3 CCR 702-2-3-1-9 - Discounting of Loss Reserves

A. A captive insurance company may request written authorization to discount loss reserves for financial statements in its plan of operation. Such request shall be submitted at least sixty (60) days prior to the requested date of implementation. Discounting shall not occur until the captive insurance company receives prior written authorization from the Commissioner. This approval will not be available on a retroactive basis. Approval may be subsequently withdrawn, in whole or in part, in the event there is any material change in the acceptability of the assumptions, or the experience shows that continued loss reserve discounting fails to satisfy the standards of this section or may create a hazardous financial condition.

B. Loss reserve discounting will be permitted only for the specific types of claims authorized in the Statement of Statutory Accounting Principles.

C. The Applicant Requesting Authorization Shall:

1. Define and justify the interest rate assumptions used for discounting;

2. Provide an explanation for the basis and methodology upon which reserves are calculated;

3. Provide a summary of all available historical loss data, historical development factors, loss payout factors, and a history of the frequency and severity of past experience;

4. Provide a statement of opinion by an actuary that the funds available in the captive insurance company for payment of losses and loss expenses are adequate, at a ninety five percent (95%) confidence level, to pay all losses and loss expense obligations incurred and unpaid as of the statement date. The actuary's statement shall include the basis of accepting the captive insurance company's available loss data as being credible in order to give the required confidence level representation. Where credible loss data is not available, the actuary must disclose the data used in order to make the required confidence level representation;

5. An actuarial opinion and the supporting report evidencing compliance with the above standards must be submitted at time of application and with each annual financial report filed thereafter. The opinion must include a statement that the assets supporting the discounted reserves are sufficient to support the anticipated cash flows associated with the reserve development. Approval for discounting reserves may be withdrawn if the submitted opinion is other than unqualified.

Notes

3 CCR 702-2-3-1-9

38 CR 03, February 10, 2015, effective 3/15/2015 39 CR 01, January 10, 2016, effective 2/1/2016 39 CR 22, November 25, 2016, effective 1/1/2017 39 CR 23, December 10, 2016, effective 1/1/2017 40 CR 05, March 10, 2017, effective 4/1/2017 40 CR 09, May 10, 2017, effective 6/1/2017 40 CR 17, September 10, 2017, effective 10/1/2017 45 CR 09, May 10, 2022, effective 5/30/2022 46 CR 04, February 25, 2023, effective 3/17/2023