Vol 6 | No. 4
Date:12/01/2023
Envision Tomorrow in Focus
Annual Meeting Cross-Practice Session Looks at PRT Group Annuity Contracts
Presenters in a life/pension cross-practice session at Envision Tomorrow, the Academy’s Annual Meeting in November, gave a high-level overview of the regulatory and structural dynamics around pension risk transfer (PRT)—which saw $51.8 billion in transactions last year.
Representatives from the National Organization of Life & Health Insurance Guaranty Associations (NOLHGA), State Street Global Advisors, and the Asset Adequacy and Reinsurance Issues Task Force discussed a multi-layered regulatory apparatus, which was vividly described as analogous to the layers comprising a parfait.
Moderators were Brent Dooley, a member of the Academy’s Annuity Reserves & Capital Subcommittee, and Grace Lattyak, vice chairperson of the Academy’s Pension Committee. Speakers were Michael Heard, executive vice president & chief operating officer, NOLHGA; William O’Sullivan, senior vice president & general counsel, NOLHGA; Denise Sisk, managing director, State Street Global Advisors; and Tricia Matson, chairperson of the Academy’s Asset Adequacy and Reinsurance Issues Task Force.
Panelists in the cross-practice session
Laid out step-by-step, the hybrid audience kept the panel busy with questions probing the interplay and effect of the regulatory structure and the level of protection afforded such annuity payees against the risk of default due to issuer insolvency.
The discussion took place as the U.S. Department of Labor (DOL) nears a Dec. 29 deadline for review and recommendations of Interpretative Bulletin (IB) 95-1, which spells out the fiduciary standards for selecting an annuity provider for a PRT.
As part of the SECURE Act 2.0 update enacted last year, the DOL must review IB 95-1 and recommend updates to Congress by the end of the year. The Academy’s Pension Committee submitted comments to the DOL in October, responding to a request for information on SECURE Act 2.0 provisions related to the reporting and disclosure framework of ERISA.
Currently under the rule, pension managers must consider the provider’s investment portfolio, size relative to the annuity contract, level of capital and surplus, liability exposure, and availability of state government guaranty associations.
Academy Resources
For more information on this topic, see:
- Materials presented this summer by the Life Investment and Capital Adequacy Committee outlining the state insurance regulations applicable to life insurance companies operating in the United States.
- The Pension Committee issue brief, also released this summer, Buy-Out Group Annuity Purchase Primer: Pension Plan Sponsor’s Role and Considerations.
- Webinar coming soon—And, look for an Academy cross-practice webinar on this topic coming early next year.
Breakout Sessions Look at AG 53, Structured Securities
Envision Tomorrow life practice-area breakout sessions provided valuable perspectives on key issues. Speakers, panelists, and attendees discussed many topics over the course of the two-day meeting, interacting in-person and with virtual attendees. See full session introductions and writeups in the November Actuarial Update supplement Envision Tomorrow: A Closer Look.
Actuarial Guideline LIII (AG 53): Perspectives So Far
Matson moderates the AG 53 session
Participants discussed the challenges companies are facing in implementing the guidance, as well as regulatory insights they have observed thus far. Asset Adequacy and Reinsurance Issues Task Force Chairperson Tricia Matson noted that AG 53 supports transparency and standards of practice. She acknowledged, however, that actuaries could struggle with the use of more complicated securities to back reserves given they are not experts on the subject.
Structured Securities
Regulators and industry authorities discussed the state of collateral loan obligations (CLO) charges in a structured securities session. One part of the discussion reflected concerns that CLOs should be modeled more conservatively to consider the possibility of a complete collapse, while other discussion centered on the current system being largely effective based on existing data that supports the successful record of highly rated CLOs.
Save the Date: Next Year’s Meeting in October—It’s not too early to save the dates for the 2024 Annual Meeting, which will be held in advance of next year’s presidential election. It’s set for Oct. 15–16 at the Grand Hyatt Washington in the nation’s capital.
Academy Board Welcomes New Life Members
Kehrberg
Also at Envision Tomorrow, the Academy Board welcomed new life-practice members, and life members received service and recognition awards.
Outgoing Academy Life Vice President Ben Slutsker became the Academy’s secretary-treasurer, and Jason Kehrberg became life vice president. Life members Donna Megregian and Maambo Mujala are among three new member-selected directors on the Board.
PedersenLife volunteer Kirsten Pedersen received an Outstanding Volunteerism Award for her precedent-setting efforts in the life practice area on state laws and regulation relating to unfair discrimination, including chairing a subgroup focused on Colorado’s insurance anti-discrimination law, working on comment letters with multiple Academy practice councils, and developing a new practice note that promises to be a vital resource for actuaries in this emerging area. Read the Academy news release.
This year’s recipients of Rising Actuary Awards—now in its second year—included life practice-area actuaries Shruti Gupta (KPMG) and Angela McShane (Ernst & Young LLP, U.K.). Read more about the recipients in the November/December issue of Contingencies.
Academy Holds Successful LHQ Seminar
Sheldon Summers (standing) and Dave Neve lead a life session
The Academy hosted a successful 2023 Life and Health Qualifications Seminar Nov. 6–9. The sold-out event included sessions on professionalism, actuarial opinions, and interactive case-study breakout sessions that have long been highly valued by attendees. Academy President-Elect Darrell Knapp chaired the subcommittee that organized the seminar.
Academy Presents on Life Issues at NAIC Fall Meeting
Academy volunteers and staff presented at the National Association of Insurance Commissioners (NAIC) Fall National Meeting in Orlando, Fla. in late November and early December. Life presentations included looks at key Life Practice Council (LPC) activity.
Presentations included:
- Life Policy Analyst Amanda Barry-Moilanen gave an update on LPC workstreams to the Life Actuarial (A) Task Force (LATF).
- Also at LATF, Academy Life Vice President Jason Kehrberg discussed the Economic Scenario Generator Subcommittee’s comment letters on GOES corporate models, acceptance criteria, and gross wealth factors.
- C1 Subcommittee Chairperson Steve Smith presented to NAIC’s Risk-Based Capital (RBC) Investment Risk and Evaluation (E) Working Group on Updated Principles for Structured Securities RBC.
PBR Bootcamp Series Wraps Up With Regulators’ Perspective
The latest installment of this year’s PBR Bootcamp Series, “VM-31 as Seen by Regulators,” featured regulators’ perspective on principle-based reserving (PBR) reports and how reports examine life insurance, Valuation Manual updates being considered, and how to improve reports.
Speakers were Academy Secretary-Treasurer Ben Slutsker, Risk Management and Financial Reporting Immediate Past Vice President Seong-Min Eom, James Beall, and Rachel Hemphill—all of whom are state regulators. Thomas Reedy, a member of the PBR Implementation Subcommittee, moderated.
September’s offering looked at “Hedge Modeling” and October’s at “Reinsurance” issues. Recordings are available as a free member benefit via the individual webinar pages or the public policy webinars page.
Slutsker
Eom
- The Life Index-Linked Variable Annuity (ILVA) Subcommittee submitted a comment letter to the ILVA Subgroup of the Interstate Insurance Product Regulation Commission‘s Product Standard Committee in response to the Nov. 14 exposure of the Standards for Individual Deferred Index Linked Variable Annuity Contracts and the draft amendments to the Additional Standards to Market Value Adjustment.
- The Annuity Reserve and Capital Subcommittee submitted comments to the NAIC’s VM-22 Subgroup on the July 2023 exposure draft of the VM-22 Standard Projection Amount (SPA), reiterating its recommendation that the regulation not include a binding SPA.
Highlights From
Life Perspectives
Prefer to watch your news? Check out this “Highlights From Life Perspectives” video for a quick recap of what you need to know.
Life and Health Law Manual Available
Make sure you’re up to date on the latest requirements with the Academy’s Life and Health Valuation Law Manual. Now available for preorder, the law manual contains a concise summary of the valuation laws of all 50 states, the District of Columbia, and Puerto Rico. The law manual will be available for download in January 2024—place your preorder today.
A report from global law firm Mayer Brown on the NAIC’s Fall National Meeting mentioned Life C1 Subcommittee Chairperson Steve Smith’s presentation to the Risk-Based Capital Investment Risk and Evaluation (E) (RBCIRE) Working Group on updated principles for structured securities RBC.
InsuranceNewsNet cited comments on pension risk transfers from Academy Senior Pension Fellow Linda K. Stone and Director of Communications & Public Affairs David Mendes.
A regulatory update on NAIC’s Summer National Meeting discussed in detail the Academy’s work on collateralized loan obligations and C-1 factors.
Morningstar cited the Actuaries Longevity Illustrator, developed jointly by the Academy and the Society of Actuaries. A Wall Street Journal article used the Actuaries Longevity Illustrator to explain the probability of President Biden and former President Trump living to older ages.
Legislative/Regulatory Activity
State
On Oct. 26, the Colorado Division of Insurance issued a final rule aimed to bar unfair discrimination. The rule establishes the governance and risk management requirements for life insurers that use external consumer data and information sources (ECDIS), as well as algorithms and predictive models that use ECDIS.
Michigan Gov. Gretchen Whitmer signed SB 268 into law on Oct. 24. The law deletes language requiring a death benefit offered by an associated life insurance policy or annuity contract issued in the state to increase at the rate of the consumer price index annually. Michigan was the only state to have such a provision on the books.
The Indiana Department of Insurance published a proposed rule on Oct. 11 requiring insurers to act in the best interest of the consumer when making a recommendation of an annuity. The proposal would also require insurers provide that the best interest requirements are satisfied when an insurance producer complies with specific obligations relating to care, disclosure, conflict of interest, and documentation. It also requires insurers to establish, maintain, and utilize a system to supervise recommendations for annuities mandates additional training for producers selling annuities, and requires an insurer provide a buyer’s guide to all consumers who purchase an annuity.
The Washington State Insurance Commission proposed a new rule on Oct. 4 that would resolve confusion related to life insurance with long-term care insurance (LTCI) riders and accelerated benefits in the existing insurance code. The rules currently prohibit life insurers from offering life insurance policies with riders that have accelerated benefits for LTCI and require disclosure statements communicating this prohibition. This contradicts current law, which allows them under certain conditions.