WSR 08-01-077

PERMANENT RULES

OFFICE OF

INSURANCE COMMISSIONER

[ Insurance Commissioner Matter No. R 2006-10 -- Filed December 17, 2007, 8:36 a.m. , effective January 17, 2008 ]


Effective Date of Rule: Thirty-one days after filing.

Purpose: These rules amend several sections of the actuarial opinion and memorandum regulation (WAC 284-07-310 through 284-07-400) to bring them in line with the model regulation of accreditation part A standards of the National Association of Insurance Commissioners.

Citation of Existing Rules Affected by this Order: Repealing WAC 284-07-360 and 284-07-370; and amending WAC 284-07-310, 284-07-330, 284-07-340, 284-07-350, 284-07-380, and 284-07-390.

Statutory Authority for Adoption: RCW 48.02.060, 48.74.025, 48.36A.250, 48.36A.260.

Adopted under notice filed as WSR 07-17-164 on August 22, 2007.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 6, Repealed 2.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.

Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 6, Repealed 2.

Date Adopted: December 17, 2007.

Mike Kreidler

Insurance Commissioner

OTS-9290.8

ACTUARIAL OPINION AND MEMORANDUM REGULATION
AMENDATORY SECTION(Amending Order R 94-26, filed 12/30/94, effective 1/30/95)

WAC 284-07-310   Purpose.   The purpose of this regulation, WAC 284-07-310 through and including WAC 284-07-400, called the actuarial opinion and memorandum regulation, is to prescribe:

(1) Guidelines and standards for statements of actuarial opinion ((that are to be)) submitted in accordance with the requirements of RCW 48.74.025, 48.36A.250, 48.36A.260, and for supporting memoranda ((in support thereof));

(2) ((Guidelines and standards for statements of actuarial opinion which are to be submitted when a company is exempt from RCW 48.74.025(2); and

(3))) Rules applicable to the appointment of an appointed actuary; and

(3) Guidelines and standards relating to "adequacy of reserves."

[Statutory Authority: RCW 48.01.030, 48.02.060, 48.74.025, 48.36A.250 and 48.36A.260. 95-02-036 (Order R 94-26), 284-07-310, filed 12/30/94, effective 1/30/95.]


AMENDATORY SECTION(Amending Order R 94-26, filed 12/30/94, effective 1/30/95)

WAC 284-07-330   Scope.   (1) This regulation applies to all life insurance companies and fraternal benefit societies doing business in this state, to all life insurance companies and fraternal benefit societies which are authorized to reinsure life insurance, annuities, or disability insurance business in this state; and to all disability insurers that file annual statements on the life and accident and health blank. This regulation requires the appointed actuary to use his or her professional judgment in performing the required asset analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards of practice. The commissioner may specify specific methods of actuarial analysis and actuarial assumptions when, in the commissioner's opinion, such specifications are necessary.

(2) This regulation applies to all annual statements filed with the commissioner on and after ((the effective date of this regulation)) December 31, 2007. ((Except with respect to companies which are exempted pursuant to WAC 284-07-360, a statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with WAC 284-07-380, and a memorandum in support thereof in accordance with WAC 284-07-390, shall be required each year. Any company so exempted must file a statement of actuarial opinion pursuant to WAC 284-07-370.

(3) 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 WAC 284-07-380 and 284-07-390 if, in the opinion of the commissioner, an asset adequacy analysis is necessary with respect to the company.))

[Statutory Authority: RCW 48.01.030, 48.02.060, 48.74.025, 48.36A.250 and 48.36A.260. 95-02-036 (Order R 94-26), 284-07-330, filed 12/30/94, effective 1/30/95.]


AMENDATORY SECTION(Amending Order R 94-26, filed 12/30/94, effective 1/30/95)

WAC 284-07-340   Definitions.   The following definitions apply throughout this regulation:

(1) "Actuarial opinion" means((:

(a) With respect to WAC 284-07-380, 284-07-390, or 284-07-400,)) the opinion of an appointed actuary regarding the adequacy of the reserves and related actuarial items based on an asset adequacy ((test)) analysis set forth in ((accordance with)) WAC 284-07-380 and ((with presently accepted)) according to applicable actuarial standards((;

(b) With respect to WAC 284-07-370, the opinion of an appointed actuary regarding the calculation of reserves and related items, in accordance with WAC 284-07-370 and with those presently accepted actuarial standards which specifically relate to this opinion)) 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 that statement required by RCW 48.05.250 to be filed annually by the company with the commissioner.

(4) "Appointed actuary" means any individual who is appointed or retained in accordance with the requirements set forth in WAC 284-07-350(3) to provide the actuarial opinion and supporting memorandum as required by RCW 48.74.025.

(5) "Asset adequacy analysis" means an analysis that meets the standards and other requirements ((referred to)) set forth in WAC 284-07-350(4)((; it may take many forms, including, but not limited to, cash flow testing, sensitivity testing, or applications of risk theory)).

(6) "Company" means an insurance company, fraternal benefit society, or reinsurer subject to this regulation.

(7) (("Noninvestment-grade bonds" means those bonds designated as classes 3, 4, 5, or 6 by the National Association of Insurance Commissioners (NAIC) Securities Valuation Office (SVO).

(8))) "Qualified actuary" means an individual who meets the requirements set forth in WAC 284-07-350(((2))) (1).

[Statutory Authority: RCW 48.01.030, 48.02.060, 48.74.025, 48.36A.250 and 48.36A.260. 95-02-036 (Order R 94-26), 284-07-340, filed 12/30/94, effective 1/30/95.]


AMENDATORY SECTION(Amending Order R 94-26, filed 12/30/94, effective 1/30/95)

WAC 284-07-350   General requirements.   The statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with WAC 284-07-380, and a memorandum in support thereof in accordance with WAC 284-07-390, are required each year.

(((1) Submission of)) Statement of actuarial opinion((.)):

(((a) There is to be included on or attached to page 1 of the annual statement for each year beginning with the annual statement for 1994, 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 WAC 284-07-380: Provided, however, That any company exempted pursuant to WAC 284-07-360 from submitting a statement of actuarial opinion in accordance with WAC 280-07-380 shall include on or attach to page 1 of the annual statement a statement of actuarial opinion rendered by an appointed actuary in accordance with WAC 284-07-370.

(b) If in the previous year a company provided a statement of actuarial opinion in accordance with WAC 284-07-370, and in the current year fails the exemption criteria of WAC 284-07-360 (3)(a), (b), or (c) to again provide an actuarial opinion in accordance with WAC 284-07-370, the statement of actuarial opinion in accordance with WAC 284-07-380 shall not be required until August 1 following the date of the annual statement. In this instance, the company shall provide a statement of actuarial opinion in accordance with WAC 284-07-370 with appropriate qualification noting the intent to subsequently provide a statement of actuarial opinion in accordance with WAC 284-07-380.

(c) 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.

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

(2))) (1) "Qualified actuary" means an individual who:

(a) Is a member in good standing of the American Academy of Actuaries; and

(b) 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 or equivalent standards acceptable to the commissioner; and

(c) Is familiar with the valuation requirements applicable to life and health insurance companies; and

(d) Has not been found by the commissioner (or if so found has subsequently been reinstated as a qualified actuary), following appropriate notice to have:

(i) Violated any provision of, or any obligation imposed by, Title 48 RCW or other law or any applicable regulation or order of the commissioner in the course of his or her dealings as a qualified actuary;

(ii) Been found guilty of fraudulent or dishonest practices;

(iii) Demonstrated his or her ((incompetency)) incompetence, lack of cooperation, or untrustworthiness to act as a qualified actuary;

(iv) 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 regulation or standards set by the Actuarial Standards Board; or

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

(e) Has not failed to notify the commissioner of any action taken by any commissioner of any other state similar to that under (d) of this subsection.

(f) The commissioner may accept equivalent qualifications in place of those in (a) and (b) of this subsection if the individual has otherwise demonstrated his or her actuarial competence to the satisfaction of the commissioner, and meets the qualifications in (c), (d), and (e) of this subsection.

(((3))) (2) "Appointed actuary" means a qualified actuary who is appointed or retained to prepare the statement of actuarial opinion required by this regulation; either directly by, or by the authority of, the board of directors through an executive officer of the company.

(a) The company shall give the commissioner timely written notice of the following: 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)).

(b) The company must state in ((such)) its notice that the ((person)) appointed actuary meets the requirements set forth in subsection (((2))) (1) of this section.

((Once)) (c) After the company furnishes the notice ((is furnished)), no further notice is required with respect to this person, ((provided that)) except the following, if applicable:

(i) The company ((shall)) must give the commissioner timely written notice ((in the event)) if the actuary ceases to be appointed or retained as an appointed actuary ((or)); and

(ii) The company must give the commissioner timely written notice if the actuary fails to meet the requirements set forth in subsection (2) of this section.

(d) If any person appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice ((shall so state)) must include that information and give the reasons for replacement.

(((4))) (3) Standards for asset adequacy analysis: ((Except to the extent)) Unless the commissioner approves equivalents in advance, the asset adequacy analysis required by this regulation:

(a) ((Shall)) Must conform to the standards of practice as promulgated from time to time by the Actuarial Standards Board and to any additional standards under this regulation, ((which standards are to)) and must form the basis of the statement of actuarial opinion in accordance with ((WAC 284-07-380)) this regulation; and

(b) ((Shall)) Must be based on methods of analysis ((as)) that are deemed appropriate for such purposes by the Actuarial Standards Board.

(((5))) (4) Liabilities to be covered((.)):

(a) ((Under authority of)) As required by RCW 48.74.025, the statement of actuarial opinion ((shall apply)) applies to all in force business on the statement date regardless of when or where issued, ((e.g.,)) including reserves of Exhibits ((8, 9, and 10)) 5, 6, and 7, and claim liabilities in Exhibit ((11)) 8, Part 1 and equivalent items in the separate account statement or statements.

(b) 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 RCW 48.74.040, 48.74.070, 48.74.080, and 48.74.090, the company ((shall)) must establish ((such)) the appropriate additional reserve.

(c) ((For years ending prior to December 31, 1995, 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 two times the additional reserve divided by three.

(d))) Additional reserves established under (b) ((or (c))) 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)) these reserves ((would)) will not be deemed an adoption of a lower standard of valuation.

[Statutory Authority: RCW 48.01.030, 48.02.060, 48.74.025, 48.36A.250 and 48.36A.260. 95-02-036 (Order R 94-26), 284-07-350, filed 12/30/94, effective 1/30/95.]


AMENDATORY SECTION(Amending Matter No. R 2006-04, filed 6/6/06, effective 7/7/06)

WAC 284-07-380   Statement of actuarial opinion based on an asset adequacy analysis.   (1) General description: The statement of actuarial opinion ((submitted in accordance with this section shall consist of)) must include the following:

(a) A paragraph identifying the appointed actuary and his or her qualifications (see subsection (2)(a) of this section);

(b) A scope paragraph identifying the subjects on which an opinion is to be expressed and describing the scope of the appointed actuary's work, including a tabulation delineating the reserves and related actuarial items which have been analyzed for asset adequacy and the method of analysis, (see subsection (2)(b) of this section) and identifying the reserves and related actuarial items covered by the opinion which have not been so analyzed;

(c) A reliance paragraph describing those areas, if any, where the appointed actuary has deferred to other experts in developing data, procedures or assumptions, e.g., anticipated cash flows from currently owned assets, including variation in cash flows according to economic scenarios (see subsection (2)(c) of this section), supported by a statement of each ((such)) expert relied on in the form prescribed by subsection (5) of this section; and

(d) An opinion paragraph expressing the appointed actuary's opinion ((with respect to)) concerning the adequacy of the supporting assets to mature the liabilities (see subsection (2)(f) of this section).

(e) One or more ((additional)) of the following paragraphs ((may be appropriate)) will be needed in individual company cases, as follows:

(i) If the appointed actuary considers it necessary to state a qualification of his or her opinion;

(ii) If the appointed actuary must disclose the method of aggregation for reserves of different products or lines of business for asset adequacy analysis;

(iii) ((If the appointed actuary must disclose reliance upon any 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))) If the appointed actuary must disclose an inconsistency in the method of analysis or basis of asset allocation used at the prior opinion date with that used for this opinion;

(((v))) (iv) If the appointed actuary must disclose whether additional reserves of the prior opinion date are released as of this opinion date, and the extent of the release; or

(((vi))) (v) If the appointed actuary chooses to add a paragraph briefly describing the assumptions which form the basis for the actuarial opinion.

(2) Recommended language: The following paragraphs ((are to)) must be included in the statement of actuarial opinion in accordance with this section. Language is that which in typical circumstances shall 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 ((shall use language which)) must clearly express((es)) his or her professional judgment. ((However,)) In any event, the opinion ((shall retain)) must include all pertinent aspects of the language provided in this section.

(a) The opening paragraph ((shall)) must generally ((indicate)) state the appointed actuary's relationship to the company and his or her qualifications to sign the opinion.

(i) For a company actuary, the opening paragraph of the actuarial opinion ((shall)) must read substantially 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 that ((insurer)) 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 disability insurance companies."

(ii) For a consulting actuary, the opening paragraph ((shall)) must contain a statement substantially similar to the following:


"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 disability insurance companies."

(b) The scope paragraph ((shall)) must include a statement substantially similar to 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, 20[ ]. Tabulated below are those reserves and related actuarial items which have been subjected to asset adequacy analysis.

Asset Adequacy Tested Amounts Reserves and Liabilities
Statement Item Formula

Reserves

(1)

Additional

Actuarial

Reserves (a)

(2)

Analysis

Method (b)

Other

Amount

(3)

Total Amount

(1) + (2) + (3)

(4)

Exhibit ((8)) 5
A Life Insurance
B Annuities
C Supplementary Contracts

((Involving)) With Life Contingencies

D Accidental Death

Benefit

E Disability - Active
F Disability - Disabled
G Miscellaneous
Total (Exhibit ((8)) 5 Item 1, Page 3)
Exhibit ((9)) 6
A Active Life Reserve
B Claim Reserve
Total (Exhibit ((9)) 6 Item 2, Page 3)
Exhibit ((10)) 7
((1)) Premiums and Other Deposit Funds (Column 6, Line 14)
((1.1 Policyholder

Premiums (Page 3, Line 10.1)

1.2)) Guaranteed Interest

Contracts (((Page 3, Line 10.2))) (Column 2, Line 14)

((1.3 Other Contract

Deposit Funds

(Page 3, Line 10.3))) Annuities Certain (Column 3, Line 14)

((2 Supplementary))

Supplemental Contracts ((Not Involving Life Contingencies

(Page 3, Line 3)) (Column 4, Line 14)

((3)) Dividend ((and Coupon)) Accumulations or Refunds

(((Page 3, Line 5)) Column 5, Line 14)

Total (Exhibit ((10)) 7, Item 3, Page 3)
Exhibit ((11)) 8 Part 1
1 Life (Page 3, Line 4.1)
2 Health (Page 3, ((Life)) Line 4.2)
Total Exhibit ((11)) 8, Part 1
Separate Accounts (Page 3((, Line 27)) of the Annual Statement of the Separate Accounts, Lines 1 and 2)
TOTAL RESERVES


IMR (General Account, Page 3, Line ((11.4)) 9.4 )
IMR (Separate Accounts, Page 3, Line 3)
AVR (Page 3, Line 24.1 ) (c)
Net Deferred and Uncollected Premium

Notes to table of reserves and related actuarial items:


Page and line numbers refer to the ((1992)) 2005 blank. Corresponding entries from blanks from later years ((shall)) are to be substituted as appropriate.


(a) The additional actuarial reserves are the reserves established under WAC 284-07-350 (5)(b) ((or (c))).
(b) The appointed actuary ((shall indicate)) must state the method of analysis, determined in accordance with the standards for asset adequacy analysis referred to in WAC 284-07-350(4), by means of symbols which shall be defined in footnotes to the table.
(c) Allocated amount of Asset Valuation Reserve (AVR)."
(c) If the appointed actuary has relied on other experts to develop ((certain)) any portion((s)) of the analysis, the reliance paragraph ((shall)) must include a statement substantially similar to ((one of)) the following:


(((i))) "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)), 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) "I have relied on personnel as cited in the supporting memorandum for certain critical aspects of the analysis in reference to the accompanying statement."))
A statement of reliance on other experts ((should)) must be accompanied by a statement by each ((of such experts of)) expert in the form prescribed by subsection (5) of this section.

(d) If the appointed actuary has examined the underlying asset and liability records, the reliance paragraph ((shall)) must also include substantially the following statement:


"My examination included ((such)) a review of the actuarial assumptions ((and)), actuarial methods ((and of)), the underlying basic asset and liability records, and ((such)) other 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) If the appointed actuary has not examined the underlying records, but has relied upon listings ((and)) or summaries of policies in force, or asset records, or both prepared by the company ((or a third party)), the reliance paragraph ((shall)) must include a statement substantially similar to ((one of)) the following:


(((i))) "In forming my opinion on [specify types of reserves] I ((have)) relied upon ((listings and summaries [of policies and contracts, of asset records])) data prepared by [name and title of company officer certifying in-force records or other data] as certified in the attached statements. 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 used and ((such)) tests of the actuarial calculations ((as)) I considered necessary."
(((ii) "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 shall)) The paragraph must be accompanied by a signed statement by each person relied upon based on the form ((prescribed by)) set forth in subsection (5) of this section.

(f) The opinion paragraph ((shall)) must include a statement substantially similar to the following:


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


(i) Are computed in accordance with presently accepted actuarial standards consistently applied and are fairly stated, in accordance with sound actuarial principles;
(ii) 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;
(iii) Meet the requirements of the insurance laws 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;
(iv) 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);
(v) 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)) the assets, and the considerations anticipated to be received and retained under ((such)) the 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.
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.
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.)
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(("))
Date"

(3) 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.

(4) Adverse opinions: If the appointed actuary is unable to form an opinion, then he or she ((shall)) must refuse to issue a statement of actuarial opinion. If the appointed actuary's opinion is adverse or qualified, then he or she ((shall)) must issue an adverse or qualified actuarial opinion explicitly stating the reason(s) for ((such)) the adverse opinion. This statement ((should)) must follow the scope paragraph and precede the opinion paragraph.

(5) 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 or ((asset-oriented information, there shall)) if the 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 must include the names of the persons the actuary is relying upon and a precise identification of the items subject to reliance. In addition, the persons on whom the appointed actuary relies must provide a certification that precisely identifies the items on which the person is providing information and a statement as to the accuracy, completeness or reasonableness of the items, as applicable. This certification must include the signature, title, company's legal name, address and telephone number of the person providing the certification, and the date on which it is signed. This certification must include the reporting date, the name of the appointed actuary, and must be attached to the opinion ((the statement of a company officer or accounting firm who prepared such underlying data)), in a form substantially similar to ((either or both of)) the following((, as appropriate)):


(((a))) "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, 20[ ], 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"))

Date"

(((b) "I, [name of officer], [title] of [name of company, accounting firm, or security analyst], hereby affirm that the listings, summaries, and analyses relating to 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 the Security Analyst

Address of the Officer of the Company,

Accounting Firm or the Security Analyst

Telephone Number of the Officer of the

Company, Accounting Firm or

the Security Analyst"))

[Statutory Authority: RCW 48.02.060. 06-12-077 (Matter No. R 2006-04), 284-07-380, filed 6/6/06, effective 7/7/06. Statutory Authority: RCW 48.01.030, 48.02.060, 48.74.025, 48.36A.250 and 48.36A.260. 95-02-036 (Order R 94-26), 284-07-380, filed 12/30/94, effective 1/30/95.]

Reviser's note: The brackets and enclosed material in the text of the above section occurred in the copy filed by the agency and appear in the Register pursuant to the requirements of RCW 34.08.040.
AMENDATORY SECTION(Amending Order R 94-26, filed 12/30/94, effective 1/30/95)

WAC 284-07-390   Description of actuarial memorandum including an asset adequacy analysis and regulatory asset adequacy issues summary.   (1)(a) In accordance with RCW 48.74.025, the appointed actuary ((shall)) must prepare a memorandum to the company describing the analysis done in support of his or her opinion regarding the reserves ((under a WAC 284-07-380 opinion)). The memorandum ((shall)) must be made available for examination by the commissioner upon his or her request but ((shall)) will be returned to the company after ((such)) the examination and ((shall)) will not be considered a record of the commissioner 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 his or her own memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of WAC 284-07-350(2), with respect to the areas covered in such memoranda, and ((shall so state)) must include a statement to that effect in their memoranda.

(c) If the commissioner requests a memorandum and an adequate memorandum is not provided within ten days ((of)) after the request, 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 regulation, the commissioner may designate a qualified actuary to review the opinion and prepare the supporting memorandum required for review. All reasonable and necessary expenses of the independent review ((shall)) must be paid by the company but all expenses ((connected therewith shall)) related to the review will be directed and controlled by the commissioner.

(d)(i) The reviewing actuary ((shall)) must 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)) must be retained by the commissioner((: Provided, however, That any)). Information provided by the company to the reviewing actuary and included in the work papers ((shall)) will be considered material provided by the company to the commissioner and ((shall)) will be kept confidential to the same extent as prescribed by law with respect to other material provided by the company to the commissioner ((pursuant to the statute governing this regulation)).

(ii) The reviewing actuary ((shall)) must 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)) company for the current year or any one of the preceding three years.

(e) In accordance with RCW 48.74.025, the appointed actuary must prepare a regulatory asset adequacy issues summary according to the requirements set forth in subsection (3) of this section. The regulatory asset adequacy issues summary must be submitted no later than March 15 of the year following the year for which a statement of actuarial opinion based on asset adequacy is required. Except for a domestic life insurance company, the regulatory asset adequacy issues summary must be submitted only upon request of the commissioner. The regulatory asset adequacy issues summary has the standing of a memorandum in support of the actuarial opinion, and will be kept confidential to the extent and under the conditions provided for in RCW 48.74.025(4).

(2) When an actuarial opinion ((under WAC 284-07-380)) is provided, the memorandum ((shall)) must demonstrate that the analysis has been completed in accordance with the standards for asset adequacy ((referred to)) set forth in WAC 284-07-350(4) and any additional standards required by the commissioner. The memorandum ((shall specify)) must include the following:

(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) Sources of liabilities in force;

(iii) Reserve methods and bases;

(iv) Investment reserves;

(v) Reinsurance arrangements;

(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;

(vii) Documentation of assumptions, including comparisons with experience, to test reserves for the following:

(A) Lapse rates, both base and excess;

(B) Interest crediting rate strategy;

(C) Mortality;

(D) Policyholder dividend strategy;

(E) Competitor or market interest rate;

(F) Annuitization rates;

(G) Commissions and expenses; and

(H) Morbidity.

The documentation of the assumptions must allow an actuary reviewing the actuarial memorandum to form a conclusion regarding the reasonableness of the assumptions.

(b) For assets:

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

(ii) Investment and disinvestment assumptions;

(iii) Sources of asset data;

(iv) Asset valuation bases;

(v) Documentation of assumptions made for:

(A) Default costs;

(B) Bond call function;

(C) Mortgage prepayment function;

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

(E) Determining yield on assets acquired through the investment strategy.

The documentation of the assumptions must allow an actuary reviewing the actuarial memorandum to form a conclusion regarding the reasonableness of the assumptions.

(c) Analysis basis:

(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" that was used in determining how rigorously to analyze different blocks of business;

(iv) Criteria for determining asset adequacy, including 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) ((Effect)) Consideration of the impact of federal income taxes((, reinsurance, and other relevant factors.

(d) Assumptions:

(i) Lapse rates, including a comparison of assumed lapse rates with actual lapse rates, if lapse experience studies have been performed;

(ii) Interest crediting rate strategy;

(iii) Mortality rates, either specified directly or stated with reference to nonproprietary, published tables;

(iv) Dividend strategy;

(v) Competitor or market interest rate;

(vi) Annuitization rates;

(vii) Commissions and expenses, including a comparison of assumptions with recent actual commissions and expenses;

(viii) Asset default costs;

(ix) Bond call function;

(x) Mortgage prepayment function;

(xi) Determination of market value for assets sold due to disinvestment strategy;

(xii) Anticipated yield on assets acquired through the investment strategy.

(e))); and

(vi) The method of treating reinsurance in the asset adequacy analysis.

(d) Sensitivity testing: Impact of changes in assumptions used in asset adequacy analysis, based on sensitivity tests performed.

(e) Material changes: Summary of material changes in methods, procedures, or assumptions from prior year's asset adequacy analysis.

(f) Results:

(i) Schedules under each required scenario showing the cash flows by each of the major items of income, benefits, and expenses, statutory gains or losses, and statutory balance sheet, as modeled, for each year in the projection period((: Provided however, That for 1994, abbreviated schedules, appropriate in the judgment of the appointed actuary, are acceptable.)); and

(ii) Summary of results.

(g) Conclusion(s).

(3) The regulatory asset adequacy issues summary must contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and must be signed and dated by the appointed actuary providing the actuarial opinion. The regulatory asset adequacy issues summary must include all of the following:

(a) Descriptions of the scenarios tested, including whether those scenarios are stochastic or deterministic, and the sensitivity testing performed relative to those scenarios.

(i) If certain tests produce negative ending surplus in the aggregate, the actuary must describe those tests and state the amount of additional reserve as of the valuation date that, if held, would eliminate the negative aggregate surplus values.

(ii) The actuary must determine ending surplus values by either:

(A) Extending the projection period until the in force and associated assets and liabilities at the end of the projection period are immaterial; or

(B) 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) An explanation of the extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different from the assumptions used in the previous asset adequacy analysis.

(c) A description of the amount of reserves and the identity of the product lines that had been subjected to asset adequacy analysis in the prior opinion but were not subject to analysis for the current opinion.

(d) Comments on any interim results that may be of significant concern to the appointed actuary.

(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 of the scenarios tested.

(f) A paragraph explaining whether the actuary is satisfied that all options whether explicit or embedded, in any asset or liability (including but not limited to those affecting cash flows embedded in fixed income securities) and equity-like features in any investments have been appropriately considered in the asset adequacy analysis.

(4) The memorandum ((shall)) must include a statement substantially similar to the following:


"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."

[Statutory Authority: RCW 48.01.030, 48.02.060, 48.74.025, 48.36A.250 and 48.36A.260. 95-02-036 (Order R 94-26), 284-07-390, filed 12/30/94, effective 1/30/95.]


REPEALER

     The following sections of the Washington Administrative Code are repealed:
WAC 284-07-360 Required opinions.
WAC 284-07-370 Statement of actuarial opinion not including an asset adequacy analysis.

Washington State Code Reviser's Office