Idaho Admin. Code r. 18.07.09.024

Current through September 2, 2024

Section 18.07.09.024 - DESCRIPTION OF ACTUARIAL MEMORANDUM INCLUDING AN ASSET ADEQUACY ANALYSIS AND REGULATORY ASSET ADEQUACY ISSUES SUMMARY

01.General.

a. Per Section 41-612(12), Idaho Code, the appointed actuary will prepare a memorandum to the company describing the analysis done to support their opinion on the reserves. The memorandum will be made available for the Director's examination upon request, but it will be returned to the company after the examination and cannot be considered a record of the insurance Department or subject to automatic filing with the Director.

b. In preparing the memorandum, the appointed actuary may rely on, and include as a part of their own memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of Subsection 021.02, with respect to the areas covered in such memoranda, and so state in their memorandum.

c. If the Director requests a memorandum that does not exist, or if the Director finds the memorandum's analysis violates the standards of the Actuarial Standards Board or the standards and requirements of this rule, the Director may designate a qualified actuary to review the opinion and prepare supporting memorandum. The company will pay, subject to the Director's direction and control, the reasonable and necessary expense of the independent review.

d. The reviewing actuary will have the same status as an examiner for purposes of obtaining data from the company, and the Director will retain the reviewing actuary's work papers and documentation. But any information provided by the company to the reviewing actuary and included in the work papers will be considered as examination workpapers and will be kept confidential to the same extent as prescribed by Section 41-227, Idaho Code. The reviewing actuary cannot be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer under this rule for the current year or any of the preceding three (3) years.

e. Per Section 41-612(12), Idaho Code, the appointed actuary will prepare a regulatory asset adequacy issues summary, the contents of which are specified in Subsection 024.03. This summary will be submitted by March 15 of the year after the year for which a statement of actuarial opinion based on asset adequacy is mandatory. The summary is confidential and exempt from public disclosure under Sections 41-612(12) and 74-107(5), Idaho Code.

f. Per Section 41-612(12)(d)(iv), the Director will accept a foreign or alien company's regulatory asset adequacy issues summary, on file with the insurance supervisory official of another state, if the Director determines the summary reasonably meets the requirements for a company domiciled in Idaho. Thus, foreign or alien insurers that had to file the regulatory asset adequacy issues summary in their home state are exempt from filing in Idaho, except upon Director request, if the other state has substantially similar reporting requirements and the summary is timely filed with the other state's commissioner.

02.Details of the Memorandum Section Documenting Asset Adequacy Analysis (Section 022). When an actuarial opinion under Section 022 is provided, the memorandum will show the analysis has been done per the asset-adequacy standards in Subsection 021.04 and any additional standards under this rule. It will specify;

a. For reserves;

i. Product descriptions including market description, underwriting and other aspects of a risk profile and the specific risks the appointed actuary deems significant;

ii. Source of liability in force;

iii. Reserve method and basis;

iv. Investment reserves;

v. Reinsurance arrangements; and

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.

b. Documentation of assumptions to test reserves, such that an actuary reviewing the actuarial memorandum could form a conclusion as to their reasonableness, for:

i. Lapse rates (both base and excess);

ii. Interest crediting rate strategy;

iii. Mortality;

iv. Policyholder dividend strategy;

v. Competitor or market interest rate;

vi. Annuitization rates;

vii. Commissions and expenses; and

viii. Morbidity.

c. For assets:

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

ii. Investment and disinvestment assumptions;

iii. Asset data source;

iv. Asset valuation bases.

d. Documentation of assumptions, such that an actuary reviewing the actuarial memorandum could form a conclusion as to their reasonableness, 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.

e. For the analysis basis:

i. Methodology;

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

iii. Rationale for degree of rigor in analyzing different blocks of business (include in the rationale the level of "materiality" that was used in determining how rigorously to analyze different blocks of business);

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

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

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

g. Summary of Results;

h. Conclusion(s).

i. The regulatory asset adequacy issues summary will include:

i. Descriptions of the tested scenarios (including whether they 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 will be determined by extending the projection period until the in force and associated assets and liabilities at the end of the projection period are immaterial, or by adjusting the surplus amount at the end of the projection period by an amount that appropriately estimates the value that can reasonably be expected to arise from the assets and liabilities remaining in force;

ii. The extent to which the appointed actuary uses assumptions in the asset adequacy analysis that materially differ from assumptions in the previous asset adequacy analysis;

iii. The amount of reserves and the identity of the product lines that were subjected to asset adequacy analysis in the prior opinion but that were not analyzed for the current opinion;

iv. Comments on any interim results that significantly concern 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;

v. The actuary's methods for recognizing how reinsurance impacts the company's cash flows, including both assets and liabilities, under each tested scenario; and

vi. Whether the actuary is satisfied that the asset adequacy analysis appropriately considered all options explicit or embedded in any asset or liability (including those affecting cash flows embedded in fixed income securities) and equity-like features in any investments.

j. The regulatory asset adequacy issues summary will name the company for which the regulatory asset adequacy issues summary is being supplied and be signed and dated by the appointed actuary rendering the actuarial opinion.

04.Conformity to Standards of Practice. The memorandum will state: "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."

05.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, needs to be used in any asset adequacy analysis. Analysis of risks regarding asset default may include an appropriate allocation of assets supporting the Asset Valuation Reserve (AVR); these AVR assets cannot 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 Table of Reserves and Liabilities of the opinion and in the memorandum will disclose the amount of the assets used for the AVR. The memorandum will also disclose the method for selecting particular assets or allocated portions of assets.

06.Documentation. The appointed actuary will retain, for at least seven (7) years, sufficient documentation from which to determine the procedures followed, the analyses performed, the bases for assumptions and the results obtained.

Idaho Admin. Code r. 18.07.09.024

Effective April 6, 2023