Life Actuarial (A) Task Force/ Health Actuarial (B) TaskForce

Amendment ProposalForm

1.Identifyyourself,youraffiliationandaverybriefdescription(title)oftheissue.

Staff of Office of Principle-Based Reserving, California Department of Insurance –Clarify language about Starting Assets.

2.Identify the document, including the date if the document is “released for comment,” and the location in the document where the amendment is proposed:

Valuation Manual (January 1, 2018 edition), with NAIC Adoptions through August 8, 2017– as amended by APF 2017-57 adopted 11/30/2017,VM-20 Sections 7.D.1, 7.D.3, and 7.D.7

3.Show what changes are needed by providing a red-line version of the original verbiage with deletions and identify the verbiage to be deleted, inserted or changed by providing a red-line (turn on “track changes” in Word®) version of the verbiage. (You may do this through anattachment.)

See attachedAppendix.These changes are non-substantive in nature.

4.Statethereasonfortheproposedamendment?(Youmaydothisthroughanattachment.)

See attachedAppendix.

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NAIC StaffComments:

Dates:Received / Reviewed byStaff / Distributed / Considered
Notes:APF 2018-03 (CA APF AI)

W:\NationalMeetings\2010\...\TF\LHA\

© 2015 National Association of Insurance Commissioners

Appendix

ISSUE:
Clarify Starting Asset language, in several respects:
1.Make it clearer that determining Starting Assets is an iterative process.
2.Clarify that the asset collar applies to the final iteration, not the first guess.
SECTION:
VM-20 Section 7.D.1, 7.D.3, and 7.D.7
REDLINE:

VM-20 Section 7.D.

D. StartingAssets
1. For each model segment, the company shall select starting assets based on an iterative process.

Guidance Note: A reasonable initial set of starting assets for the iteration might be such that the aggregate

annual statement value of the assets at the projection start date equals (a) the estimated value of the modeled reserve plus the associated PIMR balance on the projection start date, or (b) the NPR for the same set of policies net of any corresponding due and deferred premium asset, or (c) an amount between (a) and (b). allocated to the policies in the appropriate model segment.

Iteration may continue until the asset collar of 7.D.3 is satisfied or the company may stop iteration before the asset collar is satisfied and provide the required documentation in 7.D.3 that the modeled reserve is not thereby materially understated.

3. If for all model segments combined, the aggregate annual statement value of the final value of starting assets, less the corresponding PIMR balance, is:
(a) less than 98% of the modeled reserve; or
(b) greater than the largest of:
(i) 102% of the modeled reserve
(ii) the NPR for the same set of policies, net of due and deferred premiums thereon; and
(iii) zero
then the company shall provide documentation in the PBR Actuarial Report that provides reasonable assurance that the modeled reserve is not materially understated as a result of the estimate of the amount of startingassets.

7. Under Section 4 and Section 5, any PIMR balance allocated to the group of one or more policies being modeled at the projection start date issubtracted out included in the calculations of the respective reserves. The determination of the PIMR allocation is subject to the following:

REASONING:

More precise language, and also the removal of any language that could be construed as regulating at what the first guess in an iterative process should equal.

Change to 7.D.7 better reflects the language of VM-20 Section 4.A and 5.F.