STAMFORD, Conn.--The Tillinghast business of Towers Perrin recently unveiled two new software applications to help insurers prepare for impending capital standards for variable annuity products.

The applications, called "Variable Annuity (VA) Reserves and Capital" and "VA Hedging," offer superior auditability and transparency over other products. They were developed to help insurers satisfy the new Risk Based Capital (RBC) C-3 Phase II requirements expected to be mandated for companies at year-end 2005, as well as the proposed VA CARVM reserving requirements, which will likely become effective in 2006."The C-3 Phase II capital requirements mark the beginning of a new era. While the underlying modeling requirements are challenging, current product and investment strategies require sophisticated financial models," said Jack Gibson, the leader of Tillinghast's North America life insurance practice. "This new approach can provide insurers with a far better understanding of their risk exposures, and will help inform decisions about pricing products appropriately and selecting the best risk mitigation strategies."

In the past, regulatory reserves and capital were generally based on formulas. The new C-3 Phase II RBC and VA CARVM reserve methodologies proposed by the National Association of Insurance Commissioners (NAIC) require that reserves and capital are calculated by evaluating the tail risk from thousands of scenario simulations.

In particular, it is expected that the new C-3 Phase II capital model will become effective at year-end 2005, requiring VA providers to have these models in place prior to year-end. Tillinghast's new VA Reserves and Capital application is able to perform these calculations quickly and efficiently.

 

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