A.1 Impacts of AG 48

Question 1

Pre-AG 48 method for determining economic and redundant reserves

Answer 1

Pre AG 48:

• insurer would cede reserves in excess of UL CRVM to captive
• cede reserve credit = AG 38 reserve - UL CRVM Reserve
• cede also calculates an economic reserve = best estimate gross premium valuation reflecting ULSG cash flows and reins premiums
• economic reserve was used to determine the amount of security required for the cede reserve… reins had to provide collateral equal to economic reserves
• redundant reserve = remaining ceded reserve in excess of the UL CRVM and economic reserve
• redundant reserve = AG 38 Reserve - (UL CRVM + Econ Reserve)
• redundant rsvs were backed by LOCs

Question 2

Key impacts and implications for AG 48

Answer 2

Issue with pre-AG 48: regulators did not like the lack of uniformity in calculating the economic reserves

• AG 48 replaces economic reserves with a modified VM 20 reserve “actuarial method”
• Mod VM 20 reserves are generally higher than previous economic reserves
• more regulation of the quality of assets backing the VM 20 reserves

Question 3

Ag 48 Terms to know:

• Actuarial Method
• Primary Security Amount
• Required Level of primary security
• other security

Answer 3

Actuarial Method = max (NPR * Factor, DR, SR)

• NPR similar to CRVM
• SR: CTE 70
• Factor: <= 1.0 that varies by age, gender, smoking

Required Level of Primary Security = modified VM 20 Reserve

• assets mus be cash or SVO listed securities meeting certain criteria
• AA must certify the cede primary security funds >= requirement

Other Security = assets backing the redundant reserves
- Redundant reserves = AG 38 reserves - (UL CRVM + Mid VM 20 reserves)