DEPARTMENT OF LABOR AND ECONOMIC GROWTH  
OFFICE OF FINANCIAL AND INSURANCE SERVICES  
ACTUARIAL OPINION AND MEMORANDUM UNDER STANDARD VALUATION  
LAW  
(By authority conferred on the commissioner of the Office of Financial and Insurance Services by  
sections 210 and 830a of 1956 PA 218 as amended, 1969 PA 306, as amended, and E.R.O. No.  
2003-1, MCL 500.210, MCL 500.830a, MCL 24.231 to MCL 24.233; and MCL 445.2011)  
R 500.881 Rescinded.  
History: 1995 AACS; 2006 AACS.  
R 500.882 Rescinded.  
History: 1995 AACS; 2006 AACS.  
R 500.883 Rescinded.  
History: 1995 AACS; 2006 AACS.  
R 500.884 Rescinded.  
History: 1995 AACS; 2006 AACS.  
R 500.885 Rescinded.  
History: 1995 AACS; 2006 AACS.  
R 500.886 Rescinded.  
History: 1995 AACS; 2006 AACS.  
R 500.887 Rescinded.  
History: 1995 AACS; 2006 AACS.  
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R 500.888 Rescinded.  
History: 1995 AACS; 2006 AACS.  
R 500.889 Rescinded.  
History: 1995 AACS; 2006 AACS.  
R 500.991 Definitions.  
Rule 1. As used in these rules:  
(a) "Actuarial opinion" means the opinion of an appointed actuary regarding the adequacy of the  
reserves and related actuarial items based on an asset adequacy analysis in accordance with R  
500.995 and with applicable Actuarial Standards of Practice.  
(b) "Actuarial Standards Board" means the board established by the American Academy of  
Actuaries to develop and promulgate standards of actuarial practice.  
(c) "Annual statement" means that statement required by section 438 of 1956 PA 218, as  
amended, MCL 500.438, to be filed by the company with the Office of Financial and Insurance  
Services annually.  
(d) "Appointed actuary" means an individual who is appointed or retained under R 500.994(3) to  
provide the actuarial opinion and supporting memorandum as required by section 830a of 1956  
PA 218, MCL 500.830a, of the Standard Valuation Law.  
(e) "Asset adequacy analysis" means an analysis that meets the standards and other requirements  
referred to in R 500.994(4).  
(f) "Commissioner" means the commissioner of the Office of Financial and Insurance Services.  
(g) "Company" means a life insurance company, fraternal benefit society or reinsurer subject to  
the provisions of this rule.  
(h) "Qualified actuary" means an individual who meets the requirements in R 500.994(2).  
History: 2006 AACS.  
R 500.992 Purpose.  
Rule 2. The purpose of these rules is to prescribe the following:  
(a) Requirements for statements of actuarial opinion that are to be submitted in accordance with  
MCL 500.830a of the Standard Valuation Law, and for memoranda in support thereof.  
(b) Rules applicable to the appointment of an appointed actuary.  
(c) Guidance as to the meaning of "adequacy of reserves."  
History: 2006 AACS.  
R 500.993 Applicability.  
Rule 3. (1) These rules shall apply to all life insurance companies and fraternal benefit societies  
doing business in this state and to all life insurance companies and fraternal benefit societies that  
are authorized to reinsure life insurance, annuities, or accident and health insurance business in  
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this state. 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) These rules shall be applicable to all annual statements filed with the office of the  
commissioner as specified in R 500.997. A statement of opinion on the adequacy of the reserves  
and related actuarial items based on an asset adequacy analysis under R 500.995, and a  
memorandum in support thereof under R 500.996 shall be required each year.  
(3) These rules apply to all annual statements filed with the commissioner as specified in R  
500.997, except with respect to companies that are exempted by a determination made by the  
commissioner. A company that intends to file for an exemption from asset adequacy analysis shall  
submit a letter of intent to the commissioner not later than December 1 of the calendar year for  
which the exemption is to be claimed. The commissioner may deny the exemption before  
December 31 of the same year if an exemption is deemed inappropriate.  
History: 2006 AACS.  
R 500.994 General requirements.  
Rule 4. (1) The following apply to the Statement of Actuarial Opinion:  
(a) There is to be included on or attached to Page 1 of the annual statement for each year beginning  
with the year in which this rule 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 under R 500.995.  
(b) Upon written request by the company, the commissioner may grant an extension of the date  
for submission of the statement of actuarial opinion.  
(2) A "qualified actuary" is an individual who meets the following:  
(a) Is a member in good standing of the American Academy of Actuaries.  
(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.  
(c) Is familiar with the valuation requirements applicable to life and health insurance companies.  
(d) Has not been found by the commissioner, or if found, has subsequently been reinstated as a  
qualified actuary, following appropriate notice and hearing, to have done the following:  
(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.  
(ii) Been found guilty of fraudulent or dishonest practices.  
(iii) Demonstrated his or her incompetence, lack of cooperation, or untrustworthiness to act as a  
qualified actuary.  
(iv) Submitted to the commissioner during the past 5 years, under this rule, an actuarial opinion  
or memorandum that the commissioner rejected because it did not meet the provisions of this rule  
including standards set by the Actuarial Standards Board.  
(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.  
Page 3  
(e) Has notified the commissioner of any action taken by any commissioner of any other state  
similar to that described in subdivision (d) of this subrule.  
(3) An "appointed actuary" is a qualified actuary who is appointed or retained to prepare the  
Statement of Actuarial Opinion required by this rule, 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 the notice  
that the person meets the requirements of R 500.994(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 of R 500.994(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) Standards for asset adequacy analysis include the following:  
(a) Shall conform to the Standards of Practice as promulgated by the Actuarial Standards Board  
and on any additional standards under this rule, which standards are to form the basis of the  
statement of actuarial opinion in accordance with this rule.  
(b) Shall be based on methods of analysis as are deemed appropriate for such purposes by the  
Actuarial Standards Board.  
(5) The following liabilities shall be covered:  
(a) Under authority of section 830a of the Standard Valuation Law, 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, such as reserves of exhibits 8, 9 and 10, and claim  
liabilities in exhibit 11, Part 1 and equivalent items in the separate account statement or statements.  
(b) If the appointed actuary determines as the result of asset adequacy analysis that a reserve  
should be held in addition to the aggregate reserve held by the company and calculated in  
accordance with methods in the Standard Valuation Law, the company shall establish the  
additional reserve.  
(c) Additional reserves established under subdivision (b) of this subrule and deemed not  
necessary 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 shall not be deemed an  
adoption of a lower standard of valuation.  
History: 2006 AACS.  
R 500.995 Statement of actuarial opinion based on an asset adequacy analysis.  
Rule 5. (1) The statement of actuarial opinion shall consist of the following:  
(a) A paragraph identifying the appointed actuary and his or her qualifications under R  
500.995(2)(a).  
(b) A scope paragraph identifying the subjects on which an opinion is to be expressed and  
describing the scope of the appointed actuary's work, including a tabulation delineating the  
reserves and related actuarial items that have been analyzed for asset adequacy and the method of  
analysis of R 500.995(2)(b), and identifying the reserves and related actuarial items covered by  
the opinion that have not been so analyzed.  
Page 4  
(c) A reliance paragraph describing those areas, if any, where the appointed actuary has deferred  
to other experts in developing data, procedures or assumptions, such as anticipated cash flows from  
currently owned assets, including variation in cash flows according to economic scenarios of R  
500.995(2)(c), supported by a statement of each such expert in the form prescribed by R  
500.995(5).  
(d) An opinion paragraph expressing the appointed actuary's opinion with respect to the adequacy  
of the supporting assets to mature the liabilities of R 500.995(2)(f).  
(e) One or more additional paragraphs shall be needed in individual company cases as follows:  
(i) If the appointed actuary considers it necessary to state a qualification of his or her opinion.  
(ii) If the appointed actuary must disclose an inconsistency in the method of analysis or basis of  
asset allocation used at the prior opinion date with that used for this opinion.  
(iii) If the appointed actuary must disclose whether additional reserves as of the prior opinion  
date are released as of this opinion date, and the extent of the release.  
(iv) If the appointed actuary chooses to add a paragraph briefly describing the assumptions that  
form the basis for the actuarial opinion.  
(2) The following paragraphs are to be included in the statement of actuarial opinion in  
accordance with this rule. Language is that which in typical circumstances should be included in  
a statement of actuarial opinion.The language may be modified as needed to meet the  
circumstances of a particular case, but the appointed actuary should use language that clearly  
expresses his or her professional judgment. The opinion shall retain all pertinent aspects of the  
language provided in this rule.  
(a) The opening paragraph should generally indicate the appointed actuary's relationship to the  
company and his or her qualifications to sign the opinion. For a company actuary, the opening  
paragraph of the actuarial opinion should include 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 health insurance companies."  
For a consulting actuary, the opening paragraph should include a statement such as:  
"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."  
(b) The scope paragraph should include a statement such as:  
"I have examined the actuarial assumptions and actuarial methods used in determining reserves  
and related actuarial items listed below, 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.  
Page 5  
Asset Adequacy Tested Amounts—Reserves and Liabilities  
Formula  
Reserves  
Additional  
Actuarial  
Reserves  
(a)  
Other  
Analysis  
Method (b)  
Total Amount  
(1)+(2)+(3)  
Amount  
Statement Item  
(4)  
(1)  
(3)  
(2)  
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)  
Exhibit 10  
Premium and Other  
Deposit Funds  
(Column 5, Line 14)  
Guaranteed Interest  
Contracts  
(Column 2, Line 14)  
Other  
(Column 6, Line 14)  
Page 6  
Supplemental Contracts  
and Annuities Certain  
(Column 3, Line 14)  
Dividend Accumulations  
or Refunds  
(Column 4, Line 14)  
Total Exhibit 10  
(Column 1, Line 14)  
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  
Separate  
of  
the  
Accounts,  
Lines 1, 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  
Table Notes:  
(a) The additional actuarial reserves are the reserves established under subparagraph (b) of R 500.994(5).  
(b) The appointed actuary should indicate the method of analysis determined in accordance with the standards of  
asset adequacy analysis referred to in R 500.994(4) of this regulation, by means of symbols that 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:  
"I have relied on [name], [title] for [for example, "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. I have reviewed the information relied upon for reasonableness."  
Page 7  
A statement of reliance on other experts should be accompanied by a statement by each of the  
experts in the form prescribed by R 500.995(5).  
(d) If the appointed actuary has examined the underlying asset and liability records, the reliance  
paragraph should include 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,  
for example, listings and summaries of policies in force or asset records, prepared by the company,  
the reliance paragraph should include a statement such as:  
"In forming my opinion on [specify types of reserves] I relied upon data prepared by [name and  
title of company officer certifying in force records or other data] as certified in the attached  
statements. I evaluated that data for reasonableness and consistency. I also reconciled that data to  
[exhibits and schedules to be listed as applicable] of the company's current annual statement. In  
other respects, my examination included review of the actuarial assumptions and actuarial methods  
used and tests of the calculations I considered necessary."  
The section shall be accompanied by a statement by each person relied upon in the form prescribed  
by R 500.995(5).  
(f) The opinion paragraph should include a statement such as:  
"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 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.  
(iii) Meet the requirements of the insurance law and rule of the state of [state of domicile]; and  
are at least as great as the minimum aggregate amounts required by the state in which this statement  
is filed.  
(iv) Are computed on the basis of assumptions consistent with those used in computing the  
corresponding items in the annual statement of the preceding year-end, with any exceptions noted  
below.  
(v) Include provision for all actuarial reserves and related statement items which ought to be  
established. The reserves and related items, when considered in light of the assets held by the  
company with respect to such reserves and related actuarial items including, but not limited to, the  
investment earnings on the assets, and the considerations anticipated to be received and retained  
under the policies and contracts, make adequate provision, according to presently accepted  
Page 8  
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 actuarial methods, considerations, and analyses used in forming my opinion conform to the  
appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which  
standards form the basis of this statement of opinion.  
This opinion is updated annually as required by statute. To the best of my knowledge, there have  
been no material changes from the applicable date of the annual statement to the date of the  
rendering of this opinion which should be considered in reviewing this opinion.  
or  
The following material changes 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) Assumptions for new issues. The adoption for new issues or new claims or other new  
liabilities of an actuarial assumption 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 R 500.995.  
(4) Adverse opinions. If the appointed actuary is unable to form an opinion, then he or she shall  
refuse to issue a statement of actuarial opinion. If the appointed actuary's opinion is adverse or  
qualified, then he or she shall issue an adverse or qualified actuarial opinion explicitly stating the  
Page 9  
reasons for the opinion. This statement should follow the scope paragraph and precede the opinion  
paragraph.  
(5) Reliance on information furnished by other persons. 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 following shall apply to alternate options:  
(a) 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 R 500.995(2)(f)(iii), the  
commissioner may make 1 or more of the following additional approaches available to the opining  
actuary:  
(i) A statement that the reserves "meet the requirements of the insurance laws and rules 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.  
(ii) A statement that the reserves "meet the requirements of the insurance laws and rules 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 not 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 not 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, 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.  
(iii) A statement that the reserves "meet the requirements of the insurance laws and rules of the  
state of [state of domicile] and I have submitted the required comparison as specified by this state."  
The following apply:  
(A) If the commissioner chooses to allow this alternative, a formal written list of products, to be  
added to the table in Item (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  
or revoked. If no list is available, this alternative is not available.  
(B) 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  
Page 10  
NAIC codification standards, as specified in the NAIC Accounting Practices & Procedures  
Manual, as adopted annually in the Commissioner's Order issued under MCL 500.438. 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 the following:  
(1)  
(2)  
(3)  
(4)  
(5)  
Product type  
Death Benefit or  
Reserves Held  
Codification  
Codification  
Account Value  
Reserves  
Standard  
(C) The information listed shall include all products identified by either the state of filing or any  
other states subscribing to this alternative.  
(D) 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.  
(E) The comparison provided by the company is to be kept confidential to the same extent and  
under the same conditions as the actuarial memorandum.  
(b) Notwithstanding the above, the commissioner may reject an opinion based on the laws and  
rules of the state of domicile and require an opinion based on the laws of this state. If a company  
is unable to provide the opinion within 60 days of the request or such other period of time  
determined by the commissioner after consultation with the company, then the commissioner may  
contract an independent actuary at the company's expense to prepare and file the opinion.  
History: 2006 AACS.  
R 500.996 Description of actuarial memorandum including asset adequacy analysis and  
regulatory asset adequacy issues summary.  
Rule 6. (1) All of the following apply:  
(a) In accordance with Section 830a of the Standard Valuation Law, the appointed actuary shall  
prepare a memorandum to the company describing the analysis done in support of his or her  
opinion regarding the reserves. The memorandum shall be made available for examination by the  
commissioner upon his or her request but shall be returned to the company after examination and  
shall not be considered a record of the insurance department or subject to automatic filing with the  
commissioner.  
(b) In preparing the memorandum, the appointed actuary may rely on, and include as a part of his  
or her own memorandum, memoranda prepared and signed by other actuaries who are qualified  
within the meaning of R 500.994(2) with respect to the areas covered in such memoranda, and so  
stated in their memoranda.  
(c) If the commissioner requests a memorandum and no such memorandum exists or if the  
commissioner finds that the analysis described in the memorandum fails to meet the standards of  
the Actuarial Standards Board or the standards and requirements of this rule, the commissioner  
may designate a qualified actuary to review the opinion and prepare such supporting memorandum  
Page 11  
as is required for review. The reasonable and necessary expense of the independent review shall  
be paid by the company but shall be directed and controlled by the commissioner.  
(d) The reviewing actuary shall have the same status as an examiner for purposes of obtaining  
data from the company and the work papers and documentation of the reviewing actuary shall be  
retained by the commissioner; provided, however, that any information provided by the company  
to the reviewing actuary and included in the work papers shall be considered as material provided  
by the company to the commissioner and shall be kept confidential to the same extent as is  
prescribed by law with respect to other material provided by the company to the commissioner  
pursuant to the statute governing this rule. The reviewing actuary shall not be an employee of a  
consulting firm involved with the preparation of any prior memorandum or opinion for the insurer  
pursuant to this rule for any 1 of the current year or the preceding 3 years.  
(e) In accordance with Section 830a of the Standard Valuation Law, the appointed actuary shall  
prepare a regulatory asset adequacy issues summary, the contents of which are specified in R  
500.996(3). The regulatory asset adequacy issues summary shall be submitted not 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 shall be confidential to the  
same extent and under the same conditions as the actuarial memorandum.  
(2) Details of the memorandum section documenting asset adequacy analysis. When an actuarial  
opinion is provided, the memorandum shall demonstrate that the analysis has been done in  
accordance with the standards for asset adequacy referred to in R 500.994(4) and any additional  
standards under this rule. It shall specify the following:  
(a) For reserves:  
(i) Product descriptions including market description, underwriting, and other aspects of a risk  
profile and the specific risks the appointed actuary deems significant.  
(ii) Source of liability in force.  
(iii) Reserve method and basis.  
(iv) Investment reserves.  
(v) Reinsurance arrangements.  
(vi) Identification of any explicit or implied guarantees made by the general account in support  
of benefits provided through a separate account or under a separate account policy or contract and  
the methods used by the appointed actuary to provide for the guarantees in the asset adequacy  
analysis.  
(vii) Documentation of assumptions 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.  
(H) Morbidity. 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.  
(b) The following apply to assets:  
(i) Portfolio descriptions, including a risk profile disclosing the quality, distribution, and types of  
assets.  
(ii) Investment and disinvestment assumptions.  
Page 12  
(iii) Source of asset data.  
(iv) Asset valuation bases.  
(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.  
(E) Determining yield on assets acquired through the investment strategy.  
(c) For the analysis basis, 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. The following apply:  
(i) Methodology.  
(ii) Rationale for inclusion or exclusion of different blocks of business and how pertinent risks  
were analyzed.  
(iii) Rationale for degree of rigor in analyzing different blocks of business, 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.  
(v) Whether the impact of federal income taxes 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 year's asset  
adequacy analysis.  
(e) Summary of results.  
(f) Conclusions.  
(3) (a) The regulatory asset adequacy issues summary shall include the following:  
(i) 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.  
(ii) 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.  
(iii) 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.  
(iv) Comments on any interim results that may be of significant concern to the appointed actuary.  
(v) 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.  
(vi) 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  
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securities, and equity-like features in any investments have been appropriately considered in the  
asset adequacy analysis.  
(b) 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.  
(4) Conformity to Standards of Practice. The memorandum shall include a statement:  
"Actuarial methods, considerations, and analyses used in the preparation of this memorandum  
conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board,  
which standards form the basis for this memorandum."  
(5) Use of assets supporting the interest maintenance reserve and the asset valuation reserve. 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.  
(6) The appointed actuary shall retain on file, for at least 7 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.  
History: 2006 AACS.  
R 500.997 Effective date.  
Rule 7. These rules shall take effect for annual statements beginning with the year 2006.  
History: 2006 AACS.  
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;