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Year-End Product Impacts Due to Principal-Based Reserving (PBR) & 2017 CSO Mortality Table Changes

August 12, 2019

Did you know that many products available today, which you may be presenting to clients and taking applications, must be placed inforce by the carrier on or before December 31st? You can thank Principal-Based Reserving or PBR and the 2017 CSO Mortality Table changes for accelerating year-end business.

What is PBR and why is it, along with the CSO Mortality Table change, impacting year-end sales?

Hint: It has nothing to do with your favorite beer.

PBR represents a significant change in the laws and regulations insurance carriers must follow when booking their reserves. It ensures that carriers are adequately capitalized to pay claims when due. In the past, carriers followed a rules-based approach to pricing reserves. It was a system dating to the mid-1800s and accredited to Elizur Wright, the U.S. “father of life insurance.” Although Elizur was a gifted mathematician, his rules-based approach created excess reserves at times for certain products and inadequate reserves for others.


Fast-forward to today, and PBR is “right-sizing” reserve calculations.

Per the NAIC, carriers will be required to hold the greater of: “(a) reserves using prescribed factors, or (b) reserves which consider a wide range of future economic conditions and is computed using justified insurer experience factors specific to an insurer, such as mortality, policyholder behavior, and expenses.”

Each insurer’s own mortality experience will factor into their reserve calculations!

The data must be recent and credible; otherwise, insurers could be subject to higher reserving costs if their data is deemed to be unreliable. Simply put, the ingredients that go into the cost of reserves is likely to differ from carrier to carrier and could impact how they build and price products going forward.

As you wrap your head around that, don’t forget about the upcoming CSO Mortality Table change. All products placed inforce beginning January 1, 2020 must be on the new schedule. Consider carefully any replacement cases as the carriers must receive payment by December 31st, or the coverage will be issued using the new rates.

The 2017 CSO table generally has lower mortality rates when compared to the tables from 2001. If considered in a vacuum, this would lead to lower statutory reserves, benefiting price sensitive products such as Term and Universal Life with secondary guarantees. This also applies to accumulation products, resulting in greater coverage amounts per dollar of premium invested. Because of this, products on the new mortality table will have lower maximum premium levels than the 2001 CSO priced products.

Pay close attention to product transition rules and year-end application deadlines from the carriers and plan for Halloween to serve as your year-end application for all contracts effected by PBR and CSO. Some carriers, such as Pacific Life and Prudential, are better prepared than others in that much of their portfolios are currently compliant with the new laws. Others, such as Lincoln, are allowing their 2001 CSO products to be placed inforce up till the last moment.

Stay current on the latest carrier developments with this PBR/CSO product repricing resource from Highland. Organized by carrier, this sheet will help you see at a glance which products are repriced along with transition and submission deadlines.

Please be aware, the information provided in the PBR/CSO product repricing resource below is being updated with new information regularly as it is received from carriers.  This is NOT static information.  Continue to check back with this post, the Highland team, or directly with the carriers to confirm product status if you have questions.


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