2005 Arizona Revised Statutes - Revised Statutes §20-696.06  Actuarial memorandum including an asset adequacy analysis

A. Each company shall obtain a memorandum prepared pursuant to this section from the appointed actuary that describes the analysis done in support of the actuarial opinion prepared pursuant to section 20-696.05.

B. The director may examine the memorandum prepared pursuant to this section and shall return the memorandum to the company after the examination. The memorandum is not a record of the department and is not subject to automatic filing with the director. The department may use the memorandum in connection with proceedings brought to enforce this title.

C. The appointed actuary may rely on and include as a part of the memorandum prepared pursuant to this section documents or statements that are prepared and signed by other qualified actuaries. The memorandum shall state that the appointed actuary relied on other qualified actuaries to prepare the memorandum.

D. If the director requests a memorandum and no memorandum exists or if the director 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 article, the director may designate a qualified actuary to review the opinion and to prepare a supporting memorandum if it is required for review. The company shall pay any reasonable and necessary expenses that are incurred during the independent review. The director shall direct and control the independent review.

E. The reviewing actuary who is designated under subsection D of this section has the same status as an examiner for the purposes of obtaining data from the company. The director shall retain the work papers and documentation of the reviewing actuary. The director shall keep confidential any information that is provided by the company to the reviewing actuary and that is included in the work papers. The reviewing actuary shall not be an employee of a consulting firm that was involved with the preparation of any prior actuarial memorandum or actuarial opinion for the company pursuant to this article during the current year or the preceding three years.

F. If an actuarial opinion under section 20-696.05 is provided, the memorandum shall demonstrate that the analysis has been done in accordance with the standards for asset adequacy under section 20-696.02 and any additional standards under this article. The memorandum shall specify all of the following:

1. For reserves:

(a) Product descriptions including market descriptions, underwriting and other aspects of a risk profile and the specific risks the appointed actuary deems significant.

(b) Source of liability in force.

(c) Reserve method and basis.

(d) Investment reserves.

(e) Reinsurance arrangements.

2. For assets:

(a) Portfolio descriptions, including a risk profile that discloses the quality, distribution and types of assets.

(b) Investment and disinvestment assumptions.

(c) Source of asset data.

(d) Asset valuation basis.

3. Analysis basis:

(a) Methodology.

(b) Rationale for the inclusion or exclusion of different blocks of business and how pertinent risks were analyzed.

(c) Rationale for degree of rigor in analyzing different blocks of business.

(d) Criteria for determining asset adequacy.

(e) Effect of federal income taxes, reinsurance and other relevant factors.

4. Summary of results.

5. Conclusions.

G. The memorandum shall state whether the actuarial methods, consideration and analyses that were used to prepare the memorandum conform to the appropriate standards of practice adopted by the actuarial standards board and that the standards of practice form the basis for this memorandum.

H. All actuarial methods, considerations and analysis that are used in preparing the actuarial memoranda prescribed by this section shall comply with standards adopted by order of the director. In establishing standards, the director shall consider the applicable standards of the American academy of actuaries.