■■ On September 12, 2012 the National Association of Insurance Commissioners
(NAIC) adopted changes to Actuarial Guideline XXXVIII (AG 38).
■■ AG 38 governs reserves for universal life products with secondary
guarantees and has been modified multiple times since its initial adoption
in 2003.
■■ The most recent revisions were a result of product designs that began
to emerge in 2010 that reduced reserves below that intended within the
spirit of AG 38.
■■ As a result the industry, state regulators, the NAIC, and The American
Council of Life Insurers (ACLI) trade association have been attempting to
develop a new version of AG 38 since mid 2011 while a broader principle
based reserve (PBR) framework could be adopted.
■■ At a high level, the recently adopted revisions result in a different reserving
approach dependent upon when the underlying policies were issued. For
business issued since 7/1/2005 but prior to 1/1/2013 companies will have
to determine if any additional reserves are required using various PBR
techniques. For business issued on or after 1/1/2013, a clarification to the
formulaic reserves that must be held has been provided.
Frank Matters from Legal & General America wrote
” the anticipated major shift in product pricing and designs driven by the investment environment, the advent of AG38 and the scarcity of capital for some carriers. In recent years, any company’s product development or pricing efforts were conducted against a backdrop of competitors’ offerings that were tightly bunched with respect to pricing and design. No such fixed “frame of reference” exists for the competitive landscape post-January 1, 2013 for UL.
Which means that the diversity of designs and price points after New Years’ is bound to be – dare I say it?- a crap shoot! Prepare for a wild ride….”
Go to our News Page to get even more detail. Banner as well as AIG have recently sent out pieces regarding AG 38.