2. Actuarial Resources Corporation NAIC Update SOUTHEASTERN ACTUARIES CONFERENCE MEETING November 19-21, 2003 Presented By: Matt McAllister, FSA, MAAA Actuarial Resources Corporation

3. Overview Annuity Nonforfeiture Model Law/Regulation Regulation To Adopt 2001 CSO Table Revised AOMR Variable Annuity Reserves Other Topics –Credit Insurance Mortality –Possible Revisions to SVL

4. Actuarial Resources Corporation Annuity Nonforfeiture Model Law Low interest rate environment Many states have lowered the SNFL Interest Rate from 3% to 1.5% In March 2003, NAIC adopted a new Model Law utilizing an indexed rate

5. Actuarial Resources Corporation Annuity Nonforfeiture Model Regulation Initial Draft Model Regulation already developed Primary Issues –Setting Initial Rate and Disclosure of Method –Equity-Indexed Products

6. Actuarial Resources Corporation Annuity Nonforfeiture Model Regulation Guiding Principles for Setting Initial Rate 1) Risk Management 2) Administrative Ease 3) Regulatory Involvement Value triggered method

7. Actuarial Resources Corporation Annuity Nonforfeiture Model Regulation Initial Rate Disclosure Options –Contract –Actuarial Memorandum Only –No Disclosure –Cover letter/info. filing to Regulators

8. Actuarial Resources Corporation Annuity Nonforfeiture Model Regulation Allowable Additional Offsets for EIAs –Cost Basis Approach –Market Value Approach

9. Actuarial Resources Corporation Revised AOMR Model Adopted by the NAIC in Fall 2001 –Eliminated Section 7 Opinion –Some form of asset adequacy required for virtually all companies –Regulatory Asset Adequacy Issues Reserves Summary

10. Actuarial Resources Corporation Revised AOMR Model Few States have adopted new Model –Florida has adopted for year end 2003 (applicable to all companies doing business in Florida) LHATF reviewing inconsistencies between AS Exhibits and New AOMR

11. Actuarial Resources Corporation 2001 CSO Mortality Tables Adopted by the NAIC in Summer 2002 4 States have adopted as of Oct. 2003 (including Texas) Once 26 states have adopted, ACLI will most likely push the remaining states to adopt

12. Actuarial Resources Corporation 2001 CSO Mortality Tables Key issues being considered in adopting –Lower overall reserves –Asset adequacy requirement –Optional choice of blended tables developed by the Academy

13. Actuarial Resources Corporation Variable Annuity Reserves Variable Annuity Reserve Work Group (VARWG) –Formed in Jan. 2003 –Charge was to develop a reserve methodology applicable to all VA products using the principles of the proposed RBC C-3/Phase II approach by the Academy’s Life Capital Adequacy Subcommittee

14. Actuarial Resources Corporation Variable Annuity Reserves LHATF giving VARWG direction on following key issues: 1)Timeline 12/03: LHATF exposes Draft 6/04: LHATF adopts New Requirement 12/04: Plenary/Exec. Committee Adopts 2)Regulatory form Initially being developed as an actuarial guideline

15. Actuarial Resources Corporation Variable Annuity Reserves 3)Applicability to in force contracts Moving forward on the basis of including in force business Possible grade-in period 4)Basic level at which reserves will be set Review of modeling results and underlying assumptions

16. Actuarial Resources Corporation Variable Annuity Reserves MGDB Reserves –AG 33 and AG 34 not clear on treatment of “dollar-for-dollar” provision Concern that AG 33 might require treatment as an elective benefit AG 34 not clear on future partial withdrawals

17. Actuarial Resources Corporation Variable Annuity Reserves –LHATF/AAA have developed on a short-term solution No changes to AG 33 felt necessary AG 34 modified to include a requirement for a stand alone asset adequacy analysis of all VA contracts with MGDBs Plenary to vote on this matter at the Winter National Meeting

18. Actuarial Resources Corporation Other Topics of Interest Possible Areas of Revision to the Standard Valuation Law –Possible elimination of Certificate of Valuation –Other possible changes to be discussed at Winter National Meeting –Will be a lengthy process

19. Actuarial Resources Corporation Other Topics of Interest Proposed Model Regulation for Determining Credit Life Reserves –Applicability of CRVM to periodic premium plans –Deficiency reserves NAIC Website – www.naic.org