Current through Register Vol. XLI, No. 38, September 20, 2024
6.1.
General.
6.1.a. In accordance with the Standard
Valuation Law, W. Va. Code §
33-7-9(c),
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 company
shall make the memorandum available for examination by the Commissioner upon his or
her request but shall be returned to the company after the examination and shall not
be considered a record of the Insurance Commissioner or subject to automatic filing
with the Commissioner.
6.1.b. In
preparing the memorandum, the appointed actuary may rely on, and include as part of
his or her own memorandum, memoranda prepared and signed by other actuaries who are
qualified within the meaning of subsection 4.2 of this rule, with respect to the
areas covered in the memoranda, and so stated in their memoranda.
6.1.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 rule, 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 shall be
paid by the company but shall be directed and controlled by the
Commissioner.
6.1.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 Commissioner; 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 Commissioner 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 Commissioner pursuant to W. Va.
Code §
33-2-9(1)(4).
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
rule for anyone of the current year of the preceding three (3) years.
6.1.e. In accordance with W. Va. Code §
33-7-9(c),
the appointed actuary shall prepare a regulatory asset adequacy issues summary, the
contents of which are specified in subsection 6.3 of this section. 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.
6.2. 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 subsection
4.4 of this rule and any additional standards under this rule. It shall specify:
6.2.a. For reserves:
6.2.a.1. Product descriptions including market
description, underwriting and other aspects of a risk profile and the specific risks
the appointed actuary considers significant;
6.2.a.2. Source of liability in force;
6.2.a.3. Reserve method and basis;
6.2.a.4. Investment reserves;
6.2.a.5. Reinsurance arrangements;
6.2.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;
6.2.a.7. Documentation of
assumptions to test reserves for the following:
6.2.a.7.A. Lapse rates (both base and
excess);
6.2.a.7.B. Interest crediting
rate strategy;
6.2.a.7.C.
Mortality;
6.2.a.7.D. Policyholder
dividend strategy;
6.2.a.7.E. Competitor
or market interest rate;
6.2.a.7.F.
Annuitization rates;
6.2.a.7.G.
Commissions and expenses; and
6.2.a.7.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.
6.2.b. For assets;
6.2.b.1. Portfolio descriptions, including a risk
profile disclosing the quality, distribution and types of assets;
6.2.b.2. Investment and disinvestment
assumptions;
6.2.b.3. Source of asset
data;
6.2.b.4. Asset valuation bases;
and
6.2.b.5. Documentation of
assumptions made for:
6.2.b.5.A. Default
costs;
6.2.b.5.B. Bond call
function;
6.2.b.5.C. Mortgage prepayment
function;
6.2.b.5.D. Determining market
value for assets sold due to disinvestment strategy; and
6.2.b.5.E. Determining yield on assets acquired
through the investment strategy.
This 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.
6.2.c. Analysis basis:
6.2.c.1. Methodology;
6.2.c.2. Rationale for inclusion/exclusion of
different blocks of business and how pertinent risks were analyzed;
6.2.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);
6.2.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
6.2.c.5. Whether the
impact of federal income taxes was considered and the method of treating reinsurance
in the asset adequacy analysis;
6.2.d. Summary of material changes in methods,
procedures or assumptions from prior year's asset adequacy analysis;
6.2.e. Summary of Results; and
6.2.f. Conclusions(s)
6.3. Details of the Regulatory Asset Adequacy
Issues Summary.
6.3.a. The regulatory asset
adequacy issues summary shall include:
6.3.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.
6.3.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;
6.3.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;
6.3.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;
6.3.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
6.3.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.
6.3.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.
6.4. 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 form the basis for this
memorandum."
6.5. Use of Assets
Supporting the Interest Maintenance Reserve and the Asset Valuation Reserve.
6.5.a. The appointed actuary must use an
appropriate allocation of assets in the amount of the Interest Maintenance Reserve
(IMR), whether positive or negative, 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.
6.5.b. 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 shall be disclosed in the memorandum.
6.6. 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.
TABLE I
|
Asset Adequacy Tested Amounts Reserves and
Liabilities
|
|
Statement Item
|
Formula
Reserves
(1)
|
Additional
Actuarial
Reserves(a) (2)
|
Analysis
Method(b)
|
Other
Amount
(3)
|
Total
Amount
(1)+(2)+ (3)(4)
|
|
Exhibit 8
A Life Insurance
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B Annuities
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C Supplementary Contracts Involving Life
Contingencies
|
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D Accidental Death Benefits
|
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E Disability - Active
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F Disability- Disabled
|
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G Miscellaneous
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Total (Exhibit 8 Item 1, Page 3)
|
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Exhibit 9
A Active Life Reserve
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B Claim Reserve
|
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Total (Exhibit 9 Item 2, Page 3)
|
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Exhibit 10
1 Premiums and Other Deposit Funds
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1.1 Policyholder Premium (Page 3, Line 10.1)
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1.2 Guaranteed Interest Contracts(Page 3, Line
10.2)
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1.3 Other Contract Deposit Funds(Page 3, Line 10.3)
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2. Supplementary Contracts Not Involving Life
Contingencies (Page 3, Line 5)
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3. Dividend and Coupon Accumulations (Page 3, Line
5)
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Total Exhibit 10
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Exhibit 11
Part 1. Life (Page 3, Line 4.1)
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2. Health (Page 3, Line 4.2)
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Total Exhibit 11, Part 1
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Separate Accounts (Page 3, Line 27)
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TOTAL RESERVES
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IMR (Page ___Line __)
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AVR (Page ___Line __)
|
(c)
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