SECTION 1. Purpose
The purpose of this Regulation is to prescribe:
A. Guidelines and standards for statements of
actuarial opinion which are to be submitted in accordance with Section 3 of the
NAIC Model Standard Valuation Law, Ark. Code Ann. § 23-34-112, as amended
by Act 621 of 1995, 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
Section 3 (B) of the NAIC Model Standard Valuation Law, Ark. Code Ann. §
23-84-112,
as amended by Act 621 of 1995; and
C. Guidelines (Rules) applicable to the
appointment of an appointed actuary.
SECTION 2. Authority
This Regulation is issued pursuant to the authority vested in the
Arkansas Insurance Commissioner under Ark. Code Ann. §§
23-84-112,
as amended by Act 621 of 1995, effective March 14, 1995;
23-61-108; and
25-15-201, et
seq. See also the Commissioner's rules and regulations with related subject
matter on actuarial opinions, reserve standards and valuation methods,
including the Commissioner's Rule 22, "Reserve Standards. for Valuation of
Individual Disability Policies"; Commissioner's Rule 34, "Universal Life
Insurance", and the Commissioner's Rules 38, 39 and 40, on Mortality Tables,
and others if and as applicable.
SECTION
3. Scope and Application
This Regulation shall apply to all licensed life and/or
disability (accident and health) insurance companies and fraternal benefit
societies doing business in this State and to all licensed life and/or
disability (accident and health) insurance companies and fraternal benefit
societies which are authorised to reinsure life insurance, annuities or
disability (accident and health) insurance business in this State. Pursuant to
Act 621 of 1995 in pertinent part, 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 disability (health) insurance plans.
This Regulation shall be applicable to all annual statements filed with the
office of the Commissioner after December 1, 1995, the effective date of this
Regulation.
Except with respect to companies which are exempted pursuant to
Section 6 of this Regulation, each company's (a) 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 Regulation, and a memorandum in
support thereof in accordance with Section 9 of this Regulation, shall be
required each year. Any company so exempted must file a statement of actuarial
opinion pursuant to Section 7 of this Regulation. Notwithstanding the
foregoing, the Commissioner may require any company otherwise exempt pursuant
to this Regulation to submit a statement of actuarial opinion and to prepare a
memorandum in support thereof in accordance with Sections 8 and 9 of this
Regulation 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 Regulation and with presently accepted Actuarial Standards;
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 Regulation 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 Regulation
to provide the actuarial opinion and supporting memorandum as required by
Section 3 of the NAIC Model Standard Valuation Law, Ark. Code Ann. §
23-84-112,
as amended by Act 621 of 1995.
E.
"Asset Adequacy Analysis" means an analysis that meets the standards and other
requirements referred to in Section 5(D) this Regulation. It may take many
forms, including, but not limited to, cash flow testing, sensitivity testing or
applications of risk theory.
F.
"Commissioner" means the Insurance Commissioner of this State.
G. "Company" means a life and/or disability
insurance company, fraternal benefit society or reinsurer subject to the
provisions of this Regulation.
H.
"NAIC" means the National Association of Insurance Commissioners.
I. "Non-Investment Grade Bonds" are 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 Regulation. Due to the provisions of Ark. Code Ann. §
23-84-112(D)(5),
as amended by Act 621 of 1995, the term "qualified actuaries" as defined in the
Commissioner's Rule and Regulation 16, "Actuaries", shall not be deemed to be
applicable to and shall not apply to "qualified actuaries" as defined in and
complying with the provisions of this Rule.
K. "Standard Valuation Law" means the NAIC
Model Law codified under Ark. Code Ann. §§
23-84-101, et
seq., as. amended by Act 621 of 1995 and Sections 17, 18 and 19 of Act 1272 of
1995.
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 commencing with
1995, the year in which this Regulation becomes effective, 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 Regulation;
provided, however, that any company exempted pursuant to Section 6 of this
Regulation from submitting a statement of actuarial opinion in accordance with
Section 8 of this Regulation 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 Regulation.
2. If in a previous year a company provided a
statement of I actuarial opinion in accordance with Section 7 of this
Regulation, and in a current year fails the exemption criteria of Sections 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 1st following the preceding December 31st
date of the annual statement. In this instance, the company shall provide a
statement of actuarial opinion in accordance with Section 7 with appropriate
qualification noting the intent to subsequently provide a statement of
actuarial opinion in accordance with Section 8.
3. In the case of a statement of actuarial
opinion required to be submitted by a foreign or alien company, the
Commissioner may accept the statement of actuarial opinion filed by such
company with the insurance supervisory regulator of another state if the
Commissioner determines that the opinion reasonably meets the requirements
applicable to a company domiciled in this State.
4. Upon written request by the company, the
Commissioner may grant an extension of the date for submission of the statement
of actuarial opinion.
5. 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 Subdivision (8) of Subsection (D)
cited above.
B. A
"Qualified Actuary" is an individual who:
1.
Is a member in good standing of the American Academy of Actuaries;
and
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; and
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;
or
b. Been found guilty of
fraudulent or dishonest practices; or
c. Demonstrated his or her incompetency, lack
of cooperation, or untrustworthiness to act as a qualified actuary;
or
d. Submitted to the-
Commissioner during the past five (5) years pursuant to this regulation an
actuarial opinion or memorandum that the Commissioner rejected because it did
not meet the provisions of this regulation 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 Commissioner of any other
state similar to that under Paragraph (4) above.
C. An "Appointed Actuary" is a qualified
actuary who is appointed or retained to prepare the Statement of Actuarial
Opinion required by this 1 Regulation; either directly by or by the authority
of the board of directors through an executive officer of the company. The
company shall ! give the Commissioner timely written notice of the:
1. name:
2. title;
3. the name of the firm in the case of a
consulting actuary; and
4. the
manner of appointment or retention of each person appointed or retained by the
company as an appointed actuary.
The notice shall state that the person meets the requirements set
forth in Section 5(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 Section 5(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 Regulation:
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 Regulation, which standards are to form the
basis of the statement of actuarial opinion in accordance with Section 8 of
this Regulation; 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 Section 3 of the NAIC
Model Standard Valuation Law, Ark. Code Ann. §
23-84-112,
as amended by Act 621 of 1995, the statement of actuarial opinion shall apply
to all in force business on the statement date regardless of when or where
issued, e.g., reserves of Exhibits 8, 9 and 10, and claim liabilities in
Exhibit 11, 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 Sections 5, 5(a), 8, 9 and
10 of the Standard Valuation Law, Ark. Code Ann. §§
23-84-101, et
seq., as amended, the company shall establish such additional
reserve.
3. For years ending prior
to December 31, 1996, the company may, in lieu of establishing the full amount
of the additional reserve in the annual statement for that year, set up an
additional reserve in an amount not less than the following:
a. December 31, 1995. The additional reserve
divided by three (3).
b. December
31, 1996. Two (2) times the additional reserve divided by three (3).
4. Additional reserves established
under Paragraphs 2 or 3 above and deemed not necessary in subsequent years may
be released. Any amounts released must 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
In accordance with Section 3 of the NAIC Model Standard Valuation
Law, Ark. Code Ann. §
23-84-112,
as amended by Act 621 of 1995, every company doing business in this State shall
annually submit the opinion of an appointed actuary as provided for by this
Regulation. 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 Regulation.
B. Company Categories
For purposes of this Regulation, 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 $20 million;
2. Category B shall consist of those
companies whose admitted assets exceed $20 million but do not exceed $100
million;
3. Category C shall
consist of those companies whose admitted assets exceed $100 million but do not
exceed $500 million; and
4.
Category D shall consist of those companies whose admitted assets exceed $500
million.
C. Exemption
Eligibility Tests
1. Any Category A company
that, for any year commencing with 1995, the year in which this Regulation
becomes effective, 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 Regulation 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.
d.
The Examiner Team 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 of its
state of domicile and the Commissioner has so notified the chair of the NAIC
Life and Health Actuarial Task Force and the NAIC Staff and Support
Office.
2. Any Category B
company that, for any year commencing with 1995, the year in which this
Regulation becomes effective, 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 Regulation 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.
d.
The Examiner Team 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 of its
state of domicile and the Commissioner has so notified the chair of the NAIC
Life and Health Actuarial Task Force and the NAIC Staff and Support
Office.
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 exempted from submission
of a statement of actuarial opinion in accordance with Section 8 of this
Regulation 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 commencing with 1995, the year in which this Regulation becomes
effective, 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 Regulation for the year for which it is not exempt.
5. Any Category C company that, after
submitting an opinion in accordance with Section 8 of this Regulation, 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 Regulation 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 Regulation 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.
d. The Examiner Team 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 of its state of domicile and the Commissioner
has so notified the chair of the NAIC Life and Health Actuarial Task Force and
the NAIC Staff and Support Office.
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 Regulation for any year shall submit a statement of actuarial opinion
in accordance with Section 7 of this Regulation for that year unless as
provided for by the second paragraph of Section 3 of this Regulation the
Commissioner requires a statement of actuarial opinion in accordance with
Section 8 of this Regulation.
D. Large Companies
Every Category D company shall submit a statement of actuarial
opinion in accordance with Section 8 of this Regulation for each year
commencing with 1995, the year in which this Regulation becomes
effective.
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 a paragraph identifying the appointed actuary and his or her
qualifications; a regulatory authority paragraph stating that the company is
exempt pursuant to this Regulation 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 Regulation; 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 an opinion paragraph expressing the appointed actuary's opinion as
required by Section 3 of the NAIC Model Standard Valuation Law, Ark. Code Ann.
§
23-84-112,
as amended by Act 621 of 1995.
B. Recommended Language
The following language provided is that which in typical
circumstances 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 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 companies."
For a consulting actuary, the opening paragraph of the actuarial
opinion should contain a sentence such as:
"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 Regulation 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
Regulation."
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 8;
b. Aggregate reserve and
deposit funds for policies and contracts included in Exhibit 9;
c. Deposit funds, premiums, dividend and
coupon accumulations and supplementary contracts not involving life
contingencies included in Exhibit 10; and
d. Policy and contract claims - liability end
of current year included in Exhibit 11, 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 sentence such as one of the following:
"I have relied upon listings and summaries of policies 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 certifying shall follow the form
indicated by Section 7(B)(10).
6. The opinion paragraph should include the
language recited in Rule Exhibit A attached.
7. The concluding paragraph should document
the eligibility for the company to provide an opinion as provided by this
Section 7. It shall include the language recited in Rule Exhibit B
attached.
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, and the reference in Section 7 (B) (6) (d) above, in Rule
Exhibit A attached, to be consistent should read as follows:
"... with the exception of the change described on Page [ ] of
the annual statement (or in the preceding paragraph)."
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.
9. 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.
10. 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 and 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
Section 8(B)(1)];
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 which have been analyzed
for asset adequacy and the method of analysis, [see Rule Section 8(B)(2)] and
identifying the reserves and related actuarial items covered by the opinion
which have not been so analysed;
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 Rule
Section 8(B)(3)], supported by a statement of each such expert in the form
prescribed by Rule Section 8(E);
4.
An opinion paragraph expressing the appointed actuary's opinion with respect to
the adequacy of the supporting assets to mature the liabilities [see Rule
Section 8(B)(6) in Rule Exhibit D attached]; and
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 the
method of aggregation for reserves of different products or lines of business
for asset adequacy analysis;
c. If
the appointed actuary must disclose reliance upon any portion of the assets
supporting the Asset Valuation Reserve ("AVR"), Interest Maintenance Reserve
("IMR") or other mandatory or voluntary statement of reserves for asset
adequacy analysis.
d. 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.
e. If the appointed
actuary must disclose whether additional reserves of the prior opinion date are
released as of this opinion date, and the extent of the release.
f. If the appointed actuary chooses to add a
paragraph briefly describing the assumptions which 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 which 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 read as follows:
"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 contain a sentence 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 the language recited in Rule
Exhibit C attached.
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 the
following:
"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] and, as certified in the attached statement, ..."
or
"I have relied on personnel as cited in the supporting memorandum
for certain critical aspects of the analysis in reference to the accompanying
statement."
Such a statement of reliance on other experts should be
accompanied by a statement by each of such experts of the form prescribed by
Rule Section 8 (E).
4. If
the appointed actuary has examined the underlying asset and liability records,
the reliance paragraph should also include the following:
"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."
5. If the appointed actuary has
not examined the underlying records, but has relied upon listings and summaries
of policies in force and/or asset records' prepared by the company or a third
party, the reliance paragraph should include a sentence such as:
"I have relied upon listings and summaries [of policies and
contracts, of asset records] prepared by [name and title of company officer
certifying in-force records] as certified in the attached statement. In other
respects my examination included such 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 tests of the actuarial calculations as I considered necessary."
Such a section must be accompanied by a statement by each person
relied upon of the form prescribed by Rule Section 8(E).
6. The opinion paragraph should include the
language recited in Rule Exhibit D attached.
C. Assumptions for New Issues
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 Rule Section
8.
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 reason(s) for
such opinion.
This statement should follow the scope paragraph and precede the
opinion paragraph.
E.
Reliance on Data 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
and/or asset oriented information, there shall be attached to the opinion the
statement of a company officer or accounting firm who prepared such underlying
data. The language should be similar to that recited in Rule Exhibit E
attached.
SECTION
9. Description of Actuarial Memorandum Including an Asset Adequacy
Analysis
A. General
1. In accordance with Section 3 of the NAIC
Model Standard Valuation Law, Ark. Code Ann. §
23-84-112,
as amended by Act 621 of 1995, 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 Rule Section 8 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
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
Regulation, 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 Regulation, 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 Regulation.
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 Regulation for any one of the current year or the
preceding three (3) years.
B. Details of the Memorandum Section
Documenting Asset Adequacy Analysis (Section 8)
When an actuarial opinion under Rule Section 8 is provided, the
memorandum shall demonstrate that the analysis has been done in accordance with
the standards for asset adequacy referred to in Section 5 (D) of this
Regulation and any additional standards under this Regulation. 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; and
e. Reinsurance arrangements.
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; and
d. Asset valuation
bases.
3. Analysis basis:
a. Methodology;
b. Rationale for inclusion/exclusion of
different blocks of business and how pertinent risks were analyzed;
c. Rationale for degree of rigor in analyzing
different blocks of business;
d.
Criteria for determining asset adequacy; and
e. Effect of federal income taxes,
reinsurance and other 'relevant factors.
4. Summary of Results
5. Conclusion(s)
C. 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 standards form the basis
for this memorandum."
SECTION
10. Additional Considerations for Analysis
A. Aggregation
For the asset adequacy analysis for the statement of actuarial
opinion provided in accordance with Section 8 of this Regulation, 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.
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, hereafter
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. 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, must 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
("AVE."); 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.
D. Required Interest Scenarios
For the purpose of performing the asset adequacy analysis
required by this Regulation, the qualified actuary is expected to follow
standards adopted by the Actuarial Standards Board; nevertheless, 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 of ten (10) years and then
level;
4. An immediate increase of
three percent (32) 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 of ten (10) years and then level;
and
7. An immediate decrease of
three percent (32) 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 (502) 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 rates should be consistent for
all interest rate scenarios.
E. 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 opinions when eligible for any exemptions
under this Rule; and 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 fines or monetary
penalties.
Companies and actuaries filing false statements of financial
conditions in connection with the actuarial opinions required by this Rule, or
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 Trade
Practices violations under Ark. Code Ann. §
23-66-206(4)
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 December 1,
1995. This Regulation shall take effect for annual statements for the year
1995, and filed with the Commissioner on or before March 1, 1996.
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.
