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.