31A-17-515. Requirements of a principle-based valuation.
(1)
A company shall establish reserves using a principle-based valuation that meets the following conditions for a policy or contract as specified in the valuation manual:
Terms Used In Utah Code 31A-17-515
Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
board of directors: means the group of persons with responsibility over, or management of, a corporation, however designated. See Utah Code 31A-1-301
Company: means an entity that:
(i)
has written, issued, or reinsured a life insurance contract, accident and health insurance contract, or deposit-type contract in this state and has at least one such policy in force or on claim; or
(ii)
has written, issued, or reinsured a life insurance contract, accident and health insurance contract, or deposit-type contract in any state and is required to hold a certificate of authority to write life insurance, accident and health insurance, or deposit-type contracts in this state. See Utah Code 31A-17-501
Contract: A legal written agreement that becomes binding when signed.
Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
Oversight: Committee review of the activities of a Federal agency or program.
Principle-based valuation: means a reserve valuation that uses one or more methods or one or more assumptions determined by the insurer and is required to comply with Section 31A-17-515 as specified in the valuation manual. See Utah Code 31A-17-501
Process: means a writ or summons issued in the course of a judicial proceeding. See Utah Code 68-3-12.5
Tail risk: means a risk that occurs either when the frequency of low probability events is higher than expected under a normal probability distribution or when there are observed events of very significant size or magnitude. See Utah Code 31A-17-501
Valuation manual: means the manual of valuation instructions adopted in accordance with Section 31A-17-514. See Utah Code 31A-17-501
(a)
A company shall quantify the benefits and guarantees, and the funding, associated with the policy or contract and the policy’s or contract’s risks at a level of conservatism that reflects:
(i)
conditions that include unfavorable events that have a reasonable probability of occurring during the lifetime of the policies or contracts; and
(ii)
for polices or contracts with significant tail risk, conditions appropriately adverse to quantify the tail risk.
(b)
The company shall incorporate assumptions, risk analysis methods, and financial models and management techniques that are consistent with, but not necessarily identical to, those used within the company’s overall risk assessment process, while recognizing potential differences in financial reporting structures and any prescribed assumptions or methods.
(c)
The company shall incorporate assumptions that are derived in one of the following manners:
(i)
the assumption is prescribed in the valuation manual; and
(ii)
for assumptions that are not prescribed, the assumptions shall:
(A)
be established using 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 using other relevant, statistically credible experience.
(d)
The company shall provide margins for uncertainty including adverse deviation and estimation error, such that the greater the uncertainty the larger the margin and resulting reserve.
(2)
A company using a principle-based valuation for one 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 board of directors an annual certification of the effectiveness of the internal controls with respect to the principle-based valuation:
(i)
which controls shall be designed to assure that all material risks inherent in the liabilities and associated assets subject to such valuation are included in the valuation, and that valuations are made in accordance with the valuation manual; and
(ii)
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.
(3)
A principle-based valuation may include a prescribed formulaic reserve component.
