Administrative Rules of the State of Montana

BEFORE THE STATE AUDITOR AND COMMISSIONER OF INSURANCE

OF THE STATE OF MONTANA

In the matter of the amendment of ARM 6.6.6501, 6.6.6502, 6.6.6503, 6.6.6504, 6.6.6505, 6.6.6508, and 6.6.6509, pertaining to Actuarial Opinions

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NOTICE OF PUBLIC HEARING ON PROPOSED AMENDMENT

TO: All Concerned Persons

1. On November 16, 2011, at 10:30 a.m., the Office of the Commissioner of Securities and Insurance, Montana State Auditor, Monica J. Lindeen, will hold a public hearing in the 2nd floor conference room, at the Office of the Commissioner of Securities and Insurance, Montana State Auditor, 840 Helena Ave., Helena, Montana, to consider the proposed amendment of the above-stated rules.

2. The Office of the Commissioner of Securities and Insurance, Montana State Auditor will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing, or need an alternative accessible format of this notice. If you require an accommodation, contact the department no later than 5:00 p.m., November 10, 2011, to advise us of the nature of the accommodation that you need. Please contact Darla Sautter, Office of the Commissioner of Securities and Insurance, Montana State Auditor, 840 Helena Avenue, Helena, Montana, 59601; telephone (406) 444-2726; TDD (406) 444-3246; fax (406) 444-3499; or e-mail [email protected].

3. The rules as proposed to be amended provide as follows, stricken matter interlined, new matter underlined:

6.6.6501 PURPOSE (1) remains the same.

AUTH: 33-1-313, 33-2-521, MCA

IMP: 33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, 33-7-118, 33-7-411, MCA

6.6.6502 AUTHORITY (1) remains the same.

AUTH: 33-1-313, 33-2-521, MCA

IMP: 33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, 33-7-118, 33-7-411, MCA

6.6.6503 SCOPE (1) through (3) remain the same.

AUTH: 33-1-313, 33-2-521, MCA

IMP: 33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, 33-7-118, 33-7-411, MCA

6.6.6504 DEFINITIONS (1) through (8) remain the same.

AUTH: 33-1-313, 33-2-521, MCA

IMP: 33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, 33-7-118, 33-7-411, MCA

6.6.6505 GENERAL REQUIREMENTS (1) through (5) remain the same.

AUTH: 33-1-313, 33-2-521, MCA

IMP: 33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, 33-7-118, 33-7-411, MCA

6.6.6508 STATEMENT OF ACTUARIAL OPINION BASED ON AN ASSET ADEQUACY ANALYSIS (1) through (2)(a)(i) remain the same.

(ii) For a consulting actuary, the opening paragraph should contain a sentence such as: "I, [name], a member of the American Academy of Actuaries, am associated with the firm of [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 the letter to the Commissioner dated [insert date]. I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and disability insurance companies."

The scope paragraph should include a statement such as the following: "I have examined the actuarial assumptions and actuarial methods used in determining reserves and related actuarial items listed below, as shown in the annual statement of the company, as prepared for filing with state regulatory officials, as of December 31, [year]. Tabulated below are those reserves and related actuarial items which have been subjected to asset adequacy analysis."

(b) remains the same.

(c) If the appointed actuary has relied on other experts to develop certain portions of the analysis, the reliance paragraph should include a statement such as the following: "I have relied on [name], [title] for [e.g., "anticipated cash flows from currently owned assets, including variations in cash flows according to economic scenarios" or "certain critical aspects of the analysis performed in conjunction with forming my opinion"], as certified in the attached statement. "I have reviewed the information relied upon for reasonableness." A statement of reliance on other experts should be accompanied by a statement by each of the experts in the form prescribed by ARM 6.6.6508(5).

(d) through (3) remain the same.

(4) If the appointed actuary is unable to form an opinion, then he or she shall refuse to issue a statement of actuarial opinion. If the ~~appointee~~ appointed actuary's opinion is adverse or qualified, then 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.

(5) remains the same.

(6) ~~The Standard Valuation Law gives~~ Under 33-2-521, MCA, the commissioner has broad authority to accept the valuation of a foreign insurer when that valuation meets the requirements applicable to a company domiciled in this state in the aggregate. As an alternative to the requirements of (2)(f)(iii), the commissioner may make one or more of the following additional approaches available to the opining actuary:

(a) remains the same.

(b) a statement that the reserves "meet the requirements of the insurance laws and regulations of the state of [state of domicile] and I have verified that the company's request to file an opinion based on the law of ~~the~~ [state of domicile] has been approved and that any conditions required by the commissioner for approval of that request have been met." If the commissioner chooses to allow this alternative, a formal written statement of such allowance shall be issued no later than March 31 of the year it is first effective. It shall remain valid until rescinded or modified by the commissioner. The rescission or modifications shall be issued no later than March 31 of the year they are first effective. Subsequent to that statement being issued, if a company chooses to use this alternative, the company shall file a request to do so, along with justification for its use, no later than April 30 of the year of the opinion to be filed. The request shall be deemed approved on October 1 of that year if the commissioner has not denied the request by that date.

(d) Notwithstanding the above, the commissioner may reject an opinion based on the laws and regulations of the [state of domicile] and require an opinion based on the laws of Montana. If a company is unable to provide the opinion within 60 days of the request or such other period of time as determined by the commissioner after consultation with the company, the commissioner may contract an independent actuary at the company's expense to prepare and file the opinion.

AUTH: 33-1-313, 33-2-521, MCA

IMP: 33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, 33-7-118, 33-7-411, MCA

6.6.6509 DESCRIPTION OF ACTUARIAL MEMORANDUM INCLUDING AN ASSET ADEQUACY ANALYSIS AND REGULATORY ASSET ADEQUACY ISSUES SUMMARY (1) through (2)(c)(v) remain the same.

(d) summary of material changes in methods, procedures, or assumptions from the prior year's asset adequacy analysis;

(e) through (3)(c) remain the same.

(d) comments on any interim results that may be of significant concern to the appointed actuary, for example, the impact of the insufficiency of assets to support:

(i) the payment of benefits and expenses; or

(ii) the establishment of statutory reserves during one or more interim periods;

(e) through (7) remain the same.

AUTH: 33-1-313, 33-2-521, MCA

IMP: 33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-532, 33-2-533, 33-2-534, 33-2-535, 33-2-537, 33-7-118, 33-7-411, MCA

4. REASONABLE NECESSITY STATEMENT: The Commissioner of Securities and Insurance, Montana State Auditor, Monica J. Lindeen (commissioner), is the statewide elected official responsible for administering the Montana Insurance Department and regulating insurers. The commissioner is a member of the National Association of Insurance Commissioners (NAIC). The NAIC is an organization of insurance regulators from the 50 states, the District of Columbia, and the U.S. territories. The NAIC provides a forum for the development of uniform policy and regulation when uniformity is appropriate.

Insurer solvency is a principal area in which uniformity is efficient and effective for insurers and regulators. Through development of model laws and rules, the NAIC promotes the standard valuation of liability reserves (reserves) held by life insurers and fraternal benefit societies. In this regard, the NAIC has promulgated model rules about actuarial opinions and supporting memorandums pertaining to reserves held by life insurers and fraternal benefit societies. Actuarial opinions regarding the adequacy of reserves, and thereby measuring solvency, are required to be submitted to the commissioner annually by life insurers and fraternal benefit societies.

The existing rules at ARM 6.6.6501 through 6.6.6510 are based on the NAIC's Actuarial Opinion and Memorandum Regulation model (2001). The commissioner is proposing to amend the existing rules for consistency with the current NAIC model (2009). Additionally, the commissioner is proposing amendments to make corrections to the existing rules.

With regard to the history section for each rule, the commissioner is proposing to add references to 33-7-118 and 33-7-411, MCA, pertaining to fraternal benefit societies, to the list of statutes implemented. The commissioner is also proposing to add a reference to 33-1-313, MCA, regarding rulemaking authority. The current rules and the NAIC model rules indicate applicability to fraternal benefit societies and MCA 33-7-118 and 33-7-411 provide that fraternal benefit societies must submit actuarial opinions regarding the adequacy of reserves; however, these statutes are not referenced in the list of statutes implemented. Additionally, while 33-2-521, MCA, grants the commissioner rulemaking authority regarding actuarial opinions pertaining to the adequacy of reserves held by life insurers, there is not a similar statute in Title 33, chapter 7, regarding the actuarial opinions pertaining to the adequacy of reserves held by fraternal benefit societies. Therefore, the commissioner will rely on the grant of rulemaking authority in 33-1-313, MCA, in regard to fraternal benefit societies. These amendments are necessary for consistency with the NAIC model rule and to correct the omissions from the history section of the rules.

The commissioner is proposing to amend ARM 6.6.6508(2)(a)(ii) to remove language that is duplicative of ARM 6.6.6508(2)(b). This amendment is necessary for consistency with the NAIC model rule and to correct duplicate language in the current rules.

The proposed amendment to ARM 6.6.6508(2)(c) would correct an unmatched quotation mark. This amendment is necessary to correct the existing rule and is consistent with the NAIC model rule.

The proposed amendment to ARM 6.6.6508(4) would change "appointee actuary's opinion" to "appointed actuary's opinion." This amendment is necessary to correct a typographical error in the current rule and for consistency with the NAIC model rule.

The commissioner is proposing to amend ARM 6.6.6508(6) to change the reference from "The Standard Valuation Law" to the specific statute in the Montana Insurance Code and make grammatical changes. The applicable standard valuation statute is 33-2-521, MCA. These amendments are necessary to reference the specific statute and are consistent with the NAIC model rule.

The proposed amendment to ARM 6.6.6508(6)(b) would remove the word "the" in the third line to correct the phrase to read "based on the law of [state of domicile]." This amendment is necessary to correct the existing rule and is consistent with the NAIC model rule.

The proposed amendment to ARM 6.6.6508(6)(d) would remove the parentheses around the phrase "state of domicile" and make grammatical changes. These amendments are necessary to correct the existing rule and are consistent with the NAIC model rule.

The commissioner is proposing to amend ARM 6.6.6509 to add the phrase "and regulatory asset adequacy issues summary" to the title. This amendment is necessary to include additional information in the title and is consistent with the NAIC model rule.

The proposed amendment to ARM 6.6.6509(2)(d) would change the phrase "from prior years asset adequacy analysis" to "from the prior year's asset adequacy analysis." The summary of material changes is intended to be required for the prior year, not all prior years. This amendment is necessary to correct the existing rule and is consistent with the NAIC model rule.

The commissioner is proposing to amend ARM 6.6.6509(3)(d) to include examples of interim results that may be of significant concern to the appointed actuary; specifically, the insufficiency of assets to support the payment of benefits and expenses or to support the establishment of statutory reserves during one or more interim periods. The addition of these examples provides necessary guidance to the appointed actuary preparing the asset adequacy analysis and is consistent with the NAIC model rule.

5. Concerned persons may submit their data, views, or arguments concerning the proposed actions either in writing or orally at the hearing. Written data, views, or arguments may also be submitted to Jennifer L. Massman, Staff Attorney, Office of the Commissioner of Securities and Insurance, Montana State Auditor, 840 Helena Ave., Helena, Montana, 59601; telephone (406) 444-2040; fax (406) 444-3499; or e-mail [email protected], and must be received no later than 5:00 p.m., November 25, 2011.

6. Jennifer L. Massman, Staff Attorney, has been designated to preside over and conduct this hearing.

7. The department maintains a list of concerned persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name and mailing address of the person to receive notices and specifies for which program the person wishes to receive notices. Such written request may be mailed or delivered to Darla Sautter, Office of the Commissioner of Securities and Insurance, Montana State Auditor, 840 Helena Ave., Helena, Montana, 59601; telephone (406) 444-2726; fax (406) 444-3499; or e-mail [email protected] or may be made by completing a request form at any rules hearing held by the department.

8. An electronic copy of this proposal notice is available through the Secretary of State's web site at http://sos.mt.gov/ARM/Register. The Secretary of State strives to make the electronic copy of the notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. In addition, although the Secretary of State works to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

9. Pursuant to 2-4-302, MCA, the bill sponsor contact requirements do not apply.

/s/ Brett O'Neil /s/ Jesse Laslovich

Brett O'Neil Jesse Laslovich

Rule Reviewer Chief Legal Counsel

Certified to the Secretary of State October 17, 2011.