Public Policy Research

Recent Research Papers

The Probability of Default Model for Insurance Companies in the United States of America, Canada, and France
In the fall of 2022, the Academy commissioned professor Jin-Chuan Duan and his team at the National University of Singapore’s Credit Research Initiative (NUS-CRI) to produce estimates of the probability of default for each insurance entity in the United States, Canada, and France for the period 2009–2021. This report explains exactly how those estimates were produced and assesses the quality of the estimates. (May 18, 2023)

RESEARCH REPORT on Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) and National Association of Insurance Commissioners (NAIC) Climate Risk Disclosure Survey Responses Compared Qualitatively and Quantitatively: Eight Companies in 2019—Twenty-four Companies in 2020
Climate Related Financial Disclosures Work Group report submitted to the NAIC’s Climate and Resiliency (EX) Task Force. This accompanies a comment letter from the Academy’s Climate Change Joint Task Force that addresses an exposed proposal by the NAIC for a new climate disclosure, based on the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) guideline and includes a series of observations and three specific suggestions. The report and associated comment letter to the NAIC are based upon research conducted by the Academy’s Climate-related Financial Disclosures Work Group. (January 10, 2022)

Aggregating Regulatory Capital Requirements across Jurisdictions: Theoretical and Practical Considerations
Academy President-Elect Maryellen Coggins and Steve Jackson, assistant director for research (public policy), presented Sept. 13 at the Virtual Casualty Loss Reserve Seminar and Workshops (CLRS), on the Academy’s scalars research paper. The CLRS is sponsored jointly by the Academy and the Casualty Actuarial Society. (April 1, 2021)

Climate Risk Financial Disclosure Analysis
ERM/ORSA Climate Related Financial Disclosures (CRFD) Work Group update to the NAIC Climate Risk and Resiliency (EX) Task Force on the Climate Risk Disclosures Survey Analysis project. (January 27, 2021)

Practice Areas

Casualty Practice Council

Cyber Breach Reporting Requirements
States have moved to develop their own laws given there is a lack of federal regulation of notice requirements to consumers in the event of cyber breaches. The purpose of this paper is to provide a systematic comparison of the existing regulations with respect to data breaches involving personally identifiable information across the states. The National Association of Insurance Commissioners (NAIC) Insurance Data Security Model Law is also examined. (November 1, 2020)

Actuaries Climate Risk Index: Preliminary Findings
As part of its continuing public policy research program providing objective and independent information based on actuarial analysis, the American Academy of Actuaries today introduced the first model and results of the Actuaries Climate Risk Index (ACRI), which provides results associating dollar estimates of property losses in the United States with changes in extreme weather. The Academy has long been the most reliable and credible source of objective, independent, and nonpartisan information about actuarial matters that can and do affect public policy decisions in the U.S. We are now releasing the ACRI to provide that objective and independent analysis to assist in answering the question: Are the extreme weather conditions that result from a changing climate producing increased property losses? The findings contained in version 1.0 of the ACRI are the culmination of years of research. We are presenting them now in the spirit of objective, transparent scientific inquiry and statistical rigor. (January 1, 2020)

Schedule P, Foreign Exchange and Intercompany Quotashare Pools: Results from a Survey of Casualty Insurance Companies
The Academy’s Committee on Property and Liability Financial Reporting identified two issues which might be producing inconsistent reporting on Schedule P, based on a lack of clear direction. One issue dealt with the conversion of operations in foreign currencies to US dollars, and the other dealt with the reporting of results for Intercompany Quotashare Pools. A survey was constructed with questions covering both issues and was distributed to 95 of the largest P&C insurers. 29% of those companies responded and their responses indicated the likelihood of at least some inconsistency in their practices on both currency conversion and the treatment of results from intercompany quotashare pools. (January 19, 2018)

Health Practice Council

Estimating the Potential Health Care Savings of Reference Pricing
Academy research study, Estimating the Potential Health Care Savings of Reference Pricing, exploring the possibility of using reference pricing to address health care costs, and building upon existing research by estimating the impact of expanding reference pricing to a broader set of health care services. (November 1, 2018)

Life Practice Council

Asset Adequacy Testing Considerations for Year-End 2020
The Life Practice Council's Asset Adequacy Testing Task Force's (AATTF) discussion paper titled, Asset Adequacy Testing Considerations for Year-End 2020. (December 1, 2020)

PBR: Reserve Credits for YRT Reinsurance: The Range of Interpretations of Three Amendment Proposal Forms (APFs), A Survey of Companies
As PBR is implemented, the NAIC is monitoring the PBR Actuarial Reports filed by insurers for evidence of problems that might require changes to the Valuation Manual. 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. The American Academy of Actuaries 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 earlier and for all of the proposed APFs under consideration by LATF at the NAIC. In order to supplement the information obtained from the field test, the Life Valuation Committee decided to do an additional survey on the methods and assumptions that companies expected to rely upon in modeling reserves under these APFs. This survey was sent both to the participating companies and to those that had declined to participate unless they indicated that they did not expect to be subject to PBR. In all, the survey went to 116 entities. Thirty-six of those responded directly, providing responses which covered 51 entities. The survey requested responses to three questions, with some questions involving multiple responses. The first question asked: “Which of the following best describes your rationale for having a separate approach to projecting changes to YRT rates for this group of treaties?” The second question asked respondents to “complete the following tables for this group of reinsurance arrangements, based on how your company would project changes to YRT rates and on the requirements presented in each proposal [APF].” Finally, the third question asks for more details on the method of projecting changes in YRT rates indicated in the answer to the second question. Results are reported, distinguishing between direct issuers and reinsurers. (September 18, 2020)

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. (May 8, 2020)

Long-term Care (LTC) Combination Product Valuation Practice Note
Work Group Long-Term Care Combination Product Valuation Practice Note to provide information to actuaries on current and emerging practices in which their peers are engaged with respect to the considerations in the statutory, Generally Accepted Accounting Principles (GAAP) and tax valuation of long-term care combination products. (July 1, 2019)

Reserve Estimates under Longevity Stress: Results from a Survey of Life Insurance Companies
Longevity Risk Task Force update to Life Risk-Based Capital (E) Working Group at the NAIC Spring 2019 National Meeting.(August 29, 2018)

Reserving for LTC Combo Riders: Results from a Survey of Life Insurance Companies
The Long-Term Care Combination Product Valuation Work Group updated the Long-Term Care (LTC) Actuarial Working Group of the National Association of Insurance Commissioners on the LTC Combination Product Valuation Practice Note currently exposed for comment. (November 10, 2017)

Retirement Practice Council

Age and Wisdom: Retirement Readiness in the U.S., U.K. and Australia
In 2015, the American Academy of Actuaries, the Australian Actuaries Institute and the Institute and Faculty of Actuaries in the United Kingdom identified longevity risk-the risk of outliving one's retirement income-as a major issue in all three countries and published a white paper, The Challenge of Longevity Risk, to alert the public and policy makers to their concerns. In 2016-2017, the actuarial groups undertook a follow-up to their original paper by sponsoring a survey of working-age individuals in each country to assess their preparation for various retirement risks, including longevity risk. The results of this survey were published in a 2017 report, Retirement Readiness: A Comparative Analysis of Australia, the United Kingdom & the United States. Recognizing important differences across these three countries in history, culture, policies and practices, the survey sought to identify significant differences in the perceptions of and planning for a secure retirement. The survey also compared responses across various demographic categories, including gender, age, income and education. This article seeks to explore more deeply the differences in response by age in that original survey, focusing on the U.S. respondents in the 2016 survey but with a comparative look at the responses from Australia and the U.K. (April 1, 2019)

Retirement Readiness: A Comparative Analysis of Australia, the United Kingdom & the United States
The Academy, the Institute and Faculty of Actuaries (U.K.), and the Actuaries Institute of Australia today published Retirement Readiness: A Comparative Analysis of Australia, the United Kingdom, and the United States, showing that people in the three countries struggle with planning for retirement because they often aren’t equipped to address complex questions. Recommendations in the report include targeted financial education, greater use of default features in private retirement plans, and ensuring that public pension and social insurance systems are sustainable and capable of providing adequately for those who depend on them most. Read the news release. The audio and slides are also available.

Risk Management and Financial Reporting Council

Climate Risk Disclosure Survey Analysis
The Risk Management and Financial Reporting Council's Climate Related Financial Disclosures (CRFD) Work Group Chair, Michelle Young, and the Academy's Assistant Director for Research, Steve Jackson, shared an update on the group's ongoing analysis of the NAIC Climate Risk Disclosure Survey results at the NAIC 2020 Fall National Meeting. (December 4, 2020)

Cross-Practice Focus Areas

Climate Change

Academy Gives Overview of Climate Work to German Actuarial Association
Director of Research (Public Policy) Steve Jackson and Peter Ott, chairperson of the ACI/ACRI (Actuaries Climate Index / Actuaries Climate Research Index) Working Group and a vice chairperson of the Climate Change Joint Committee, delivered a virtual presentation to the German Actuarial Association, “U.S. Actuarial Societies & the American Academy of Actuaries’ Climate Work.” (March 14, 2024)

Scalars

Discussion of Scalars in Reference to the US Developed Aggregation Method for Calculating Group Capital for Internationally Active Insurance Groups

This report outlines the purpose of scalars in the context of AM and considers various technical approaches for determining scalars. These approaches are further analyzed based on criteria to assess suitability. Issued by the Insurance Policy Advisory Committee of the Federal Reserve Board of Governors, Report to the Board of Governors of the Federal Reserve. (February 26, 2024)

The Probability of Default Model for Insurance Companies in the United States of America, Canada, and France.

In the fall of 2022, the Academy commissioned Prof. Jin-Chuan Duan and his team at the National University of Singapore’s Credit Research Initiative (NUS-CRI) to produce estimates of the probability of default for each insurance entity in the United States, Canada and France for the period 2009 – 2021. This report explains exactly how those estimates were produced and assesses the quality of the estimates.