Speakers Spar Over UL Secondary Guarantee Rules

- Dennis Lauzon, a New York regulator: “The main problem with the guideline [AG 38] was that it wasn’t followed and created an unlevel playing field,” Lauzon said.

- North Carolina Insurance Commissioner Jim Long: Long wrote in a Nov. 18 letter that, if changes are made to AG 38, they should not be applied retroactively. He recommended pursuing a valuation process that “takes into account supportable company variations in such areas as underwriting criteria, mortality experience, expense levels, and the invested assets supporting a company’s liabilities.”

Others:

- Larry Gorski, a former regulator and a consulting actuary in the New Berlin, Ill., office of Claire Thinking: Gorski said efforts to come up with more flexible reserving techniques should help lead to more efficient reserving strategies. Moving away from a formulaic approach should reduce the number of disagreements about reserving, Gorski said.

Gorski recommended requiring a stand-alone asset adequacy test that deals only with the UL product, then waiting for the American Academy of Actuaries to finish its report on reserving. The report is due at the end of 2005.

- Wayne Stuenkel, chief actuary of Protective Life Corp., Birmingham, Ala.: Stuenkel argued against retroactive changes to UL secondary guarantee reserving requirements.

Protective checked with domestic regulators about AG 38 5 times, and regulators found the company’s reserves to be appropriate each time, Stuenkel said.

Protective is required to certify in statutory and GAAP filings that reserves are sufficient, and Protective takes that requirement “very seriously,” Stuenkel said. The goal is to balance the interests of stockholders and policyholders by ensuring that reserves are neither too low nor too high, Stuenkel added.

Protective and other companies have to rely on the directions in a guideline, because it is impossible for companies to determine the intent of what regulators meant 2 to 3 years ago, Stuenkel said.

- Mike Streck, a life actuary at Principal Financial Group Inc., Des Moines, Iowa: Streck talked about the effects of different reserving approaches on a hypothetical UL product.

The different approaches in New York and California would produce a 40% difference in reserving requirements, Streck said.

UL might not exist today if companies were punished with a retroactive reserve requirement, Streck said.

- Scott Harrison, a Washington lawyer who is representing a group of 15 insurers that includes Jefferson-Pilot Financial, Greensboro, N.C., and Pacific Life Insurance Company, Newport Beach, Calif.: If insurers are interpreting AG 38 wrong, then regulators should fix that, but regulators should avoid making any retroactive changes, Harrison said.

It is important that insurers be able to rely on the language in the guideline, Harrison said.

- Scott Berlin, a life actuary with New York Life Insurance Company, New York: Berlin said use of a formulaic approach to setting reserve levels may have protected life insurers from reserve-related insolvencies, but he suggested that reserve problems could cause future life company failures. “If we cut corners on reserves, that is what might happen,” Berlin said.

- Robert Beuerlein, chief actuary at AIG American General, Houston: Beuerlein said he can look out of his windows and see the Enron towers. “I don’t want to see the actuarial profession mess up,” Beuerlein said, adding that actuaries “cannot be cutting corners.” Some actuaries at the meeting criticized Beuerlein’s reference to Enron.