Insurance

Administration

Rule R590-162: Actuarial Opinion and Memorandum Rule

Effective Date: 08/08/2022

Admin. Code Reference: R590-162

Rule Type: Current Rule

R590. Insurance, Administration.

R590-162. Actuarial Opinion and Memorandum Rule.

R590-162-1. Authority.

This rule is promulgated by the commissioner pursuant to Sections 31A-2-201 and 31A-17-503.

R590-162-2. Purpose and Scope.

(1) The purpose of this rule is to prescribe:

(a) requirements for statements of actuarial opinion and memoranda in support that are submitted under Section 31A-17-503;

(b) guidance for adequacy of reserves; and

(2)(a) This rule applies to a company that:

(i) files a life, accident and health annual statement; or

(ii) is authorized to reinsure life insurance, annuities, or accident and health insurance business.

(b) This rule allows an appointed actuary to use professional judgment in performing an asset adequacy analysis and developing an actuarial opinion and supporting memoranda, consistent with applicable actuarial standards of practice.

R590-162-3. Definitions.

Terms used in this rule are defined in Section 31A-1-301. Additional terms are defined as follows:

(1) "Actuarial opinion" means an opinion of an appointed actuary regarding the adequacy of reserves and related actuarial items based on an asset adequacy test under Section R590-162-5 and applicable actuarial standards of practice.

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

(3) "Annual statement" means a statement required under Section 31A-4-113.

(4) "Appointed actuary" means an individual who is appointed or retained in accordance with the requirements in Subsection R590-162-4(2) to provide the actuarial opinion and supporting memorandum required under Section 31A-17-503.

(5)(a) "Asset adequacy analysis" means an analysis that meets the standards of practice of the Actuarial Standards Board and this rule and that forms the basis of the statement of actuarial opinion.

(b) An asset adequacy analysis may take the form of:

(i) cash flow testing;

(ii) sensitivity testing; or

(iii) an application of risk theory.

(6) "Company" means a life insurance company, a fraternal benefit society, or a reinsurer.

(7)(a) "Qualified actuary" means an individual who:

(i) is a member in good standing of the American Academy of Actuaries;

(ii) is qualified to sign a statement of actuarial opinion for a life and health insurance company annual statement in accordance with the American Academy of Actuaries qualification standards for actuaries signing an annual statement; and

(iii) is familiar with the valuation requirements applicable to a life and health insurance company.

(b) "Qualified actuary" does not include an individual who:

(i) has been found by the commissioner, following notice and hearing, to have:

(A) violated a provision of Utah law in the course of a person's dealings as a qualified actuary;

(B) been guilty of fraudulent or dishonest practices;

(D) submitted to the commissioner, during the past five years, an actuarial opinion or memorandum that the commissioner rejected because it did not meet the provisions of this rule or the standards set by the Actuarial Standards Board; or

(E) resigned or been removed as an actuary within the past five years because of acts or omissions indicated in any adverse report on examination or because of a failure to adhere to generally acceptable actuarial standards; or

(ii) failed to notify the commissioner of any action taken by a commissioner of another state similar to that in this Subsection (7)(b).

R590-162-4. General Requirements of an Actuarial Opinion.

(1) Submitting a Statement of Actuarial Opinion.

(a) A statement of an appointed actuary setting forth an opinion relating to reserves and related actuarial items held in support of a policy or a contract, entitled Statement of Actuarial Opinion, shall be included with the annual statement.

(b) For a foreign or an alien company, the commissioner may accept a statement of actuarial opinion filed by a company with the insurance regulator of another state if the commissioner determines that the opinion reasonably meets the requirements applicable to a company domiciled in this state.

(2) Appointed Actuary.

(a) An appointed actuary shall be appointed either directly by or by the authority of the Board of Directors through an executive officer of the company other than the appointed actuary.

(b) A company shall:

(i) give the commissioner timely written notice of the name, title, and, in the case of a consulting actuary, the name of the firm and manner of appointment or retention of each person appointed by a company as an appointed actuary; and

(ii) state in the notice that the individual meets the requirements of a qualified actuary.

(c) When notice is provided, no further notice is required for the appointed actuary, provided the company gives the commissioner timely written notice that the actuary ceases to be appointed or meet the requirements of a qualified actuary.

(d) If an appointed actuary replaces a previously appointed actuary, the notice shall give the reasons for replacement.

(3) Liabilities to be Covered.

(a) Under Section 31A-17-503, a statement of actuarial opinion applies to an in-force business on the statement date, whether directly issued or assumed, regardless of when or where issued.

(b) If an appointed actuary determines, as the result of an asset adequacy analysis, that a reserve should be held in addition to the aggregate reserve held by a company and calculated in accordance with methods under Title 31A, Chapter 17, Part 5, Standard Valuation Law, the company shall establish the additional reserve.

(c) Additional reserves established under Subsection (3)(b) and considered not necessary in subsequent years may be released.

(i) Reserves that are released shall be disclosed in the actuarial opinion for the applicable year.

(ii) The release of reserves is not an adoption of a lower standard of valuation.

R590-162-5. Statement of Actuarial Opinion Based on an Asset Adequacy Analysis.

(1) General Description.

(a) A statement of actuarial opinion based on an asset adequacy analysis shall include a paragraph identifying:

(i) the appointed actuary and the appointed actuary's qualifications;

(ii) the scope of the actuarial opinion, describing:

(A) the appointed actuary's work, with a tabulation delineating the reserves and related actuarial items analyzed for asset adequacy and the method of analysis; and

(B) the reserves and related actuarial items covered by the opinion that were not analyzed;

(iii) the areas where the appointed actuary deferred to another expert in developing data, procedures, or assumptions, such as anticipated cash flows from currently owned assets including variation in cash flows according to economic scenarios, supported by a statement of each expert in the form prescribed by Subsection (5); and

(iv) the appointed actuary's opinion of the adequacy of the supporting assets to mature the liabilities.

(b) Additional paragraphs may be needed if the appointed actuary:

(i) considers it necessary to state a qualification of the opinion;

(ii) is required to disclose the method of aggregation for reserves of different products or lines of business for asset adequacy analysis;

(iii) is required to disclose reliance upon a portion of the assets supporting the Asset Valuation Reserve (AVR), Interest Maintenance Reserve (IMR), or other mandatory or voluntary statement of reserves for asset adequacy analysis;

(iv) is required to disclose an inconsistency in the method of analysis or basis of asset allocation used at the prior year opinion;

(v) is required to disclose whether additional reserves of the prior year opinion are released as of the current year opinion, and the extent of the release; or

(vi) chooses to add a paragraph briefly describing the assumptions that form the basis for the actuarial opinion.

(2) Required Language.

The language in a statement of actuarial opinion may be modified as needed to meet the circumstances of a particular case, but the appointed actuary shall use language that clearly expresses the appointed actuary's professional judgment. The following paragraphs shall be included in the statement of actuarial opinion.

(a)(i) The opening paragraph shall state the appointed actuary's relationship to the company and the appointed actuary's qualifications to sign the opinion.

(ii) For a company actuary, the opening paragraph of the actuarial opinion shall read as follows:

"I, (name), am (title) of (insurance company name) and a member of the American Academy of Actuaries. I was appointed by, or by the authority of, the Board of Directors of said insurer to render this opinion as stated in the letter to the commissioner dated (insert date). I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies."

(iii) For a consulting actuary, the opening paragraph shall read 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 (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."

(b) The scope paragraph shall include the following statement:

"I have examined the actuarial assumptions and actuarial methods used in determining reserves and related actuarial items listed below, as shown in the annual statement of the company, as prepared for filing with state regulatory officials, as of

December 31, 20__. Tabulated below are those reserves and related actuarial items which have been subjected to asset adequacy analysis."

(c)(i) If an appointed actuary relies on another expert to develop certain portions of the analysis, a reliance paragraph shall include the following statement:

"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."

(ii) A statement of reliance on another expert shall be accompanied by a statement from each expert in a form prescribed by Subsection (5).

(d) If an appointed actuary examined the underlying asset and liability records, the reliance paragraph shall include the following:

"My examination included such review of the actuarial assumptions and actuarial methods and of the underlying basic asset and liability records and such tests of the actuarial calculations as I considered necessary. I also reconciled the underlying basic asset and liability records to (exhibits and schedules listed as applicable) of the company's current annual statement."

(e)(i) If an appointed actuary has not examined the underlying records, but has relied upon data prepared by the company or a third party, the reliance paragraph shall include the following statement:

"In forming my opinion on (specify types 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 statement. I evaluated that data for reasonableness and consistency. I also reconciled that data to (exhibits and schedules to be listed as applicable) of the company's current annual statement. In other respects my examination included such review of the actuarial assumptions and actuarial methods and such tests of the actuarial calculations as I considered necessary."

(ii) A statement of reliance shall be accompanied by a statement from each person relied upon in a form prescribed by Subsection (5).

(f) The opinion paragraph shall include:

(i) "In my opinion the reserves and related actuarial values concerning the statement items identified above:

(A) are computed in accordance with presently accepted actuarial standards consistently applied and are fairly stated, in accordance with sound actuarial principles;

(B) are based on actuarial assumptions which produce reserves at least as great as those called for in any contract provision as to reserve basis and method, and are in accordance with all other contract provisions;

(C) meet the requirements of the insurance laws and rules 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;

(D) are computed on the basis of assumptions consistent with those used in computing the corresponding items in the annual statement of the preceding year-end (with any exceptions noted below);

(E) include provision for all actuarial reserves and related statement items which ought to be established";

(ii) "The reserves and related items, when considered in light of the assets held by the company with respect to such reserves and related actuarial items including, but not limited to, the investment earnings on such assets, and the considerations anticipated to be received and retained under such policies and contracts, make adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the company";

(iii) "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';

(iv)(A) "This opinion is updated annually as required by statute. To be 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

(B) "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)";

(v) "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"; and

(vi) a signature block including the:

(A) signature of the appointed actuary;

(B) address of the appointed actuary;

(D) date.

(3) Assumption for New Issue.

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 an actuarial assumption within the meaning of this section.

(4) Adverse Opinion.

(a) If an appointed actuary cannot form an opinion, the actuary shall refuse to issue a statement of actuarial opinion.

(b)(i) If an appointed actuary's opinion is adverse or qualified, the actuary shall issue an adverse or qualified actuarial opinion explicitly stating the reason for the opinion.

(ii) The explicit statement required under Subsection (4)(b)(i) shall follow the scope paragraph and precede the opinion paragraph.

(5) Reliance on Data Furnished by Other Persons.

(a) If an 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 shall state the persons the actuary is relying on and identify the items the actuary is relying on.

(b)(i) A person that the appointed actuary relies on shall provide a certification that identifies the items the person is providing information about and a statement as to the accuracy, completeness, or reasonableness of the items.

(ii) The certification shall include the signature, date, title, company, address, and telephone number of the person providing the certification.

(6) Alternate Option.

(a) As an alternative to the requirements of Subsection (2)(f)(i)(C), an appointed actuary may state that the reserves and related actuarial values "meet the requirements of the insurance laws and rules of the State of (state of domicile) and I have verified that the company's request to file an opinion based on the laws of the state of domicile has been approved by the commissioner and that any conditions required by the commissioner for approval of the request have been met."

(b)(i) To use an alternative, the company shall file a request with the commissioner, along with justification for its use, no later than April 30 of the year the opinion is filed.

(ii) The request is approved on October 1 of that year if the commissioner has not denied the request by that date.

(c)(i) The commissioner may reject an opinion based on the laws of the state of domicile and require an opinion based on the laws of this state.

(ii) If a company cannot provide the opinion within 60 days of the request or other period determined by the commissioner after consultation with the company, the commissioner may contract with an independent actuary at the company's expense to prepare and file the opinion.

R590-162-6. Description of Actuarial Memorandum Including an Asset Adequacy Analysis.

(1) General Provisions of Actuarial Memorandum.

(a)(i) Under Section 31A-17-503, an appointed actuary shall prepare a memorandum to a company describing the analysis done in support of the opinion with respect to reserves, and shall make it available for examination by the commissioner upon request.

(ii) The memorandum shall be returned to the company after examination by the commissioner and is not considered a record of the department or subject to automatic filing with the commissioner.

(b) In preparing the memorandum, the appointed actuary may rely on, and include as a part of the memorandum, memoranda prepared and signed by other qualified actuaries, with respect to the areas covered in the memoranda.

(c)(i) If the commissioner requests a memorandum and a memorandum does not exist or if the commissioner finds that the analysis described in the memorandum fails to meet the standards of the Actuarial Standards Board or the standards and requirements of this rule, the commissioner may designate a qualified actuary to review the opinion and prepare a supporting memorandum as required for review.

(ii) A reasonable and necessary expense of the independent review shall be paid by the company but the review is directed and controlled by the commissioner.

(d)(i) The reviewing actuary has the same status as an examiner for purposes of obtaining data from the company.

(ii) The work papers and documentation of the reviewing actuary are retained by the commissioner; however, any information provided by the company to the reviewing actuary and included in the work papers are considered material provided by the company to the commissioner and are kept confidential pursuant to Section 31A-17-517.

(iii) The reviewing actuary may not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer pursuant to this rule for the current year or the preceding three years.

(e)(i) Under Section 31A-17-503, the appointed actuary shall prepare a regulatory asset adequacy issues summary, pursuant to Subsection (3).

(ii) A company domiciled in this state shall submit the regulatory asset adequacy issues summary no later than March 15 of the year following the year a statement of actuarial opinion based on asset adequacy is required.

(iii) A foreign company shall make the regulatory asset adequacy issues summary available to the commissioner upon request.

(iv) The regulatory asset adequacy issues summary is kept confidential to the same extent and under the same conditions as the actuarial memorandum.

(2) Detail of the Memorandum Documenting Asset Adequacy Analysis.

The memorandum documenting asset adequacy analysis shall demonstrate that the analysis was done in accordance with the standards for asset adequacy and shall include:

(a) for reserves:

(i) product descriptions including market description, underwriting and other aspects of a risk profile, and the specific risks the appointed actuary considers significant;

(ii) source of liability in force;

(iii) reserve method and basis;

(iv) investment reserves;

(v) reinsurance arrangements;

(vi) identification of an explicit or implied guarantee made, the general account in support of benefits provided through a separate account or under a separate account policy or contract, and the method used by the appointed actuary to provide for the guarantee in the asset adequacy analysis; and

(vii) documentation of assumptions to test reserves for the following:

(A) lapse rates, including both base and excess;

(B) interest crediting strategy;

(D) policyholder dividend strategy;

(E) competitor or market interest rate;

(F) annuitization rates;

(G) commissions and expenses; and

(H) morbidity;

(b) for assets:

(i) portfolio descriptions, including a risk profile disclosing the quality, distribution, and types of assets;

(ii) investment and disinvestment assumptions;

(iii) source of asset data;

(iv) asset valuation bases; and

(v) documentation of assumptions made for:

(A) default costs;

(B) bond call function;

(D) determining market value for assets sold due to disinvestment strategy; and

(E) determining yield on assets acquired through the investment strategy;

(i) methodology;

(ii) rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;

(iii) rationale for degree of rigor in analyzing different blocks of business, including the level of materiality used to determine how rigorously to analyze different blocks of business;

(iv) criteria for determining asset adequacy, including the criteria used to determine if assets are adequate to cover reserves under moderately adverse conditions or other conditions specified in relevant actuarial standards of practice; and

(v) effect of federal income taxes, reinsurance, and other relevant factors;

(d) summary of material changes in methods, procedures, or assumptions from prior year's asset adequacy analysis;

(e) summary of results; and

(f) conclusions.

(3) Detail of the Regulatory Asset Adequacy Issues Summary.

A regulatory asset adequacy issues summary shall include:

(a) a description of the scenarios tested, including whether those scenarios are stochastic or deterministic, and the sensitivity testing done relative to those scenarios;

(i) if negative ending surplus results under certain tests in aggregate, the actuary shall describe those tests and the amount of additional reserve as of the valuation date that, if held, would eliminate the negative aggregate surplus values; and

(ii) ending surplus values shall be determined by either extending the projection period until the in force and associated assets and liabilities at the end of the projection period are immaterial or by adjusting the surplus amount at the end of the projection period by an amount that appropriately estimates the value that can reasonably be expected to arise from the assets and liabilities remaining in force;

(b) the extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different than the assumptions used in the previous asset adequacy analysis;

(c) the amount of reserves and the identity of the product lines subject to asset adequacy analysis in the prior year opinion but not subject to analysis for the current year opinion;

(d) 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 reserve during one or more interim periods;

(e) the methods used by the actuary to recognize the impact of reinsurance on the company's cash flows, including both assets and liabilities, under each scenario tested;

(f) whether the actuary is satisfied that all options, whether explicit or embedded, in any asset or liability, including those affecting cash flows embedded in fixed income securities, and equity-like features in an investment were appropriately considered in the asset adequacy analysis;

(g) the name of the company the regulatory asset adequacy issues summary is being prepared for;

(h) the signature of the appointed actuary; and

(i) the date of the actuarial opinion.

(4) Documentation.

(a) The appointed actuary shall retain, for at least seven years, sufficient documentation to determine the procedures followed, the analyses performed, the bases for assumptions, and the results obtained.

(b) The documentation shall be of such quality that an actuary reviewing the actuarial memorandum can form a conclusion as to the reasonableness of the assumptions.

R590-162-7. Exemptions.

(1) Unless ordered by the commissioner, a company that is under supervision, rehabilitation, or liquidation is exempt from the requirements of this rule.

(2)(a) At the discretion of the commissioner, a company domiciled in this state and doing business only in this state may submit an opinion without the statement required under Subsection R590-162-5(2)(f)(ii).

(b) If the commissioner grants an exemption under Subsection (2)(a), the company is exempt from preparing and submitting the regulatory asset adequacy issues summary document required under Subsection R590-162-6(1)(e).

(3) A company domiciled in this state may apply to the commissioner for an exemption from:

(a) the requirement to submit an actuarial opinion under Subsection R590-162-4(1)(a);

(b) the requirement to include within its actuarial opinion the statement under Subsection R590-162-5(2)(f)(ii); or

(c) the requirement to prepare and submit the regulatory asset adequacy issues summary document under Subsection R590-162-6(1)(e).

(2) A company seeking an exemption under Subsection (3) shall:

(a) submit a written request for an exemption no later than November 1 of the year for which the exemption is sought; and

(b) provide a written explanation and supporting documents explaining how complying with the requirement for which an exemption is sought would not enhance the department's understanding of the financial position of the company and, therefore, be an unnecessary burden on the company.

R590-162-8. Severability.

If any provision of this rule, Rule R590-162, or its application to any person or situation is held invalid, such invalidity does not affect any other provision or application of this rule that can be given effect without the invalid provision or application. The remainder of this rule shall be given effect without the invalid provision or application.

KEY: insurance

Date of Last Change: August 8, 2022

Notice of Continuation: September 15, 2023

Authorizing, and Implemented or Interpreted Law: 31A-17-503