The National Association of Insurance Commissioners’ Valuation Manual (VM)-22 is scheduled to take effect on Jan. 1, 2026, with mandatory compliance beginning on Jan. 1, 2029. The framework introduces principle-based reserving requirements for non-variable annuities, replacing the Commissioners Annuity Reserve Valuation Method (CARVM).
The guidelines will apply to accumulation products such as fixed indexed annuities, deferred annuities, and multi-year guarantee annuities, as well as payout products including single premium immediate annuities, pension risk transfers, and structured settlements.
Unlike CARVM’s formula-driven approach, VM-22 introduces a more dynamic framework. Companies that qualify for the Single Scenario Test may calculate reserves using simpler Deterministic Reserves. Others will be required to employ Stochastic Reserves, which involve thousands of economic scenarios to capture tail risks. Both approaches require Standard Projection Amount disclosures using prescribed assumptions, many of which remain under development.
The methodology creates closer alignment between statutory and economic values by incorporating company-specific assumptions, scenario-based projections, and integrated asset-liability modelling. Reserves will now respond to movements in interest rates, credit spreads, and market volatility. However, the framework also introduces conservative elements. For example, a cash surrender floor is applied to each stochastic scenario, effectively requiring reserves for a 100% mass-lapse event.
Field testing of the guidelines has produced mixed outcomes. According to a report from RGA Reinsurance Company, some insurers reported higher reserves, while others recorded decreases. Reserve impacts vary significantly depending on product design, embedded guarantees, and assumption choices. This variability will present challenges in capital management, pricing, and risk evaluation.
Implementation issues include heightened sensitivity to economic conditions, fluctuating capital ratios, and complex governance requirements. Insurers without prior exposure to VM-20 or VM-21 reporting may face additional difficulties in adapting systems and meeting compliance standards.
Preparation is seen as essential. Guidance suggests five steps: establish cross-functional collaboration across pricing, valuation, finance, and compliance teams; evaluate model and system readiness to handle data volume and stochastic simulations; adjust assumption-setting and pricing methodologies with transparency and documented experience data; embrace change as an opportunity to modernize processes; and practice patience by using the adoption window before 2029 to refine strategies and observe industry responses.
Reinsurance is expected to play a central role. Companies with significant tail risk exposure may rely on reinsurance to stabilize reserves and manage capital more effectively. Solutions will need to be tailored to each insurer, given the company-specific nature of VM-22’s impacts.
VM-22 represents a significant shift in annuity reserving, with long-term implications for product development, pricing, and capital management across the insurance sector.
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