On September 12, 2012, the National Association of Insurance Commissioners (NAIC) amended Actuarial Guideline XXXVIII (AG 38), as proposed by a Joint Working Group of the Life Insurance and Annuities (A) and the Financial Condition (E) Committees. AG 38 provides guidelines for setting reserves on universal life products with secondary guarantees (ULSG), and the amendment process was precipitated by conflicting views regarding whether some insurers’ ULSG reserving methodologies provided an unfair advantage. The amendments are intended to provide a “level playing field.”

The AG 38 amendments take effect January 1, 2013, and for business in force prior to then, AG 38 requires that insurers use a form of principles-based gross premium reserving. For business written starting on that date, insurers must apply a reserving methodology similar to that outlined in an August 22, 2011 statement published by the NAIC’s Life Actuarial Task Force (available on the NAIC website). AG 38 provides for regulatory oversight through detailed actuarial memoranda requirements, including review of insurers’ reserving methodologies by the NAIC’s Financial Analysis Working Group (FAWG). In response to industry concern that this would transform the NAIC into a regulatory entity, the Working Group’s Chairperson assured the NAIC’s Executive and Plenary Committees that the amendments did not provide the NAIC with regulatory oversight authority, but instead simply served to ensure uniformity because FAWG is comprised of regulators from numerous states who can provide consistent resolutions to issues.

Given the impending January 1, 2013 effective date and the likelihood that some insurers will be refiling ULSG products before then, the Working Group encourages regulators to process such filings on an expedited basis.