Illinois Administrative Code › Title 50 - INSURANCE › Part 3601 - REQUIREMENTS › Section 3601.75 - Loss Reserve Discounting

Current through Register Vol. 48, No. 28, July 12, 2024
a) A trust
			 may discount its reserves for incurred and unpaid losses and loss adjustment
			 expenses, for the purpose of:
1) Reporting
			 under Section 14 of the Act and Section
			 5601.70 of
			 this Part, and
2) Demonstrating its
			 net worth and adherence to reasonable standards of financial solvency, subject
			 to all of the following conditions:
A) The
			 trust shall have been approved for operation under the Act for not less than
			 two (2) full calendar years.
B) The
			 trust instrument shall provide that each beneficiary may be assessed for any
			 funding deficiency relating to any period in which the beneficiary participated
			 in the trust and that each beneficiary shall be fully liable to the trust for
			 any such assessment; a beneficiary's obligation for any such assessment shall
			 be enforceable regardless of whether the beneficiary is currently a beneficiary
			 of the trust, unless the trust has expressly released the beneficiary with
			 respect to such obligations.
C)
			 With respect to each reporting year, the assumed rate of return used to
			 discount the trust's reserves for losses and loss adjustment expenses shall not
			 exceed the greater of:
i) The trust's average
			 annual portfolio rate of return over the five (5) year period (or such shorter
			 period, in the event that the trust has not been in existence for five (5)
			 years) ending with the last day of the then-current reporting year, less 1/2 of
			 1%; or
ii) The assumed rate of
			 return used to discount the trust's loss reserves for federal income tax
			 purposes, for the tax year corresponding to the then-current reporting
			 year.
D) In conjunction
			 with the financial statements required by Section
			 5601.70 of
			 this Part, the trust shall file with the Director a statement of actuarial
			 opinion by a qualified independent actuary, setting forth his or her opinion
			 regarding the adequacy of the trust's reserves for losses and loss adjustment
			 expenses, in such form and of such content as specified in the National
			 Association of Insurance Commissioners Annual Statement Instructions: Property
			 and Casualty. For purposes of this Section, the term "qualified independent
			 actuary" shall mean an individual is either:
i) A member in good standing of the Casualty
			 Actuarial Society; or
ii) A member
			 in good standing of the American Academy of Actuaries who has been approved as
			 qualified for signing casualty loss reserve opinions by the Casualty Practice
			 Council of the American Academy of Actuaries.
E) With respect to each reporting year, the
			 trust shall present the following information in the footnotes to the financial
			 statements or as supplemental information to the information required by
			 Section
			 5601.70 of
			 this Part:
i) The ultimate, undiscounted
			 losses and loss adjustment expenses reserves in comparison to the reported,
			 discounted value of such reserves, with the aggregate effect of the discount
			 reflected as a separate amount, reviewed by a qualified independent actuary. In
			 addition, the report of the trust's certified public accountants, as
			 contemplated in subsection
			 5601.70(c)
			 of this Part, shall include a review of the calculation of the discounted
			 losses and loss adjustment expense reserves.
ii) An historical and projected losses and
			 loss adjustment expense payout schedule, demonstrating the portion of incurred
			 losses and loss adjustment expenses paid and projected to be paid in the
			 periods following the period in which the underlying loss was incurred,
			 reviewed by a qualified independent actuary.
iii) A schedule of portfolio investments,
			 including scheduled maturities, and a report of the trust's aggregate portfolio
			 rate of return for the year. If the trust's investments are managed by any
			 third-party manager or trustee, such portfolio rate of return shall be verified
			 by such manager or trustee.