ARC Consulting Services: Principle-Based Reserves

US Statutory Reporting continues to move down the path towards Principle-Based Reserves (PBR). With VM-20, AG43/VM-21, C3 Phase 1 & 2, and VM-22 becoming a more prominent portion of the balance sheet, the financial reporting process has become increasing complex. The reason for this is the move from the historic formulaic based reserves to a framework where an integrated asset/liability model is the fundamental component.

ARC has provided modeling and process support to our client base for every one of the Principle-Based frameworks in the US as these requirements have been established. We continue to draw from our experience and expertise with VM-22. In addition to model and system development work, ARC has worked with clients to help explain movements in PBR results from one valuation period to the next.

Asset Liability Modeling

With the dependency on Asset/Liability Models, asset modeling is becoming a bigger focus for the actuarial teams who are responsible for the PBR results. This will increase in importance with VM-22. Historically a lot of actuarial teams relied on externally projected assets from a third party system to bring into their actuarial projections. Recently there has been a movement toward modeling assets from first principles in their actuarial system.

This move is driven by:

• A need to establish controls around the asset component of the projections to reduce risk of model error

• A need to run on demand scenario analysis without having to rely on additional asset projections from the external system

• Eliminate the bottle next in the valuation process to generate results in a timely manner

ARC has developed and worked with clients on their asset/liability models which continues to be central to much of the advanced work that our consulting team is involved in.

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Emerging Requirements

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• VM-22 - With the addition of VM-22, ARC can help with the transformation of your Asset/Liability model to enable meeting the requirements and understand the financial impact. 

• GOES Scenarios - As expected requirements of the GOES Scenarios evolve, ARC can help with transforming models to utilize these scenarios and understand the financial impact.

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