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Model law to govern reserves nears completion


WASHINGTON—An executive with an industry group seeking to advance principles-based reserving for life insurers said he's happy with progress towards promoting model legislation that can be considered by the states.

Earlier, Scott Harrison, executive director of the Washington-based Affordable Life Insurance Alliance, said he thought it is essential that the National Assn. of Insurance Commissioners adopt a model state evaluation law this year states with biennial legislative sessions are to be able to move forward in timely fashion in advancing principles-based reserving.

In a principles-based system, insurers' reserve requirements would be set and capital adequacy would be determined by using principles of risk management, asset adequacy analysis and modeling rather than rigid formulas.

"It seems clear to me that we are very close to having final changes in a model and changes to the standard valuation law that would be ready for the NAIC to consider by year-end," Mr. Harrison said.

While winning approval of the model law is a significant challenge for those promoting principles-based reserving, completing the model's final language doesn't bring an end to the task, Mr. Harrison cautioned.

"I think the challenge remains. The first one will be getting the law changed in the states. That is something that obviously will be an enormous undertaking," Mr. Harrison said.

Also, there will have to be discussions with U.S. Treasury officials to ensure that proposed changes are consistent with federal tax law.

"In the life insurance industry, there's always concern about raising federal tax questions," he said. "The objective is to fit the principles-based approach into the existing tax law."