Current through Register Vol. 41, No. 3, September 23, 2024
A. The following general provisions shall
apply with respect to the preparation and submission of the asset adequacy
memorandum required by § 38.2-1367 of the Code of Virginia.
1. In accordance with § 38.2-1367 of the
Code of Virginia, the appointed actuary shall prepare a memorandum to the
company describing the analysis done in support of his opinion regarding the
reserves. The memorandum shall be made available for examination by the
commission upon its request but shall be returned to the company after such
examination and shall not be considered a record of the Bureau of Insurance or
subject to automatic filing with the commission.
2. In preparing the memorandum, the appointed
actuary may rely on, and include as a part of his memorandum, memoranda
prepared and signed by other actuaries who are qualified within the meaning of
14VAC5-310-50 B, with respect to
the areas covered in such memoranda, and so state in their memoranda.
3. If the commission requests a memorandum
and no such memorandum exists or if the commission 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
commission 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 commission.
4. 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
commission; however, 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 commission 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 commission pursuant to the statute governing this chapter.
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 chapter for any one of the current year or the preceding three
years.
5. In accordance with §
38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a
regulatory asset adequacy issues summary, the contents of which are specified
in subsection C of this section. The regulatory asset adequacy issues summary
shall 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.
B. A section of the memorandum
shall document asset adequacy testing by demonstrating that the analysis has
been done in accordance with the standards for asset adequacy referred to in
14VAC5-310-50 D and any additional
standards under this chapter. It shall 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;
d. Investment reserves;
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 policy or contract and the methods used by the appointed
actuary to provide for the guarantees in the asset adequacy analysis;
and
g. Documentation of assumptions
to test reserves for (i) lapse rates, whether base or excess, (ii) interest
crediting rate strategy, (iii) mortality, (iv) policyholder dividend strategy,
(v) competitor or market interest rate, (vi) annuitization rates, (vii)
commission and expenses, and (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 assumption.
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 (i) default costs, (ii) bond call function, (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.
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 assumption.
3. For the analysis basis:
a. Methodology;
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 rationale for the level of
"materiality" that was used in determining how rigorously to analyze different
blocks of business;
d. Criteria for
determining asset adequacy, including 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
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
6. Conclusion.
C. 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. The regulatory asset
adequacy issues summary also shall include each of the following:
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 reasonably can 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 from 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.
D. The
actuarial methods, considerations, and analyses shall conform to appropriate
standards of practice and the memorandum shall include the following 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."
E. An
appropriate allocation of assets in the amount of Interest Maintenance Reserve
(IMR), whether positive or negative, shall be used in any asset adequacy
analysis. Analysis of risks regarding asset default shall include an
appropriate allocation of assets supporting the Asset Valuation Reserve (AVR);
these AVR assets shall not be applied for any other risks with respect to
reserve adequacy. Analysis of these and other risks shall 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.
Statutory Authority: §§ 12.1-13 and 38.2-223 of
the Code of Virginia.
