NAIC Will Study Separate Account Risk Charges


The Separate Account Risk Charge (E) Working Group (Risk Charge Working Group) of the National Association of Insurance Commissioners (NAIC) recently held its first meeting by conference call (chaired by Blaine Shepherd of Minnesota). The charge of the Working Group is to consider the need to develop express regulatory requirements that insurers establish adequate risk charges to compensate the general account for the risks that it assumes in guaranteeing individual separate account products. At the end of its study, the Working Group is charged with providing recommendations to the NAIC’s Financial Condition (E) Committee on whether to request that a model law be developed.

While insurers are required to hold reserves within their general accounts for guarantees of individual separate account products, there are currently no express model laws or regulations that the general account be compensated for such guarantees by means of separate account risk charges or that a qualified actuary opine on the adequacy of such charges. The lack of such risk charge regulation has been identified by the Statutory Accounting Principles (E) Working Group (SAP Working Group) as a very concerning matter for solvency regulation. Further the SAP Working Group believes that the recent economic downturn has demonstrated the significance that these guarantees can have on the general account. As a result, the SAP Working Group has requested that the (E) Committee consider establishing guidelines requiring risk charges for individual separate account products that would...

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