As regulatory changes sweep across the life insurance industry, what must insurers be on the lookout for?
Principal-Based Reserving Goes Live: Scheduled to start its three-year phase-in period on January 1, 2017, principal-based reserving (PBR) will impact most new products being issued—there are a few exceptions including final expense products. This relatively new method calls for life insurers to model their reserves based on a set of fundamental principles rather than one-size-fits-all rules. While PBR will not affect existing life insurance policies already bought, it will apply to all product issues after its implementation date. To prepare, insurers need to take a look at the resources necessary to implement this more dynamic approach to pricing, product development and reserving. Work should be done to determine necessary resources, put the right talent in place, and develop models and systems that will ensure they are compliant with the new requirements.
MetLife Wins SIFI Appeal: A federal judge ruled that U.S. regulators acted unlawfully when they singled out MetLife for tougher regulatory supervision—designating it a “systemically important financial institution (SIFI)” whose failure could destabilize the economy. The judge ruled that the decision was “arbitrary and capricious” and that the Federal Stability Oversight Council (FSOC) failed to take a detailed look at MetLife’s vulnerability to financial distress and consider the financial impact of designating it a SIFI. This decision is expected to have broad implications for other firms who may be the recipient of the SIFI designation—Prudential recently announced that they would wait until the case goes through the appeals process before determining its next steps, while AIG has remained quiet on its response. Regardless of the results of any appeal, firms are now pressuring the FSOC to be more specific when it designates a firm. In addition, it is predicted that the FSOC will issue new guidance on future designations, hoping to mitigate some of the issues it ran into in the MetLife case.
As regulatory changes influence the landscape of the life insurance industry, organizations must remain informed on the growing evolution. Only those who prepare for the pending changes will be able to successfully navigate the new regulatory reality within insurance.
What regulation is your organization most concerned for?