230-RICR-20-45-9
230-RICR-20-45-9. Actuarial Opinion and Memorandum (version Amendment, 09/21/2004 to 08/26/2010)
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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
Authority
Section 2
Purpose
Section 3
Scope
Section 4
Definitions
Section 5
General Requirements
Section 6
Statement of Actuarial Opinion Based on an Asset Adequacy Analysis
Section79
Description of Actuarial Memorandum Including an Asset Adequacy
Analysis and Regulatory Asset Adequacy Issues Summary
Section 8
Severability
Section 9
Effective Date
Section 1
Authority
This Regulation is promulgated in accordance with R.I. Gen. Laws §§ 27-4.5-1 et
seq. and 42-14-17.
Section 2
Purpose
The purpose of this Regulation is to prescribe:
A.
Requirements 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.
Rules applicable to the appointment of an appointed actuary; and
C.
Guidance as to the meaning of “adequacy of reserves”.
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.
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This Regulation shall be applied in a manner that allows the appointed actuary to utilize
his or her professional judgment in performing the asset analysis and developing the
actuarial opinion and supporting memoranda, consistent with relevant actuarial standards
of practice. However, the commissioner shall have the authority to specify specific
methods of actuarial analysis and actuarial assumptions when, in the commissioner’s
judgment, these specifications are necessary for an acceptable opinion to be rendered
relative to the adequacy of reserves and related items.
This regulation shall be applicable to all annual statements filed with the office of the
commissioner after the effective date 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 6 of this regulation, and a memorandum in support thereof in
accordance with Section 7 of this regulation, shall be required each year
Section 4
Definitions
As used in this Regulation:
A.
"Actuarial Opinion" shall mean 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 6 of this Regulation and
with applicable Actuarial Standards of Practice.
B.
"Actuarial Standards Board" shall mean the board established by the
American Academy of Actuaries to develop and promulgate standards of
actuarial practice.
C.
"Annual Statement" shall mean that statement required by R.I. Gen. Laws
§§ 27-12-1 and 27-12.1-2 to be filed by the company with the office of the
Commissioner annually.
D.
"Appointed Actuary" shall mean an 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" shall mean an analysis that meets the
standards and other requirements referred to in Section 5(D) of this
Regulation.
F.
"Commissioner," shall mean the Director of the Department of Business
Regulation of this State.
G.
"Company" shall mean a life insurance company, fraternal benefit society
or reinsurer subject to the provisions of this Regulation.
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H.
"Qualified Actuary" shall mean an individual who meets the requirements
set forth in Section 5(B) 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 6 of
this Regulation
(2)
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:
(1)
Is a member in good standing of the American Academy of
Actuaries;
(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;
(3)
Is familiar with the valuation requirements applicable to life and
health insurance companies;
(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;
(b)
Been found guilty of fraudulent or dishonest practices;
(c)
Demonstrated his or her incompetence, lack of cooperation,
or untrustworthiness to act as a qualified actuary;
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(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 other than the qualified actuary. The
company shall give the 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 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
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(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, whether directly issued or assumed, 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 §§ 27-4.5-1 et seq., the
company shall establish such additional reserve.
Additional reserves established under Paragraphs (2) above and
deemed not necessary in subsequent years may be released. Any
amounts released shall 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
Statement of Actuarial Opinion Based on an Asset Adequacy Analysis
and Regulatory Asset Adequacy Issues Summary
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 6(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 that have been analyzed for asset adequacy and the
method of analysis, (see Section 6(B)(2)) and identifying the
reserves and related actuarial items covered by the opinion that
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 6(B)(3)), supported by a
statement of each such expert in the form prescribed by Section
6(E); and
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(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 6(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 an inconsistency in
the method of analysis or basis of asset allocation used at
the prior opinion date with that used for this opinion.
(c)
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.
(d)
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 include a statement such as:
"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:
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"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
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, 20[ ]. 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 Benefit
E Disability -- Active
F Disability – Disabled
G Miscellaneous
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
Premiums and Other Deposit
Funds (Column 5, Line 14)
Guaranteed Interest Contracts
(Column 2, Line 14)
Other (Column 6, Line 14)
Supplementary Contracts and
Annuities Certain (Column 3,
Line 14)
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Dividend Accumulations or
Refunds (Column 4, Line 14)
Total Exhibit 10 (Column 1, Line
14)
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 of the
Annual Statement of the Separate
Accounts, Lines 1, 2, 3.1, 3.2, 3.3)
TOTAL RESERVES
IMR (General Account, Page Line )
(Separate Accounts, Page ___ Line ___
AVR (Page Line )
(c)
Net Deferred and Uncollected Premium
Notes:
(a)
The additional actuarial reserves are the reserves established under Paragraph (2) 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 of Asset Valuation Reserve.
(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:
"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” or “certain critical aspects of the
analysis performed in conjunction with forming my opinion”] as
certified in the attached statement. I have reviewed the information
relied upon for reasonableness"
A statement of reliance on other experts should be accompanied by
a statement by each of such experts in the form prescribed by
Section 6(E).
(4)
If the appointed actuary has examined the underlying asset and
liability records, the reliance paragraph should include a statement
such as:
"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
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calculations as I considered necessary. I also reconciled the
underlying basic asset and liability records to [exhibits and
schedules listed as applicable] of the company’s current annual
statement.”
(5)
If the appointed actuary has not examined the underlying records,
but has relied upon data (e.g. listings and summaries of policies in
force or asset records) prepared by the company, the reliance
paragraph should include a sentence such as:
"In forming my opinion on [specify types of reserves] I relied upon data
prepared by [name and title of company officer certifying in-force records
or other data] as certified in the attached statement. I evaluated that data
for reasonableness and consistency. I also reconciled that data to [exhibists
and schedules to be listed as applicable] of the company’s current annual
statement. In other respects my examination included review of the
actuarial assumptions and actuarial methods used and tests of the actuarial
calculations as I considered necessary."
The section shall be accompanied by a statement by each person relied
upon of the form prescribed by Section 6(E).
(6)
The opinion paragraph should include a statement such as:
"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 that 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); and
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(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. (At the discretion of the Commissioner, this language may be
omitted for an opinion filed on behalf of a company doing business only in
this state and in no other state.)
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.
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
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____________________________
Date"
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 6.
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 Information Furnished by Other Persons
If the appointed actuary relies on the certification of others on matters
concerning the accuracy or completeness of any data underlying the
actuarial opinion, or the appropriateness of any other information used by
the appointed actuary in forming the actuarial opinion, the actuarial
opinion should so indicate the persons the actuary is relying upon and a
precise identification of the items subject to reliance. In addition, the
persons on whom the appointed actuary relies shall provide a certification
that precisely identifies the items on which the person is providing
information and a statement as to the accuracy, completeness or
reasonableness, as applicable, of the items. This certification shall include
the signature, title, company, address and telephone number of the person
rendering the certification, as well as the date on which it is signed.
F.
Alternate Option
(1)
R.I. Gen. Laws § 27-4.5-1 et seq. gives the Commissioner broad
authority to accept the valuation of a foreign insurer when that
valuation meets the requirements applicable to a company
domiciled in this state in the aggregate. As an alternative to the
requirements of Subsection B(6)(c), the Commissioner may make
one or more of the following additional approaches available to the
opining actuary:
(a)
A statement that the reserves “meet the requirements of the
insurance laws and regulations of the State of [state of
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domicile] and the formal written standards and conditions
of this state for filing an opinion based on the law of the
state of domicile.” If the Commissioner chooses to allow
this alternative, a formal written list of standards and
conditions shall be made available. If a company chooses to
use this alternative, the standards and conditions in effect
on July 1 of a calendar year shall apply to statements for
that calendar year, and they shall remain in effect until they
are revised or revoked. If no list is available, this alternative
is not available.
(b)
A statement that the reserves “meet the requirements of the
insurance laws and regulations of the State of [state of
domicile] and I have verified that the company’s request to
file an opinion based on the law of the state of domicile has
been approved and that any conditions required by the
commissioner for approval of that request have been met.”
If the commissioner chooses to allow this alternative, a
formal written statement of such allowance shall be issued
no later than March 31 of the year it is first effective. It
shall remain valid until rescinded or modified by the
commissioner. The rescission or modifications shall be
issued no later than March 31 of the year they are first
effective. Subsequent to that statement being issued, if a
company chooses to use this alternative, the company shall
file a request to do so, along with justification for its use,
no later than April 30 of the year of the opinion to be filed.
The request shall be deemed approved on October 1 of that
year if the commissioner has not denied the request by that
date.
(c)
A statement that the reserves “meet the requirements of the
insurance laws and regulations of the State of [state of
domicile] and I have submitted the required comparison as
specified by this state.”
(i)
If the commissioner chooses to allow this
alternative, a formal written list of products (to be
added to the table in Item (ii) below) for which the
required comparison shall be provided will be
published. If a company chooses to use this
alternative, the list in effect on July 1 of a calendar
year shall apply to statements for that calendar year,
and it shall remain in effect until it is revised or
revoked. If no list is available, this alternative is not
available.
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(ii)
If a company desires to use this alternative, the
appointed actuary shall provide a comparison of the
gross nationwide reserves held to the gross
nationwide reserves that would be held under NAIC
codification standards. Gross nationwide reserves
are the total reserves calculated for the total
company in force business directly sold and
assumed, indifferent to the state in which the risk
resides, without reduction for reinsurance ceded.
The information provided shall be at least:
(1)
Product Type
(2)
Death
Benefit
or
Account Value
(3)
Reserves Held
(4)
Codification
Reserves
(5)
Codification
Standard
(iii)
The information listed shall include all products
identified by either the state of filing or any other
states subscribing to this alternative.
(iv)
If there is no codification standard for the type of
product or risk in force or if the codification
standard does not directly address the type of
product or risk in force, the appointed actuary shall
provide detailed disclosure of the specific method
and assumptions used in determining the reserves
held.
(v)
The comparison provided by the company is to be
kept confidential to the same extent and under the
same conditions as the actuarial memorandum.
(2)
Notwithstanding the above, the commissioner may reject an
opinion based on the laws and regulations of the state of domicile
and require an opinion based on the laws of this state. If a company
is unable to provide the opinion within sixty (60) days of the
request or such other period of time determined by the
commissioner after consultation with the company, the
commissioner may contract an independent actuary at the
company’s expense to prepare and file the opinion.
Section 7
Description of Actuarial Memorandum Including an Asset Adequacy
Analysis
A.
General
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(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
reserves. 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.
(5)
In accordance with R.I. Gen. Laws § 27-4.5-3, the appointed
actuary shall prepare a regulatory asset adequacy issues summary,
the contents of which are specified in Subsection C. The regulatory
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asset adequacy issues summary will be submitted no later than
March 15 of the year following the year for which a statement of
actuarial opinion based on asset adequacy is required. The
regulatory asset adequacy issues summary is to be kept
confidential to the same extent and under the same conditions as
the actuarial memorandum.
B.
Details of the Memorandum Section Documenting Asset Adequacy
Analysis
When an actuarial opinion 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:
(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;
(f)
Identification of any explicit or implied guarantees made by
the general account in support of benefits provided through
a separate account or under a separate account policy or
contract and the methods used by the appointed actuary to
provide for the guarantees in the asset adequacy analysis;
(g)
Documentation of assumptions to test reserves for the
following:
(i)
Lapse rates (both base and excess);
(ii)
Interest crediting rate strategy;
(iii)
Mortality;
(iv)
Policyholder dividend strategy;
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(v)
Competitor or market interest rate;
(vi)
Annuitization rates;
(vii)
Commissions and expenses; and
(viii)
Morbidity.
The documentation of the assumptions shall be such that an
actuary reviewing the actuarial memorandum could form a
conclusion as to the reasonableness of the assumptions.
(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; and
(e)
Documentation of assumptions made for:
(i)
Default costs;
(ii)
Bond call function;
(iii)
Mortgage prepayment function;
(iv)
Determining market value for assets sold due to
disinvestment strategy; and
(v)
Determining yield on assets acquired through the
investment strategy.
The documentation of the assumptions shall be such that an
actuary reviewing the actuarial memorandum could form a
conclusion as to the reasonableness of the assumptions.
(3)
Analysis basis:
(a)
Methodology;
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(b)
Rationale for inclusion or exclusion of different blocks of
business and how pertinent risks were analyzed;
(c)
Rationale for degree of rigor in analyzing different blocks
of business (include in the rationale the level of
“materiality” that was used in determining how rigorously
to analyze different blocks of business);
(d)
Criteria for determining asset adequacy (include in the
criteria the precise basis for determining if assets are
adequate to cover reserves under “moderately adverse
conditions” or other conditions as specified in relevant
actuarial standards of practice);
(e)
Whether the impact of federal income taxes was considered
and the method of treating reinsurance in the asset
adequacy analysis;
(4)
Summary of material changes in methods, procedures, or
assumptions from prior year’s asset adequacy analysis;
(5)
Summary of Results; and
(6)
Conclusion(s)
C.
Details of the Regulatory Asset Adequacy Issues Summary
(1)
The regulatory asset adequacy issues summary shall include:
(a)
Descriptions of the scenarios tested (including whether
those scenarios are stochastic or deterministic) and the
sensitivity testing done relative to those scenarios. If
negative ending surplus results under certain tests in the
aggregate, the actuary should describe those tests and the
amount of additional reserve as of the valuation date which,
if held, would eliminate the negative aggregate surplus
values. Ending surplus values shall be determined by either
extending the projection period until the in force and
associated assets and liabilities at the end of the projection
period are immaterial or by adjusting the surplus amount at
the end of the projection period by an amount that
appropriately estimates the value that can reasonably be
expected to arise from the assets and liabilities remaining in
force.
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Reg. # 89
(b)
The extent to which the appointed actuary uses assumptions
in the asset adequacy analysis that are materially different
than the assumptions used in the previous asset adequacy
analysis;
(c)
The amount of reserves and the identity of the product lines
that had been subjected to asset adequacy analysis in the
prior opinion but were not subject to analysis for the
current opinion;
(d)
Comments on any interim results that may be of significant
concern to the appointed actuary;
(e)
The methods used by the actuary to recognize the impact of
reinsurance on the company’s cash flows, including both
assets and liabilities, under each of the scenarios tested; and
(f)
Whether the actuary has been satisfied that all options
whether explicit or embedded, in any asset or liability
(including but not limited to those affecting cash flows
embedded in fixed income securities) and equity-like
features in any investments have been appropriately
considered in the asset adequacy analysis.
(2)
The regulatory asset adequacy issues summary shall contain the
name of the company for which the regulatory asset adequacy
issues summary is being supplied and shall be signed and dated by
the appointed actuary rendering the actuarial opinion.
D.
Conformity to Standards of Practice. 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."
E.
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, shall 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
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Reg. # 89
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 shall 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
shall be disclosed in the memorandum.
F. 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.
Section 8
Severability
If any provision of this Regulation or the application thereof to any person or
circumstances is held invalid or unconstitutional, the invalidity or unconstitutionality
shall not affect other provisions or applications of this Regulation which can be given
effect without the invalid or unconstitutional provision or application, and to this end the
provisions of this Regulation are severable.
Section 9
Effective Date
This Regulation and the amendments thereto shall be effective as indicated below.
The most recent amendments shall apply to annual statement beginning with 2004.
EFFECTIVE DATE:
July 23, 1996
REFILED:
December 19, 2001
AMENDED:
September 21, 2004