本稿は、2022年および2023年にミリマンが四半期ごとのレポート発表を計画しているシリーズの第一稿となり、一般にVM-22と呼ばれる変額以外の年金に対する新たなプリンシプルベースの責任準備金積立フレームワークおよびそれに対応するリスクベースキャピタル（Risk-Based Capital、RBC）フレームワークの進展状況について焦点を当てたものです。

背景

2008年の世界金融危機の後、保険業界はあらゆる種類の商品における重大なリスクをよりよく認識、反映する新たな包括的法定責任準備金フレームワークについて取りまとめ始めました。2009年に全米保険監督官協会（National Association of Insurance Commissioners、NAIC）は、適切なプリンシプルベースの責任準備金（principle-based reserves、PBR）を決定する手法を概説した新たな法定責任準備金評価マニュアル（Statutory Valuation Manual）を認めた改訂版標準責任準備金評価法（Standard Valuation Law）を生命保険および年金商品に対して採用しました。生命保険商品に対するPBRフレームワークは、最終的にVM-20「生命保険商品に対するプリンシプルベースの責任準備金要件（Requirements for Principle-Based Reserves for Life Products）」の下で確定され、2017年1月1日に発効し、新契約については2020年1月1日以降に販売された契約から義務化となりました。変額年金（variable annuities、VA）については、2005年の資本要件の決定におけるC-3 Phase IIの導入、そして2009年の法定責任準備金に対する数理ガイドライン（Actuarial Guideline）XLIIIの導入が、プリンシプルベース・アプローチに向けた最初のステップとなり、その後、業界レベルの定量的影響度調査や業界のフィードバックが重ねられ、法定責任準備金評価マニュアル（Statutory Valuation Manual）におけるVM-21「変額年金に対するプリンシプルベースの責任準備金要件（Requirements for Principle-Based Reserves for Variable Annuities）」が全ての変額年金（既契約・新契約とも）に対して2020年1月1日に発効しました。

特定の変額以外の年金（non-variable annuities、non-VA）について、資本要件を決定するための最初のプリンシプルベース・アプローチは、2000年にC-3 Phase Iの一環として設けられました。しかし、non-VAsに対する既存の法定責任準備金フレームワークは規範的なルールベースの制度¹であり、各社の経験から作成した前提条件は認めていません。VM-20およびVM-21における法定フレームワークへの変更と同様に、近年、アメリカン・アカデミー・オブ・アクチュアリーズ（AAA）の生命保険責任準備金評価委員会（Life Valuation Committee）のサブコミッティである年金の責任準備金と資本に関するワーキンググループ（Annuity Reserve and Capital Working Group、ARCWG）は、生命保険・年金タスクフォース（Life and Annuity Task Force）にnon-VAsに対し、提案されているPBRフレームワークを策定・提示しました。これは、既存の承認されているVM-20およびVM-21の規則を活用しています。

この提案されたPBRフレームワーク「変額以外の年金向けプリンシプルベースの責任準備金要件（Requirements for Principle-Based Reserves for Non-Variable Annuities）」は、「VM-22」とも呼ばれ、最終的に承認されることになる本フレームワークを通知することの役に立つ、業界のフィールドテストの取り組み課題となるものです。現時点では、a)業界のフィールドテスト（VM-22 Field Testing）が実施されておらず²、b)提案されたフレームワークに対する調整を公表・議論する必要があり、c)これを翌年始に発効させるにはNAICがその夏の会合までに最終版の採択について決議する必要があること考えると、業界がこれまで懸案していた通り、VM-22が2023年1月1日に発効しないことはほぼ確実です。さらに、non-VAsに対するプリンシプルベースの資本要件は、C-3 Phase Iの要件に優先し、全non-VAsが対象となるため、VM-22が発効した後に承認されるとみられます。

This paper is the first in a series of quarterly papers that Milliman intends on publishing during 2022 and 2023 that focuses on the current status of the emerging principle-based reserving framework for non-variable annuities, commonly referred to as VM-22, and the corresponding Risk-Based Capital (RBC) framework.

Background

After the global financial crisis in 2008, the insurance industry started working on outlining a new holistic statutory reserving framework that would better recognize and reflect the material risks in all types of products. In 2009, the National Association of Insurance Commissioners (NAIC) adopted a revised Standard Valuation Law, which authorized a new Statutory Valuation Manual that outlined the methodology for determining appropriate principle-based reserves (PBR) for life insurance and annuity products. The PBR framework for life insurance products was eventually finalized under VM-20, “Requirements for Principle-Based Reserves for Life Products,” with an effective date of January 1, 2017, to be mandatory for new business sold on January 1, 2020, and later. For variable annuities (VA), the introduction of C-3 Phase II in 2005 for determining capital requirements and Actuarial Guideline XLIII in 2009 for statutory reserves represented first steps toward a principle-based approach, with subsequent industry-level quantitative impact studies and industry feedback resulting in the development of VM-21, “Requirements for Principle-Based Reserves for Variable Annuities,” in the Statutory Valuation Manual, effective for all VA business (both existing and new business) on January 1, 2020.

For certain non-variable annuities (non-VA), an initial principle-based approach for determining capital requirements was put in place in 2000 as part of C-3 Phase I. However, the existing statutory reserve framework for non-VAs is a prescriptive, rules-based paradigm¹ with no recognition of assumptions developed from a company’s internal experience. Commensurate with the changes to the statutory framework under VM-20 and VM-21, in recent years the Annuity Reserve and Capital Working Group (ARCWG), a subcommittee of the American Academy of Actuaries’ Life Valuation Committee, has developed and presented to the Life and Annuity Task Force a proposed PBR framework for non-VAs that leverages the existing and approved VM-20 and VM-21 regulations.

This proposed PBR framework, “Requirements for Principle-Based Reserves for Non-Variable Annuities,” often referred to as “VM-22,” will be the subject of an industry field testing initiative that will help inform the final version of the framework that will ultimately be adopted. At this point, given that a) the industry field testing (VM-22 Field Testing) is yet to be carried out,² b) any subsequent refinements to the proposed framework would need to be publicly exposed and discussed, and c) the NAIC would need to vote on adoption of the final version by the NAIC summer meeting for it to be effective as of the start of the following year, it is almost certain that VM-22 will not be effective on January 1, 2023, as was previously anticipated by the industry. In addition, the principle-based capital requirements for non-VAs, superseding the C-3 Phase I requirements and covering all non-VAs, are expected to be approved only after VM-22 becomes effective.

Key highlights

Scope

As of the date of this paper, non-VA products that are in scope of VM-22 include those shown in Figure 1.

Products that are specifically out of scope of VM-22 include guaranteed investment contracts, stable value contracts, and funding agreements. Registered index-linked annuities (RILAs) are covered by VM-21 and are also specifically excluded from VM-22; however, it is possible that this will be revisited in the future.

Moreover, as of the date of this paper, the NAIC has not decided whether VM-22 will apply retrospectively. It is likely that this decision will be deferred pending the results of the VM-22 Field Testing. If it only applies prospectively, then companies will need to ensure that appropriate governance and operational controls exist around the potentially different models (and perhaps even modeling platforms) for new business issued after the effective date versus existing in-force. If it applies retrospectively, we expect a pickup in merger and acquisition and reinsurance activity, where the latter might involve both unwinding of existing surplus relief treaties and initiation of new reinsurance treaties that are priced under the new framework.

Overview

VM-22 is expected to employ a stochastic reserve methodology, similar to that in VM-20 and VM-21, leveraging a pretax CTE 70 calculation for the greatest present value of accumulated asset deficiencies (GPVAD), which reflects all base policy and rider cash flows, assets, hedging, and reinsurance cash flows, using company prudent estimate assumptions. Asset modeling treatment for the general account and the derivation of discount rates for the GPVAD will similarly follow the principles in VM-20 and VM-21, with the prescribed alternate reinvestment strategy being a notable exception. In the proposed VM-22 draft, the alternate reinvestment strategy utilizes a 40% BBB/40% A/15% AA/5% Treasury distribution, and the reserve that is calculated under this distribution is a floor to the reserve that is calculated using the company’s own reinvestment strategy.

Exclusion tests

The VM-22 proposal specifies exclusion tests that are similar in concept to the stochastic exclusion test under VM-20. Groups of policies that do not have material market or policyholder optionality risks are likely to pass the exclusion test, allowing companies the option (but not the obligation) to continue using the existing rules-based paradigm for such groups. However, any business that is supported by a dynamic based hedging program cannot be excluded from the stochastic reserve requirements.³

For business with underlying risks (including policyholder behavior risks) that do not materially vary with economic conditions and business that is not supported by a future hedging program, VM-22 would provide a “deterministic certification” option to calculate the stochastic reserve requirements using a single deterministic economic scenario. It is envisioned that this option will only apply to a limited number of non-VA product types, such as single premium immediate annuities and similar payout and/or structured settlement annuities that have limited or no embedded asset and liability optionality.

Economic scenarios

As of the date of this paper, the stochastic real-world scenarios currently used under PBR, excluding C-3 Phase I, are generated using the American Academy of Actuaries’ Interest Rate Generator (AIRG) with parameters that are consistent with prescribed regulatory requirements. For the C-3 Phase I calculation, a separate C-3 Phase I Interest Rate Generator developed by the American Academy of Actuaries is used. However, in late 2020 the NAIC engaged Conning, Inc., to develop a new economic scenario generator (ESG) for all PBR applications. Conning is in the process of developing the new generator, which is anticipated to address known deficiencies that exist in the current suite of generators. The industry field testing for this new generator is expected to occur between June and September 2022 and will precede the VM-22 Field Testing. Once adopted, the new ESG will be used for all PBR statutory reporting in the United States, including VM-22.

Aggregation and calculation granularity

Under VM-20, aggregation of policies is allowed within similar product types while VM-21 allows aggregation across all policies under the purview of VM-21, including both VAs and RILAs. VM-22 may allow aggregation across policies if the business and risks associated with those policies are managed together and/or are part of the same integrated risk management program and strategy.⁴ To the extent that this is not the case, aggregation would not be permitted. As an example, it might be logical for companies to group policies that are part of the same hedging, risk management, or asset management program. The same level of aggregation would apply to both the stochastic projection and the exclusion test. Consistent with other statutory valuation and testing exercises, aggregation is to be limited to policies within the same legal entity—that is, aggregation across policies from different legal entities will not be allowed.

Additional Standard Projection Amount

Under VM-21, companies are required to calculate an Additional Standard Projection Amount (ASPA) that could potentially be an add-on to the company stochastic reserve. The Standard Projection calculation that underlies this amount is similar to the company stochastic projection with the exception that prescribed assumptions need to be used instead of the company’s own prudent estimate assumptions. The ASPA essentially comes into consideration if the company prudent estimate assumptions may be considered outliers compared to the prescribed assumptions.

For VM-22, a similar Standard Projection is expected to be employed, although as of the date of this paper it is not clear whether or not the corresponding ASPA will be a binding part of the overall reserve calculation or simply a disclosure item. Moreover, the ARCWG is still in the process of developing prescribed assumptions for mortality, policyholder behavior, and expenses for each of the non-VA products that are in scope of VM-22.

Hedge requirements

VM-22 suggests that the modeling of hedge assets in support of riders and guarantees, whether classified as a Clearly Defined Hedging Strategy or not, will follow the requirements similar to those provided in VM-21. There is the additional stipulation that a hedge-breakage expense for hedges backing indexed-related interest credits should be included in the calculations to reflect any potential basis risk and hedge transaction timing mismatch (against reality). This hedge-breakage expense can be modeled either as an expense or as a reduction to hedge payoffs.

What’s next?

Many conceptual topics within VM-22 continue to be debated by the NAIC as it seeks feedback from the ARCWG, the American Council of Life Insurers, regulators, individual companies, and other interested parties.

An immediate next step that is expected to have a major influence on the proposed VM-22 framework, its potential consequences, and the adoption date is the industry field test related to the new NAIC ESG that is slated for this summer. This field test will apply to all existing PBR and capital requirements. The results of the ESG field test will be studied and the learnings applied to the construction of the VM-22 Field Testing, which we expect to occur in 2023.

C-3 capital requirements will also change for non-VAs. Today, for fixed-indexed annuities, such requirements follow a factor-based method where the factors have been set by state regulators, have not been updated in decades, and do not vary from company to company. For fixed deferred and income annuities, while stochastic testing may be used, as mentioned above, C-3 capital requirements are based on an outdated economic scenario generator. We expect that the new capital requirements for all non-VAs in scope of VM-22 will be conceptually similar to those in VM-21; that is, based on the deep tail of the loss distribution, e.g., between the CTE 70 (reflecting the reserve level) and CTE 98 (reflecting the total asset requirement) metrics. In developing a consistent and fair capital methodology for all non-VAs, additional complications arise if companies opt out of PBR on the exclusion test grounds and if the scope of VM-22 applicability is limited to new business only.

Conclusions

The VM-22 framework is still a proposed draft, subject to change depending on the outcomes of the VM-22 Field Testing, industry feedback, and input from the ARCWG and the NAIC. Accordingly, the reader should be mindful that certain provisions may change between now and actual implementation.

It is not clear whether the reserves and capital requirements for non-VA business will generally increase, decrease, or stay at their current levels, so it would be advisable for companies to participate in both the NAIC ESG and VM-22 Field Testing so they can study the potential outcomes and proactively ideate corresponding management actions.

As companies participate in these field tests, here are a few questions to consider:

• Does your total asset requirement level increase, decrease, or stay about the same? If an increase, what management actions could you take?
• How sensitive is your business to changes in mortality and policyholder behavior (such as lapsation and withdrawal utilization)?
• What impact, if any, do the proposed aggregation rules have on the way you might manage your business going forward?
• How does analyzing stochastic risk metrics under PBR instead of a prescriptive rules-based framework better inform you about your business?
• Are you able to forecast (the new) reserve and capital requirements using your current modeling platform?

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¹Collectively referred to as “VM-A” and “VM-C” in the Statutory Valuation Manual.

²The timing of this field testing is yet to be confirmed but will be subsequent to the separate industry field testing for the new NAIC economic scenario generator that is currently being developed by Conning, Inc., which is expected to occur between June and September 2022.

³With the exception of policies that rely on hedging to support the index credits.

⁴Currently under discussion by the NAIC’s VM-22 subgroup.