Arkansas Administrative Code
Agency 054 - Arkansas Insurance Department
Rule 054.00.95-005 - Reg. 64 - Actuarial Opinion and Memorandum

1. With respect to Section 8, 9 or 10, the opinion of an Appointed Actuary regarding the adequacy of the reserves and related actuarial items based on an asset adequacy test in accordance with Section 8 of this Regulation and with presently accepted Actuarial Standards; and

2. With respect to Section 7, the opinion of an Appointed Actuary regarding the calculation of reserves and related items, in accordance with Section 7 of this Regulation and with those presently accepted Actuarial Standards which specifically relate to this opinion.

1. There is to be included on or attached to Page 1 of the annual statement for each year commencing with 1995, the year in which this Regulation becomes effective, the statement of an appointed actuary, entitled "Statement of Actuarial Opinion, " setting forth an opinion relating to reserves and related actuarial items held in support of policies and contracts, in accordance with Section 8 of this Regulation; provided, however, that any company exempted pursuant to Section 6 of this Regulation from submitting a statement of actuarial opinion in accordance with Section 8 of this Regulation shall include on or attach to Page 1 of the annual statement a statement of actuarial opinion rendered by an appointed actuary in accordance with Section 7 of this Regulation.

2. If in a previous year a company provided a statement of I actuarial opinion in accordance with Section 7 of this Regulation, and in a current year fails the exemption criteria of Sections 6 (C)(1), 6(C)(2) or 6(C)(5) to again provide an actuarial opinion in accordance with Section 7, the statement of actuarial opinion in accordance with Section 8 shall not be required until August 1st following the preceding December 31st date of the annual statement. In this instance, the company shall provide a statement of actuarial opinion in accordance with Section 7 with appropriate qualification noting the intent to subsequently provide a statement of actuarial opinion in accordance with Section 8.

3. In the case of a statement of actuarial opinion required to be submitted by a foreign or alien company, the Commissioner may accept the statement of actuarial opinion filed by such company with the insurance supervisory regulator of another state if the Commissioner determines that the opinion reasonably meets the requirements applicable to a company domiciled in this State.

4. Upon written request by the company, the Commissioner may grant an extension of the date for submission of the statement of actuarial opinion.

5. Pursuant to the provisions of Ark. Code Ann. § 23-84-112(D)(8), any memoranda or other material, provided to the Commissioner in support of the actuarial opinion, shall be kept confidential; and shall only be released under the circumstances described specifically in Subdivision (8) of Subsection (D) cited above.

1. Is a member in good standing of the American Academy of Actuaries; and

2. Is qualified to sign statements of actuarial opinion for life and health insurance company annual statements in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements;

3. Is familiar with the valuation requirements applicable to life and health insurance companies; and

4. Has not been found by the Commissioner, or if so found has subsequently been reinstated as a qualified actuary, following appropriate notice and hearing to have:

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.

1. name:

2. title;

3. the name of the firm in the case of a consulting actuary; and

4. the manner of appointment or retention of each person appointed or retained by the company as an appointed actuary.

The notice shall state 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.

1. Shall conform to the Standards of Practice as promulgated from time to time by the Actuarial Standards Board and on any additional standards under this Regulation, which standards are to form the basis of the statement of actuarial opinion in accordance with Section 8 of this Regulation; and

2. Shall be based on methods of analysis as are deemed appropriate for such purposes by the Actuarial Standards Board.

1. Under authority of Section 3 of the NAIC Model Standard Valuation Law, Ark. Code Ann. § 23-84-112, as amended by Act 621 of 1995, the statement of actuarial opinion shall apply to all in force business on the statement date regardless of when or where issued, e.g., reserves of Exhibits 8, 9 and 10, and claim liabilities in Exhibit 11, Part I and equivalent items in the separate account statement or statements.

2. If the appointed actuary determines as the result of asset adequacy analysis that a reserve should be held in addition to the aggregate reserve held by the company and calculated in accordance with methods set forth in Sections 5, 5(a), 8, 9 and 10 of the Standard Valuation Law, Ark. Code Ann. §§ 23-84-101, et seq., as amended, the company shall establish such additional reserve.

3. For years ending prior to December 31, 1996, the company may, in lieu of establishing the full amount of the additional reserve in the annual statement for that year, set up an additional reserve in an amount not less than the following:

4. Additional reserves established under Paragraphs 2 or 3 above and deemed not necessary in subsequent years may be released. Any amounts released must be disclosed in the actuarial opinion for the applicable year. The release of such reserves would not be deemed an adoption of a lower standard of valuation.

1. Category A shall consist of those companies whose admitted assets do not exceed $20 million;

2. Category B shall consist of those companies whose admitted assets exceed $20 million but do not exceed $100 million;

3. Category C shall consist of those companies whose admitted assets exceed $100 million but do not exceed $500 million; and

4. Category D shall consist of those companies whose admitted assets exceed $500 million.

1. Any Category A company that, for any year commencing with 1995, the year in which this Regulation becomes effective, meets all of the following criteria shall be eligible for exemption from submission of a statement of actuarial opinion in accordance with Section 8 of this Regulation for the year in which these criteria are met. The ratios in (a), (b) and (c) below shall be calculated based on amounts as of the end of the calendar year for which the actuarial opinion is applicable.

2. Any Category B company that, for any year commencing with 1995, the year in which this Regulation becomes effective, meets all of the following criteria shall be eligible for exemption from submission of a statement of actuarial opinion in accordance with Section 8 of this Regulation for the year in which the criteria are met. The ratios in (a), (b) and (c) below shall be calculated based on amounts as of the end of the calendar year for which the actuarial opinion is applicable.

3. Any Category A or Category B company that meets all of the criteria set forth in Paragraph 1 or 2 of this subsection, whichever is applicable, is exempted from submission of a statement of actuarial opinion in accordance with Section 8 of this Regulation unless the Commissioner specifically indicates to the company that the exemption is not to be taken.

4. Any Category A or Category B company that, for any year commencing with 1995, the year in which this Regulation becomes effective, is not exempted under Paragraph (3) of this subsection shall be required to submit a statement of actuarial opinion in accordance with Section 8 of this Regulation for the year for which it is not exempt.

5. Any Category C company that, after submitting an opinion in accordance with Section 8 of this Regulation, meets all of the following criteria shall not be required, unless required in accordance with Paragraph 6 below, to submit a statement of actuarial opinion in accordance with Section 8 of this Regulation more frequently than every third year. Any Category C company which fails to meet all of the following criteria for any year shall submit a statement of actuarial opinion in accordance with Section 8 of this Regulation for that year. The ratios in a., b. and c below shall be calculated based on amounts as of the end of the calendar year for which the actuarial opinion is applicable.

6. Any company which is not required by this Section 6 to submit a statement of actuarial opinion in accordance with Section 8 of this Regulation for any year shall submit a statement of actuarial opinion in accordance with Section 7 of this Regulation for that year unless as provided for by the second paragraph of Section 3 of this Regulation the Commissioner requires a statement of actuarial opinion in accordance with Section 8 of this Regulation.

1. The opening paragraph should indicate the appointed actuary's relationship to the company. For a company actuary, the opening paragraph of the actuarial opinion should read as follows:

"I, [name of actuary], am [title] of [name of company] and a member of the American Academy of Actuaries. I was appointed by, or by the authority of, the Board of Directors of said insurer to render this opinion as stated in the letter to the Commissioner dated [insert date]. I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health companies."

For a consulting actuary, the opening paragraph of the actuarial opinion should contain a sentence such as:

"I, [name and title of actuary], a member of the American Academy of Actuaries, am associated with the firm of [insert name of consulting firm]. I have been appointed by, or by the authority of, the Board of Directors of [name of company] to render this opinion as stated in the letter to the Commissioner dated [insert date]. I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable, to life and health insurance companies."

2. The regulatory authority paragraph should include a statement such as the following:

" Said company is exempt pursuant to Regulation 64 of the Arkansas Insurance Department from submitting a statement of actuarial opinion based on an asset adequacy analysis. This opinion, which is not based on an asset adequacy analysis, is rendered in accordance with Section 7 of the Regulation."

3. The scope paragraph should contain a sentence such as the following:

"I have examined the actuarial assumptions and actuarial methods used in determining reserves and related actuarial items listed below, as shown in the annual statement of the company, as prepared for filing with state regulatory officials, as of December 31, [ ]."

The paragraph should list items and amounts with respect to which the appointed actuary is expressing an opinion. The list should include but not be necessarily limited to:

4. If the appointed actuary has examined the. underlying records;, the scope paragraph should also include the following:

"My examination included such review of the actuarial assumptions and actuarial methods and of the underlying basic records and such tests of the actuarial calculations as I considered necessary."

5. If the appointed actuary has not examined the underlying records, but has relied upon listings and summaries of policies in force prepared by the company or a third party, the scope paragraph should include a sentence such as one of the following:

"I have relied upon listings and summaries of policies and contracts and other liabilities in force prepared by [name and title of company officer certifying in force records] as certified in the attached statement. (See accompanying affidavit by a company officer.) In other respects my examination included review of the actuarial assumptions and actuarial methods and such tests of the actuarial calculations as I considered necessary."

or

"I have relied upon [name of accounting firm] for the substantial accuracy of the in force records inventory and information concerning other liabilities, as certified in the attached statement. In other respects my examination included review of the actuarial assumptions and actuarial methods and such tests of the actuarial calculations as I considered necessary."

The statement of the person certifying shall follow the form indicated by Section 7(B)(10).

6. The opinion paragraph should include the language recited in Rule Exhibit A attached.

7. The concluding paragraph should document the eligibility for the company to provide an opinion as provided by this Section 7. It shall include the language recited in Rule Exhibit B attached.

8. If there has been any change in the actuarial assumptions from those previously employed, that change should be described in the annual statement or in a paragraph of the statement of actuarial opinion, and the reference in Section 7 (B) (6) (d) above, in Rule Exhibit A attached, to be consistent should read as follows:

"... with the exception of the change described on Page [ ] of the annual statement (or in the preceding paragraph)."

The adoption for new issues or new claims or other new liabilities of an actuarial assumption which differs from a corresponding assumption used for prior new issues or new claims or other new liabilities is not a change in actuarial assumptions within the meaning of this paragraph.

9. If the appointed actuary is unable to form an opinion, he or she shall refuse to issue a statement of actuarial opinion. If the appointed actuary's opinion is adverse or qualified, he or she shall issue an adverse or qualified actuarial opinion explicitly stating the reason(s) for such opinion. This statement should follow the scope paragraph and precede the opinion paragraph.

10. If the appointed actuary does not express an opinion as to the accuracy and completeness of the listings and summaries of policies in force, there should be attached to the opinion, the statement of a company officer or accounting firm who prepared such underlying data similar to the following:

"I [name of officer], [title] of [name and address of company or accounting firm], hereby affirm that the listings and summaries of policies and contracts in force as of December 31, [ ], prepared for and submitted to [name of appointed actuary], were prepared under my direction and, to the best of my knowledge and belief, are substantially accurate and complete.

________________________________________________

Signature of the Officer of the Company or Accounting Firm

________________________________________________

Address of the Officer of the Company or Accounting Firm

________________________________________________

Telephone Number of the Officer of the Company or Accounting Firm"

1. A paragraph identifying the appointed actuary and his or her qualifications [see Section 8(B)(1)];

2. A scope paragraph identifying the subjects on which an opinion is to be expressed and describing the scope of the appointed actuary's work, including a tabulation delineating the reserves and related actuarial items which have been analyzed for asset adequacy and the method of analysis, [see Rule Section 8(B)(2)] and identifying the reserves and related actuarial items covered by the opinion which have not been so analysed;

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 Rule Section 8(B)(3)], supported by a statement of each such expert in the form prescribed by Rule Section 8(E);

4. An opinion paragraph expressing the appointed actuary's opinion with respect to the adequacy of the supporting assets to mature the liabilities [see Rule Section 8(B)(6) in Rule Exhibit D attached]; and

5. One or more additional paragraphs will be needed in individual company cases as follows:

1. The opening paragraph should generally indicate the appointed actuary's relationship to the company and his or her qualifications to sign the opinion. For a company actuary, the opening paragraph of the actuarial opinion should read as follows:

"I, [name], am [title] of [insurance company name] and a member of the American Academy of Actuaries. I was appointed by, or by the authority of, the Board of Directors of said insurer to render this opinion as stated in the letter to the Commissioner dated [insert date]. I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies." For a consulting actuary, the opening paragraph should contain a sentence such as:

"I, [name], a member of the American Academy of Actuaries, am associated with the firm of [name of consulting firm]. I have been appointed by, or by the authority of, the Board of Directors of [name of company] to render this opinion as stated in the letter to the Commissioner dated [insert date], I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies."

2. The scope paragraph should include a statement such as the language recited in Rule Exhibit C attached.

3. If the appointed actuary has relied on other experts to develop certain portions of the analysis, the reliance paragraph should include a statement such as the following:

"I have relied on [name], [title] for [e.g., anticipated cash flows from currently owned assets, including variations in cash flows according to economic scenarios] and, as certified in the attached statement, ..."

or

"I have relied on personnel as cited in the supporting memorandum for certain critical aspects of the analysis in reference to the accompanying statement."

Such a statement of reliance on other experts should be accompanied by a statement by each of such experts of the form prescribed by Rule Section 8 (E).

4. If the appointed actuary has examined the underlying asset and liability records, the reliance paragraph should also include the following:

"My examination included such review of the actuarial assumptions and actuarial methods and of the underlying basic asset and liability records and such tests of the actuarial calculations as I considered necessary."

5. If the appointed actuary has not examined the underlying records, but has relied upon listings and summaries of policies in force and/or asset records' prepared by the company or a third party, the reliance paragraph should include a sentence such as:

"I have relied upon listings and summaries [of policies and contracts, of asset records] prepared by [name and title of company officer certifying in-force records] as certified in the attached statement. In other respects my examination included such review of the actuarial assumptions and actuarial methods and such tests of the actuarial calculations as I considered necessary."

or

"I have relied upon [name of accounting firm] for the substantial accuracy of the in-force records inventory and information concerning other liabilities, as certified in the attached statement. In other respects my examination included review of the actuarial assumptions and actuarial methods and tests of the actuarial calculations as I considered necessary."

Such a section must be accompanied by a statement by each person relied upon of the form prescribed by Rule Section 8(E).

6. The opinion paragraph should include the language recited in Rule Exhibit D attached.

1. In accordance with Section 3 of the NAIC Model Standard Valuation Law, Ark. Code Ann. § 23-84-112, as amended by Act 621 of 1995, the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of his or her opinion regarding the reserves under a Rule Section 8 opinion. The memorandum shall be made available for examination by the Commissioner upon his or her request but shall be returned to the company after such examination and shall not be considered a record of the Insurance Department or subject to automatic filing with the Commissioner.

2. In preparing the memorandum, the appointed actuary may rely on, and include as a part of his or her own memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of Section 5(B) of this Regulation, with respect to the areas covered in such memoranda, and so state in their memoranda.

3. If the Commissioner requests a memorandum and no such memorandum exists or if the Commissioner finds that the analysis described in the memorandum fails to meet the standards of the Actuarial Standards Board or the standards and requirements of this Regulation, the Commissioner may designate a qualified actuary to review the opinion and prepare such supporting memorandum as is required for review. The reasonable and necessary expense of the independent review shall be paid by the company but shall be directed and controlled by the Commissioner.

4. The reviewing actuary shall have the same status as an examiner for purposes of obtaining data from the company and the work papers and documentation of the reviewing actuary shall be retained by the Commissioner; provided, however, that any information provided by the company to the reviewing actuary and included in the work papers shall be considered as material provided by the company to the Commissioner and shall be kept confidential to the same extent as is prescribed by law with respect to other material provided by the company to the Commissioner pursuant to the statute governing this Regulation.

The reviewing actuary shall not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer pursuant to this Regulation for any one of the current year or the preceding three (3) years.

1. For reserves:

2. For assets:

3. Analysis basis:

4. Summary of Results

5. Conclusion(s)

1. Aggregate the reserves and related actuarial items, and the supporting assets, for different products or lines of business, before analyzing the adequacy of the combined assets to mature the combined liabilities. The appointed actuary must be satisfied that the assets held in support of the reserves and related actuarial items so aggregated are managed in such a manner that the cash flows from the aggregated assets are available to help mature the liabilities from the blocks of business that have been aggregated.

2. Aggregate the results of asset adequacy analysis of one or more products or lines of business, the reserves for which prove through analysis to be redundant, with the results of one or more products or lines of business, the reserves for which prove through analysis to be deficient. The appointed actuary must be satisfied that the asset adequacy results for the various products or lines of business for which the results are so aggregated:

1. Level with no deviation;

2. Uniformly increasing over ten (10) years at a half percent per year and then level;

3. Uniformly increasing at one percent per year over five (5) years and then uniformly decreasing at one percent per year to the original level at the end of ten (10) years and then level;

4. An immediate increase of three percent (32) and then level;

5. Uniformly decreasing over ten (10) years at a half percent per year and then level;

6. Uniformly decreasing at one percent per year over five (5) years and then uniformly increasing at one percent per year to the original" level at the end of ten (10) years and then level; and

7. An immediate decrease of three percent (32) and then level.

For these and other scenarios which may be used, projected interest rates for a five (5) year Treasury Note need not be reduced beyond the point where the five (5) year Treasury Note yield would be at fifty (502) of its initial level.

The beginning interest rates may be based on interest rates for new investments as of the valuation date similar to recent investments . allocated to support the product being tested or be based on an outside index, such as Treasury yields, of assets of the appropriate length on a date close to the valuation date. Whatever method is used to determine the beginning yield curve and associated interest rates should be specifically defined. The beginning yield curve and associated interest rates should be consistent for all interest rate scenarios.