Vermont Statutes Title 8 Sec. 3791o
Terms Used In Vermont Statutes Title 8 Sec. 3791o
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Company: means an entity that:
- following: when used by way of reference to a section of the law shall mean the next preceding or following section. See
- 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 3791o of this subchapter as specified in the Valuation Manual. See
- Tail risk: means a risk that occurs either where the frequency of low probability events is higher than expected under a normal probability distribution or where there are observed events of very significant size or magnitude. See
- Valuation Manual: means the manual of valuation instructions adopted by the NAIC as specified in this subchapter or as subsequently amended. See
§ 3791o. Requirements of a principle-based valuation
(a) A company must establish reserves using a principle-based valuation that meets the following conditions for policies or contracts as specified in the Valuation Manual:
(1) Quantify the benefits and guarantees, and the funding, associated with the contracts 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 contracts. For policies or contracts with significant tail risk, reflects conditions appropriately adverse to quantify the tail risk.
(2) 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.
(3) Incorporate assumptions that are derived in one of the following manners:
(A) The assumption is prescribed in the Valuation Manual.
(B) For assumptions that are not prescribed, the assumptions shall:
(i) be established using the company’s available experience, to the extent it is relevant and statistically credible; or
(ii) to the extent that company data is not available, relevant, or statistically credible, be established using other relevant, statistically credible experience.
(4) Provide 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 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) Provide to the Commissioner and its Board of Directors an annual certification of the effectiveness of the internal controls with respect to the principle-based valuation. Such controls shall be designed to ensure 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. The certification shall be based on the controls in place as of the end of the preceding calendar year.
(3) Develop and file with the Commissioner, upon request, a principle-based valuation report that complies with standards prescribed in the Valuation Manual.
(c) A principle-based valuation may include a prescribed formulaic reserve component. (Added 2015, No. 63, § 1, eff. June 17, 2015.)