Utah Admin. Code R590-162-6 - Description of Actuarial Memorandum Including an Asset Adequacy Analysis

(1) General Provisions of Actuarial Memorandum.

(a)

(i) Under Section 31A-17-503, an appointed actuary shall prepare a memorandum to a company describing the analysis done in support of the opinion with respect to reserves, and shall make it available for examination by the commissioner upon request.

(ii) The memorandum shall be returned to the company after examination by the commissioner and is not considered a record of the department or subject to automatic filing with the commissioner.

(b) In preparing the memorandum, the appointed actuary may rely on, and include as a part of the memorandum, memoranda prepared and signed by other qualified actuaries, with respect to the areas covered in the memoranda.

(c)

(i) If the commissioner requests a memorandum and a memorandum does not exist 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 a supporting memorandum as required for review.

(ii) A reasonable and necessary expense of the independent review shall be paid by the company but the review is directed and controlled by the commissioner.

(d)

(i) The reviewing actuary has the same status as an examiner for purposes of obtaining data from the company.

(ii) The work papers and documentation of the reviewing actuary are retained by the commissioner; however, any information provided by the company to the reviewing actuary and included in the work papers are considered material provided by the company to the commissioner and are kept confidential pursuant to Section 31A-17-517.

(iii) The reviewing actuary may 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 the current year or the preceding three years.

(e)

(i) Under Section 31A-17-503, the appointed actuary shall prepare a regulatory asset adequacy issues summary, pursuant to Subsection (3).

(ii) A company domiciled in this state shall submit the regulatory asset adequacy issues summary no later than March 15 of the year following the year a statement of actuarial opinion based on asset adequacy is required.

(iii) A foreign company shall make the regulatory asset adequacy issues summary available to the commissioner upon request.

(iv) The regulatory asset adequacy issues summary is kept confidential to the same extent and under the same conditions as the actuarial memorandum.

(2) Detail of the Memorandum Documenting Asset Adequacy Analysis.

The memorandum documenting asset adequacy analysis shall demonstrate that the analysis was done in accordance with the standards for asset adequacy and shall include:

(a) for reserves:

(i) product descriptions including market description, underwriting and other aspects of a risk profile, and the specific risks the appointed actuary considers significant;

(ii) source of liability in force;

(iii) reserve method and basis;

(iv) investment reserves;

(v) reinsurance arrangements;

(vi) identification of an explicit or implied guarantee made, the general account in support of benefits provided through a separate account or under a separate account policy or contract, and the method used by the appointed actuary to provide for the guarantee in the asset adequacy analysis; and

(vii) documentation of assumptions to test reserves for the following:

(A) lapse rates, including both base and excess;

(B) interest crediting strategy;

(C) mortality;

(D) policyholder dividend strategy;

(E) competitor or market interest rate;

(F) annuitization rates;

(G) commissions and expenses; and

(H) morbidity;

(b) for assets:

(i) portfolio descriptions, including a risk profile disclosing the quality, distribution, and types of assets;

(ii) investment and disinvestment assumptions;

(iii) source of asset data;

(iv) asset valuation bases; and

(v) documentation of assumptions made for:

(A) default costs;

(B) bond call function;

(C) mortgage prepayment function;

(D) determining market value for assets sold due to disinvestment strategy; and

(E) determining yield on assets acquired through the investment strategy;

(c) for the analysis basis:

(i) methodology;

(ii) rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;

(iii) rationale for degree of rigor in analyzing different blocks of business, including the level of materiality used to determine how rigorously to analyze different blocks of business;

(iv) criteria for determining asset adequacy, including the criteria used to determine if assets are adequate to cover reserves under moderately adverse conditions or other conditions specified in relevant actuarial standards of practice; and

(v) effect of federal income taxes, reinsurance, and other relevant factors;

(d) summary of material changes in methods, procedures, or assumptions from prior year's asset adequacy analysis;

(e) summary of results; and

(f) conclusions.

(3) Detail of the Regulatory Asset Adequacy Issues Summary.

A regulatory asset adequacy issues summary shall include:

(a) a description of the scenarios tested, including whether those scenarios are stochastic or deterministic, and the sensitivity testing done relative to those scenarios;

(i) if negative ending surplus results under certain tests in aggregate, the actuary shall describe those tests and the amount of additional reserve as of the valuation date that, if held, would eliminate the negative aggregate surplus values; and

(ii) 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 subject to asset adequacy analysis in the prior year opinion but not subject to analysis for the current year opinion;

(d) comments on any interim results that may be of significant concern to the appointed actuary, for example, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserve during one or more interim periods;

(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 scenario tested;

(f) whether the actuary is satisfied that all options, whether explicit or embedded, in any asset or liability, including those affecting cash flows embedded in fixed income securities, and equity-like features in an investment were appropriately considered in the asset adequacy analysis;

(g) the name of the company the regulatory asset adequacy issues summary is being prepared for;

(h) the signature of the appointed actuary; and

(i) the date of the actuarial opinion.

(4) Documentation.

(a) The appointed actuary shall retain, for at least seven years, sufficient documentation to determine the procedures followed, the analyses performed, the bases for assumptions, and the results obtained.

(b) The documentation shall be of such quality that an actuary reviewing the actuarial memorandum can form a conclusion as to the reasonableness of the assumptions.

Notes

Utah Admin. Code R590-162-6

Amended by Utah State Bulletin Number 2022-16, effective 8/8/2022