ASOP 3
(CONTINUING CARE RETIREMENT COMMUNITIES AND AT HOME PROGRAMS)
Commentary to Section 3
(COMMENTS & RESPONSES ON SECTION 3 OF THE EXPOSURE DRAFT)

Commentary on Section 3

ASOP 3 | Commentary Section 3.0 | GENERAL COMMENT ON SECTION 3

Comment	Response
One commentator felt specific guidance should be included in section 3 to assist actuaries in understanding the interaction between ASOP No. 3 and ASOP No. 56, Modeling.	The reviewers note that the Code of Professional Conduct (Code) directs the actuary to consider all applicable ASOPs.

ASOP 3 | Commentary Section 3.2 | COMMENT ON SECTION 3.2

Section 3.2, Determination of Satisfactory Actuarial Balance

Comment

Response

One commentator felt the second to the last paragraph in section 3.2 that reads, “In the event the CCRC or At Home Program fails to meet any of three conditions as specified above, the actuary should consult with the organization to address possible corrective actions to achieve satisfactory actuarial balance,” raises the question of what the responsibility of the actuary is if the “organization” refuses to follow the advice.

The reviewers believe this question is outside the scope of ASOP No. 3. Therefore, the reviewers made no change.

ASOP 3 | Commentary Section 3.3 | COMMENT ON SECTION 3.3

Section 3.3.2, Assets

Comment	Response
One commentator stated that additional disclosures are needed in section 3.3.2 regarding actuarial present value.	The reviewers disagree and believe this topic is adequately addressed in section 3.6 and 4.1(e). Therefore, the reviewers made no change.

ASOP 3 | Commentary Section 3.4 | COMMENT ON SECTION 3.4

Section 3.4, Cohort Pricing Analysis

Comment	Response
One commentator suggested that the ASOP should provide an example of the methodology regarding temporary transfers among levels of care.	The reviewers noted that the concept of temporary transfers is discussed in sections 2.27 and 3.7.1. The reviewers also note ASOPs are principles based and are not educational in nature, and made no change in response to this comment.

ASOP 3 | Commentary Section 3.5 | COMMENT ON SECTION 3.5

Section 3.5, Cash Flow Projections

Comment	Response
Two commentators suggested the cross reference to ASOP No. 7, Analysis of Life, Health, or Property/Casualty Insurer Cash Flows, is not appropriate.	The reviewers agree and removed the cross reference.

ASOP 3 | Commentary Section 3.6 | COMMENT ON SECTION 3.6

Section 3.6.4, Future Use of Physical Property

Comment	Response
One commentator noted that in developing the present value of physical property and operating expenses both involve allocation of expenses to level of care.	The committee agreed and modified section 3.6.4 to reflect the allocation of physical property expenses to level of care.

Section 3.6.6, Future Refunds Due to Refund Guarantees

Comment	Response
One commentator suggested changing “refund guarantee” terminology due to the uncertain nature of the contractual provision.	The reviewers disagree and made no change in response to this comment.

ASOP 3 | Commentary Section 3.7 | COMMENT ON SECTION 3.7

Section 3.7, Selection of Actuarial Assumptions

Comment	Response
One commentator felt there should be a requirement that the combined effect of the assumptions is expected to have no significant bias except for margins for uncertainty.	The reviewers agree and modified the language in section 3.7.6.

Section 3.7.1, Mortality, Morbidity, and Withdrawal Assumptions (now Actuarial Assumptions)

Comment	Response
One commentator suggested that documentation should be provided regarding the development of reasonable assumptions as discussed in section 3.7.1 and 3.7.6.	The reviewers disagree and made no change in response to this comment.
One commentator felt that that it should be explicitly stated that the actuary should consider future mortality improvement.	The reviewers agree and modified the language in response to this comment.

Section 3.7.2, Trend Assumptions for Fees and Expenses

Comment	Response
One commentator expressed the need to document and communicate the development of revenue and expense assumptions, as identified in section 3.7.2.	The reviewers note that the standard addresses this issue in sections 3.7.2 and 4.1(h), and made no change.

Section 3.7.5, Going-Concern Assumption

Comment	Response
One commentator suggested the ASOP require an actuary to perform a capital adequacy analysis and develop actuarial reserves.	The reviewers disagree and made no change.

Section 3.7.6, Reasonableness of Assumptions

Comment	Response
One commentator suggested that section 3.7.6 should indicate that there should be consistency among the assumptions.	The reviewers agree and modified the language in response to this comment.

ASOP 3 | Commentary Section 3.8 | COMMENT ON SECTION 3.8

Section 3.8, Benevolence Funds and Financial Assistance Subsidies

Comment	Response
One commentator suggested addressing the situation where the benevolence funds are being used for something other than residential financial assistance.	The reviewers believe that section 3.8 appropriately addresses this situation and note that it states “the actuary should determine the benevolence funds or financial assistance subsidies available as well as the potential future liabilities for contractual residents or members who do not pay the contractual fees.” Therefore, the reviewers made no change in response to this comment.

ASOP 3 | Commentary Section 3.10 | COMMENT ON SECTION 3.10

Section 3.10, Equity or Cooperative CCRCs or At Home Programs

Comment	Response
One commentator believes the ownership structure of the organization is not material to the actuarial valuation.	The reviewers disagree and made no change in response to this comment.

ASOP 3 | Commentary Section 3.11 | COMMENT ON SECTION 3.11

Section 3.11, Additional Considerations Affecting CCRC or At Home Program Finances

Comment	Response
One commentator suggested adding more objective guidance to the actuary when analyzing residency contracts and membership agreements.	The reviewers disagree and made no change in response to this comment. The reviewers note that section 3.11 provides an objective list of contractual items for the actuary to consider.

ASOP 3 | Commentary Section 3.14 | COMMENT ON SECTION 3.14

Section 3.14, Documentation

Comment	Response
One commentator suggested more specific guidance regarding documentation of assumptions and methodology, as well as retention of documentation.	The reviewers disagree and note the language is consistent with standard language found in current ASOPs. Therefore, the reviewers made no change.