Tag Archives: Bill Matczak

Considerations for fixed indexed annuities with Market Risk Benefits

The release of Financial Accounting Standards Board (FASB) Accounting Standards Update 2018-12, Targeted Improvements for Long-Duration Contracts (ASU 2018-12, also referred to as LDTI) has created a flurry of activity in the life insurance industry, as actuaries and other professionals try to interpret and apply the new accounting standard.

Among other major changes, the standard creates a new category of liabilities for “Market Risk Benefits” (MRBs), which must be held at fair value, as defined under existing GAAP standards. The definition of an MRB encompasses, among other possibilities, all kinds of guaranteed living benefits and guaranteed death benefits (GMxBs) on deferred annuity contracts, including both variable annuities (VAs) and fixed indexed annuities (FIAs). Under current, pre-LDTI GAAP, many kinds of GMxBs are valued under an insurance benefit model, with reserves calculated under a Statement of Position (SOP) 03-1 methodology and typically not using market-consistent assumptions. Thus, the new fair value MRB model represents a significant change for some products, with both financial and operational implications.

This paper by Milliman actuaries offers perspective that can help insurers as they shape their new valuation methodologies for MRBs on FIA contracts. The paper focuses on the cash flow modeling aspects of MRBs on FIA contracts, especially the methodology for projecting indexed account growth.

Q3 2019 VM-21 survey results

In the third quarter of 2019, Milliman consultants and actuaries conducted a survey to establish market best practices in the application of VM-21: Requirements for Principle-Based Reserves for Variable Annuities. Written into the requirements are several decision points for the application of the standard which are at the discretion of the carrier. The survey summarizes responses from 25 variable annuity carriers regarding these decision points. The carriers surveyed are diverse in terms of total in-force account value and material account value exposure to living and death benefits.