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304.6-151 Principle-based valuation -- Required actions.
(1)
(2)
(3)
A company shall establish reserves using a principle-based valuation as specified in
the valuation manual that meets the following conditions for policies or contracts:
(a) Quantification of the benefits and guarantees, and the funding associated with
the contracts and their risks, at a level of conservatism that reflects conditions
that include unfavorable events that have a reasonable probability of occurring
during the lifetime of the contracts. For policies or contracts with significant
tail risk, the valuation shall also reflect conditions appropriately adverse to
quantify the tail risk;
(b) Incorporation of assumptions, risk analysis methods, financial models, and
management techniques that are consistent with but not necessarily identical
to those utilized within the company's overall risk assessment process, while
recognizing potential differences in financial reporting structures and any
prescribed assumptions or methods;
(c) Incorporation of assumptions that are derived in one (1) of the following
manners:
1.
The assumption is prescribed in the valuation manual;
2.
For assumptions that are not prescribed, the assumptions shall:
a.
Be established utilizing the company's available experience, to the
extent it is relevant and statistically credible; or
b.
To the extent that company data is not available, relevant, or
statistically credible, be established utilizing other relevant,
statistically credible experience; and
(d) Provision of margins for uncertainty, including adverse deviation and
estimation error, to ensure that the greater the uncertainty the larger the
margin and resulting reserve.
A company using a principle-based valuation for one (1) or more policies or
contracts subject to this section, as specified in the valuation manual, shall:
(a) Establish procedures for corporate governance and oversight of the actuarial
valuation function consistent with those described in the valuation manual;
(b) Provide to the commissioner and the company's board of directors, an annual
certification of the effectiveness of the internal controls with respect to the
principle-based valuation. The controls shall be designed to ensure that all
material risks inherent in the liabilities and associated assets, subject to the
valuation, are included in the valuation and that valuations are made in
accordance with the valuation manual. The certification shall be based on the
controls in place as of the end of the preceding calendar year; and
(c) Develop and file with the commissioner, upon request, a principle-based
valuation report that complies with standards prescribed in the valuation
manual.
A principle-based valuation may include a prescribed formulaic reserve component.
Effective: June 24, 2015
History: Created 2015 Ky. Acts ch. 57, sec. 6, effective June 24, 2015.
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