Last Updated: 8/1/2025
Issue: All accredited states have revised their Standard Valuation Law (#820) and the Standard Nonforfeiture Law for Life Insurance (#808) to implement principle-based reserving (PBR) which became an accreditation standard Jan. 1, 2020. Effective Jan. 1, 2017, the Valuation Manual became operative. PBR was a significant change in underlying laws and regulations to solve a problem created by past regulatory frameworks. The issue lies with laws and guidance on how a life insurer is required to calculate reserves. Life insurers set aside funds, known as reserves, to pay insurance claims when they become due. Prior to PBR, static formulas and assumptions were used to determine these reserves as prescribed by state laws and regulations. However, sometimes this rules-based approach left a life insurer with excessive reserves for certain insurance products and inadequate reserves for others. The solution was to "right-size" reserve calculations by replacing a rules-based approach with a principle-based approach. Under PBR, life insurers are required to hold the higher of (a) a minimum reserve using prescribed assumptions or (b) reserves which consider a wide range of future economic conditions, computed using credible insurer experience factors specific to an insurer, such as mortality, policyholder behavior and expenses.
