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  #11  
Old 09-15-2017, 07:05 PM
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Agreed.



May I ask where you're reading this from?
The actuarial memo filed when the product was approved is still in effect unless the state regulators approve a different version. Companies are allowed to use more conservative reserves, but not vice versa.
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  #12  
Old 09-18-2017, 10:09 AM
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May I ask where you're reading this from?
I can't put my finger on it without a little research, but here is what I know from memory. Prior to AOMR adoption (circa 1990), some states let you change basis at will. The reserve certification which has evolved into the Actuarial Opinion mentions that reserves are computed consistently with last year. Exhibit 5 has a change in basis section (Exh 5A). Doesn't point directly to the need for approval, but look at AOMR to see if it is in there.
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The actuarial memo filed when the product was approved is still in effect unless the state regulators approve a different version. Companies are allowed to use more conservative reserves, but not vice versa.
Some actuaries (including me) don't hold the filing memorandum to be binding. What matters is how you compute the reserves the first time you file an annual statement with the product having inventory. If you had told my former Appointed Actuary you had to do it this way because a product actuary said so, he would have stared at you as if you were speaking gibberish.
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Old 09-18-2017, 07:14 PM
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Cool Reserve basis <> Filing requirements

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The actuarial memo filed when the product was approved is still in effect unless the state regulators approve a different version. Companies are allowed to use more conservative reserves, but not vice versa.
The nonforfeiture basis in a filed form is generally permitted to be changed without filing when the maximum interest rate changes. This element of flexibility was included in the 1980 amendments when dynamic interest rates were introduced. Most states don't require a filing to make the change unless it affects other form provisions.

When 2001 CSO amendments were in the process of being adopted by the states, there was a period of time before they became effective. Company actuaries filing during that time would outline 2001 CSO reserve methods in their memos, even though that basis might not yet be permitted by law in some states. Some other actuaries would show 1980 CSO as well as 2001 CSO, just to cover the bases (pun intended) .

When a new form is approved, the approving state generally does not know when (or if) the new form will be issued. Minimum statutory reserve bases are dependent upon the issue date. State approvals are virtually all unlimited (i.e., the approval does not "expire"), so any statutory reserve basis filed with the form is at best tentative, because there is usually no requirement that a company refile years later due to changes in the nonforfeiture or reserve bases.

Some state form filing laws require the actuary to state the reserve basis in the memorandum accompanying the form. When objecting to a form filing, states will sometimes ask about the statutory reserves, even when it isn't in filing requirements. This can be helpful if the actuary has made a mistake, but is not usually a disapproval reason.

The minimum reserve basis could change before the product is ever issued. So it seems generally inappropriate for a state to base disapproval (or approval) solely on an accompanying actuarial statement of reserves. It is likewise usually unwise for companies to state the reserve basis in the policy form, because such forms must be revised and refiled whenever required reserve bases change.
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  #14  
Old 09-18-2017, 07:57 PM
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And this is why no one should rely on my advice for any purpose other than entertainment.
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Old 09-19-2017, 02:20 PM
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For many reasons, it is virtually never a good idea to state the reserve basis in the form. For example, if the legal reserve requirement changes, such a form must generally be refiled for approval, which might delay sales until an approved form can be issued. Unless a reserve demo is required by the state, it is also generally wise not to specify the reserve basis in the actuarial memo, and when required, it's better to keep the reserve discussion in general terms as much as possible.

The statutory reserve basis must follow the law when a contract is issued, whether or not a different basis was discussed as part of the original filing. But the financial reporting actuary does need to know what the filing includes regarding nonforfeiture and reserves in the form as well as the actuarial memo. Coordination between filing and financial areas will become even more critical as PBR becomes effective.
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Old 09-19-2017, 07:32 PM
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Some states will push for specific reserve requirements as part of a filing, sometimes even though it's not in their official filing requirements. It is wise to consider these, especially if the regulator seems intent on disapproval, and sometimes the state's comments can be very helpful in avoiding difficulties. But don't generally be overly concerned if the ultimate actual reserves held don't follow the filing memo, as annual statements and financial exams are more appropriate venues for reserve issues.
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  #17  
Old 10-05-2017, 06:41 AM
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You also need regulatory permission to weaken reserves. Increasing the val rate would typically lower the reserves.

IIRC, the amount of the weakening does not contribute to stat earnings but to surplus, so you can't dividend it up to parent.
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Originally Posted by Swoleslaw View Post
May I ask where you're reading this from?
Reading through the Standard Valuation Law for the L&H Qualifications Seminar reminded me about this issue - found the specific reference in the SVL, Section 7, subsection C.

Quote:
A company, which adopts at any time a standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard provided under this Act, may adopt a lower standard of valuation with the approval of the commissioner, but not lower than the minimum provided herein; provided that, for the purposes of this section, the holding of additional reserves previously determined by the appointed actuary to be necessary to render the opinion required by Section 3 shall not be deemed to be the adoption of a higher standard of valuation.
So yes, you'll need regulatory approval, and the onus is on you to demonstrate/attest that the additional level of reserves was excessive/unnecessary in order for you to release those reserves and use the minimum reserve (or maximum valuation interest rate)j.
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