Current through Reg. 50, No. 13; March 28, 2025
(a)
General. Any actuarial memorandum required by the provisions of this subchapter
must be prepared in accordance with and subject to the provisions and
qualifications of paragraphs (1) - (5) of this subsection.
(1) In accordance with Insurance Code
§§
425.054 -
425.057, the appointed
actuary must prepare a memorandum to the company describing the analysis done
in support of his or her opinion regarding the reserves under the opinion. The
memorandum must be made available for examination by the commissioner upon the
commissioner's request.
(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 §
3.1604 of this title (relating to
Definitions), with respect to the areas covered in such memoranda, and so state
in their memoranda.
(3) If the
commissioner requests a memorandum and no such memorandum exists or if the
commissioner finds that the analysis described in the memorandum fails to meet
the standards of the Actuarial Standards Board as required by §
3.1605 of this title (relating to
General Requirements), or the standards and requirements of this subchapter,
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
will be directed and controlled by the commissioner.
(4) The reviewing actuary will 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 will be retained by the
commissioner. The reviewing actuary may not be an employee of a consulting firm
involved with the preparation of any prior memorandum or opinion for the
insurer required by this subchapter for any one of the current year or the
preceding three years.
(5) In
accordance with Insurance Code §§
425.054 -
425.057, the appointed
actuary must prepare a regulatory asset adequacy issues summary, the contents
of which are specified in subsection (c) of this section. Texas domestic
companies must submit the regulatory asset adequacy issues summary by email to
ActuarialDivision@tdi.texas.gov or by paper copy to the Texas Department of
Insurance, Financial Regulation Division, MC-FRD, P.O. Box 12030, Austin, Texas
78711-2030 no later than March 15 of the year following the year for which a
statement of actuarial opinion based on asset adequacy is required. Nondomestic
companies must submit the regulatory asset adequacy issues summary when
requested by the commissioner.
(b) Details of the memorandum section
documenting asset adequacy analysis. When an actuarial opinion under §
3.1606 of this title (relating to
Statement of Actuarial Opinion Based on an Asset Adequacy Analysis) is
provided, the memorandum must demonstrate that the analysis has been done in
accordance with the standards for asset adequacy referred to in §
3.1605(c) of
this title and any additional standards under this subchapter. The
documentation of the assumptions used in paragraphs (1) and (2) of this
subsection must be such that an actuary reviewing the actuarial memorandum
could form a conclusion as to the reasonableness of the assumptions. The
memorandum must 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;
(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;
(iv) policyholder
dividend strategy;
(v) competitor
or market interest rate;
(vi)
annuitization rates;
(vii)
commissions and expenses; and
(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:
(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.
(3) For the analysis basis:
(B) rationale for inclusion or exclusion of
different blocks of business and how pertinent risks were analyzed;
(C) rationale for degree of rigor in
analyzing different blocks of business (including the level of "materiality"
that was used in determining how rigorously to analyze different blocks of
business);
(D) criteria for
determining asset adequacy (including 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
(c) Details of the regulatory asset adequacy
issues summary.
(1) The regulatory asset
adequacy issues summary must 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 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.
(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.
For example, the comments must describe 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.
(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.
(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 must contain the name of the company for which the regulatory asset
adequacy issues summary is being supplied and be signed and dated by the
appointed actuary rendering the actuarial opinion.
(3) The regulatory asset adequacy issues
summary will be used to examine the company's financial condition and ability
to meet its liabilities. It will be considered information obtained during the
course of an examination under the Insurance Code Chapter 401 and treated as
confidential.
(d)
Conformity to standards of practice. The memorandum must include a statement
with wording substantially similar to that of this subsection as follows:
"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 IMR and the AVR. An appropriate allocation of assets in the
amount of the IMR, 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 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 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.
(f) Documentation retention. The appointed
actuary must 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.