SECTION 1.
Purpose
The purpose of this Rule is to prescribe:
A. Guidelines and standards for statements of
actuarial opinion which are to be submitted in accordance with Ark. Code Ann.
§
23-84-112(b),
and for memoranda in support thereof;
B. Guidelines and standards for statements of
actuarial opinion which are to be submitted when a company is exempt from Ark.
Code Ann. §
23-84-112(b)
per Section 6 of this Rule; and
C.
Guidelines applicable to the appointment of an Appointed Actuary.
SECTION 2.
Authority
This Rule is issued pursuant to the authority vested in the
Arkansas Insurance Commissioner under Ark. Code Ann. §
23-84-113,
§
23-61-108, and
the Arkansas Administrative Procedures Act, §§
25-15-201,
etseq.
SECTION
3.
Scope and Application
This Rule shall apply to all licensed life and/or accident and
health insurance companies and fraternal benefit societies domiciled in
Arkansas and doing business only in Arkansas and to all licensed life and/or
accident and health insurance companies and fraternal benefit societies which
are domiciled in Arkansas and authorized to reinsure life insurance, annuities,
or accident and health insurance business only in this State. The actuarial
opinion required by this Rule shall apply to all business in force of the
companies, including but not limited to individual and group life and/or
accident and health insurance plans. Rule 64A applies to life insurance
companies and fraternal benefit societies that are licensed in or do business
in multiple states including Arkansas, regardless of the company or society's
state of domicile.
Except with respect to companies which are exempt pursuant to
Section 6 of this Rule, each company's statement of opinion on the adequacy of
the reserves and related actuarial items based on an asset adequacy analysis in
accordance with Section 8 of this Rule, and a memorandum in support thereof in
accordance with Section 9 of this Rule, shall be required each year. Exempt
companies must file a statement of actuarial opinion pursuant to Section 7 of
this Rule.
A company exempt pursuant to Section 6 of this Rule from filing
an opinion in accordance to Section 8 of this Rule which has written and/or
assumed only life and/or deferred annuity business and/or deposit type funds,
has invested assets greater than one hundred ten percent (110%) of the face
value of all inforce business, total face value of inforce business is less
than five million dollars ($5,000,000), and has written or assumed no new
business in the current and preceding two (2) years, may apply in writing to
the Commissioner for an exemption from compliance with this Rule. At the
Commissioner's discretion, an exemption from compliance with this Rule may be
granted after review of the application.
An inactive company with no reserves, no premium written, and no
in force business may, in lieu of the Actuarial Opinion for the calendar year,
submit an affidavit made under oath of an officer of the insurer that specifies
such. The affidavit should be included on or attached to Page 1 of the annual
statement for each year.
Notwithstanding the foregoing, the Commissioner may require any
company otherwise exempt pursuant to this Rule to submit a statement of
actuarial opinion and to prepare a memorandum in support thereof in accordance
with Sections 8 and 9 of this Rule if, in the opinion of the Commissioner, an
asset adequacy analysis is necessary with respect to the company.
SECTION 4.
Definitions
A. "Actuarial Opinion":
1. With respect to Section 8, 9 or 10, the
opinion of an Appointed Actuary regarding the adequacy of the reserves and
related actuarial items based on an asset adequacy test in accordance with
Section 8 of this Rule and with presently accepted Actuarial Standards of
Practice; and
2. With respect to
Section 7, the opinion of an Appointed Actuary regarding the calculation of
reserves and related items, in accordance with Section 7 of this Rule and with
those presently accepted Actuarial Standards which specifically relate to this
opinion.
B. "Actuarial
Standards Board" is the board established by the American Academy of Actuaries
to develop and promulgate standards of actuarial practice.
C. "Annual Statement" means that statement
required by Ark. Code Ann. §
23-63-216
of the Insurance Code to be filed by the company with the office of the
Commissioner annually.
D.
"Appointed Actuary" means any individual who is appointed or retained in
accordance with the requirements set forth in Section 5(C) of this Rule to
provide the actuarial opinion and supporting memorandum as required by Ark.
Code Ann. §
23-84-112(b).
E. "Asset Adequacy Analysis" means an
analysis that meets the standards and other requirements referred to in Section
5(D) of this Rule.
F.
"Commissioner" means the Insurance Commissioner of this State.
G. "Company" means a life and/or accident and
health insurance company, fraternal benefit society or reinsurer that is
domiciled in Arkansas and does business only in Arkansas.
H. "NAIC" means the National Association of
Insurance Commissioners.
I.
"Non-Investment Grade Bonds" means those designated as Classes 3, 4, 5 or 6 by
the NAIC Securities Valuation Office.
J. "Qualified Actuary" means any individual
who meets the requirements set forth in Section 5(B) of this Rule. Due to the
provisions of Ark. Code Ann. §
23-84-112(d)(5),
the term "qualified actuaries" as defined in Rule 16, "Actuaries," shall not be
deemed to be applicable to and shall not apply to "Qualified Actuaries," as
defined herein, for purposes of complying with the provisions of this
Rule.
K. "Standard Valuation Law"
means the law codified at Ark. Code Ann. §§
23-84-101,
et seq.
SECTION
5.
General Requirements
A. Submission of Statement of Actuarial
Opinion
1. There is to be included on or
attached to Page 1 of the annual statement for each year, the statement of an
Appointed Actuary, entitled "Statement of Actuarial Opinion," setting forth an
opinion relating to reserves and related actuarial items held in support of
policies and contracts, in accordance with Section 8 of this Rule. However, any
company exempted pursuant to Section 6 of this Rule from submitting a statement
of actuarial opinion in accordance with Section 8 of this Rule shall include on
or attach to Page 1 of the annual statement a statement of actuarial opinion
rendered by an Appointed Actuary in accordance with Section 7 of this
Rule.
2. If in a previous year a
company provided a statement of actuarial opinion in accordance with Section 7
of this Rule, and in a current year fails the exemption criteria of Section
6(C)(1), 6(C)(2) or 6(C)(5) to again provide an actuarial opinion in accordance
with Section 7, the statement of actuarial opinion in accordance with Section 8
shall not be required until August 1 following the preceding December 31 date
of the annual statement unless otherwise required to provide an actuarial
opinion in accordance with Section 6(C)(5). In this instance, the company shall
provide a statement of actuarial opinion in accordance with Section 7 with
appropriate qualifications noting the intent to subsequently provide a
statement of actuarial opinion in accordance with Section 8.
3. Upon written request by the company, the
Commissioner may grant an extension of the date for submission of the statement
of actuarial opinion.
4. Pursuant
to the provisions of Ark. Code Ann. §
23-84-112(d)(8),
any memoranda or other material provided to the Commissioner in support of the
actuarial opinion shall be kept confidential and shall only be released under
the circumstances described specifically in Ark. Code Ann. §
23-84-112(d)(8).
B. A "Qualified Actuary" is an
individual who:
1. Is a member in good
standing of the American Academy of Actuaries;
2. Is qualified to sign statements of
actuarial opinion for life and health insurance company annual statements in
accordance with the American Academy of Actuaries qualification standards for
actuaries signing such statements;
3. Is familiar with the valuation
requirements applicable to life and health insurance companies;
4. Has not been found by the Commissioner, or
if so found has subsequently been reinstated as a Qualified Actuary following
appropriate notice and hearing, to have:
a.
Violated any provision of, or any obligation imposed by, the Arkansas Insurance
Code or other law in the course of his or her dealings as a Qualified
Actuary;
b. Been found guilty of
fraudulent or dishonest practices;
c. Demonstrated his or her incompetence, lack
of cooperation, or untrustworthiness to act as a Qualified Actuary;
d. Submitted to the Commissioner during the
past five (5) years pursuant to this Rule an actuarial opinion or memorandum
that the Commissioner rejected because it did not meet the provisions of this
Rule including standards set by the Actuarial Standards Board; or e. Resigned
or been removed as an actuary within the past five (5) years as a result of
acts or omissions indicated in any adverse report on examination or as a result
of failure to adhere to generally acceptable actuarial standards; and
5. Has not failed to notify the
Commissioner of any action taken by any regulatory authority of any other state
similar to that under Paragraph (4) above.
C. Appointed Actuary.
An "Appointed Actuary" is a Qualified Actuary who is appointed or
retained to prepare the Statement of Actuarial Opinion required by this Rule,
either directly by or by the authority of the board of directors through an
executive officer of the company other than the Qualified Actuary. The company
shall give the Commissioner timely written notice of the name, title (and, in
the case of a consulting actuary, the name of the firm) and manner of
appointment or retention of each person appointed or retained by the company as
an Appointed Actuary and shall state in the notice that the person meets the
requirements set forth in Subsection B. Once notice is furnished, no further
notice is required with respect to this person, provided that the company shall
give the Commissioner timely written notice in the event the actuary ceases to
be appointed or retained as an Appointed Actuary or to meet the requirements
set forth in Subsection B. If any person appointed or retained as an Appointed
Actuary replaces a previously Appointed Actuary, the notice shall so state and
give the reasons for replacement.
D. Standards for Asset Adequacy Analysis The
asset adequacy analysis required by this Rule:
1. Shall conform to the Standards of Practice
as promulgated from time to time by the Actuarial Standards Board and on any
additional standards under this Rule, which standards are to form the basis of
the statement of actuarial opinion in accordance with Section 8 of this Rule;
and
2. Shall be based on methods of
analysis as are deemed appropriate for such purposes by the Actuarial Standards
Board.
E. Liabilities to
be covered
1. Under authority of Ark. Code
Ann. §
23-84-112,
the statement of actuarial opinion shall apply to all in force business on the
statement date, whether directly issued or assumed, regardless of when or where
issued, e.g., reserves of Exhibits 5, 6 and 7, and claim
liabilities in Exhibit 8, Part I and equivalent items in the separate account
statement or statements.
2. If the
Appointed Actuary determines as the result of asset adequacy analysis that a
reserve should be held in addition to the aggregate reserve held by the company
and calculated in accordance with methods set forth in the Standard Valuation
Law, Ark. Code Ann. §§
23-84-101,
et seq., the company shall establish the additional
reserve.
3. Additional reserves
established under paragraph (2) above and deemed not necessary in subsequent
years may be released. Any amounts released shall be disclosed in the actuarial
opinion for the applicable year. The release of such reserves would not be
deemed an adoption of a lower standard of valuation.
SECTION 6.
Required
Opinions
A. General
Every Arkansas-domiciled company doing business only in this
State shall annually submit the opinion of an Appointed Actuary as provided for
by this Rule, in accordance with Ark. Code Ann. §
23-84-112,
except as waived under Section 3 of this Rule. The type of opinion submitted
shall be determined by the provisions set forth in this Section 6 and shall be
in accordance with the applicable provisions in this Rule.
B. Company Categories
For purposes of this Rule, companies shall be classified as
follows based on the admitted assets as of the end of the calendar year for
which the actuarial opinion is applicable:
1. Category A shall consist of those
companies whose admitted assets do not exceed twenty million dollars
($20,000,000);
2. Category B shall
consist of those companies whose admitted assets exceed twenty million dollars
($20,000,000) but do not exceed one hundred million dollars
($100,000,000);
3. Category C shall
consist of those companies whose admitted assets exceed one hundred million
dollars ($100,000,000) but do not exceed five hundred million dollars
($500,000,000); and
4. Category D
shall consist of those companies whose admitted assets exceed five hundred
million dollars ($500,000,000).
C. Exemption Eligibility Tests
1. Any Category A company that, for any year,
meets all of the following criteria shall be eligible for exemption from
submission of a statement of actuarial opinion in accordance with Section 8 of
this Rule for the year in which these criteria are met. The ratios in (a), (b)
and (c) below shall be calculated based on amounts as of the end of the
calendar year for which the actuarial opinion is applicable:
a. The ratio of the sum of capital and
surplus to the sum of cash and invested assets is at least equal to
.10;
b. The ratio of the sum of the
reserves and liabilities for annuities and deposits to the total admitted
assets is less than.30;
c. The
ratio of the book value of the non-investment grade bonds to the sum of capital
and surplus is less than.50; and
d. The Analyst Team System for the NAIC has
not designated the company as a first priority company in any of the two (2)
calendar years preceding the calendar year for which the actuarial opinion is
applicable, or a second priority company in each of the two (2) calendar years
preceding the calendar year for which the actuarial opinion is applicable, or
the company has resolved the first or second priority status to the
satisfaction of the Commissioner.
2. Any Category B company that, for any year,
meets all of the following criteria shall be eligible for exemption from
submission of a statement of actuarial opinion in accordance with Section 8 of
this Rule for the year in which the criteria are met. The ratios in (a), (b)
and (c) below shall be calculated based on amounts as of the end of the
calendar year for which the actuarial opinion is applicable:
a. The ratio of the sum of capital and
surplus to the sum of cash and invested assets is at least equal to
.07;
b. The ratio of the sum of the
reserves and liabilities for annuities and deposits to the total admitted
assets is less than.40;
c. The
ratio of the book value of the non-investment grade bonds to the sum of capital
and surplus is less than.50; and
d. The Analyst Team System for the NAIC has
not designated the company as a first priority company in any of the two (2)
calendar years preceding the calendar year for which the actuarial opinion is
applicable, or a second priority company in each of the two (2) calendar years
preceding the calendar year for which the actuarial opinion is applicable, or
the company has resolved the first or second priority status to the
satisfaction of the Commissioner.
3. Any Category A or Category B company that
meets all of the criteria set forth in Paragraph 1 or 2 of this subsection,
whichever is applicable, is exempt from submission of a statement of actuarial
opinion in accordance with Section 8 of this Rule unless the Commissioner
specifically indicates to the company that the exemption is not to be
taken.
4. Any Category A or
Category B company that, for any year is not exempted under Paragraph (3) of
this subsection shall be required to submit a statement of actuarial opinion in
accordance with Section 8 of this Rule for any year for which it is not
exempt.
5. Any Category C company
that, after submitting an opinion in accordance with Section 8 of this Rule,
meets all of the following criteria shall not be required, unless required in
accordance with Paragraph 6 below, to submit a statement of actuarial opinion
in accordance with Section 8 of this Rule more frequently than every third
year. Any Category C company which fails to meet all of the following criteria
for any year shall submit a statement of actuarial opinion in accordance with
Section 8 of this Rule for that year. The ratios in (a), (b) and (c) below
shall be calculated based on amounts as of the end of the calendar year for
which the actuarial opinion is applicable.
a.
The ratio of the sum of capital and surplus to the sum of cash and invested
assets is at least equal to.05;
b.
The ratio of the sum of the reserves and liabilities for annuities and deposits
to the total admitted assets is less than.50;
c. The ratio of the book value of the
non-investment grade bonds to the sum of the capital and surplus is less than
.50; and
d. The Analyst Team
System for the NAIC has not designated the company as a first priority company
in any of the two (2) calendar years preceding the calendar year for which the
actuarial opinion is applicable, or a second priority company in each of the
two (2) calendar years preceding the calendar year for which the actuarial
opinion is applicable, or the company has resolved the first or second priority
status to the satisfaction of the Commissioner.
6. Any company which is not required by this
Section 6 to submit a statement of actuarial opinion in accordance with Section
8 of this Rule for any year shall submit a statement of actuarial opinion in
accordance with Section 7 of this Rule for that year unless, as provided for by
the second paragraph of Section 3 of this Rule, the Commissioner requires a
statement of actuarial opinion in accordance with Section 8 of this
Rule.
D. Large Companies
Every Category D company shall submit a statement of actuarial
opinion in accordance with Section 8 of this Rule.
SECTION 7.
Statement of Actuarial
Opinion Not Including an Asset Adequacy Analysis.
A. General Description
The statement of actuarial opinion required by this section shall
consist of the following:
1. A
paragraph identifying the Appointed Actuary and his or her
qualifications;
2. A regulatory
authority paragraph stating that the company is exempt pursuant to this Rule
from submitting a statement of actuarial opinion based on an asset adequacy
analysis and that the opinion, which is not based on an asset adequacy
analysis, is rendered in accordance with Section 7 of this Rule;
3. A scope paragraph identifying the subjects
on which the opinion is to be expressed and describing the scope of the
Appointed Actuary's work; and
4. An
opinion paragraph expressing the Appointed Actuary's opinion as required by
Ark. Code Ann. §
23-84-112.
B. Recommended Language
The following language provided is that which typically would be
included in a statement of actuarial opinion in accordance with this section.
The language may be modified as needed to meet the circumstances of a
particular case, but the Appointed Actuary should use language which clearly
expresses his or her professional judgment. However, in any event the opinion
shall retain all pertinent aspects of the language provided in Section
7.
1. The opening paragraph should
indicate the Appointed Actuary's relationship to the company. For a company
actuary, the opening paragraph of the actuarial opinion should read as follows:
I, [name of actuary], am [title] of [name of company] and a
member of the American Academy of Actuaries. I was appointed by, or by the
authority of, the Board of Director of said insurer to render this opinion as
stated in the letter to the Commissioner dated [insert date]. I meet the
Academy qualification standards for rendering the opinion and am familiar with
the valuation requirements applicable to life and health companies.
For a consulting actuary, the opening paragraph of the actuarial
opinion should contain a statement such as the following:
I, [name and title of actuary], a member of the American Academy
of Actuaries, am associated with the firm of [insert name of consulting firm].
I have been appointed by, or by the authority of, the Board of Directors of
[name of company] to render this opinion as stated in the letter to the
Commissioner dated [insert date]. I meet the Academy qualification standards
for rendering the opinion and am familiar with the valuation requirements
applicable to life and health insurance companies.
2. The regulatory authority paragraph should
include a statement such as the following:
Said company is exempt pursuant to Rule 64 of the Arkansas
Insurance Department from submitting a statement of actuarial opinion based on
an asset adequacy analysis. This opinion, which is not based on an asset
adequacy analysis, is rendered in accordance with Section 7 of the Rule.
3. The scope paragraph should
contain a sentence such as the following:
I have examined the actuarial assumptions and actuarial methods
used in determining reserves and related actuarial items listed below, as shown
in the annual statement of the company, as prepared for filing with state
regulatory officials, as of December 31, [ ]*
The paragraph should list items and amounts with respect to which
the Appointed Actuary is expressing an opinion. The list should include, but
not be necessarily limited to:
a.
Aggregate reserve and deposit funds for policies and contracts included in
Exhibit 5;
b. Aggregate reserve and
deposit funds for policies and contracts included in Exhibit 6;
c. Deposit funds, premiums, dividend and
coupon accumulations and supplementary contracts not involving life
contingencies included in Exhibit 7; and
d. Policy and contract claims-liability end
of current year included in Exhibit 8, Part I.
4. If the Appointed Actuary has examined the
underlying records, the scope paragraph should also include the following:
My examination included such review of the actuarial assumptions
and actuarial methods and of the underlying basic records and such tests of the
actuarial calculations as I considered necessary.
5. If the Appointed Actuary has not examined
the underlying records, but has relied upon listings and summaries of policies
in force prepared by the company or a third party, the scope paragraph should
include a statement such as one of the following:
I have relied upon listings and summaries of polices and
contracts and other liabilities in force prepared by [name and title of company
officer certifying in force records] as certified in the attached statement.
(See accompanying affidavit by a company officer.) In other respects my
examination included review of the actuarial assumptions and actuarial methods
and such tests of the actuarial calculations as I considered necessary.
OR
I have relied upon [name of accounting firm] for the substantial
accuracy of the in force records inventory and information concerning other
liabilities, as certified in the attached statement. In other respects my
examination included review of the actuarial assumptions and actuarial methods
and such tests of the actuarial calculations as I considered necessary.
The statement of the person so certifying shall follow the form
indicated by Subsection E.
6. The opinion paragraph should include a
statement such as:
In my opinion the amounts carried in the balance sheet on account
of the actuarial items identified above:
(a) Are computed in accordance with those
presently accepted actuarial standards which specifically relate to the opinion
required under this section;
(b)
Are based on actuarial assumptions which produce reserves at least as great as
those called for in any contract provision as to reserve basis and method, and
are in accordance with all other contract-provisions;
(c) Meet the requirements of the Insurance
Law and rules of the state of Arkansas and are at least as great as the minimum
aggregate amounts required by this state;
(d) Are computed on the basis of assumptions
consistent with those used in computing the corresponding items in the annual
statement of the preceding year-end with any exceptions as noted below;
and
(e) Include provision for all
actuarial reserves and related statement items which ought to be
established.
(f) The actuarial
methods, considerations and analyses used in forming my opinion conform to the
appropriate Compliance Guidelines as promulgated by the Actuarial Standards
Board, which guidelines form the basis of this statement of opinion.
7. The concluding paragraph should
document the eligibility for the company to provide an opinion as provided by
this Section 7 and shall include the following:
This opinion is provided in accordance with Section 7 of Arkansas
Insurance Department Rule 64. As such it does not include an opinion regarding
the adequacy of reserves and related actuarial items when considered in light
of the assets which support them.
Eligibility for Section 7 of Arkansas Insurance Department Rule
64 is confirmed as follows:
(a) The
ratio of the sum of capital and surplus to the sum of cash and invested assets
is [insert amount], which equals or exceeds the applicable criterion based on
the admitted assets of the company (Section 6 (C) ].
(b) The ratio of the sum of the reserves and
liabilities for annuities and deposits to the excess of the total admitted
assets is [insert amount], which is less than the applicable criteria based on
the admitted assets of the company (Section 6 (C)].
(c) The ratio of the book value of the
non-investment grade bonds to the sum of capital and surplus is [insert
amount], which is less than the applicable criteria of.50.
(d) To my knowledge, the NAIC Examiner Team
has not designated the company as a first priority company in any of the two
(2) calendar years preceding the calendar year for which the actuarial opinion
is applicable, or a second priority company in each of the two (2) calendar
years preceding the calendar year for which the actuarial opinion is applicable
or the company has resolved the first or second priority status to the
satisfaction of the commissioner of its state of domicile.
8. If there has been any change in the
actuarial assumptions from those previously employed, that change should be
described in the annual statement or in a paragraph of the statement of
actuarial opinion. Include one of the following, whichever is applicable:
This opinion is updated annually as required by statute. To the
best of my knowledge, there have been no material changes from the applicable
date of the annual statement to the date of the rendering of this opinion which
should be considered in reviewing this opinion."
or
"The following material changes which occurred between the date
of the statement for which this opinion is applicable and the date of this
opinion should be considered in reviewing this opinion: (Describe the change or
changes.)"
C. As
sumpti on for New Is sue s
The adoption for new issues or new claims or other new
liabilities of an actuarial assumption which differs from a corresponding
assumption used for prior new issues or new claims or other new liabilities is
not a change in actuarial assumptions within the meaning of this
paragraph.
D. Adverse
Opinions
If the Appointed Actuary is unable to form an opinion, he or she
shall refuse to issue a statement of actuarial opinion. If the Appointed
Actuary's opinion is adverse or qualified, he or she shall issue an adverse or
qualified actuarial opinion explicitly stating the reason(s) for such opinion.
This statement should follow the scope paragraph and precede the opinion
paragraph.
E. Reliance on
Information Furnished by Other Persons
If the Appointed Actuary does not express an opinion as to the
accuracy and completeness of the listings and summaries of policies in force,
there should be attached to the opinion the statement of a company officer or
accounting firm who prepared such underlying data similar to the
following:
I, [name of officer], [title] of [name and address of Company or
accounting firm], hereby affirm that the listings are summaries of policies and
contracts in force as of December 31, [ ], prepared for and submitted to [name
of Appointed Actuary], were prepared under my direction and, to the best of my
knowledge and belief, are substantially accurate and complete.
Signature of the Officer of the Company or Accounting Firm
Address of the Officer of the Company or Accounting Firm
Telephone Number of the Officer of the Company or Accounting
Firm
SECTION 8.
Statement of Actuarial Opinion Based On an Asset Adequacy Analysis
A. General Description.
The statement of actuarial opinion submitted in accordance with
this section shall consist of:
(1) A
paragraph identifying the Appointed Actuary and his or her qualifications (see
Subsection B(l));
(2) A scope
paragraph identifying the subjects on which an opinion is to be expressed and
describing the scope of the Appointed Actuary's work, including a tabulation
delineating the reserves and related actuarial items that have been analyzed
for asset adequacy and the method of analysis, (see Subsection B(2)) and
identifying the reserves and related actuarial items covered by the opinion
that have not been so analyzed;
(3)
A reliance paragraph describing those areas, if any, where the Appointed
Actuary has deferred to other experts in developing data, procedures or
assumptions, (e.g., anticipated cash flows from currently
owned assets, including variation in cash flows according to economic scenarios
(see Subsection B(3)), supported by a statement of each such expert in the form
prescribed by Subsection E; and
(4)
An opinion paragraph expressing the Appointed Actuary's opinion with respect to
the adequacy of the supporting assets to mature the liabilities (see Subsection
B(6)).
(5) One or more additional
paragraphs will be needed in individual company cases as follows:
(a) If the Appointed Actuary considers it
necessary to state a qualification of his or her opinion;
(b) If the Appointed Actuary must disclose an
inconsistency in the method of analysis or basis of asset allocation used at
the prior opinion date with that used for this opinion;
(c) If the Appointed Actuary must disclose
whether additional reserves as of the prior opinion date are released as of
this opinion date, and the extent of the release; or
(d) If the Appointed Actuary chooses to add a
paragraph briefly describing the assumptions that form the basis for the
actuarial opinion.
B. Recommended Language.
The following paragraphs are to be included in the statement of
actuarial opinion in accordance with this section. Language is that which in
typical circumstances should be included in a statement of actuarial opinion.
The language may be modified as needed to meet the circumstances of a
particular case, but the Appointed Actuary should use language that clearly
expresses his or her professional judgment. However, in any event the opinion
shall retain all pertinent aspects of the language provided in this
section.
(1) The opening paragraph
should generally indicate the Appointed Actuary's relationship to the company
and his or her qualifications to sign the opinion. For a company actuary, the
opening paragraph of the actuarial opinion should include a statement such as:
I, [name], am [title] of [insurance company name] and a member of
the American Academy of Actuaries. I was appointed by, or by the authority of,
the Board of Directors of said insurer to render this opinion as stated in the
letter to the Commissioner dated [insert date]. I meet the Academy
qualification standards for rendering the opinion and am familiar with the
valuation requirements applicable to life and health insurance
companies.
For a consulting actuary, the opening paragraph should include a
statement such as:
I, [name], a member of the American Academy of Actuaries, am
associated with the firm of [name of consulting firm]. I have been appointed
by, or by the authority of, the Board of Directors of [name of company] to
render this opinion as stated in the letter to the Commissioner dated [insert
date]. I meet the Academy qualification standards for rendering the opinion and
am familiar with the valuation requirements applicable to life and health
insurance companies.
(2)
The scope paragraph should include a statement such as:
I have examined the actuarial assumptions and actuarial methods
used in determining reserves and related actuarial items listed below, as shown
in the annual statement of the company, as prepared for filing with state
regulatory officials, as of December 31, [ ]. Tabulated below are those
reserves and related actuarial items which have been subjected to asset
adequacy analysis.
|
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
(l)+(2)+(3)
(4)
|
|
Exhibit 5
A Life Insurance
|
|
B Annuities
|
|
C Supplementary Contracts Involving Life
Contingencies
|
|
D Accidental Death Benefit
|
|
E Disability-Active
|
|
F Disability-Disabled
|
|
G Miscellaneous
|
|
Total Exhibit 5 (Page 3, Line 1)
|
|
Exhibit 6
A Active Life Reserve
|
|
B Claim Reserve
|
|
Total Exhibit 6 (Page 3, line 2)
|
|
Exhibit 7
Premium and Other Deposit Funds (Column 5, Line
14)
|
|
Guaranteed Interest Contracts (Column 2, Line 14)
|
|
Other
(Column 6, Line 14)
|
|
Supplemental Contracts and Annuities Certain (Column 3,
Line 14)
|
|
Dividend Accumulations or Refunds (Column 4, Line
14)
|
|
Total Exhibit 7 (Page 3, Line 3)
|
|
Exhibit 8 Part 1
1 Life (Page 3, Line 4.1)
|
|
2 Health (Page 3, Line 4.2)
|
|
Total Exhibit 8, Part 1
|
|
Separate Accounts (Page 3 of the Annual Statement of the
Separate Accounts, Lines 1, 2, 3.1,
3.2,3.3)
|
|
TOTAL RESERVES
|
|
IMR (General Account, Page Line)
|
|
(Separate Accounts, Page Line)
|
|
AVR (Page Line)
|
(c)
|
|
Net Deferred and Uncollected Premium
|
Notes:
(a)
The additional actuarial
reserves are the reserves established under Paragraph (2) of Section
5E.
(b)
The
Appointed Actuary should indicate the method of analysis, determined in
accordance with the standards for asset adequacy analysis referred to in
Section 5D of this Rule, by means of symbols that should be defined in
footnotes to the table.
(c)
Allocated amount of Asset
Valuation Reserve (AVR).
(3) If the Appointed Actuary has relied on
other experts to develop certain portions of the analysis, the reliance
paragraph should include a statement such as:
I have relied on [name], [title] for [e.g., "anticipated cash
flows from currently owned assets, including variations in cash flows according
to economic scenarios" or "certain critical aspects of the analysis performed
in conjunction with forming my opinion"], as certified in the attached
statement. I have reviewed the information relied upon for
reasonableness.
A statement of reliance on other experts should be accompanied by
a statement by each of the experts in the form prescribed by Subsection
E.
(4) If the Appointed
Actuary has examined the underlying asset and liability records, the reliance
paragraph should include a statement such as:
My examination included such review of the actuarial assumptions
and actuarial methods and of the underlying basic asset and liability records
and such tests of the actuarial calculations as I considered necessary. I also
reconciled the underlying basic asset and liability records to [exhibits and
schedules listed as applicable] of the company's current annual
statement.
(5) If the
Appointed Actuary has not examined the underlying records, but has relied upon
data
(e.g., listings and summaries of policies in force or
asset records) prepared by the company, the reliance paragraph should include a
statement such as:
In forming my opinion on [specify types of reserves], I relied
upon data prepared by [name and title of company officer certifying in force
records or other data] as certified in the attached statements. I evaluated
that data for reasonableness and consistency. I also reconciled that data to
[exhibits and schedules to be listed as applicable] of the company's current
annual statement. In other respects, my examination included review of the
actuarial assumptions and actuarial methods used and tests of the calculations
I considered necessary.
The section shall be accompanied by a statement by each person
relied upon in the form prescribed by Subsection E.
(6) The opinion paragraph should include a
statement such as:
"In my opinion the reserves and related actuarial values
concerning the statement items identified above:
(a) Are computed in accordance with presently
accepted actuarial standards consistently applied and are fairly stated, in
accordance with sound actuarial principles;
(b) Are based on actuarial assumptions that
produce reserves at least as great as those called for in any contract
provision as to reserve basis and method, and are in accordance with all other
contract provisions;
(c) Meet the
requirements of the Insurance Law and Rule of the state Arkansas; and are at
least as great as the minimum aggregate amounts required by the state in which
this statement is filed;
(d) Are
computed on the basis of assumptions consistent with those used in computing
the corresponding items in the annual statement of the preceding year-end (with
any exceptions noted below); and
(e) Include provision for all actuarial
reserves and related statement items which ought to be established.
The reserves and related items, when considered in light of the
assets held by the company with respect to such reserves and related actuarial
items including, but not limited to, the investment earnings on the assets, and
the considerations anticipated to be received and retained under the policies
and contracts, make adequate provision, according to presently accepted
actuarial standards of practice, for the anticipated cash flows required by the
contractual obligations and related expenses of the company.
The actuarial methods, considerations and analyses used in
forming my opinion conform to the appropriate Standards of Practice as
promulgated by the Actuarial Standards Board, which standards form the basis of
this statement of opinion.
This opinion is updated annually as required by statute. To the
best of my knowledge, there have been no material changes from the applicable
date of the annual statement to the date of the rendering of this opinion which
should be considered in reviewing this opinion."
or
"The following material changes which occurred between the date
of the statement for which this opinion is applicable and the date of this
opinion should be considered in reviewing this opinion: (Describe the change or
changes.)"
Note: Choose one of the above two paragraphs,
whichever is applicable.
"The impact of unanticipated events subsequent to the date of
this opinion is beyond the scope of this opinion. The analysis of asset
adequacy portion of this opinion should be viewed recognizing that the
company's future experience may not follow all the assumptions used in the
analysis."
Signature of Appointed Actuary
Address of Appointed Actuary
Telephone Number of Appointed Actuary
Date
C. Assumptions for New Issues
The adoption for new issues or new claims or other new
liabilities of an actuarial assumption that differs from a corresponding
assumption used for prior new issues or new claims or other new liabilities is
not a change in actuarial assumptions within the meaning of this Section
6.
D. Adverse Opinions
If the Appointed Actuary is unable to form an opinion, then he or
she shall refuse to issue a statement of actuarial opinion. If the Appointed
Actuary's opinion is adverse or qualified, then he or she shall issue an
adverse or qualified actuarial opinion explicitly stating the reasons for the
opinion. This statement should follow the scope paragraph and precede the
opinion paragraph.
E.
Reliance on Information Furnished by Other Persons
If the Appointed Actuary relies on the certification of others on
matters concerning the accuracy or completeness of any data underlying the
actuarial opinion, or the appropriateness of any other information used by the
Appointed Actuary in forming the actuarial opinion, the actuarial opinion
should so indicate the persons the actuary is relying upon and a precise
identification of the items subject to reliance in a format similar to that set
forth in Section 7(B)(5). In addition, the persons on whom the Appointed
Actuary relies shall provide a certification that precisely identifies the
items on which the person is providing information and a statement as to the
accuracy, completeness or reasonableness, as applicable, of the items. This
certification shall include the signature, title, company, address and
telephone number of the person rendering the certification, as well as the date
on which it is signed.
SECTION
9.
Description of Actuarial Memorandum Including an Asset
Adequacy Analysis and Regulatory Asset Adequacy Issues Summary
A. General
(1) In accordance with Ark. Code Ann. §
23-84-112,
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
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 considered a record of the insurance department or subject to
automatic filing with the Commissioner.
(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 Section 5(B) of this Rule, 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 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.
(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
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 Rule. 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 any one of the current year
or the preceding three (3) years.
(5) In accordance with Ark. Code Ann. §
23-84-112,
the Appointed Actuary shall prepare a regulatory asset adequacy issues summary,
the contents of which are specified in Subsection C. 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.
B.
Details of the Memorandum Section Documenting Asset Adequacy Analysis When an
actuarial opinion is provided under Section 8, the memorandum shall demonstrate
that the analysis has been done in accordance with the standards for asset
adequacy referred to in Section 5D of this Rule and any additional standards
under this Rule. 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 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
(g)
Documentation of assumptions to test reserves for the following:
(i) Lapse rates (both base and
excess);
(ii) Interest crediting
rate strategy;
(iii)
Mortality;
(iv) Policyholder
dividend strategy;
(v) Competitor
or market interest rate;
(vi)
Annuitization rates;
(vii)
Commissions 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 assumptions.
(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 assumptions.
(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 (include in the rationale the level of
"materiality" that was used in determining how rigorously to analyze different
blocks of business);
(d) 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
(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) Conclusions.
C. Details of the Regulatory Asset Adequacy
Issues Summary
(1) The regulatory asset
adequacy issues summary shall 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 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.
(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;
(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;
and
(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 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.
D. 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."
E.
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 (IMR), 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 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.
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.
F. 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.
SECTION
10.
Additional Consideration for Analysis
A. Aggregation
For the asset adequacy analysis for the statement of actuarial
opinion provided in accordance with Section 8 of the Rule, reserves and assets
may be aggregated by either of the following methods:
1. Aggregate the reserves and related
actuarial items, and the supporting assets, for different products or lines of
business, before analyzing the adequacy of the combined assets to mature the
combined liabilities. The Appointed Actuary must be satisfied that the assets
held in support of the reserves and related actuarial items so aggregated are
managed in such a manner that the cash flows from the aggregated assets are
available to help mature the liabilities from the blocks of business that have
been aggregated; or
2. Aggregate
the results of asset adequacy analysis of one or more products or lines of
business, the reserves for which prove through analysis to be redundant, with
the results of one or more products or lines of business, the reserves for
which prove through analysis to be deficient. The Appointed Actuary must be
satisfied that the asset adequacy results for the various products or lines of
business for which the results are so aggregated:
a. Are developed using consistent economic
scenarios; or
b. Are subject to
mutually independent risks,
i.e., the likelihood of events
impacting the adequacy of the assets supporting the redundant reserves is
completely unrelated to the likelihood of events impacting the adequacy of the
assets supporting the deficient reserves.
In the event of any aggregation, the actuary must disclose in his
or her opinion that such reserves were aggregated on the basis of method (1),
(2)(a) or (2)(b) above, whichever is applicable, and describe the aggregation
in the supporting memorandum.
B. Selection of Assets for Analysis
The Appointed Actuary shall analyze only those assets held in
support of the reserves which are the subject for specific analysis, thereafter
called "specified reserves." A particular asset or portion thereof supporting a
group of specified reserves cannot support any other group of specified
reserves. An asset may be allocated over several groups of specified reserves.
The annual statement value of the assets held in support of the reserves shall
not exceed the annual statement value of the specified reserves, except as
provided in Subsection (C) below. If the method of asset allocation is not
consistent from year to year, the extent of its inconsistency should be
described in the supporting memorandum.
C. Required Interest Scenarios
For the purpose of performing the asset adequacy analysis
required by this Rule, the Qualified Actuary is expected to follow standards
adopted by the Actuarial Standards Board. Nevertheless, the Appointed Actuary
must consider in the analysis the effect of at least the following interest
rate scenarios:
1. Level with no
deviation;
2. Uniformly increasing
over ten (10) years at a half percent per year and then level;
3. Uniformly increasing at one percent per
year over five (5) years, and then uniformly decreasing at one percent per year
to the original level at the end often (10) years and then level;
4. An immediate increase of three percent
(3%) and then level;
5. Uniformly
decreasing over ten (10) years at a half percent per year and then
level;
6. Uniformly decreasing at
one percent per year over five (5) years and then uniformly increasing at one
percent per year to the original level at the end often (10) years and then
level; and
7. An immediate decrease
of three percent (3%) and then level.
For these and other scenarios which may be used, projected
interest rates for a five (5) year Treasury Note need not be reduced beyond the
point where the five (5) year Treasury Note yield would be at fifty percent
(50%) of its initial level.
The beginning interest rates may be based on interest rates for
new investments as of the valuation date similar to recent investments
allocated to support the product being tested or be based on an outside index,
such as Treasury yields, of assets of the appropriate length on a date close to
the valuation date. Whatever method is used to determine the beginning yield
curve and associated interest rates should be specifically defined. The
beginning yield curve and associated interest rate should be consistent for all
interest rate scenarios.
D. 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.
SECTION
11.
Disciplinary Actions
The Commissioner may impose sanctions on companies which have
failed to comply with the provisions of this Rule in completing the annual
statement with the appropriate actuarial certification and opinion, or in
failing to file the statement of opinion when eligible for any exemptions under
this Rule. Such sanctions shall include, but not be limited to, those the
Commissioner may impose on companies for failure to file, or failure to file a
complete, annual statement under Ark. Code Ann. §
23-63-216,
including license suspension, revocation, and monetary fines or
penalties.
Companies and actuaries filing false statements of financial
conditions in connection with the actuarial opinions required by this Rule,
filing false or fraudulent actuarial opinions with the Commissioner, or
knowingly making a false entry in these actuarial opinions in the reports or
annual statements of the companies shall be deemed to have committed a trade
practice violation under the Trade Practices Act, Ark. Code Ann. §§
23-66-201, et
seq., and this Rule in addition to other applicable provisions of
Arkansas laws and Rules and shall be subject to administrative proceedings
culminating in possible cease and desist orders, monetary penalties, and/or
license suspensions or revocations.
SECTI ON 12.
Effective Date
The provisions of this Rule shall be effective on January 1,
2009. This Rule shall take effect for annual statements for the year 2009 and
filed with the Commissioner on or before March 15,2010.
SECTI ON 13.
Severability
Any section or provision of this Rule held by a court to be
invalid or unconstitutional will not affect the validity of any other section
or provision of this Rule.
(signed by Julie Benafield Bowman)
____________________________
JULIE BENAFIELD BOWMAN
INSURANCE COMMISSIONER
STATE OF ARKANSAS
(October 10, 2008)
_______________
DATE
