Current through 2024-38, September 18, 2024
A.
General
(1) In accordance with Title
24-A M.R.S.A.
Section952-A, 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 Superintendent 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 Superintendent.
(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 rule,
With respect to the areas covered in such memoranda, and so state in their
memoranda.
(3) If the
Superintendent requests a memorandum and no such memorandum exists or if the
Superintendent 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 Superintendent 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
Superintendent.
(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 Superintendent; 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
Superintendent 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
Superintendent 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 Title
24-A M.R.S.A.
Sections952-A, 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 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;
(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.
(3) For the analysis basis:
(a) Methodology;
(b) Rationale for 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 (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 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:
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.
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.
