A. General
1. In accordance with Miss. Code
Ann. §
83-7-23,
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 5B 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.
5. In accordance with Miss. Code
Ann. §
83-7-23,
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, 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 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;
a. Source of liability in force;
b. Reserve method and basis;
c. Investment reserves;
d. Reinsurance arrangements;
e. 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;
f.
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 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."
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.
