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(a) An appointed actuary shall prepare a memorandum that describes the analysis done in support of the actuary's opinion regarding the reserves covered in an actuarial opinion prepared under 3 AAC 21.830. The memorandum must be made available for examination upon request of the director. The director will return the memorandum to the company after examination.
(b) In preparing a memorandum under this section, an appointed actuary may rely upon, and include as a part of the memorandum, a memorandum previously prepared and signed by another appointed or qualified actuary regarding the area that is being relied upon in the current memorandum.
(c) The qualified actuary engaged by the director under AS 21.18.110 (r) may not be an employee of a consulting firm involved in the preparation of any prior actuarial opinion or memorandum for the company in the previous four years. Any information provided by the company to the actuary engaged by the director is subject to the confidentiality requirements of AS 21.18.110 (s).
(d) An appointed actuary shall prepare a regulatory asset adequacy issues summary in compliance with (e) of this section. A company shall submit the regulatory asset adequacy issues summary to the director upon request, and the director will hold the regulatory asset adequacy issues summary confidential subject to the confidentiality requirements of AS 21.18.110 (s).
(e) A memorandum prepared under this section must demonstrate that the analysis has been done according to the actuarial standards of practice adopted by the Actuarial Standards Board as required by AS 21.18.110 (n) and the requirements under 3 AAC 21.800 - 3 AAC 21.845 and must provide the following:
(1) information about reserves that includes
(A) product descriptions, including market description, underwriting, and other aspects of a risk profile, and the specific risks that the appointed actuary considers significant;
(B) the source of liability in force;
(C) the reserve method and basis;
(D) the investment reserves;
(E) the reinsurance arrangements;
(F) identification of
(i) 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
(ii) 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) base and excess lapse rates;
(ii) interest crediting rate strategy;
(iv) policyholder dividend strategy;
(v) competitor or market interest rate;
(vi) annuitization rates;
(vii) commissions and expenses; and
(2) information about assets that includes
(A) portfolio descriptions, including a risk profile that discloses the quality, distribution, and types of assets;
(B) the investment and disinvestment assumption used by the actuary;
(C) the source of asset data;
(D) the asset valuation bases; and
(E) documentation of assumptions 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;
(3) the basis upon which the analysis was performed that includes the
(A) methodology used;
(B) rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;
(C) rationale for the degree of rigor in analyzing different blocks of business including the level of materiality used in determining how rigorously to analyze different blocks of business;
(D) criteria used for determining asset adequacy including the precise basis for determining whether assets are adequate to cover reserves; and
(E) whether the impact of federal income taxes was considered and the method of treating reinsurance in the asset adequacy analysis;
(4) a summary of material changes in methods, procedures, or assumptions from the prior year's asset adequacy analysis;
(5) a summary of results;
(6) a description of all conclusions formed by the analysis.
(f) Documentation of assumptions under (e) of this section must be in a manner that allows another actuary reviewing the actuarial assumptions to form a conclusion regarding the reasonableness of the assumptions.
(g) The regulatory asset adequacy issues summary required under (d) of this section must include
(1) a description of each scenario tested including whether the scenario is stochastic or deterministic;
(2) a description of the sensitivity testing done relative to the scenarios described under (1) of this subsection;
(3) a description of the tests and statement of the amounts of additional reserve necessary to eliminate negative aggregate surplus values, if negative ending surplus values result under any of the scenarios tested under (1) and (2) of this subsection;
(4) disclosure of 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;
(5) the amount of reserves and a description of each insurance product that was subject to asset adequacy analysis in the previous opinion but was not subject to asset adequacy analysis in the current opinion;
(6) disclosure of interim results that are of significant concern to the appointed actuary;
(7) a description of the methods used by the actuary to account for the impact of reinsurance under each of the scenarios tested under (1) and (2) of this subsection on the company's asset and liability cash flows;
(8) a statement by the appointed actuary relative to whether the actuary is satisfied that all options in any asset or liability, including options that affect cash flows in fixed income securities, and equity-like features in any investment are appropriately considered in the asset adequacy analysis;
(9) the name of the company for which the summary is being supplied; and
(10) the signature of and date the appointed actuary signed the opinion.
(h) The actuarial memorandum must include a statement in substantially the following form:
"The actuarial methods, considerations, and analyses used in the preparation of this memorandum conform to the appropriate standards of practice adopted by the Actuarial Standards Board as required by AS 21.18.110 (n)."
History: Eff. 9/1/96, Register 139; am 1/1/2005, Register 172
Authority: AS 21.06.090
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Last modified 7/05/2006