Nebraska Department of Insurance

The Nebraska Department reviews all Actuarial Opinions filed with the Department on behalf of domestic insurers pursuant to Chapter 69, "Actuarial Opinion and Memorandum", of Nebraska Insurance Regulations. The Department considers Actuarial Opinions filed under Chapter 69 to be an important element in our assessment of the financial solvency of domestic insurers. To that end, the Department places a great deal of reliance upon the opinion of the Appointed Actuary. The opinion should affirm, at a minimum, that the requirements of both Chapter 69 and the Actuarial Standards of Practice (ASOPs) have been followed.

For the most part, opinions filed in the past have met the requirements of Chapter 69 and ASOPs. However, in some cases, certain items in the opinion were incomplete and/or were in need of additional clarification. The purpose of this bulletin is to share with domestic insurers specific items that need attention in future opinions. These items are as follows:

• Change in the identity or status of an Appointed Actuary by a domestic insurer. This is important information that should be provided to the Department. Opinions have often failed to indicate that the Director has been notified of the actuarial appointment or of the date such notification was made, as required by Chapter 69. In particular, Sections 007.02(A) and 008.02(A) indicate that language concerning the Appointed Actuary's qualifications and relationship to the insurer should be provided to the Department. The regulation even recommends specific language, although the choice of phraseology is discretionary. In addition, while not explicitly addressed in Chapter 69, the Department also expects to receive notice of any change in the identity of the Appointed Actuary and the date and reason for any such change.
  
  
• Supporting Memorandum. With regard to opinions filed under Section 008, the regulation recommends language that the "opinion conform(s) to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board." (Section 008.02(F)(5)). Some opinions received by the Department have failed to affirm the existence of such supporting memorandum and have even omitted the fact that the memorandum served as the basis for the opinion. Actuarial Standards of Practice No. 22 states, "The opinion must include a statement on reserve adequacy based upon asset adequacy analysis, the details of which are contained in the supporting memorandum to the company." It is the Department's position that the existence of such a memorandum should be affirmed in the opinion. In addition, the Department may actually select some memoranda for review each year as a means of assisting in our financial analysis.
  
  
• Category C Insurers. In general, Category C insurers need to file a Section 008 opinion only once every three years provided, however, that certain requirements are met. Moreover, while not a requirement of Chapter 69, the Department requests that if a Category C insurer is filing under Section 007, the insurer identify the date of its last filing under Section 008 as part of the qualification for the current year's filing as a Section 007 opinion.
  
  
• Ratio Calculation for Section 007 Opinions. To qualify to file an opinion under Section 007, an insurer must meet the requirements of Section 006. The requirements of Section 006 include groupings based upon assets and limitations with certain ratios that vary by company size. In reviewing the filings under Section 007, it is our observation that a significant variation in the values has been used to calculate the ratios. Thus, as guidance on this point, it is the Department's position that values used to calculate the ratios be obtained directly from the Annual Statement whenever possible. This would still be consistent with the objectives of the Section 006 exemption. An explanation and rationale for any deviations should be included in the opinion. In general, amounts held in a separate account should be excluded in the calculations. However, if guaranteed values are funded by assets held in a separate account, then appropriate adjustments should be made in the ratios. Unless circumstances unique to the insurer warrant otherwise, the Department suggests that the following references, (based upon the 1999 convention blank), be used as a guide in the calculation of the Section 006 ratios:
  
  
  • Capital and Surplus -- Line 38, page 3
  • Cash and Invested Assets -- Line 11, page 2
  • Sum of Reserves and Liabilities for Annuities and Deposits as
    • Including Exhibit 8 deferred annuities net of reinsurance
    • Including Exhibit 10 liabilities
    • Including other Deposit type funds reported elsewhere
    • Excluding Exhibit 8 immediate annuities
    • Excluding Exhibit 8 settlement options with life contingencies
  • Total Admitted Assets -- Line 23, Page 2
  • Book Value of Non-investment Grade Bonds - Based upon Schedule D Part 1A, all bonds in Class 3 and above.

The Department sincerely appreciates your efforts on the quality of the opinions filed as well as your continued assistance in our financial review. If you have any comments or concerns in reference to the Actuarial Opinion or memorandum, please contact the Chief Examiner.

L. Tim Wagner

DIRECTOR OF INSURANCE