(1) Aggregation of the results of asset adequacy analysis of one or more products within a line of business as defined in section 95.4(i) of this Part, the reserves for which prove through analysis to be redundant, with the results of one or more products within a line of business, the reserves for which prove through analysis to be deficient. Where two or more products within a line of business are aggregated because they are backed by an investment segment, the rationale for each such segment shall be provided. The liability cash flows shall be projected separately for at least products with cash settlement options and products without cash settlement options.

(2) With the prior written approval of the superintendent, based on the following guidelines, aggregation of the results of asset adequacy analysis for one or more lines of business, the reserves for which prove through analysis to be redundant, with the results of one or more lines of business, the reserves which prove to be deficient.

(1) The determination or selection of assets should consider the investment allocation method used by the company (e.g., segmentation, dedicated or allocated assets and/or a proration of segmented, dedicated, or allocated assets in the general account). In allocating or assigning assets to the reserve liabilities (for asset adequacy analysis purposes) for which an opinion is rendered, the appointed actuary shall ascertain and report whether or not such selection is such that the adequacy of assets for other liabilities is prejudiced or endangered and shall include an appropriate statement as to such ascertainment. For example, if the assets remaining after such selection were long term assets with market value below book value or were bonds in danger of default, and the other liabilities were short term liabilities where cash is needed, the selection of the assets could have an adverse effect on the other liabilities.

(2) The appointed actuary shall analyze those assets held in support of the reserves which are the subject of specific analysis, hereafter called “specified reserves.”

(1) An appropriate allocation of assets in the amount of the Interest Maintenance Reserve (IMR), whether positive or negative, must be used in any asset adequacy analysis.

(2) Analysis of risks regarding asset default or write-down may include an appropriate allocation of assets supporting the Asset Valuation Reserve (AVR); these AVR assets may not be applied for any other risks with respect to reserve adequacy.

(3) Analysis of these and other risks may include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support.

(4) The amount of the assets used for the AVR and the IMR must be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum.

(5) The method used for selecting particular assets or allocated portions of assets must be disclosed in the memorandum.

(1) For the purpose of performing the asset adequacy analysis required by this Part, the appointed actuary is expected to follow standards which are adopted by the Actuarial Standards Board and are not inconsistent with this Part; nevertheless, the appointed actuary must consider in the analysis the effect of at least the following interest rate scenarios:

(2) For these and other scenarios which may be used, projected interest rates for a five year treasury note need not be reduced beyond the point where such five year treasury note yield would be at 50 percent of its initial level.

(3) The beginning interest rates may be based on interest rates for new investments as of the valuation date similar to recent investments allocated to support the products being tested or be based on an outside index, such as treasury yields, of assets of the appropriate length on a date close to the valuation date. Whatever method is used to determine the beginning yield curve and associated interest rates should be specifically defined. The beginning yield curve and associated interest rates should be consistent for all interest rate scenarios.

(4) In the event of a projected negative surplus (based on a comparison of market values of assets and liabilities at the end of the projection) for a prescribed scenario for any line of business, the actuary shall modify that scenario by decreasing the total interest rate change in 100 bases point intervals until there is a projected positive surplus. The projected results at each interval tested should be provided. In addition, the actuary shall use additional assets to determine the approximate additional amount so that there is no longer any negative surplus under the prescribed scenario without modification under paragraph (1) of this subdivision.

(5) It is recognized that the adequacy of reserves and other actuarial items which are the subject of the opinion required by section 95.8 of this Part is a matter of judgment which the actuary rendering such opinion is to make in accordance with section 4217 of the Insurance Law and this Part. Consequently, failure under one or more of the scenarios prescribed by paragraph (1) of this subdivision would not necessarily prevent such actuary from expressing the opinion required by section 95.8 of this Part without qualification. However, the actuary shall furnish an analysis of the modified scenarios and of additional amounts under the prescribed scenarios without modification. If the actuary then opines that additional reserves are necessary, the actuary shall then explain and justify how the actuary determined the additional amount. The superintendent retains the right to request additional information with regard to these matters.

(1) In the absence of credible experience, the following are examples of acceptable procedures for coupon bonds without a call premium:

(2) The following are examples of acceptable procedures for coupon bonds with a call premium of up to five percent:

(3) In case of Government National Mortgage Association obligations, other mortgage backed securities and collateralized mortgage obligations, some prepayment should be assumed such as, for example, five percent when the current interest rate equals or exceeds the coupon rate, with prepayments increasing to 50 percent when the coupon rate exceeds the current interest rate by four percent, or by linking the ratio of the market value to the loan balance to multiples of the Public Securities Association standard prepayment model.

(4) Other procedures may be used for other types of obligations and other call premiums.

(5) Any comparison of coupon rate and current interest rates and any comparison of present values with amount payable on call should be for like type and quality of assets and remaining duration to maturity.

(1) For group guaranteed interest contracts with a lump sum payout and a maturity date of 10 or less years to run, full surrender should be assumed on the maturity date and the testing period should extend to the last maturity date.

(2) In case of individual single premium cash value deferred annuities, full surrender of any persisting annuities should be assumed at the end of a 10 year testing period, unless specific approval is obtained for a longer period.

(3) For lifetime annuities a testing period of at least 20 years, and perhaps longer, would be appropriate.

(4) For life insurance, a testing period of at least 20 years, and perhaps longer, would be appropriate.