Practice Note for the Application of C-3 Phase II and Actuarial Guideline XLIII
The actuary may wish to consider providing support for the choice of time step in the supporting memorandum. Appendix 11 of C-3 Phase II and Subsection A8.3 of AG 43 state that the actuary should identify the time step used in the supporting memorandum. Q4.4 Is there specific software that the actuary normally would use to perform the analysis? Is it acceptable to use a different platform for different components of the calculation? A: Any software, whether purchased commercially or developed in-house, may be used. Some actuaries may use a different platform for different components of the calculation. For example, the seriatim output functionality of a valuation platform may make it a more useful platform for the determination of the Standard Scenario amount, while a modeling platform would typically be used for calculating the CTE amount. However, the actuary normally would use software that is capable of performing the sophisticated calculations re qu ir ed, i nc or p or a t in g s t oc ha s t ic m od el in g tech ni q ues a nd contractholder behavior dynamics critical for this analysis, as well as having auditable calculation processes. Q4. 5 T o w h at e xt e nt i s t h e de ci si o n of u si n g t he C T E pr oj e cti o n m et ho d v ers us usi ng t he Alternative Methodology for one of the requirements (either C-3 Phase II or AG 43) binding on the other? A: There is no specific requirement that the method used for a block of business under C-3 Phase II to be the same as that used under AG 43 (and vice versa). Q4.6
Once a company selects either the CTE projection method or the Alternative Methodology, can the selection be changed? A: Per Section IV)E) of AG 43, moving from the CTE projection method to the Alternative Methodology requires regulatory approval from the domiciliary commissioner. C-3 Phase II states (page 17) “Once a company uses the stochastic modeling methodology for a block of business, the option to use the Alternative Method is no longer available for that part of its business.” Some actuaries believe that moving from the Alternative Methodology to the CTE projection method does not require approval and point to Section IV)E) of AG 43 and Appendix 8 of C-3 Phase II.
Q4.7
Is a company permitted to make changes in the modeling platform used to determine the requirements of AG 43 (e.g., migrating from a modeling system developed in-house to a vendor-licensed system)? A: Changes in modeling platforms including model improvements, updates, error corrections, the addition of new product features, as well as the migration to new actuarial software platforms may be made. Section A8.3)D)5) of AG 43 requires “documentation of all material changes in the model or assumptions from that used previously and the
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