230-RICR-20-45-9
230-RICR-20-45-9. Actuarial Opinion and Memorandum (version Amendment, 08/26/2010 to 08/26/2010)
State of Rhode Island and Providence Plantations
DEPARTMENT OF BUSINESS REGULATION
Division of Insurance
1511 Pontiac Avenue
Cranston, RI 02920
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
Section 7
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;
(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
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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
(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.
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(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
(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;
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(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:
"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:
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"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)
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 ___
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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 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 [exhibits
and schedules to be listed as applicable] of the company’s current annual
statement. In other respects my examination included review of the
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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
(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
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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
____________________________
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
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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 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
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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.
(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
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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
(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
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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 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
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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;
(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
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(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;
(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
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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.
(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. For example, the impact of the
insufficiency of assets to support he payment of benefits and
expenses and the establishment of statutory reserves during one or
more interim periods;
(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
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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 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
AMENDED:
August 26, 2010
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