Current through Register Vol. 49, No. 13, September 23, 2024
Subpart
1.
Generally.
A. In
accordance with Minnesota Statutes, section
61A.25,
subdivision 2a, 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 must be made available for examination by the
commissioner upon request but must be returned to the company after examination
and must not be considered a record of the Department of Commerce 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 the actuary's own memorandum,
memoranda prepared and signed by other actuaries who are qualified within the
meaning of part
2711.0220, subpart
2, with respect to the areas
covered in such memoranda, and so state in the memoranda.
C. If the commissioner requests a memorandum
and no 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 must be paid by the company but
must be directed and controlled by the commissioner.
D. The reviewing actuary has the same status
as an examiner for purposes of obtaining data from the company and the work
papers and documentation of the reviewing actuary must be retained by the
commissioner; provided, however, that any information provided by the company
to the reviewing actuary and included in the work papers is considered material
provided by the company to the commissioner and must 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 statutes governing this
chapter. The reviewing actuary must 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.
E. In
accordance with Minnesota Statutes, section
61A.25,
subdivision 2a, the appointed actuary shall prepare a regulatory asset adequacy
issues summary, the contents of which are specified in subpart
3. The regulatory asset
adequacy issues summary must 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.
Subp.
2.
Details of the memorandum section documenting asset
adequacy analysis.
When an actuarial opinion is provided, the memorandum must
demonstrate that the analysis has been done in accordance with the standards
for asset adequacy referred to in part
2711.0220, subpart
4, and any additional
standards under this chapter. It must 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; and
(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 must 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 must 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 or 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. conclusions.
Subp. 3.
Details of the regulatory
asset adequacy issues summary.
A. The
regulatory asset adequacy issues summary must 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 must 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 must contain the name of the company for which the regulatory asset
adequacy issues summary is being supplied and must be signed and dated by the
appointed actuary rendering the actuarial opinion.
Subp. 4.
Conformity to standards of
practice.
The memorandum must 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."
Subp.
5.
Use of assets supporting interest maintenance reserve and
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). The 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 must 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.
Subp. 6.
Required interest
scenarios.
For the purpose of performing the asset adequacy analysis
required by this chapter, the qualified actuary shall follow standards adopted
by the Actuarial Standards Board; nevertheless, the appointed actuary must
consider in the analysis the effect of at least the following interest rate
scenarios:
A. level with no
deviation;
B. uniformly increasing
over ten years at one-half percent per year and then level;
C. uniformly increasing at one percent per
year over five years and then uniformly decreasing at one percent per year to
the original level at the end of ten years and then level;
D. an immediate increase of three percent and
then level;
E. uniformly decreasing
over ten years at one-half percent per year and then level;
F. uniformly decreasing at one percent per
year over five years and then uniformly increasing at one percent per year to
the original level at the end of ten years and then level; and
G. an immediate decrease of three percent and
then level.
For these and other scenarios which may be used, projected
interest rates for a five-year treasury note need not be reduced beyond the
point where such five-year treasury note yield would be at 50 percent 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.
Subp. 7.
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.
Statutory Authority: MS s
45.023;
61A.25
