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Subchapter Q. Actuarial Opinion and Memorandum Regulation

28 TAC §§3.1605, 3.1606, 3.1607, 3.1608, 3.1609

The Commissioner of Insurance adopts amendments to §§3.1605-3.1609 concerning the submission of a statement of actuarial opinion and the memoranda in support of such opinion. Sections 3.1605, 3.1606 and 3.1609 are adopted without changes to the text as proposed in the October 13, 2000 issue of the Texas Register (25 TexReg 10279) and will not be republished. Sections 3.1607 and 3.1608 are adopted with changes.

Insurance Code Article 3.28 §2A(a) requires every life insurance company doing business in this state to annually submit to the department the opinion of a qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts of the insurer are computed appropriately, are based on assumptions which satisfy contractual provisions, are consistent with prior reported amounts and comply with applicable laws of this state. The statute directs the commissioner of insurance to define the specific requirements of this opinion by rule. The commissioner adopted Subchapter Q, Actuarial Opinion and Memorandum Regulation (28 Texas Administrative Code §§3.1601-3.1611) in response to the statute's directive. The amendments are adopted to eliminate unnecessary or obsolete material and to harmonize Subchapter Q with the adoption by reference of the National Association of Insurance Commissioners Accounting Practices and Procedures Manual in new §7.18 which is published elsewhere in this issue of the Texas Register.

The adopted sections provide clarification and guidance to the appointed actuaries in rendering their opinions. Insurance Code Article 3.28 §2A(a) requires the actuary rendering the opinion to be a member of the American Academy of Actuaries (Academy). The Actuarial Standards Board is the rule making arm of the Academy. All members of the Academy must comply with the standards adopted by the Actuarial Standards Board, therefore the actuary rendering an opinion under these sections must comply with these standards due to their membership in the Academy. The adopted sections delete the adoption by reference of the Actuarial Standards of Practice of the Academy. The department previously adopted the standards of the Academy so the department would be able to monitor compliance with these standards independent of the Academy. Since the adoption of the standards in 1992 the department has not found it necessary to take any independent disciplinary actions against an actuary, therefore the department believes the requirements are unnecessary and intends to refer any matters requiring additional action to the Academy for appropriate handling. The adopted sections also delete the provisions in §3.1606(c) concerning designations by the National Association of Insurance Commissioners Examiner Team since that function of the Examiner Team has been eliminated as a criteria for determining the type of actuarial opinion required. The amendment to §3.1605(d) and (f) replaces the language reflecting the adoption of the Standards of Practice of the Actuarial Standards Board with the standard language used in the actuarial profession. The amendment to §3.1606(c) deletes an unnecessary reference to the National Association of Insurance Commissioners model regulation entitled "Model Actuarial Opinion and Memorandum Regulation." Grammatical corrections have been made to §3.1607 and §3.1608.

One comment was received in support of the proposed amendments. The department appreciates the comment.

The Texas Association of Insurance Officials commented for the sections.

The amendments are adopted under Insurance Code Article 3.28 and §36.001. The Insurance Code Article 3.28, §2A, authorizes and requires the Commissioner of Insurance to define the specific requirements of actuarial opinions required under Article 3.28, including matters deemed to be necessary to the scope of such opinions. Section 36.001 authorizes the Commissioner to determine rules for general and uniform application for the conduct and execution of the duties and functions of the department.

§3.1605. General Requirements.

(a) Submission of statement of actuarial opinion. Any statement of actuarial opinion required by these sections shall be submitted in accordance with paragraphs (1)-(4) of this subsection.

(1) For each year beginning with the year in which this regulation becomes effective the annual statement shall have included on, or attached to, page one 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 §3.1608 of this title (relating to Statement of Actuarial Opinion Based on an Asset Adequacy Analysis). Any company exempt from submitting such statement of actuarial opinion by provision of §3.1606 of this title (relating to Required Opinions) shall include on or attach to page one of the annual statement a statement of actuarial opinion rendered by an appointed actuary in accordance with §3.1607 of this title (relating to Statement of Actuarial Opinion Not Including an Asset Adequacy Analysis).

(2) If in the previous year a company provided a statement of actuarial opinion in accordance with §3.1607 of this title (relating to Statement of Actuarial Opinion Not Including an Asset Adequacy Analysis), and in the current year fails the exemption criteria of §3.1606(c)(1), (2), or (5) of this title (relating to Required Opinions) to again provide an actuarial opinion in accordance with §3.1607 of this title, the statement of actuarial opinion in accordance with §3.1608 of this title (relating to Statement of Actuarial Opinion Based on an Asset Adequacy Analysis) shall not be due until August 1 of the filing year of the annual statement for which the opinion is required. In this instance, the company shall provide a statement of actuarial opinion in accordance with §3.1607 of this title with appropriate qualification noting the intent to subsequently provide a statement of actuarial opinion in accordance with §3.1608 of this title.

(3) In the case of a statement of actuarial opinion required to be submitted by a foreign or alien company, the commissioner may accept the statement of actuarial opinion filed by such company with the insurance supervisory regulator of another state if the commissioner determines that the opinion reasonably meets the requirements applicable to a company domiciled in this state.

(4) Upon written request by the company, the commissioner may grant an extension of the date for submission of the statement of actuarial opinion.

(b) Qualified actuary. A "qualified actuary" is an individual who meets these five qualifications:

(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 commissioner (or if so found has subsequently been reinstated as a qualified actuary), following appropriate notice and hearing to have:

(A) been convicted of fraud, bribery, violation of the Racketeer Influenced and Corrupt Organizations Act (18 United States Code §§1961-1968), or any state or federal criminal offense involving dishonest conduct; or

(B) violated the insurance laws of this state with respect to any actuarial opinion filed under these rules; or

(C) demonstrated a pattern or practice of failing to detect or disclose material information in an actuarial opinion filed under these rules or in any other actuarial opinion or report filed with the commissioner; or

(D) demonstrated a pattern or practice of failing to adhere to accepted standards of actuarial practice in accordance with sound actuarial principles as required in an actuarial opinion filed under these rules or accepted standards of actuarial practice in any other actuarial opinion or report filed with the commissioner; and

(5) has not failed to notify the commissioner of any action taken by any commissioner of any other state similar to that under paragraph (4) of this subsection.

(c) Appointed actuary. An "appointed actuary" is a qualified actuary who is appointed or retained to prepare the statement of actuarial opinion required by this subchapter, either directly by or by the authority of the board of directors through an executive officer of the company. The company shall 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 or retained by the company as an appointed actuary and shall state in such notice that the person meets the requirements set forth in subsection (b) of this section to the best of the company's knowledge. 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 subsection (b) of this section. 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) Standards for asset adequacy analysis. The asset adequacy analysis required by this regulation shall conform to accepted standards of actuarial practice required of qualified actuaries

(e) Liabilities to be covered. The liabilities to be covered shall be in accordance with paragraphs (1)-(4) of this subsection.

(1) Under authority of the Insurance Code, Article 3.28, §2A, the statement of actuarial opinion shall apply to all in force business on the statement date regardless of when or where issued, for example, reserves of Exhibits 8, 9, and 10, and claim liabilities in Exhibit 11, Part 1, and equivalent items in the separate account statement or statements.

(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 the Insurance Code, Article 3.28, §§6, 7, 10, and 11, and other applicable Insurance Code provisions, the company shall establish such additional reserve.

(3) For years ending prior to December 31, 1994, the company may, in lieu of establishing the full amount of the additional reserve in the annual statement for that year, set up an additional reserve in an amount not less than the following:

(A) December 31, 1992--the additional reserve divided by three;

(B) December 31, 1993--two times the additional reserve divided by three.

(4) Additional reserves established under paragraphs (2) or (3) of this subsection and deemed not necessary in subsequent years may be released. Any amounts released must 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.

(f) Standards for an actuarial opinion not based on an asset adequacy analysis. The actuarial opinion rendered under §3.1607 of this title shall conform to accepted standards of actuarial practice required of qualified actuaries and any additional standards under this regulation.

§3.1606. Required Opinions.

(a) General. In accordance with the Insurance Code, Article 3.28, §2A, 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 and shall be in accordance with the applicable provisions of this subchapter.

(b) Company categories. For purposes of this subchapter, 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:

(1) Category A shall consist of those companies whose admitted assets do not exceed $20 million;

(2) Category B shall consist of those companies whose admitted assets exceed $20 million but do not exceed $100 million;

(3) Category C shall consist of those companies whose admitted assets exceed $100 million but do not exceed $500 million; and

(4) Category D shall consist of those companies whose admitted assets exceed $500 million.

(c) Exemption eligibility tests. Exemption eligibility shall be in accordance with criteria set forth in paragraphs (1)-(7) of this subsection.

(1) Any Category A company that, for any year beginning with the year in which this subchapter becomes effective, meets all of the following criteria shall be eligible for exemption from submission of a statement of actuarial opinion in accordance with §3.1608 of this title (relating to Statement of Actuarial Opinion Based on an Asset Adequacy Analysis) for the year in which these criteria are met. The ratios in subparagraphs (A), (B), and (C) of this paragraph shall be calculated based on amounts as of the end of the calendar year for which the actuarial opinion is applicable.

(A) The ratio of the sum of capital and surplus to the sum of cash and invested assets is at least equal to .10.

(B) The ratio of the sum of the reserves and liabilities for annuities and deposits to the total admitted assets is less than .30.

(C) The ratio of the book value of the non-investment grade bonds to the sum of capital and surplus is less than .50.

(2) Any Category B company that, for any year beginning with the year in which this subchapter becomes effective, meets all of the following criteria shall be eligible for exemption from submission of a statement of actuarial opinion in accordance with §3.1608 of this title for the year in which the criteria are met. The ratios in subparagraphs (A), (B), and (C) of this paragraph shall be calculated based on amounts as of the end of the calendar year for which the actuarial opinion is applicable.

(A) The ratio of the sum of capital and surplus to the sum of cash and invested assets is at least equal to .07.

(B) The ratio of the sum of the reserves and liabilities for annuities and deposits to the total admitted assets is less than .40.

(C) The ratio of the book value of the non-investment grade bonds to the sum of capital and surplus is less than .50.

(3) Any Category A or Category B company that meets all of the criteria set forth in paragraph (1) or (2) of this subsection, whichever is applicable, is exempt from submission of a statement of actuarial opinion in accordance with §3.1608 of this title (relating to Statement of Actuarial Opinion Based on an Asset Adequacy Analysis) unless the commissioner specifically indicates to the company that the exemption is not to be taken.

(4) Any Category A or Category B company that, for any year beginning with the year in which this subchapter becomes effective, is not exempt under paragraph (3) of this subsection shall be required to submit a statement of actuarial opinion in accordance with §3.1608 of this title (relating to Statement of Actuarial Opinion Based on an Asset Adequacy Analysis) for the year for which it is not exempt.

(5) Any Category C company that, after submitting an opinion in accordance with §3.1608 of this title, meets all of the following criteria shall not be required, unless required in accordance with paragraph (7) of this subsection, to submit a statement of actuarial opinion in accordance with §3.1608 of this title more frequently than every third year. Any Category C company which fails to meet all of the following criteria for any year shall submit a statement of actuarial opinion in accordance with §3.1608 of this title for that year. The ratios in subparagraphs (A), (B), and (C) of this paragraph shall be calculated based on amounts as of the end of the calendar year for which the actuarial opinion is applicable.

(A) The ratio of the sum of capital and surplus to the sum of cash and invested assets is at least equal to .05.

(B) The ratio of the sum of the reserves and liabilities for annuities and deposits to the total admitted assets is less than .50.

(C) The ratio of the book value of the non-investment grade bonds to the sum of the capital and surplus is less than .50.

(6) Any stipulated premium insurance company which does not insure or assume risk on contracts with death benefits, cash values, or accumulation values, on any one life, in excess of $10,000 is exempt from submission of a statement of actuarial opinion in accordance with §3.1608 of this title (relating to Statement of Actuarial Opinion Based on an Asset Adequacy Analysis) unless required in accordance with paragraph (7) of this subsection.

(7) Any company which is not required by this §3.1606 of this title (relating to Required Opinions) to submit a statement of actuarial opinion in accordance with §3.1608 of this title (relating to Statement of Actuarial Opinion Based on an Asset Adequacy Analysis) for any year shall submit a statement of actuarial opinion in accordance with §3.1607 of this title (relating to Statement of Actuarial Opinion Not Including an Asset Adequacy Analysis) for that year unless, as provided by §3.1603 of this title (relating to Commissioner Discretion), the commissioner requires a statement of actuarial opinion in accordance with §3.1608 of this title.

(d) Large companies. Every Category D company shall submit a statement of actuarial opinion in accordance with §3.1608 of this title (relating to Statement of Actuarial Opinion Based on an Asset Adequacy Analysis) for each year beginning with the year in which this subchapter becomes effective.

§3.1607. Statement of Actuarial Opinion Not Including an Asset Adequacy Analysis.

(a) General description. The statement of actuarial opinion required by this section shall consist of the following paragraphs:

(1) a paragraph identifying the appointed actuary and his or her qualifications;

(2) a paragraph stating that the company is exempt pursuant to §3.1606 of this title (relating to Required Opinions) 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 this section;

(3) 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

(4) an opinion paragraph expressing the appointed actuary's opinion as required by the Insurance Code, Article 3.28, §2A, and Article 1.11(c).

(b) Recommended language. The language provided in paragraphs (1) - (10) of this subsection 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. Regardless of language used, the opinion shall retain all pertinent aspects of the language provided in this section.

(1) The opening paragraph should indicate the appointed actuary's relationship to the company.

(For a company actuary, the opening paragraph of the actuarial opinion is recommended to read as follows:)

I, (name and title) of (insurance company name), am 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 and title), a member of the American Academy of Actuaries, an 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 insurance 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.

(2) The regulatory authority paragraph should include a statement such as the following: "Said company is exempt pursuant to 28 TAC §3.1606 of the Texas Department of Insurance 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 28 TAC §3.1607."

(3) The scope paragraph should contain a sentence such as the following: "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, the items listed in subparagraphs (A)-(D) of this paragraph:

(A) aggregate reserve and deposit funds for policies and contracts included in Exhibit 8;

(B) aggregate reserve and deposit funds for policies and contracts included in Exhibit 9;

(C) deposit funds, premiums, dividend and coupon accumulations, and supplementary contracts not involving life contingencies included in Exhibit 10; and

(D) policy and contract claims-liability end of current year included in Exhibit 11, Part 1.

(4) If the appointed actuary has examined the underlying records, the scope paragraph should also include the following: "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."

(5) If the appointed actuary has not examined the underlying records, but has relied upon listings and summaries of policies in force prepared by the company or a third party, the scope paragraph should include a sentence such as one of the following:

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 paragraph (10) of this subsection.

(6) The opinion paragraph should include the following:

In my opinion the amounts carried in the balance sheet on account of the actuarial items identified above:

are computed in accordance with appropriate actuarial standards consistently applied;

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;

meet the requirements of the insurance law and regulations 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;

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 as noted below); and

include provision for all actuarial reserves and related statement items which ought to be established.

The actuarial methods, considerations and analyses used in forming my opinion conform to the appropriate Standards of Practice as adopted by the Actuarial Standards Board.

(7) The concluding paragraph should document the eligibility for the company to provide an opinion as provided by this section. It shall include the following items.

This opinion is provided in accordance with 28 TAC §3.1607. As such it does not include an opinion regarding the adequacy of reserves and related actuarial items when considered in light of the assets which support them.

Eligibility to submit under §3.1607 is confirmed as follows:

The ratio of the sum of capital and surplus to the sum of cash and invested assets is (insert amount), which equals or exceeds the applicable criterion based on the admitted assets of the company (28 TAC §3.1606(c)).

The ratio of the sum of the reserves and liabilities for annuities and deposits to the total admitted assets is (insert amount), which is less than the applicable criteria based on the admitted assets of the company (28 TAC §3.1606(c)).

The ratio of the book value of the non-investment grade bonds to the sum of capital and surplus is (insert amount), which is less than the applicable criteria of .50.

To my knowledge there is not a specific request from any commissioner requiring an asset adequacy analysis opinion.

___________________________________

Signature of Appointed Actuary

___________________________________

Address of Appointed Actuary

___________________________________

Telephone Number of Appointed Actuary

(8) If there has been any change in the actuarial assumptions from those previously employed, that change should be described in the annual statement and in a paragraph of the statement of actuarial opinion, and the reference pursuant to paragraph (6) of this subsection, regarding consistency of assumptions, should read as follows.

…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.

(9) If the appointed actuary is unable to form an opinion, he or she shall refuse to issue a statement of actuarial opinion. If the appointed actuary's opinion is adverse or qualified, 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.

(10) If the appointed actuary does not express an opinion as to the accuracy and completeness of the listings and summaries of policies in force, there should be attached to the opinion the statement of a company officer or accounting firm who prepared such underlying data similar to the following.

I (name of officer), (title) of (name and address of company of 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

§3.1608. Statement of Actuarial Opinion Based On an Asset Adequacy Analysis.

(a) (No change)

(b) Recommended language. 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.

(1)-(5) (No change)

(6) The opinion paragraph should include the following:

In my opinion the reserves and related actuarial values concerning the statement items identified above:

are computed in accordance with appropriate actuarial standards consistently applied and are fairly stated, in accordance with sound actuarial principles;

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;

meet the requirements of the insurance law and regulations 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;

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 as noted below); and

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 such assets, and the considerations anticipated to be received and retained under such policies and contracts, make adequate provision, according to appropriate 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 Standards of Practice as adopted by the Actuarial Standards Board which standards form the basis of this statement of opinion.

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.) Choose whichever of the two immediately preceding statements is appropriate.

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

(c) Assumptions for new issues. 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 section.

(d) Adverse opinions. 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.

(e) Reliance on data furnished by other persons. 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 similar to the following.

I, (name of officer), (title) of (name of company or accounting firm), hereby affirm that the listings and summaries of policies and contracts in force as of December 31, ( ), and other liabilities 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

I, (name of officer), (title) of (name of company, accounting firm or security analyst), hereby affirm that the listings, summaries and analyses relating to the data prepared for and submitted to (name of appointed actuary) in support of the asset oriented aspects of the opinion 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,

Accounting Firm, or Security Analyst

_____________________________________

Address of the Officer of the Company,

Accounting Firm, or Security Analyst

_____________________________________

Telephone Number of the Officer of the

Company, Accounting Firm, or Security

Analyst

§3.1609. Description of Actuarial Memorandum.

(a) General provisions. Any actuarial memorandum required by the provisions of this subchapter shall be prepared in accordance with and subject to the provisions and qualifications of paragraphs (1)-(4) of this subsection.

(1) In accordance with the Insurance Code, Article 3.28, §2A, the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of his or her opinion regarding the reserves under the opinion. The memorandum shall be made available for examination by the commissioner upon his or her request.

(2) In preparing the memorandum, the appointed actuary may rely on, and include as a part of his or her own memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of §3.1605(b) of this title (relating to General Requirements), with respect to the areas covered in such memoranda, and so state in their memoranda.

(3) If the commissioner requests a memorandum and no such memorandum exists or if the commissioner finds that the analysis described in the memorandum fails to meet the standards of the Actuarial Standards Board, as required by §3.1605(d) of this title (relating to General Requirements), or the standards and requirements of this subchapter, the commissioner 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 commissioner.

(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 commissioner. 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 subchapter for any one of the current year or the preceding three years.

(b) Details of the memorandum section documenting asset adequacy analysis. When an actuarial opinion under §3.1608 of this title (relating to Statement of Actuarial Opinion Based on an Asset Adequacy Analysis) is provided, the memorandum shall demonstrate that the analysis has been done in accordance with the standards for asset adequacy referred to in §3.1605(d) of this title (relating to General Requirements) and any additional standards under this subchapter. 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;

(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;

(3) analysis basis:

(A) methodology;

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

(C) rationale for degree of rigor in analyzing different blocks of business;

(D) criteria for determining asset adequacy;

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

(4) summary of results;

(5) conclusion(s).

(c) Conformity to standards of practice. The memorandum shall include a statement with wording substantially similar to that of this subsection as follows: Actuarial methods, considerations and analyses used in the preparation of this memorandum conform to the appropriate Standards of Practice as adopted by the Actuarial Standards Board which standards form the basis for this memorandum.



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