31.05.01.05

.05 Statement of Actuarial Opinion Based on an Asset Adequacy Analysis.

A. General.

(1) The statement of actuarial opinion submitted in accordance with this regulation shall consist of:

(a) A paragraph identifying the appointed actuary and the actuary's qualifications as required by §B(5) of this regulation;

(b) A scope paragraph identifying:

(i) 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 as required by §B(6) of this regulation; and

(ii) 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, for example, anticipated cash flows from currently owned assets (including variation in cash flows according to economic scenarios in §B(7) of this regulation) supported by a statement of each expert in the form prescribed by §E of this regulation; and

(d) An opinion paragraph expressing the appointed actuary's opinion with respect to the adequacy of the supporting assets to mature the liabilities as required by §B(10) of this regulation.

(2) One or more additional paragraphs are required in individual company cases if the appointed actuary:

(a) Considers it necessary to state a qualification of the actuary's opinion;

(b) 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;

(c) Must disclose whether additional reserves as of the prior opinion date are released as of this opinion date, and the extent of the release; or

(d) Chooses to add a paragraph briefly describing the assumptions which form the basis for the actuarial opinion.

B. Required Language.

(1) The language in §B(5)—(13) of this regulation, or language substantially similar, shall be used in the statement of actuarial opinion in accordance with this section.

(2) The required language is that which in typical circumstances should be included in a statement of actuarial opinion.

(3) The required language may be modified as needed to meet the circumstances of a particular case, but the appointed actuary should use language which clearly expresses the actuary's professional judgment and which indicates why the required language was not used.

(4) The opinion shall retain all pertinent aspects of the language provided in this regulation.

(5) The opening paragraph shall generally indicate the appointed actuary's relationship to the company and the actuary's qualifications to sign the opinion in the following manner:

(a) For a company actuary, the opening paragraph of the actuarial opinion should read 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 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."; and

(b) For a consulting actuary, the opening paragraph shall contain a statement identical or similar to: "I, {name}, a member of the American Academy of Actuaries, am associated with the firm of {name of consulting firm}. I have been appointed by, or by the authority of, the Board of Directors of {name of company} to render this opinion as stated in the letter to the Commissioner dated {insert date}. I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies."

(6) The scope paragraph shall include a statement identical or 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)
Exhibit 5 attached at §G of this regulation.
A. Life Insurance
B. Annuities
C. Supplementary Contracts Involving Life Contingencies
D. Accidental Death Benefit
E. Disability—Active
F. Disability—Disabled
G. Miscellaneous
Total (Exhibit 5, Item 1, Page 3)
Exhibit 6 attached at §G of this regulation.
A. Active Life Reserves
B. Claim Reserve
Total (Exhibit 6, Item 2, Page 3)
Exhibit 7 attached at §G of this regulation.
Premium and Other Deposit Funds (Column 6, Line 14)
Guaranteed Interest Contracts (Column 2, Line 14)
Supplemental Contracts (Column 4, Line 14)
Annuities Certain (Column 3, Line 14)
Dividend Accumulations or Refunds (Column 5, Line 14)
Total Exhibit 7 (Column 1, Line 14)
Exhibit 8, Part 1, attached at §G of this regulation.
1. Life (Page 3, Line 4.1)
2. Health (Page 3, Line 4.2)
Total Exhibit 8, Part 1
Separate Accounts (Page 3 of the Separate Accounts, Lines 1 and 2)
TOTAL RESERVES
IMR (General Account, Page, Line)
(Separate Accounts, Page, Line)
AVR (Page, Line) (See (c) below)
Net Deferred and Uncollected Premiums
* References are to the 2005 Annual Statement blank

Notes:

(a) The additional actuarial reserves are the reserves established under Regulation .04B of this chapter.

(b) The appointed actuary should indicate the method of analysis, determined in accordance with the standards for asset adequacy analysis referred to in Regulation .03C of this chapter, by means of symbols that should be defined in footnotes to the table.

(c) Allocated Amount of Asset Valuation Reserve (AVR).

(7) Reliance Paragraph—Other Experts.

(a) If the appointed actuary has relied on other experts to develop certain portions of the analysis, the reliance paragraph shall include a statement such as the following:

"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," or "certain critical aspects of the analysis performed in conjunction with forming my opinion"}, as certified in the attached statement."

(b) A statement of reliance on other experts should be accompanied by a statement by each of these experts in the form prescribed by §E of this regulation.

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

"My examination included such review of the actuarial assumptions and actuarial methods and of the underlying basic asset and liability records and such tests of the actuarial calculations as I considered necessary. I also reconciled the underlying basic asset and liability records to {exhibits and schedules listed as applicable} of the company's current annual statement."

(9) Underlying Records Not Examined.

(a) If the appointed actuary has not examined the underlying records, but has relied upon listings and summaries of policies in force, or asset records prepared by the company or a third party, or both, the reliance paragraph shall include a statement identical or similar to: "In forming my opinion on {specify types of reserves}, I have relied upon listings and summaries {of policies and contracts, of asset records} prepared by {name and title of company officer certifying in-force records} as certified in the attached statement. 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 review of the actuarial assumptions and actuarial methods and tests of the actuarial calculations as I considered necessary."

(b) The reliance paragraph in §B(9)(a) of this regulation shall be accompanied by a statement by each person relied upon in the form prescribed by §E of this regulation.

(10) The opinion paragraph shall include the following:

(a) "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 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 that 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); and

(v) Include provision for all actuarial reserves and related statement items which ought to be established.

(b) 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 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.)

(c) The actuarial methods, considerations, and analysis 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."

(11) The opinion paragraph shall include either of the following, whichever is applicable:

(a) "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

(b) "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."

(12) The opinion paragraph shall include the following: "The impact of unanticipated events subsequent to the date of this opinion is beyond the scope of this opinion. The analysis of the 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."

(13) The opinion paragraph shall include the signature of the appointed actuary, the address of the appointed actuary, the telephone number of the appointed actuary, and the date.

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 regulation.

D. Adverse Opinions.

(1) If the appointed actuary is unable to form an opinion, then the actuary shall refuse to issue a statement of actuarial opinion.

(2) If the appointed actuary's opinion is adverse or qualified, then the actuary shall issue an adverse or qualified actuarial opinion explicitly stating the reason or reasons for the opinion. This statement should follow the scope paragraph and precede the opinion paragraph.

E. Reliance on Data Furnished by Other Persons.

(1) If the appointed 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 should so indicate the persons the actuary is relying upon and a precise identification of the items subject to reliance.

(2) In addition, the persons on whom the appointed actuary relies shall 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, as applicable, of the items.

(3) The certification statement shall be identical or similar to one of the following:

(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"; or

(b) "I, {name of officer}, {title}, of {name of company, accounting firm, or security analyst}, hereby affirm that the listings, summaries, and analysis 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, Date"

F. Alternate Option.

(1) Insurance Article, Title 5, Subtitle 3, Annotated Code of Maryland (The Standard Valuation Law), gives the Commissioner broad authority to accept the valuation of a foreign insurer when that valuation meets the requirements applicable to a company domiciled in this State in the aggregate. As an alternative to the requirements in §B(10)(a)(iii) of this regulation, the Commissioner may make one or more of the additional approaches listed in §F(2)—(4) of this regulation available to the opinion actuary.

(2) Option 1.

(a) A statement that the reserves "meet the requirements of the insurance laws and regulations of the state of {state of domicile} and the formal written standards and conditions of this State for filing an opinion based on the law of the state of domicile" may be used.

(b) If the Commissioner chooses to allow this alternative, a formal written list of standards and conditions shall be made available.

(c) If a company chooses to use this alternative, the standards and conditions in effect on July 1 of a calendar year shall apply to statements for that calendar year, and they shall remain in effect until they are revised or revoked.

(d) If no list is available, this alternative is not available.

(3) Option 2.

(a) A statement that the reserves "meet the requirements of the insurance laws and regulations of the State of {state of domicile}, and I have verified that the company's request to file an opinion based on the law of the state of domicile has been approved and that any conditions required by the Commissioner for approval of that request have been met" may be used.

(b) If the Commissioner chooses to allow this alternative, a formal written statement for the allowance shall be issued not later than March 31 of the year it is first effective. It shall remain valid until rescinded or modified by the Commissioner.

(c) The rescission or modifications shall be issued not later than March 31 of the year they are first effective.

(d) Subsequent to the statement in §F(3)(a) of this regulation being issued, if a company chooses to use this alternative, the company shall file a request to do so, along with justification for its use, not later than April 30 of the year of the opinion to be filed. The request shall be deemed approved on October 1 of that year if the Commissioner has not denied the request by that date.

(4) Option 3.

(a) A statement that the reserves "meet the requirements of the insurance laws and regulations of the State of {state of domicile}, and I have submitted the required comparison as specified by this state" may be used.

(b) If the Commissioner chooses to allow this alternative, a formal written list of products for which the required comparison shall be provided will be published.

(c) If a company chooses to use this alternative, the list in effect on July 1 of a calendar year shall apply to statements for that calendar year, and it shall remain in effect until it is revised or revoked.

(d) If no list is available, this alternative is not available.

(e) If a company desires to use this alternative, the appointed actuary shall provide a comparison of the gross nationwide reserves held to the gross nationwide reserves that would be held under NAIC codification standards.

(f) Gross nationwide reserves are the total reserves calculated for the total company in-force business directly sold and assumed, indifferent to the state in which the risk resides, without reduction for reinsurance ceded.

(g) The information provided shall be at least product type, death benefit or account value, reserves held, codification reserves, and codification standard.

(h) The information listed shall include all products identified by either the state of filing or any other states subscribing to this alternative.

(i) If there is no codification standard for the type of product or risk in force or if the codification standard does not directly address the type of product or risk in force, the appointed actuary shall provide detailed disclosure of the specific method and assumptions used in determining the reserves held.

(j) The comparison provided by the company is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.

(5) Notwithstanding other provisions of this regulation, the Commissioner may reject an opinion based on the laws and regulations of the state of domicile and require an opinion based on the laws of Maryland. If a company is unable to provide the opinion within 60 days of the request or other period of time determined by the Commissioner after consultation with the company, the Commissioner may contract an independent actuary at the company's expense to prepare and file the opinion.

G. National Association of Insurance Commissioner's 2005 Annual Statement Blank.

Form 1.

Form 2.

Form 3.

Form 4.

Form 5.

Form 6.

Form 7.