PBR Implementation Update and Other Valuation Related Issues

Transcription

1 ZZ PBR Implementation Update and Other Valuation Related Issues Larry J. Bruning NAIC Attention APIR, PIR, or SPIR Designees This presentation is pre-qualified for NAIC Designation Renewal Credits (DRCs). If you currently hold an NAIC APIR, PIR, or SPIR designation and are pursuing continuing education credit to maintain it, you may be awarded credits for your participation. To receive credit, you must be in attendance for the duration of the presentation.

2 Learning Objectives At the end of this presentation, you will be able to: Articulate the Operative Date Triggers of PBR and cite the Current Status of State Adoption Explain the changes to the Annual Statement Blanks to incorporate PBR Define the changes made to the Financial Analysis Handbook Explain the purpose of Collecting Company Experience Data Define criteria for PBR to be successful NAIC Committee Structure PBR Implementation (EX) Task Force PBR Review (EX) Working Group PBR Blanks (EX) Subgroup PBR Review Procedures (EX) Subgroup

3 PBR State Adoption Status State Adoption Status 43 States have Adopted amended SVL Representing 76.16% of 2008 Premium PBR Operative Date Triggers By July 1 of a calendar year where At Least 42 states Representing 75% of 2008 Premium PBR Operative Date: January 1, 2017 PBR State Adoption Status Substantially Similar Terms & Provisions NAIC Legal Division, in conjunction with small group of State General Counsels completed a legal review of the SVL in all adopting States and noted deviations from NAIC Model 820 (SVL) NAIC Legal Staff to make recommendation to the PBR Implementation (EX) Task Force whether operative date triggers have been met

4 PBR Blanks Changes PBR Blanks (EX) Subgroup Developed recommended changes to blanks PBR Review (EX) Working Group referred the PBR Blanks and Blank s Instruction Changes to the Blanks (E) Working Group Blanks (E) Working Group will implement blanks and blank s instruction changes through vendor software PBR Blanks Changes New Schedules/Supplements VM-20 Reserves Supplement (3 Parts) Part 1 Reserves, Policy Counts, Face Amounts broken out into 3 components NPR, DR, SR both Pre and Post Reinsurance Part 2 Reserves on Product subject to PBR but company elects to utilize 3-year Transition Period Part 3 Collects information on the Companywide Exemption from PBR

5 PBR Blanks Changes Revised Schedules/Exhibits Analysis of Increase in Reserves Life & Fraternal Blanks Added Change in excess of VM-20 Deterministic or Stochastic reserve over Net Premium Reserve Exhibit 5 Aggregate Reserves for Life Contracts Life & Fraternal Blanks Added 2017 CSO to Mortality & Morbidity Added VM-20 DET/STO to Valuation Method PBR Blanks Changes Revised Schedules/Exhibits (Continued) Five-Year Historical Data Life & Fraternal Blanks Added line for Total Inforce for which VM-20 Deterministic or Stochastic Reserves are calculated Added line for Excess VM-20 Deterministic or Stochastic Reserve over NPR Analysis of Increase In Reserves for Interest Sensitive Life Insurance Products Life & Fraternal Blanks Added line for Change in Excess of VM-20 Deterministic or Stochastic Reserve over Net Premium Reserve

6 PBR Blanks Changes Revised Schedules/Exhibits (Continued) Analysis of Increase In Reserves for Separate Accounts Added line for Change in Excess of VM-20 Deterministic or Stochastic Reserve over Net Premium Reserve Exhibit 3 Reserve for Life, Annuity and Accident and Health Contracts for Separate Accounts Added lines to split VM-20 Reserve into VM-20 Net Premium Reserve and VM-20 Deterministic or Stochastic excess over Net Premium Reserve PBR Blanks Changes Revised Schedules/Exhibits (Continued) Supplemental Exhibits and Schedules Interrogatories Added interrogatory in Life Blank: Will the VM-20 Reserves Supplement be filed with the state of domicile and the NAIC by April 1? Added interrogatory in Fraternal Blank: Will the VM- 20 Reserves Supplement be filed with the state of domicile and the NAIC by April 1?

7 Financial Analysis & Financial Condition Examiners Handbooks PBR Review Procedures (EX) Subgroup Developed recommended changes to Financial Analysis Handbook PBR Review (EX) Working Group referred the Financial Analysis Handbook changes to the Financial Analysis Handbook (E) Working Group Financial Analysis Handbook (E) Working Group will implement the Handbook changes through the normal committee process Financial Analysis Handbook Changes include: Expanded Overview Section to introduce reader to the new PBR reserving methodology with a discussion on the amendments to the SVL, the Operative Date of the Valuation Manual and the formation of the Valuation Analysis Working Group Split the reserves discussion and background into the two reserve methodologies, Formula-Based Reserves and Principle-Based Reserves

8 Financial Analysis Handbook Changes include: Adding a set of Level 2 Annual Procedures on reserves calculated under VM-20 which include: Reviewing Parts 1, 2 and 3 of the VM-20 Reserve Supplement Reviewing the VM-31 Actuarial Report Consider requesting a limited scope examination to verify and validate NPR, DR and SR and requesting assistance of NAIC actuarial staff for modeling assistance Financial Condition Examiners Handbook PBR Review Procedures (EX) Subgroup Asked NAIC Staff to put together a recommended set of changes for the Subgroup s consideration NAIC Staff has been making and discussing recommended changes Plan is to have a draft by May 15 th for the Subgroup s consideration

9 Collection of Company Experience Data VM-20 Section 9.A.6 states: The company shall use its own experience, if relevant and credible, to establish an anticipated experience assumption for any risk factor. To the extent that company experience is not available or credible, the company may use industry experience or other data to establish the anticipated experience assumption, making modifications as needed to reflect the circumstances of the company. Collection of Company Experience Data Company Experience Data collected to: Develop Industry Experience Tables Validate Company Experience Assumptions during a Financial Examination As a result, Section 13 of SVL states: A company shall submit mortality, morbidity, policyholder behavior, or expense experience and other data as prescribed in the valuation manual

10 Collection of Company Experience Data NAIC staff is developing and evaluating a proposal Collect Company Experience Data on behalf of all the states which would be used to: Develop Industry Experience Tables Assist States in the Validation of Company Experience Assumptions during a Financial Examination Recommendation for Plenary Adoption NAIC Actuarial Staff & Modeling Software Success of a PBR System depends upon: State implementation of PBR on a consistent and uniform basis Valuation Analysis Working Group (VAWG) Sufficient Actuarial Staff to Validate and Verify Company Modeling Processes and to provide support on State Examination of Companies Cash Flow Modeling Software to assist State Regulators during Company Examination

11 NAIC Actuarial Staff & Modeling Software NAIC expansion of Actuarial Staff to support State Regulators Existing resources include 2 FSA s and 1 ASA 2016 adding 2 new FSA positions Expertise in Financial Modeling, Valuation and Financial Reporting Late 2016 will re-evaluate staff needs based on company survey results and Operative Date of Valuation Manual NAIC Actuarial Staff & Modeling Software March 15, 2016 NAIC executed license agreement with GGY to use AXIS modeling software GGY is owned by Moody s Analytics Software has been installed on NAIC Network

12 NAIC Actuarial Staff & Modeling Software Modeling software may be used as part of the 2016 PBR Company Pilot Project Modeling Software may be used to verify and validate company models and model calculations under PBR during a State financial examination of a company Modeling software may be used on a randomly selected set of policies under PBR NAIC Actuarial Staff & Modeling Software Modeling software may be used to validate: Net Premium Reserves Deterministic Reserves Stochastic Reserves Stochastic Reserve Exclusion Tests Deterministic Reserve Exclusion Tests Modeling software may be used to calibrate company models using a Standard Portfolio of Assets & Liabilities

13 2016 PBR Pilot Project PBR Implementation (EX) Task Force charges the PBR Review (EX) Working Group to plan and conduct a PBR Pilot Project in 2016 Goal of project is to trial run and evaluate the PBR regulatory processes defined in the SVL and VM NAIC staff identified 3 specific areas of testing PBR Calculations (NPR, DR, SR) for Term and ULSG products required under VM-20 Completing the VM-20 Reserve Supplement in Blanks Completing the VM-31 Actuarial Report 2016 PBR Pilot Project 12 Companies across 9 domiciliary States have volunteered to participate in Pilot Companies will be kept confidential States have executed with NAIC a Confidentiality and Information Sharing Agreement to cover Pilot Project data 5 Issue Years of business will be tested using Term and ULSG products subject to VM-20 Valuation Date will be 12/31/2015

14 2016 PBR Pilot Project Companies will submit Pilot data results to domiciliary State Domiciliary State will share data with NAIC per the Confidentiality and Information Sharing Agreement NAIC Staff will compile company results for Regulator review State Regulators will meet in Regulatory Only Session to Review and Discuss Results PBR Pilot Project Plan & Timeline April 15, 2016 Company Pilot Project Kickoff Webinar April 15 August 15, 2016 Companies complete PBR Calculations per VM-20 Companies complete Excel Spreadsheet VM-20 Supplement Companies complete VM-31 Actuarial Report August 19, 2016 Due date to send Excel Spreadsheet VM-20 Supplement and VM-31 Actuarial Report to State of Domicile State to share documents with NAIC per the Confidentiality and Information Sharing Agreement for the PBR Pilot Project

15 PBR Pilot Project Plan & Timeline August 20 August 31, 2016 NAIC Staff to Compile and Organize Company Results prior to Regulatory Review & Discussion September 1 November 30, 2016 Regulators Review PBR Calculations per VM-20 Regulators Review Excel Spreadsheets VM-20 Supplement Regulators Review VM-31 Actuarial Report Recommendations on any Future Changes to VM PBR Pilot Project Plan & Timeline August 26 August 29, 2016 NAIC Summer National Meeting Update to PBR Implementation (EX) Task Force on Pilot Project December 10 December 13, 2016 NAIC Fall National Meeting Final Report on Pilot Project given to PBR Implementation (EX) Task Force

16 Questions?????????????????