VM-20 Impact Study Compendium

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By Karen K. Rudolph | 21 February 2012

After many years in development, a principle-based approach to reserve determination is now recognized in the Standard Valuation Model Law (SVL). The revised SVL was provisionally adopted by the National Association of Insurance Commissioners (NAIC) in 2009. The SVL relies on a valuation manual to specify the detail behind calculating statutory minimum reserves for all product types. For life insurance, this detail is found in VM-20.1

In 2010, the NAIC solicited industry participation in a field test to gauge the impact of implementing VM-20. The insurance product types represented in the effort included term insurance, whole life, simplified issue whole life, accumulation universal life, universal life with secondary guarantees, and variable universal life.

The first phase included calculation of primary components of VM-20, including reserve exclusion tests, net premium reserves, deterministic reserves, stochastic reserves, and current statutory reserves. The second phase included a variety of sensitivity tests, the purpose of which is to provide insight into the Phase 1 results and specifically the sensitivity of the reserve components to changes in assumptions and changes in the underlying methodology.

Because many of the concepts in VM-20 are new for statutory life insurance valuation, the industry and regulators agreed a field test would be appropriate. Specifically, the regulators and industry are using the Study results to:

  • Assess the outcome of the VM-20 calculations for different product types
  • Develop an understanding of areas where the methods, assumptions or language of VM-20 could be improved

In concert with these objectives, the American Council of Life Insurers (ACLI) requested that companies voluntarily submit Study results to Milliman so that results could be summarized and analyzed in parallel with the regulatory review. This report summarizes the analysis performed during this parallel review.

This report is the result of Milliman’s engagement with the American Council of Life Insurers (ACLI) to review the data produced by companies submitting their Study results to the ACLI.