Current through September 17, 2024
007.01 General
007.01(A) In accordance with §
44-425,
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 Director 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 Director.
007.01(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 005.02 of this regulation, with respect to the areas
covered in such memoranda, and so state in their memoranda.
007.01(C) If the Director requests a
memorandum and the company fails to provide the Director with the memorandum
within thirty days of such request or if the Director 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 regulation, the
Director 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 Director.
007.01(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 Director; 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 Director 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 Director pursuant to the statute
governing this regulation. 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 regulation for any one of the current
year or the preceding three (3) years.
007.01(E) In accordance with §
44-421,
the appointed actuary shall prepare a regulatory asset adequacy issues summary,
the contents of which are specified in 007.03. 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.
007.02
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 005.04 of this regulation and any additional
standards under this regulation. It shall specify:
007.02(A) For reserves:
007.02(A)(1) Product descriptions including
market description, underwriting and other aspects of a risk profile and the
specific risks the appointed actuary deems significant;
007.02(A)(2) Source of liability in
force;
007.02(A)(3) Reserve method
and basis;
007.02(A)(4) Investment
reserves;
007.02(A)(5) Reinsurance
arrangements.
007.02(A)(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;
007.02(A)(7) Documentation of assumptions to
test reserves for the following:
007.02(A)(7)(i) Lapse rates (both base and
excess);
007.02(A)(7)(ii) Interest
crediting rate strategy;
007.02(A)(7)(iii) Mortality;
007.02(A)(7)(iv) Policyholder dividend
strategy;
007.02(A)(7)(v)
Competitor or market interest rate;
007.02(A)(7)(vi) Annuitization
rates;
007.02(A)(7)(vii)
Commissions and expenses; and
007.02(A)(7)(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.
007.02(B) For assets:
007.02(B)(1) Portfolio descriptions,
including a risk profile disclosing the quality, distribution and types of
assets;
007.02(B)(2) Investment and
disinvestment assumptions;
007.02(B)(3) Source of asset data;
007.02(B)(4) Asset valuation bases;
and
007.02(B)(5) Documentation of
assumptions made for:
007.02(B)(5)(i) Default
costs;
007.02(B)(5)(ii) Bond call
function;
007.02(B)(5)(iii)
Mortgage prepayment function;
007.02(B)(5)(iv) Determining market value for
assets sold due to disinvestment strategy; and
007.02(B)(5)(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.
007.02(C) For the analysis basis:
007.02(C)(1) Methodology;
007.02(C)(2) Rationale for inclusion or
exclusion of different blocks of business and how pertinent risks were
analyzed;
007.02(C)(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);
007.02(C)(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
007.02(C)(5) Whether the impact
of federal income taxes was considered and the method of treating reinsurance
in the asset adequacy analysis;
007.02(D) Summary of material changes in
methods, procedures, or assumptions from prior year's asset adequacy
analysis;
007.02(E) Summary of
Results; and
007.02(F)
Conclusions
007.03
Details of the Regulatory Asset Adequacy Issues Summary
007.03(A) The regulatory asset adequacy
issues summary shall include:
007.03(A)(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.
007.03(A)(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;
007.03(A)(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;
007.03(A)(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;
007.03(A)(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
007.03(A)(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.
007.03(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.
007.04
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."
007.05
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.
007.06 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.
