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12409 VM-30

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Actuarial opinion and supporting actuarial memoranda requirements are provided in this but not limited to, the investment earnings on the assets,

    Attachment Eighteen

    Life and Health Actuarial Task Force

    12/3-4/09

    Actuarial Opinion and Memorandum Requirements - VM-30

    Draft: 12/4/09

    Adopted by Life and Health Actuarial Task Force, 12/4/09

The NAIC solicits comments on this draft. Comments should be sent to John Engelhardt, NAIC, at JEngelha@naic.org.

    VM-30 ACTUARIAL OPINION AND MEMORANDUM REQUIREMENTS

Table of Contents

Section 1. Scope

    A. General

    B. Applicability

    Definitions

    Section 2. General Requirements for Submission of a Life Actuarial Opinion

    A. General

    B. Standards for Asset Adequacy Analysis

    C. Liabilities to be Covered

    Section 3. Requirements Specific to Life Actuarial Opinions

    A. Statement of Actuarial Opinion Based On an Asset Adequacy Analysis

    B. Description of Actuarial Memorandum Including an Asset Adequacy Analysis and Regulatory Asset

    Adequacy Issues Summary

Section 1. Scope

A. General

    1. The following provisions contain the requirements for the actuarial opinion of reserves and for supporting

    actuarial memoranda in accordance with Section 3 of the Standard Valuation Law, and are collectively

    referred to as AOM requirements.

    2. Actuarial opinion and supporting actuarial memoranda requirements are provided in this VM-30 for

    companies that file the Life, Accident and Health Annual Statement or the Fraternal Annual Statement.

    Companies that file the Property and Casualty Annual Statement or the Health Annual Statement will

    follow the actuarial opinion and supporting actuarial memoranda requirements pursuant to the instructions

    for those annual statements. Such companies are not subject to actuarial opinion and supporting actuarial

    memoranda requirements in this VM-30 unless the instructions for the Property and Casualty Annual

    Statement or the instructions for the Health Annual Statement provide for requirements in VM-30.

    Guidance Note: It is the intent to allow the annual statement instructions to address all issues relating to the

    actuarial opinion and memorandum for these two statements (Property and Casualty Annual Statement and the Health

    Annual Statement), but not preclude the use of requirements as appropriate in VM-30 in the instructions for these

    two statements.

    3. The AOM requirements shall be applied in a manner that allows the appointed actuary to utilize his or her

    professional judgment in performing the actuarial analysis and developing the actuarial opinion and

    supporting actuarial memoranda, conforming to relevant actuarial standards of practice. However, a state

    commissioner has the authority to specify methods of analysis and assumptions when, in the commissioner’s

    judgment, these specifications are necessary for the actuary to render an acceptable opinion relative to the

    adequacy of reserves and related actuarial items.

? 2009 National Association of Insurance Commissioners 1

    Attachment Eighteen

    Life and Health Actuarial Task Force

    12/3-4/09

    Actuarial Opinion and Memorandum Requirements - VM-30

    4. These AOM requirements are applicable to all annual statements filed after the operative date of the

    Valuation Manual. A statement of actuarial opinion on the adequacy of the reserves and related actuarial

    items and a supporting actuarial memorandum is required each year.

    B. Applicability

1. The requirements for an opinion apply to each company filing an annual statement, not to the holding

    company or group of companies. A single opinion is required for the company.

2. The actuarial opinion and memorandum fall under the definition of prescribed actuarial report.

     Guidance Note: ASOP 41 has a definition of a prescribed actuarial report.

    A. The term actuarial opinion‖ means the opinion of an appointed actuary regarding the adequacy of reserves

    and related actuarial items.

B. The term ―Actuarial Standards Board‖ means the board established by the American Academy of Actuaries

    to develop and promulgate actuarial standards of practice.

C. The term annual statement‖ means the statutory financial statements a company must file using the annual

    blank with a state insurance commissioner as required under state insurance law.

    D. The term asset adequacy analysis‖ means an analysis completed to meet the standards and other

    requirements of the standard of asset adequacy analysis section referred to in these AOM requirements.

E. The term commissioner‖ means the chief insurance regulator of a state, district or territory of the United

    States.

    Section 2. General Requirements for Submission of Statement of a Life Actuarial Opinion

    A. General

    1. 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

    Section 3.A must be included with an annual statement.

2. An appointed actuary is a qualified actuary who:

    a. is appointed by the Board of Directors, or its equivalent, or by a committee of the Board, by

    December 31 of the calendar year for which the opinion is rendered;

    b. is a member of the American Academy of Actuaries;

    c. is familiar with the valuation requirements applicable to life and health insurance;

    d. 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:

    i. violated any provision of, or any obligation imposed by, the Insurance Law or other law in

    the course of his or her dealings as a qualified actuary;

    ? 2009 National Association of Insurance Commissioners 2

    Attachment Eighteen

    Life and Health Actuarial Task Force

    12/3-4/09

    Actuarial Opinion and Memorandum Requirements - VM-30

    ii. been found guilty of fraudulent or dishonest practices;

    iii. demonstrated incompetency, lack of cooperation, or untrustworthiness to act as a

    qualified actuary;

    iv. submitted to the commissioner during the past five (5) years, pursuant to these AOM

    requirements, an actuarial opinion or memorandum that the commissioner rejected

    because it did not meet the provisions of this regulation including standards set by the

    Actuarial Standards Board; or

    v. resigned or been removed as an actuary within the past five (5) 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 Paragraph d above.

3. Within five (5) business days of the appointment of an appointed actuary, the company shall notify the

    domiciliary Commissioner 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 the notice that the person meets the requirements of an appointed

    actuary. Once these notices are furnished, no further notice is required with respect to this person unless the

    actuary ceases to be appointed or retained or ceases to meet the requirements of an appointed actuary

4. If an actuary who was the appointed actuary for the immediately preceding filed Actuarial Opinion is

    replaced by an action of the Board of Directors, the insurer shall within five (5) business days notify the

    Insurance Department of the state of domicile of this event. The insurer shall also furnish the domiciliary

    Commissioner with a separate letter within ten (10) business days of the above notification stating whether

    in the twenty-four (24) months preceding such event there were any disagreements with the former

    appointed actuary regarding the content of the opinion on matters of the risk of material adverse deviation,

    required disclosures, scopes, procedure, or data quality. The disagreements required to be reported in

    response to this paragraph include both those resolved to the former actuary’s satisfaction and those not

    resolved to the former actuary’s satisfaction. The insurer shall also in writing request such former actuary to

    furnish a letter addressed to the insurer stating whether the actuary agrees with the statements contained in

    the insurer’s letter and, if not, stating the reasons for which he does not agree; and the insurer shall furnish

    such responsive letter from the former actuary to the domiciliary Commissioner together with its own.

    B. Standards for Asset Adequacy Analysis

1. The asset adequacy analysis must conform to the Standards of Practice as promulgated from time to time by

    the Actuarial Standards Board and to any additional standards under these AOM requirements, which

    standards are to form the basis of the statement of actuarial opinion in accordance with these AOM

    requirements.

2. The asset adequacy analysis must be based on methods of analysis as are deemed appropriate for such

    purposes by the Actuarial Standards Board.

    C. Liabilities to be Covered

1. The statement of actuarial opinion must apply to all in force business on the annual statement date, whether

    directly issued or assumed, regardless of when or where issued.

    ? 2009 National Association of Insurance Commissioners 3

    Attachment Eighteen

    Life and Health Actuarial Task Force

    12/3-4/09

    Actuarial Opinion and Memorandum Requirements - VM-30

    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 the requirements set

    forth in the Valuation Manual, the company shall establish the additional reserve.

    3. Additional reserves established under subparagraph 2 above and determined not to be necessary by the

    appointed actuary in subsequent years may be released. Any amounts released shall 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.

    Section 3. Requirements Specific to Life Actuarial Opinions

    A. Statement of Actuarial Opinion Based On an Asset Adequacy Analysis

    1. The statement of actuarial opinion shall consist of:

    a. A table of key indicators to alert the reader to any changes from the prescribed language (see

    Section 3.A.3);

    b. An identification section identifying the appointed actuary and his or her qualifications (see

    Section 3.A.4);

    c. A scope section 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 that have been analyzed for asset adequacy and the method of analysis, (see Section

    3.A.5) and identifying the reserves and related actuarial items covered by the opinion that have not

    been so analyzed;

    d. A reliance section describing those areas, if any, where the appointed actuary has relied upon other

    experts for data, assumptions, projections, or analysis, (e.g., anticipated cash flows from currently

    owned assets, including variation in cash flows according to economic scenarios (see Section

    3.A.6), supported by a statement of each such expert in the form prescribed by Section 3.A.12;

    e. An opinion section expressing the appointed actuary’s opinion with respect to the adequacy of the

    supporting assets to mature the liabilities (see Section 3.A.7); and

    f. A relevant comments section.

    2. Each section must be clearly designated. For each section there is prescribed wording described in

    Section 3.A.3 3.A.7 for that section. If the appointed actuary changes this wording or adds

    additional wording to clarify the prescribed wording, the appropriate box in the table of key

    indicators must be checked and the appointed actuary shall provide the following information for

    that section in the relevant comments section of the opinion:

    a. a description of the additional or revised wording in the opinion;

    b. the rationale for using the additional or revised wording; and

    c. an explanation of the impact, if any, that the additional or revised wording has on the

    opinion.

    .

    ? 2009 National Association of Insurance Commissioners 4

    Attachment Eighteen

    Life and Health Actuarial Task Force

    12/3-4/09

    Actuarial Opinion and Memorandum Requirements - VM-30

    The prescribed wording should be modified only if needed to meet the circumstances of a particular case,

    and the appointed actuary should in any case, use language that clearly expresses the actuary’s professional

    judgment.

3. The table of key indicators is to be at the top of the opinion and is to be completed consistent with the

    remainder of the opinion. The only options are those presented below:

Identification Section

     ? Prescribed Wording Only ? Prescribed Wording with Additional Wording ? Revised Wording

Scope Section

     ? Prescribed Wording Only ? Prescribed Wording with Additional Wording ? Revised Wording

Reliance Section

     ? Prescribed Wording Only ? Prescribed Wording with Additional Wording ? Revised Wording

Opinion Section

     ? Prescribed Wording Only ? Prescribed Wording with Additional Wording ? Revised Wording

Relevant Comments

     ? Comments are Included

     ? The Actuarial Memorandum includes ―Deviation from Standard‖ wording regarding conformity with an

    Actuarial Standard of Practice

4. The identification section should specifically indicate the appointed actuary’s relationship to the company,

    qualifications for acting as appointed actuary, date of appointment, and specify that the appointment was

    made by the Board of Directors, or its equivalent, or by a committee of the Board.

    This section should contain only one of the following:

    For a member of the American Academy of Actuaries who is an employee of the organization the

    identification section of the opinion should contain all of the following sentences if the appointed actuary is

    using the prescribed wording:

    ―I, [name and title], am an employee of [insurance company name] and a member of the American Academy

    of Actuaries. I was appointed on [date of appointment] in accordance with the requirements of the valuation

    manual. I meet the Academy qualification standards for rendering the opinion.‖

    For a consultant who is a member of the American Academy of Actuaries, the identification section of the

    contain all of the following sentences if the appointed actuary is using the prescribed opinion should

    wording:

    ―I, [name and title of consultant], am associated with the firm of [name of consulting firm]. I am a member of

    the American Academy of Actuaries. I was appointed on [date of appointment] in accordance with the

    requirements of the valuation manual. I meet the Academy qualification standards for rendering the

    opinion.‖

5. The scope section should contain only the following statement (including all specified lines even if the

    value is zero) if the appointed actuary is using the prescribed wording:

    ? 2009 National Association of Insurance Commissioners 5

    Attachment Eighteen

    Life and Health Actuarial Task Force

    12/3-4/09

    Actuarial Opinion and Memorandum Requirements - VM-30 ―I have examined the assumptions and 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.

    ? 2009 National Association of Insurance Commissioners 6

    Attachment Eighteen

    Life and Health Actuarial Task Force

    12/3-4/09

    Actuarial Opinion and Memorandum Requirements - VM-30

     Asset Adequacy Tested AmountsReserves and Related Actuarial Items

     Principle-Based Additional Formula Analysis Other Total Amount Statement Item Reserves Reserves (1)+(2)+(3)+(4) Reserves Method Amount (2) (a) (3) (5) (1) (b) (4) Exhibit 5 A Life Insurance

    B Annuities

    C Supplementary Contracts Involving

    Life Contingencies

    D Accidental Death Benefit

    E DisabilityActive

    F Disability Disabled

    G Miscellaneous

    Total

    Exhibit 6

A Active Life Reserve

    B Claim Reserve

    Total

    Exhibit 7

Premium and Other

    Deposit Funds

    Guaranteed Interest Contracts

    Supplemental Contracts

? 2009 National Association of Insurance Commissioners 7

    Attachment Eighteen

    Life and Health Actuarial Task Force

    12/3-4/09

    Actuarial Opinion and Memorandum Requirements - VM-30

     Asset Adequacy Tested AmountsReserves and Related Actuarial Items

     Principle-Based Additional Formula Analysis Other Total Amount Statement Item Reserves Reserves (1)+(2)+(3)+(4) Reserves Method Amount (5) (2) (a) (3) (1) (b) (4) Annuities Certain

    Dividend Accumulations

    or Refunds

    Total Exhibit 7

    Exhibit 8 Part 1

     1 Life

    2 Health

    Total Exhibit 8, Part 1

    Separate Accounts (Page 3 of the Annual

    Statement of the

    Separate Accounts,

    Lines 1 and 2)

     Other Reserves and

    Related Actuarial

    Items Tested

<

    description and the

    location of other

    reserves and related

    actuarial items

    tested>>

    TOTAL RESERVES

     IMR (General Account, Page ___ Line ___) Notes: (Separate Accounts, Page ___ Line ___) (a) The additional reserves are the (c) AVR (Page ___ Line ___) reserves established under Section 2.C.2. Net Deferred and Uncollected Premium (b) The appointed actuary should indicate the method of analysis, determined in accordance with the standards for asset adequacy analysis referred to in Section 2.B of these AOM requirements, by means of symbols that should be defined in footnotes to the table. If more than ? 2009 National Association of Insurance Commissioners 8

    Attachment Eighteen

    Life and Health Actuarial Task Force

    12/3-4/09

    Actuarial Opinion and Memorandum Requirements - VM-30 one method of analysis is used for any single annual statement line or line from the above table, an additional line for each method of analysis shall be provided with the method of analysis identified for each line. (c) Allocated amount of Asset Valuation Reserve (AVR).

    6. The reliance section should contain only one of the following if the appointed actuary is using the prescribed

    wording:

If the appointed actuary has not relied upon other experts for data, assumptions, projections, or analysis, the

    reliance section should include only the following statement:

    ―My examination included a review of the data, assumptions, projections, and analysis and of the underlying basic asset and liability data and such tests of the assumptions, projections, and analysis I

    considered necessary. I also reconciled the underlying basic asset and liability data to the extent applicable

    to [exhibits and schedules listed as applicable] of the company’s current annual statement.‖

If the appointed actuary has relied upon other experts for data, assumptions, projections, or analysis, the

    reliance section should include only the following statement:

    ―In forming my opinion on [specify types of reserves], I relied upon data, assumptions, projections, or analysis prepared by [name and title each expert providing the data, assumptions, projections, or analysis] as

    certified in the attached statements. I evaluated that data, assumptions, projections, or analysis for

    reasonableness and consistency. I also reconciled data to the extent applicable to [list applicable exhibits

    and schedules] of the company’s current annual statement. In other respects, my examination included

    review of the assumptions projections, and analysis used and tests of the assumptions, projections, and

    analysis I considered necessary. I have received documentation from the experts listed above that supports

    the data, assumptions, projections, and analysis.

The appointed actuary shall attach to their opinion a statement by each expert relied upon in the form

    prescribed by Section 3.A.12.

    7. The opinion section should include only the following statement if the actuary is using prescribed wording:

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

a. Are computed in accordance with presently accepted Actuarial Standards of Practice consistently

    applied and are fairly stated, in accordance with sound actuarial principles;

b. Are based on assumptions and methods that produce reserves at least as great as those called for in

    any contract provision as to reserve basis and method, and are in accordance with all other contract

    provisions;

c. Meet the requirements of the Insurance Laws and regulations of the state of [state of domicile]; and

    (Use one of the following phrases as appropriate)

    are at least as great as the minimum aggregate amounts required by any state

    or

    are at least as great as the minimum aggregate amounts required by any state with the exception of

    the following states [list states]. For each listed state a separate statement of actuarial opinion was

    submitted to that state that complies with the requirements of that state.

    ? 2009 National Association of Insurance Commissioners 9

    Attachment Eighteen

    Life and Health Actuarial Task Force

    12/3-4/09

    Actuarial Opinion and Memorandum Requirements - VM-30

    d. Are computed on the basis of assumptions and methods consistent with those used in computing

    the corresponding items in the annual statement of the preceding year-end (with any exceptions

    noted below); and

    e. Include provision for all reserves and related actuarial items which ought to be established.

     The reserves and related actuarial 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 the assets, and the considerations anticipated to be received and retained

    under 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. (At the discretion of the commissioner, this

    language may be omitted for an opinion filed on behalf of a company doing business only in this

    state and in no other state.)

    The methods, considerations and analyses used in forming my opinion conform to the appropriate

    actuarial 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.

    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.

    8. The opinion may include a Relevant Comments section. The Relevant Comments section should provide a

    brief description of each item. A detailed analysis of each item should be included in the Actuarial

    Memorandum.

Guidance Note: An example of a relevant comment is if there has been any material change in the

    assumptions or methods from those previously employed, a portion of the relevant comment section can

    describe that change in the statement of opinion by including a description of the changes such as ―A

    material change in assumptions or methods was made during the past year but such change accords with

    accepted actuarial standards.‖ A brief description of the change would follow.

Other examples of items to include in the relevant comments section include topics of regulatory importance,

    descriptions of the reason for qualifying an opinion, or explanations for an aspect of the annual statement

    that is not already sufficiently explained in the annual statement.

    9. If the appointed actuary is able to form an opinion that is not qualified, adverse or inconclusive as those

    terms are defined below, the actuary should issue a statement of unqualified opinion. If the opinion is

    adverse, qualified or inconclusive, the appointed actuary should issue an adverse, qualified or inconclusive

    opinion explicitly stating the reason for such opinion. In all circumstances the category of opinion should

    be accurately identified in the TABLE of KEY INDICATORS section of the opinion.

An adverse opinion is an actuarial opinion in which the appointed actuary determines that the reserves and

    liabilities are not adequate. (An adverse opinion does not meet Section 3.A.7.e).

    ? 2009 National Association of Insurance Commissioners 10

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