cooperate in furnishing relevant information, subject to receiving reasonable compensation for the work required….” He is asked does this mean that a consultant can refuse to answer a regulator’s question on the AOMR if his client does not pay him to formulate the answer?

Patricia mentioned several new draft ASoPs that LATF might have an interest in - on Principles Based Reserves, Modeling and Credibility. Curtis mentioned the ABCD recently has been giving guidance on ASoP 41 – Actuarial Communications.

Referrals From the E and F Committee: The E Committee on corporate governance recommended that the appointed actuary made an annual report to the Board of Directors, similar to what is done by Casualty Actuaries. The F Committee referred a request that the Standard Nonforfeiture Law be made a required accreditation standard. These will be discussed on conference calls.

Experience Reporting: Fred Andersen (NY) gave an update on mandated experience reporting. Fred gave an update of NY and KS efforts on mortality information. Starting next year there will be collections on ULSG and term lapses. Later additional data will be collected. The Exploratory Expense Group looking at potentially collecting data on expense reporting. LATF will expose a paper on this topic.

Update on 2014 GRET: Mary Bahna-Nolan and Tom Rhodes gave an update on the proposed 2014 Generally Recognized Expense Table information which can be used by illustration actuaries in their work. There were 277 companies whose data were used in the study. Note: about 20% of a survey responders said they used GRET versus their own expense data in illustration work. Some of the factors, e.g., for branch offices, went up, while other distribution channels, e.g., direct marketing and brokerage, went down. The GRET factors were exposed for comments.

Presentation on Variable Annuity Solvency Standards in Canada: Michael Bean and Daniel Mayout of OSFI (Office of the Supervision of Financial Institutions) gave a presentation on variable annuity solvency standards used in Canada. In Canada, 3 companies control 90% of the market. For variable annuities, they typically offer Guaranteed Minimum Withdrawal Benefits. In Canada, the companies can use internal models that must be approved; there is no “standard scenario” required by all companies. OSFI and the NAIC had a joint work group, which also worked with the NY Department of Financial Services, on what caused differences in results between US and Canada regimes. Two major quantitative differences between RBC and MCCSR (Canada’s capital requirement): 1) Smoothing mechanisms: RBC smooths the total asset requirement of reserves plus capital while only the capital requirement is smoothed in Canada (since Canadian reserves are closer to GAAP since they use IFRS). In the US when the reserves go up after a market drop, but additional capital requirement is actually decreased; not true in Canada; 2) treatment of unregistered (unauthorized) reinsurance; in the US the RBC capital requirement can be eliminated, e.g., by using funds withheld reinsurance; not so in Canada if there is no assets backing the risk transfer.

However, there may be some future convergence on other items of difference. Canada plans on adding a standard scenario requirement, is looking to allowing credit for a deferred tax asset, is looking to having the projection period like the US and plans on incorporating diversification benefits between asset/market risks and insurance risks. There was a regulator only session on this as well. This work is also being shared with the Life, Health and P&C RBC committees of the NAIC.

Other Matters: Perry Kupferman (CA) brought up whether companies should be required to pass the level scenario of the “New York 7”. NY and NJ said yes, perhaps with a grade-in period. There will be a regulator only call as a follow-up.

Pete Weber (OH) gave an update on updating the default costs in the VM-20: 2 companies have volunteered to work with updating default information.

Richard Marcks (CT) pointed out there are positions available for regulatory actuaries in several states that perhaps members of the audience might consider applying for.


EMERGING ACTUARIAL ISSUES (On Actuarial Guideline 38 Q&A):
Mike Boerner (TX) chair

Mike Boerner (TX) chaired a meeting on emerging actuarial issues, specifically AG38. This group is continuing to answer questions submitted on the new AG38 rules for Universal Life products with secondary guarantees. The group is answering these questions very quickly. At this meeting, they adopted three interpretations to AG38. The answers to these questions are posted to the NAIC website after being approved by the parent - the E Committee. Another question brought up at this meeting is that corporate bond yields must be limited to representative of A rated bonds available in the market, not just what the companies bought. There was also another interpretation on the Steps that was exposed for comment. Another question was brought up on the denominator of the pre-funding ratio. These will be discussed further on a conference call.


JOINT QUALIFIED ACTUARY (A[Life]/ B[Health]/C [P&C]) SUBGROUP:
Richard Marcks (CT) chair

Besides the short presentation to LATF discussed above, this group had their own half hour meeting concerning their document to standardize qualification items between life, health and P&C where it makes sense. http://www.naic.org/documents/commit...814_report.pdf

Comments are due by September 27. At the meeting:
• Cecil Bykerk, President of the American Academy of Actuaries made some comments, and stated more will be sent by the deadline.
• Mary Miller, representing the Casualty Actuarial Society, had comments specifically on CAS’s role in the credentialing of casualty actuaries for the regulatory purpose. She also pointed out that the discussion draft is NOT correct in stating that the CAS amendment to allow public statements was initiated because the CAS, as “a minority within the AAA,…faces difficulty having their interests served…” The CAS will be providing further comments.
• Mark Friedman, President-Elect of the SOA, also stated they will review this.
• Timothy Jost, a consumer representative, thinks that there should be more openness in actuarial processes.


LONG TERM CARE ACTUARIAL WORKING GROUP:
Perry Kupferman (CA) chairs:

LTC Valuation Work Group: Perry Kupferman wants this group to get active. One issue is premium deficiency. If one has a deficiency, what can offset this; e.g., expected future profits? Profits in another line (no)?

Academy/SOA Long-Term Care Principles Based Work Group: Warren Jones, chair of the State Health LTC work force, gave an update on work of the Academy group. They are creating a PBR computer model, right now focusing on mortality, morbidity and lapse with interest coming next. They expect the work to take 12-18 months

Academy Long-Term Care Credibility Monograph Work Group: Karl Volkmar gave an update on an Academy work group. The purpose of the monograph is to establish the importance of incorporating credibility procedures in LTC-related work and to develop a framework for advancing actuarial proactive. The timeline is to have a draft for Academy review available on January 31, 2014.

Academy Long-Term Care Terminations Work Group: Warren Jones also gave an update on the Academy’s terminations work group, which is in the early steps of getting termination data from 1984-2007. They expect to have information available next year.

Long-Term Care Pricing: David Hippen (MO) gave an update on LTC pricing work for use in a model bulletin to states. It had been requested by the Senior Issues Committee on LTC. David’s group also looked at the LTC model regulation. His group came up with a number of suggested changes to the model regulation and bulletin. Since LTC Actuarial Working Group determined that there were still many editing changes to be done, the current write-up will be given to the Senior Issues Work Group at a later date.

Other: Both Perry and Mark Birdsall (KS) feel there is a crisis in the LTC industry and that the SOA and Academy have been poor in providing useful information in a timely fashion. [Remember that at the prior NAIC meeting, the SOA told the LTC group that the SOA could not create a valuation table from the LTC morbidity data the SOA had.] It was felt the LTC Section Council should consider hiring a consultant to get certain key projects done quickly.


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 are 12 submitting entities, with 30 companies underneath. Data is still being scrubbed. The raw data is due to the Academy by the end of the year. This probably means delivering a new potential table sometime in 2014. It will focus on first occurrence and hospitalization, not on radiation and chemotherapy. The goal is to be able to replace the 1985 Cancer Claim Cost Table, since it is not appropriate, or used, for most products in the market today.

Joint A/B/C Subgroup: As at the LATF meeting, Richard Marcks (CT) presented a summary of his joint qualified actuary’s (Life, Health, P&C) group’s work on suggested changes regarding changes regarding consistency in the definition of qualified actuary. The HATF group received the document, which is exposed for comments through September 27.

Professionalism: Similar to the LATF meeting, Tricia Matson,vice-chair of the Actuarial Standards Board, and Cande Olsen, member of the task force on Discipline gave updates. There are several ASoPs relevant to HATF, e.g. a revision to ASoP 8, a revision to ASoP 25 on Credibility, standards on Modeling, Minimum Value under ACA, and Medicaid Rate Setting.

SOA Health Research Report from the SOA: Cindy MacDonald gave an update on the Health Research of the SOA. They are doing/have done a number of experience studies and joint work with the Academy on valuation health projects – check the SOA website for the latest info. There is also a LTC study; data is expected by October. There is also work on the SOA/Academy Individual Disability Experience table. The goal is to eventually replace both the CIDC [disabled life reserve] and the 1985 CIDA [active life reserve] Tables. There is a conference call with HATF at the end of September. The goal is to have recommendations by the December 2013 HATF meeting. HATF asked that when the SOA determines the priority of research projects, HATF is one group they should get input from.

Group LTD Proposed New Valuation Table: Roger Martin gave a report from the Academy Group LTD work group on changes the group suggested on the HATF report and guideline on the proposed 2012 Group LTD table. They asked for optional three year phase-in in model reg. HATF voted to expose the revised guideline for 3 weeks.

AAA Health Practice Council Report: Donna Novak gave an update on the Academy of Actuaries Health projects. Some highlights: there is an exposure draft of a Practice Note the Minimum Value and Actuarial Value under the Affordable Care Act (http://www.actuary.org/files/MVPN_ex...aft_081213.pdf ). There is also a white paper on financial reporting implications under the Affordable Care Act (http://www.actuary.org/files/HPFRC_W...nal_062513.pdf ). . There was an update of the Large Group Medical Insurance Reserves, Liabilities and Actuarial Assets practice note released August 7, 2013 (http://www.actuary.org/files/Large_G...te_Aug2013.pdf ). The Academy is also working on stop-loss RBC.

Medicare Supplement Refund Formula Subgroup:
Still working and there will be further information at the December NAIC meeting.

Health Care Reform Actuarial Working Group:
Sorry. Missed this. Had a plane to catch.

Last edited by DonnaClaire; 08-26-2013 at 02:42 PM.. Reason: new link
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Old 08-26-2013, 02:53 PM
Guilty Bystander Guilty Bystander is offline
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Thanks, Donna.
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Old 08-26-2013, 06:16 PM
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Thanks for the update, Donna.

Just two items I don't see above, and wonder if it came up at this meeting:
- captives
- C1 modeling/update
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Old 08-26-2013, 09:13 PM
DonnaClaire DonnaClaire is offline
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Default C1 and Captives

Neither topic was discussed at the meetings I attended (described above). However, looking at the “one-sentence” meeting summaries (http://www.naic.org/meetings1308/age..._summaries.htm)

1. The only C1 item was the decision not to change the RBC factor for common stock.

2. Captives were discussed at the PBR Implementation Task Force Meeting.
Here is the PBR summary.
http://www.naic.org/meetings1308/com...?1377565640960

Here are the PBR pre-meeting materials.
http://www.naic.org/meetings1308/com...?1377565667823
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Old 08-26-2013, 10:17 PM
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Thanks. I did just see something from LifeHealthPro on captives & PBR.
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Old 08-29-2013, 11:33 AM
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Quote:
Originally Posted by DonnaClaire View Post
Other proposed amendments:
• For the ACLI, John Bruins proposed that small companies, defined as premiums less than $500 million, could have a longer (5 year vs. 3 year) transition period. This was exposed for comment.
One small question: when a "3 year transition" period is mentioned, what exactly does that mean? I'm getting myself confused on the final day of this period.

Assume PBR passes effective 1/1/2016. Does that mean PBR needs to be implemented as of:

a) 12/31/2018
b) 1/1/2019

My first thought was (a), but then if you were using it for all 2018 issues, it really wasn't a 3 year transition, so then I thought (b).

[Or am I missing a bigger issue, and PBR is effective for all issues from 1/1/2016 going forward, but the PBR aspect doesn't need to be in place until the end of the transition period?]
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Old 08-29-2013, 01:33 PM
DonnaClaire DonnaClaire is offline
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Default 3 year transition

According to the SVL

“The operative date of the valuation manual is January 1 of the first calendar year following the first July 1 as of which” enough states have passed it.

And VM-00 of the Valuation Manual states

"A company may elect to establish minimum reserves pursuant to applicable requirements in Appendix A (VM-A) and Appendix C (VM-C)" [i.e., the current rules] “for business otherwise subject to VM-20 requirements and issued during the first three years following the operative date of the Valuation Manual. “

So in the example you give, if PBR becomes effective 1/1/16, if you take the full three year transition, it only applies to policies issued 1/1/19 or later.
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Old 08-29-2013, 02:04 PM
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Quote:
Originally Posted by DonnaClaire View Post
According to the SVL

“The operative date of the valuation manual is January 1 of the first calendar year following the first July 1 as of which” enough states have passed it.

And VM-00 of the Valuation Manual states

"A company may elect to establish minimum reserves pursuant to applicable requirements in Appendix A (VM-A) and Appendix C (VM-C)" [i.e., the current rules] “for business otherwise subject to VM-20 requirements and issued during the first three years following the operative date of the Valuation Manual. “

So in the example you give, if PBR becomes effective 1/1/16, if you take the full three year transition, it only applies to policies issued 1/1/19 or later.
Thank you, Donna - both for the specific answer as well as the sources (looks like I've got a little extra reading to do).
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Old 08-30-2013, 01:53 PM
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Thank you for the update, Donna. This is a valuable service you're providing for those of us in small cos.
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Old 09-13-2013, 11:25 AM
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Donna (or anyone) - I saw from some presentation slides (I think yours) that the GRET 2014 is targeted for approval by the end of the year. I think in past years, GRET has been approved much earlier?

But in any event, can we get ahold of the proposed 2014 GRET factors anywhere? It seems that usually I see those in August sometime, but I have not seen them anywhere as yet.

Thanks,
Chuck
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