INSURANCE DEPARTMENT [31 PA. CODE CH. 118a] Property and Casualty Actuarial Opinion [36 Pa.B. 3276]
[Saturday, July 1, 2006]The Insurance Department (Department) proposes to add Chapter 118a (relating to property and casualty actuarial opinion) to read as set forth in Annex A. The rulemaking is proposed under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. §§ 66, 186, 411 and 412), regarding the general rulemaking authority of the Department; sections 320 and 655 of The Insurance Company Law of 1921 (40 P. S. §§ 443 and 815) regarding the authority of the Insurance Commissioner (Commissioner) to require insurance companies, associations and exchanges to file statements concerning their affairs and financial condition; sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P. S. §§ 1600.205 and 1600.206); and section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P. S. § 1303.731) regarding, respectively, the specific regulatory and rulemaking authority of the Department regarding financial reporting by the Pennsylvania Fair Plan and the Pennsylvania Professional Liability Joint Underwriting Association.
Purpose
The purpose of this proposed rulemaking is to establish by regulation the requirements for statements of actuarial opinion and related documents filed by property and casualty insurers with the Department. Establishing these requirements by regulation for property/casualty insurers is consistent with the approach used to establish similar requirements for actuarial review of the reserves of life/health insurers under Chapter 84b (relating to actuarial opinion and memorandum). Section 320(a)(1) of The Insurance Company Law of 1921 requires insurers to file annual financial statements with the Department and additional statements concerning their affairs and financial condition as the Commissioner may, in the Commissioner's discretion, require. Section 320 of The Insurance Company Law of 1921 further requires insurers to adhere to the instructions and accounting practices and procedures prescribed by the National Association of Insurance Commissioners (NAIC) unless otherwise provided by law, regulation or order of the Commissioner. Under this authority, the Commissioner requires insurers to include statements of actuarial opinion with annual financial statements filed on or before the first day of March each year. The statements of actuarial opinion must be prepared as prescribed by the NAIC's annual statement instructions and include the actuary's opinion with respect to the proper establishment and adequacy of the insurer's reserves. If requested by the Department, domestic insurers shall also submit the supporting actuarial report and workpapers on or before the first day of May each year. The Department reviews this information in conducting financial analyses and onsite financial examinations of domestic insurers.
Chapter 118a establishes requirements for the filing of an additional document, an actuarial opinion summary, on or before the 15th day of March each year. The actuarial opinion summary must also be prepared in accordance with the NAIC instructions, which will become effective for financial statements reporting an insurer's condition as year-end 2005. The new actuary opinion summary will provide the Department with information needed to quickly identify insurers with potential reserving problems and then focus heightened solvency monitoring efforts on those insurers. Therefore, Chapter 118a will clarify and supplement the new NAIC instructions regarding actuarial opinions and related documents filed by property and casualty insurers, and strengthen the Department's financial regulation tools.
Explanation of Regulatory Requirements
Section 118a.2 (relating to definitions) defines terms for purposes of the chapter. The definitions of ''domestic insurer,'' ''insurer'' and ''foreign insurer'' clarify the scope and application of the regulation with respect to the various types of insurers writing property/casualty insurance in this Commonwealth. The definitions of ''appointed actuary'' and ''qualified actuary'' establish the qualification requirements for individuals who prepare statements of actuarial opinion, actuarial opinion summaries and related documents required under the chapter.
Section 118a.3 (relating to statement of actuarial opinion and supporting documentation) establishes annual filing requirements, with required time frames, for statements of actuarial opinion and actuarial opinion summaries with respect to domestic and foreign insurers. Section 118a.3(c) requires the preparation, maintenance and availability of supporting actuarial reports and underlying workpapers. The definitional elements of statements of actuarial opinion, actuarial opinion summaries, actuarial reports and underlying workpapers are established/updated on an annual basis in the property and casualty annual statement instructions prescribed by the NAIC. Section 118a.3 requires these documents to be prepared in accordance with the NAIC instructions as provided under the Department's authority in section 320 of The Insurance Company Law of 1921.
Section 118a.4(a) (relating to general requirements) establishes requirements for requesting the Department's approval of an individual as a ''qualified actuary'' when the individual is not a member of the Casualty Actuarial Society or the American Academy of Actuaries. The Department has included provisions for approval of these individuals to provide the flexibility that may be needed to meet the particular needs of smaller domestic insurers. Section 118a.4(b) requires that the members of an insurer's board of directors be provided with the annual filings made under this chapter and that the receipt of these documents be documented in the board meeting minutes. Section 118a.4(c) establishes notification requirements when an actuary is replaced by an insurer's board of directors, including notice to the Department of any disagreements with the former actuary regarding the content of filings and other documents required under the chapter. Section 118a.4(d) establishes notice requirements when an error is discovered after a filing is made with the Department and defines what types of errors must be reported. Section 118a.4(e) establishes procedural requirements for reporting errors under § 118a.4(d), including time frames for providing the required notice. Section 118a.4(f) prescribes actions to be taken by an actuary and insurer when an actuary learns that data or other information relied upon in preparing filings under the chapter were factually incorrect and the actuary cannot immediately determine whether changes must be made in filings required under the chapter.
Section 118a.5 (relating to confidentiality) clarifies the distinction between public filings and related confidential work product and states the circumstances under which the Commissioner may share confidential information filed under the chapter.
Section 118a.6 (relating to effective date and exemption) requires compliance with the chapter beginning with annual financial statements for the year in which this proposed rulemaking becomes effective and provides for exemptions consistent with the NAIC instructions.
Section 118a.7 (relating to penalties) refers to the imposition of penalties as provided by law for failure to comply with the chapter.
External Comments
In drafting this proposed rulemaking, the Department requested comments from the Insurance Federation of Pennsylvania, Inc., the Pennsylvania Association of Mutual Insurance Companies, the Reinsurance Association of America and the Casualty Actuaries of the Mid-Atlantic Region. The comments received in response to the Department's request were considered in the development of this proposed rulemaking.
Fiscal Impact
State Government
This proposed rulemaking will clarify and strengthen existing requirements. Department costs in monitoring the financial condition of insurers will not increase as a result of this proposed rulemaking.
General Public
The proposed rulemaking has no fiscal impact on the general public.
Political Subdivisions
There will be no fiscal impact on political subdivisions as a result of the proposed rulemaking.
Private Sector
The strengthened filing requirements in this proposed rulemaking are consistent with NAIC standards. The information needed for the new actuarial opinion summary due March 15 should be known to the insurer's appointed actuary when preparing the Statement of Actuarial Opinion due March 1. Therefore, the proposed rulemaking should impose no significant additional costs on insurers in obtaining annual actuarial reviews and required documents.
Paperwork
The proposed rulemaking will not impose significant additional paperwork on the Department. The additional paperwork required for insurers also would be minimal, since the information required in the new actuarial opinion summary should be included in the work done by actuaries in preparing actuarial reports and workpapers for the statements of actuarial opinion already required to be filed with insurers' annual financial statements.
Persons Regulated
The proposed rulemaking applies to insurers licensed to write property/casualty insurance in this Commonwealth.
Contact Person
Questions or comments regarding this proposed rulemaking should be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, Special Projects Office, 1326 Strawberry Square, Harrisburg, PA 17120, (717) 787-4429, fax (717) 772-1969, psalvatore@state. pa.us within 30 days following publication in the Pennsylvania Bulletin.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on June 15, 2006, the Department submitted a copy of this proposed rulemaking and a copy of a Regulatory Analysis Form to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the Senate Banking and Insurance Committee and the House Insurance Committee. A copy of this material is available to the public upon request.
Under section 5(g) of the Regulatory Review Act, IRRC may convey any comments, recommendations or objections to the proposed rulemaking within 30 days of the close of the public comment period. The comments, recommendations or objections must specify the regulatory review criteria which have not been met. The Regulatory Review Act specifies detailed procedures for review, prior to final publication of the rulemaking, by the Department, the General Assembly and the Governor of comments, recommendations or objections raised.
M. DIANE KOKEN,
Insurance CommissionerFiscal Note: 11-225. No fiscal impact; (8) recommends adoption.
Annex A TITLE 31. INSURANCE PART VII. PROPERTY, FIRE AND CASUALTY INSURANCE CHAPTER 118a. PROPERTY AND CASUALTY ACTUARIAL OPINION Sec.
118a.1. Purpose. 118a.2. Definitions. 118a.3. Statement of actuarial opinion and supporting documentation. 118a.4. General requirements. 118a.5. Confidentiality. 118a.6. Effective date and exemption. 118a.7. Penalties. § 118a.1. Purpose.
This chapter sets forth requirements relating to statements of actuarial opinion and related documents filed under section 320 of The Insurance Company Law of 1921 (40 P. S. § 443) with the Commissioner by insurers licensed to transact property or casualty insurance, or both, in this Commonwealth.
§ 118a.2. Definitions.
The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:
Appointed actuary--A qualified actuary appointed by an insurer in accordance with the property and casualty annual statement instructions relating to actuarial opinions prescribed by the NAIC.
Commissioner--The Insurance Commissioner of the Commonwealth.
Department--The Insurance Department of the Commonwealth.
Domestic insurer--An insurer incorporated or organized under the laws of the Commonwealth.
Insurer--The term includes the following entities licensed to transact property or casualty insurance, or both, in this Commonwealth:
(i) An insurance company, association or exchange.
(ii) A reciprocal or interinsurance exchange.
(iii) An employers' mutual liability insurance association.
(iv) The Industry Placement Facility under The Pennsylvania Fair Plan Act (40 P. S. §§ 1600.101--1600.502).
(v) The Pennsylvania Professional Liability Joint Underwriting Association under section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P. S. § 1303.731).
Foreign insurer--An insurer not incorporated or organized under the laws of the Commonwealth.
NAIC--The National Association of Insurance Commissioners, or successor organization.
Qualified actuary--An individual who meets the following requirements:
(i) Is one or more of the following:
(A) A member in good standing of the Casualty Actuarial Society.
(B) A member in good standing of the American Academy of Actuaries who has been approved as qualified for signing casualty loss reserve opinions by the Casualty Practice Council of the American Academy of Actuaries.
(C) Approved by the Commissioner as otherwise having demonstrated competency in loss reserve evaluation for property or casualty insurance, or both, to the Commissioner's satisfaction under § 118a.4(a), (relating to general requirements).
(ii) Has not been found by the Commissioner, following appropriate notice and hearing, to have done one or more of the following:
(A) Violated any provision of, or any obligation imposed by, this chapter or other laws or regulations in the course of the individual's dealings as a qualified actuary.
(B) Been found guilty of fraudulent or dishonest practices.
(C) Demonstrated incompetence, lack of cooperation or untrustworthiness to act as a qualified actuary.
(D) Prepared a statement of actuarial opinion or actuarial opinion summary that was submitted to the Commissioner during the past 5 years and rejected for failure to adhere to this chapter, including acceptable actuarial standards.
(E) Resigned or been removed as an actuary within the past 5 years as a result of acts or omissions identified in a report by the Department or other regulatory or law enforcement official of this Commonwealth or other jurisdiction pursuant to an investigation or examination, or as a result of failure to adhere to generally acceptable actuarial standards.
(iii) Has not failed to notify the Department of any action taken against the individual by a regulatory or law enforcement official of this Commonwealth or other jurisdiction relating to activities similar to those described in subparagraph (ii).
§ 118a.3. Statement of actuarial opinion and supporting documentation.
(a) Statement of actuarial opinion. Unless exempted by the Commissioner under § 118a.6 (relating to effective date and exemption), an insurer shall annually file with the Department an opinion of an appointed actuary entitled ''Statement of Actuarial Opinion.'' Under section 320 of The Insurance Company Law of 1921 (40 P. S. § 443), the statement of actuarial opinion shall be prepared in accordance with the property and casualty annual statement instructions prescribed by the NAIC and filed as instructed by the Department on or before the first day of March.
(b) Actuarial opinion summary. A domestic insurer required to file a statement of actuarial opinion under subsection (a) shall annually file with the Department a document entitled ''Actuarial Opinion Summary'' written by the insurer's appointed actuary and supporting the statement of actuarial opinion. The actuarial opinion summary shall be prepared in accordance with the property and casualty annual statement instructions prescribed by the NAIC and filed as instructed by the Department on or before the 15th day of March. The Department may require a foreign insurer to file an actuarial opinion summary by providing 60 days' advance notice to the insurer.
(c) Actuarial report and workpapers. An actuarial report and underlying workpapers shall be prepared and maintained to support a statement of actuarial opinion as required by the property and casualty annual statement instructions prescribed by the NAIC and provided to the Department upon request.
§ 118a.4. General requirements.
(a) The following requirements apply to a request for the Commissioner's approval of an individual as a qualified actuary under § 118a.2 (relating to definitions):
(1) The insurer shall file a request with the Department for approval of an individual as a qualified actuary at least 90 days prior to the filing of the insurer's annual financial statement.
(2) Requests filed under paragraph (1) must contain the following:
(i) A properly completed biographical affidavit in the form adopted by the NAIC.
(ii) A list of the loss reserve opinions for property or casualty insurance, or both, issued by the individual in the past 3 years.
(iii) Other information that the Commissioner in the Commissioner's discretion may require to determine the individual's qualifications.
(b) The appointed actuary shall annually provide the insurer's board of directors with the statement of actuarial opinion and actuary opinion summary, and the receipt of these documents shall be recorded in the meeting minutes of the board of directors.
(c) If an actuary who was the appointed actuary for the immediately preceding filed statement of actuarial opinion is replaced by an action of the insurer's board of directors, the insurer shall:
(1) Notify the Department in writing within 5 business days of the board's action.
(2) Provide the Department with a separate written notice within 10 business days of providing notice under paragraph (1) stating whether, in the 24 months preceding the appointed actuary's replacement, there were any disagreements with the former appointed actuary relating to the content of the statement of actuarial opinion, actuarial opinion summary, actuarial report or underlying workpapers on matters of the risk of material adverse deviation, required disclosures, scope, procedure or data quality. The disagreements required to be reported include both those resolved to the former appointed actuary's satisfaction and those not resolved to the former appointed actuary's satisfaction. The notice must include a written letter addressed to the insurer by the former appointed actuary stating whether the appointed actuary agrees with the statements in the insurer's notice and, if not, stating the reasons why the appointed actuary does not agree.
(d) The insurer shall require its appointed actuary to notify the insurer's board of directors or audit committee in writing within 5 business days after a determination by the appointed actuary that the statement of actuarial opinion or actuarial opinion summary filed with the Department was in error if:
(1) The error is as a result of reliance on data or other information (other than assumptions) that, as of the balance sheet date, were factually incorrect.
(2) The determination is made between the date the statement of actuarial opinion is issued and the balance sheet date for which the next statement of actuarial opinion will be issued.
(3) The statement of actuarial opinion or actuarial opinion summary would not have been issued or would have been materially altered had the correct data or other information been used; except that the statement of actuarial opinion or actuarial opinion summary will not be considered to be in error if it would not have been issued or would have been materially altered solely because of data or information concerning events subsequent to the balance sheet date or because actual results differ from those projected.
(e) Notification provided by an appointed actuary to an insurer under subsection (d) must include a summary of the appointed actuary's findings and an amended statement of actuarial opinion and actuarial opinion summary. The insurer shall forward a copy of the summary and amended statement of actuarial opinion and actuarial opinion summary to the Commissioner within 5 business days of receipt and provide the appointed actuary with a copy of the information forwarded to the Commissioner. If the appointed actuary does not receive a copy of the information forwarded to the Commissioner within the 5 business day period, the appointed actuary shall provide the Commissioner with the information within the next 5 business days, including a statement whether the Department should rely upon the statement of actuarial opinion or actuarial opinion summary filed under this chapter.
(f) If an appointed actuary learns that data or other information relied upon in rendering a statement of actuarial opinion or actuarial opinion summary under this chapter were factually incorrect, but the appointed actuary cannot immediately determine what, if any, changes are needed in the statement of actuarial opinion or actuarial opinion summary, the appointed actuary and the insurer shall take the actions necessary for the appointed actuary to make the determination. If the insurer does not provide the necessary data corrections and other support (including financial support) within 10 business days, the appointed actuary should provide the Commissioner with notice of the situation within the next 5 business days.
§ 118a.5. Confidentiality.
(a) The statement of actuarial opinion shall be filed with an insurer's annual statement in accordance with the property and casualty annual statement instructions prescribed by the NAIC and shall be treated as a public document.
(b) Documents, materials or other information in the possession or control of the Department that are considered an actuarial report, workpapers or actuarial opinion summary provided in support of the statement of actuarial opinion, and any other material provided by the insurer to the Commissioner in connection with the actuarial report, workpapers or actuarial opinion summary, shall be confidential by law and privileged, will not be subject to the act of June 21, 1957 (P. L. 390, No. 212), known as the Right to Know Law (65 P. S. §§ 66.1--66.4) and 65 Pa.C.S. Chapter 7 (relating to the Sunshine Act), will not be subject to subpoena, and will not be subject to discovery or admissible in evidence in any private civil action.
(c) This section may not be construed to limit the Commissioner's authority to:
(1) Release the documents to the Actuarial Board for Counseling and Discipline (ABCD) if the material is required for the purpose of professional disciplinary proceedings and the ABCD establishes procedures satisfactory to the Commissioner for preserving the confidentiality of the documents.
(2) Limit the Commissioner's authority to use the documents, materials or other information in furtherance of any regulatory or legal action brought as part of the Commissioner's official duties.
(d) Neither the Commissioner nor any individual or person who received documents, materials or other information while acting under the authority of the Commissioner shall be permitted or required to testify in any private civil action concerning any confidential documents, materials or information subject to subsections (b) and (c).
(e) The Commissioner may share confidential information received under this chapter with regulatory or law enforcement officials of this Commonwealth or other jurisdictions and the NAIC under sections 201-A and 202-A of The Insurance Department Act of 1921 (40 P. S. §§ 65.1-A and 65.2-A).
(f) No waiver of any applicable privilege or claim of confidentiality in the documents, materials or information may occur as a result of disclosure to the Commissioner or as a result of sharing information under this section.
§ 118a.6. Effective date and exemption.
(a) Insurers shall comply with this chapter beginning with property and casualty annual statements filed for the year ending December 31, _____ , and each year thereafter unless the Commissioner permits otherwise under this section. (Editor's Note: The blank refers to the year in which this proposed rulemaking becomes effective.)
(b) A domestic insurer may annually submit a written request to the Commissioner for approval of an exemption from the requirement to file a statement of actuarial opinion as provided in the property and casualty annual statement instructions prescribed by the NAIC.
(c) A foreign insurer exempt from filing a statement of actuarial opinion by the chief insurance regulatory official in its domiciliary jurisdiction in accordance with the property and casualty annual statement instructions prescribed by the NAIC is exempt from this chapter, unless the Commissioner in the Commissioner's sole discretion requires otherwise.
§ 118a.7. Penalties.
Failure to file the statement of actuarial opinion, actuarial opinion summary and additional statements, letters, workpapers or reports required under this chapter will subject the insurer to the penalties provided by law.
[Pa.B. Doc. No. 06-1210. Filed for public inspection June 30, 2006, 9:00 a.m.]
