The Academy has been instrumental in the effort begun more than 20 years ago to modernize the framework for determining life insurers’ statutorily required reserves and capital in the United States. The Academy has been the technical architect behind principle-based reserving (PBR), helping to shape PBR into the valuation standard for life insurance issued after Jan. 1, 2017. PBR uses risk management techniques to capture an individual insurer’s unique risks underlying its life insurance business more accurately than the preexisting requirements based on prescribed, static methods and assumptions.

Utilizing stochastic projection models to establish valuation and capital standards was first tested with variable annuities in the early 2000s. This approach was later expanded to capital and reserve requirements for variable annuities. After validation by these smaller pilot efforts, the National Association of Insurance Commissioners (NAIC) and the Academy focused on modernizing the entire valuation process for all life insurance.

Thus, this move toward a fully modernized valuation system for life insurers started taking place on Jan. 1, 2017, in the 46 states that have passed standard valuation PBR-enabling legislation. Insurers can begin to offer policies whose reserves are calculated using PBR while regulators will begin a new approach to analyze the valuation results. There is a three-year voluntary transition for insurers that ends Dec. 31, 2019.

The Academy has assembled the following materials to assist actuaries and regulators as the U.S. moves into the implementation phase of PBR for life insurance.