Tax Aspects of Principles-Based Reserves

At the 2005 Winter National Meeting of the National Association of Insurance Commissioners (NAIC), the Principles-Based Reserves for Life Insurance Products Model Regulation was exposed for public comment. In addition, three proposed actuarial guidelines intended to implement the model regulation were also exposed -- the model regulation and actuarial guidelines are collectively referred to as the "Exposure Draft." While the Exposure Draft does not comprehensively address each and every question that will need to be answered before a principles-based reserving (PBR) system can be established, it provides enough detail regarding the direction of the project to begin analyzing the interaction of PBR with areas outside of state-required reserves for life insurance contracts. The Exposure Draft released by the NAIC in Dec 2005 represents a major step in the process toward creating a more modern valuation system for life insurance products that is intended to appropriately identify and quantify all material risks associated with those products.