INSURANCE DEPARTMENT [ 31 PA. CODE CH. 84b ] Actuarial Opinion and Memorandum [38 Pa.B. 1949]
[Saturday, April 26, 2008]The Insurance Department (Department) proposes to amend Chapter 84b (relating to actuarial opinion and memorandum) to read as set forth in Annex A. The proposed rulemaking is made under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. §§ 66, 186, 411 and 412) and section 301 of The Insurance Department Act (act) (40 P. S. § 71).
Purpose
The purpose of the proposed rulemaking is to update Chapter 84b to include amendments made by the National Association of Insurance Commissioners (NAIC) to Model Regulation 822, entitled ''Actuarial Opinion and Memorandum Regulation.'' That regulation requires all life insurance companies and fraternal benefit societies to submit actuarial opinions based on an asset adequacy analysis, commonly known as ''Section 8 opinions.'' Several of these changes are required for the Department to maintain accreditation by the NAIC beginning in 2009.
A copy of the copyrighted NAIC model regulation was provided to the Legislative Standing Committees, the Independent Regulatory Review Commission (IRRC), the Governor's Office of Policy and Planning, the Governor's Office of General Counsel and the Attorney General to assist in their analysis of this proposed rulemaking. Copies of NAIC model regulations are available to the general public by contacting the NAIC.
Explanation of Regulatory Requirements
The following is a description of the changes contained in the proposed rulemaking:
Section 84b.1 (relating to purpose) is being amended to add reference to supporting memoranda and recognize the regulation's additional purpose to provide guidance on the meaning of adequacy of reserves.
Section 84b.2 (relating to applicability) is being amended to reflect that the regulation will be applied in a manner to recognize an appointed actuary's professional judgment in performing duties specified by the regulation while retaining the Commissioner's authority to require specific methods of actuarial analysis and assumptions when necessary to ensure adequacy of reserves.
Section 84.3 (relating to scope) is being amended to eliminate the references to companies that are exempted from performing an asset adequacy analysis.
Section 84b.4 (relating to definitions) is being amended to modify definitions to reflect the elimination of the exemption from the performance of an asset adequacy analysis, change references to the sections of the chapter in accordance with the elimination, delete definitions no longer necessary because references in the regulation have been deleted, and make other modifications as a matter of form.
Section 84b.5 (relating to general requirements) is being amended to reflect the elimination of the exemption from the performance of an asset adequacy analysis. In addition, changes are proposed to clarify that the actuarial opinion applies to both directly issued and assumed business, and to replace outdated annual statement exhibit number references with descriptive language.
Sections 84b.6 and 84b.7 (relating to required opinions; and statement of actuarial opinion not including an asset adequacy analysis) are being rescinded to comply with amendments made to the NAIC model regulation reflecting the requirement that one type of opinion is to be filed for all companies except for companies doing business in one state.
Section 84b.8 (relating to statement of actuarial opinion based on an asset adequacy analysis) is being revised to conform with IRRC standards, to eliminate the requirement that certain statements be included in the actuarial memorandum verbatim by permitting actuarial opinions to contain statements that comply with the general regulatory requirements. Changes are also proposed to simplify and clarify the requirements and as a matter of form, and to reflect where statements may be omitted, at the Commissioner's discretion, for a company domiciled and doing business in this Commonwealth only. Section 84b.8 is also being revised to remove the table from the body of the regulation. This table will be made readily available on the Department's website.
Section 84b.9 (relating to description of actuarial memorandum including an asset adequacy analysis) is being revised to comply with the NAIC model regulation by requiring a regulatory asset adequacy issues summary to be submitted each year, specifying the contents of the summary, and specifying the information and data required in the actuarial memorandum. Changes are also being proposed to correct references to sections which are being amended and to the heading of the section to conform to the contents therein.
Section 84b.10 (relating to additional considerations for analysis) is being rescinded to comply with the NAIC model regulation by deleting aggregation, allocation and interest scenario requirements concerning an asset adequacy analysis.
Section 84b.11 (relating to insurance company disciplinary action) is being revised to correct references to the applicable section of law referenced.
Affected Parties
The proposed rulemaking will apply to life insurance companies and fraternal benefit societies doing business in this Commonwealth.
Fiscal Impact
State Government
There will be no increase in cost to the Department as a result of the adoption of the proposed amendment to Chapter 84b. As part of its solvency monitoring responsibilities, the Department currently reviews statements of actuarial opinion and supporting memoranda. Thus, this proposed rulemaking will not require any additional staff time or resources to perform the analysis.
General Public
Since the proposed rulemaking concerns the solvency requirements applied to insurers, the public will benefit from a financially sound insurance industry that has the ability to fulfill its contractual obligations under life insurance policies.
Political Subdivisions
The proposed rulemaking will not impose additional costs on political subdivisions. However, because the proposed rulemaking promotes stability in this Commonwealth's insurance industry, political subdivisions' tax revenues would benefit as a result of fewer insurer insolvencies. Fewer insolvencies would result in less unemployment and would also increase incentives for insurers to market new insurance products in this Commonwealth.
Private Sector
The proposed rulemaking may impose additional costs on insurers that are currently exempt from submitting an actuarial opinion based on an asset adequacy analysis. The amount of the additional cost will depend on the type and extent of the asset adequacy analysis that the insurer's actuary believes is necessary to submit an actuarial opinion. The rulemaking provides the actuary flexibility to use professional judgment in performing the analysis.
Paperwork
The adoption of this proposed rulemaking would not impose additional paperwork on the Department. Insurers that currently do not prepare an actuarial memorandum because the actuarial opinion is not based on an asset adequacy analysis will be required to prepare an actuarial memorandum under the proposed rulemaking. In addition, insurers are required under the proposed rulemaking to submit a regulatory asset adequacy issues summary each year. The amount of additional paperwork in preparing the memorandum and summary will depend on the type and extent of the asset adequacy analysis performed.
Effectiveness/Sunset Date
The proposed rulemaking will become effective January 1, 2009. The Department continues to monitor the effectiveness of regulations on a triennial basis; therefore, no sunset date has been assigned.
Contact Person
Questions or comments regarding the proposed rulemaking may be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, Insurance Department, 1326 Strawberry Square, Harrisburg, PA 17120, within 30 days following the publication of this notice in the Pennsylvania Bulletin. Questions and comments may also be e-mailed to psalvatore@state.pa.us or faxed to (717) 705-3873.
Under the Regulatory Review Act (act) (71 P. S. §§ 745.1--745.15), the Department is required to write to all commentators, requesting whether or not they wish to receive a copy of the final-form rulemaking. To better serve our stakeholders, the Department has made a determination that all commentators will receive a copy of the final-form rulemaking when it is made available to IRRC and the legislative standing committees.
Regulatory Review
Under section 5(a) of the act (71 P. S. § 745.5(a)), on April 16, 2008, the Department submitted a copy of this proposed rulemaking to IRRC and to the Chairpersons of the Senate Banking and Insurance Committee and the House Insurance Committee. In addition to the submitted proposed rulemaking, the Department has, as required by the act, provided IRRC and the committees with a copy of a detailed Regulatory Analysis Form prepared by the Department. A copy of that material is available to the public upon request.
IRRC will notify the Department of any objections to any portion of the proposed rulemaking within 30 days of the close of the public comment period. The notification shall specify the regulatory review criteria that have not been met by that portion. The act specifies detailed procedures for the Department, the Governor, and the General Assembly to review these objections before final publication of the regulations.
JOEL SCOTT ARIO,
Acting Insurance CommissionerFiscal Note: 11-235. No fiscal impact; (8) recommends adoption.
Annex A TITLE 31. INSURANCE PART VI. LIFE INSURANCE CHAPTER 84b. ACTUARIAL OPINION AND MEMORANDUM. § 84b.1. Purpose.
The purpose of this chapter is to promulgate [standards] requirements for statements of actuarial opinions and for supporting memoranda as required by section 301[(f)](g) of the act (40 P. S. § 71[(f)](g)) and to provide guidance on the meaning of adequacy of reserves.
§ 84b.2. Applicability.
This chapter applies to life insurance companies and fraternal benefit societies doing business in this Commonwealth. This chapter shall be applied in a manner that allows the appointed actuary to utilize professional judgment in performing the asset adequacy analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards of practice. However, the Commissioner will have the authority to require 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.
§ 84b.3. Scope.
[(a) Types of opinions. Except with respect to companies which are exempted under § 84b.6 (relating to required opinions), a statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with § 84b.8 (relating to statement of actuarial opinion based on asset adequacy analysis), and a memorandum in support thereof in accordance with § 84b.9 (relating to description of actuarial memorandum including an asset adequacy analysis) shall be required each year. A company so exempted shall file a statement of actuarial opinion under § 84b.7 (relating to statement of actuarial opinion not including an asset adequacy analysis).
(b) Filing upon request. The Commissioner may require a company otherwise exempt under this chapter to submit a statement of actuarial opinion and to prepare a memorandum in support thereof in accordance with §§ 84b.8 and 84b.9 if, in the opinion of the Commissioner, an asset adequacy analysis is necessary with respect to the company. In forming the opinion, the Commissioner will take into consideration issues such as the nature of the business insured, the type of assets owned by the company and the company's financial ratios determined in accordance with § 84b.6(c).]
A statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with § 84b.8 (relating to statement of actuarial opinion based on asset adequacy analysis), and a memorandum in support thereof in accordance with § 84b.9 (relating to description of actuarial memorandum including an asset adequacy analysis and regulatory asset adequacy issues summary) shall be required each year.
§ 84b.4. Definitions.
The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:
* * * * * Actuarial opinion--[With respect to §§ 84b.8 , 84b.9 and 84b.10 (relating to statement of actuarial opinion based on asset adequacy analysis; description of actuarial memorandum including an asset adequacy analysis; and additional considerations for analysis), the] The opinion of an appointed actuary regarding the adequacy of the reserves and related actuarial items based on an asset adequacy [test] analysis in accordance with § 84b.8 (relating to statement of actuarial opinion based on an asset adequacy analysis) and with applicable actuarial standards. [With respect to § 84b.7 (relating to statement of actuarial opinion not including an asset adequacy analysis), the opinion of an appointed actuary regarding the calculation of reserves and related items, in accordance with § 84b.7 and with actuarial standards which specifically relate to this opinion.]
* * * * * Appointed actuary--A qualified actuary who is appointed or retained either directly by the board of directors or by the authority of the board of directors through an executive officer of the company, provided that the executive officer is not the qualified actuary of the company, to prepare the statement of actuarial opinion and supporting memorandum as required by [§]301[(f)](g) of the act (40 P. S. § 71[(f)](g)).
Asset adequacy analysis--An analysis that meets the standards and other requirements referred to in § 84b.5(d) (relating to general requirements). [It may take many forms, including cash flow testing, sensitivity testing or applications of risk theory.]
* * * * * [First priority company--A company designated by the NAIC as a company which should be assigned a first priority in the scheduling of a state's company financial reviews.]
* * * * * [Noninvestment grade bonds--Bonds designated as classes 3, 4, 5 or 6 by the NAIC Securities Valuation Office, or a successor thereto.]
* * * * * [Second priority company--A company designated by the NAIC as a company which should be assigned a second priority in the scheduling of a state's company financial reviews.]
§ 84b.5. General requirements.
(a) Submission of statement of actuarial opinion.
(1) A company shall include on or attach to Page 1 of the annual statement for each year [beginning with 1994], 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 § 84b.8 (relating to statement of actuarial opinion based on asset adequacy analysis). [A company exempted under § 84b.6 (relating to required opinions) from submitting a statement of actuarial opinion in accordance with § 84b.8 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 § 84b.7 (relating to statement of actuarial opinion not including an asset adequacy analysis).]
(2) [If in the previous year a company provided a statement of actuarial opinion in accordance with § 84b.7, and in the current year fails to meet the exemption criteria of § 84b.6(c)(1), (2) or (5), the statement of actuarial opinion in accordance with § 84b.8 is not required until August 1 following the date of the annual statement. In this instance, the company shall provide a statement of actuarial opinion in accordance with § 84b.7 with appropriate qualification noting the intent to subsequently provide a statement of actuarial opinion in accordance with § 84b.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 the 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 Commonwealth.
(4)] 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 requirements. A ''qualified actuary'' is an individual who:
* * * * * (5) Has not failed to notify the Commissioner of any action taken by [a commissioner] the insurance regulatory authority of another state similar to that under paragraph (4).
(c) Appointed actuary notification. The company shall give the Commissioner written notice of the name, title--and, in the case of a consulting actuary, the name of the firm--and the manner of appointment or retention of each person appointed or retained by the company as an appointed actuary and shall state in the notice that the person meets the requirements in subsection (b). Once notice is furnished, no further notice is required with respect to this person, but the company shall give the Commissioner written notice if the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements in subsection (b). The notice of the appointment or termination of the appointment shall be provided to the Commissioner by [January 30, 1995, or] the date of the appointment or termination of the appointment [unless previously provided to the Commissioner]. The notice of termination [shall] must disclose the reasons for termination. Additionally, the terminated actuary shall furnish to the Commissioner and to the company a description of valuation reserve issues that the actuary considered as material at the time of termination or a statement that no material issues exist. The description [shall] must include issues concerning valuation requirements, reserve adequacy, asset adequacy analysis assumptions or methodology and internal controls on the valuation system.
(d) Standards for asset adequacy analysis. The asset adequacy analysis required by this chapter [shall] must:
* * * * * (e) Liabilities to be covered.
(1) Under the authority of section 301[(f)(4)](g)(5)(B) of the act (40 P. S. § 71[(f)(4)](g)(5)(B)), the statement of actuarial opinion [shall] must apply to reserves and related actuarial items associated with all in force business on the statement date, whether directly issued or assumed, regardless of when or where issued (for example, [reserves of Exhibits 8, 9 and 10, and claim liabilities of Exhibit 11, Part I of the annual statement and equivalent items of the separate account annual statement or statements)] aggregate reserve for insurance and annuity contracts, liability for deposit-type contracts, liability for contract claims and equivalent items in the separate account statement or statements).
* * * * * (Editor's Note: As part of this proposed rulemaking, the Department is proposing to rescind the §§ 84b.6 and 84b.7, which appear in 31 Pa. Code pages 84b.5--84b-12, serial pages (229447)--(22945).)
§ 84b.6. [Required opinions] (Reserved).
§ 84b.7. [Statement of actuarial opinion not including an asset adequacy analysis] (Reserved).
§ 84b.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) An opening paragraph as provided in subsection (b)(1) identifying the appointed actuary and the individual's qualifications.
(2) A scope paragraph as provided in subsection (b)(2) 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, and identifying the reserves and related actuarial items covered by the opinion which have not been so analyzed.
(3) A reliance paragraph as provided in subparagraphs (i)--(iii):
(i) If the appointed actuary has deferred to other experts in developing data, procedures or assumptions (for example, anticipated cash flows from currently owned assets, including variation in cash flows according to economic scenarios), the reliance paragraph should include a statement as provided in subsection (b)(3)(i)(A) or (B), supported by a statement of each expert in the form prescribed by subsection (e).
(ii) If the appointed actuary has examined the underlying asset and liability records, the reliance paragraph should include a statement as provided in subsection (b)(3)(ii).
(iii) If the appointed actuary has not examined the underlying records, but has relied upon listings and summaries of policies in force or asset records prepared by the company or a third party, the reliance paragraph should include a statement as provided in subsection (b)(3)(iii)(A) or (B).
(4) An opinion paragraph as provided in subsection (b)(4) expressing the appointed actuary's opinion with respect to the adequacy of the supporting assets to mature the liabilities.
(5) One or more additional paragraphs will be needed in individual company cases as follows:
(i) If the appointed actuary considers it necessary to state a qualification of the opinion.
(ii) If the appointed actuary must disclose the method of aggregation for reserves of different products or lines of business for asset adequacy analysis.
(iii) If the appointed actuary must disclose reliance upon any portion of the assets supporting the Asset Valuation Reserve (AVR) or other mandatory or voluntary statement reserves for asset adequacy analysis.
(iv) If the appointed actuary must disclose an inconsistency in the method of asset allocation used at the prior opinion date with that used for this opinion.
(v) If there is an inconsistency in the method of analysis used at the prior opinion date with that used for this opinion.
(vi) 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.
(vii) 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 shall be included in the statement of actuarial opinion in accordance with this section. The 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 shall use language which clearly expresses the individual's professional judgment. The opinion shall retain all pertinent aspects of the language provided in this subsection.
(1) The opening paragraph shall indicate the appointed actuary's relationship to the company and the individual's qualifications to sign the opinion.
(i) For a company actuary, the opening paragraph of the actuarial opinion shall include a statement such 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 (date). I meet the Academy qualification standards for rendering the opin-ion and am familiar with the valuation requirements applicable to life and health insurance companies.''
(ii) For a consulting actuary, the opening paragraph of the actuarial opinion shall contain a statement such as follows:
''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 (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 shall include a statement such as follows:
''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, 19 (year). Those reserves and related actuarial items which have been subjected to asset adequacy analysis are tabulated as shown in the following table of Reserves and Liabilities.''
(3) The reliance paragraph shall include a statement such as follows:
(i) If the appointed actuary has relied on other experts to develop certain portions of the analysis, the reliance paragraph shall include a statement such as either (A) or (B) as follows:
(A) ''I have relied on (name), (title) for (such as, anticipated cash flows from currently owned assets, including variations in cash flows according to economic scenarios) and, as certified in the attached statement, . . . .''
(B) ''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 shall be accompanied by a statement by each expert in the form prescribed by subsection (e).
(ii) If the appointed actuary has examined the underlying asset and liability records, the reliance paragraph shall also include a statement such as follows:
''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.''
(iii) If the appointed actuary has not examined the underlying records, but has relied upon listings and summaries of policies in force or asset records prepared by the company or a third party, the reliance paragraph shall include a statement such as either clause (A) or clause (B) as follows:
(A) ''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.''
(B) ''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 statement of reliance shall be accompanied by a statement by each person relied upon in the form prescribed by subsection (e).
(4) The opinion paragraph shall include a statement such as follows:
''In my opinion the reserves and related actuarial items identified above:
Are computed in accordance with presently accepted actuarial standards consistently applied and are fairly stated, in accordance with sound actuarial principles;
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;
Meet the requirements of the valuation law and regulations of the state of (state of domicile) and are at least as great as the minimum aggregate amounts required by the state in which this statement is filed.
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;
Include provision for all reserves and related actuarial items which ought to be established.
The reserves and related actuarial 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 two immediately preceding paragraphs, whichever is applicable.
The impact of unanticipated events sussequent 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.
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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 subsection (b)(4).
(d) Adverse opinions. If the appointed actuary is unable to form an opinion, the appointed actuary shall refuse to issue a statement of actuarial opinion. If the appointed actuary's opinion is adverse or qualified, the appointed actuary shall issue an adverse or qualified actuarial opinion explicitly stating the reason for the 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 or asset related information, or both, there shall be attached to the opinion the statement of a company officer or accounting firm who prepared the underlying data similar to either paragraph (1) or (2) or both paragraphs (1) and (2).
(1) ''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 (year), 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''(2) ''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 related 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'']General description. The statement of actuarial opinion required under § 84b.5 (relating to general requirements) must consist of the following:
(1) An opening paragraph that meets the following requirements:
(i) Identifies the actuary's name and title.
(ii) Identifies the insurance company employing the actuary, or if a consulting actuary, the name of the firm with which the actuary is associated.
(iii) States that the actuary is a member of the American Academy of Actuaries (Academy) and that the actuary meets the Academy qualification standards for rendering the opinion.
(iv) States that the actuary was appointed by, or by the authority of, the board of directors of the insurer to render the opinion and is familiar with the valuation requirements applicable to life and health insurance companies.
(v) States the date of the notification letter sent to the Commissioner with respect to the appointment.
(2) A scope paragraph that meets the following requirements:
(i) Describes the extent of the appointed actuary's work.
(ii) Includes a tabulation that meets the following requirements:
(A) Reconciles the reserves and related actuarial items that are covered by the opinion to the annual statement of the company.
(B) Identifies the reserves and related actuarial items that have been analyzed for asset adequacy and the method of analysis.
(C) Identifies the reserves and related actuarial items that have not been analyzed for asset adequacy.
(D) Indicates, for each applicable annual statement item the formula reserves, additional actuarial reserves, analysis method, other amount, and total amount in a format consistent with the ''Reserves and Liabilities'' Table as adopted by the NAIC in the Actuarial Opinion and Memorandum Model Regulation No. 822.
(iii) Includes a statement that the actuary has examined the actuarial assumptions and actuarial methods used in determining reserves and related actuarial items that are included in the tabulation and reported in the annual statement of the company, as prepared for filing with state regulatory officials, as of December 31 of the relevant year.
(3) A reliance paragraph that meets the following requirements:
(i) Documents the appointed actuary's reliance on other experts to develop certain portions of the analysis in accordance with subsection (c) and states that the actuary has reviewed the information relied upon for reasonableness.
(ii) If the appointed actuary has examined the underlying asset and liability records, includes the following statements:
(A) The examination included a review of the actuarial assumptions and actuarial methods and of the underlying basic asset and liability records and tests of the actuarial calculations, as considered necessary by the actuary.
(B) The actuary reconciled the underlying basic asset and liability records to the applicable exhibits and schedules of the company's current annual statement.
(iii) If the appointed actuary has not examined the underlying records, but has relied upon data (for example, listings and summaries of policies in force or asset records) prepared by the company, includes the following:
(A) Documentation of the reliance in accordance with subsection (c).
(B) A statement that, in forming the opinion on specified types of reserves, the actuary relied upon data prepared by a company officer certifying in force records or other data.
(C) The name and title of the company officer certifying in force records or other data.
(D) A statement confirming that the actuary evaluated that data for reasonableness and consistency and reconciled that data to the applicable exhibits and schedules of the company's current annual statement.
(E) A statement confirming that the actuary's examination included review of the actuarial assumptions and actuarial methods used and tests of calculations, as considered necessary by the actuary.
(4) An opinion paragraph that meets the following requirements:
(i) States that the reserves and related actuarial items identified in the tabulation:
(A) Are computed in accordance with presently accepted actuarial standards consistently applied and are fairly stated, in accordance with sound actuarial principles.
(B) Are based on actuarial assumptions that produce reserves at least as great as those called for in any contract provision as to reserve basis and method, and are in accordance with other contract provisions.
(C) Meet the requirements of the valuation law and regulations of the state of [state of domicile].
(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 changes in actuarial assumptions noted as exceptions in a separate paragraph. The adoption for new issues or new claims or other new liabilities of an actuarial assumption that differs from a corresponding assumption used for prior new issues or new claims or other new liabilities is not a change in actuarial assumption within the meaning of this clause.
(E) Provide for all reserves and related actuarial items that ought to be established.
(ii) Includes a statement substantially similar to the following, except that the statement may be omitted, at the discretion of the Commissioner, for an opinion filed on behalf of a company doing business only in this Commonwealth:
''The reserves and related actuarial 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.''
(iii) States that the actuarial methods, considerations and analyses used in forming the actuary's 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.
(iv) Includes one of the following items, as applicable:
(A) A statement that the opinion is updated annually as required by statute, and to the best of the actuary's knowledge, there have been no material changes from the applicable date of the annual statement to the date of the rendering of the opinion that should be considered in reviewing the opinion.
(B) A description of the material changes that occurred between the date of the statement for which the opinion is applicable and the date of the opinion that should be considered in reviewing the opinion.
(v) States that the impact of unanticipated events subsequent to the date of the opinion is beyond the scope of the opinion.
(vi) States that the asset adequacy portion of the opinion should be viewed recognizing that the company's future experience may not follow all the assumptions used in the analysis.
(vii) Includes the date and signature, address and telephone number of the appointed actuary.
(5) One or more paragraphs addressing the following items to the extent applicable:
(i) Disclosure of any qualification of the opinion.
(ii) Disclosure of any inconsistency in the method of asset allocation used at the prior opinion date with that used for the opinion.
(iii) Disclosure of any inconsistency in the method of analysis used at the prior opinion date with that used for the opinion.
(iv) Identification of the existence and extent of additional actuarial reserves released subsequent to the prior opinion date.
(v) At the option of the appointed actuary, assumptions forming the basis for the actuarial opinion.
(b) Adverse opinions. If the appointed actuary is unable to form an opinion, the appointed actuary shall refuse to issue a statement of actuarial opinion. If the appointed actuary's opinion is adverse or qualified, the appointed actuary shall issue an adverse or qualified actuarial opinion explicitly stating the reason for the opinion. This statement should follow the scope paragraph and precede the opinion paragraph.
(c) Reliance on information furnished by other persons. If the appointed actuary relies upon other persons regarding the accuracy or completeness of any data underlying the actuarial opinion or appropriateness of any other information used by the appointed actuary in forming the actuarial opinion, the actuarial opinion must:
(1) Precisely identify the items subject to reliance and the persons relied upon.
(2) Include a signed, dated certification from each person upon whom the actuary is relying that includes the following:
(i) The name, title, company, address and telephone number of the person upon whom the actuary is relying.
(ii) The items on which the person is providing information.
(iii) A statement as to the accuracy, completeness or reasonableness, as applicable, of the items.
§ 84b.9. Description of actuarial memorandum including an asset adequacy analysis and regulatory asset adequacy issues summary.
(a) General.
(1) In accordance with section 301[(f)(3)](g) of the act (40 P. S. § 71[(f)(3)](g)), the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of the opinion regarding the reserves [under a § 84b.8 (relating to statement of actuarial opinion based on asset adequacy analysis) opinion]. The memorandum shall be made available for examination by the Commissioner upon the Commissioner's request but will be returned to the company after examination and will not be considered a record of the Department or subject to automatic filing with the Commissioner.
* * * * * (4) In accordance with section 301(g) of the act, the appointed actuary shall prepare a regulatory asset adequacy issues summary, the contents of which are specified in this section. The regulatory asset adequacy issues summary shall be submitted by 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 shall 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 [under § 84b.8] is provided, the memorandum [shall] must demonstrate that the analysis has been done in accordance with the standards for asset adequacy referred to in § 84b.5(d) and additional standards under this chapter. It [shall] must specify the following:
(1) For reserves:
* * * * * (vi) 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.
(vii) Documentation of assumptions, so that an actuary reviewing the actuarial memorandum could form a conclusion as to reasonableness, established for of the following:
(A) Lapse rates (both base and excess).
(B) Interest crediting rate strategy.
(C) Mortality.
(D) Policyholder dividend strategy.
(E) Competitor or market interest rate.
(F) Annuitization rates.
(G) Commissions and expenses.
(H) Morbidity.
(2) For assets:
* * * * * (vi) Documentation of assumptions, so that an actuary reviewing the actuarial memorandum could form a conclusion as to reasonableness, established for the following:
(A) Default costs.
(B) Bond call function.
(C) Mortgage prepayment function.
(D) Determining market value for assets sold due to disinvestments strategy.
(E) Determining yield on assets acquired through the investment strategy.
(3) [Analysis] For the analysis basis:
* * * * * (v) Rationale for degree of rigor in analyzing different blocks of business including the level of materiality that was used in determining how rigorously to analyze different blocks of business.
(vi) Criteria for determining asset adequacy including 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.
(vii) [Effect of Federal income taxes, reinsurance and other relevant factors] Whether the impact of Federal Income Taxes was considered and the method of treating reinsurance in the asset adequacy analysis.
(4) Summary of [results] material changes in methods, procedures or assumptions from prior year's asset adequacy analysis.
(5) [Conclusion] Summary of results.
(6) Conclusions.
(c) Details of the regulatory asset adequacy issues summary
(1) The regulatory asset adequacy issues summary must include the following:
(i) 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 be reasonably be expected to arise from the assets and liabilities remaining in force.
(ii) 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.
(iii) 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.
(iv) Comments on any interim results that may be of significant concern to the appointed actuary.
(v) 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.
(vi) 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 must 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] must include a statement [such as follows] substantially similar to the following:
''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 an 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 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 supporting the IMR, AVR and other mandatory or voluntary reserves used in the analysis shall be disclosed in the table of reserves and liabilities of the opinion. 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 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.
§ 84b.10. [Additional considerations for analysis] (Reserved).
(Editor's Note: As part of this proposed rulemaking, the Department is proposing to rescind the text of § 84b.10 which appears in 31 Pa. Code pages 84b.22--84b.24, serial pages (229464), (266393) and (266394).)
§ 84b.11. Insurance company disciplinary action.
A company willfully making a false filing of an actuarial opinion or supporting memorandum with the Commissioner or failing to demonstrate a good faith effort to comply with this chapter or section 301[(f)](g) of the act (40 P. S. § 71[(f)](g)) may be subject to a civil penalty not to exceed $50,000, following notice and a hearing.
[Pa.B. Doc. No. 08-789. Filed for public inspection April 25, 2008, 9:00 a.m.]
