ACTUARIAL STANDARD OF PRACTICE NO. 7

Life or Health Cash Flow Analysis

STANDARD OF PRACTICE

December 2025

TRANSMITTAL MEMORANDUM

TO: Members of the Actuarial Organizations Governed by the Standards of Practice of the Actuarial Standards Board and Other Persons Interested in Life or Health Cash Flow Analysis

FROM: Actuarial Standards Board (ASB)

SUBJ: Actuarial Standard of Practice (ASOP) No. 7

This document contains ASOP No. 7, Life or Health Cash Flow Analysis.

History of the Standard

Development of actuarial standards of practice for cash flow testing was originally undertaken separately for life and health, and property/casualty specialties. The first standard to be published was ASOP No. 7, Concerning Cash Flow Testing for Life and Health Insurance Companies. This was developed by the American Academy of Actuaries’ Committee on Life Insurance Financial Reporting in conjunction with the ASB Life Committee and was adopted by the ASB in 1988.

Subsequently, the ASB Casualty Committee, through its Valuation Subcommittee, developed a proposed standard titled Cash Flow Testing for Property and Casualty Insurers. This draft was presented to the ASB in 1990. The ASB decided that the document should be revised so that there would be one broad standard that would apply to life and health insurers as well as to property/casualty insurers. A Joint Casualty/Life Cash Flow Testing Task Force was appointed by the ASB to accomplish this. The resulting standard was adopted in 1991.

ASOP No. 7 was revised in the early 2000s to reflect changes in practice and the adoption of two new National Association of Insurance Commissioners (NAIC) model regulations, Synthetic Guaranteed Investment Contracts Model Regulation and Separate Accounts Funding Guaranteed Minimum Benefits Under Group Contracts Model Regulation. These two model regulations contain language requiring insurers to submit an actuarial opinion and memorandum related to cash flow testing.

In addition to ASOP No. 7, as part of the project to look at all cash flow testing standards of practice, the ASB also reviewed ASOP Nos. 14, When to Do Cash Flow Testing for Life and Health Insurance Companies, and 22, Statutory Statements of Opinion Based on Asset Adequacy Analysis by Appointed Actuaries for Life or Health Insurers. Relevant portions of ASOP No. 14 were incorporated within the 2001 revisions of ASOP Nos. 7 and 22.

In 2001, the ASB adopted the revised ASOP Nos. 7 and 22 and repealed ASOP No. 14. In April 2002, the ASB deferred the effective date of ASOP No. 7 to July 15, 2002, while it reviewed concerns raised by the Academy’s Casualty Practice Council regarding the standard’s applicability to property/casualty practice. At its June 2002 meeting, the ASB amended the scope to conform to generally accepted property/casualty actuarial practice.

Since the 2002 revision, the use of advanced models for cash flow analysis has become widespread. In addition, the ASB has approved several ASOPs related to the modeling and analysis of cash flows. For these reasons, the ASB decided to revise ASOP No. 7 in December 2020. After the exposure of the revised standard, in response to comments received, the ASB decided to remove property/casualty actuarial services from the scope of this standard and expand ASOP No. 20, Analysis of Property/Casualty Cash Flows, Including Discounting, to include property/casualty cash flow analysis. This revision of ASOP No. 7 is being issued in conjunction with the revision of ASOP No. 20.

Exposure Draft

The ASB decided at its September 2024 meeting to remove property/casualty actuarial services from the scope of this standard.

For a summary of issues contained in these comment letters, please see appendix 2.

Notable Changes from the Exposure Draft

The notable changes from the exposure draft are summarized below. Notable changes do not include changes made to improve readability, clarity, or consistency.

In sections 1.1 and 1.2, actuarial services involving property/casualty were removed from the scope of this standard. The title was changed to reflect this.

Notable Changes from the Existing Standard

The notable changes from the existing standard are summarized below. Notable changes do not include additional changes made to improve readability, clarity, or consistency.

In section 1.2, the scope was broadened to include cash flow analysis an actuary performs for a noninsurance entity that insures or self-insures risk. In addition, guidance for reviewing actuaries was added.
In sections 1.1 and 1.2, actuarial services involving property/casualty were removed from scope.
In section 2, definitions of certain terms were updated, including those of asset, cash flow, cash flow analysis, and liability. Several definitions were also deleted. The defined term “insurer” was changed to “organization” to reflect the inclusion of noninsurance entities that insure or self-insure risk.
In section 3.1, guidance for when to perform a cash flow analysis was added.
In section 3.2, additional guidance has been provided for cash flow analysis for assets, liabilities, or both assets and liabilities.
In section 3.3, guidance was adjusted to include all types of cash flow analysis.
Guidance on reinsurance and separate accounts from the existing standard has been incorporated into sections 3.4.1 and 3.5.1.
Guidance on modeling and data was revised to avoid overlapping guidance provided in ASOP No. 56, Modeling; ASOP No. 23, Data Quality; and other practice-specific ASOPs that have been adopted since 2002.
In section 3.8, guidance on reliance was added.
In section 3.9, guidance on documentation was expanded.
Section 4 was updated and expanded to reflect changes made to section 3.

The ASB voted in December 2025 to adopt this standard.

ASOP No. 7 Task Force
Matt A. Monson, Chairperson

Ravi Bhagat	Rachel W. Killian
Theresa M. Dziedzic	Scott M. O’Neal
Elizabeth A. Foreman

ASOP No. 7 Review Committee
Chair: Matt A. Monson, ASB Life Committe

Rhonda K. Ahrens	ASB Life Committee
Ashlee M. Borcan	ASB Health Committee
Jacqueline Fallon	ASB Life Committee
Audrey L. Halvorson	ASB Health Committee Chair
D. Todd Sterman	ASB Health Committee
Jeremy Starr	ASB Life Committee
Su Su	ASB Life Committee

Actuarial Standards Board
Kevin M. Dyke, Chairperson

Laura A. Hanson	David E. Neve
Richard A. Lassow	Gabriel R. Schiminovich
Mary Frances Miller	Judy K. Stromback
Christopher F. Noble	Alisa L. Swann

The Actuarial Standards Board (ASB) sets standards for appropriate actuarial practice in the United States through the development and promulgation of Actuarial Standards of Practice (ASOPs). These ASOPs describe the procedures an actuary should follow when performing actuarial services and identify what the actuary should disclose when communicating the results of those services.

ACTUARIAL STANDARD OF PRACTICE NO. 7

LIFE OR HEALTH CASH FLOW ANALYSIS

STANDARD OF PRACTICE

Section 1: Purpose, Scope, Cross References, and Effective Date

1.1 Purpose

This actuarial standard of practice (ASOP or standard) provides guidance to actuaries when performing actuarial services with respect to the analysis of life or health cash flow risks.

1.2 Scope

This standard applies to actuaries when performing actuarial services with respect to the analysis of life or health cash flow risks.

If the actuary is performing actuarial services that involve reviewing a cash flow analysis performed by another party, the actuary should follow the guidance in this ASOP to the extent practicable within the scope of the actuary’s assignment.

If the actuary determines that the guidance in this standard conflicts with another practice-area ASOP, the other practice-area ASOP governs.

If a conflict exists between this standard and applicable law (statutes, regulations, and other legally binding authority), the actuary should comply with applicable law. If the actuary departs from the guidance set forth in this standard in order to comply with applicable law, or for any other reason the actuary deems appropriate, the actuary should refer to section 4.

1.3 Cross References

When this standard refers to the provisions of other documents, the reference includes the referenced documents as they may be amended or restated in the future, and any successor to them, by whatever name called. If any amended or restated document differs materially from the originally referenced document, the actuary should follow the guidance in this standard to the extent it is applicable and appropriate.

1.4 Effective Date

This standard of practice is effective for actuarial work performed on or after June 1, 2026.

Section 2: Definitions

The definitions below are defined for use in this standard and appear in bold throughout the ASOP. The actuary should also refer to ASOP No. 1, Introductory Actuarial Standard of Practice, for definitions and discussions of common terms, which do not appear in bold in this standard.

2.1 Asset

A resource that can generate revenue cash flows or reduce disbursement cash flows.

2.2 Cash Flow

A receipt, disbursement, or transfer of cash or equivalent assets.

2.3 Cash Flow Analysis

An evaluation of cash flow risks. Cash flow analysis may include cash flows from assets, liabilities, or both assets and liabilities. Examples of types of cash flow analysis include cash flow testing, gross premium valuation methods, loss ratio methods, risk theory techniques, and profitability projections.

2.4 Cash Flow Risk

A risk associated with the amount or timing of cash flows, including the mismatching of cash flows between assets and liabilities.

2.5 Liability

A commitment by, or requirement of, an organization that can reduce revenue cash flows or generate disbursement cash flows.

2.6 Organization

An entity that accepts, self-insures, or retains the risk of financial losses or guarantees stated benefits upon the occurrence of specific contingent events. Examples include insurance companies, risk-bearing healthcare provider organizations, health maintenance organizations, securitization vehicles, and self-insured employers or corporations.

2.7 Scenario

A set of economic and other assumptions used in performing cash flow analysis.

Section 3: Analysis of Issues and Recommended Practices

3.1 When to Perform Cash Flow Analysis

The actuary must perform cash flow analysis when required by applicable law. The actuary should consider performing cash flow analysis when cash flow risk is relevant to the actuary’s assignment. Examples of such assignments include the following:

determination of reserves or reserve adequacy;
determination of capital or capital adequacy;
product development;
testing of future charges or benefits that may vary at the discretion of the organization (for example, policyholder dividend scales and other nonguaranteed elements);
risk transfer testing;
evaluation of investment strategy; and
actuarial appraisals.

3.2 Scope of the Cash Flow Analysis

The actuary should determine whether assets, liabilities, or both assets and liabilities should be included in the cash flow analysis. When doing so, the actuary should take into account the intended purpose of the cash flow analysis and the risks and options embedded in the cash flows.

When determining which assets or liabilities to include in the cash flow analysis, the actuary should take into account the intended purpose of the cash flow analysis, the characteristics of the cash flows, and the potential for cash flow risk.

3.2.1 Asset Considerations

To the extent that assets are included in the scope of the cash flow analysis, the actuary should consider including the following:

1. assets used in prior or related cash flow analyses;
2. notional assets that change the risk characteristics of either the assets or liabilities (for example, synthetic guaranteed investment contracts);
3. policy-related assets, such as policy loans and deferred premiums;
4. assets representing receivables (for example, those created due to federal or state governmental programs, pharmacy rebates, healthcare provider risk transfer, or reinsurance recoverables);
5. off-balance sheet assets (for example, letters of credit or parental guarantees); and
6. assets that originate with a related entity or related line of business.

The actuary should determine whether certain items (for example, non-admitted, below investment grade, or illiquid resources) should be excluded from the cash flow analysis under applicable law or guidance or based on professional judgment.

The actuary should determine whether the cash flows of an asset are used to support more than one liability. If so, the actuary should confirm that the cash flows used are available to support the liabilities for the cash flow analysis.

3.2.2 Liability Considerations

To the extent that liabilities are included in the scope of the cash flow analysis, the actuary should consider including the following:

1. 1. liabilities used in prior or related cash flow analyses;
  2. cash flows not specifically associated with policy cash flows (for example, corporate expenses, payables, surplus notes, shareholder dividends, hedging strategies, or balance sheet items that result from litigation);
  3. liabilities representing payables (for example, those created due to federal or state governmental programs, or healthcare provider risk transfer);
  4. off-balance sheet liabilities (for example, letters of credit or parental guarantees); and
  5. contingent liabilities (for example, contracts that require an insurer to post collateral if its rating falls below the contractual threshold).

3.3 Type of the Cash Flow Analysis

When performing a cash flow analysis, the actuary should use a type of analysis that is appropriate to the actuary’s assignment. Examples of types of cash flow analysis include cash flow testing, gross premium valuation methods, loss ratio methods, risk theory techniques, and profitability projections. When determining which type of analysis to use, the actuary should take into account the following:

whether the timing and amount of cash flows of assets could differ materially under a range of plausible scenarios (for example, assets with optionality or significant prepayment, default, concentration, or liquidity risk);
whether the liabilities and underlying assets could have cash flows with different timing or durations (for example, a company has a new or rapidly expanding or contracting line of business, or there is a significant lag between receipt of premium and payment of claims);
whether the exercise of any options granted to policyholders, borrowers, or counterparties could have a significant impact on the cash flow analysis (for example, an annuity contract holder’s option to surrender the annuity for cash at book value);
whether the risks to be analyzed are short-term liabilities supported by short-term assets (for example, short-term disability coverage supported by short-term bonds);
whether the cash flows, when taken together, are sensitive to changes in economic conditions or noneconomic factors; and
applicable law.

The actuary should consider using cash flow testing when the combined asset and liability cash flows could differ materially under a range of plausible economic scenarios.

3.4 Projection of Asset Cash Flows

When projecting cash flows of assets, the actuary should take into account the asset characteristics and investment strategy.

3.4.1 Asset Characteristics

When projecting cash flows of assets (for example, cash flows of callable bonds, mortgage-backed securities, common stocks, or derivative contracts), the actuary should take into account the following asset characteristics, when applicable to the assignment:

1. 1. whether cash flows are sensitive to economic factors such as interest rates, market returns, currency exchange rates, or inflation rates;
  2. the impact on the amount or timing of cash flows associated with asset quality as it relates to the risk of a delay in cash flows, asset default, or other financial nonperformance;
  3. any limitations on the ability to use asset cash flows to support liability cash flows, such as when a block of assets supports a particular block of business by contract or regulation;
  4. the associated costs of maintaining the assets or of converting the assets into cash when necessary;
  5. the historical experience of similar assets, to the extent such experience is credible and relevant to the projection of future cash flows;
  6. the impact of company or industry practices;
  7. the ability of the policyholder or other party to exercise options under the policy that have an effect on cash flows (for example, paying additional premiums);
  8. the impact of regulatory actions or limitations on cash flows under certain scenarios; and
  9. other known factors that are likely to have a material effect on cash flows.

When projecting cash flows of liability-related assets, such as a reinsurance or other risk transfer transaction recoverable, premium receivable, or a health risk adjustment transfer accrual, the actuary should take into account the terms and conditions of any agreement or treaty, as well as the liability considerations listed in section 3.5.

3.4.2 Investment Strategy

When projecting cash flows of assets, the actuary should take into account the following investment strategy considerations, when applicable to the assignment:

1. 1. the organization’s asset segmentation or allocation practices;
  2. the organization’s strategy regarding the sale of assets prior to maturity;
  3. the extent to which the organization’s strategy is anticipated to vary over time, such as in response to changing liability characteristics;
  4. the organization’s strategy for the investment and reinvestment of future positive or negative cash flows;
  5. to the extent the organization’s investment strategy contemplates borrowing to cover negative cash flows, whether the funds borrowed pursuant to the strategy are reasonable in relation to the organization’s existing indebtedness, borrowing capacity, and cost of borrowing funds;
  6. the organization’s use of derivative contracts, including strategies to mitigate cash flow risk;
  7. to the extent the organization’s investment strategy contemplates capital contributions from a related entity or other source, whether the capital contributions can be sustained and are appropriate for the analysis;
  8. the costs or gains due to cash flows denominated in foreign currencies; and
  9. other known factors that are likely to have a material effect on investment strategy or the organization’s ability to execute its investment strategy.

3.5 Projection of Liability Cash Flows

When projecting cash flows of liabilities, the actuary should take into account the liability characteristics and the organization’s management policies and practices.

3.5.1 Liability Characteristics

When projecting cash flows of liabilities, the actuary should take into account the following liability characteristics, when applicable to the assignment:

1. 1. the historical experience of the liabilities;
  2. the historical experience of similar liabilities, to the extent such experience is appropriate and relevant to the projection of future cash flows;
  3. the effect of external factors such as interest rates, equity or other market returns, unemployment rates, currency exchange rates, and inflation rates on cash flows;
  4. the ability of the policyholder or other party to exercise options under the policy that have an effect on cash flows (for example, disintermediation or liquidity options);
  5. the associated costs of maintaining liabilities and collecting or paying out cash flows;
  6. the risk of insolvency or other nonperformance by providers of services, including reinsurers and other counterparties;
  7. the effect of changes in premium (for example, scheduled or nonscheduled rate increases) or nonguaranteed elements;
  8. the impact of regulatory actions or limitations on cash flows under certain scenarios;
  9. company or industry practices; and
  10. other known factors that are likely to have a material effect on net liability cash flows, such as off-balance sheet items, ratings downgrades, reinsurance or other risk transfer transactions, liability-related assets, debt payments, and general account guarantees of separate account contracts.

3.5.2 Management Policies and Practices

When projecting cash flows of liabilities, the actuary should take into account the following management policies and practices of the organization, when applicable to the assignment:

1. 1. claim settlement and benefit payment practices;
  2. strategies to control expenses or mitigate risks;
  3. payment of policyholder dividends;
  4. nonguaranteed premiums, charges, or benefits;
  5. premium rate change policy; and
  6. other management policies and practices that may impact cash flows.

When projecting cash flows of liabilities under various scenarios, the actuary should take into account how management actions may vary under different scenarios, the organization’s intent and capacity to take such actions, and whether the liability assumptions reflect the impact of such actions.

3.6 Scenarios

When performing a cash flow analysis, the actuary should use an appropriate type, range, and number of scenarios to reasonably represent the underlying variability of the cash flows and should consider

testing modeled cash flows for sensitivity to alternative data, assumptions, or methods and performing additional analysis when, in the actuary’s professional judgment, the resulting cash flows are likely to be highly sensitive; and
selecting a projection period for which the cash flows may be material.

When assumptions are interdependent (for example, interest rates and projected lapse rates within a scenario), the actuary should use, or confirm use of, assumptions that are appropriate and reasonably consistent with one another for each scenario.

3.7 Interim Values

The actuary should take into account the impact of the pattern of interim values, such as negative balances (particularly surplus), cash flows, and earnings, when appropriate for the assignment.

3.8 Reliance on Another Party

When relying on another party and thereby disclaiming responsibility for:

data and other information relevant to the use of data, the actuary should refer to ASOP No. 23, Data Quality.
a model, the actuary should refer to ASOP No. 56, Modeling.
assumptions or methods prescribed by another party, the actuary should review the assumption or method for reasonableness and consistency with other assumptions and methods to the extent practicable and appropriate within the scope of the actuary’s assignment.
any other item not addressed above (including assumptions or methods not provided but not prescribed by another party), the actuary should review the item for reasonableness and consistency to the extent practicable and appropriate within the scope of the actuary’s assignment. In addition, the actuary should be reasonably satisfied that the reliance is appropriate, taking into account the following, as applicable:
1. when the other party is an actuary, whether the actuary knows that the other party is appropriately qualified and has followed applicable ASOPs;
2. whether the actuary knows that the other party has expertise in the applicable field;
3. whether the actuary knows the other party’s stated purpose for the item and the extent to which it is consistent with the actuary’s intended purpose; and
4. whether the actuary knows of differences of opinion within the other party’s field of expertise that are material to the actuary’s use of the item.

3.9 Documentation

The actuary should prepare and retain documentation to support compliance with the requirements of section 3 and the disclosure requirements of section 4. The actuary should prepare documentation in a form such that another actuary qualified in the same practice area could assess the reasonableness of the actuary’s work. The amount, form, and detail of the documentation should be based on the professional judgment of the actuary and may vary with the complexity and purpose of the actuarial services. In addition, the actuary should refer to ASOP No. 41, Actuarial Communications, for guidance related to the retention of file material other than that which is to be disclosed under section 4.

Section 4: Communications and Disclosures

4.1 Required Disclosures in an Actuarial Report

When issuing an actuarial report, the actuary should refer to ASOP Nos. 23, 41, and 56. In addition, the actuary should disclose the following in such actuarial reports, if applicable:

the intended purpose of the cash flow analysis (see section 3.2);
the scope of the cash flow analysis, as well as relevant cash flows omitted from the cash flow analysis and the rationale for doing so (see section 3.2);
1. the assets included in the cash flow analysis and relevant characteristics (see sections 3.2.1 and 3.4.1);
2. the liabilities included in the cash flow analysis and relevant characteristics (see sections 3.2.2 and 3.5.1); and
3. the treatment of reinsurance or other risk transfer transactions, in the cash flow analysis (see section 3.4.1 and 3.5.1);
the type of cash flow analysis and rationale for the type used (see section 3.3);
relevant assumptions related to projection of assets and liabilities in the cash flow analysis (sections 3.4 and 3.5);
known deviations from company or industry practices (see sections 3.4 and 3.5);
a description of scenarios, assumptions, sensitivity testing results, projection period, and any material inconsistencies among assumptions used when modeling the cash flows (see section 3.6);
the impact of the pattern of interim values, including any negative results (see section 3.7); and
any reliance on information provided by another party (see section 3.8).

4.2 Additional Disclosures in an Actuarial Report

The actuary also should include disclosures in an actuarial report in accordance with ASOP No. 41 for any of the following circumstances:

if any material assumption or method was prescribed by applicable law;
if the actuary states reliance on other sources and thereby disclaims responsibility for any material assumption or method selected by a party other than the actuary; or
if, in the actuary’s professional judgment, the actuary has otherwise deviated materially from the guidance of this standard.

4.3 Confidential Information

Nothing in this standard is intended to require the actuary to disclose confidential information.

Appendix 1

Background and Current Practices

Note: This appendix is provided for informational purposes and is not part of the standard of practice.

BACKGROUNDActuaries have been performing financial projections, which include various cash flow elements, for many years. The large increase in the level and volatility of investment rates of return over several decades caused significant swings in cash flows and present values. Regulatory and accounting requirements for reserve setting and testing, including principle-based reserving (PBR), generally accepted accounting principles (GAAP), and international financial reporting standards (IFRS), have changed significantly. Many newer applications of cash flow analysis require more judgment on the part of the actuary. In addition, the sophistication of insurance products has increased during this time. As a result of these changes, cash flow analysis has become an increasingly important aspect of actuarial work.

CURRENT PRACTICESCash flow analysis can be used in a variety of ways, such as analyzing the performance of a particular asset or insurance product under certain specified scenarios or evaluating the solvency of the entire company.

Various cash flow analysis methods are used, based on application. Cash flow testing is the most well-known type of cash flow analysis used for the evaluation of long-duration liabilities where combined asset and liability cash flows vary by economic scenario. Other types, such as a gross premium reserve projection or loss ratio methods, may be appropriate in several situations such as when the assets and liabilities have short duration.

Applications where cash flow testing is commonly used include principle-based reserves, asset adequacy analysis, reinsurance risk transfer testing, rate making, actuarial appraisals, and investment strategy analysis.

Appendix 2

Comments on the Exposure Draft and Responses

The exposure draft of the proposed revision of ASOP No. 7, Analysis of Life, Health, or Property/Casualty Insurance Cash Flow Risk, was issued in December 2023 with a comment deadline of June 1, 2024. Nine comment letters were received, some of which were submitted on behalf of multiple commentators, such as by firms or committees. For purposes of this appendix, the term “commentator” may refer to more than one person associated with a particular comment letter. The ASOP No. 7 Task Force of the Actuarial Standards Board (ASB) carefully considered all comments received, and a joint life and health review committee and the ASB reviewed (and modified, where appropriate) the changes proposed by the ASOP No. 7 Task Force.

Summarized here are the significant issues and questions contained in the comment letters and the responses. Minor wording or punctuation changes are not reflected in the appendix, although they may have been adopted.

The term “reviewers” in appendix 2 includes the ASOP No. 7 Task Force, the joint life and health review committee, and the ASB. The section numbers and titles used in appendix 2 refer to those in the exposure draft, which are then cross referenced with those in the final standard.

Life or Health Cash Flow Analysis

Search Sitewide

Search This Document

Table of Contents