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We help insurers meet new regulatory and compliance accounting standards while managing costs, operational efficiencies, and the integration and implementation of systems and data across the finance, risk and actuarial functions.
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Summary of VM-22 methodology change
VM-22 represents a shift toward a proposed principle-based valuation framework, moving away from the traditional, formulaic commissioners’ annuity reserve valuation method (CARVM). This new methodology requires stochastic projections of both assets and liabilities across numerous scenarios, using company-specific assumptions with prudent margins. Stochastic Reserves are measured using cumulative tail expectations above 70% (CTE70).
VM-22 also introduces the additional standard projection amount (ASPA), a proposed disclosure item for the stochastic reserve to account for outlier company assumptions and offers a deterministic certification option (DCO) for non-variable annuity products that are not sensitive to economic conditions.
Field testing
The VM-22 framework is undergoing field testing to quantify its impact and review results from industry participants. This process aims to assess key design decisions, including aggregation, reinvestment guardrail mix, the stochastic exclusion ratio test (SERT), and the ASPA. As of early 2025, the American Academy of Actuaries and Ernst & Young LLP (EY US) have independently aggregated, clarified and aligned the VM-22 field test results. EY US also presented a preliminary summary of field test results to the Life Actuarial Task Force (LATF) and the VM-22 subgroup.
Implications of VM-22 changes to data and technology
VM-22 will significantly impact reserving requirements and potentially affect capital levels. While valuation actuaries focus on interpreting new methodologies, modeling actuaries are responsible for implementing those changes through model development and execution. Companies should proactively engage with their technology teams and advisors to assess VM-22's potential impacts on data management, technology infrastructure and business processes.
Conclusion
Insurance companies must address several critical areas to prepare for VM-22 adoption, including the actuarial, finance and investment functions, as well as the supporting data and technology infrastructure. VM-22 will impose increased demands on these platforms and operating models due to more complex calculations, larger data volumes and the potential need for more analysis to explain results movements and impacts.
Proactively engage with your teams today to assess your readiness for VM-22. Develop a tailored strategy to achieve and monitor compliance and operational efficiency. Start planning now to both stay ahead of the curve and mitigate risks effectively.