2025 Commissioners’ Annuity Reserve Valuation Method (CARVM): Key Insights and Pricing Impact

Julia Kagan, a seasoned financial and consumer journalist and former senior editor at Investopedia, provides expert insights.

What is the Commissioners’ Annuity Reserve Valuation Method (CARVM)?

CARVM is a critical actuarial method used to determine the minimum statutory cash reserves that annuity providers must hold to ensure they can meet future guaranteed benefits.

This valuation can be performed using various approved techniques, but fundamentally, the reserve must be at least equal to the highest net present value of all future guaranteed payouts.

Essential Highlights

• CARVM defines the mandatory cash reserves insurers must maintain for annuities.
• It excludes administrative expenses and policy lapses from its calculations.
• Nonforfeiture benefits exceeding premiums are included in the reserve calculation.
• The reserve equals the maximum net present value of all guaranteed future benefits.

Understanding CARVM in Depth

CARVM reserves do not account for operating expenses or policy lapses but do consider any nonforfeiture benefits that surpass premiums payable in the future. State laws mandate that all annuity issuers maintain these reserves to protect consumers.

Essentially, CARVM standardizes reserve valuation by setting clear assumptions and methodologies that comply with the Standard Valuation Law (SVL).

The National Association of Insurance Commissioners (NAIC) oversees these standards, ensuring insurers uphold guarantees for annuity holders.

How is CARVM Calculated?

Actuarial reserves under CARVM are calculated as follows:

"The greatest excess of the present value of future guaranteed benefits, including guaranteed nonforfeiture benefits, over the present value of future gross considerations, evaluated at the end of each contract year."

In simpler terms, CARVM identifies the largest difference between guaranteed policy benefits and expected premiums for each remaining policy year, factoring in potential surrender payouts.

This amount represents the minimum reserve an insurer must hold to meet obligations in any given year. The calculation can become complex, incorporating mortality tables and probability models for certain policies.

Enforcement and Compliance of CARVM

While annuity holders are unlikely to verify CARVM compliance themselves due to the technical nature and proprietary data, regulatory bodies ensure adherence.

The NAIC sets the valuation standards, and state insurance departments enforce these rules, supervising insurers to guarantee proper reserve maintenance and protect consumers.

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