CHAPTER 84b. ACTUARIAL OPINION AND
MEMORANDUM

 (a)  Types of opinions. Except with respect to companies which are exempted under §  84b.6 (relating to required opinions), a statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with §  84b.8 (relating to statement of actuarial opinion based on asset adequacy analysis), and a memorandum in support thereof in accordance with §  84b.9 (relating to description of actuarial memorandum including an asset adequacy analysis) shall be required each year. A company so exempted shall file a statement of actuarial opinion under §  84b.7 (relating to statement of actuarial opinion not including an asset adequacy analysis).

 (b)  Filing upon request. The Commissioner may require a company otherwise exempt under this chapter to submit a statement of actuarial opinion and to prepare a memorandum in support thereof in accordance with § §  84b.8 and 84b.9 if, in the opinion of the Commissioner, an asset adequacy analysis is necessary with respect to the company. In forming the opinion, the Commissioner will take into consideration issues such as the nature of the business insured, the type of assets owned by the company and the company’s financial ratios determined in accordance with §  84b.6(c).

 The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:

   Act—The Insurance Department Act of 1921 (40 P. S. § §  1—297.4).

   Actuarial opinion—With respect to § §  84b.8, 84b.9 and 84b.10 (relating to statement of actuarial opinion based on asset adequacy analysis; description of actuarial memorandum including an asset adequacy analysis; and additional considerations for analysis), 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 §  84b.8 and with actuarial standards. With respect to §  84b.7 (relating to statement of actuarial opinion not including an asset adequacy analysis), the opinion of an appointed actuary regarding the calculation of reserves and related items, in accordance with §  84b.7 and with actuarial standards which specifically relate to this opinion.

   Actuarial Standards Board—The board established by the American Academy of Actuaries, or a successor thereto, to develop and promulgate standards of actuarial practice.

   Annual statement—The statement required by section 320 of the Insurance Company Law of 1921 (40 P. S. §  443) to be filed by a life insurance company with the Commissioner annually and the statement required by section 602 of The Fraternal Benefit Societies Code (40 P. S. §  1142-602) to be filed by a fraternal benefit society with the Commissioner annually.

   Appointed actuary—A qualified actuary who is appointed or retained either directly by or by the authority of the board of directors through an executive officer of the company, to prepare the statement of actuarial opinion and supporting memorandum as required by §  301(f) of the act (40 P. S. §  71(f)).

   Asset adequacy analysis—An analysis that meets the standards and other requirements referred to in §  84b.5(d) (relating to general requirements). It may take many forms, including cash flow testing, sensitivity testing or applications of risk theory.

   Commissioner—The Insurance Commissioner of the Commonwealth.

   Company—A life insurance company or fraternal benefit society subject to this chapter.

   Department—The Insurance Department of the Commonwealth.

   First priority company—A company designated by the NAIC as a company which should be assigned a first priority in the scheduling of a state’s company financial reviews.

   NAIC—National Association of Insurance Commissioners, or a successor thereto.

   Noninvestment grade bonds—Bonds designated as classes 3, 4, 5 or 6 by the NAIC Securities Valuation Office, or a successor thereto.

   Policy—When used with respect to a fraternal benefit society, a certificate.

   Qualified actuary—An individual who meets the requirements in §  84b.5(b).

   Second priority company—A company designated by the NAIC as a company which should be assigned a second priority in the scheduling of a state’s company financial reviews.

 (a)  Submission of statement of actuarial opinion.

   (1)  A company shall include on or attach to Page 1 of the annual statement for each year beginning with 1994, 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 §  84b.8 (relating to statement of actuarial opinion based on asset adequacy analysis). A company exempted under §  84b.6 (relating to required opinions) from submitting a statement of actuarial opinion in accordance with §  84b.8 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 §  84b.7 (relating to statement of actuarial opinion not including an asset adequacy analysis).

   (2)  If in the previous year a company provided a statement of actuarial opinion in accordance with §  84b.7, and in the current year fails to meet the exemption criteria of §  84b.6(c)(1), (2) or (5), the statement of actuarial opinion in accordance with §  84b.8 is not 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 §  84b.7 with appropriate qualification noting the intent to subsequently provide a statement of actuarial opinion in accordance with §  84b.8.

   (3)  In the case of a statement of actuarial opinion required to be submitted by a foreign or alien company, the Commissioner may accept the statement of actuarial opinion filed by the 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 Commonwealth.

   (4)  Upon written request by the company, the Commissioner may grant an extension of the date for submission of the statement of actuarial opinion.

 (b)  Qualified actuary requirements. A ‘‘qualified actuary’’ is an individual who:

   (1)  Is a member in good standing of the American Academy of Actuaries.

   (2)  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 these statements.

   (3)  Is familiar with the valuation requirements applicable to life and health insurance companies.

   (4)  Has not been found by the Commissioner (or if so found has subsequently been reinstated as a qualified actuary), following appropriate notice and hearing, to have done one or more of the following:

     (i)   Violated any provision of, or any obligation imposed by, the insurance laws or other law in the course of the individual’s dealings as a qualified actuary.

     (ii)   Been found guilty of fraudulent or dishonest practices.

     (iii)   Demonstrated incompetency, lack of cooperation or untrustworthiness to act as a qualified actuary.

     (iv)   Submitted to the Commissioner during the past 5 years, under this chapter, an actuarial opinion or memorandum that the Commissioner rejected because it did not meet the provisions of this chapter including standards set by the Actuarial Standards Board.

     (v)   Resigned or been removed as an actuary within the past 5 years as a result of acts or omissions indicated in an adverse report on examination or as a result of failure to adhere to generally acceptable actuarial standards.

   (5)  Has not failed to notify the Commissioner of any action taken by a commissioner of another state similar to that under paragraph (4).

 (c)  Appointed actuary notification. The company shall give the Commissioner written notice of the name, title—and, in the case of a consulting actuary, the name of the firm—and the 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 in subsection (b). Once notice is furnished, no further notice is required with respect to this person, but the company shall give the Commissioner written notice if the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements in subsection (b). The notice of the appointment or termination of the appointment shall be provided to the Commissioner by January 30, 1995, or the date of the appointment or termination of the appointment unless previously provided to the Commissioner. The notice of termination shall disclose the reasons for termination. Additionally, the terminated actuary shall furnish to the Commissioner and to the company a description of valuation reserve issues that the actuary considered as material at the time of termination or a statement that no material issues exist. The description shall include issues concerning valuation requirements, reserve adequacy, asset adequacy analysis assumptions or methodology and internal controls on the valuation system.

 (d)  Standards for asset adequacy analysis. The asset adequacy analysis required by this chapter shall:

   (1)  Conform to the Standards of Practice as promulgated from time to time by the Actuarial Standards Board and to additional standards under this chapter, which standards are to form the basis of the statement of actuarial opinion in accordance with §  84b.8.

   (2)  Be based on methods of analysis deemed appropriate for these purposes by the Actuarial Standards Board.

 (e)  Liabilities to be covered.

   (1)  Under the authority of section 301(f)(4)(B) of the act (40 P. S. §  71(f)(4)(B)), the statement of actuarial opinion shall apply to all in force business on the statement date regardless of when or where issued (for example, reserves of Exhibits 8, 9 and 10, and claim liabilities of Exhibit 11, Part I of the annual statement and equivalent items of the separate account annual statement or statements).

   (2)  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 sections 301(b), (c) and (e), 301.1(a) and 303 of the act (40 P. S. § §  71(b), (c), (e), 71.1(a) and 73), the company shall establish such additional reserve.

   (3)  Additional reserves established under paragraph (2) and deemed not necessary in subsequent years may be released. Amounts released shall be disclosed in the actuarial opinion for the applicable year. The rationale for the release of reserves shall be described in the memorandum. The release of these reserves would not be deemed an adoption of a lower standard of valuation.

 (a)  General. In accordance with section 301(f)(1) and (2) of the act (40 P. S. §  71(f)(1) and (2)), every company doing business in this Commonwealth shall annually submit the opinion of an appointed actuary as provided for by this chapter. The type of opinion submitted shall be determined by the provisions set forth in this section and shall be in accordance with the applicable provisions in this chapter.

 (b)  Company categories. For purposes of this chapter, companies shall be classified as follows based on the admitted assets as of the end of the calendar year for which the actuarial opinion is applicable:

   (1)  Category A consists of companies whose admitted assets do not exceed $20 million.

   (2)  Category B consists of companies whose admitted assets exceed $20 million but do not exceed $100 million.

   (3)  Category C consists of companies whose admitted assets exceed $100 million but do not exceed $500 million.

   (4)  Category D consists of companies whose admitted assets exceed $500 million.

 (c)  Exemption eligibility tests.

   (1)  A Category A company that, for any year beginning with 1994, meets the criteria in subparagraphs (i)—(iv) shall be eligible for exemption from submission of a statement of actuarial opinion in accordance with §  84b.8 (relating to statement of actuarial opinion based on asset adequacy analysis) for the year in which these criteria are met. The ratios in subparagraphs (i)—(iii) shall be calculated based on amounts as of the end of the calendar year for which the actuarial opinion is applicable.

     (i)   The ratio of the sum of capital and surplus to the sum of cash and invested assets is at least equal to .10.

     (ii)   The ratio of the sum of the reserves and liabilities for annuities and deposits to the total admitted assets is less than .30.

     (iii)   The ratio of the book value of the noninvestment grade bonds to the sum of capital and surplus is less than .50.

     (iv)   The Examiner Team for the NAIC has not designated the company as a ‘‘first priority company’’ in any of the 2 calendar years preceding the calendar year for which the actuarial opinion is applicable, or a ‘‘second priority company’’ in each of the 2 calendar years preceding the calendar year for which the actuarial opinion is applicable, or the company has resolved the ‘‘first priority company’’ or ‘‘second priority company’’ status to the satisfaction of the commissioner of the state of domicile and the commissioner has so notified the chair of the NAIC Life and Health Actuarial Task Force, or a successor thereto, and the NAIC Staff and Support Office.

   (2)  A Category B company that, for any year beginning with 1994, meets all of the criteria in subparagraphs (i)—(iv) shall be eligible for exemption from submission of a statement of actuarial opinion in accordance with §  84b.8 for the year in which the criteria are met. The ratios in subparagraphs (i)—(iii) shall be calculated based on amounts as of the end of the calendar year for which the actuarial opinion is applicable.

     (i)   The ratio of the sum of capital and surplus to the sum of cash and invested assets is at least equal to .07.

     (ii)   The ratio of the sum of the reserves and liabilities for annuities and deposits to the total admitted assets is less than .40.

     (iii)   The ratio of the book value of the noninvestment grade bonds to the sum of capital and surplus is less than .50.

     (iv)   The Examiner Team for the NAIC has not designated the company as a ‘‘first priority company’’ in any of the 2 calendar years preceding the calendar year for which the actuarial opinion is applicable, or a ‘‘second priority company’’ in each of the 2 calendar years preceding the calendar year for which the actuarial opinion is applicable, or the company has resolved the ‘‘first priority company’’ or ‘‘second priority company’’ status to the satisfaction of the commissioner of the state of domicile and the commissioner has so notified the chair of the NAIC Life and Health Actuarial Task Force, or a successor thereto, and the NAIC Staff and Support Office.

   (3)  A Category A or Category B company that meets the criteria in subsection (c)(1) or (2), whichever is applicable, is exempted from submission of a statement of actuarial opinion in accordance with §  84b.8 unless the Commissioner specifically indicates to the company that the exemption is not to be taken as provided by §  84b.3(c) (relating to scope).

   (4)  A Category A or Category B company that, for any year beginning with 1994, is not exempted under subsection (c)(3) shall be required to submit a statement of actuarial opinion in accordance with §  84b.8 for the year for which it is not exempt.

   (5)  A Category C company that, after submitting an opinion in accordance with §  84b.8 to the Commissioner or to the commissioner of another state, meets the criteria in subparagraphs (i)—(iv) is not required, unless required in accordance with paragraph (6), to submit a statement of actuarial opinion in accordance with §  84b.8 more frequently than every third year. The initial 3-year period begins with the earlier of the submission of the opinion in accordance with §  84b.8 to either the Commissioner of the Commonwealth or to the commissioner of another state. A Category C company which fails to meet the following criteria for any year shall submit a statement of actuarial opinion in accordance with §  84b.8 for that year. The ratios in subparagraphs (i)—(iii) shall be calculated based on amounts as of the end of the calendar year for which the actuarial opinion is applicable.

     (i)   The ratio of the sum of capital and surplus to the sum of cash and invested assets is at least equal to .05.

     (ii)   The ratio of the sum of the reserves and liabilities for annuities and deposits to the total admitted assets is less than .50.

     (iii)   The ratio of the book value of the noninvestment grade bonds to the sum of the capital and surplus is less than .50.

     (iv)   The Examiner Team for the NAIC has not designated the company as a ‘‘first priority company’’ in any of the 2 calendar years preceding the calendar year for which the actuarial opinion is applicable, or a ‘‘second priority company’’ in each of the 2 calendar years preceding the calendar year for which the actuarial opinion is applicable, or the company has resolved the ‘‘first priority company’’ or ‘‘second priority company’’ status to the satisfaction of the commissioner of the state of domicile and the commissioner has so notified the chair of the NAIC Life and Health Actuarial Task Force, or a successor thereto, and the NAIC Staff and Support Office.

   (6)  A company which is not required by this section to submit a statement of actuarial opinion in accordance with §  84b.8 for any year shall submit a statement of actuarial opinion in accordance with §  84b.7 (relating to statement of actuarial opinion not including an asset adequacy analysis) for that year unless as provided for by §  84b.3(c) the Commissioner requires a statement of actuarial opinion in accordance with §  84b.8.

 (d)  Large companies. Every Category D company shall submit a statement of actuarial opinion in accordance with §  84b.8 for each year beginning with 1994.

 (a)  General description. The statement of actuarial opinion required by this section shall consist of:

   (1)  A paragraph identifying the appointed actuary and the appointed actuary’s qualifications.

   (2)  A regulatory authority paragraph stating that the company is exempt under this chapter from submitting a statement of actuarial opinion based on an asset adequacy analysis and that the opinion, which is not based on an asset adequacy analysis, is rendered in accordance with this section.

   (3)  A scope paragraph identifying the subjects on which the opinion is to be expressed and describing the scope of the appointed actuary’s work.

   (4)  An opinion paragraph expressing the appointed actuary’s opinion as required by section 301(f)(1) of the act (40 P. S. §  71(f)(1)).

 (b)  Recommended language. The following language is that which in typical circumstances would be included in a statement of actuarial opinion in accordance with this section. The language may be modified as needed to meet the circumstances of a particular case, but the appointed actuary shall use language which clearly expresses the individual’s professional judgment. The opinion shall retain the pertinent aspects of the language provided in this section.

   (1)  The opening paragraph shall indicate the appointed actuary’s relationship to the company and the individual’s qualifications to sign the opinion.

     (i)   For a company actuary, the opening paragraph of the actuarial opinion shall contain a statement such as follows:

     ‘‘I, (name of actuary), am (title) of (name of company) 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 (date). I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health companies.’’

     (ii)   For a consulting actuary, the opening paragraph of the actuarial opinion shall contain a statement such as follows:

     ‘‘I, (name and title of actuary), 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 (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.’’

   (2)  The regulatory authority paragraph shall contain a statement such as follows:

   ‘‘Said company is exempt pursuant to the Actuarial Opinion and Memorandum regulation of the Pennsylvania Insurance Department from submitting a statement of actuarial opinion based on an asset adequacy analysis. This opinion, which is not based on an asset adequacy analysis, is rendered in accordance with Section 84b.7 of the Actuarial Opinion and Memorandum regulation of Pennsylvania.’’

   (3)  The scope paragraph shall meet the following requirements:

     (i)   Shall contain a statement such as follows:

     ‘‘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).’’

     (ii)   Shall list items and amounts with respect to which the appointed actuary is expressing an opinion. The list shall include but not be limited to:

       (A)   Aggregate reserve for policies and contracts included in Exhibit 8 of the annual statement.

       (B)   Aggregate reserve for policies and contracts included in Exhibit 9 of the annual statement.

       (C)   Deposit funds, premiums, dividend and coupon accumulations and supplementary contracts not involving life contingencies included in Exhibit 10 of the annual statement.

       (D)   Policy and contract claims—liability end of current year included in Exhibit 11, Part I of the annual statement.

     (iii)   Shall include, if the appointed actuary has examined the underlying records, in addition to the statement required by paragraph (3)(i), a statement such as follows:

     ‘‘My examination included such review of the actuarial assumptions and actuarial methods and of the underlying basic records and such tests of the actuarial calculations as I considered necessary.’’

     (iv)   Shall include, if the appointed actuary has not examined the underlying records, but has relied upon listings and summaries of policies in force prepared by the company or a third party, in addition to the statement required by paragraph (3)(i), a statement such as either (A) or (B) as follows:

       (A)   ‘‘I have relied upon listings and summaries of policies and contracts and other liabilities in force prepared by (name and title of company officer certifying in force records) as certified in the attached statement. In other respects my examination included review of the actuarial assumptions and actuarial methods and such tests of the actuarial calculations as I considered necessary.’’ or

       (B)   ‘‘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 such tests of the actuarial calculations as I considered necessary.’’

     The statement of the person certifying shall follow the form indicated by paragraph (8).

   (4)  The opinion paragraph shall include a statement such as follows:

   ‘‘In my opinion the reserves and related actuarial items identified above:

   Are computed in accordance with those presently accepted actuarial standards which specifically relate to the opinion required under Section 84b.7 of the Actuarial Opinion and Memorandum regulation of Pennsylvania;

   Are based on actuarial assumptions which produce reserves at least as great as those called for in any contract provision as to reserve basis and method, and are in accordance with all other contract provisions;

   Meet the requirements of the valuation law and regulations of the state of (state of domicile) and are at least as great as the minimum aggregate amounts required by the state in which this statement is filed;

   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 as noted below;

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

   The actuarial methods, considerations and analyses used in forming my opinion conform to the appropriate Compliance Guidelines as promulgated by the Actuarial Standards Board, which guidelines form the basis of this statement of opinion.’’

   (5)  The concluding paragraph shall document the eligibility for the company to provide an opinion as provided by this section. It shall include a statement such as follows:

   ‘‘This opinion is provided in accordance with Section 84b.7 of the Actuarial Opinion and Memorandum regulation of Pennsylvania. As such it does not include an opinion regarding the adequacy of reserves and related actuarial itmes when considered in light of the assets which support them.’’

 Eligibility for Section 84b.7 is confirmed as follows:

 The ratio of the sum of capital and surplus to the sum of cash and invested assets is (amount), which equals or exceeds the applicable criteria of (ratio).

 The ratio of the sum of the reserves and liabilities for annuities and deposits to the total admitted assets is (amount), which is less than the applicable criteria of (ratio).

 The ratio of the book value of the non-investment grade bonds to the sum of capital and surplus is (amount), which is less than the applicable criteria of (ratio).

 To my knowledge, the NAIC Examiner Team has not designated the company as a ‘‘first priority company’’ in any of the 2 calendar years preceding the calendar year for which the actuarial opinion is applicable, or a ‘‘second priority company’’ in each of the 2 calendar years preceding the calendar year for which the actuarial opinion is applicable or the company has resolved the first or second priority status to the satisfaction of the commissioner of the state of domicile.

 To my knowledge there is not a specific request from any Commissioner requiring an asset adequacy analysis opinion.

   (6)  The adoption for new issues or new claims or other new liabilities of an actuarial assumption which differs from a corresponding assumption used for prior new issues or new claims or other new liabilities is not a change in actuarial assumptions within the meaning of paragraph (4).

   (7)  An appointed actuary who is unable to form an opinion shall refuse to issue a statement of actuarial opinion. If the appointed actuary’s opinion is adverse or qualified, the appointed actuary shall issue an adverse or qualified actuarial opinion explicitly stating the reason for the opinion. This statement shall follow the scope paragraph and precede the opinion paragraph.

   (8)  If the appointed actuary does not express an opinion as to the accuracy and completeness of the listings and summaries of policies in force, there shall be attached to the opinion, the statement of a company officer or accounting firm who prepared the underlying data similar to the following:

   ‘‘I (name of officer), (title) of (name and address of company or accounting firm), hereby affirm that the listings and summaries of policies and contracts in force as of December 31, (year), 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.

 (a)  General description. The statement of actuarial opinion submitted in accordance with this section shall consist of:

   (1)  An opening paragraph as provided in subsection (b)(1) identifying the appointed actuary and the individual’s qualifications.

   (2)  A scope paragraph as provided in subsection (b)(2) 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 which have been analyzed for asset adequacy and the method of analysis, and identifying the reserves and related actuarial items covered by the opinion which have not been so analyzed.

   (3)  A reliance paragraph as provided in subparagraphs (i)—(iii):

     (i)   If the appointed actuary has deferred to other experts in developing data, procedures or assumptions (for example, anticipated cash flows from currently owned assets, including variation in cash flows according to economic scenarios), the reliance paragraph should include a statement as provided in subsection (b)(3)(i)(A) or (B), supported by a statement of each expert in the form prescribed by subsection (e).

     (ii)   If the appointed actuary has examined the underlying asset and liability records, the reliance paragraph should include a statement as provided in subsection (b)(3)(ii).

     (iii)   If the appointed actuary has not examined the underlying records, but has relied upon listings and summaries of policies in force or asset records prepared by the company or a third party, the reliance paragraph should include a statement as provided in subsection (b)(3)(iii)(A) or (B).

   (4)  An opinion paragraph as provided in subsection (b)(4) expressing the appointed actuary’s opinion with respect to the adequacy of the supporting assets to mature the liabilities.

   (5)  One or more additional paragraphs will be needed in individual company cases as follows:

     (i)   If the appointed actuary considers it necessary to state a qualification of the opinion.

     (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) or other mandatory or voluntary statement reserves for asset adequacy analysis.

     (iv)   If the appointed actuary must disclose an inconsistency in the method of asset allocation used at the prior opinion date with that used for this opinion.

     (v)   If there is an inconsistency in the method of analysis used at the prior opinion date with that used for this opinion.

     (vi)   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.

     (vii)   If the appointed actuary chooses to add a paragraph briefly describing the assumptions which form the basis for the actuarial opinion.

 (b)  Recommended language. The following paragraphs shall be included in the statement of actuarial opinion in accordance with this section. The 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 shall use language which clearly expresses the individual’s professional judgment. The opinion shall retain all pertinent aspects of the language provided in this subsection.

   (1)  The opening paragraph shall indicate the appointed actuary’s relationship to the company and the individual’s qualifications to sign the opinion.

     (i)   For a company actuary, the opening paragraph of the actuarial opinion shall include a statement such as follows:

     ‘‘I, (name), am (title) of (insurance company name) and a member of the American Academy of Actuaries. I was appointed by, or by the authority of, the Board of Directors of said insurer to render this opinion as stated in the letter to the Commissioner dated (date). I meet the Academy qualification standards for rendering the opin-ion and am familiar with the valuation requirements applicable to life and health insurance companies.’’

     (ii)   For a consulting actuary, the opening paragraph of the actuarial opinion shall contain a statement such as follows:

     ‘‘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 (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.’’

   (2)  The scope paragraph shall include a statement such as follows:

   ‘‘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, 19 (year). Those reserves and related actuarial items which have been subjected to asset adequacy analysis are tabulated as shown in the following table of Reserves and Liabilities.’’

   (3)  The reliance paragraph shall include a statement such as follows:

     (i)   If the appointed actuary has relied on other experts to develop certain portions of the analysis, the reliance paragraph shall include a statement such as either (A) or (B) as follows:

       (A)   ‘‘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) and, as certified in the attached statement, . . . .’’

       (B)   ‘‘I have relied on personnel as cited in the supporting memorandum for certain critical aspects of the analysis in reference to the accompanying statement.’’

 Such a statement of reliance on other experts shall be accompanied by a statement by each expert in the form prescribed by subsection (e).

     (ii)   If the appointed actuary has examined the underlying asset and liability records, the reliance paragraph shall also include a statement such as follows:

     ‘‘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.’’

     (iii)   If the appointed actuary has not examined the underlying records, but has relied upon listings and summaries of policies in force or asset records prepared by the company or a third party, the reliance paragraph shall include a statement such as either clause (A) or clause (B) as follows:

       (A)   ‘‘I have relied upon listings and summaries (of policies and contracts, of asset records) prepared by (name and title of company officer certifying in-force records) as certified in the attached statement. In other respects my examination included such review of the actuarial assumptions and actuarial methods and such tests of the actuarial calculations as I considered necessary.’’

       (B)   ‘‘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 a statement of reliance shall be accompanied by a statement by each person relied upon in the form prescribed by subsection (e).

   (4)  The opinion paragraph shall include a statement such as follows:

   ‘‘In my opinion the reserves and related actuarial items identified above:

 Are computed in accordance with presently accepted actuarial standards consistently applied and are fairly stated, in accordance with sound actuarial principles;

 Are based on actuarial assumptions which produce reserves at least as great as those called for in any contract provision as to reserve basis and method, and are in accordance with all other contract provisions;

 Meet the requirements of the valuation law and regulations of the state of (state of domicile) and are at least as great as the minimum aggregate amounts required by the state in which this statement is filed.

 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;

 Include provision for all reserves and related actuarial items which ought to be established.

 The reserves and related actuarial items, when considered in light of the assets held by the company with respect to such reserves and related actuarial items including, but not limited to, the investment earnings on such assets, and the considerations anticipated to be received and retained under such policies and contracts, make adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the company.

 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 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 two immediately preceding 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.

 (c) Assumptions for new issues. The adoption for new issues or new claims or other new liabilities of an actuarial assumption which differs from a corresponding assumption used for prior new issues or new claims or other new liabilities is not a change in actuarial assumptions within the meaning of subsection (b)(4).

 (d)  Adverse opinions. If the appointed actuary is unable to form an opinion, the appointed actuary shall refuse to issue a statement of actuarial opinion. If the appointed actuary’s opinion is adverse or qualified, the appointed actuary shall issue an adverse or qualified actuarial opinion explicitly stating the reason for the opinion. This statement should follow the scope paragraph and precede the opinion paragraph.

 (e)  Reliance on data furnished by other persons. If the appointed actuary does not express an opinion as to the accuracy and completeness of the listings and summaries of policies in force or asset related information, or both, there shall be attached to the opinion the statement of a company officer or accounting firm who prepared the underlying data similar to either paragraph (1) or (2) or both paragraphs (1) and (2).

   (1)  ‘‘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, 19 (year), 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.

   (2) ‘‘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 related aspects of the opinion were prepared under my direction and, to the best of my knowledge and belief, are substantially accurate and complete.

 (a)  General.

   (1)  In accordance with section 301(f)(3) of the act (40 P. S. §  71(f)(3)), the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of the opinion regarding the reserves under a §  84b.8 (relating to statement of actuarial opinion based on asset adequacy analysis) opinion. The memorandum shall be made available for examination by the Commissioner upon the Commissioner’s request but will be returned to the company after examination and will not be considered a record of the Department or subject to automatic filing with the Commissioner.

   (2)  In preparing the memorandum, the appointed actuary may rely on, and include as a part of the memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of §  84b.5(b) (relating to general requirements), with respect to the areas covered in the memoranda, and so state in their memoranda.

   (3)  If the Commissioner requests a memorandum and no 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 chapter, the Commissioner may designate a qualified actuary to review the opinion and prepare supporting memorandum as is required for review. The reasonable and necessary expense of the independent review shall be paid by the company but will be directed and controlled by the Commissioner. The reviewing actuary shall have the same status as an examiner for purposes of obtaining data from the company. The work papers and documentation of the reviewing actuary shall be retained by the Commissioner. 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 will be kept confidential to the same extent as is prescribed by law with respect to other material provided by the company to the Commissioner under the act. The reviewing actuary may not be an employe of a consulting firm involved with the preparation of a prior memorandum or opinion for the insurer under this chapter for any one of the current year or the preceding 3 years.

 (b)  Details of the memorandum section documenting asset adequacy analysis. When an actuarial opinion under §  84b.8 is provided, the memorandum shall demonstrate that the analysis has been done in accordance with the standards for asset adequacy referred to in §  84b.5(d) and additional standards under this chapter. It shall specify:

   (1)  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.

   (2)  For assets:

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

     (ii)   Investment and disinvestment assumptions.

     (iii)   Source of asset data.

     (iv)   Asset valuation bases.

     (v)   Method of asset allocation.

   (3)  Analysis basis:

     (i)   Methodology.

     (ii)   Rationale for an inconsistency in the method of asset allocation used at the prior opinion date with that used for this opinion and the extent of the inconsistency.

     (iii)   Rationale for an inconsistency in the method of analysis used at the prior opinion date with that used for this opinion.

     (iv)   Rationale for inclusion/exclusion of different blocks of business and how pertinent risks were analyzed.

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

     (vi)   Criteria for determining asset adequacy.

     (vii)   Effect of Federal income taxes, reinsurance and other relevant factors.

   (4)  Summary of results.

   (5)  Conclusion.

 (c)  Conformity to standards of practice. The memorandum shall include a statement such as follows:

 ‘‘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.’’

 (a)  Aggregation

   (1)  For the asset adequacy analysis for the statement of actuarial opinion provided in accordance with §  84b.8 (relating to statement of actuarial opinion based on asset adequacy analysis), reserves and assets may be aggregated by one of the following methods:

     (i)   Aggregate the reserves and related actuarial items, and the supporting assets, for different products or lines of business, before analyzing the adequacy of the combined assets to mature the combined liabilities. The appointed actuary must be satisfied that the assets held in support of the reserves and related actuarial items so aggregated are managed so that the cash flows from the aggregated assets are available to help mature the liabilities from the blocks of business that have been aggregated.

     (ii)   Aggregate the results of asset adequacy analysis of one or more products or lines of business, the reserves for which prove through analysis to be redundant, with the results of one or more products or lines of business, the reserves for which prove through analysis to be deficient. The appointed actuary must be satisfied that the asset adequacy results for the various products or lines of business for which the results are so aggregated are one of the following:

       (A)   Developed using consistent economic scenarios.

       (B)   Subject to mutually independent risks, that is, the likelihood of events impacting the adequacy of the assets supporting the redundant reserves is completely unrelated to the likelihood of events impacting the adequacy of the assets supporting the deficient reserves.

   (2)  In the event of any aggregation, the actuary shall disclose in the opinion that such reserves were aggregated on the basis of the method described in paragraph (1)(i), (ii)(A) or (B), whichever is applicable, and describe the aggregation in the supporting memorandum.

 (b)  Selection of assets for analysis. The appointed actuary shall analyze only those assets held in support of the reserves which are the subject for specific analysis, referred to as ‘‘specified reserves.’’ A particular asset or portion thereof supporting a group of specified reserves cannot support another group of specified reserves. An asset may be allocated over several groups of specified reserves. The annual statement value of the assets held in support of the reserves may not exceed the annual statement value of the specified reserves, except as provided in subsection (c). If the method of asset allocation is not consistent from year to year, the inconsistency shall be disclosed in the opinion and the extent of its inconsistency and the rationale for the inconsistency shall be described in the supporting memorandum.

 (c)  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 an 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 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 supporting the IMR, AVR and other mandatory or voluntary reserves used in the analysis shall be disclosed in the table of reserves and liabilities of the opinion. The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.

 (d)  Required interest scenarios.

   (1)  For the purpose of performing the asset adequacy analysis required by this chapter, the qualified actuary shall follow standards adopted by the Actuarial Standards Board. The appointed actuary shall consider in the analysis the effect of the following interest rate scenarios.

     (i)   Level with no deviation.

     (ii)   Uniformly increasing over 10 years at 1/2% per year and then level.

     (iii)   Uniformly increasing at 1% per year over 5 years and then uniformly decreasing at 1% per year to the original level at the end of 10 years and then level.

     (iv)   An immediate increase of 3% and then level.

     (v)   Uniformly decreasing over 10 years at 1/2% per year and then level.

     (vi)   Uniformly decreasing at 1% per year over 5 years and then uniformly increasing at 1% per year to the original level at the end of 10 years and then level.

     (vii)   An immediate decrease of 3% and then level.

   (2)  For the scenarios in paragraph (1) and other scenarios which may be used, projected interest rates for a 5-year Treasury Note need not be reduced beyond the point where the 5-year Treasury Note yield would be at 50% of its initial level.

   (3)  The beginning interest rates may be based on interest rates for new investments as of the valuation date similar to recent investments allocated to support the product being tested or be based on an outside index, such as Treasury yields, of assets of the appropriate length on a date close to the valuation date. The method used to determine the beginning yield curve and associated interest rates shall be specifically defined. The beginning yield curve and associated interest rates shall be consistent for all interest rate scenarios.

 (e)  Documentation. 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.

 A company willfully making a false filing of an actuarial opinion or supporting memorandum with the Commissioner or failing to demonstrate a good faith effort to comply with this chapter or section 301(f) of the act (40 P. S. §  71(f)) may be subject to a civil penalty not to exceed $50,000, following notice and a hearing.