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Old 12-06-2017, 01:29 PM
DonnaClaire DonnaClaire is offline
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Default LATF, Var Ann & HATF NAIC Update-Honolulu Nov 30-Dec 1, 2017

LATF, Variable Annuities and HATF NAIC Update – Honolulu
November 30-December 1, 2017
By Donna R. Claire

The Fall 2017 LATF meeting was held in Honolulu, HI (Yes, it’s as nice as imagined – however, lots of regulators weren’t allowed to attend in person so a number of them had to call in, making for a somewhat strange meeting.)

Below are highlights of the meetings I attended:


LIFE ACTUARIAL TASK FORCE MEETING: Mike Yanacheak as Chair pro-tem,
since Mike Boerner (TX) and Peter Weber (OH) couldn’t attend in person (they phoned in).

VM-22 Subgroup Report: John Robinson (MN) chair: He gave an update of the LATF VM-22 (general account annuities) subgroup. The rates for the new valuation for payout annuities, which become effective 1/1/18, will be published by the NAIC process at the start of each quarter for the non-jumbo contracts for that quarter; for jumbo contracts the NAIC will be published on a one-day lag. There is a group answering questions, e.g., does it apply to payouts from deferred annuities? There are some Q&A’s that are exposed for comment until December 11, and will be discussed on a December 14 LATF conference call. During 2018, there will likely be a redraft to clarify some issues. In addition, there is an Academy Annuity Reserve working group determining on how deferred annuities will be handed under PBR. There is also an Academy Valuation Interest Rate Group to come up interest rates for non-payout annuities.

Consider Adoption/Exposure of Valuation Manual Amendments: A number of Amendment Proposal Forms (APFs) were discussed:
1) An amendment discussed by Brian Bayerle of the ACLI to clarify the treatment of riders. This amendment, with some tweaks, was re-exposed for comment for 45 days.
2) California (Rachel Hemphill) had a number of amendments:
a) Remove the PIMR from the modeled assets for the 98%-102% collar of starting assets. This was adopted by LATF.
b) A clarification of the definition of deterministic reserve, which LATF exposed for comment for 45 days.
c) Make clear jurisdiction equals states, territory, etc. LATF exposed this for comment for 45 days.
d) Clarification that grouping of assets can’t understate reserves. LATF exposed this for comment for 45 days.
e) Updating the wording to replace UCS (Underwriting Criteria Score) to Relative Risk Table. This was considered an editorial change, so it will be made.
f) An amendment proposal form regarding the grading of mortality credibility to industry table. This was exposed by LATF for 60 days.
g) An APF to clean up wording in VM-51. LATF voted to expose these for 45 days.
3) Virginia (Craig Chupp) submitted an APF that makes it clear that one cannot reduce the explicit margins to zero, relying on implicit margins alone, in PBR testing. LATF voted to expose these for 45 days.

Guaranteed Issue (GI) and Simplified Issue Update: Mary Bahna-Nolan, chair of the joint Academy/SOA task force on guaranteed issue and simplified issue, spoke. There were three follow-ups regarding the Guaranteed Issue tables. One issue is the definition of GI - slight modifications were made to it. A second was whether mortality truly reflects all GI as RGA’s experience showed different results. A third issue was whether another table, e.g., 1980 CSO, would work better for GI. Another issue is whether GI should be exempted from PBR. GI will be discussed further on a December 14 LATF conference call. With regard to Simplified Issue, there is a need to further refine the definition of SI. Another issue is that the table is uni-smoke; there is a question as to whether there should also be smoker/non-smoker tables. More work is being done. It will be discussed on a later LATF call.

Accelerated Underwriting: Mary Bahna-Nolan gave an update on accelerated underwriting. There is exposure to solicit feedback on adding proposed data elements for VM-51 so data can be better analyzed. Mary wants her group to meet with the ACLI to discuss possible changes to the data collection to cover accelerated underwriting. A second issue is to develop a guidance note/interpretations/list of potential topic questions for regulators to ask if a company is using accelerated underwriting. This will be discussed further on a December 14 LATF call. A Delphi Study regarding the effectiveness of various accelerated underwriting techniques is being done by the SOA. Matt Monson gave an update on this. So far, most of the respondents of the study think that there will be slightly higher mortality (0% to 10%), but it depends on a number of factors. The expectation is to have some results by the summer of 2018,

SOA Research, Education and Implementation Update: Dale Hall (SOA) gave an update on some of the SOA activities. For example, regarding mortality, they have extensive life mortality from 2009-2013, where people have access to the database. An example of an SOA report is one that will be released in the next few weeks that covers impairments and insolvencies.

Compact (IIPRC): Jeanne DeHarsh 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. They have updated standards on LTC. The product standards get reviewed on a 5 year cycle. Everything is posted on the IIPRC website (www.insurancecompact.org). As of October 24, 224 companies are registered to file, there have been over 950 product forms submitted in 2017; average turnaround time is 23 working days; 45 states are members of the Compaq. Most filings were for life insurance. Most 2017 CSO were for term and WL, but they are seeing more VL and UL filings.

Aggregation of Mortality Segments: Dave Neve (chair of the Academy’s Life Reserve work group and chair of the Life Practice Council) discussed aggregation of mortality segments for determining the level of credibility in VM-20. The level of credibility directly impacts the size of the prescribed margins and how quickly a company must blend to an industry table. In terms of aggregation, Dave argued that policies could be aggregated if policies were subject to similar underwriting criteria and risk classification procedures; the regulators argued that the underwriting criteria should be the same, not “similar”. Other issues include impact of different distribution system, market segments, size (e.g., fully underwritten vs not), different sexes, treatment of post-level term mortality and new methods of underwriting such as accelerated underwriting impacts. Eventually all the ideas will be pulled together and released for LATF comment.

Use of “Qualified Actuary” in the Valuation Manual: Arnold Dicke, chair of the Academy’s Role of the Actuary Subgroup, gave a presentation regarding an issue with the word and role of the “qualified actuary” in the Valuation Manual. He/she can differ from the person signing the actuarial opinion of covering all reserves. One question is whether different terms be used for the two different types of actuarial roles, such as the “PBR actuary”. This will continue to be discussed in a later LATF call.

Adoption of the LATF Experience Reporting Subgroup Report: Fred Andersen (MN) chairs:
He gave an update on this group. They have several projects going on. One is the new fields in the VM-51 regarding experience studies. They may also send out a survey similar to NY regarding accelerated underwriting. They may also request data on Guaranteed Issues; another data request may be on annuities with GLIBs. The group will also work on the transition from MIB as a statistical agent to the NAIC.

Longevity Risk: Rhonda Ahrens (NE) chairs: They are following the work on the Academy group, headed by Tricia Matson, on longevity risk, which has been working on payout annuities. They are recommending that RBC cover longevity risk at a 95% level. The Academy’s next step is to use real company data to validate the recommendations.

Annuity Nonforfeiture: Tomasz Serbinowski (UT) heads a NAIC group to review the prospective test for deferred annuities (Model 805). They are actively working on this issue -no conclusions yet.

Status Report on the RBC C-3 Phase 2/AG 43 Subgroup: Pete Weber (OH) gave an update from the RBC C-3 Phase 2/AG 43 subgroup on the implementing a new variable annuity framework in RBC C-3 Phase 2/AG43. Oliver Wyman recommendations will be released at this meeting (see below). It is expected that this will be actively worked on throughout 2018.

Professionalism: Mary Miller (past-President of the Academy), and Jan Carstens (chair of the Actuarial Board for Counseling and Discipline Committee) gave reports. Mary highlighted new ASOP drafts. For example, the PBR ASoP was released; there is an exposure draft on assumptions, one on modeling, and a draft on capital adequacy. There is also a draft on Life Products Pricing being worked on. Janet gave an update on the ABCD; so far in 2017 there were 36 cases in progress, 22 were pension related. In addition, there were 75 requests for guidance so far in 2017. There is an ABCD webinar “Tales from the Dark Side” on December 20.

PBR Resources from the Academy’s Life Practice Council: Donna Claire, chair of the Academy’s PBR Governance Committee (me!), gave an update on various activities the Academy’s Life Practice Council has undertaken regarding PBR. The goal is to provide assistance to the regulators and practicing actuaries with regard to implementation and review of PBR. There is an Academy website https://www.actuary.org/content/pbr-practice on all things PBR.


VARIABLE ANNUITIES ISSUES (E) WORKING GROUP: Mike Yanacheak (IA) chairs

There was a 4 hour meeting discussing the Variable Annuity project on substantial proposed changes to AG43 and RBC C-3 Phase 2 ( http://www.naic.org/cmte_e_va_issues_wg.htm ). As background, the NAIC hired Oliver Wyman, but they were paid by 15 companies involved. Besides the regulators, only people from these 15 companies and some ACLI staff people were allowed to participate in the substantial discussions on this subject over the past 2 1/2 years of work. (There were a couple of open calls to let everyone else know what was going on. However, people not from companies paying for the work were not a party to the discussions on the proposed changes to reserves and capital to this point. I agree the specific company information should be kept confidential, but this issue is easily handled by some closed calls as needed, while discussion on specific changes to reserves and capital could, and should, have been open. Specifically, those excluded included the American Academy of Actuaries, the professional organization that had the knowledge of the history and the extensive experience in helping to develop reserves and capital including the current reserve and capital requirements for variable annuities. (In the last 6 months there was a proposal to let the AAA in after signing a non-disclosure agreement, but it was not workable.) Also anyone from companies that did not pay for the privilege of sitting at the table was excluded. This is unlike the typical NAIC open process. (I’ll get off my soap box.))

Bottom line - there are a number (28) of proposed changes to variable annuity reserves and capital. It is difficult to analyze the reasonableness of the recommendations as well as the consistency of this compared to requirements in other scenarios without a lot of study (which could have been done during the past two years if the Academy and others had been invited to the table when these were being discussed) It would also be useful if the detailed reasoning behind the recommendations was given – there was about a slide’s worth of information given on many of the recommendations, which totally lacked in detail: for example, when an audience member asked for the reasoning behind using stock market data from 1926 on as opposed to starting in 1933 when the SEC started, the answer from the Oliver Wyman representative was unclear. (Okay, I’m back on my soap box again/) In addition, it would be good to have at least aggregate data from the studies over the last 2 ½ years of work. Oliver Wyman said they need to check with each of the 15 companies because the current non-disclosure forbids releasing even aggregate data.)

The Academy (Dave Neve) requested that the exposure period go to April 30, in order to be able to get comments, considering that the holiday season, then year-end work affects many of those who would be interested in commenting. Instead Mike Yanacheak decided to expose all the material until March 2, which includes red line drafts of AG 43 and RBC C-3, and, at least, not yet, any information on the impact of the changes on any products or companies. He was concerned that the Oliver Wyman contract expires this summer and he wanted work to continue in the meantime. In addition, there may be another meeting coordinated with the March NAIC meeting.


HATF: Kevin Dyke (MI) Chairs

Update from the Federal Center for Insurance Regulation and Oversight: This is part of the Health Care Reform/ACA. The states need to send their information regarding ACA rate information to this organization by July 31.

Long Term Care: Perry Kupferman (CA) chairs: Perry reported that his subgroup thought that a non-duplication of benefits provision - a provision for a limitation or exclusion of expenses for services or items available or paid under another long-term care insurance or health insurance policy issued to the same insured - is allowed. However, there are policy and actuarial issues that should be considered when determining whether to include NDBP language in an LTC policy form and the impact of such a provision, if any, on pricing.

Professionalism: Mary Miller (past-President of the Academy) and Jan Carstens (chair of the Actuarial Board for Counseling and Discipline Committee) gave reports similar to those given at LATF, but with a health slant. Mary highlighted certain Actuarial Standards Board, including new drafts. For example, the revision of ASoP 42 on Health and Disability Assets and Liabilities other than Liabilities for Incurred Claims is in process.

Academy Health Practice Council Work: John Huber gave an update on this Council. They have participated with congressional people and have released papers regarding ACA and the related proposed regulations.

Academy LTC Insurance Work Group: Warren Jones has been working on legislative activities relating to LTC. The regulatory LTC group asked the SOA/Academy to work on the development of a replacement of the 1994 mortality table to the 2012 IAM and to develop of a table of LTC voluntary lapse parameters; this is in progress.

(We missed the ending in order to catch a plane – an Update from SOA on Health Research and also on Long-Term Care Think Tank Activities.)


NEXT MEETING

The next NAIC LATF meeting is in Milwaukee in March 2018. Stay tuned!
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Old 12-06-2017, 01:50 PM
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Thanks for the update - it's helpful to have these summaries

[re: the sparse regulator attendance -- I assume a lot of regulators were being kept on a short leash budget-wise. Maybe the NAIC should pick cheaper venues.]
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Old 12-06-2017, 02:38 PM
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ACLI inclusion in the VA AG43/C3P2 discussions while excluding the AAA is unacceptable.

It's bad enough that the ACLI effectively wrote the standards for the IIPRC.

Such sloppy scenarios open the door for the FIO to take over in the next liberal pendulum swing.
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Old 12-06-2017, 02:49 PM
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If the FIO still exists at that point. But I guess it can be re-legislated into being.
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Old 12-06-2017, 03:08 PM
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Quote:
Originally Posted by kazh View Post
ACLI inclusion in the VA AG43/C3P2 discussions while excluding the AAA is unacceptable.
IIRC ACLI was not a official party. The participating companies found it helpful to have a coordinator and chose the ACLI to work with each other.

I am not close enough to the matter to know the details of the AAA thing, but my impression is that the NAIC could have included them had they wanted to.

As far as open goes, perhaps the NAIC should have opened the checkbook to hire the consultant. Then they could chosen to do so.
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Old 12-06-2017, 03:46 PM
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Quote:
Originally Posted by Steve Grondin View Post
IIRC ACLI was not a official party. The participating companies found it helpful to have a coordinator and chose the ACLI to work with each other.

I am not close enough to the matter to know the details of the AAA thing, but my impression is that the NAIC could have included them had they wanted to.

As far as open goes, perhaps the NAIC should have opened the checkbook to hire the consultant. Then they could chosen to do so.
This. I can’t speak to the entire process and what that may have cost, but I did hear that the cost for a company to participate in QIS 2 was about $200,000.
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Old 12-06-2017, 06:06 PM
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Quote:
...
45 states are members of the Compaq
...
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Old 12-08-2017, 04:55 PM
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https://cv.actuary.org/members/alert...2017-CP-27.pdf
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Old 12-12-2017, 03:01 PM
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Cool FIO, SEC, FSOC

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If the FIO still exists at that point. But I guess it can be re-legislated into being.
FIO will be back as soon as the political pendulum swings left again.
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Old 12-12-2017, 03:45 PM
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Because it got so far this past time.

I think they'll be more in mind to try to put the CFPB back together again, in any case.
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