Current through Register Vol. 49, No. 9, September, 2024
Section 1.
Purpose
The purpose of this Rule is to prescribe:
A. Requirements for statements of actuarial
opinion that are to be submitted in accordance with Ark. Code Ann. §
23-84-112,
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 2.
Authority
This Rule is issued pursuant to the authority vested in the
Arkansas Insurance Commissioner under Ark. Code Ann. §
23-84-113,
§
23-61-108, and
the Arkansas Administrative Procedures Act, §§
25-15-201,
etseq.
Section
3.
Scope
This Rule shall apply to all life insurance companies and
fraternal benefit societies licensed in Arkansas and licensed in and/or doing
business in at least one other state, and to all life insurance companies and
fraternal benefit societies that are authorized to reinsure life insurance,
annuities or accident and health insurance licensed in Arkansas and licensed in
and/or doing business in at least one other state. This Rule 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 Rule shall be applicable to all annual statements filed with
the office of the Commissioner after the effective date of this Rule. 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
Rule, and a memorandum in support thereof in accordance with Section 7 of this
Rule, shall be required each year.
This Rule applies only to life insurance and/or accident and
health insurance companies and fraternal benefit societies that do business in
multiple states including Arkansas, regardless of the company or society's
state of domicile. Rule 64 applies to life insurance companies and fraternal
benefit societies domiciled in Arkansas and doing business only in
Arkansas.
Section 4.
Definitions
A. "Actuarial
Opinion" means the opinion of an Appointed Actuary regarding the adequacy of
the reserves and related actuarial items based on an asset adequacy analysis in
accordance with Section 6 of this Rule and with applicable Actuarial Standards
of Practice.
B. "Actuarial
Standards Board" means the board established by the American Academy of
Actuaries to develop and promulgate standards of actuarial practice.
C. "Annual statement" means that statement
required by Ark. Code Ann. §
23-63-216
to be filed by the company with the office of the Commissioner
annually.
D. "Appointed Actuary"
means an individual who is appointed or retained in accordance with the
requirements set forth in Section 5(C) of this Rule to provide the actuarial
opinion and supporting memorandum as required by Ark. Code Ann. §
23-84-112.
E. "Asset adequacy analysis" means an
analysis that meets the standards and other requirements referred to in Section
5(D) of this Rule.
F.
"Commissioner" means the Insurance Commissioner of this State.
G. "Company" means a life and/or accident and
health insurance company, fraternal benefit society or reinsurer subject to the
provisions of this Rule.
H.
"Qualified Actuary" means an individual who meets the requirements set forth in
Section 5B of this Rule. Due to the provisions of Ark. Code Ann. §
23-84-112(d)(5),
the term "qualified actuaries" as defined in Rule 16, "Actuaries," shall not be
deemed to be applicable to and shall not apply to "Qualified Actuaries," as
defined herein, for purposes of complying with the provisions of this
Rule.
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 Rule 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 Rule.
(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 Arkansas Insurance Code 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 incompetency, 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
Rule, an actuarial opinion or memorandum that the Commissioner rejected because
it did not meet the provisions of this Rule 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 Rule,
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 the notice that the person meets the
requirements set forth in Subsection 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 Subsection 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 Rule:
(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 Rule, which standards are to form the
basis of the statement of actuarial opinion in accordance with this Rule;
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 Ark. Code Ann. §
23-84-112,
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 5, 6 and 7, and claim
liabilities in Exhibit 8, Part 1 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 the Standard Valuation
Law, Ark. Code Ann. §§
23-84-101,
et seq., the company shall establish the additional
reserve.
(3) Additional reserves
established under Paragraph (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
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
Subsection B(l));
(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 Subsection 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 Subsection B(3)), supported by a statement of each such expert in the form
prescribed by Subsection 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 Subsection
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 as of the prior opinion date are released as of
this opinion date, and the extent of the release; or
(d) If the Appointed Actuary chooses to add a
paragraph briefly describing the assumptions that 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 that 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 include a
statement 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:
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, [ ]. 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 (l)+(2)+(3) (4)
|
|
Exhibit 5
A Life Insurance
|
|
B Annuities
|
|
C Supplementary Contracts Involving Life
Contingencies
|
|
D Accidental Death Benefit
|
|
E Disability-Active
|
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F Disability-Disabled
|
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G Miscellaneous
|
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Total Exhibit 5 (Page 3, Line 1)
|
|
Exhibit 6
A Active Life Reserve
|
|
B Claim Reserve
|
|
Total Exhibit 6 (Page 3, Line 2)
|
|
Exhibit 7
Premium and Other Deposit Funds (Column 5, Line
14)
|
|
Guaranteed Interest Contracts (Column 2, Line 14)
|
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Other
(Column 6, Line 14)
|
|
Supplemental Contracts and Annuities Certain (Column 3,
Line 14)
|
|
Dividend Accumulations or Refunds (Column 4, Line
14)
|
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Total Exhibit 7 (Page 3, Line 3)
|
|
Exhibit 8, Part 1
1 Life (Page 3, Line 4.1)
|
|
2 Health (Page 3, Line 4.2)
|
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Total Exhibit 8, 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____)
|
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(Separate Accounts, Page____ Line____)
|
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AVR (Page____ Line____)
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(c)
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Net Deferred and Uncollected Premium
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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 Rule, by means of symbols that should be defined in
footnotes to the table.
(c)
Allocated amount of Asset
Valuation Reserve (A VR).
(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 the experts in the form prescribed by Subsection
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
statement 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 statements. 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
actuarial assumptions and actuarial methods used and tests of the calculations
I considered necessary.
The section shall be accompanied by a statement by each person
relied upon in the form prescribed by Subsection E.
(6) The opinion paragraph should include a
statement such as:
"In my opinion the reserves and related actuarial values
concerning the statement items 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 Rule 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 the assets, and
the considerations anticipated to be received and retained under the 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."
or
"The following material changes 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 that 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 reasons for the
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) The Standard Valuation Law 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 Rules 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 Rules 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
Rules 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 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 Rules 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 and Regulatory Asset Adequacy
Issues Summary
A. General
(1) In accordance with Ark. Code Ann. §
23-84-112,
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 5B of this Rule, 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 Rule, 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 Rule. 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 Rule for any one of the current year
or the preceding three (3) years.
(5) In accordance with Ark. Code Ann. §
23-84-112,
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 5D of this Rule and any additional
standards under this Rule. 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; and
(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
(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) For the 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); and
(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) Conclusions.
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.
(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 the following 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 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.
Disciplinary Actions
The Commissioner may impose sanctions on companies which have
failed to comply with the provisions of this Rule in completing the annual
statement with the appropriate actuarial certification and opinion, or in
failing to file the statement of opinion when eligible for any exemptions under
this Rule. Such sanctions shall include, but not be limited to, those the
Commissioner may impose on companies for failure to file, or failure to file a
complete, annual statement under Ark. Code Ann. §
23-63-216,
including license suspension, revocation, and monetary fines or
penalties.
Companies and actuaries filing false statements of financial
conditions in connection with the actuarial opinions required by this Rule,
filing false or fraudulent actuarial opinions with the Commissioner, or
knowingly making a false entry in these actuarial opinions in the reports or
annual statements of the companies shall be deemed to have committed a trade
practice violation under the Trade Practices Act, Ark. Code Ann. §§
23-66-201, et
seq., and this Rule in addition to other applicable provisions of
Arkansas laws and Rules and shall be subject to administrative proceedings
culminating in possible cease and desist orders, monetary penalties, and/or
license suspensions or revocations.
SECTION 9.
Effective Date
The provisions of this Rule shall be effective on January 1,
2009. This Rule shall take effect for annual statements for the year 2009 and
filed with the Commissioner on or before March 15,2010.
SECTION 10.
Severability
Any section or provision of this Rule held by a court to be
invalid or unconstitutional will not affect the validity of any other section
or provision of this Rule.
(signed by Julie Benafield Bowman)
____________________________
JULIE BENAFIELD BOWMAN
INSURANCE COMMISSIONER
STATE OF ARKANSAS
____________________________
(October 10, 2008) DATE
