Current through Supplement No. 394, October, 2024
1. General.
a. In accordance with North Dakota Century
Code section 26.1-35-01.1, the appointed actuary shall prepare a memorandum to
the company describing the analysis done in support of the opinion regarding
the reserves. The memorandum must be made available for examination by the
commissioner upon the commissioner's request but must be returned to the
company after the examination and may 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 the appointed
actuary's own memorandum, memoranda prepared and signed by other actuaries who
are qualified within the meaning of subsection 2 of section
45-03-19-03, with respect to the
areas covered in the memoranda, and so state in their 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 the 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 shall have the same
status as an examiner for purposes of obtaining data from the company and the
workpapers 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 workpapers must be considered as
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 statute
governing this chapter. The reviewing actuary may not be an employee of a
consulting firm, or have been personally 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 North Dakota Century
Code section 26.1-35-01.1, the appointed actuary shall prepare a regulatory
asset adequacy issues summary, the contents of which are specified in
subsection 3. The regulatory asset adequacy issues summary will be submitted no
later than March fifteenth 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. 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 subsection 4 of section
45-03-19-03 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 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 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.
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;
(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 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. 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."
5.
An appropriate allocation of assets in the amount of the interest maintenance
reserve, whether positive or negative, must 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; these asset
valuation reserve 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 asset valuation reserve 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.
6. 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.
General Authority: NDCC 26.1-35-01.1
Law Implemented: NDCC
26.1-35-01.1
