In light of this statement, the checklist described above might include questions such as the following: 1. Does the documentation describe a static basis for validating the model? (Yes/No) 2. Does the documentation describe a dynamic basis for validating the model? (Yes/No) 3. Have any changes been made to the assumptions since the previous measurement or projection which may have a material impact on the results being discussed in the report? (Yes/No) Q15.5 What tools are available to reviewing actuaries and regulators to get them comfortable with the model validation and process? A: A reviewer might consider asking the responsible actuary to supply a detailed income statement and balance sheet from a single scenario model run. The reviewer could then perform a cross check of aggregate cash flows such as death benefits, withdrawal benefits etc. to the company's annual statement for the underlying product line. This would be a reasonableness test. The reviewer could also ask to see the most recent company studies of mortality, lapse, partial withdrawal, expenses, etc. These studies could be used to cross check the model assumptions. If a company calibrated its own scenario set, a reviewer could ask the company to run a set of calibrated scenarios determined by the regulator using the Life Capital Adequacy Subcommittee’s C-3 Phase II pre-packaged scenarios as a cross check of the calibration. In addition, the following checks could be performed: •
Review what management actions and reports are based on the modeled results.
•
Review of the discussion and results of the AG 43 or C-3 Phase II required sensitivity disclosure to company management (or review of the internal sensitivity testing done in the model building process).
Q15.6 Which items could be included in a checklist to be used by reviewing actuaries and regulators during the review process? A: A reviewer might include, among others, checklist items such as the following: 1. Review Product Types and Benefits Covered (a) Variable Annuities (b) VUL Contracts containing guaranteed living benefits (c) Group Life Contracts containing guaranteed living or death benefits (d) Group Annuities containing guaranteed living or death benefits (e) Variable Immediate Annuities containing guaranteed payout annuity floor benefits. 2. Review Types of Models or Methodologies Used and Determine if July 2009
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