Materials - Life Actuarial (A) Task Force · The Life Actuarial (A) Task Force met via conference call . 27, 2020. FebThe following Task Force members participated: Kent Sullivan,

© 2020 National Association of Insurance Commissioners 1

Date: 3/19/20

2020 Spring National Meeting Conference Call

LIFE ACTUARIAL (A) TASK FORCE

Thursday, April 2, 2020 8:00 – 9:00 a.m. PT / 9:00 – 10:00 a.m. MT / 10:00 – 11:00 a.m. CT / 11:00 a.m. – 12:00 p.m. ET

Diamond Pass Call – http://dpregister.com/10140458

ROLL CALL

Member Representative State Kent Sullivan, Chair Mike Boerner Texas Jillian Froment, Vice Chair Peter Weber Ohio Jim L. Ridling Steve Ostlund Alabama Ricardo Lara Perry Kupferman California Michael Conway Eric Unger Colorado Andrew N. Mais Wanchin Chou Connecticut Robert H. Muriel Bruce Sartain Illinois Stephen W. Robertson Karl Knable Indiana Doug Ommen Mike Yanacheak Iowa Vicki Schmidt Nicole Boyd Kansas Steve Kelley Fred Andersen Minnesota Chlora Lindley-Myers William Leung Missouri Bruce R. Ramge Rhonda Ahrens Nebraska Marlene Caride Seong-min Eom New Jersey Russell Toal Mark Hendrick New Mexico Linda A. Lacewell Bill Carmello New York Glen Mulready Andrew Schallhorn Oklahoma Todd E. Kiser Tomasz Serbinowski Utah Scott A. White Craig Chupp Virginia NAIC Support Staff: Reggie Mazyck/Eric King

AGENDA

1. Consider Adoption of Task Force and VM-22 (A) Subgroup Minutes—Mike Boerner (TX)

2. Hear an Update on Life Insurance Mortality Experience Reporting for 2020—Pat Allison

(NAIC) 3. Hear Updates on the Request for Proposal for the Economic Scenario Generator (ESG) and

the Cessation of the London Interbank Offered Rate (LIBOR)—Pat Allison (NAIC) 4. Hear an Update on VM-20, Requirements for Principle-Based Reserves for Life Products,

Swap Rates—Brian Bayerle (American Council of Life Insurers—ACLI)

Attachment 1 Attachment 2 Attachment 3 TBD

W:\National Meetings\2020\Spring\TF\LA\National Meeting\Virtual National Meeting - Apr. 2 - 10 AM CT\Apr_2 10 a.m. Agenda.docx

http://dpregister.com/10140458

Attachment One Life Actuarial (A) Task Force

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Draft: 3/11/20

Life Actuarial (A) Task Force Conference Call

February 27, 2020

The Life Actuarial (A) Task Force met via conference call Feb. 27, 2020. The following Task Force members participated: Kent Sullivan, Chair, represented by Mike Boerner and Rachel Hemphill (TX); Jillian Froment, Vice Chair, represented by Jason Wade (OH); Jim L. Ridling represented by Steve Ostlund (AL); Ricardo Lara represented by Perry Kupferman and Benjamin Bock (CA); Michael Conway represented by Eric Unger (CO); Andrew N. Mais represented by Wanchin Chou and Jim Jakielo (CT); Doug Ommen represented by Mike Yanacheak (IA); Robert H. Muriel represented by Bruce Sartain (IL); Stephen W. Robertson represented by Karl Knable (IN); Vicki Schmidt represented by Nicole Boyd (KS); Steve Kelley represented by Fred Andersen and John Robinson (MN); Chlora Lindley-Myers represented by William Leung (MO); Bruce R. Ramge represented by Rhonda Ahrens (NE); Marlene Caride represented by Seong-min Eom (NJ); Russell Toal represented by Mark Hendrick (NM); Linda A. Lacewell represented by Amanda Fenwick (NY); Glen Mulready represented by Andrew Schallhorn (OK); Todd E. Kiser represented by Tomasz Serbinowski (UT); and Scott A. White represented by Craig Chupp (VA). 1. Agreed to Distribution of the ESG RFP Mr. Boerner said the need to replace the American Academy of Actuaries (Academy’s) economic scenario generator (ESG) was discussed during the July 16, 2019, joint call of the Task Force and the Life Risk-Based Capital (E) Working Group. The groups agreed, without objection, to have NAIC staff develop a request for proposal (RFP) for a replacement ESG. He said the proposed RFP (Attachment A) was developed in response to that decision and in accordance with the direction provided to staff after discussions with a drafting group comprised of state insurance regulators and NAIC staff, Academy and industry representatives. Mr. Boerner said the goal is to have the Task Force agree, without objection, to allow NAIC staff to release the RFP and provide a memorandum informing the Life Insurance and Annuities (A) Committee of the release of the RFP. Scott O’Neal (NAIC) said the memorandum to the Committee provides the background and history necessitating the RFP and summarizes the deliverables required of potential vendors. Mr. Ostlund questioned the Task Force’s authority to issue the RFP without approval from the Committee. Mr. Boerner said the information provided by NAIC staff is that Committee approval is not required. Reggie Mazyck (NAIC) noted that the RFP was approved by both the NAIC chief operating officer (COO) and the chief financial officer (CFO), and it has been discussed with the Committee chair. Mr. Boerner reiterated his understanding that Committee approval is not required, but he is willing to defer to Mr. Ostlund’s request to obtain Committee approval before recommending distribution of the RFP. Mr. O’Neal said the RFP provides the minimum requirements expected from an ESG. He discussed the scope of the RFP, including the expected deliverables; ongoing production, maintenance and support requirements, including costs; and other contractual terms of the RFP. Mr. Ostlund made a motion, seconded by Ms. Eom, to direct the Task Force chair to request permission from the Committee to issue an RFP for an ESG, noting that the ESG RFP memorandum (Attachment B) serves as the request, while also providing information on the initiative. The motion passed unanimously.* 2. Adopted Amendment Proposal 2019-62 Mr. Boerner said amendment proposal 2019-62 was exposed for 14 days after moving the proposed language from a guidance note into the text as an additional paragraph of VM-20, Requirements for Principle-Based Reserves for Life Products, Section 9.C.4. Mr. Leung made a motion, seconded by Mr. Chupp, to adopt amendment proposal 2019-62 (Attachment C). The motion passed unanimously. ∗ Subsequent to the conference call, it was determined that the RFP does not require Life Insurance and Annuities (A)

Committee approval prior to distribution. The Task Force used an email vote to agree, without objection, for NAIC staff to release the RFP and to provide the memorandum, as referenced in the minutes above, to the Committee.


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3. Exposed Amendment Proposal 2020-03 Ms. Hemphill said there were differing interpretations of the treatment of the premium mode when calculating the VM-20 net premium reserve (NPR). She said amendment proposal 2020-03 clarifies that the actual modal premium may be reflected directly in the NPR calculation. Ms. Fenwick suggested modifying the language proposed for VM-20 Section 3.B.3.a to read, “Directly within the calculations” instead of, “Through direct adjustments to the calculations” because the latter may be subject to judgment. Ms. Hemphill said that change works for the direct calculation, but it may not work if using an unearned premium approach. She recommended adding a note to the exposure asking commenters if the revised language proposed for Section 3.B.3.a might necessitate an additional requirement to cover calculations utilizing an unearned premium approach. Ms. Fenwick made a motion, seconded by Mr. Ostlund, to expose amendment proposal 2020-03 (Attachment D), including the change to Section 3.B.3.a and the proposed cover note, for a 21-day public comment period. The motion passed unanimously. 4. Exposed Amendment Proposal 2019-58 Mr. Bock said amendment proposal 2019-58 requires subjecting templates prescribed for use in the Valuation Manual to the change process detailed in Valuation Manual Introduction, Process for Updating the Valuation Manual. Mr. Bock made a motion, seconded by Ms. Eom, to expose amendment proposal 2019-58 (Attachment E) for a 21-day public comment period. The motion passed unanimously. Having no further business, the Life Actuarial (A) Task Force adjourned. W:\National Meetings\2020\Spring\TF\LA\LATF Calls\02-27\Feb 27 Minutes.docx


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Draft: 3/11/20


February 20, 2020

The Life Actuarial (A) Task Force met via conference call Feb. 20, 2020. The following Task Force members participated: Kent Sullivan, Chair, represented by Mike Boerner and Rachel Hemphill (TX); Jillian Froment, Vice Chair, represented by Peter Weber (OH); Jim L. Ridling represented by Steve Ostlund (AL); Ricardo Lara represented by Perry Kupferman (CA); Michael Conway represented by Eric Unger (CO); Andrew N. Mais represented by Wanchin Chou and Jim Jakielo (CT); Doug Ommen represented by Mike Yanacheak (IA); Robert H. Muriel represented by Bruce Sartain (IL); Stephen W. Robertson represented by Karl Knable (IN); Vicki Schmidt represented by Nicole Boyd (KS); Steve Kelley represented by Fred Andersen and John Robinson (MN); Chlora Lindley-Myers represented by William Leung (MO); Bruce. R. Ramge represented by Rhonda Ahrens (NE); Marlene Caride represented by Seong-min Eom (NJ); Russell Toal represented by Mark Hendrick (NM); Linda A. Lacewell represented by Bill Carmello (NY); Todd E. Kiser represented by Tomasz Serbinowski (UT); and Scott A. White represented by Craig Chupp (VA). 1. Adopted Revisions to AG 48 Mr. Boerner said changes were made to Actuarial Guideline XLVIII—Actuarial Opinion and Memorandum Requirements for the Reinsurance of Policies Required to be Valued Under Sections 6 and 7 of the NAIC Valuation of Life Insurance Policies Model Regulation (AG 48) to reflect changes to the Term and Universal Life Insurance Reserve Financing Model Regulation (#787) (Attachment A) adopted by the Reinsurance (E) Task Force. Mr. Leung made a motion, seconded by Mr. Chou, to adopt the revisions to AG 48 (Attachment B). The motion passed unanimously. 2. Agreed to Forward Revisions to the VM-20 Reserve Supplement Jennifer Frasier (NAIC) discussed proposed changes to the VM-20 Reserve Supplement Blank. She said the major changes to the blank include: 1) changing the reporting units from thousands to dollars to be consistent with other annual statement reporting formats; 2) splitting Part 1 into Part 1A and Part 1B to provide the necessary space to accommodate the reporting unit change to dollars; and 3) removing Part 2, which was required only for the three-year transition period. Ms. Frasier discussed proposed changes to the VM-20 Reserve Supplement instructions to reflect the revisions to the blanks. She noted receiving feedback that the sentence in the instructions for reporting the net premium reserve (NPR) in Part 1B, which reads “Report the floored amount,” may be unnecessary or confusing. She said the sentence was added after reviewing reserve supplements in which companies did not report the floor. She agreed to remove the sentence to provide clarity. Ms. Frasier discussed the changes to the Variable Annuities (VA) Supplement blanks and instructions that reflect the VA Framework changes effective in the 2020 Valuation Manual. She said some feedback she received suggested adding a reference to Actuarial Guideline XLIII—CARVM for Variable Annuities (AG 43). She agreed to add that reference by changing the scope-related sentence to read: “Complete this supplement for contracts and certificates subject to VM-21 or AG 43.” She said other feedback suggested breaking proposed line for “Reserves Ceded” into two lines showing the amount of reinsurance ceded to captives and the amount of reinsurance ceded to other non-captive companies. There was no objection to the change. The Task Force agreed, without objection, to forward the VM-20 Supplement Blank and its instructions (Attachment C), and the VA Supplement Blank and its instructions (Attachment D), including the agreed upon edits, to the Blanks (E) Working Group. Having no further business, the Life Actuarial (A) Task Force adjourned. W:\National Meetings\2020\Spring\TF\LA\LATF Calls\02-20\Feb 20 Minutes.docx


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Draft: 3/11/20


February 13, 2020

The Life Actuarial (A) Task Force met via conference call Feb. 13, 2020. The following Task Force members participated: Kent Sullivan, Chair, represented by Mike Boerner and Rachel Hemphill (TX); Jillian Froment, Vice Chair, represented by Peter Weber (OH); Jim L. Ridling represented by Steve Ostlund (AL); Ricardo Lara represented by Perry Kupferman (CA); Michael Conway represented by Eric Unger (CO); Andrew N. Mais represented by Wanchin Chou and Jim Jakielo (CT); Doug Ommen represented by Mike Yanacheak (IA); Robert H. Muriel represented by Bruce Sartain (IL); Stephen W. Robertson represented by Karl Knable (IN); Vicki Schmidt represented by Nicole Boyd (KS); Steve Kelley represented by Fred Andersen and John Robinson (MN); Chlora Lindley-Myers represented by William Leung (MO); Bruce. R. Ramge represented by Rhonda Ahrens (NE); Marlene Caride represented by Seong-min Eom (NJ); Linda A. Lacewell represented by Bill Carmello (NY); Glen Mulready represented by Andrew Schallhorn (OK); Todd E. Kiser represented by Tomasz Serbinowski (UT); and Scott A. White represented by Craig Chupp (VA). 1. Re-Exposed Amendment Proposal 2019-62 Mr. Boerner presented two options for editing amendment proposal 2019-62. The first option provides leading language to add context to the wording of the guidance note. The second option moves the guidance note language into the text to create a new VM-20, Requirements for Principle-Based Reserves for Life Products (Section 9.C. 4.d.) Mr. Chupp said that while either option is acceptable, his preference is for option 2. Mr. Carmello concurred with a preference for option 2. Mr. Boerner suggested exposing the amendment proposal with option 2 and an explanatory note calling attention to the language in Section 9.C.4 and noting that the proposed language was extracted from the previously exposed guidance note. Mr. Chupp made a motion, seconded by Mr. Ostlund, to expose amendment proposal 2019-62 (Attachment A) for a 14-day public comment period ending Feb. 26. The motion passed unanimously. 2. Exposed Amendment Proposal 2020-02 Pat Allison (NAIC) said amendment proposal 2020-02 clarifies VM-20 Section 2.H and adds a new Section 2.I to address the skipping of steps mandated in VM-20 on the grounds of materiality or reliance on the allowance of approximations provided in Section 2.G. She said the proposal includes a guidance note that provides examples of steps that cannot be omitted. Mr. Chupp made a motion, seconded by Mr. Leung, to expose amendment proposal 2020-02 (Attachment B) for a 21-day public comment period ending Mar. 4. The motion passed unanimously. 3. Rejected Amendment Proposal 2017-51 Mr. Boerner said the amendment proposes allowing final expense policies to be treated similar to pre-need policies, which are exempt from principles-based reserving (PBR). He said pre-need policies have a clearly defined boundary that distinguishes them from other policy types. He said the broad categorization of final expense policies could allow various product designs to fit under the final expense umbrella. Allowing final expense policies an exemption similar to that granted to pre-need policies might allow a PBR exemption to some policies inappropriately. He recommended the rejection of the amendment proposal. Mr. Carmello indicated that if there were a limit on the face amount of the policies characterized as final expense dollar, he might be more amenable to the proposal, but he could not support it in its current form. Mr. Carmello made a motion, seconded by Mr. Weber, to reject amendment proposal 2017-51 (Attachment C). The motion passed, with opposition from Mr. Ostlund and Mr. Yanacheak. 4. Discussed Amendment Proposal 2019-33 Brian Bayerle (American Council of Life Insurers—ACLI) said the ACLI comments (See Attachment B of the Feb. 6, 2020, Task Force minutes) on amendment proposal 2019-33 note concerns with the scope of the definition of “individual risk selection process” and practical implementation concerns. He said in addition to the written comments, the ACLI is also concerned that companies that issue very small group business may be doing more underwriting than is normally done for a


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group contract. He suggested the consideration of a minimum group size if there is a scope revision. He said consideration should also be given to the appropriateness of the mortality and lapse rates compared to the rates used in the net premium reserve (NPR). He recommended that the Task Force defer consideration until the concerns are addressed. Len Mangini (Academy Life Reserve Work Group—LRWG) said the proposal has a three-year phase-in, which would allow time for edits to the amendment proposal after Task Force adoption. Mr. Chupp said the use of the term “ordinary life” might be problematic because the Valuation Manual uses the term to apply only to individual policies. He said his comment (Attachment D) questions whether the proposed language is appropriately placed within the Valuation Manual. The comment recommends a new section to accommodate the language. Mr. Robinson said his comment (Attachment E) suggests that the proposal will require changes to VM-51, Experience Reporting Formats. Mr. Mangini said the LRWG will consider the comments. Having no further business, the Life Actuarial (A) Task Force adjourned. W:\National Meetings\2020\Spring\TF\LA\LATF Calls\02-13\Feb 13 Minutes.docx


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Draft: 3/10/20

Life Actuarial (A) Task Force Conference Call February 6, 2020

The Life Actuarial (A) Task Force met via conference call Feb. 6, 2020. The following Task Force members participated: Kent Sullivan, Chair, represented by Mike Boerner and Rachel Hemphill (TX); Jillian Froment, Vice Chair, represented by Peter Weber (OH); Jim L. Ridling represented by Steve Ostlund (AL); Ricardo Lara represented by Perry Kupferman (CA); Michael Conway represented by Eric Unger (CO); Andrew N. Mais represented by Wanchin Chou and Jim Jakielo (CT); Doug Ommen represented by Mike Yanacheak (IA); Robert H. Muriel represented by Bruce Sartain (IL); Stephen W. Robertson represented by Karl Knable (IN); Vicki Schmidt represented by Nicole Boyd (KS); Steve Kelley represented by Fred Andersen and John Robinson (MN); Chlora Lindley-Myers represented by William Leung (MO); Bruce. R. Ramge represented by Rhonda Ahrens (NE); Marlene Caride represented by Seong-min Eom (NJ); Russell Toal represented by Mark Hendrick (NM); Glen Mulready represented by Andrew Schallhorn (OK); Todd E. Kiser represented by Tomasz Serbinowski (UT); and Scott A. White represented by Craig Chupp (VA). 1. Adopted its 2019 Fall National Meeting Minutes Mr. Ostlund made a motion, seconded by Mr. Yanacheak, to adopt the Task Force’s Dec. 5–6, 2019, minutes (see NAIC Proceedings – Fall 2019, Life Actuarial (A) Task Force). The motion passed unanimously. 2. Discussed Amendment Proposal 2019-62 Leonard Mangini (American Academy of Actuaries [Academy] Life Reserves Work Group—LRWG) said Amendment Proposal Form (APF) 2019-62 (Attachment A) clarifies the treatment of additional mortality risk arising from the conversion of term life policies. He said the proposed language also requires a description of the conversion privileges and how the mortality was factored into the aggregation and segmentation. Brian Bayerle (American Council of Life Insurers—ACLI) said the ACLI comment letter (Attachment B) supports the proposed amendment. Mr. Chupp said his comment letter (Attachment C) suggests that, given the use of the word “must” in the proposed language, the language should not be relegated to a guidance note, but it should be a part of the text. He suggested that the proposed guidance note should become Section 9.C.4.d of VM-20, Requirements for Principle-Based Reserves for Life Products. Mr. Mangini said the LRWG proposed using a guidance note because they did not want to give the impression that they were changing existing requirements. Mr. Boerner said the guidance note could be revised to point to the specific section of VM-20 containing the existing requirements. He recommended deferring action on the proposal until it could be determined whether the guidance note can appropriately point to Section 9.C.4 without requiring revisions to the language in that section. 3. Adopted Amendment Proposal 2019-61 Ms. Hemphill said amendment proposal 2019-61 clarifies that all universal life policies with a material secondary guarantee are ineligible for the Life Principle-Based Reserves (PBR) Exemption, regardless of whether the secondary guarantee is a part of the base policy or a rider. Mr. Bayerle said the ACLI comment letter (Attachment B) expressed support for the proposal. Mr. Leung made a motion, seconded by Mr. Weber, to adopt amendment proposal 2019-61 (Attachment D). The motion passed unanimously. 4. Adopted Amendment Proposal 2019-60 Ms. Hemphill said that while the Valuation Manual requires a company to use one credibility method for all of its business, the lack of industry factors for 2008 Valuation Basic Table (VBT) is a practical constraint that does not allow application of the Bühlmann method to business issued on the 2008 VBT. She said amendment proposal 2019-60 allows a company using the Bühlmann method for its fully underwritten business to use the Limited Fluctuation method for its business issued on the 2008 VBT. She said it also clarifies that claims using different credibility methods cannot be aggregated for the purpose of determining credibility and the sufficient data period. Mr. Chou made a motion, seconded by Mr. Leung, to adopt amendment proposal 2019-60 (Attachment E). The motion passed unanimously.


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5. Accepted Amendment Proposal 2020-01 as an Editorial Change Ms. Hemphill explained that amendment proposal 2020-01 provides two guidance notes that point to documents on the NAIC website to assist users of VM-31, PBR Actuarial Report Requirements for Business Subject to a Principle-Based Valuation, by providing examples. She said the first guidance note points to mortality aggregation examples provided in the Mortality Aggregation excel spreadsheet, and it includes a Mortality Aggregation Presentation from the 2019 Summer National Meeting. The second guidance note points to the Sample Assumptions Summary for PBR Actuarial Report, which may be a useful reference document to individuals developing reporting in accordance with VM-31 Section 3.D.1.a. Mr. Boerner noted that the guidance notes only provide the location of examples and do not change any requirements. Reggie Mazyck (NAIC) said that because the guidance notes are only informational and no requirements are changed, he recommends that the Task Force accept the amendment proposal as an editorial change. Mr. Boerner asked if any Task Force members objected to accepting amendment proposal 2020-01 (Attachment F) as an editorial change to the Valuation Manual. The proposal was accepted without objection from Task Force members. Having no further business, the Life Actuarial (A) Task Force adjourned. W:\National Meetings\2020\Spring\TF\LA\LATF Calls\02-06\Feb 6 Minutes.docx


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Draft: 2/12/20

Life Actuarial (A) Task Force Conference Call January 30, 2020

The Life Actuarial (A) Task Force met via conference call Jan. 30, 2020. The following Task Force members participated: Kent Sullivan, Chair, represented by Mike Boerner and Rachel Hemphill (TX); Jillian Froment, Vice Chair, represented by Peter Weber (OH); Jim L. Ridling represented by Steve Ostlund (AL); Ricardo Lara represented by Perry Kupferman (CA); Michael Conway represented by Eric Unger (CO); Andrew N. Mais represented by Wanchin Chou and Jim Jakielo (CT); Doug Ommen represented by Mike Yanacheak (IA); Robert H. Muriel represented by Bruce Sartain (IL); Vicki Schmidt represented by Nicole Boyd (KS); Steve Kelley represented by Fred Andersen and John Robinson (MN); Chlora Lindley-Myers represented by William Leung (MO); Bruce. R. Ramge represented by Rhonda Ahrens (NE); Marlene Caride represented by Seong-min Eom (NJ); Russell Toal represented by Mark Hendrick (NM); Linda A. Lacewell represented by Amanda Fenwick (NY); Glen Mulready represented by Andrew Schallhorn (OK); Todd E. Kiser represented by Tomasz Serbinowski (UT); and Scott A. White represented by Craig Chupp (VA). 1. Discussed the Oliver Wyman YRT Reinsurance Reserve Credit Long-Term Solution Chris Whitney (Oliver Wyman) reviewed the yearly renewable term (YRT) reinsurance reserve credit slide deck (see Attachment B of the Jan. 23 minutes) discussed on the Jan. 23 Task Force call. He acknowledged a request from a Task Force member for an example of how the YRT rates used in the analysis were derived. He said the example will be provided to NAIC staff for distribution to Task Force members. Mr. Whitney reiterated that key takeaways from the previous discussion were:

1) Principles-based projections of reinsurance ceded can allow for scenarios reflecting reinsurer reactions that can produce reserve credits in excess of ½ cx.

2) The relative impact of each solution changes over time as the level of margin and remaining projection years change. Mr. Whitney said because initial field test results are at a point-in-time, they will provide limited information. He said the longer-term projections, expected to be available at the end of February, will be more informative. Dylan Strother (Oliver Wyman) said the long-term solution supplement document (Attachment A), providing the assuming reinsurer’s perspective, was developed in response to mirror reserving questions posed at the 2019 Fall National Meeting. He said mirror reserving is not expected under the principle-based reserving (PBR) approach, primarily due to the differing assumptions of the direct writer and the reinsurer. He noted that the mix of business and the mechanics of the PBR calculation also contribute to the unlikelihood of having mirror reserves. Katie van Ryn (Oliver Wyman) discussed examples where differing assumptions lead to the implausibility of mirror reserving. She noted that for the graphs on slide 6, the credibility assumptions for the ceding and assuming companies differ, with the lower ceding company credibility resulting in a higher PBR mortality margin. A similar comparison is provided on slide 7, except the YRT premium rates are modeled as the current scale plus 105% of the increase in PBR mortality. The adjustment to the YRT premiums reduces the difference between the reserve credit and the assumed reserves. Mr. Robinson noted that the graphs show instances where the ceded reserve credit is greater than the assumed reserve. He asked Task Force members if it is permissible for the reserve credit to exceed the assumed reserve. He requested that Mr. Whitney provide revised graphs comparing the reserve credit, the assumed reserve, the assumed net premium reserve (NPR) and ½ cx. Mr. Boerner said that unless the Valuation Manual prohibits it, the calculated PBR reserve credit may be different from the calculated PBR assumed reserve. Mr. Jakielo said that when reviewing the reserve amounts resulting from the testing of three amendment proposals, the Task Force should consider not only the comparison of the reserve credit and assumed reserve, but also it should consider the differences in the assumed reserve under each amendment proposal. Having no further business, the Life Actuarial (A) Task Force adjourned. W:\National Meetings\2020\Spring\TF\LA\LATF Calls\01-30\Jan 30 Minutes.docx


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Draft: 2/12/20 Life Actuarial (A) Task Force

Conference Call January 23, 2020

The Life Actuarial (A) Task Force met via conference call Jan. 23, 2020. The following Task Force members participated: Kent Sullivan, Chair, represented by Mike Boerner and Rachel Hemphill (TX); Jillian Froment, Vice Chair; Jim L. Ridling represented by Steve Ostlund (AL); Ricardo Lara represented by Perry Kupferman (CA); Michael Conway represented by Eric Unger (CO); Andrew N. Mais represented by Wanchin Chou (CT); Robert H. Muriel represented by Bruce Sartain (IL); Stephen W. Robertson represented by Karl Knable (IN); Vicki Schmidt represented by Nicole Boyd (KS); Steve Kelley represented by Fred Andersen and John Robinson (MN); Chlora Lindley-Myers represented by William Leung (MO); Bruce. R. Ramge represented by Rhonda Ahrens (NE); Marlene Caride represented by Seong-min Eom (NJ); Linda A. Lacewell represented by Bill Carmello and Amanda Fenwick (NY); Glen Mulready represented by Andrew Schallhorn (OK); Todd E. Kiser represented by Tomasz Serbinowski (UT); and Scott A. White represented by Craig Chupp (VA). 1. Heard a Status Update on the YRT Field Test Jason Kehrberg (Academy YRT Field Test Project Oversight Group—Oversight Group) provided a status update on the yearly renewable term (YRT) field test (Attachment A). The update included discussion of the timeline for the project workstreams and the dates of the project milestones. Mr. Boerner noted that the date for the Plenary adoption milestone should be corrected to Tuesday, Aug. 11. 2. Discussed the Oliver Wyman YRT Reinsurance Reserve Credit Long-Term Solution Chris Whitney (Oliver Wyman) reviewed the YRT reinsurance reserve credit slide deck (Attachment B) presented at the 2019 Fall National Meeting. He said questions from Task Force members and interested state insurance regulators indicated that a more targeted review of the presentation would be beneficial. Dylan Strother (Oliver Wyman) said the Executive Summary of the slide deck seemed to be clearly understood by participants at the Fall National Meeting. He said one of the questions points to the need for a high-level overview of how the nested modeling and projection modeling depicted on slide #7 work. He clarified that best estimate assumptions are outer loop assumptions, and prudent estimates assumptions are inner loop assumptions. Mr. Strother reminded the Task Force that as the projection moves forward to the next valuation date, the sufficient data period will increase, and inner loop assumptions must be updated for historical mortality improvement up to that point. He said such things are reflected in the Oliver Wyman modeling. Mr. Strother said the major goals of the Background section were to set up a baseline analysis comprised of two straightforward base cases for modeling YRT premiums. The base cases will be used to analyze the various amendment proposals being presented. He said the first base case increases the YRT premium to equal the principle-based reserving (PBR) mortality. The second base case sets the current scale equal to the PBR mortality. One goal of the section is to compare the base cases, one conservative and the other aggressive, to the approach using ½ cx. Another goal was to look at how the different approaches compare over a projection horizon. As Mr. Strother discussed the graph of the mortality and PBR margins, he noted that the lack of future mortality improvement is an implicit margin that is a large part of the total margin in the early years, and reduces to a less significant portion of the total margin in later years. Pat Allison (NAIC) said the graph shows that, assuming that no adjustments are made to the YRT reinsurance premium scale, reserve credits are driven by the difference between the PBR mortality and the best estimate mortality. Mr. Strother noted that the impact of reinsurance on the reserve is largely dependent upon whether the reinsurer chooses to adjust the premium to reflect changes in PBR mortality. Katie van Ryn (Oliver Wyman) said the purpose of the Initial Insights and Analysis section is to frame the discussion within the context of amendment proposal 2019-40, amendment proposal 2019-41 and amendment proposal 2019-42, which are being evaluated as part of the field test. She discussed the results of each amendment proposal on the reserve credits under various assumptions of mortality improvement and reinsurer reactions. Having no further business, the Life Actuarial (A) Task Force adjourned. W:\National Meetings\2020\Spring\TF\LA\LATF Calls\01-23\Jan 23 Minutes.docx


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Draft: 3/17/20

VM-22 (A) Subgroup Conference Call

February 26, 2020 The VM-22 (A) Subgroup of the Life Actuarial (A) Task Force met via conference call Feb. 26, 2020. The following Subgroup members participated: Bruce Sartain, Chair and Vincent Tsang (IL); Jim Jakielo (CT); William Leung (MO); Bill Carmello (NY); Tomasz Serbinowski (UT); and Craig Chupp (VA). Also participating was: Elaine Lam (CA).

1. Discussed the Potential Revisions to VM-22 Mr. Sartain discussed the Subgroup priorities for revising VM-22, Maximum Valuation Interest Rates for Income Annuities to incorporate principle-based reserving (PBR). He acknowledged monitoring the American Academy of Actuaries (Academy) Annuity Reserves Work Group conference calls during which they work on the details of PBR for non-variable annuities. He said the target date for implementation of the Work Group’s PBR version of VM-22 is Jan. 1, 2023. Mr. Sartain said there are six items on which the Work Group needs state insurance regulator feedback. He anticipates that the Subgroup will provide that feedback via making recommendations to the Life Actuarial (A) Task Force. He said current thinking is that all non-variable annuities will be subject to an exclusion test. Deferred annuity contracts passing the exclusion test will be valued according to the requirements of Actuarial Guideline XXXIII—Determining CARVM Reserves for Annuity Contracts with Elective Benefits (AG 33). The requirements for determining valuation interest rates for an immediate annuity that passes the exclusion test will default to the current version of VM-22. Mr. Chupp questioned whether it is necessary to have a PBR approach for immediate annuities that fail the exclusion test. Mr. Sartain said that one aspect of a PBR approach would be a robust approach for handling reinvestment risk. Ben Slutsker (Academy Annuity Reserves Work Group) said the exclusion tests can be calibrated to consider the characteristics of the various annuity designs, including the duration, longevity risk and reinvestment risk. Ms. Lam said the Subgroup should consider that scoping immediate annuities out of the PBR approach would preclude them from being subject to VM-G, Appendix G – Corporate Governance Guidance for Principle-Based Reserves. She said having immediate annuities opt out by passing an exclusion test does not offer the same opportunity. Mr. Leung asked if VM-22, which currently considers only valuation rates, should be expanded to include the valuation methods. Mr. Sartain said that the Subgroup charges include the potential for changes to valuation methodology, but it has not been determined whether a methodology change would reside in VM-22 or be placed elsewhere in the Valuation Manual. Mr. Serbinowski said having separate regimes for different subclasses of annuities encourages companies to search for regulatory arbitrage opportunities. Mr. Slutsker said the ARWG’s preference is to have all non-variable annuity requirements contained in a single Valuation Manual chapter. Mr. Sartain stated it was his intent to vote on these issues during the Subgroup’s next conference call. Mr. Sartain said about three years ago, the Academy Standard Valuation Law (SVL) Interest Rate Modernization Work Group was asked by the Life Actuarial (A) Task Force to consider whether a new methodology for determining interest rates for the Commissioners Annuity Reserve Valuation Method (CARVM) would make sense. He said, given the move toward a PBR methodology for non-variable annuities, including the use of exclusion tests, it is questionable whether the Work Group’s work should continue. Chris Conrad (Academy SVL Interest Rate Modernization Work Group) said that because single premium immediate annuities (SPIAs) have little policyholder optionality, valuation of SPIAs will not require the same level of modeling sophistication required for non-SPIAs. He recommended pausing the Work Group’s work on SPIAs until the work on exclusion tests and other aspects of non-variable annuities valuation are farther along. Mr. Sartain said the group could quickly resume its work when the time arises. Mr. Leung made a motion, seconded by Mr. Chupp, to request the Academy SVL Interest Rate Modernization Work Group to delay work until further notice on modernizing the process for determining valuation rates for non-SPIA non-variable annuities, as referenced in Mike Boerner’s letter of Jan. 25, 2017. The motion passed unanimously. Having no further business, the VM-22 (A) Subgroup adjourned. W:\National Meetings\2020\Spring\TF\LA\VM-22\Feb 26\02_26 VM-22 Minutes.docx

Update on Life Insurance Mortality Experience Reporting for 2020

Pat Allison, MAAA, FSA3/19/2020

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Attachment Two Life Actuarial (A) Task Force

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Agenda

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• Data collection timeline• Data call process• Communication with companies and regulators• Key company responsibilities• Deciding whether to include or exclude company data



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Data Collection Timeline

35/31/2021

3Deadline for NAIC to submit aggregate experience data to SOA

12/31/2020 Deadline for companies to make corrections

9/30/2020Deadline for companies to submit data using the RDC tool. Feedback on form and format data exceptions will be automatically provided upon submission.

Q2, 2020 Call for companies to submit data for 2018 observation year using 2020 Valuation Manual requirements: Aiming for 5/31/20

NowCompanies may 1) request exemptions or communicate exclusions, and 2) test data submissions using the Regulatory Data Collection (RDC) tool



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Data Call Process

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Pursuant to VM-50 Section 3.B.3, the NAIC is seeking to enter into agreements with state insurance departments for the collection of mortality experience data

The requirement to participate in the data call will be communicated by the states that have agreements with the NAIC

The NAIC will then contact companies to let them know they can begin submitting their data

Click Agreements will apply for each submission



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All companies have been notified of their selection status

The NAIC has received contact information from nearly all companies subject to the data call

A database has been created to keep track of company communications and decisions made regarding exclusion and exemption requests

Communications will be sent shortly regarding submissions of control totals and the data reconciliation required by VM-50 Sections 4.B.2 and 4.B.3, respectively

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Communication with Companies



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Communication with Regulators:Exclusions and Exemptions

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• Business out of scope (SI/GI, Worksite, COLI/BOLI/CHOLI, Preneed, etc.)• A group may elect to exclude data for an affiliate with < $10 million premium

Exclusions

No regulator decision needed

VM-51 Section 2.C: “Additional exemptions may be granted by the Experience Reporting Agent where appropriate, following consultation with the domestic insurance regulator, based on achieving a target level of approximately 85% of industry experience for the type of experience data being collected under this statistical plan.”

Exemptions

NAIC will consult with domestic regulator prior to granting or disallowing exemptions



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Company Selection Status

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176 Companies initially selected

-14 Group affiliate companies that elected exclusion due to small premium amount

-8 Companies that identified all business as out of scope

-4 Companies granted an exemption – with regulator approval

150 Companies selected at this point

-7 Exemptions pending – awaiting regulator approval

143 Companies selected if pending exemptions are approved



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Key Company ResponsibilitiesProduce control totals for each submission of data (VM-50 Section 4.B.2)

Produce a reconciliation between submitted data and statistical and financial data, and explain differences (VM-50 Section 4.B.3)

Companies shall acknowledge and respond to reasonability queries from the NAIC. Corrections for critical indications shall be provided or, when a correction is not feasible, the extent and nature of the error shall be reported to the NAIC. (VM-50 Section 4.B.13)

“Critical indications” are those that, if not corrected or confirmed, would leave a significant degree of doubt whether the affected data should be used

When the NAIC determines that the cause of an edit exception could produce systematic errors, the company must correct the error and respond in a timely fashion (VM-50 Section 4.A.3)



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Deciding whether toinclude or exclude company data

The NAIC will perform data reasonability checks (VM-50 Section 4.B.8 lists minimum requirements)

The NAIC will report “critical indications” to the company with an explanation of the unusual findings and their possible significance. Under the direction of the state insurance regulators, the NAIC will have reasonable flexibility to implement this, and may grade the severity of indications or simply identify certain indications as critical. (VM-50 Section 4.B.11)

Where quality would not appear to be significantly compromised, the NAIC may use records with missing or invalid data if such invalid or missing data do not involve a field that is relevant or would affect the credibility of the report (VM-50 Section 4.B.5)

For companies with a body of data for a state, line of business, product type or observation period that fails to meet these standards, the NAIC will use its discretion, with regulatory disclosure of key decisions made, regarding the omission of the entire body of data or only including records with valid data

NAIC Staff will be meeting with the Experience Reporting (A) Subgroup on 4/8/20 to discuss reasonability checks, critical indications, and severity grading of indications



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Questions?

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Update on the Request for Proposal for the

Economic Scenario Generator (ESG)


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Attachment Three Life Actuarial (A) Task Force

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RFP for a New ESG

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An RFP has been issued to select a vendor to provide a new ESG to be prescribed for life and annuity reserves and capital (e.g., VM-20, VM-21, C-3 Phase I, and C-3 Phase II)

RFP Timeline:

The new ESG is expected to be implemented no earlier than 2022

Wed 03/04/2020 Release of RFPFri 03/13/2020 Notification of intent to bidWed 03/25/2020 Submission of questionsWed 04/08/2020 Responses to questions provided via email and the NAIC websiteWed 04/15/2020 Discussions held with vendorsFri 05/01/2020 Proposal due to NAIC

May 2020 Vendor Selection and Award of RFP



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Cessation of the London Interbank Offered Rate

(LIBOR)


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Agenda

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Background

Actions Needed

Company Preparation

Valuation Manual Amendment



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Background

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The UK’s Financial Conduct Authority is responsible for regulating LIBOR and has indicated that publication of LIBOR is not guaranteed beyond 2021

The Alternative Reference Rates Committee (AARC) was formed in 2014 by the Federal Reserve Board and the NY Fed

In 2017, the AARC identified the Secured Overnight Financing Rate (SOFR) as the rate that represents best practice for use in certain new USD derivatives and other financial contracts

The AARC has 10 working groups to help ensure a successful transition from USD LIBOR to SOFR, e.g.:- Outreach/Communications Working Group- Regulatory Issues Working Group- Accounting/Tax Working Group



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Actions Needed

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Insurance companies will need to take inventory of existing products and processes that use LIBOR, which may include:

Investments (e.g. floating rate debt, where the interest rate is reset periodically based on LIBOR; derivatives linked to LIBOR)

Contracts with policyholders (e.g. annuities with credited rates linked to LIBOR)

Reinsurance treaties

IT feeds

Take action where required to move toward SOFR or another rate

Study tax, accounting, and actuarial impacts



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Actions Needed

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Valuation Manual - VM-20 Section 9.F.8.dInterest rate swap spreads over Treasuries shall be prescribed by the NAIC for use throughout the cash-flow model wherever appropriate for transactions and operations including, but not limited to, purchase, sale, settlement, cash flows of derivative positions and reset of floating rate investments. A current and long-term swap spread curve shall be prescribed for year one and years four and after, respectively, with yearly grading in between. The three-month and six-month points on the swap spread curves represent the corresponding London Interbank Offered Rate (LIBOR) spreads over Treasuries.

VM-20 Spreads Drafting Group was formed to consider the changes needed to this language



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Questions?

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Documents

Materials - Life Actuarial (A) Task Force · The Life Actuarial (A) Task Force met via conference call . 27, 2020. FebThe following Task Force members participated: Kent Sullivan,