230-RICR-20-45-9
230-RICR-20-45-9. Actuarial Opinion and Memorandum (version Periodic Refile, 12/19/2001 to 09/21/2004)
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Reg. # 89
State of Rhode Island and Providence Plantations
DEPARTMENT OF BUSINESS REGULATION
Division of Insurance
233 Richmond Street
Providence, RI 02903
INSURANCE REGULATION 89
ACTUARIAL OPINION AND MEMORANDUM
Table of Contents
Section 1
Purpose
Section 2
Authority
Section 3
Scope
Section 4
Definitions
Section 5
General Requirements
Section 6
Required Opinions
Section 7
Statement of Actuarial Opinion Not Including an Asset Adequacy
Analysis
Section 8
Statement of Actuarial Opinion Based on an Asset Adequacy Analysis
Section 9
Description of Actuarial Memorandum Including an Asset Adequacy
Analysis
Section 10
Additional Considerations for Analysis
Section 1
Purpose
The purpose of this Regulation is to prescribe:
A.
Guidelines and standards for statements of actuarial opinion which are to
be submitted in accordance with R.I. Gen. Laws § 27-4.5-3, and for
memoranda in support thereof;
B.
Guidelines and standards for statements of actuarial opinion which are to
be submitted when a company is exempt from R.I. Gen. Laws § 27-4.5-
3(c); and
C.
Rules applicable to the appointment of an appointed actuary.
Section 2
Authority
This Regulation is issued pursuant to the authority vested in the Director of the
Department of Business Regulation of the State of Rhode Island under R.I. Gen. Laws §§
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27-4.5-12 and 42-14-17. This Regulation will take effect for Annual Statements for the
year 1996.
Section 3
Scope
This Regulation shall apply to all life insurance companies and fraternal benefit
societies doing business in this State and to all life insurance companies and fraternal
benefit societies which are authorized to reinsure life insurance, annuities or accident and
health insurance business in this State.
This Regulation shall be applicable to all Annual Statements filed with the office
of the Commissioner after the effective date of this Regulation. Except with respect to
companies which are exempted pursuant to Section 6 of this Regulation, a statement of
opinion on the adequacy of the reserves and related actuarial items based on an asset
adequacy analysis in accordance with Section 8 of this Regulation, and a memorandum in
support thereof in accordance with Section 9 of this Regulation, shall be required each
year. Any company so exempted must file a statement of actuarial opinion pursuant to
Section 7 of this Regulation.
Notwithstanding the foregoing, the Commissioner may require any company
otherwise exempt pursuant to this Regulation to submit a statement of actuarial opinion
and to prepare a memorandum in support thereof in accordance with Sections 8 and 9 of
this Regulation if, in the opinion of the Commissioner, an asset adequacy analysis is
necessary with respect to the company.
Section 4
Definitions
A.
Actuarial Opinion
"Actuarial Opinion" means:
(1)
With respect to Section 8, 9 or 10, the opinion of an Appointed
Actuary regarding the adequacy of the reserves and related
actuarial items based on an asset adequacy test in accordance with
Section 8 of this Regulation and with presently accepted Actuarial
Standards;
(2)
With respect to Section 7, the opinion of an Appointed Actuary
regarding the calculation of reserves and related items, in
accordance with Section 7 of this Regulation and with those
presently accepted Actuarial Standards which specifically relate to
this opinion.
B.
Actuarial Standards Board
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"Actuarial Standards Board" is the board established by the American
Academy of Actuaries to develop and promulgate standards of actuarial
practice.
C.
Annual Statement
"Annual Statement" means those statements required by R.I. Gen. Laws
§§ 27-12-1 and 27-12.1-2.
D.
Appointed Actuary
"Appointed Actuary" means any individual who is appointed or retained in
accordance with the requirements set forth in Section 5(C) of this
Regulation to provide the actuarial opinion and supporting memorandum
as required by R.I. Gen. Laws § 27-4.5-3.
E.
Asset Adequacy Analysis
"Asset Adequacy Analysis" means an analysis that meets the standards
and other requirements referred to in Section 5(D) of this Regulation. It
may take many forms, including, but not limited to, cash flow testing,
sensitivity testing or applications of risk theory.
F.
Commissioner
"Commissioner," or "Commissioner of Insurance" or "Insurance
Commissioner" means the Director of the Department of Business
Regulation of this State.
G.
Company
"Company" means a life insurance company, fraternal benefit society or
reinsurer subject to the provisions of this Regulation.
H.
Non-Investment Grade Bonds
"Non-Investment Grade Bonds" are those designated as classes 3, 4, 5 or 6
by the NAIC Securities Valuation Office.
I.
Qualified Actuary
"Qualified Actuary" means any individual who meets the requirements set
forth in Section 5(B) of this Regulation.
J.
Section
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"Section" means, unless otherwise specified herein, the section of this
Regulation.
Section 5
General Requirements
A.
Submission of Statement of Actuarial Opinion
(1)
There is to be included on or attached to Page 1 of the Annual
Statement for each year beginning with the year in which this
Regulation becomes effective the statement of an appointed
actuary, entitled "Statement of Actuarial Opinion," setting forth an
opinion relating to reserves and related actuarial items held in
support of policies and contracts, in accordance with Section 8 of
this Regulation; provided, however, that any company exempted
pursuant to Section 6 of this Regulation from submitting a
statement of actuarial opinion in accordance with Section 8 of this
Regulation shall include on or attach to Page 1 of the Annual
Statement a statement of actuarial opinion rendered by an
appointed actuary in accordance with Section 7 of this Regulation.
(2)
If in the previous year a company provided a statement of actuarial
opinion in accordance with Section 7 of this Regulation, and in the
current year falls the exemption criteria of Sections 6(C)(1),
6(C)(2) or 6C(5) to again provide an actuarial opinion in
accordance with Section 7, the statement of actuarial opinion in
accordance with Section 8 shall not be required until August 1
following the date of the Annual Statement. In this instance, the
company shall provide a statement of actuarial opinion in
accordance with Section 7 with appropriate qualification noting the
intent to subsequently provide a statement of actuarial opinion in
accordance with Section 8.
(3)
In the case of a statement of actuarial opinion required to be
submitted by a foreign or alien company, the Commissioner may
accept the statement of actuarial opinion filed by such company
with the insurance supervisory regulator of another state if the
Commissioner determines that the opinion reasonably meets the
requirements applicable to a company domiciled in this State.
(4)
Upon written request by the company, the commissioner may grant
an extension of the date for submission of the statement of
actuarial opinion.
B.
Qualified Actuary
A "qualified actuary" is an individual who:
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(1)
Is a member in good standing of the American Academy of
Actuaries; and
(2)
Is qualified to sign statements of actuarial opinion for life and
health insurance company Annual Statements in accordance with
the American Academy of Actuaries qualification standards for
actuaries signing such statements; and
(3)
Is familiar with the valuation requirements applicable to life and
health insurance companies; and
(4)
Has not been found by the Commissioner (or if so found has
subsequently been reinstated as a qualified actuary), following
appropriate notice and hearing to have:
(a)
Violated any provision of, or any obligation imposed by,
the Insurance Law or other law in the course of his or her
dealings as a qualified actuary; or
(b)
Been found guilty of fraudulent or dishonest practices; or
(c)
Demonstrated his or her incompetence, lack of cooperation,
or untrustworthiness to act as a qualified actuary; or
(d)
Submitted to the Commissioner during the past five (5)
years, pursuant to this Regulation, an actuarial opinion or
memorandum that the Commissioner rejected because it
did not meet the provisions of this Regulation including
standards set by the Actuarial Standards Board; or
(e)
Resigned or been removed as an actuary within the past
five (5) years as a result of acts or omissions indicated in
any adverse report on examination or as a result of failure
to adhere to generally acceptable actuarial standards; and
(5)
Has not failed to notify the Commissioner of any action taken by
any Commissioner of any other state similar to that under
Paragraph (4) above.
C.
Appointed Actuary
An "appointed actuary" is a qualified actuary who is appointed or retained
to prepare the Statement of Actuarial Opinion required by this Regulation;
either directly by or by the authority of the board of directors through an
executive officer of the company. The company shall give the
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Commissioner timely written notice of the name, title (and, in the case of a
consulting actuary, the name of the firm) and manner of appointment or
retention of each person appointed or retained by the company as an
appointed actuary and shall state in such notice that the person meets the
requirements set forth in Section 5(B). Once notice is furnished, no further
notice is required with respect to this person, provided that the company
shall give the Commissioner timely written notice in the event the actuary
ceases to be appointed or retained as an appointed actuary or to meet the
requirements set forth in Section 5(B). If any person appointed or retained
as an appointed actuary replaces a previously appointed actuary, the notice
shall so state and give the reasons for replacement.
D.
Standards for Asset Adequacy Analysis
The asset adequacy analysis required by this Regulation:
(1)
Shall conform to the Standards of Practice as promulgated from
time to time by the Actuarial Standards Board and on any
additional standards under this Regulation, which standards are to
form the basis of the statement of actuarial opinion in accordance
with Section 8 of this Regulation; and
(2)
Shall be based on methods of analysis as are deemed appropriate
for such purposes by the Actuarial Standards Board.
E.
Liabilities to be Covered
(1)
Under authority of R.I. Gen. Laws § 27-4.5-3, the statement of
actuarial opinion shall apply to all in force business on the
statement date regardless of when or where issued, e.g., reserves of
Exhibits 8, 9 and 10, and claim liabilities in Exhibit 11, Part I and
equivalent items in the separate account statement or statements.
(2)
If the appointed actuary determines as the result of asset adequacy
analysis that a reserve should be held in addition to the aggregate
reserve held by the company and calculated in accordance with
methods set forth in R.I. Gen. Laws §§ 27-4.5-5, 27-4.5-5.1, 27-
4.5-8, 27-4.5-9, 27-4.5-10, the company shall establish such
additional reserve.
(3)
For years ending prior to December 31, 1996, the company may, in
lieu of establishing the full amount of the additional reserve in the
Annual Statement for that year, set up an additional reserve in an
amount not less than the following:
December 31, 1994 The additional reserve divided by three.
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December 31, 1995 Two times the additional reserve divided by
three.
(4)
Additional reserves established under Paragraphs (2) or (3) above
and deemed not necessary in subsequent years may be released.
Any amounts released must be disclosed in the actuarial opinion
for the applicable year. The release of such reserves would not be
deemed an adoption of a lower standard of valuation.
Section 6
Required Opinions
A.
General
In accordance with Section 3 of the Standard Valuation Law, every
company doing business in this State shall annually submit the opinion of
an appointed actuary as provided for by this Regulation. The type of
opinion submitted shall be determined by the provisions set forth in this
Section 6 and shall be in accordance with the applicable provisions in this
Regulation.
B.
Company Categories
For purposes of this Regulation, companies shall be classified as follows
based on the admitted assets as of the end of the calendar year for which
the actuarial opinion is applicable:
(1)
Category A shall consist of those companies whose admitted assets
do not exceed $20 million;
(2)
Category B shall consist of those companies whose admitted assets
exceed $20 million but do not exceed $100 million;
(3)
Category C shall consist of those companies whose admitted assets
exceed $100 million but do not exceed $500 million; and
(4)
Category D shall consist of those companies whose admitted assets
exceed $500 million.
C.
Exemption Eligibility Tests
(1)
Any Category A company that, for any year beginning with the
year in which this Regulation becomes effective, meets all of the
following criteria shall be eligible for exemption from submission
of a statement of actuarial opinion in accordance with Section 8 of
this Regulation for the year in which these criteria are met. The
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ratios in (a), (b) and (c) below shall be calculated based on
amounts as of the end of the calendar year for which the actuarial
opinion is applicable.
(a)
The ratio of the sum of capital and surplus to the sum of
cash and invested assets is at least equal to .10.
(b)
The ratio of the sum of the reserves and liabilities for
annuities and deposits to the total admitted assets is less
than .30.
(c)
The ratio of the book value of the non-investment grade
bonds to the sum of capital and surplus is less than .50.
(d)
The Examiner Team for the National Association of
Insurance Commissioners (NAIC) has not designated the
company as a first priority company in any of the two (2)
calendar years preceding the calendar year for which the
actuarial opinion is applicable, or a second priority
company in each of the two (2) calendar years preceding
the calendar year for which the actuarial opinion is
applicable, or the company has resolved the first or second
priority status to the satisfaction of the Commissioner of
the state of domicile and the Commissioner has so notified
the chair of the NAIC Life and Health Actuarial Task Force
and the NAIC Staff and Support Office.
(2)
Any Category B company that, for any year beginning with the
year in which this Regulation becomes effective, meets all of the
following criteria shall be eligible for exemption from submission
of a statement of actuarial opinion in accordance with Section 8 of
this Regulation for the year in which the criteria are met. The ratios
in (a), (b) and (c) below shall be calculated based on amounts as of
the end of the calendar year for which the actuarial opinion is
applicable.
(a)
The ratio of the sum of capital and surplus to the sum of
cash and invested assets is at least equal to .07.
(b)
The ratio of the sum of the reserves and liabilities for
annuities and deposits to the total admitted assets is less
than .40.
(c)
The ratio of the book value of the non-investment grade
bonds to the sum of capital and surplus is less than .50.
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(d)
The Examiner Team for the National Association of
Insurance Commissioners (NAIC) has not designated the
company as a first priority company in any of the two (2)
calendar years preceding the calendar year for which the
actuarial opinion is applicable, or a second priority
company in each of the two (2) calendar years preceding
the calendar year for which the actuarial opinion is
applicable, or the company has resolved the first or second
priority status to the satisfaction of the Commissioner of
the state of domicile and the Commissioner has so notified
the chair of the NAIC Life and Health Actuarial Task Force
and the NAIC Staff and Support Office.
(3)
Any Category A or Category B company that meets all of the
criteria set forth in Paragraph (1) or (2) of this subsection,
whichever is applicable, is exempted from submission of a
statement of actuarial opinion in accordance with Section 8 of this
Regulation unless the Commissioner specifically indicates to the
company that the exemption is not to be taken.
(4)
Any Category A or Category B company that, for any year
beginning with the year in which this Regulation becomes
effective, is not exempted under Paragraph (3) of this subsection
shall be required to submit a statement of actuarial opinion in
accordance with Section 8 of this Regulation for the year for which
it is not exempt.
(5)
Any Category C company that, after submitting an opinion in
accordance with Section 8 of this Regulation, meets all of the
following criteria shall not be required, unless required in
accordance with Paragraph (6) below, to submit a statement of
actuarial opinion in accordance with Section 8 of this Regulation
more frequently than every third year. Any Category C company
which fails to meet all of the following criteria for any year shall
submit a statement of actuarial opinion in accordance with Section
8 of this Regulation for that year. The ratios in (a), (b) and (c)
below shall be calculated based on amounts as of the end of the
calendar year for which the actuarial opinion is applicable.
(a)
The ratio of the sum of capital and surplus to the sum of
cash and invested assets is at least equal to .05.
(b)
The ratio of the sum of the reserves and liabilities for
annuities and deposits to the total admitted assets is less
than .50.
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(c)
The ratio of the book value of the non-investment grade
bonds to the sum of the capital and surplus is less than .50.
(d)
The Examiner Team for the National Association of
Insurance Commissioners (NAIC) has not designated the
company as a first priority company in any of the two (2)
calendar years preceding the calendar year for which the
actuarial opinion is applicable, or a second priority
company in each of the two (2) calendar years preceding
the calendar year for which the actuarial opinion is
applicable, or the company has resolved the first or second
priority status to the satisfaction of the Commissioner of
the state of domicile and the Commissioner has so notified
the chair of the NAIC Life and Health Actuarial Task Force
and the NAIC Staff and Support Office.
(6)
Any company which is not required by this Section 6 to submit a
statement of actuarial opinion in accordance with Section 8 of this
Regulation for any year shall submit a statement of actuarial
opinion in accordance with Section 7 of this Regulation for that
year unless as provided for by the second paragraph of Section 3 of
this Regulation the Commissioner requires a statement of actuarial
opinion in accordance with Section 8 of this Regulation.
D.
Large Companies
Every Category D company shall submit a statement of actuarial opinion
in accordance with Section 8 of this Regulation for each year beginning
with the year in which this Regulation becomes effective.
Section 7
Statement of Actuarial Opinion Not Including an Asset Adequacy
Analysis
A.
General Description
The statement of actuarial opinion required by this section shall consist of
a paragraph identifying the appointed actuary and his or her qualifications;
a regulatory authority paragraph stating that the company is exempt
pursuant to this Regulation from submitting a statement of actuarial
opinion based on an asset adequacy analysis and that the opinion, which is
not based on an asset adequacy analysis, is rendered in accordance with
Section 7 of this Regulation; a scope paragraph identifying the subjects on
which the opinion is to be expressed and describing the scope of the
appointed actuary's work; and an opinion paragraph expressing the
appointed actuary's opinion as required by RIGL § 27-4.5-3.
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B.
Recommended Language
The following language provided is that which in typical circumstances
would be included in a statement of actuarial opinion in accordance with
this section. The language may be modified as needed to meet the
circumstances of a particular case, but the appointed actuary should use
language which clearly expresses his or her professional judgment.
However, in any event the opinion shall retain all pertinent aspects of the
language provided in Section 7.
(1)
The opening paragraph should indicate the appointed actuary's
relationship to the company. For a company actuary, the opening
paragraph of the actuarial opinion should read as follows:
"I, [name of actuary], am [title] of [name of company] and a
member of the American Academy of Actuaries. I was appointed
by, or by the authority of, the Board of Directors of said insurer to
render this opinion as stated in the letter to the Commissioner
dated [insert date]. I meet the Academy qualification standards for
rendering the opinion and am familiar with the valuation
requirements applicable to life and health companies."
For a consulting actuary, the opening paragraph of the actuarial
opinion should contain a sentence such as:
"I, [name and title of actuary], a member of the American
Academy of Actuaries, am associated with the firm of [insert name
of consulting firm]. I have been appointed by, or by the authority
of, the Board of Directors of [name of company] to render this
opinion as stated in the letter to the Commissioner dated [insert
date]. I meet the Academy qualification standards for rendering the
opinion and am familiar with the valuation requirements applicable
to life and health insurance companies."
(2)
The regulatory authority paragraph should include a statement such
as the following: "Said company is exempt pursuant to Regulation
89 of the Rhode Island Insurance Department from submitting a
statement of actuarial opinion based on an asset adequacy analysis.
This opinion, which is not based on an asset adequacy analysis, is
rendered in accordance with Section 7 of the Regulation."
(3)
The scope paragraph should contain a sentence such as the
following:
"I have examined the actuarial assumptions and actuarial methods
used in determining reserves and related actuarial items listed
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below, as shown in the Annual Statement of the company, as
prepared for filing with state regulatory officials, as of December
31, [ ]."
The paragraph should list items and amounts with respect to which
the appointed actuary is expressing an opinion. The list should
include but not be necessarily limited to:
(a)
Aggregate reserve and deposit funds for policies and
contracts included in Exhibit 8;
(b)
Aggregate reserve and deposit funds for policies and
contracts included in Exhibit 9;
(c)
Deposit funds, premiums, dividend and coupon
accumulations and supplementary contracts not involving
life contingencies included in Exhibit 10; and
(d)
Policy and contract claims-liability end of current year
included in Exhibit 11, Part 1.
(4)
If the appointed actuary has examined the underlying records, the
scope paragraph should also include the following:
"My examination included such review of the actuarial
assumptions and actuarial methods and of the underlying basic
records and such tests of the actuarial calculations as I considered
necessary."
(5)
If the appointed actuary has not examined the underlying records,
but has relied upon listings and summaries of policies in force
prepared by the company or a third party, the scope paragraph
should include a sentence such as one of the following:
"I have relied upon listings and summaries of policies and
contracts and other liabilities in force prepared by [name and title
of company officer certifying in force records] as certified in the
attached statement. (See accompanying affidavit by a company
officer.) In other respects my examination included review of the
actuarial assumptions and actuarial methods and such tests of the
actuarial calculations as I considered necessary."
or
"I have relied upon [name of accounting firm] for the substantial
accuracy of the in force records inventory and information
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concerning other liabilities, as certified in the attached statement.
In other respects my examination included review of the actuarial
assumptions and actuarial methods and such tests of the actuarial
calculations as I considered necessary."
The statement of the person certifying shall follow the form
indicated by Section 7B(10).
(6)
The opinion paragraph should include the following:
"In my opinion the amounts carried in the balance sheet on account
of the actuarial items identified above:
(a)
Are computed in accordance with those presently accepted
actuarial standards which specifically relate to the opinion
required under this section;
(b)
Are based on actuarial assumptions which produce reserves
at least as great as those called for in any contract provision
as to reserve basis and method, and are in accordance with
all other contract provisions;
(c)
Meet the requirements of the Insurance Law and
regulations of the state of [state of domicile] and are at least
as great as the minimum aggregate amounts required by the
state in which this statement is filed.
(d)
Are computed on the basis of assumptions consistent with
those used in computing the corresponding items in the
Annual Statement of the preceding year-end with any
exceptions as notes below; and
(e)
Include provision for all actuarial reserves and related
statement items which ought to be established.
The actuarial methods, considerations and analyses used in
forming my opinion conform to the appropriate Compliance
Guidelines as promulgated by the Actuarial Standards Board,
which guidelines form the basis of this statement of opinion."
(7)
The concluding paragraph should document the eligibility for the
company to provide an opinion as provided by Section 7. It shall
include the following:
"This opinion is provided in accordance with Section 7 of the
NAIC Actuarial Opinion and Memorandum Regulation as adopted
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by the State of [insert applicable state] or Regulation 89 of the
State of RI. As such it does not include an opinion regarding the
adequacy of reserves and related actuarial items when considered
in light of the assets which support them.
Eligibility for Section 7 is confirmed as follows:
(a)
The ratio of the sum of capital and surplus to the sum of
cash and invested assets is [insert amount], which equals or
exceeds the applicable criterion based on the admitted
assets of the company (Section 6C).
(b)
The ratio of the sum of the reserves and liabilities for
annuities and deposits to the total admitted assets is [insert
amount], which is less than the applicable criteria based on
the admitted assets of the company (Section 6C).
(c)
The ratio of the book value of the non-investment grade
bonds to the sum of capital and surplus is [insert amount],
which is less than the applicable criteria of .50 (Section
6C).
(d)
To my knowledge, the NAIC Examiner Team has not
designated the company as a first priority company in any
of the two (2) calendar years preceding the calendar year
for which the actuarial opinion is applicable, or a second
priority company in each of the two (2) calendar years
preceding the calendar year for which the actuarial opinion
is applicable or the company has resolved the first or
second priority status to the satisfaction of the
commissioner of the state of domicile (Section 6C).
(e)
To my knowledge there is not a specific request from any
Commissioner requiring an asset adequacy analysis
opinion.
____________________________
Signature of Appointed Actuary
____________________________
Address of Appointed Actuary
____________________________
Telephone Number of Appointed Actuary"
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(8)
If there has been any change in the actuarial assumptions from
those previously employed, that change should be described in the
Annual Statement or in a paragraph of the statement of actuarial
opinion, and the reference in Section 7(B)(6)(d) above to
consistency should read as follows:
". . . with the exception of the change described on Page [ ] of the
Annual Statement (or in the preceding paragraph)."
The adoption for new issues or new claims or other new liabilities
of an actuarial assumption which differs from a corresponding
assumption used for prior new issues or new claims or other new
liabilities is not a change in actuarial assumptions within the
meaning of this paragraph.
(9)
If the appointed actuary is unable to form an opinion, he or she
shall refuse to issue a statement of actuarial opinion. If the
appointed actuary's opinion is adverse or qualified, he or she shall
issue an adverse or qualified actuarial opinion explicitly stating the
reason(s) for such opinion. This statement should follow the scope
paragraph and precede the opinion paragraph.
(10)
If the appointed actuary does not express an opinion as to the
accuracy and completeness of the listings and summaries of
policies in force, there should be attached to the opinion, the
statement of a company officer or accounting firm who prepared
such underlying data similar to the following:
"I [name of officer], [title] of [name and address of company or
accounting firm], hereby affirm that the listings and summaries of
policies and contracts in force as of December 31, [ ], prepared for
and submitted to [name of appointed actuary], were prepared under
my direction and, to the best of my knowledge and belief, are
substantially accurate and complete.
________________________________
Signature of the Officer of the Company or Accounting Firm
________________________________
Address of the Officer of the Company or Accounting Firm
_________________________________
Telephone Number of the Officer of the Company or Accounting
Firm"
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Section 8
Statement of Actuarial Opinion Based on an Asset Adequacy Analysis
A.
General Description
The statement of actuarial opinion submitted in accordance with this
section shall consist of:
(1)
A paragraph identifying the appointed actuary and his or her
qualifications (see Section 8(B)(1));
(2)
A scope paragraph identifying the subjects on which an opinion is
to be expressed and describing the scope of the appointed actuary's
work, including a tabulation delineating the reserves and related
actuarial items which have been analyzed for asset adequacy and
the method of analysis, (see Section 8(B)(2)) and identifying the
reserves and related actuarial items covered by the opinion which
have not been so analyzed;
(3)
A reliance paragraph describing those areas, if any, where the
appointed actuary has deferred to other experts in developing data,
procedures or assumptions, (e.g., anticipated cash flows from
currently owned assets, including variation in cash flows according
to economic scenarios (see Section 8(B)(3)), supported by a
statement of each such expert in the form prescribed by Section
8E; and
(4)
An opinion paragraph expressing the appointed actuary's opinion
with respect to the adequacy of the supporting assets to mature the
liabilities (see Section 8(B)(6)).
(5)
One or more additional paragraphs will be needed in individual
company cases as follows:
(a)
If the appointed actuary considers it necessary to state a
qualification of his or her opinion;
(b)
If the appointed actuary must disclose the method of
aggregation for reserves of different products or lines of
business for asset adequacy analysis;
(c)
If the appointed actuary must disclose reliance upon any
portion of the assets supporting the Asset Valuation
Reserve (AVR), Interest Maintenance Reserve (IMR) or
other mandatory or voluntary statement of reserves for
asset adequacy analysis.
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(d)
If the appointed actuary must disclose an inconsistency in
the method of analysis or basis of asset allocation used at
the prior opinion date with that used for this opinion.
(e)
If the appointed actuary must disclose whether additional
reserves of the prior opinion date are released as of this
opinion date, and the extent of the release.
(f)
If the appointed actuary chooses to add a paragraph briefly
describing the assumptions which form the basis for the
actuarial opinion.
B.
Recommended Language
The following paragraphs are to be included in the statement of actuarial
opinion in accordance with this section. Language is that which in typical
circumstances should be included in a statement of actuarial opinion. The
language may be modified as needed to meet the circumstances of a
particular case, but the appointed actuary should use language which
clearly expresses his or her professional judgment. However, in any event
the opinion shall retain all pertinent aspects of the language provided in
this section.
(1)
The opening paragraph should generally indicate the appointed
actuary's relationship to the company and his or her qualifications
to sign the opinion. For a company actuary, the opening paragraph
of the actuarial opinion should read as follows:
"I, [name], am [title] of [insurance company name] and a member
of the American Academy of Actuaries. I was appointed by, or by
the authority of, the Board of Directors of said insurer to render
this opinion as stated in the letter to the Commissioner dated
[insert date]. I meet the Academy qualification standards for
rendering the opinion and am familiar with the valuation
requirements applicable to life and health insurance companies."
For a consulting actuary, the opening paragraph should contain a
sentence such as:
"I, [name], a member of the American Academy of Actuaries, am
associated with the firm of [name of consulting firm]. I have been
appointed by, or by the authority of, the Board of Directors of
[name of company] to render this opinion as stated in the letter to
the Commissioner dated [insert date]. I meet the Academy
qualification standards for rendering the opinion and am familiar
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with the valuation requirements applicable to life and health
insurance companies."
(2)
The scope paragraph should include a statement such as the
following:
"I have examined the actuarial assumptions and actuarial methods
used in determining reserves and related actuarial items listed
below, as shown in the Annual Statement of the company, as
prepared for filing with state regulatory officials, as of December
31, 19[ ]. Tabulated below are those reserves and related actuarial
items which have been subjected to asset adequacy analysis.
Asset Adequacy Tested Amounts Reserves and Liabilities
Statement Item
Formula
Reserves
(1)
Additional
Actuarial
Reserves
(a) (2)
Analysis
Method
(b)
Other
Amount
(3)
Total
Amount
(1)=(2)=(3)
(4)
Exhibit 8
A Life Insurance
B Annuities
C Supplementary Contracts
Involving Life Contingencies
D Accidental Death
E Disability -- Active
F Disability – Disabled
G Miscellaneous
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Asset Adequacy Tested Amounts Reserves and Liabilities
Statement Item
Formula
Reserves
(1)
Additional
Actuarial
Reserves
(a) (2)
Analysis
Method
(b)
Other
Amount
(3)
Total
Amount
(1)=(2)=(3)
(4)
Total
(Exhibit 8 Item 1, Page 3)
Exhibit 9
A Active Life Reserve
B Claim Reserve
Total
(Exhibit 9, Item 2, Page 3)
Exhibit 10
1 Premiums and Other Deposit
Funds
1.1 Policyholder Premiums (Page
3, Line 10.1)
1.2 Guaranteed Interest Contracts
(Page 3, Line 10.2)
1.3 Other Contract Deposit Funds
(Page 3, Line 10.3)
2 Supplementary Contracts Not
Involving Life Contingencies
(Page 3, Line 5)
3 Dividend and Coupon
Accumulations (Page 3, Line 5)
Total Exhibit 10
Exhibit 11, Part 1
1 Life (Page 3, Line 4.1)
2 Health (Page 3, Line 4.2)
Total Exhibit 11, Part 1
Separate Accounts (Page 3, Line
27)
TOTAL RESERVES
IMR (Page
Line
)
AVR (Page
Line
)
(c)
Notes:
(a)
The additional actuarial reserves are the reserves established under Paragraphs
(2) or (3) of Section 5E.
(b)
The appointed actuary should indicate the method of analysis, determined in
accordance with the standards for asset adequacy analysis referred to in Section
5D of this Regulation, by means of symbols which should be defined in footnotes
to the table.
(c)
Allocated amount.
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(3)
If the appointed actuary has relied on other experts to develop certain
portions of the analysis, the reliance paragraph should include a statement such as
the following:
"I have relied on [name], [title] for [e.g., anticipated cash flows from
currently owned assets, including variations in cash flows according to
economic scenarios] and, as certified in the attached statement, . . ."
or
"I have relied on personnel as cited in the supporting memorandum for
certain critical aspects of the analysis in reference to the accompanying
statement."
Such a statement of reliance on other experts should be accompanied by a
statement by each of such experts of the form prescribed by Section 8(E).
(4)
If the appointed actuary has examined the underlying asset and liability
records, the reliance paragraph should also include the following:
"My examination included such review of the actuarial assumptions and
actuarial methods and of the underlying basic asset and liability records
and such tests of the actuarial calculations as I considered necessary."
(5)
If the appointed actuary has not examined the underlying records, but has
relied upon listings and summaries of policies in force and/or asset records
prepared by the company or a third party, the reliance paragraph should
include a sentence such as:
"I have relied upon listings and summaries [of policies and contracts, of
asset records] prepared by [name and title of company officer certifying
in-force records] as certified in the attached statement. In other respects
my examination included such review of the actuarial assumptions and
actuarial methods and such tests of the actuarial calculations as I
considered necessary."
or
"I have relied upon [name of accounting firm] for the substantial accuracy
of the in-force records inventory and information concerning other
liabilities, as certified in the attached statement. In other respects my
examination included review of the actuarial assumptions and actuarial
methods and tests of the actuarial calculations as I considered necessary."
Such a section must be accompanied by a statement by each person relied
upon of the form prescribed by Section 8(E).
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(6)
The opinion paragraph should include the following:
"In my opinion the reserves and related actuarial values concerning the
statement items I identified above:
(a)
Are computed in accordance with presently accepted actuarial
standards consistently applied and are fairly stated, in accordance
with sound actuarial principles;
(b)
Are based on actuarial assumptions which produce reserves at least
as great as those called for in any contract provision as to reserve
basis and method, and are in accordance with all other contract
provisions;
(c)
Meet the requirements of the Insurance Law and regulation of the
state of [state of domicile] and are at least as great as the minimum
aggregate amounts required by the state in which this statement is
filed.
(d)
Are computed on the basis of assumptions consistent with those
used in computing the corresponding items in the Annual
Statement of the preceding year-end (with any exceptions noted
below);
(e)
Include provision for all actuarial reserves and related statement
items which ought to be established.
The reserves and related items, when considered in light of the assets held
by the company with respect to such reserves and related actuarial items
including, but not limited to, the investment earnings on such assets, and
the considerations anticipated to be received and retained under such
policies and contracts, make adequate provision, according to presently
accepted actuarial standards of practice, for the anticipated cash flows
required by the contractual obligations and related expenses of the
company.
The actuarial methods, considerations and analyses used in forming my
opinion conform to the appropriate Standards of Practice as promulgated
by the Actuarial Standards Board, which standards form the basis of this
statement of opinion.
This opinion is updated annually as required by statute. To the best of my
knowledge, there have been no material changes from the applicable date
of the Annual Statement to the date of the rendering of this opinion which
should be considered in reviewing this opinion.
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or
The following material change(s) which occurred between the date of the
statement for which this opinion is applicable and the date of this opinion
should be considered in reviewing this opinion: (Describe the change or
changes.)
Note: Choose one of the above two paragraphs, whichever is applicable.
The impact of unanticipated events subsequent to the date of this opinion
is beyond the scope of this opinion. The analysis of asset adequacy portion
of this opinion should be viewed recognizing that the company's future
experience may not follow all the assumptions used in the analysis.
____________________________
Signature of Appointed Actuary
____________________________
Address of Appointed Actuary
____________________________
Telephone Number of Appointed Actuary"
C.
Assumptions for New Issues
The adoption for new issues or new claims or other new liabilities of an
actuarial assumption which differs from a corresponding assumption used
for prior new issues or new claims or other new liabilities is not a change
in actuarial assumptions within the meaning of this Section 8.
D.
Adverse Opinions
If the appointed actuary is unable to form an opinion, then he or she shall
refuse to issue a statement of actuarial opinion. If the appointed actuary's
opinion is adverse or qualified, then he or she shall issue an adverse or
qualified actuarial opinion explicitly stating the reason(s) for such opinion.
This statement should follow the scope paragraph and precede the opinion
paragraph.
E.
Reliance on Data Furnished by Other Persons
If the appointed actuary does not express an opinion as to the accuracy and
completeness of the listings and summaries of policies in force and/or
asset oriented information, there shall be attached to the opinion the
statement of a company officer or accounting firm who prepared such
underlying data similar to the following:
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"I [name of officer], [title], of [name of company or accounting firm],
hereby affirm that the listings and summaries of policies and contracts in
force as of December 31, 19[ ], and other liabilities prepared for and
submitted to [name of appointed actuary] were prepared under my
direction and, to the best of my knowledge and belief, are substantially
accurate and complete.
_________________________
Signature of the Officer of the Company or Accounting Firm
_________________________
Address of the Officer of the Company or Accounting Firm
_________________________
Telephone Number of the Officer of the Company or Accounting Firm"
and/or
"I, [name of officer], [title] of [name of company, accounting firm, or
security analyst], hereby affirm that the listings, summaries and analyses
relating to data prepared for and submitted to [name of appointed actuary]
in support of the asset-oriented aspects of the opinion were prepared under
my direction and, to the best of my knowledge and belief, are substantially
accurate and complete.
_________________________
Signature of the Officer of the Company, Accounting Firm or the Security
Analyst
_________________________
Address of the Officer of the Company, Accounting Firm or the Security
Analyst
_________________________
Telephone Number of the Officer of the Company, Accounting Firm or
the Security Analyst"
Section 9
Description of Actuarial Memorandum Including an Asset Adequacy
Analysis
A.
General
(1)
In accordance with R.I. Gen. Laws § 27-4.5-3, the appointed
actuary shall prepare a memorandum to the company describing
the analysis done in support of his or her opinion regarding the
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Reg. # 89
reserves under a Section 8 opinion. The memorandum shall be
made available for examination by the Commissioner upon his or
her request but shall be returned to the company after such
examination and shall not be considered a record of the insurance
department or subject to automatic filing with the Commissioner.
(2)
In preparing the memorandum, the appointed actuary may rely on,
and include as a part of his or her own memorandum, memoranda
prepared and signed by other actuaries who are qualified within the
meaning of Section 5(B) of this Regulation, with respect to the
areas covered in such memoranda, and so state in their
memoranda.
(3)
If the Commissioner requests a memorandum and no such
memorandum exists or if the Commissioner finds that the analysis
described in the memorandum fails to meet the standards of the
Actuarial Standards Board or the standards and requirements of
this Regulation, the Commissioner may designate a qualified
actuary to review the opinion and prepare such supporting
memorandum as is required for review. The reasonable and
necessary expense of the independent review shall be paid by the
company but shall be directed and controlled by the
Commissioner.
(4)
The reviewing actuary shall have the same status as an examiner
for purposes of obtaining data from the company and the work
papers and documentation of the reviewing actuary shall be
retained by the Commissioner; provided, however, that any
information provided by the company to the reviewing actuary and
included in the work papers shall be considered as material
provided by the company to the Commissioner and shall be kept
confidential to the same extent as is prescribed by law with respect
to other material provided by the company to the Commissioner
pursuant to the statute governing this Regulation. The reviewing
actuary shall not be an employee of a consulting firm involved
with the preparation of any prior memorandum or opinion for the
insurer pursuant to this Regulation for any one of the current year
or the preceding three (3) years.
B.
Details of the Memorandum Section Documenting Asset Adequacy
Analysis (Section 8)
When an actuarial opinion under Section 8 is provided, the memorandum
shall demonstrate that the analysis has been done in accordance with the
standards for asset adequacy referred to in Section 5(D) of this Regulation
and any additional standards under this Regulation. It shall specify:
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(1)
For reserves:
(a)
Product descriptions including market description,
underwriting and other aspects of a risk profile and the
specific risks the appointed actuary deems significant;
(b)
Source of liability in force;
(c)
Reserve method and basis;
(d)
Investment reserves;
(e)
Reinsurance arrangements.
(2)
For assets:
(a)
Portfolio descriptions, including a risk profile disclosing
the quality, distribution and types of assets;
(b)
Investment and disinvestment assumptions;
(c)
Source of asset data;
(d)
Asset valuation bases.
(3)
Analysis basis:
(a)
Methodology;
(b)
Rationale for inclusion/exclusion of different blocks of
business and how pertinent risks were analyzed;
(c)
Rationale for degree of rigor in analyzing different blocks
of business;
(d)
Criteria for determining asset adequacy;
(e)
Effect of federal income taxes, reinsurance and other
relevant factors.
(4)
Summary of Results
(5)
Conclusion(s)
C.
Conformity to Standards of Practice
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Reg. # 89
The memorandum shall include a statement:
"Actuarial methods, considerations and analyses used in the preparation of
this memorandum conform to the appropriate Standards of Practice as
promulgated by the Actuarial Standards Board, which standards form the
basis for this memorandum."
Section 10
Additional Considerations for Analysis
A.
Aggregation
For the asset adequacy analysis for the statement of actuarial opinion
provided in accordance with Section 8 of this Regulation, reserves and
assets may be aggregated by either of the following methods:
(1)
Aggregate the reserves and related actuarial items, and the
supporting assets, for different products or lines of business, before
analyzing the adequacy of the combined assets to mature the
combined liabilities. The appointed actuary must be satisfied that
the assets held in support of the reserves and related actuarial items
so aggregated are managed in such a manner that the cash flows
from the aggregated assets are available to help mature the
liabilities from the blocks of business that have been aggregated.
(2)
Aggregate the results of asset adequacy analysis of one or more
products or lines of business, the reserves for which prove through
analysis to be redundant, with the results of one or more products
or lines of business, the reserves for which prove through analysis
to be deficient. The appointed actuary must be satisfied that the
asset adequacy results for the various products or lines of business
for which the results are so aggregated:
(a)
Are developed using consistent economic scenarios, or
(b)
Are subject to mutually independent risks, i.e., the
likelihood of events impacting the adequacy of the assets
supporting the redundant reserves is completely unrelated
to the likelihood of events impacting the adequacy of the
assets supporting the deficient reserves.
In the event of any aggregation, the actuary must disclose
in his or her opinion that such reserves were aggregated on
the basis of method (1), (2)(a) or (2)(b) above, whichever is
applicable, and describe the aggregation in the supporting
memorandum.
Page 27 of 28
Reg. # 89
B.
Selection of Assets for Analysis
The appointed actuary shall analyze only those assets held in support of
the reserves which are the subject for specific analysis, hereafter called
"specified reserves." A particular asset or portion thereof supporting a
group of specified reserves cannot support any other group of specified
reserves. An asset may be allocated over several groups of specified
reserves. The Annual Statement value of the assets held in support of the
reserves shall not exceed the Annual Statement value of the specified
reserves, except as provided in Subsection C below. If the method of asset
allocation is not consistent from year to year, the extent of its
inconsistency should be described in the supporting memorandum.
C.
Use of Assets Supporting the Interest Maintenance Reserve and the Asset
Valuation Reserve:
An appropriate allocation of assets in the amount of the Interest
Maintenance Reserve (IMR), whether positive or negative, must be used
in any asset adequacy analysis. Analysis of risks regarding asset default
may include an appropriate allocation of assets supporting the Asset
Valuation Reserve (AVR); these AVR assets may not be applied for any
other risks with respect to reserve adequacy. Analysis of these and other
risks may include assets supporting other mandatory or voluntary reserves
available to the extent not used for risk analysis and reserve support.
The amount of the assets used for the AVR must be disclosed in the Table
of Reserves and Liabilities of the opinion and in the memorandum. The
method used for selecting particular assets or allocated portions of assets
must be disclosed in the memorandum.
D.
Required Interest Scenarios
For the purpose of performing the asset adequacy analysis required by this
Regulation, the qualified actuary is expected to follow standards adopted
by the Actuarial Standards Board; nevertheless, the appointed actuary
must consider in the analysis the effect of at least the following interest
rate scenarios:
(1)
Level with no deviation;
(2)
Uniformly increasing over ten (10) years at a half percent per year
and then level;
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(3)
Uniformly increasing at one percent per year over five (5) years
and then uniformly decreasing at one percent per year to the
original level at the end of ten (10) years and then level;
(4)
An immediate increase of three percent (3%) and then level;
(5)
Uniformly decreasing over ten (10) years at a half percent per year
and then level;
(6)
Uniformly decreasing at one percent per year over five (5) years
and then uniformly increasing at one percent per year to the
original level at the end of ten (10) years and then level; and
(7)
An immediate decrease of three percent (3%) and then level.
For these and other scenarios which may be used, projected
interest rates for a five (5) year Treasury Note need not be reduced
beyond the point where the five (5) year Treasury Note yield
would be at fifty (50%) of its initial level.
The beginning interest rates may be based on interest rates for new
investments as of the valuation date similar to recent investments
allocated to support the product being tested or be based on an
outside index, such as Treasury yields, of assets of the appropriate
length on a date close to the valuation date. Whatever method is
used to determine the beginning yield curve and associated interest
rates should be specifically defined. The beginning yield curve and
associated interest rates should be consistent for all interest rate
scenarios.
E.
Documentation
The appointed actuary shall retain on file, for at least seven (7) years,
sufficient documentation so that it will be possible to determine the
procedures followed, the analyses performed, the bases for assumptions
and the results obtained.
EFFECTIVE DATE:
July 23, 1996
AMENDED:
None
REFILED:
December 19, 2001