58-26-98. Reserves to be established using principle-based valuation--Conditions.
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/sd/title-58/chapter-58-26/58-26-98·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
A company must 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 polices or contracts with significant tail risk, reflects conditions appropriately adverse to quantify the tail risk;
(2)Incorporate assumptions, risk analysis methods, financial models, and management techniques that are consistent with, but not necessarily identical to, those utilized within the company's overall risk assessment process, while recognizing potential differences in financial reporting structures and any prescribed assumption or method;
(3)Incorporate assumptions that are derived in one of the following manners:
(a)The assumption is prescribed in the valuation manual;
(b)For an assumption that is not prescribed, the assumption shall be established utilizing the company's available experience, to the extent it is relevant and statistically credible; or to the extent that company data is not available, relevant, or statistically credible, be established utilizing other relevant, statistically credible experience;
(4)Provide margins for uncertainty including adverse deviation and estimation error, such that the greater the uncertainty the larger the margin and resulting reserve.