§ 10-7-313.4 — Requirements of a principle-based valuation

Colorado § 10-7-313.4

• Jurisdiction: Colorado
• Title 10: Insurance
• Art.: Life Insurance

Text

(1) A company
shall establish reserves using a principle-based valuation that meets the following
conditions for policies or contracts as specified in the valuation manual. The
valuation must:

(a) Quantify the benefits, guarantees, and 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, the
valuation must reflect conditions appropriately adverse to quantify the tail risk.

(b) Incorporate assumptions, risk analysis methods, and financial models and
management techniques that are consistent with, but not necessarily identical to,
those utilized within the company's overall risk assessment process, while
recognizing potential differences in financial reporting structures and any
prescribed assumptions or methods;

(c) Incorporate assumptions that are derived in one of the following manners:

(I) The assumption is prescribed in the valuation manual.

(II) For assumptions that are not prescribed, the assumptions must:

(A) Be established utilizing the company's available experience, to the
extent it is relevant and statistically credible; or

(B) To the extent that company data is not available, relevant, or statistically
credible, be established utilizing other relevant, statistically credible experience.

(d) Provide margins for uncertainty, including adverse deviation and
estimation error, such that the greater the uncertainty the larger the margin and
resulting reserve.

(2) A company using a principle-based valuation for one or more policies or
contracts subject to this section as specified in the valuation manual must:

(a) Establish procedures for corporate governance and oversight of the
actuarial valuation function consistent with those described in the valuation
manual;

(b) Provide to the commissioner and the board of directors an annual
certification of the effectiveness of the internal controls with respect to the
principle-based valuation. The company shall design the controls to assure that all
material risks inherent in the liabilities and associated assets subject to the
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.

(c) Develop, and file with the commissioner upon request, a principle-based
valuation report that complies with standards prescribed in the valuation manual.

(3) A principle-based valuation may include a prescribed formulaic-reserve
component.

Legislative History

Source: L. 2015: Entire section added, (HB 15-1048), ch. 63, p. 167, � 12, effective August 5.