• The currently proposed principle-based capital and reserve methodologies devolved from the Unified Valuation System (UVS) proposal.
  • UVS sought to determine the level of assets required by a company to remain solvent at a given level of tail risk. The original UVS incorporated all of the material obligations of an insurance company for the full duration of those obligations.
  • The current principle-based approach (PBA) is limited to certain life and annuity products and only stochastically varies the interest rates and other dependent variables such as lapse and policyholder behavior.
  • The current PBA approach cannot directly quantify the probability of insolvency due to the limited
    breadth of the products covered and the limited variables that are stochastically tested.

2010 - Comments on the Proposed Principle Based Reserves and Principle-Based Capital Requirements Methodology, By David V. Smith, Society of Actuaries - 3p