                                 CODE OF VIRGINIA

REQUIREMENTS OF A PRINCIPLE-BASED VALUATION (§ 38.2-1380)

A. An insurer shall establish reserves using a principle-based valuation that
meets the following conditions for policies or contracts as specified in the
valuation manual:

   1. Quantify the benefits and guarantees, and the 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, reflects conditions appropriately adverse to quantify
   the tail risk;

   2. Incorporate assumptions, risk analysis methods and financial models, and
   management techniques that are consistent with, but not necessarily identical
   to, those utilized within the insurer&#8217;s overall risk assessment process,
   while recognizing potential differences in financial reporting structures and
   any prescribed assumptions or methods;

   3. Incorporate assumptions that are derived in one of the following manners:
   				a. The assumption is prescribed in the valuation manual.
   				b. For assumptions that are not prescribed, the assumptions shall:

      1. Be established utilizing the insurer&#8217;s available experience, to the
      extent it is relevant and statistically credible; or

      2. To the extent that insurer data is not available, relevant, or
      statistically credible, be established utilizing other relevant,
      statistically credible experience; and

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

B. An insurer using a principle-based valuation for one or more policies or
contracts subject to this section as specified in the valuation manual shall:

   1. Establish procedures for corporate governance and oversight of the
   actuarial valuation function consistent with those described in the valuation
   manual.

   2. Provide to the Commission and the board of directors an annual
   certification of the effectiveness of the internal controls with respect to
   the principle-based valuation. Such controls shall be designed to assure that
   all material risks inherent in the liabilities and associated assets subject
   to such 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.

   3. Develop, and file with the Commission upon request, a principle-based
   valuation report that complies with standards prescribed in the valuation
   manual.

C. A principle-based valuation may include a prescribed formulaic reserve
component.

HISTORY: 2014, c. 571.