Current through Register 1531, September 27, 2024
(1)
General.
(a) In
accordance with M.G.L. c. 175, § 9B, 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.
(b) 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
211 CMR
132.05(2), with respect to
the areas covered in such memoranda, and so state in their memoranda.
(c) If the Commissioner requests a memorandum
and no such memorandum exists or if the memorandum is not provided within 30
days of the request 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
211 CMR 132.00, 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.
(d) 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
211 CMR 132.00. 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
211 CMR 132.00 for any one
of the current year or the preceding three years.
(e) In accordance with M.G.L. c. 175, §
9B, the appointed actuary shall prepare a regulatory asset adequacy issues
summary, the contents of which are specified in 211 CMR 132.07(3). The
regulatory asset adequacy issues summary will be submitted no later than March
15th 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.
(2)
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
211 CMR 132.05(4)
and any additional standards under
211 CMR 132.00. It shall
specify:
(a) For reserves:
1. Product descriptions including market
description, underwriting and other aspects of a risk profile and the specific
risks the appointed actuary deems significant;
2. Source of liability in force;
3. Reserve method and basis;
4. Investment reserves;
5. Reinsurance arrangements;
6. 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;
7.
Documentation of assumptions to test reserves for the following:
a. Lapse rates (both base and
excess);
b. Interest crediting rate
strategy;
c. Mortality;
d. Policyholder dividend strategy;
e. Competitor or market interest
rate;
f. Annuitization
rates;
g. Commissions and expenses;
and h. 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.
(b) For assets:
1. Portfolio descriptions, including a risk
profile disclosing the quality, distribution and types of assets;
2. Investment and disinvestment
assumptions;
3. Source of asset
data;
4. Asset valuation bases;
and
5. Documentation of assumptions
made for:
a. Default costs;
b. Bond call function;
c. Mortgage prepayment function;
d. Determining market value for assets sold
due to disinvestment strategy; and
e. 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.
(c) For the analysis basis:
1. Methodology;
2. Rationale for inclusion/exclusion of
different blocks of business and how pertinent risks were analyzed;
3. 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);
4. 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
5. Whether the
impact of federal income taxes was considered and the method of treating
reinsurance in the asset adequacy analysis
(d) Summary of material changes in methods,
procedures, or assumptions from prior year's asset adequacy analysis;
(e) Summary of Results; and
(f) Conclusion(s).
(3)
Details of the Regulatory
Asset Adequacy Issues Summary.
(a) 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. For
example, the impact of the insufficiency of assets to support the payment of
benefits and expenses and the establishment of statutory reserves during one or
more interim periods;
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.
(b) 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.
(4)
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."
(5)
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.
(6)
Documentation.
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.
