Section 1408.60  Statement of Actuarial Opinion Not Including an Asset Adequacy Analysis

a)         General Description

The statement of actuarial opinion required by this Section shall consist of:

1)         A paragraph identifying the appointed actuary and his or her qualifications;

2)         A regulatory authority paragraph stating that the company is exempt pursuant to Section 1408.50 of this Part 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; and

4)         An opinion paragraph expressing the appointed actuary's opinion  as required by Section 223(1a) of the Code.

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.  Although language may be modified as needed to meet the circumstances of a particular case, and the appointed actuary should use language which clearly expresses his or her professional judgment, the opinion shall retain all pertinent aspects of the language provided in this Section.

1)         The opening paragraph should indicate the appointed actuary's relationship to the company.

A)        For a company actuary, the opening paragraph of the actuarial opinion should read:  "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 a letter to the Director dated [insert date].  I meet the Academy qualification standards for rendering this opinion and am familiar with the valuation requirements applicable to life and health companies."

B)        For a consulting actuary, the opening paragraph of the actuarial opinion should read:   "I, [name of actuary], a member of the American Academy of Actuaries, am associated with the firm of [insert 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 a letter to the Director dated [insert date].  I meet the Academy qualification standards for rendering this opinion and am familiar with the valuation requirements applicable to life and health insurance companies."

2)         The regulatory authority paragraph should include a statement such as the following:  "Said company is exempt, pursuant to 50 Ill. Adm. Code 1408.40 of the Illinois Department of Insurance rules 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 1408.60 of the Part."

3)         The scope paragraph should contain a sentence such as the following:  "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, [    ]." This paragraph should also list items and amounts with respect to which the appointed actuary is expressing an opinion.  The list should include but not be necessarily limited to:

A)        Aggregate reserve and deposit funds for policies and contracts included in Exhibit 8 of the annual statement;

B)        Aggregate reserve and deposit funds 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; and

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

4)         If the appointed actuary has examined the underlying records, the scope paragraph should also include a statement which reads:  "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."

5)         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, the scope paragraph should include a sentence such as one of the following:

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.  (See accompanying affidavit by a company officer.) 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."

6)         The opinion paragraph should include a statement which reads:  "In my opinion the amounts carried in the balance sheet on account of the actuarial items identified above:

A)        Are computed in accordance with those presently accepted actuarial standards which specifically relate to the opinion required under this Section;

B)        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;

C)        Meet the requirements of the Insurance 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;

D)        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;

E)         Include provision for all actuarial reserves and related statement items which ought to be established; and

F)         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."

7)         The concluding paragraph should document the eligibility for the company to submit an opinion as provided by this Section.  It shall include the following:

A)        "This opinion is provided in accordance with 50 Ill. Adm. Code 1408.60.  As such it does not include an opinion regarding the adequacy of reserves and related actuarial items when considered in light of the assets which support them.

B)        Eligibility is confirmed as follows:

i)          The ratio of the sum of capital and surplus to the sum of cash and invested assets is [insert amount], which equals or exceeds the applicable criterion based on the admitted assets of the company (50 Ill. Adm. Code).

ii)         The ratio of the sum of the reserves and liabilities for annuities and deposits to the excess of the total admitted assets is [insert amount], which is less than the applicable criteria based on the admitted assets of the company (Section 1408.50).

iii)         The ratio of the book value of the non-investment grade bonds to the sum of capital and surplus is [insert amount], which is less than the applicable criteria of .50.

iv)        To my knowledge, the NAIC Examiner Team has neither designated the company as a first priority company in either of the two (2) calendar years preceding the calendar year for which this actuarial opinion is applicable, nor a second priority company in each of the two (2) calendar years preceding the calendar year for which this actuarial opinion is applicable or the company has resolved the first or second priority status to the satisfaction of the Director of the state of domicile.

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

8)         If there has been any change in the actuarial assumptions from those previously employed, that change should be described in the annual statement or in a paragraph of the statement of actuarial opinion, and the reference to consistency in subsection (b)(6)(D) above to consistency should read:  ". . . with the exception of the change described in Page [  ] of the annual statement (or in the preceding paragraph)."  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 this subsection.

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

10)         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 such 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, [    ], 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.