Author: Guy Shepherd

What VM-22 Means for U.S. Insurers

The U.S. insurance industry is undergoing a major shift in how it calculates statutory reserves for fixed annuity products. Leading this transformation is VM-22, a new reserving standard that officially became mandatory in 2025 for many non-variable annuities. With its adoption, insurers are moving away from traditional formula-based methods and embracing a more nuanced, principle-based approach—one that better reflects the complexity and risks of modern annuity products.

What is VM-22?

VM-22 is part of the National Association of Insurance Commissioners (NAIC) Valuation Manual, which outlines reserving requirements across various product lines. This particular regulation applies to non-variable annuity products, including:

• Fixed Deferred Annuities
• Single Premium Immediate Annuities (SPIAs)
• Fixed Indexed Annuities (FIAs)
• Market Value Adjusted Annuities (MVAs)

By replacing rigid, static formulas with a dynamic framework based on company-specific data and assumptions, VM-22 brings U.S. reserving practices more in line with international standards.

A Principle-Based Approach

At its core, VM-22 is about making reserving more responsive to actual risk. Instead of relying on standardised tables and generic assumptions, insurers must now:

• Project future cash flows over the lifetime of annuity products
• Use both deterministic and stochastic scenarios
• Apply experience-based and “prudent estimate” assumptions tailored to their own business

This principle-based reserving (PBR) methodology introduces a more accurate and risk-sensitive framework, enabling regulators and companies alike to gain deeper insight into liabilities.

Implications for Financial Modelling

VM-22 fundamentally changes the game for actuarial and financial modelling teams. To meet its requirements, insurers will need to elevate their modelling capabilities in several key areas:

• Increased Model Complexity – Models must now reflect a broader range of future scenarios and policyholder behaviours.
• Stochastic Modelling at Scale – Running thousands of simulations demands high-performance computing and efficient algorithms.
• Data-Driven Assumption Setting – Assumptions must be grounded in credible, granular experience data—and regularly updated.
• Model Governance and Change Management – With heightened complexity comes the need for robust version control, audit trails, and documentation.

Ready for the Challenge: The Mo.net Advantage

While VM-22 presents challenges, insurers don’t have to start from scratch. The Mo.net Financial Modelling Platform is already fully equipped to meet the demands of VM-22 and similar international reporting regimes. With its proven track record in handling large-scale, stochastic modelling and its enterprise-grade features for governance and integration, Mo.net offers insurers a flexible, future-proof solution for today’s evolving regulatory landscape.

Conclusion

VM-22 marks a significant evolution in U.S. annuity reserving, demanding new levels of accuracy, agility, and cross-functional collaboration. For insurers ready to embrace this change, Mo.net provides the tools needed to stay compliant, competitive, and confident in the face of regulatory complexity.
For further information, please read our recent white paper available here.