Froogle | ASOP 2 | Section 3.2

ASOP 2 | §3.2 | PROVIDING ADVICE ON THE ACTUARIAL ASPECTS OF THE DETERMINATION POLICY

The actuary may provide advice on

1) developing or modifying the determination policy, or

2) applying the determination policy.

When providing advice on the actuarial aspects of the determination policy, the actuary should provide advice consistent with the following:

a. NGE scales are determined with the expectation that they will be revised only if anticipated experience factors have changed since issue, or alternatively, since the previous revision.

b. NGE scales are determined based on reasonable expectations of future experience and are not determined with the objective of recouping past losses or distributing past gains.

3.2.1 Providing Advice on Developing or Modifying the Determination Policy

When advising an insurer on developing or modifying its determination policy, the actuary should take into account the following, if applicable:

a. the policy provisions and applicable law;

b. how anticipated experience factors reflect expectations of future experience;

c. how the variability and credibility of each anticipated experience factor may impact the determination of the NGE scales;

d. the insurer’s reserve, profitability, capital, surplus, and marketing objectives;

e. reinsurance and taxes; and

f. periodic review of NGEs in in-force policies, such as the maximum time period between successive insurer reviews of NGEs.

The actuary may take into account other items relevant to the determination policy.

The actuary should document the sources of the determination policy used in developing the advice and how (a)–(f) above and any additional relevant items were taken into account. For example, portions of the determination policy may be found in the insurer’s governance processes, corporate policies, or operating practices.

3.2.2 Providing Advice on Applying the Determination Policy

When advising on applying the determination policy for determining initial NGE scales, evaluating whether to revise existing NGE scales, or revising existing NGE scales, the actuary should take into account the following, if applicable:

a. the need to make additional assumptions about how the determination policy applies to the assignment;

b. guaranteed elements, policy holder options including the likelihood of antiselection, and other relevant provisions of the policy;

c. impacts on or from reserve, profitability, capital, surplus, and marketing objectives, or changes in such objectives;

d. impact on or from reinsurance and taxation;

e. applicable law (including, for example, for variable products, any constraints or other requirements imposed by applicable securities law); and

f. resources available.

If, in the actuary’s professional judgment, the actuary believes that the determination policy may be inconsistent with the guidance in sections 3.2 and 3.2.1, the actuary should recommend that the determination policy be revised.

ASOP 2 | Commentary Section 3.2 | COMMENT ON SECTION 3.2

Section 3.2, Providing Advice on the Actuarial Aspects of the Determination Policy
Comment	Response
One commentator suggested combining sections 3.2 and 3.4.	The reviewers believe the guidance is appropriate and made no change.

Section 3.2(a)
Comment	Response
Several commentators suggested deleting or modifying sections 3.2(a), 3.4.1(c), and 3.4.2.4 because the language is too prescriptive and best left to regulation.	The reviewers believe the guidance is appropriate and made no change in response to these comments.

Section 3.2(b)
Comment	Response
Several commentators expressed concern about the phrase “recouping past losses or distributing past gains” being too prescriptive or ambiguous and suggested either deleting that language or inserting “if required by statute or regulation” as a condition.	The reviewers disagree but added clarifying language to section 3.4.2.5 to address this comment.
One commentator suggested adding back the guidance from the first exposure draft regarding prospective pattern of profits by duration in sections 3.2(b), 3.4.1(g), and 3.4.2.4(c).	The reviewers believe the guidance is appropriate and therefore made no change.

Section 3.2.1, Providing Advice on Developing or Modifying the Determination Policy
Comment	Response
One commentator suggested replacing the list (a)-(f) with a reference to section 3.1.	The reviewers clarified the language in section 3.1 and the definition of NGE framework in section 2.5, but made no change to this section in response to this comment.

Section 3.2.2, Providing Advice on Applying the Determination Policy
Comment	Response
One commentator suggested combining this section with section 3.2.1.	The reviewers disagree and made no change.

Section 3.2.2(b)
Comment	Response
One commentator suggested coordinating the reference to options with language in ASOP No. 7, Analysis of Life, Health, or Property/Casualty Insurer Cash Flows, on materiality, likelihood of antiselection, and impact on profitability metrics (“cash flows”).	The reviewers added clarifying language to section 3.2.2(b).

Section 3.2.2(d)
Comment	Response
One commentator stated that the reference to reinsurance may be misconstrued as a requirement for post-reinsurance pricing.	The reviewers disagree and made no change.

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