3.7.1 Actuarial Assumptions
In selecting actuarial assumptions for mortality, morbidity, withdrawal, and occupancy rates, the actuary should reflect each of the following as appropriate:b. health characteristics;
c. permanent transfer and temporary transfer patterns;
d. level of care status and expected differences in experience between contractual residents or members in different levels of care;
e. time elapsed since the last change in the level of care;
f. single or joint contracts;
g. demographic profile and number of new contractual residents or members;
h. time elapsed since the contractual resident or member entered the CCRC or At Home Program;
i. actual experience of the CCRC or At Home Program, and the credibility of the experience;
j. contractual guarantees, such as health care guarantees and refund guarantees; and
k. operational policies and practices of the organization, such as transfer policies.
3.7.2 Trend Assumptions for Fees and Expenses
The actuary should set trend assumptions for periodic fees, advance fees, additional fees, and other revenue items. The actuary should also set trend assumptions for operating expenses, capital expenditures, and other expense items. The actuary may use different trend assumptions, as appropriate, for various categories of revenues and expenses. In setting trend assumptions for periodic fees, the actuary should also take into account practical, competitive, and contractual considerations.The actuary should select assumptions for future trends in periodic fees that are consistent with the trend assumptions that are used in projecting future expenses. If the actuary uses different trend assumptions for periodic fees and operating expenses, the actuary should disclose this difference.
3.7.3 Investment Rate and Discount Rate Assumptions
The actuary should select investment rate and discount rate assumptions that are individually reasonable, mutually consistent, and reflective of the long-term nature of the residency agreement or membership agreement as follows:b. a discount rate to estimate actuarial present values that, in the actuary’s professional judgment, is reasonable and appropriate, and is consistent with the investment rate.
3.7.4 Revenue and Expense Allocation Assumptions
The actuary should assume an allocation of general revenues and expenses to the various levels of care, and to current and new contractual residents or members. The actuary should determine whether the sum of all allocated expenses reconciles to the total projected expenses of the CCRC or At Home Program.3.7.5 Going-Concern Assumption
The actuarial balance sheet, the cohort pricing analysis, and the cash flow projection rely on assumptions predicated on the ongoing financial viability and continuation of the CCRC or At Home Program. This implies that the organization will be able to maintain appropriate occupancy rates or membership levels by attracting new contractual residents or members to replace existing contractual residents or members. The actuary should assess the ability of the organization to attract new contractual residents or members or any other known, significant circumstances that, in the actuary’s professional judgment, may affect the organization’s ability to remain a going concern.3.7.6 Reasonableness of Assumptions
The actuary should review the assumptions for reasonableness. The assumptions should be reasonable, in the actuary’s professional judgment, in the aggregate and for each assumption individually. The actuary should identify material changes in assumptions, and methods relating to the use of those assumptions, compared to the most recent prior analysis if applicable.In reviewing the assumptions for reasonableness, the actuary should take into account the following:
b. the frequency with which the projections are expected to be updated;
c. the length of the projection period;
d. the sensitivity of the projections to the effect of variations in key actuarial assumptions;
e. the potential variability of the assumption;
f. consistency among related assumptions;
g. the size of the CCRC’s contractual resident population or At Home Program membership;
h. the ability to increase fees or decrease expenses in future periods;
i. the level of capital available to provide for adverse fluctuation;
j. any significant margins for uncertainty that have been included in the actuarial assumptions; and
k. the expectation of no material bias (i.e., it is not materially optimistic or pessimistic) relative to the purpose of the measurement, excluding the effect of a margin.
