Administrative Code

Virginia Administrative Code
Title 14. Insurance
Agency 5. State Corporation Commission, Bureau of Insurance
1/26/2020

Chapter 310. Rules Governing Actuarial Opinions and Memoranda

14VAC5-310-10. Purpose.

The purpose of this chapter (14VAC5-310) is to prescribe:

1. Requirements for statements of actuarial opinion that are to be submitted in accordance with § 38.2-1367 of the Code of Virginia, and for memoranda in support thereof;

2. Rules applicable to the appointment of an appointed actuary; and

3. Guidance as to the meaning of "adequacy of reserves."

Statutory Authority

§§ 12.1-13 and 38.2-223 of the Code of Virginia.

Historical Notes

Derived from Regulation 45, Case No. INS920377, § 1, eff. December 15, 1992; amended, Virginia Register Volume 20, Issue 5, eff. December 31, 2003; Volume 31, Issue 9, eff. January 1, 2015.

14VAC5-310-20. Authority; effective date.

This chapter (14VAC5-310) is adopted and promulgated by the commission pursuant to §§ 12.1-13, 38.2-223, and 38.2-1367 of the Code of Virginia. This chapter will take effect for annual statements for the year-ending December 31, 1992. Except as otherwise specifically provided, revisions to this chapter shall be effective upon adoption by the commission and applicable as to annual statements and actuarial opinions, memoranda, and statements of reserves filed with the commission for periods ending on or after December 31 of the year in which the revision is adopted.

Statutory Authority

§§ 12.1-13 and 38.2-223 of the Code of Virginia.

Historical Notes

Derived from Regulation 45, Case No. INS920377, § 2, eff. December 15, 1992; amended, Virginia Register Volume 20, Issue 5, eff. December 31, 2003; Volume 31, Issue 9, eff. January 1, 2015.

14VAC5-310-30. Scope.

A. This chapter (14VAC5-310) shall apply to all companies subject to the provisions of § 38.2-1367 of the Code of Virginia, including fraternal benefit societies licensed under Chapter 41 (§ 38.2-4100 et seq.) of Title 38.2 and all other companies licensed under Title 38.2 of the Code of Virginia to write and reinsure policies or agreements providing any form of life, life insurance, or annuity benefits as those terms are defined in §§ 38.2-102 through 38.2-107.1 of the Code of Virginia and also to any life insurer authorized to write or reinsure accident and sickness insurance as defined in § 38.2-109 of the Code of Virginia.

B. This chapter shall be applied in a manner that allows the appointed actuary to utilize professional judgment in performing the asset analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards of practice unless the commission determines particular specifications are necessary for an acceptable opinion to be rendered relative to the adequacy of reserves and related items. Particular specifications, including specific methods of actuarial analysis and actuarial assumptions, may be promulgated by rule or order of the commission or by an administrative letter issued by the Commissioner of Insurance.

C. This chapter, as reflected in rules adopted by the commission by order entered November 5, 1992, in Case No. INS920377, shall be applicable to all annual statements filed with the commission on or after December 15, 1992, and before December 31, 2003. On and after December 31, 2003, a statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80, and a memorandum in support thereof in accordance with 14VAC5-310-90, shall be required each year in accordance with rules as revised and adopted by order of the commission entered in Case No. INS-2003-00165.

Statutory Authority

§§ 12.1-13 and 38.2-223 of the Code of Virginia.

Historical Notes

Derived from Regulation 45, Case No. INS920377, § 3, eff. December 15, 1992; amended, Virginia Register Volume 20, Issue 5, eff. December 31, 2003; Volume 31, Issue 9, eff. January 1, 2015.

14VAC5-310-40. Definitions.

As used in this chapter unless the context clearly indicates otherwise:

"Actuarial opinion" means the opinion of an appointed actuary regarding the adequacy of reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80 and with applicable Actuarial Standards of Practice.

"Actuarial Standards Board" means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.

"Annual statement" means that statement required by § 38.2-1300 of the Code of Virginia to be filed by the company with the commission annually.

"Appointed actuary" means any individual who is appointed or retained in accordance with the requirements set forth in 14VAC5-310-50 C to provide the actuarial opinion and supporting memorandum as required by § 38.2-1367 of the Code of Virginia.

"Asset adequacy analysis" means an analysis that meets the standards and other requirements referred to in 14VAC5-310-50 D.

"Commission" means the Virginia State Corporation Commission.

"Commissioner" means the Commissioner of Insurance in Virginia unless specific reference is made to another state, in which case "commissioner" means the Insurance Commissioner, Director, Superintendent or other supervising regulatory official of a given state who is responsible for administering the insurance laws of that state.

"Company" means a life insurer, company or fraternal benefit society subject to the provisions of this chapter.

"NAIC" means the National Association of Insurance Commissioners.

"Qualified actuary" means any individual who meets the requirements set forth in 14VAC5-310-50 B.

Statutory Authority

§§ 12.1-13 and 38.2-223 of the Code of Virginia.

Historical Notes

Derived from Regulation 45, Case No. INS920377, § 4, eff. December 15, 1992; amended, Virginia Register Volume 20, Issue 5, eff. December 31, 2003; Volume 31, Issue 9, eff. January 1, 2015.

14VAC5-310-50. General requirements for actuarial opinions.

A. The following requirements apply to all companies submitting a statement of actuarial opinion in compliance with § 38.2-1367 of the Code of Virginia.

1. There is to be included on or attached to page 1 of the annual statement for each year ending on or after December 31, 1992, 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 14VAC5-310-80.

2. Upon written request by the company, the commission may grant an extension of the date for submission of the statement of actuarial opinion.

B. A "qualified actuary" is an individual who:

1. Is a member in good standing of the American Academy of Actuaries;

2. Is qualified to sign statements of actuarial opinion for life and health insurance company annual statements in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements;

3. Is familiar with the valuation requirements applicable to life and health insurance companies;

4. Has not been found by the commission (or if so found has subsequently been reinstated as a qualified actuary), following appropriate notice and hearing, to have:

a. Violated any provision of, or any obligation imposed by Title 38.2 of the Code of Virginia or other law in the course of his dealings as a qualified actuary;

b. Been found guilty of fraudulent or dishonest practices;

c. Demonstrated his incompetency, lack of cooperation, or untrustworthiness to act as a qualified actuary;

d. Submitted to the commission during the past five years, pursuant to this chapter, an actuarial opinion or memorandum that the commission rejected because it did not meet the provisions of this chapter, including standards set by the Actuarial Standards Board; or

e. Resigned or been removed as an actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of failure to adhere to generally acceptable actuarial standards; and

5. Has not failed to notify the commission of any action taken by the commissioner of any other state similar to that under subdivision 4 of this subsection.

C. An "appointed actuary" is a qualified actuary who is appointed or retained to prepare the statement of actuarial opinion required by this chapter, 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 commission 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 14VAC5-310-50 B. Once notice is furnished, no further notice is required with respect to this person, provided that the company shall give the commission 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 14VAC5-310-50 B. 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. The asset adequacy analysis required by this chapter shall:

1. Conform to the Actuarial Standards of Practice as promulgated from time to time by the Actuarial Standards Board and on any additional standards under this chapter, which standards are to form the basis of the statement of actuarial opinion in accordance with this chapter; and

2. Be based on methods of analysis as are deemed appropriate for such purposes by the Actuarial Standards Board.

E. Liabilities shall be covered in conformity with the following:

1. Under authority of § 38.2-1367 of the Code of Virginia, 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 reportable for 2002 in Exhibits 5, 5A, 6, and 7 of the NAIC annual statement for life insurers; claim liabilities reported in Exhibit 8 (2002) in Part I of the life insurer's annual statement, and equivalent items in any separate account statement, or other annual financial statements filed pursuant to § 38.2-1300, 38.2-1301 or 38.2-4126 of the Code of Virginia).

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 § 38.2-1311, 38.2-3923, 38.2-4010, 38.2-4011, or § 38.2-4125 of the Code of Virginia; Article 10 (§ 38.2-1365 et seq.) of Chapter 13 of Title 38.2 of the Code of Virginia; a rule or regulation of the commission applicable to the company; or any additional or further guidance provided by the NAIC Accounting Practices and Procedures Manual, whether in a Statement of Statutory Accounting Principle or in an actuarial guideline or other appendix, the company shall establish the additional reserve.

3. Additional reserves established under subdivision 2 of this subsection 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.

Statutory Authority

§§ 12.1-13 and 38.2-223 of the Code of Virginia.

Historical Notes

Derived from Regulation 45, Case No. INS920377, § 5, eff. December 15, 1992; amended, Virginia Register Volume 20, Issue 5, eff. December 31, 2003; Volume 31, Issue 9, eff. January 1, 2015.

14VAC5-310-60 to 14VAC5-310-70. [Repealed]

Historical Notes

Derived from Regulation 45, Case No. INS920377, §§ 6, 7, eff. December 15, 1992; repealed, Virginia Register Volume 20, Issue 5, eff. December 31, 2003.

14VAC5-310-80. Statement of actuarial opinion based on an asset adequacy analysis.

A. The statement of actuarial opinion submitted in accordance with this section shall consist of:

1. A paragraph identifying the appointed actuary and his qualifications (and complying with the requirements of subdivision B 1 of this section;

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, and identifying the reserves and related actuarial items covered by the opinion that have not been so analyzed (see subdivision B 2 of this section);

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 subdivision B 3 of this section)), supported by a statement of each such expert in the form prescribed by subsection E of this section;

4. An opinion paragraph expressing the appointed actuary's opinion with respect to the adequacy of the supporting assets to mature the liabilities (see subdivision B 6 of this section); and

5. One or more additional paragraphs, which will be needed in individual company cases to address matters such as the following:

a. If the appointed actuary considers it necessary to state a qualification of the 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 that form the basis for the actuarial opinion.

B. 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 that clearly expresses his 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 qualifications to sign the opinion. For a company actuary, the opening paragraph of the actuarial opinion should include a statement such as:

"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 commission 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 statement 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 commission 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:

"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 that have been subjected to asset adequacy analysis.

Asset Adequacy Tested Amounts ((1) and (2)) – Reserves and Liabilities

Statement Item

(1)
Formula Reserves

(2)
Additional Actuarial Reserves(a)

Analysis Method(b)

(3)
Other Amount

(4)
Total Amount
(1)+(2)+(3)

Exhibit 5
A. Life Insurance

B. Annuities

C. Supplementary Contracts With Life Contingencies

D. Accidental Death Benefits

E. Disability – Active Lives

F. Disability – Disabled Lives

G. Miscellaneous Reserves

Total (Exh. 5 – Page 3, Item 1)

Other actuarial items (Page ...., Line .....)

Exhibit 6
A. Active Life Reserve

B. Claim Reserve

Total (Exh. 6 – Page 3, Item 2)

Exhibit 7
Guaranteed Interest Contracts (Column 2, Line 14)

Supplemental Contracts and Annuities Certain (Column 3, Line 14)

Dividend Accumulations or Refunds (Column 4, Line 14)

Deposit-type Contracts (Column 5, Line 14)

Other (Column 6, Line 14)

Total – Exh. 7 Net Balance (Column 1, Line 14)

Exhibit 8 - Part 1
1. Life (Page 3, Item 4.1)

2. Health (Page 3, Item 4.2)

Total Exhibit 8, Part 1

Separate Accounts (Page 3 of the Annual Statement of the Separate Accounts, Items 1, 2, 3.1, 3.2, 3.3)

TOTAL RESERVES

IMR (General Account, Page ___ Line ___)

(Separate Accounts, Page ___ Line ___)

AVR (Page ___ Line ___)

(c)

Net Deferred and Uncollected Premium

Notes: (a) The additional actuarial reserves are the reserves established under 14VAC5-310-50 E 2.

(b) The appointed actuary should indicate the method of analysis, determined in accordance with the standards for asset adequacy analysis referred to in 14VAC5-310-50 D, by means of symbols which should be defined in footnotes to the table.

(c) Allocated amount of Asset Valuation Reserve (AVR)."

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:

"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" or "certain critical aspects of the analysis performed in conjunction with forming my opinion"], as certified in the attached statement. I have reviewed the information relied upon for reasonableness."

Such a statement of reliance on other experts should be accompanied by a statement by each of such experts in the form prescribed by subsection E of this section.

4. If the appointed actuary has examined the underlying asset and liability records, the reliance paragraph should also include a statement such as:

"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 data (e.g., listings and summaries of policies in-force and asset records) prepared by the company or a third party, the reliance paragraph should include a statement such as:

"In forming my opinion on [specify type of reserves], I have relied upon data prepared by [name and title of company officer certifying in-force records or other data] as certified in the attached statements. 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 review of the actuarial assumptions and actuarial methods and tests of the actuarial calculations I considered necessary."

This part of the statement shall be accompanied by a statement by each person relied upon in a form substantially similar to that prescribed by subsection E of this section.

6. The opinion paragraph should include a statement such as:

"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 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 all other contract provisions;

c. Meet the requirements of Title 38.2 of the Code of Virginia and related rules, regulations and administrative promulgations [OR: the insurance law and regulation of the state of domicile] 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); and

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 the assets, and the considerations anticipated to be received and retained under the 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 Actuarial Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis of this statement of opinion."

AND ONE OF THE FOLLOWING TWO PARAGRAPHS, WHICHEVER IS APPLICABLE:

"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].

AND:

"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

Date"

C. 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 assumptions within the meaning of this section.

D. If the appointed actuary is unable to form an opinion, he shall refuse to issue a statement of actuarial opinion. If the appointed actuary's opinion is adverse or qualified, he shall issue an adverse or qualified actuarial opinion explicitly stating the reason or reasons for the opinion. This statement should follow the scope paragraph and precede the opinion paragraph.

E. If the appointed actuary relies on the certification of others on matters concerning the accuracy or completeness of any data underlying the actuarial opinion, or the appropriateness of any other information used by the appointed actuary in forming the actuarial opinion, 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, the persons on whom the appointed actuary relies shall provide a certification that precisely identifies the items on which the person is providing information and a statement as to the accuracy, completeness or reasonableness, as applicable, of the items. This certification shall include the signature, title, company, address, and telephone number of the person rendering the certification, as well as the date on which it is signed.

Statutory Authority

§§ 12.1-13, 38.2-223, and 38.2-3127.1 of the Code of Virginia.

Historical Notes

Derived from Regulation 45, Case No. INS920377, § 8, eff. December 15, 1992; amended, Virginia Register Volume 20, Issue 5, eff. December 31, 2003; Errata, 20:8 VA.R. 850 December 29, 2003.

14VAC5-310-90. Description of actuarial memorandum issued for an asset adequacy analysis and regulatory asset adequacy issues summary.

A. The following general provisions shall apply with respect to the preparation and submission of the asset adequacy memorandum required by § 38.2-1367 of the Code of Virginia.

1. In accordance with § 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of his opinion regarding the reserves. The memorandum shall be made available for examination by the commission upon its request but shall be returned to the company after such examination and shall not be considered a record of the Bureau of Insurance or subject to automatic filing with the commission.

2. In preparing the memorandum, the appointed actuary may rely on, and include as a part of his memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of 14VAC5-310-50 B, with respect to the areas covered in such memoranda, and so state in their memoranda.

3. If the commission requests a memorandum and no such memorandum exists or if the commission 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 chapter, the commission 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 commission.

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 commission; however, 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 commission 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 commission pursuant to the statute governing this chapter. 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 chapter for any one of the current year or the preceding three years.

5. In accordance with § 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a regulatory asset adequacy issues summary, the contents of which are specified in subsection C of this section. The regulatory asset adequacy issues summary shall be submitted no later than March 15 of the year following the year for which a statement of actuarial opinion based on asset adequacy is required. The regulatory asset adequacy issues summary is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.

B. A section of the memorandum shall document asset adequacy testing by demonstrating that the analysis has been done in accordance with the standards for asset adequacy referred to in 14VAC5-310-50 D and any additional standards under this chapter. 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 policy or contract and the methods used by the appointed actuary to provide for the guarantees in the asset adequacy analysis; and

g. Documentation of assumptions to test reserves for (i) lapse rates, whether base or excess, (ii) interest crediting rate strategy, (iii) mortality, (iv) policyholder dividend strategy, (v) competitor or market interest rate, (vi) annuitization rates, (vii) commission 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 assumption.

2. For assets:

a. Portfolio descriptions, including a risk profile disclosing the quality, distribution and types of assets;

b. Investment and disinvestment assumptions;

c. Source of asset data;

d. Asset valuation bases; and

e. Documentation of assumptions made for (i) default costs, (ii) bond call function, (iii) mortgage prepayment function, (iv) determining market value for assets sold due to disinvestment strategy, and (v) determining yield on assets acquired through the investment strategy.

The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumption.

3. For the analysis basis:

a. Methodology;

b. Rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;

c. Rationale for degree of rigor in analyzing different blocks of business, including the rationale for the level of "materiality" that was used in determining how rigorously to analyze different blocks of business;

d. Criteria for determining asset adequacy, including in the criteria the precise basis for determining if assets are adequate to cover reserves under "moderately adverse conditions" or other conditions as specified in relevant actuarial standards of practice; and

e. Whether the impact of federal income taxes was considered and the method of treating reinsurance in the asset adequacy analysis.

4. Summary of material changes in methods, procedures, or assumptions from prior year's asset adequacy analysis;

5. Summary of results; and

6. Conclusion.

C. 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. The regulatory asset adequacy issues summary also shall include each of the following:

1. 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 reasonably can be expected to arise from the assets and liabilities remaining in force;

2. The extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different from the assumptions used in the previous asset adequacy analysis;

3. 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;

4. Comments on any interim results that may be of significant concern to the appointed actuary. For example, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods;

5. 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

6. 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.

D. The actuarial methods, considerations, and analyses shall conform to appropriate standards of practice and the memorandum shall include the following 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. An appropriate allocation of assets in the amount of Interest Maintenance Reserve (IMR), whether positive or negative, shall be used in any asset adequacy analysis. Analysis of risks regarding asset default shall include an appropriate allocation of assets supporting the Asset Valuation Reserve (AVR); these AVR assets shall not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks shall include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support. The amount of the assets used for the AVR shall be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.

Statutory Authority

§§ 12.1-13 and 38.2-223 of the Code of Virginia.

Historical Notes

Derived from Regulation 45, Case No. INS920377, § 9, eff. December 15, 1992; amended, Virginia Register Volume 20, Issue 5, eff. December 31, 2003; Volume 26, Issue 9, eff. December 31, 2009; Volume 31, Issue 9, eff. January 1, 2015.

14VAC5-310-100. Record retention.

The appointed actuary shall retain on file, for at least seven 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.

Statutory Authority

§§ 12.1-13, 38.2-223, and 38.2-3127.1 of the Code of Virginia.

Historical Notes

Derived from Regulation 45, Case No. INS920377, § 10, eff. December 15, 1992; amended, Virginia Register Volume 20, Issue 5, eff. December 31, 2003.

14VAC5-310-105. Notification of an opinion in error; amended opinion.

A. The insurer required to furnish an actuarial opinion shall require its appointed actuary to notify its Board of Directors or its audit committee, in writing, within five business days after any determination by the appointed actuary that the opinion or other valuation submitted to the domiciliary commissioner was in error as a result of reliance on data or other information, other than assumptions, that, as of the balance sheet date, was factually incorrect. The opinion shall be considered to be in error if the opinion would not have been issued or would have been materially altered had the correct data or other information been used. The opinion shall not be considered in error if it would have been materially altered or not issued solely because of data or information concerning events subsequent to the balance sheet date or because actual results differ from those projected.

B. Notification shall be required when a determination prescribed by this section is made between the issuance of the opinion and the balance sheet date for which the next opinion will be issued. The notification shall include a summary of such findings and an amended opinion.

C. An insurer that is notified pursuant to subsections A or B of this section shall forward a copy of the summary and amended opinion to the domiciliary commissioner within five business days of receipt of such report and shall provide the appointed actuary making the notification with notice of the transmittal and a copy of the summary and amended opinion being furnished to the domiciliary commissioner. If the appointed actuary fails to receive the notice and prescribed copies within the five-business-day period referred to in the previous sentence, that appointed actuary shall notify the domiciliary commissioner within the next five business days that the submitted opinion should no longer be relied.

D. If the actuary learns that the data or other information relied upon was factually incorrect, but cannot determine what, if any, changes are needed in the statement of opinion, the actuary and the company shall undertake as quickly as is reasonably practicable those procedures necessary for the actuary to make the determination described in subsection A of this section. If the insurer does not provide the necessary data corrections and other support, including financial support, within 10 business days, the actuary shall proceed to notify the domiciliary commissioner in accordance with provisions in subsection C of this section.

E. No qualified actuary shall be liable in any manner to any person for any statement made pursuant to this section if the statement is made in a good faith effort to comply with this section.

Statutory Authority

§§ 12.1-13, 38.2-223, and 38.2-3127.1 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 20, Issue 5, eff. December 31, 2003.

14VAC5-310-110. [Repealed]

Historical Notes

Derived from Regulation 45, Case No. INS920377, § 11, eff. December 15, 1992; repealed, Virginia Register Volume 20, Issue 5, eff. December 31, 2003.

14VAC5-310-120. Severability.

If any provision of this chapter (14VAC5-310-10 et seq.), or its application to any person, company or circumstance, is held invalid, such determination shall not affect other provisions or applications of this chapter, which can be given effect without the invalid provision or application, and to that end the provisions of this chapter are severable.

Statutory Authority

§§ 12.1-13, 38.2-223, and 38.2-3127.1 of the Code of Virginia.

Historical Notes

Derived from Regulation 45, Case No. INS920377, § 12, eff. December 15, 1992.



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