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Arkansas Code Title 23. Public Utilities and Regulated Industries § 23-84-116. Requirements of principle-based valuation

Current as of March 28, 2024 | Updated by Findlaw Staff

(a) A company shall establish reserves for a policy or contract using a principle-based valuation as specified in the valuation manual that:

(1)(A) Quantifies the benefits and guarantees and the funding associated with the policy or contract and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring during the lifetime of the policy or contract.

(B) For a policy or contract with significant tail risk, the principle-based valuation shall reflect conditions appropriately adverse to quantify the tail risk;

(2) Incorporates assumptions, risk analysis methods, financial models, and management techniques that are consistent with, but not necessarily identical to, those utilized within the company's overall risk assessment process, while recognizing potential differences in financial reporting structures and any prescribed assumptions or methods;

(3) Incorporates assumptions that are:

(A) Prescribed by the valuation manual; or

(B) For assumptions that are not prescribed by the valuation manual:

(i) Established utilizing the company's available experience to the extent it is relevant and statistically credible; and

(ii) To the extent that company data is not available, relevant, or statistically credible, established utilizing other relevant, statistically credible experience; and

(4) Provides margins for uncertainty, including adverse deviation and estimation error, such that the greater the uncertainty, the larger the margin and resulting reserve.

(b) A company using a principle-based valuation for one (1) or more policies or contracts subject to this section as specified in the valuation manual shall:

(1) Establish procedures for corporate governance and oversight of the actuarial valuation function consistent with those described in the valuation manual;

(2)(A) Provide to the Insurance Commissioner and its board of directors an annual certification of the effectiveness of the internal controls with respect to the principle-based valuation.

(B) The controls shall be designed to assure that all material risks inherent in the liabilities and associated assets subject to the principle-based valuation are included in the valuation and that valuations are made in accordance with the valuation manual.

(C) The annual certification shall be based on the controls in place as of the end of the preceding calendar year; and

(3) Develop and file with the commissioner upon request a principle-based valuation report that complies with the standards prescribed in the valuation manual.

(c) A principle-based valuation may include a prescribed formulaic reserve component.

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Cite this article: FindLaw.com - Arkansas Code Title 23. Public Utilities and Regulated Industries § 23-84-116. Requirements of principle-based valuation - last updated March 28, 2024 | https://codes.findlaw.com/ar/title-23-public-utilities-and-regulated-industries/ar-code-sect-23-84-116/

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