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Montana Administrative Register Notice 6-182 No. 20   10/23/2008    
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BEFORE THE STATE AUDITOR AND COMMISSIONER OF INSURANCE

OF THE STATE OF MONTANA

 

In the matter of the proposed amendment of ARM 6.6.3504 and 6.6.3506 pertaining to Annual Audited Reports and Establishing Accounting Practices and Procedures to be Used in Annual Statements, ARM 6.6.6501, 6.6.6502, 6.6.6503, 6.6.6504, 6.6.6505, 6.6.6508, and 6.6.6509, pertaining to Actuarial Opinion, ARM 6.6.6811 pertaining to Annual Audit; and the proposed repeal of ARM 6.6.6506, 6.6.6507, and 6.6.6510 pertaining to Required Opinions, Statement of Actuarial Opinion Not Including an Asset Adequacy Analysis, and Additional Considerations for Analysis

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NOTICE OF PUBLIC HEARING ON PROPOSED AMENDMENT AND REPEAL

 

TO: All Concerned Persons

 

            1.  On December 1, 2008, at 10:00 a.m., the State Auditor and Commissioner of Insurance will hold a public hearing in the 2nd floor conference room of the State Auditor's Office, 840 Helena Ave., Helena, Montana, to consider the proposed amendment and repeal of the above-stated rules.

 

2. The State Auditor and Commissioner of Insurance will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice. If you require an accommodation, contact the department no later than 5:00 p.m., November 24, 2008, to advise us of the nature of the accommodation that you need. Please contact Darla Sautter, State Auditor's Office, 840 Helena Avenue, Helena, Montana, 59601; telephone (406) 444-2726; TDD (406) 444-3246; fax (406) 444-3497; or e-mail dsautter@mt.gov.

 

3. The rules as proposed to be amended provide as follows, stricken matter interlined, new matter underlined:

 

6.6.3504 CONTENTS OF ANNUAL AUDITED FINANCIAL REPORT

(1) through (2)(e) remain the same.

(f) notes to financial statements. These notes shall be those required by the appropriate 20042007 NAIC annual statement instructions and the March 20042007, NAIC Accounting Practices and Procedures Manual, which are adopted and incorporated by reference, and may be obtained by writing to the NAIC Executive Headquarters, 2301 McGee Street, Suite 800, Kansas City, MO 64108-2662. The notes shall include reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to 33-2-701, 33-4-313, 33-7-118, 33-30-107, and 33-31-211, MCA, with a written description of the nature of these differences.

            (3) remains the same.

 

            AUTH: 33-1-313, 33-2-1517, 33-5-413, MCA

            IMP: 33-2-1517, 33-5-413, MCA

 

STATEMENT OF REASONABLE NECESSITY: This rule is changed to reflect the requirement of the NAIC to use current and updated statement instructions and the current and updated NAIC Accounting Practices and Procedures Manual in the preparation of the annual audited financial report required of all insurance companies operating in Montana.

 

            6.6.3506 QUALIFICATIONS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT (1) The commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the AICPA and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant., or has either directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as "indemnification") with respect to the audit of the insurer.

            (2) remains the same.

            (3) Following the effective date of these rules, no partner or other member of a firm responsible for rendering a report may act in that capacity for more than seven five consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of twofive consecutive years. This does not preclude other partners or members of any accounting firm from succeeding to the responsibility for rendering reports. An insurer may make application to the commissioner for relief from the above rotation requirement on the basis of unusual circumstances.  This application shall be made at least 30 days before the end of the calendar year.  The commissioner may consider the following factors in determining whether relief should be granted:

            (a) through (c) remain the same.

            (4) The insurer shall file, with its annual statement filing, the approval for relief from (3) with the states that it is licensed in or doing business in and with the NAIC.  If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.

            (4) through (4)(c) remain the same, but are renumbered (5) through (5)(c).

            (5) remains the same, but is renumbered (6).

 

            AUTH: 33-1-313, 33-2-1517, MCA

            IMP: 33-1-701, 33-2-1517, MCA

 

STATEMENT OF REASONABLE NECESSITY: The additions to this rule bring it into conformity with the NAIC Model Rules.  The prohibition on an indemnity clause between an insurance company and a CPA who audits that insurance company in conformance with the requirements of this chapter is an increased protection for consumers/subscribers whose interests might be compromised by an inaccurate or incomplete audit report.  Another change to this rule lowers the amount of times that the same accounting firm may be used consecutively to audit an insurance company to provide greater integrity of the audit process.  In limited cases, these requirements may be waived and a section has been added to the rule to provide a process for an insurance company to give notice to other states through the NAIC that these requirements have been waived.

 

            6.6.6501 PURPOSE (1) and (1)(a) remain the same.

            (b) Guidelines and standards for statements of actuarial opinion which are to be submitted when a company is exempt from 33-2-521(4)(b), MCA; and

            (c)(b) rules applicable to the appointment of an appointed actuary.; and

            (c)  guidance as to the meaning of "adequacy of reserves."

 

            AUTH: 33-2-521, MCA

            IMP: 33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, MCA

 

            6.6.6502 AUTHORITY (1) These rules are issued pursuant to the authority vested in the Commissioner of Insurance of the state of Montana under 33-2-521, MCA. These rules will take effect for annual statements for the year 1996 2009.

 

            AUTH: 33-2-521, MCA

            IMP: 33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, MCA

 

            6.6.6503 SCOPE (1) remains the same.

            (2)  This rule shall be applied in a manner that allows the appointed actuary to utilize his or her professional judgment in performing the asset analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards of practice.  However, the commissioner shall have the authority to specify specific methods of actuarial analysis and actuarial assumptions when, in the commissioner's judgment, these specifications are necessary for an acceptable opinion to be rendered relative to the adequacy of reserves and related items.

            (2)(3) These rules shall be applicable to all annual statements filed with the office of the commissioner after the effective date of these rules. Except with respect to companies which are exempted pursuant to ARM 6.6.6506,  aA statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with ARM 6.6.6508, and a memorandum in support thereof in accordance with ARM 6.6.6509, shall be required each year. Any company so exempted must file a statement of actuarial opinion pursuant to ARM 6.6.6507.

            (3) Notwithstanding the foregoing, the commissioner may require any company otherwise exempt pursuant to these rules to submit a statement of actuarial opinion and to prepare a memorandum in support thereof in accordance with ARM 6.6.6508 and 6.6.6509 if, in the opinion of the commissioner, an asset adequacy analysis is necessary with respect to the company.

 

            AUTH: 33-2-521, MCA

            IMP:  33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, MCA

 

            6.6.6504 DEFINITIONS (1) "Actuarial opinion" means:

            (a) With respect to ARM 6.6.6508, 6.6.6509 or 6.6.6510, the opinion of an appointed actuary regarding the adequacy of the reserves and related actuarial items based on an asset adequacy test in accordance with ARM 6.6.6508 and with applicable presently accepted Actuarial Standards; of Practice.

            (b) With respect to ARM 6.6.6507, the opinion of an appointed actuary regarding the calculation of reserves and related items, in accordance with ARM 6.6.6507 and with those presently accepted actuarial standards which specifically relate to this opinion.

            (2) "Actuarial Standards Board" is means the board established by the American Academy of Actuaries to develop and promulgate Actuarial Standards of Actuarial Practice.

            (3) and (4) remain the same.

            (5) "Asset adequacy analysis" means an analysis that meets the standards and other requirements referred to in ARM 6.6.6505(4). It may take many forms, including, but not limited to, cash flow testing, sensitivity testing or applications of risk theory.

            (6) and (7) remain the same.

            (8) "Non-investment grade bonds" are those designated as classes 3, 4, 5 or 6 by the national association of insurance commissioners (NAIC) securities valuation office.

            (9) remains the same, but is renumbered (8).

 

            AUTH: 33-2-521, MCA

            IMP: 33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, MCA

 

            6.6.6505 GENERAL REQUIREMENTS (1)  As to the submission of Sstatement of Aactuarial Oopinion, the following requirements apply:

            (a) There is to be included on or attached to page 1 one of the annual statement for each year beginning with the year in which this regulation becomes effective 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 ARM 6.6.6508; provided, however, that any company exempted pursuant to ARM 6.6.6506 from submitting a statement of actuarial opinion in accordance with ARM 6.6.6508 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 ARM 6.6.6507.

            (b) If in the previous year a company provided a statement of actuarial opinion in accordance with ARM 6.6.6507, and in the current year fails the exemption criteria of ARM 6.6.6506(3)(a), (b) or (e) to again provide an actuarial opinion in accordance with ARM 6.6.6507, the statement of actuarial opinion in accordance with ARM 6.6.6508 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 ARM 6.6.6507 with appropriate qualification noting the intent to subsequently provide a statement of actuarial opinion in accordance with ARM 6.6.6508.

            (c) In the case of a statement of actuarial opinion re-quired 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) remains the same, but is renumbered (b).

            (2) remains the same.

            (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; and

            (c) is familiar with the valuation requirements applicable to life and disability insurance companies; and

            (d) remains the same.

            (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; or

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

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

            (iv) through (2)(e) remain the same.

            (3) An "appointed actuary" is a qualified actuary who is appointed or retained to prepare the statement of actuarial opinion required by these rules, either directly by or by the authority of the board of directors through an executive officer of the company other than the qualified actuary. 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 ARM 6.6.6505(2). 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 ARM 6.6.6505(2). 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.

            (4) remains the same.

            (a) shall conform to the Actuarial Standards of Practice as promulgated from time to time by the Actuarial Standards Board and on any additional standards under these rules, which standards are to form the basis of the statement of actuarial opinion in accordance with ARM 6.6.6508these rules; and

            (b) and (5) remain the same.

            (a) under authority of 33-2-521(4), (5), and 33-7-118(2), MCA, the statement of actuarial opinion shall apply to all in force business on the statement date, whether directly issued or assumed, regardless of when or where issued, e.g., reserves of Exhibits 8, 9, and 10, and claim liabilities in Exhibit 11, Part I1 and equivalent items in the separate account statement or statements.

            (b) remains the same.

            (c) For years ending prior to December 31, 1997, the company may, in lieu of establishing the full amount of the additional reserve in the annual statement for that year, set upon additional reserve in an amount not less than the following:

            (i) December 31, 1995 The additional reserve divided by three.

            (ii) December 31, 1996 Two times the additional reserve divided by three.

            (d)(c)  additional reserves established under (5)(a) or (b) above 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.

 

            AUTH: 33-2-521, MCA

            IMP:  33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, MCA

 

            6.6.6508 STATEMENT OF ACTUARIAL OPINION BASED ON AN ASSET ADEQUACY ANALYSIS (1) through (1)(e)(i) remain the same.

            (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)  remains the same, but is renumbered (ii).

            (v)(iii) 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) remains the same, but is renumbered (iv).

            (2) and (2)(a) remain the same.

            (i) For a company actuary, the opening paragraph of the actuarial opinion should read as followsinclude a statement such as: "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 disability insurance companies."

            (ii) remains the same.

            (b) The scope paragraph should include a statement 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, [year]. 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

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 8, Item 1, Page 3)

Exhibit 9

A Active Life Reserve

B  Claim Reserve

Total (Exhibit 9,

Item 2, Page 3)

 

Notes:

 

a. The additional actuarial reserves are the reserves established under ARM 6.6.6505(5)(b) or (c).

 

b. The appointed actuarial should indicate the method of analysis, determined in accordance with the standards for asset adequacy analysis referred to in ARM 6.6.6505(4), by means of symbols which should be defined in footnotes to the table.

 

Statement Item

Formula

Reserves

(1)

Additional Actuarial Reserves 

a. (2)

Analysis

Method

b.

Other

Amount

(3)

Total

Amount

(1)+(2)+(3)

(4)

Exhibit 10

1 Premiums and Other Deposit Funds (Column 5, Line 14)

1.1  Policyholder Premiums (Page 3, Line10.1)

1.21  Guaranteed Interest Contracts (Page 3, Line 10.2)(Column 2, line 14)

1.32  Other Contract Deposit Funds (Page 3, Line 10.3)(Column 6, Line 14)

2 Supplementary Contracts Not Involving Life Contingencies (Page 3, Line 3)and Annuities Certain (Column 3, Line 14)

3 Dividend and Coupon Accumulations or  Refunds (Page 3, Line 5)(Column 4, Line 14)

Total Exhibit 10 (Column 1, Line 14)

 

Notes:

 

a. The additional actuarial reserves are the reserves established under ARM 6.6.6505(5)(b) or (5)(c).

 

b. The appointed actuary should indicate the method of analysis, determined in accordance with the standards for asset adequacy analysis referred to in ARM 6.6.6505(4), by means of symbols which should be defined in footnotes to the table.

 


Statement Item

Formula

Reserves

(1)

Additional Actuarial Reserves 

a. (2)

Analysis

Method

b.

Other

Amount

(3)

Total

Amount

(1)+(2)+(3)

(4)

Exhibit 11, Part 1

1 Life (Page 3, Line 4.1)

2 Health (Page 3, Line 4.2)

Total Exhibit 11,

 Part 1

Separate Accounts (Page 3 of the Annual Statement of the Separate Accounts, Lines 271, 2, 3.1, 3.2, 3.3)

TOTAL RESERVES

 

IMR (General Account, Page___

Line _ )

(Separate Accounts, Page___Line___)

AVR (Page    Line   )

c.

Net Deferred and Uncollected Premium

 

Notes:

 

a. The additional actuarial reserves are the reserves established under ARM 6.6.6505(5)(b) or (5)(c).

     

b. The appointed actuary should indicate the method of analysis, determined in accordance with the standards for asset adequacy analysis referred to in ARM 6.6.6505(4), by means of symbols which should 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 portions of the analysis, the reliance paragraph should 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"], and, as certified in the attached statement.,. . .", or "I have relied on personnel as cited in the supporting memorandum for certain critical aspects of the analysis in reference to the accompanying statement."  "I have reviewed the information relied upon for reasonableness."  Such a A statement of reliance on other experts should be accompanied by a statement by each of such the experts of in the form prescribed by ARM 6.6.6508(5).

            (d) If the appointed actuary has examined the underlying asset and liability records, the reliance paragraph should also include the following a statement such as: "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."

            (e) If the appointed actuary has not examined the underlying records, but has relied upon data (e.g., listings and summaries of policies in force and/or asset records) prepared by the company or a third party), the reliance paragraph should include a sentence such as: "In forming my opinion on [specify types of reserves], I have relied upon listings and summaries data [of policies and contracts, of asset records] 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;." 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 tests of the actuarial calculations as I considered necessary." Such aThe section must be accompanied by a statement by each person relied upon of in the form prescribed by ARM 6.6.6508(5).

            (f) The opinion paragraph should include the following a statement such as:

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

            (i) and (ii) remain the same.

            (iii)  meet the requirements of the Iinsurance Llaw and regulation 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); and

            (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

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.)

Note: Choose one of the above two paragraphs, whichever is applicable.

 

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) The adoption for new issues or new claims or other new liabilities of an actuarial assumption which that 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 ARM 6.6.6508.

            (4) remains the same.

            (5)       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”

 

and/or

"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”

 

            (5)  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.  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.  This certification shall include the signature, title, company, address, and telephone number of the person rendering the certification, as well as the date on which it is signed.

            (6)  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 of (2)(f)(iii), the commissioner may make one or more of the following additional approaches available to the opining actuary:

            (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]." If the commissioner chooses to allow this alternative, a formal written list of standards and conditions shall be made available.  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. If no list is available, this alternative is not available.

            (b) 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."  If the commissioner chooses to allow this alternative, a formal written statement of such allowance shall be issued no later than March 31 of the year it is first effective.  It shall remain valid until rescinded or modified by the commissioner.  The rescission or modifications shall be issued no later than March 31 of the year they are first effective.  Subsequent to that statement 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, no 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.

            (c)  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."

            (i)  If the commissioner chooses to allow this alternative, a formal written list of products (to be added to the table in (6)(c)(ii)) for which the required comparison shall be provided will be published.  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 and revoked. If no list is available, this alternative is not available.

            (ii)  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.  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.  The information provided shall be at least:

 

 

(1)

Product Type

(2)

Death Benefit or Account Value

(3) Reserves Held

(4) Codification Reserves

(5) Codification Standard

 
 

  

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

            (iv)  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.

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

            (d)  Notwithstanding the above, 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 Montana.  If a company is unable to provide the opinion with 60 days of the request or such 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.

 

            AUTH: 33-2-521, MCA

            IMP:  33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, MCA

 

            6.6.6509 DESCRIPTION OF ACTUARIAL MEMORANDUM INCLUDING AN ASSET ADEQUACY ANALYSIS (1)(a) remains the same, but is renumbered (1).

            (b) through (d) remain the same, but are renumbered (a) through (c).

            (d)  In accordance with 33-2-521(4), MCA, the appointed actuary shall prepare a regulatory asset adequacy issues summary, the contents of which are specified in (3)(a) through (3)(f).  The regulatory asset adequacy issues summary will 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.  The regulatory asset adequacy issues summary is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.

            (2)  When an actuarial opinion under ARM 6.6.6508 is provided, the memorandum shall demonstrate that the analysis has been done in accordance with the standards for asset adequacy referred to in ARM 6.6.6505(4) and any additional standards under these rules. The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumptions.  It shall specify:

            (a) through (2)(a)(iv) remain the same.

            (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 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.

            (b) for assets:

            (i) through (iii) remain the same.

            (iv) asset valuation bases.; and

            (v) documentation of assumptions made for the following:

            (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.

            (c)  for the analysis basis:

            (i) and (ii) remain the same.

            (iii) rationale for degree of rigor in analyzing different blocks of business (include in the rationale the level of "materiality" that was used in determining how rigorously to analyze different blocks of business);

            (iv) criteria for determining asset adequacy (include in the criteria 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); and

            (v) Effect whether the impact of federal income taxes, reinsurance and other relevant factors was considered and the method of treating reinsurance in the asset adequacy analysis.

            (d)  summary of material changes in methods, procedures, or assumptions from prior years asset adequacy analysis;

            (d)(e)  summary of results.; and

            (e)(f) conclusion(s).

            (3) The regulatory asset adequacy issues summary shall include:

            (a) descriptions of the scenarios tested (including whether those scenarios are stochastic or deterministic) and the sensitivity testing done relative to those scenarios.  If negative ending surplus results under certain tests in the aggregate, the actuary should describe those tests and the amount of additional reserve as of the valuation date which, if held, would eliminate the negative aggregate surplus values.  Ending surplus values shall be determined by either extending the projection period until the in-force and associated assets and liabilities at the end of the projection period are immaterial or by 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) the extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different than the assumptions used in the previous asset adequacy analysis;

            (c) 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; and

            (f) whether the actuary has been 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 regulatory asset adequacy issues summary shall contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and shall be signed and dated by the appointed actuary rendering the actuarial opinion.

            (3) remains the same, but is renumbered (5).

            (6)  An appropriate allocation of assets in the amount of the interest maintenance reserve (IMR), whether positive or negative, shall be used in any asset adequacy analysis.  Analysis of risks regarding asset default may include an appropriate allocation of assets supporting the asset valuation reserve (AVR); these AVR assets may not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks may include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support.  The amount of the assets used for the AVR shall be disclosed in the table of reserves and liabilities of the opinion and in the memorandum.  The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.

            (7)  The appointed actuary shall retain on file, for at least seven years, sufficient documentation so that it will be possible to determine the procedures followed, the analyses performed, the bases for assumptions, and the results obtained.

 

            AUTH: 33-2-521, MCA

            IMP:  33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, MCA

 

STATEMENT OF REASONABLE NECESSITY: These rules have been modified to conform to the NAIC Model Rules for Examinations.  This conformity is necessary for Montana to maintain accreditation with the NAIC.  If accreditation is allowed to lapse, domestic companies who do actuarial audits under Montana requirements might have to submit and pay for an audit which conforms to the NAIC standards to operate in other states, thus incurring unnecessary expenses.  The changes in these rules standardize the requirements for actuarial audits which are submitted to the commissioner, repeal sections which exempted certain insurance companies from audit requirements because of various financial criteria, create identical audit requirements for all insurance companies regardless of various financial criteria, and generally replace all sections to include the identical language of the model rule.

 

            6.6.6811  ANNUAL AUDIT (1) through (3)(e) remain the same.

            (4) The annual audit report may be waived by the commissioner for any captive insurance company other than a captive risk retention group, under one or more of the following circumstances:

            (a) the company has minimal or no written premium in the audit year;

            (b) the company has minimal or no earned premium in the audit year;

            (c) the company received its license within six months of the end of the audit year; or

            (d) the company has filed a plan of dissolution with the commissioner.

 

            AUTH: 33-28-206, MCA

            IMP: 33-28-107, MCA

 

STATEMENT OF REASONABLE NECESSITY: By implementing exceptions to the general requirement for submission of audited financial reports, passage of this rule amendment will provide cost savings to captive insurance companies that are starting up operations, winding down operations, or not currently writing or earning significant premium volume.  Additionally, in cases where the department would grant exceptions/waivers, the department would not consider the lack of an audited financial report to be a detriment to proper regulation of captive companies.

 

            4. The State Auditor proposes to repeal the following rules:

 

            6.6.6506 REQUIRED OPINIONS, found at page 6-1805 of the Administrative Rules of Montana.

 

            AUTH: 33-2-521, MCA

            IMP: 33-2-521 through 33-2-537, MCA

 

            6.6.6507 STATEMENT OF ACTUARIAL OPINION NOT INCLUDING AN ASSET ADEQUACY ANALYSIS, found at page 6-1808 of the Administrative Rules

of Montana.

 

            AUTH: 33-2-521, MCA

IMP: 33-22-521 through 33-2-537, MCA

 

            6.6.6510 ADDITIONAL CONSIDERATIONS FOR ANALYSIS, found at page 6-1822 of the Administrative Rules of Montana.

 

            AUTH: 33-2-521, MCA

IMP: 33-2-521 through 33-2-537, MCA

 

STATEMENT OF REASONABLE NECESSITY: Certain rules were repealed as a result of the adoption of the model rules in order to maintain accreditation with the NAIC. ARM 6.6.6506 and 6.6.6507 were repealed because both dealt with specific exceptions and/or exclusions from a requirement of insurance companies to provide an adequacy analysis to the Commissioner of Insurance. With the adoption of the model rules, there are no longer any exceptions and/or exclusions allowed so the two rules are now obsolete. ARM 6.6.6510 contained further requirements regarding the specific format of the analysis report, but under the model rules, a specific format is not longer required so that rule is obsolete as well.

 

5. Concerned persons may submit their data, views, or arguments concerning the proposed actions either orally or in writing at the hearing. Written data, views, or arguments may also be submitted to Steve Matthews, Examinations Bureau Chief, State Auditor's Office, 840 Helena Ave., Helena, Montana, 59601; telephone (406) 444-2040; fax (406) 444-3497; or e-mail smatthews@mt.gov, and must be received no later than 5:00 p.m., December 8, 2008.

 

6. Christina L. Goe, Chief Legal Counsel, has been designated to preside over and conduct this hearing.

 

7. The department maintains a list of concerned persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name and mailing address of the person to receive notices and specifies for which program the person wishes to receive notices. Such written request may be mailed or delivered to Darla Sautter, State Auditor's Office, 840 Helena Ave., Helena, Montana, 59601; telephone (406) 444-2726; fax (406) 444-3497; or e-mail dsautter@mt.gov or may be made by completing a request form at any rules hearing held by the department.

 

8. An electronic copy of this Proposal Notice is available through the Secretary of State's web site at http://sos.mt.gov/ARM/Register. The Secretary of State strives to make the electronic copy of the Notice conform to the official version of the Notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the Notice and the electronic version of the Notice, only the official printed text will be considered. In addition, although the Secretary of State works to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

 

9. The bill sponsor notice requirements of 2-4-302, MCA, do not apply.

 

/s/ Christina L. Goe                                      /s/ Janice S. VanRiper                               

Christina L. Goe                                            Janice S. VanRiper

Rule Reviewer                                               Deputy Insurance Commissioner

                                                                        State Auditor/Commissioner of Insurance

 

Certified to the Secretary of State October 14, 2008.

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