Sec. 35. (a) This section applies on and after the operative date of the Valuation Manual specified in section 34 of this chapter.

(b) A company shall, using a principle based valuation, establish reserves that meet the following conditions for contracts, as specified in the Valuation Manual:

(1) The reserves quantify the benefits, guarantees, and funding associated with the contracts and the contracts' risks at a level of conservatism that:

(A) reflects conditions that include unfavorable events that have a reasonable probability of occurring during the lifetime of the contracts; and

(B) for polices or contracts with significant tail risk, reflects conditions appropriately adverse to quantify the tail risk.

(2) The reserves incorporate assumptions, risk analysis methods, and financial models and management techniques that are consistent with the assumptions, risk analysis methods, and financial models and management techniques used within the company's overall risk assessment process, while recognizing potential differences in financial reporting structures and prescribed assumptions or methods.

(3) The reserves incorporate assumptions that are derived in one (1) of the following manners:

(A) The assumption is prescribed in the Valuation Manual.

(B) For an assumption that is not prescribed in the Valuation Manual, the assumption must:

(i) be established using the company's available experience to the extent the experience is relevant and statistically credible; or

(ii) to the extent that company data is not available, relevant, or statistically credible, be established using other relevant, statistically credible experience.

(4) The reserves provide margins for uncertainty, including adverse deviation and estimation error, such that the greater the uncertainty, the larger the margin and resulting reserve.

(c) A company using a principle based valuation for at least one (1) contract that is subject to this section, as specified in the Valuation Manual, shall do the following:

(1) Establish procedures for corporate governance and oversight of the actuarial valuation function consistent with the procedures described in the Valuation Manual.

(2) Provide to the commissioner and the board of directors an annual certification of the effectiveness of the internal controls with respect to the principle based valuation. The internal controls must be designed to assure that:

(A) all material risks inherent in the liabilities and associated assets that are subject to the valuation are included in the valuation; and

(B) valuations are made in accordance with the Valuation Manual.

The certification must be based on the controls in place as of the end of the preceding calendar year.

(3) Develop, and file with the commissioner upon request, a principle based valuation report that complies with standards prescribed in the Valuation Manual.

(d) A principle based valuation may include a prescribed formulaic reserve component.

As added by P.L.276-2013, SEC.10. Amended by P.L.124-2018, SEC.28.