The Case For Change Why A Formulaic Approach Used To Work For decades, a formulaic approach worked well to establish reserve and capital requirements
Asset and liability portfolios were relatively “vanilla”
Products between companies were relatively homogenous with somewhat basic features, resulting in similar risk profiles between companies
Prescribed valuation assumptions were set at conservative levels, producing reserve and capital levels far in excess of the typical company’s actual risk profile
Required reserve and capital values were relatively easy for regulators to audit and monitor Copyright © 2010 by the American Academy of Actuaries An Overview of a Principle-Based Approach to Reserves & Capital August 2010 11