PBR: Reserve Credits for YRT Reinsurance A Field Test of Three Amendment Proposal Forms (APFs), Time Zero and Projected Reserves

With the introduction of principle-based reserving (PBR) by the National Association of Insurance Commissioners (NAIC), insurers are required to hold the higher of (a) formulaic reserves based on prescribed factors and (b) modeled reserves based on cashflow projections that consider a wide range of future economic conditions and use assumptions that depend on experience and credibility specific to an insurer, such as mortality, policyholder behavior, and expenses.  In its 2017 reviews of Life PBR Actuarial Reports, the NAIC’s Valuation Analysis (E) Working Group (VAWG) found that modeling of yearly renewable term (YRT) reinsurance premiums varied significantly across companies. These differences in modeling yielded material differences in the reinsurance reserve credits claimed by companies. As a result, several this area. The NAIC’s Life Actuarial (A) Task Force (LATF) wanted to see results of a field test of these APFs to support its decision of which, if any, of the APFs to adopt. Between December 2019 and April 2020, the Academy administered a field test in which it asked participating companies to model reserves and reinsurance credits for the formulaic interim solution adopted by the NAIC in 2019 and for all of the proposed APFs currently under consideration by LATF at the NAIC.  In August 2019, 187 companies identified by the NAIC staff as those likely to be subject to PBR when it becomes mandatory, were invited to join a field test of three APFs. This report presents results from submissions by 11 participating companies.