KRS 304.6-151: Principle-based valuation -- Required actions.

(1) A company shall establish reserves using a principle -based valuation as specified in

the valuation manual that meets the following conditions for policies or contracts:

(a) Quantification of 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 policies or contracts with significant

tail risk, the v aluation shall also reflect conditions appropriately adverse to

quantify the tail risk;

(b) Incorporation of assumptions, risk analysis methods, financial models, and

management techniques that are consistent with but not necessarily identical

to those uti lized within the company's overall risk assessment process, while

recognizing potential differences in financial reporting structures and any

prescribed assumptions or methods;

(c) Incorporation of assumptions that are derived in one (1) of the following

manners:

1. The assumption is prescribed in the valuation manual;

2. For assumptions that are not prescribed, the assumptions shall:

a. Be established utilizing the company's available experience, to the

extent it is relevant and statistically credible; or

b. To the extent that company data is not available, relevant, or

statistically credible, be established utilizing other relevant,

statistically credible experience; and

(d) Provision of margins for uncertainty, including adverse deviation and

estimation e rror, to ensure that the greater the uncertainty the larger the

margin and resulting reserve.

(2) A company using a principle -based valuation for one (1) or more policies or

contracts subject to this section, as specified in the valuation manual, shall:

(a) Establish procedures for corporate governance and oversight of the actuarial

valuation function consistent with those described in the valuation manual;

(b) Provide to the commissioner and the company's board of directors, an annual

certification of the effectiveness of the internal controls with respect to the

principle-based valuation. The controls shall be designed to ensure that all

material risks inherent in the liabilities and associated assets, subject to the

valuation, are included in the valuatio n and that valuations are made in

accordance with the valuation manual. The certification shall be based on the

controls in place as of the end of the preceding calendar year; and

(c) Develop and file with the commissioner, upon request, a principle -based

valuation report that complies with standards prescribed in the valuation

manual.

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