Current through August, 2024
(a) General.
(1) In accordance with section
431:5-307(j),
HRS, the appointed actuary shall prepare a memorandum to the company describing
the analysis done in support of the actuary's opinion regarding the reserves.
The memorandum shall be made available for examination by the commissioner upon
the commissioner's request but shall be returned to the company after such
examination and shall not be considered a record of the insurance division 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 the actuary's own
memorandum, memoranda prepared and signed by other actuaries who are qualified
within the meaning of section 16-169-4(b), 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 chapter, 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 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 chapter
431, HRS. 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 chapter for any
one of the current year or the preceding three years.
(5) In accordance with section
431:5-307,
HRS, the appointed actuary shall prepare a regulatory asset adequacy issues
summary, the contents of which are specified in subsection (c). Companies
domiciled in Hawaii shall submit 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.
Foreign companies are not required to submit the regulatory asset adequacy
issues summary annually, however, the summary shall be made available for
examination by the commissioner upon request. 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) When an actuarial opinion under section
16-169-7 is provided, the memorandum shall demonstrate that the analysis has
been done in accordance with the standards for asset adequacy referred to in
section 16-169-4(d) and any additional standards under this subchapter. 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, 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) Conclusions.
(c) The regulatory asset adequacy issues
summary shall include:
(1) 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;
(2) 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;
(3) 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;
(4) Comments on any
interim results that may be of significant concern to the appointed
actuary;
(5) 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
(6) 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.
(d) 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.
(e) The memorandum shall include the
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."
(f) 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
must be disclosed in the memorandum.
(g) The appointed actuary shall retain on
file, for at least seven 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.
