III%20B%208%20c%20Reserve%20Life%20RA_Clean - Reserve Risk Assessment Procedures

Sep 1, 2026

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Reserve risk assessment evaluates whether reported reserves and related liabilities are likely to be higher than estimated, focusing on reserve valuation and reserve adequacy. The workflow emphasizes review of the Statement of Actuarial Opinion (SAO) and supporting actuarial filings, including valuation bases, reasonableness of assumptions, asset adequacy for policyholder benefits, reserve reporting, and lines of business. It also covers RAAIS and an actuarial memorandum, detailing when additional scenarios, sensitivities, reinsurance effects, and economic conditions must be analyzed.

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Reserving Risk

Reserve Valuation and Reserve Adequacy

SAO-Based Procedures

RAAIS and Actuarial Memorandum Worksheet

Additional Prospective Risk Procedures

Reserving Risk: Actual losses or other contractual payments reflected in reported reserves or other liabilities will be greater than estimated. The Reserving Risk Assessment is focused primarily on two key aspects of reserving: 1) reserve valuation; and 2) reserve adequacy. Analysis of reserves relies heavily on the review of the Statement of Actuarial Opinion (SAO) and other related filings. In analyzing reserving risk, the analyst may analyze specific types of reserves established by life insurers, reserving methodologies and various aspects of life insurance that affect reserving. For example, an analyst’s risk-focused assessment of reserving risk may consider the following areas (but not limited to): Reserve valuation in accordance with the appropriate valuation requirements. Reasonableness of valuation bases utilized, testing, assumptions, and methodologies to determine reserves. Adequacy of assets to support policyholder benefits. Appropriate reporting of reserves. Lines of business written by the insurer. Types of reserves for life, accident, and health (A&H) and annuity lines of business. Reserve development. Reinsurance. Reserving for guarantees on separate accounts. Statement of Actuarial Opinion Based on an Asset Adequacy Analysis To assess reserving risk, consider procedures for reviewing the Actuarial Opinion and other actuarial filings for compliance and assessment of risks. In many states, the Actuarial Opinion and related filings are reviewed by actuarial staff. Whether the SAO review is performed by the analyst or the actuary, the risk assessment provides for the results of the SAO review to be documented and communicated to the analyst. Refer to the Overview sections at the end of this chapter for more guidance on the SAO and Asset Adequacy Analysis. Procedures #1a and #1b. Determine that the SAO was prepared by a qualified actuary and that the reserve amounts agree with the Annual Financial Statement. Procedures #1c–#1f. Determine that the insurer’s policy reserves were calculated properly in accordance with the minimum standards required by the NAIC Model Standard Valuation Law, and that the insurer’s assets will adequately support the insurer’s future policy obligations. The qualified actuary’s opinion that the insurer’s assets are adequate with regard to policy reserves provides significant comfort to the analyst that policy obligations will be met in the future. RAAIS and Actuarial Memorandum Worksheet Procedures #2 and #3. Review the RAAIS and document any concerns noted. For example, the analyst should further review any comments made by the appointed actuary on any interim results that may be of significant concern. Additional prospective risk procedures the analyst may consider performing are provided if concerns exist based on the review of the RAAIS. The analyst should take into consideration the current economic environment (i.e., interest rate trends) when performing the analysis. Procedure #4. Review the actuarial memorandum that supports the SAO. The actuarial memorandum is a comprehensive document that provides an understanding of the insurer’s reserves, the assets available to support the reserves, and the projected impact on the insurer’s financial condition of varying economic and interest rate projection scenarios. It is not automatically filed with the Annual Financial Statement but is provided to the regulator only upon request. The decision as to whether to request the actuarial memorandum is an important one. The actuarial memorandum should be requested for insurers with known financial problems, significant changes in product mix or investment strategy, or significant growth in a particular product line. The RAAIS is filed with the Annual Financial Statement and is designed to assist the regulatory actuary in determining whether to request the actuarial memorandum. The RAAIS includes the eight data requests shown below. Note that some items, such as 1), 2) and 5) specifically refer to

FAQs

What two areas does the reserving risk assessment primarily focus on?

It focuses on reserve valuation and reserve adequacy. The approach determines whether reserves are properly valued and whether they will be adequate to meet future policy obligations.

How is the Statement of Actuarial Opinion (SAO) used in assessing reserving risk?

The assessment relies heavily on reviewing the SAO and related actuarial filings for compliance and for documenting the results of the SAO review. Procedures also confirm the SAO is prepared by a qualified actuary and that reserve amounts agree with annual financial statements.

What is the role of the RAAIS and the actuarial memorandum in the risk assessment?

The RAAIS is filed with the Annual Financial Statement and supports the regulatory actuary’s decision on whether to request the actuarial memorandum. The memorandum provides detailed understanding of reserves, asset support, and projected impacts under different economic and interest rate scenarios, and is requested for insurers with known financial problems or significant changes.

Sep 1, 2026

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