Connecticut Administrative Code
Title 38a - Insurance Department
78 - Connecticut Standard Valuation Law Actuarial Opinion and Memorandum
Section 38a-78-9 - Description of an actuarial memorandum including an asset adequacy analysis and a regulatory asset adequacy issues summary
Universal Citation: CT Reg of State Agencies 38a-78-9
Current through March 14, 2024
(a) General.
(1) In accordance with subsection (b) of
section
38a-78
of the Standard Valuation Law, 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 an opinion pursuant to section
38a-78-7
the Regulations of Connecticut State Agencies. 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 subsection (b) of section
38a-78-5 of
the Regulations of Connecticut State Agencies 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 section, 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 such 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 such reviewing actuary shall be retained by
the commissioner; provided, however, that any information provided by the
company to such 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 section
38a-78
of the general statutes. 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 section
38a-78-5 of
the Regulations of the Connecticut State Agencies for any one of the current
year or the preceding three years.
(5) In accordance with subsection (b) of
section
38a-78
of the Standard Valuation Law, the appointed actuary shall prepare a regulatory
asset adequacy issues summary, the contents of which are specified in
subsection (c) of this section. The regulatory asset adequacy issues summary
shall 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 shall 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 under section 38a-78-7 of the Regulations of Connecticut State Agencies is provided, the memorandum shall demonstrate that the analysis has been done in accordance with the standards for asset adequacy analysis referred to in subsection (d) of section 38a-78-5 of the Regulations of Connecticut State Agencies and any additional standards under this regulation. It shall specify:
(1)
for reserves:
(A) product descriptions,
including market description, underwriting and other aspects of a risk profile
and the specific risks the appointed actuary deems significant;
(B) source of liability in force;
(C) reserve method and basis;
(D) investment reserves;
(E) reinsurance arrangements;
(F) identification of any explicit or implied
guarantees made by the general account in support of benefits provided through
a separate account or under a separate account policy or contract and the
methods used by the appointed actuary to provide for the guarantees in the
asset adequacy analysis; 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)
commission and expenses;
(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 the inclusion/exclusion of
different blocks of business and how pertinent risks were analyzed;
(C) rationale for degree of rigor in
analyzing different blocks of business, including the level of materiality that
was used in determining how rigorously to analyze different blocks of
business;
(D) criteria for
determining asset adequacy, including 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) conclusion.
(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 shall
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)
comment 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
is 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."
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