054.00.95 Ark. Code R. 005
The purpose of this Regulation is to prescribe:
This Regulation is issued pursuant to the authority vested in the Arkansas Insurance Commissioner under Ark. Code Ann. §§ 23-84-112, as amended by Act 621 of 1995, effective March 14, 1995; 23-61-108; and 25-15-201, et seq. See also the Commissioner's rules and regulations with related subject matter on actuarial opinions, reserve standards and valuation methods, including the Commissioner's Rule 22, "Reserve Standards. for Valuation of Individual Disability Policies"; Commissioner's Rule 34, "Universal Life Insurance", and the Commissioner's Rules 38, 39 and 40, on Mortality Tables, and others if and as applicable.
This Regulation shall apply to all licensed life and/or disability (accident and health) insurance companies and fraternal benefit societies doing business in this State and to all licensed life and/or disability (accident and health) insurance companies and fraternal benefit societies which are authorised to reinsure life insurance, annuities or disability (accident and health) insurance business in this State. Pursuant to Act 621 of 1995 in pertinent part, the actuarial opinion required by this Rule shall apply to all business in force of the companies, including but not limited to individual and group life and disability (health) insurance plans. This Regulation shall be applicable to all annual statements filed with the office of the Commissioner after December 1, 1995, the effective date of this Regulation.
Except with respect to companies which are exempted pursuant to Section 6 of this Regulation, each company's (a) statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with Section 8 of this Regulation, and a memorandum in support thereof in accordance with Section 9 of this Regulation, shall be required each year. Any company so exempted must file a statement of actuarial opinion pursuant to Section 7 of this Regulation. Notwithstanding the foregoing, the Commissioner may require any company otherwise exempt pursuant to this Regulation to submit a statement of actuarial opinion and to prepare a memorandum in support thereof in accordance with Sections 8 and 9 of this Regulation if, in the opinion of the Commissioner, an asset adequacy analysis is necessary with respect to the company.
The notice shall state that the person meets the requirements set forth in Section 5(B). Once notice is furnished, no further notice is required with respect to this person, provided that the company shall give the Commissioner 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 Section 5(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.
The asset adequacy analysis required by this Regulation:
In accordance with Section 3 of the NAIC Model Standard Valuation Law, Ark. Code Ann. § 23-84-112, as amended by Act 621 of 1995, every company doing business in this State shall annually submit the opinion of an appointed actuary as provided for by this Regulation. The type of opinion submitted shall be determined by the provisions set forth in this Section 6 and shall be in accordance with the applicable provisions in this Regulation.
For purposes of this Regulation, companies shall be classified as follows based on the admitted assets as of the end of the calendar year for which the actuarial opinion is applicable:
Every Category D company shall submit a statement of actuarial opinion in accordance with Section 8 of this Regulation for each year commencing with 1995, the year in which this Regulation becomes effective.
The statement of actuarial opinion required by this section shall consist of a paragraph identifying the appointed actuary and his or her qualifications; a regulatory authority paragraph stating that the company is exempt pursuant to this Regulation from submitting a statement of actuarial opinion based on an asset adequacy analysis and that the opinion, which is not based on an asset adequacy analysis, is rendered in accordance with Section 7 of this Regulation; a scope paragraph identifying the subjects on which the opinion is to be expressed and describing the scope of the appointed actuary's work; and an opinion paragraph expressing the appointed actuary's opinion as required by Section 3 of the NAIC Model Standard Valuation Law, Ark. Code Ann. § 23-84-112, as amended by Act 621 of 1995.
The following language provided is that which in typical circumstances would be included in a statement of actuarial opinion in accordance with this section. The language may be modified as needed to meet the circumstances of a particular case, but the appointed actuary should use language which clearly expresses his or her professional judgment. However, in any event the opinion shall retain all pertinent aspects of the language provided in Section 7.
"I, [name of actuary], am [title] of [name of company] 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 companies."
For a consulting actuary, the opening paragraph of the actuarial opinion should contain a sentence such as:
"I, [name and title of actuary], a member of the American Academy of Actuaries, am associated with the firm of [insert 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."
" Said company is exempt pursuant to Regulation 64 of the Arkansas Insurance Department from submitting a statement of actuarial opinion based on an asset adequacy analysis. This opinion, which is not based on an asset adequacy analysis, is rendered in accordance with Section 7 of the Regulation."
"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, [ ]."
The paragraph should list items and amounts with respect to which the appointed actuary is expressing an opinion. The list should include but not be necessarily limited to:
"My examination included such review of the actuarial assumptions and actuarial methods and of the underlying basic records and such tests of the actuarial calculations as I considered necessary."
"I have relied upon listings and summaries of policies and contracts and other liabilities in force prepared by [name and title of company officer certifying in force records] as certified in the attached statement. (See accompanying affidavit by a company officer.) In other respects my examination included review of the actuarial assumptions and actuarial methods and such tests of the actuarial calculations as I considered necessary."
or
"I have relied upon [name of accounting firm] for the substantial accuracy of the in force records inventory and information concerning other liabilities, as certified in the attached statement. In other respects my examination included review of the actuarial assumptions and actuarial methods and such tests of the actuarial calculations as I considered necessary."
The statement of the person certifying shall follow the form indicated by Section 7(B)(10).
"... with the exception of the change described on Page [ ] of the annual statement (or in the preceding paragraph)."
The adoption for new issues or new claims or other new liabilities of an actuarial assumption which differs from a corresponding assumption used for prior new issues or new claims or other new liabilities is not a change in actuarial assumptions within the meaning of this paragraph.
"I [name of officer], [title] of [name and address of company or accounting firm], hereby affirm that the listings and summaries of policies and contracts in force as of December 31, [ ], prepared for and submitted to [name of appointed actuary], were prepared under my direction and, to the best of my knowledge and belief, are substantially accurate and complete.
________________________________________________
Signature of the Officer of the Company or Accounting Firm
________________________________________________
Address of the Officer of the Company or Accounting Firm
________________________________________________
Telephone Number of the Officer of the Company or Accounting Firm"
The statement of actuarial opinion submitted in accordance with this section shall consist of:
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 which clearly expresses his or her professional judgment. However, in any event the opinion shall retain all pertinent aspects of the language provided in this section.
"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." For a consulting actuary, the opening paragraph should contain a sentence 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 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."
"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] and, as certified in the attached statement, ..."
or
"I have relied on personnel as cited in the supporting memorandum for certain critical aspects of the analysis in reference to the accompanying statement."
Such a statement of reliance on other experts should be accompanied by a statement by each of such experts of the form prescribed by Rule Section 8 (E).
"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 have relied upon listings and summaries [of policies and contracts, of asset records] prepared by [name and title of company officer certifying in-force records] as certified in the attached statement. In other respects my examination included such review of the actuarial assumptions and actuarial methods and such tests of the actuarial calculations as I considered necessary."
or
"I have relied upon [name of accounting firm] for the substantial accuracy of the in-force records inventory and information concerning other liabilities, as certified in the attached statement. In other respects my examination included review of the actuarial assumptions and actuarial methods and tests of the actuarial calculations as I considered necessary."
Such a section must be accompanied by a statement by each person relied upon of the form prescribed by Rule Section 8(E).
The adoption for new issues or new claims or other new liabilities of an actuarial assumption which differs from a corresponding assumption used for prior new issues or new claims or other new liabilities is not a change in actuarial assumptions within the meaning of this Rule Section 8.
If the appointed actuary is unable to form an opinion, then he or she shall refuse to issue a statement of actuarial opinion. If the appointed actuary's opinion is adverse or qualified, then he or she shall issue an adverse or qualified actuarial opinion explicitly stating the reason(s) for such opinion.
This statement should follow the scope paragraph and precede the opinion paragraph.
If the appointed actuary does not express an opinion as to the accuracy and completeness of the listings and summaries of policies in force and/or asset oriented information, there shall be attached to the opinion the statement of a company officer or accounting firm who prepared such underlying data. The language should be similar to that recited in Rule Exhibit E attached.
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 Regulation for any one of the current year or the preceding three (3) years.
When an actuarial opinion under Rule Section 8 is provided, the memorandum shall demonstrate that the analysis has been done in accordance with the standards for asset adequacy referred to in Section 5 (D) of this Regulation and any additional standards under this Regulation. It shall specify:
The memorandum shall include a 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."
For the asset adequacy analysis for the statement of actuarial opinion provided in accordance with Section 8 of this Regulation, reserves and assets may be aggregated by either of the following methods:
In the event of any aggregation, the actuary must disclose in his or her opinion that such reserves were aggregated on the basis of method (1) (2)(a) or (2)(b) above, whichever is applicable, and describe the aggregation in the supporting memorandum.
The appointed actuary shall analyze only those assets held in support of the reserves which are the subject for specific analysis, hereafter called "specified reserves." A particular asset or portion thereof supporting a group of specified reserves cannot support any other group of specified reserves. An asset may be allocated over several groups of specified reserves. The annual statement value of the assets held in support of the reserves shall not exceed the annual statement value of the specified reserves, except as provided in Subsection (C) below. If the method of asset allocation is not consistent from year to year, the extent of its inconsistency should be described in the supporting memorandum.
An appropriate allocation of assets in the amount of the Interest Maintenance Reserve ("IMR"), whether positive or negative, must 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 ("AVE."); these AVR assets may not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks may include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support.
The amount of the assets used for the AVR must 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 must be disclosed in the memorandum.
For the purpose of performing the asset adequacy analysis required by this Regulation, the qualified actuary is expected to follow standards adopted by the Actuarial Standards Board; nevertheless, appointed actuary must consider in the analysis the effect of at least the following interest rate scenarios:
For these and other scenarios which may be used, projected interest rates for a five (5) year Treasury Note need not be reduced beyond the point where the five (5) year Treasury Note yield would be at fifty (502) of its initial level.
The beginning interest rates may be based on interest rates for new investments as of the valuation date similar to recent investments . allocated to support the product being tested or be based on an outside index, such as Treasury yields, of assets of the appropriate length on a date close to the valuation date. Whatever method is used to determine the beginning yield curve and associated interest rates should be specifically defined. The beginning yield curve and associated interest rates should be consistent for all interest rate scenarios.
The appointed actuary shall retain on file, for at least seven (7) years, sufficient documentation so that it will be possible to determine the procedures followed, the analyses performed, the bases for assumptions and the results obtained,
The Commissioner may impose sanctions on companies which have failed to comply with the provisions of this Rule in completing the annual statement with the appropriate actuarial certification and opinion, or in failing to file the statement of opinions when eligible for any exemptions under this Rule; and such sanctions shall include but not be limited to those the Commissioner may impose on companies for failure to file, or failure to file a complete, annual statement under Ark. Code Ann. § 23-63-216, including license suspension, revocation, and fines or monetary penalties.
Companies and actuaries filing false statements of financial conditions in connection with the actuarial opinions required by this Rule, or filing false or fraudulent actuarial opinions with the Commissioner, or knowingly making a false entry in these actuarial opinions in the reports or annual statements of the companies shall be deemed to have committed Trade Practices violations under Ark. Code Ann. § 23-66-206(4) and this Rule, in addition to other applicable provisions of Arkansas laws and rules; and shall be subject to administrative proceedings culminating in possible cease and desist orders, monetary-penalties, and/or license suspensions or revocations.
The provisions of this Rule shall be effective on December 1, 1995. This Regulation shall take effect for annual statements for the year 1995, and filed with the Commissioner on or before March 1, 1996.
Any section or provision of this Rule held by a court to be invalid or unconstitutional will not affect the validity of any other section or provision of this Rule.
054.00.95 Ark. Code R. 005