Current through August 26, 2024
(1) GENERAL.
(a) In accordance with subch. IV and ch. 623,
Stats., the appointed actuary shall prepare a memorandum to the company
describing the analysis done in support of his or her opinion regarding the
reserves under a s.
Ins 50.78 opinion. The memorandum shall be made available
for examination by the commissioner upon his or her request but shall be
returned to the company after such examination and shall not be subject to
automatic filing with the commissioner.
(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 s.
Ins 50.75(2), with respect to the areas
covered in such memoranda, and so state in their memoranda.
(c) 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 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 shall be paid by the company
but shall 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
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 the statute
governing this subchapter and as permitted by s.
601.465,
Stats. 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 subchapter for any one of the current year or the
preceding three years.
(e) In
accordance with subch. IV and ch. 623, Stats., the appointed actuary shall
prepare a regulatory asset adequacy issues summary, the contents of which are
specified in sub. (3). 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.
(f) An insurer licensed but not domiciled in
this state shall provide the office of the commissioner of insurance a
regulatory asset adequacy issues summary described under par. (e) upon
request.
(2) DETAILS OF
THE MEMORANDUM SECTION DOCUMENTING ASSET ADEQUACY ANALYSIS. When an actuarial
opinion under s.
Ins 50.78 is provided, the memorandum shall demonstrate
that the analysis has been done in accordance with the standards for asset
adequacy referred to in s.
Ins 50.75(4) and any additional standards
under this subchapter. 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. It shall specify all of the following:
(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.
(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.
(c) Analysis basis:
1. Methodology;
2. Rationale for inclusion/exclusion of
different blocks of business and how pertinent risks were analyzed;
3. 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;
4. 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
5. Whether the effect 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.
(f) Conclusions.
(3) DETAILS OF THE REGULATORY ASSET ADEQUACY
ISSUES SUMMARY.
(a) The regulatory asset
adequacy issues summary shall include all 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 shall
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,
including, the impact of any 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.
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.
(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) CONFORMITY
TO STANDARDS OF PRACTICE. 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."
(5) 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, 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 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.
(6)
DOCUMENTATION. The appointed actuary shall retain on file, for at least 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.
