Section
1 Purpose
The purposes of this regulation are to prescribe:
A. Requirements for statements of actuarial
opinion which are to be submitted in accordance with
8 V.S.A. §
3561, § 3577, subchapter 4 of Chapter
103 and Chapter 121 and for memoranda in support thereof;
B. Rules applicable to the appointment of an
appointed actuary; and
C. Guidance
as to the meaning of "adequacy of reserves."
Section 2 Authority
This regulation is issued pursuant to the authority vested in
the Commissioner of the Department of Banking, Insurance, Securities and Health
Care Administration of the State of Vermont under
8 V.S.A §
15, § 3561, § 3577 and subchapter 4
of Chapter 103 (Standard Valuation Law).
Section 3 Scope
This regulation shall apply to all life insurance companies
and fraternal benefit societies doing business in this State and to all life
insurance companies and fraternal benefit societies which are authorized to
reinsure life insurance, annuities or accident and health insurance business in
this State.
This regulation shall be applied in a manner that allows the
appointed actuary to utilize his or her professional judgment in performing the
asset analysis and developing the actuarial opinion and supporting memoranda,
consistent with relevant actuarial standards of practice. However, the
commissioner shall have the authority to specify specific methods of actuarial
analysis and actuarial assumptions when, in the commissioner's judgment, these
specifications are necessary for an acceptable opinion to be rendered relative
to the adequacy of reserves and related items.
This regulation shall be applicable to all annual statements
filed with the office of the commissioner after the effective date of this
regulation. A statement of opinion on the adequacy of the reserves and related
actuarial items based on an asset adequacy analysis in accordance with Section
6 of this
regulation, and a memorandum in support thereof in accordance with Section 7 of
this regulation, shall be required each year.
Section 4 Definitions
A. "Actuarial Opinion" means the opinion of
an appointed actuary regarding the adequacy of the reserves and related
actuarial items based on an asset adequacy analysis in accordance with Section
6 of this
regulation and with applicable Actuarial Standards of Practice;
B. "Actuarial Standards Board" means 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 8 V.S.A. 3561 or 8 V.S.A. 4494 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 5C of this regulation to provide the actuarial opinion and supporting
memorandum as required by
8 V.S.A. §
3577.
E. "Asset Adequacy Analysis" means an
analysis that meets the standards and other requirements referred to in Section
5D of this regulation.
F.
"Commissioner" means the Commissioner of Banking, Insurance, Securities and
Health Care Administration.
G.
"Company" means a life insurance company, fraternal benefit society or
reinsurer subject to the provisions of this regulation.
H. "Qualified Actuary" means any individual
who meets the requirements set forth in Section 5B of this
regulation.
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
beginning with 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
6 of this
regulation;
(2) Upon written
request by the company, the commissioner may grant an extension of the date for
submission of the statement of actuarial opinion.
B. Qualified Actuary. A "qualified actuary"
is an individual who meets the requirements of 8 V.S.A. 3577(h) and has not
been disqualified under 8 V.S.A. 3577(j).
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 regulation; 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 such notice that the person meets the requirements set forth in
Subsection 5B. 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 5B. 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 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 8 V.S.A.
Chapter 3, subchapter 4, Standard Valuation Law, and Chapter 121, on fraternal
benefit societies, 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 8, 9 and 10, and
claim liabilities in Exhibit 11, Part I in the annual statement required in 8
V.S.A. 3561 and equivalent items in the separate account statement or
statements and successor exhibits to these exhibits.
(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 8 V.S.A. Chapter 103, subchapter 4 and Chapter 121, the
company shall establish such additional reserve.
(3) Additional reserves established under
Subsection (E)(2) of this section 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 Statement of Actuarial
Opinion Based on 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 6B(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 that have been analyzed
for asset adequacy and the method of analysis, (see Subsection 6B(2)) and
identifying the reserves and related actuarial items covered by the opinion
which 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 6B(3)), supported by a statement of each such expert
in the form prescribed by Subsection 6E; 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 6B(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 of the prior opinion date are released as of this
opinion date, and the extent of the release;
(d) 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 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, 20 . Tabulated below are those reserves and
related actuarial items which have been subjected to asset adequacy analysis.
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Asset Adequacy Tested Amounts-Reserves and
Liabilities
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Statement Item
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Formula Reserves (1)
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Additional Actuarial Reserves
(a)(2)
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Analysis Method (b)
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Other Amounts (3)
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Total Amount (1)+(2)+(3) (4)
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Exhibit 5
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Life Insurance
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Annuities
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Supplementary Contracts with Life
Contingencies
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Accidental Death Benefit
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Disability--Active Lives
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Disability--Disabled Lives
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Miscellaneous Reserves
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Total-Line 9999999, Col. 2 (Statement of Liabilities,
Surplus and Other Funds-Line 1)
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Exhibit 6
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Active Life Reserve
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Claim Reserve
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Total-Line 16, Col. 1 (Statement of Liabilities,
Surplus and Other Funds-Line 2)
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Exhibit 7
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Premium and Other Deposit Funds-Line 14, Col.
6
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Dividend Accumulations or Refunds-Line 14, Col.
5
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Supplemental Contracts-Line 14, Col. 4
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Annuities Certain-Line 14, Col. 3
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Guaranteed Interest Contracts-Line 14, Col. 2
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Total-Line 14, Col. 1 (Statement of Liabilities,
Surplus and Other Funds-Line 3)
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Exhibit 8 Part 1
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Life-Line 4.4, Col. 1 less sum of Cols. 9, 10 and 11
(Statement of Liabilities, Surplus and Other Funds-Line 4.1)
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Health-Line 4.4, Sum of Cols. 9, and 11 (Statement of
Liabilities, Surplus and Other Funds-Line 4.2)
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Separate Accounts
(Separate Accounts Annual Statement, Page 3, Lines 1
and 2)
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TOTAL RESERVES
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IMR (Statement of Liabilities, Surplus and Other
Funds, Line 9.4)
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Separate Accounts IMR (Separate Accounts Annual
Statement, Page 3, Line 3)
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AVR (Statement of Liabilities, Surplus and Other
Funds, Line 24.1)
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(c)
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Net Deferred and Uncollected Premium (Statement of
Assets, Lines 13.1 and 13.2)
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Notes:
(a) The additional actuarial reserves are the
reserves established under Paragraphs (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 regulation, by means of symbols
which should be defined in footnotes to the table.
(c) Allocated amount of Asset Valuation Reserve
(AVR).
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(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. 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 such experts of the form prescribed by
Section 6E.
(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. 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
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:
"In forming my opinion on specify types of reserves , 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. 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 such review of the actuarial assumptions and
actuarial methods and such 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 Section 8E.
(6) The opinion paragraph should include the
following:
"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 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 regulation of the state of Vermont 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);
(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 such
assets, and the considerations anticipated to be received and retained under
such 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 change(s) 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
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 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 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 relies on the certification of
others on matters concerning the accuracy and completeness of any data
underlying the actuarial opinion, e.g. the listings and summaries of policies
in force and/or asset oriented information, the actuarial opinion should so
indicate the persons the actuary is relying upon and a precise identification
of the items subject to reliance. In addition, there shall 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 of company or accounting
firm , hereby affirm that the listings and summaries of policies and contracts
in force as of December 31, 19 , and other liabilities 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
and/or
I, name of officer , title of name of company, accounting
firm, or security analyst , hereby affirm that the listings, summaries and
analyses relating to data prepared for and submitted to name of appointed
actuary in support of the asset-oriented aspects of the opinion 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, Accounting Firm or
the Security Analyst Address of the Officer of the Company, Accounting Firm or
the Security Analyst Telephone Number of the Officer of the Company, Accounting
Firm or the Security Analyst
F. Alternate Option
(1) The Standard Valuation Law gives the
commissioner broad authority to accept the valuation of a foreign insurer when
that valuation meets the requirements applicable to a company domiciled in this
state in the aggregate. As an alternative to the requirements of Subsection
B(6)(c), the commissioner may make one or more of the following additional
approaches available to the opining actuary:
(a) A statement that the reserves "meet the
requirements of the insurance laws and regulations of the State of state of
domicile and the formal written standards and conditions of this state for
filing an opinion based on the law of the state of domicile." If the
commissioner chooses to allow this alternative, a formal written list of
standards and conditions shall be made available. If a company chooses to use
this alternative, the standards and conditions in effect on July 1 of a
calendar year shall apply to statements for that calendar year, and they shall
remain in effect until they are revised or revoked. If no list is available,
this alternative is not available.
(b) A statement that the reserves "meet the
requirements of the insurance laws and regulations of the State of state of
domicile and I have verified that the company's request to file an opinion
based on the law of the state of domicile has been approved and that any
conditions required by the commissioner for approval of that request have been
met." If the commissioner chooses to allow this alternative, formal written
statement of such allowance shall be issued no later than March 31 of the year
it is first effective. It shall remain valid until rescinded or modified by the
commissioner. The rescission or modifications shall be issued no later than
March 31 of the year they are first effective. Subsequent to that statement
being issued, if a company chooses to use this alternative, the company shall
file a request to do so, along with justification for its use, no later than
April 30 of the year of the opinion to be filed. The request shall be deemed
approved on October 1 of that year if the commissioner has not denied the
request by that date.
(c) A
statement that the reserves "meet the requirements of the insurance laws and
regulations of the State of state of domicile and I have submitted the required
comparison as specified by this state."
i. If
the commissioner chooses to allow this alternative, a formal written list of
products (to be added to the table in Item (ii) below) for which the required
comparison shall be provided will be published. If a company chooses to use
this alternative, the list in effect on July 1 of a calendar year shall apply
to statements for that calendar year, and it shall remain in effect until it is
revised or revoked. If no list is available, this alternative is not
available.
ii. If a company desires
to use this alternative, the appointed actuary shall provide a comparison of
the gross nationwide reserves held to the gross nationwide reserves that would
be held under NAIC codification standards. Gross nationwide reserves are the
total reserves calculated for the total company in force business directly sold
and assumed, indifferent to the state in which the risk resides, without
reduction for reinsurance ceded. The information provided shall be at least:
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(1)
Product Type
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(2)
Death Benefit or Account Value
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(3)
Reserve Held
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(4)
Codification Reserves
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(5)
Codification Standard
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iii.
The information listed shall include all products identified by either the
state of filing or any other states subscribing to this alternative.
iv. If there is no codification standard for
the type of product or risk in force or if the codification standard does not
directly address the type of product or risk in force, the appointed actuary
shall provide detailed disclosure of the specific method and assumptions used
in determining the reserves held.
v. The comparison provided by the company is
to be kept confidential to the same extent and under the same conditions as the
actuarial memorandum.
(2) Notwithstanding the above, the
commissioner may reject an opinion based on the laws and regulations of the
state of domicile and require an opinion based on the laws of this state. If a
company is unable to provide the opinion within sixty (60) days of the request
or such other period of time determined by the commissioner after consultation
with the company, the commissioner may contract an independent actuary at the
company's expense to prepare and file the opinion.
Section 7 Description of Actuarial
Memorandum Including an Asset Adequacy Analysis and Regulatory Asset Adequacy
Issues Summary
A. General
(1) In accordance with
8 V.S.A. §
3577 and § 4494 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
8 V.S.A. §§
3577 and
4494, the
appointed actuary shall prepare a regulatory asset adequacy issues summary, the
contents of which are specified in Subsection C. Companies domiciled in Vermont
shall submit the regulatory asset adequacy issues summary no later than March
15 of the year following the year for which a statement of actuarial opinion
based on asset adequacy is required. Companies domiciled outside Vermont are
not required to submit the regulatory asset adequacy issues summary annually,
however, the summary shall be made available for examination by the
Commissioner upon request. 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 analysis 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;
(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;
(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
functions;
(iii) Mortgage
prepayment function;
(iv)
Determining market value for assets sold due to disinvestments 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) 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 and criteria for determining adequacy
(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) Effect of federal income
taxes, method of treating reinsurance, and other relevant factors.
(4) Summary of material changes in
methods, procedures, or assumptions from prior year's asset adequacy
analysis;
(5) Summary of Results;
and
(6) Conclusion(s).
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, 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 (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 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.
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.
