§431:5-307 Standard valuation law; life. (a) This section shall be known as the standard valuation law.
(b)(1) For policies and contracts issued prior to the operative date of
the valuation manual:
(A) The
commissioner shall annually value, or cause to be valued, the reserve
liabilities, hereinafter called reserves, for all outstanding life insurance
policies and annuity and pure endowment contracts of every life insurance
company doing business in this State issued on or after January 1, 1956, and prior
to the operative date of the valuation manual.
In calculating the reserves, the commissioner may use group methods and
approximate averages for fractions of a year or otherwise. In lieu of the valuation of the reserves
required of a foreign or alien company, the commissioner may accept a valuation
made, or caused to be made, by the insurance supervisory official of any state
or other jurisdiction, when the valuation complies with the minimum standard
under this section;
(B) Subsections (e) to
(n) shall apply to all policies and contracts, as appropriate, subject to this
section issued on or after January 1, 1956, and prior to the operative date of
the valuation manual; provided that subsections (o) and (p) shall not apply to
those policies and contracts;
(C) The minimum
standard for the valuation of policies and contracts issued prior to January 1,
1956, shall be that provided by the laws in effect immediately prior to that
date;
(2) For
policies and contracts issued on or after the operative date of the valuation
manual:
(A) The
commissioner shall annually value, or cause to be valued, the reserve
liabilities, hereinafter called reserves, for all outstanding life insurance
contracts, annuity and pure endowment contracts, accident and health contracts,
and deposit-type contracts of every company issued on or after the operative
date of the valuation manual. In lieu of
the valuation of the reserves required of a foreign or alien company, the
commissioner may accept a valuation made, or caused to be made, by the
insurance supervisory official of any state or other jurisdiction when the
valuation complies with the minimum standard provided in this section; and
(B) Subsections
(o) and (p) shall apply to all policies and contracts issued on or after the
operative date of the valuation manual.
(c)
For an actuarial opinion prior to the operative date of the valuation
manual:
(1) Every life
insurance company doing business in this State shall annually submit the
opinion of a qualified actuary as to whether the reserves and related actuarial
items held in support of the policies and contracts specified by the
commissioner by rules are computed appropriately, are based on assumptions that
satisfy contractual provisions, are consistent with prior reported amounts, and
comply with the applicable laws of this State.
The commissioner shall define by rules the specifics of this opinion and
add any other items deemed to be necessary to its scope;
(2) For
actuarial analysis of reserves and assets supporting the reserves:
(A) Every life
insurance company, except as exempted by rules, shall also include annually in
the opinion required by paragraph (1), an opinion of the same qualified actuary
as to whether the reserves and related actuarial items held in support of the
policies and contracts specified by the commissioner by rules, when considered
in light of the assets held by the company with respect to the reserves and
related actuarial items, including but not limited to the investment earnings
on the assets and the considerations anticipated to be received and retained
under the policies and contracts, make adequate provision for the company's
obligations under the policies and contracts, including but not limited to the
benefits under and expenses associated with the policies and contracts; and
(B) The commissioner
may provide by rules for a transition period for establishing any higher
reserves that the qualified actuary may deem necessary to render the opinion
required by this section;
(3) Each
opinion required by paragraph (2) shall be governed by the following:
(A) A
memorandum, in form and substance acceptable to the commissioner as specified
by rules, shall be prepared to support each actuarial opinion; and
(B) If
the insurance company fails to provide a supporting memorandum at the request
of the commissioner within a period specified by rules, or if the commissioner
determines that the supporting memorandum provided by the insurance company
fails to meet the standards prescribed by rules, or is otherwise unacceptable
to the commissioner, the commissioner may engage a qualified actuary at the
expense of the insurance company to review the opinion and the basis for the
opinion and prepare the supporting memorandum required by the commissioner; and
(4) Every
opinion required by paragraph (1) shall be governed by the following:
(A) The
opinion shall be submitted with the annual statement reflecting the valuation
of the reserve liabilities for each year ending on or after December 31, 1995;
(B) The
opinion shall apply to all business in force including individual and group
health insurance plans, in form and substance acceptable to the commissioner as
specified by rules;
(C) The
opinion shall be based on standards adopted from time to time by the Actuarial
Standards Board or its successor and on any additional standards as the
commissioner may prescribe by rules;
(D) In
the case of an opinion required to be submitted by a foreign or alien company,
the commissioner may accept the opinion filed by that company with the
insurance supervisory official of another state if the commissioner determines
that the opinion reasonably meets the requirements applicable to a company
domiciled in this State;
(E) For
the purposes of this subsection, "qualified actuary" means a member
in good standing of the American Academy of Actuaries who meets the requirements set forth in the regulations adopted by the
American Academy of Actuaries;
(F) Except
in cases of fraud or wilful misconduct, the qualified actuary shall not be
liable for damages to any person, other than the insurance company and the
commissioner, for any act, error, omission, decision, or conduct with respect
to the actuary's opinion;
(G) Disciplinary
action by the commissioner against the company or the qualified actuary shall
be as defined by rules;
(H) Except
as provided in subparagraphs (L), (M), and (N), documents, materials, or other
information in the possession or control of the insurance division that are
part of a memorandum in support of the opinion, and any other material provided
by the company to the commissioner in connection with the memorandum, shall be
confidential by law and privileged, shall not be disclosable
under chapter 92F, shall not be subject to subpoena, and shall not be subject
to discovery or admissible in evidence in any private civil action. However, the commissioner may use the
documents, materials, or other information in the furtherance of any regulatory
or legal action brought as a part of the commissioner's official duties;
(I) Neither
the commissioner nor any person who received documents, materials, or other
information while acting under the authority of the commissioner shall be
permitted or required to testify in any private civil action concerning any confidential
documents, materials, or information subject to subparagraph (H);
(J) To
assist in the performance of the commissioner's duties, the commissioner:
(i) May share documents, materials, or other information, including
the confidential and privileged documents, materials, or information subject to
subparagraph (H) with other state, federal, and international regulatory
agencies, with the National Association of Insurance Commissioners and its
affiliates and subsidiaries, and with state, federal, and international law
enforcement authorities; provided that the recipient agrees to maintain the
confidentiality and privileged status of the document, material, or other
information; and
(ii) May receive
documents, materials, or information, including otherwise confidential and
privileged documents, materials, or information, from the National Association
of Insurance Commissioners and its affiliates and subsidiaries, and from
regulatory and law enforcement officials of other foreign or domestic jurisdictions,
and shall maintain as confidential or privileged any document, material, or
information received with notice or the understanding that it is confidential
or privileged under the laws of the jurisdiction that is the source of the
document, material, or information;
(K) No
waiver of any applicable privilege or claim of confidentiality in the
documents, materials, or information shall occur as a result of disclosure to
the commissioner under this subsection or as a result of sharing as authorized
in subparagraph (J);
(L) A memorandum in support of the opinion, and any other material provided by the company to the commissioner in connection with the memorandum, may be subject to subpoena for the purpose of defending an action seeking damages from the actuary submitting the memorandum by reason of an action required by this subsection or related rules adopted by the commissioner;
(M) The
memorandum or other material may otherwise be released by the commissioner with
the written consent of the company or to the American Academy of Actuaries upon
request stating that the memorandum or other material is required for the
purpose of professional disciplinary proceedings and setting forth procedures
satisfactory to the commissioner for preserving the confidentiality of the
memorandum or other material; and
(N) Once
any portion of the confidential memorandum is cited by the company in its
marketing or is cited before a governmental agency other than a state insurance
department or is released by the company to the news media, all portions of the
confidential memorandum shall be no longer confidential.
(d)
For actuarial opinions of reserves after the operative date of the
valuation manual:
(1) Every
company with outstanding life insurance contracts, accident and health
insurance contracts, or deposit-type contracts in this State and subject to
regulation by the commissioner shall annually submit the opinion of the
appointed actuary as to whether the reserves and related actuarial items held
in support of the policies and contracts are computed appropriately, are based
on assumptions that satisfy contractual provisions, are consistent with prior
reported amounts, and comply with applicable laws of this State. The valuation
manual shall prescribe the specifics of this opinion including any items deemed
to be necessary to its scope;
(2) Every company with
outstanding life insurance contracts, accident and health insurance contracts,
or deposit-type contracts in this State and subject to regulation by the commissioner,
except as exempted in the valuation manual, also shall annually include in the
opinion required by paragraph (1), an opinion of the same appointed actuary as
to whether the reserves and related actuarial items held in support of the
policies and contracts specified in the valuation manual, when considered in
light of the assets held by the company with respect to the reserves and
related actuarial items including but not limited to the investment earnings on
the assets and the considerations anticipated to be received and retained under
the policies and contracts, make adequate provision for the company's
obligations under the policies and contracts including but not limited to the
benefits under and expenses associated with the policies and contracts;
(3) Each opinion required
by this subsection shall be governed by the following provisions:
(A) A
memorandum, in form and substance as specified in the valuation manual and
acceptable to the commissioner, shall be prepared to support each actuarial
opinion; and
(B) If
the company fails to provide a supporting memorandum at the request of the
commissioner within a period specified in the valuation manual, or the
commissioner determines that the supporting memorandum provided by the
insurance company fails to meet the standards prescribed by the valuation
manual, or is otherwise unacceptable to the commissioner, the commissioner may
engage a qualified actuary at the expense of the insurance company to review
the opinion and the basis for the opinion and prepare the supporting memorandum
required by the commissioner; and
(4) Every
opinion subject to this subsection shall be governed by the following
provisions:
(A) The
opinion shall be in form and substance as specified in the valuation manual and
acceptable to the commissioner;
(B) The
opinion shall be submitted with the annual statement reflecting the valuation
of such reserve liabilities for each year ending on or after the operative date
of the valuation manual;
(C) The
opinion shall apply to all policies and contracts subject to paragraph (2),
plus other actuarial liabilities as may be specified in the valuation manual;
(D) The
opinion shall be based on standards adopted from time to time by the Actuarial
Standards Board or its successor and on such additional standards as may be
prescribed in the valuation manual;
(E) In
the case of an opinion required to be submitted by a foreign or alien company,
the commissioner may accept the opinion filed by that company with the
insurance supervisory official of another state if the commissioner determines
that the opinion reasonably meets the requirements applicable to a company
domiciled in this State;
(F) Except
in cases of fraud or wilful misconduct, the appointed actuary shall not be
liable for damages to any person, other than the insurance company and the
commissioner, for any act, error, omission, decision, or conduct with respect
to the appointed actuary's opinion; and
(G) Disciplinary
action by the commissioner against the company or the appointed actuary shall
be defined by rules adopted by the commissioner.
(e)
Except as otherwise provided in subsections (f), (g), and (n), the
minimum standard for the valuation of policies and contracts issued prior to
January 1, 1956, shall be that provided by the laws in effect immediately prior
to January 1, 1956.
Except as otherwise provided in subsections
(f), (g), and (n), the minimum standard for the valuation of all policies and
contracts issued on or after January 1, 1956, shall be the commissioner's
reserve valuation methods defined in subsections (h), (i),
(l), and (n), three and one-half per cent interest, or in the case of life
insurance policies and contracts, other than annuity and pure endowment
contracts, issued on or after June 1, 1976, four per cent interest for policies
issued prior to June 1, 1979, five and one-half per cent interest for single
premium life insurance policies, and four and one-half per cent interest for
all other policies issued on or after June 1, 1979, and the following tables:
(1) For
ordinary policies of life insurance issued on the standard basis, excluding any
accident and health and accidental death benefits in the policies: the Commissioners 1941 Standard Ordinary
Mortality Table for the policies issued prior to the operative date of section
431:10D-104(e)(6), the Commissioners 1958 Standard Ordinary Mortality Table for
the policies issued on or after the operative date of section 431:10D-104(e)(6)
and prior to the operative date of section [431:10D-104(e)(8)]; provided that
for any category of the policies issued on female risks, all modified net
premiums and present values referred to in this section may be calculated
according to an age not more than six years younger than the actual age of the
insured; and for the policies issued on or after the operative date of section
431:10D-104(e)(8):
(A) The
Commissioners 1980 Standard Ordinary Mortality Table;
(B) At the election of
the company for any one or more specified plans of life insurance, the
Commissioners 1980 Standard Ordinary Mortality Table with Ten-Year Select
Mortality Factors;
(C) Any ordinary
mortality table, adopted after 1980 by the National Association of Insurance Commissioners, that is approved by rules adopted by the
commissioner for use in determining the minimum standard of valuation for the
policies;
(2) For
industrial life insurance policies issued on the standard basis, excluding any
accident and health and accidental death benefits in the policies: the 1941 Standard Industrial Mortality Table
for the policies issued prior to the operative date of section
431:10D-104(e)(7), and for policies issued on or after the operative date of
section 431:10D-104(e)(7), the Commissioners 1961 Standard Industrial Mortality
Table or any industrial mortality table adopted after 1980 by the National
Association of Insurance Commissioners that is approved by rules adopted by the
commissioner for use in determining the minimum standard of valuation for the
policies;
(3) For
individual annuity and pure endowment contracts, excluding any accident and
health and accidental death benefits in the policies: the 1937 Standard Annuity Mortality Table, or
at the option of the company, the Annuity Mortality Table for 1949, ultimate,
or any modification of either of these tables approved by the commissioner;
(4) For
group annuity and pure endowment contracts, excluding any accident and health
and accidental death benefits in the policies:
the Group Annuity Mortality Table for 1951, a modification of the table
approved by the commissioner, or at the option of the company, any of the
tables or modifications of tables specified for individual annuity and pure
endowment contracts;
(5) For
total and permanent disability benefits in or supplementary to ordinary policies
or contracts: for policies or contracts
issued after December 31, 1965, the tables of period 2 disablement rates and
the 1930 to 1950 termination rates of the 1952 disability study of the Society
of Actuaries, with due regard to the type of benefit or any tables of
disablement rates and termination rates adopted after 1980 by the National
Association of Insurance Commissioners, that are approved by rules adopted by
the commissioner for use in determining the minimum standard of valuation for
those policies; for policies or contracts issued after December 31, 1960, and
prior to January 1, 1966, either the tables or, at the option of the
company, the Class (3) Disability Table (1926); and for policies issued prior
to January 1, 1961, the Class (3) Disability Table (1926). Any table, for active lives, shall be
combined with a mortality table permitted for calculating the reserves for life
insurance policies;
(6) For
accidental death benefits in or supplementary to policies issued after December
31, 1965: the 1959 Accidental Death
Benefits Table or any accidental death benefits table adopted after 1980 by the
National Association of Insurance Commissioners, that is approved by rules
adopted by the commissioner for use in determining the minimum standard of
valuation for those policies, for policies issued after December 31, 1960, and
prior to January 1, 1966, either that table or, at the option of the company,
the Inter-company Double Indemnity Mortality Table. Either table shall be combined with a mortality
table for calculating the reserves for life insurance policies; and
(7) For
group life insurance, life insurance issued on the substandard basis, and other
special benefits: tables approved by the
commissioner.
(f)
Except as provided in subsection (g), the minimum standard of valuation
for individual annuity and pure endowment contracts issued on or after the
operative date of this subsection and for annuities and pure endowment
contracts purchased on or after the operative date under group annuity and pure
endowment contracts, shall be the commissioner's reserve valuation methods
defined in subsections (h) and (i) and the following
tables and interest rates:
(1) For
individual annuity and pure endowment contracts issued prior to June 1, 1979,
excluding any accident and health and accidental death benefits in the
contracts: the 1971 Individual Annuity
Mortality Table, or any modification of this table approved by the
commissioner, and six per cent interest for single premium immediate annuity
contracts, and four per cent interest for all other individual annuity and pure
endowment contracts;
(2) For
individual single premium immediate annuity contracts issued on or after June
1, 1979, excluding any accident and health and accidental death benefits in the
contracts: the 1971 Individual Annuity
Mortality Table or any individual annuity mortality table adopted after 1980 by
the National Association of Insurance Commissioners, that is approved by rules
adopted by the commissioner for use in determining the minimum standard of
valuation for these contracts, or any modification of these tables approved by
the commissioner, and seven and one-half per cent interest;
(3) For
individual annuity and pure endowment contracts issued on or after June 1,
1979, other than single premium immediate annuity contracts, excluding any
accident and health and accidental death benefits in those contracts: the 1971 Individual Annuity Mortality Table
or any individual annuity mortality table adopted after 1980 by the National
Association of Insurance Commissioners, that is approved by rules adopted by
the commissioner for use in determining the minimum standard of valuation for
those contracts, or any modification of these tables approved by the
commissioner, and five and one-half per cent interest for single premium
deferred annuity and pure endowment contracts and four and one-half per cent
interest for all other individual annuity and pure endowment contracts;
(4) For
annuities and pure endowment contracts purchased prior to June 1, 1979, under
group annuity and pure endowment contracts, excluding any accident and health
and accidental death benefits purchased under those contracts: the 1971 Group Annuity Mortality Table or any
modification of this table approved by the commissioner, and six per cent
interest; and
(5) For
annuities and pure endowment contracts purchased on or after June 1, 1979,
under group annuity and pure endowment contracts, excluding any accident and
health and accidental death benefits purchased under those contracts: the 1971 Group Annuity Mortality Table, or
any group annuity mortality table adopted after 1980 by the National
Association of Insurance Commissioners, that is approved by rules adopted by
the commissioner for use in determining the minimum standard of valuation for
the annuities and pure endowment contracts, or any modification of these tables
approved by the commissioner, and seven and one-half per cent interest.
After
June 1, 1976, any company may file with the commissioner a written notice of
its election to comply with this subsection after a specified date before
January 1, 1979, which shall be the operative date of this subsection for that
company. If a company makes no election,
the operative date of this subsection for that company shall be January 1, 1979.
(g)(1) The interest rates used in determining the minimum standard for
the valuation of the following shall be the calendar year statutory valuation
interest rates as defined in this section:
(A) Life
insurance policies issued in a particular calendar year, on or after the
operative date of section 431:10D-104(e)(8);
(B) Individual
annuity and pure endowment contracts issued in a particular calendar year after
December 31, 1982;
(C) Annuities
and pure endowment contracts purchased in a particular calendar year after
December 31, 1982, under group annuity and pure endowment contracts; and
(D) The
net increase, if any, in a particular calendar year after January 1, 1983, in
amounts held under guaranteed interest contracts.
(2) The
calendar year statutory valuation interest rates, I, shall be determined as
follows and the results rounded to the nearer one-quarter of one per cent:
(A) For life insurance,
W
I = .03 + W (R1 - .03) + — (R2
- .09);
2
(B) For
single premium immediate annuities and for annuity benefits involving life
contingencies arising from other annuities with cash settlement options and
from guaranteed interest contracts with cash settlement options,
I = .03 + W (R - .03)
where R1
is the lesser of R and .09, R2 is the greater of R and .09, R is the
reference interest rate defined in this subsection, and W is the weighting
factor defined in this subsection;
(C) For
other annuities with cash settlement options and guaranteed interest contracts
with cash settlement options, valued on an issue year basis, except as stated
in subparagraph (B), the formula for life insurance stated in subparagraph (A)
shall apply to annuities and guaranteed interest contracts with guarantee durations
in excess of ten years and the formula for single premium immediate annuities
stated in subparagraph (B) shall apply to annuities and guaranteed interest
contracts with guarantee duration of ten years or less;
(D) For
other annuities with no cash settlement options and for guaranteed interest
contracts with no cash settlement options, the formula for single premium
immediate annuities stated in subparagraph (B) shall apply; and
(E) For
other annuities with cash settlement options and guaranteed interest contracts
with cash settlement options, valued on a change in fund basis, the formula for
single premium immediate annuities stated in subparagraph (B) shall apply.
If the calendar year statutory
valuation interest rate for any life insurance policies issued in any calendar
year determined without reference to this subsection differs from the
corresponding actual rate for similar policies issued in the immediately
preceding calendar year by less than one-half of one per cent, the calendar year
statutory valuation interest rate for the life insurance policies shall be
equal to the corresponding actual rate for the immediately preceding calendar
year. For purposes of applying the
immediately preceding sentence, the calendar year statutory valuation interest
rate for life insurance policies issued in a calendar year shall be determined
for 1980 (using the reference interest rate defined for 1979) and shall be
determined for each subsequent calendar year regardless of when section
431:10D-104(e)(8) becomes operative;
(3) The
weighting factors referred to in the formulas stated in paragraph (2) are given
in the following tables:
(A) Weighting
factors for life insurance:
Guarantee
Duration Weighting
(Years) Factors
10 or
(less) .50
More than 10, but
not more than 20 .45
More than 20
.35
For
life insurance, the guarantee duration is the maximum number of years the life
insurance can remain in force on a basis guaranteed in the policy or under
options to convert to plans of life insurance with premium rates or nonforfeiture values or both, which are guaranteed in the
original policy;
(B) Weighting factor for single premium immediate
annuities and for annuity benefits involving life contingencies arising from
other annuities with cash settlement options and guaranteed interest contracts
with cash settlement options: .80; and
(C) Weighting factors for other annuities and for
guaranteed interest contracts, except as stated in subparagraph (B), shall be
as specified in the tables below, according to the rules and definitions stated
below:
Table
I:
For
annuities and guaranteed interest contracts valued on an issue year basis:
Guarantee Weighting Factor
Duration For
Plan Type
(Years) A B C
5 or less:
.80 .60 .50
More than 5, but
not more than 10: .75 .60 .50
More than 10, but
not more than 20: .65 .50 .45
More than 20: .45 .35 .35
Plan Type
Table
II: A B C
For
annuities and guaranteed interest contracts valued on a change in fund basis,
the factors shown in
Table I
increased by: .15 .25 .05
Plan
Type
Table
For
annuities and guaranteed interest contracts valued on an issue year basis
(other than those with no cash settlement options) that do not guarantee interest
on considerations received more than one year after issue or purchase and for
annuities and guaranteed interest contracts valued on a change in fund basis
that do not guarantee interest rates on considerations received more than
twelve months beyond the valuation date, the factors shown in Table I or
derived in
Table II increased by: .05 .05 .05
For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, the guarantee
duration is the number of years for which the contract guarantees interest
rates in excess of the calendar year statutory valuation interest rate for life
insurance policies with guarantee duration in excess of twenty years. For other annuities with no cash settlement
options and for guaranteed interest contracts with no cash settlement options,
the guarantee duration is the number of years from the date of issue or date of
purchase to the date annuity benefits are scheduled to commence. Plan type as used in the above tables is defined
as follows:
Plan Type A: At any time the policyholder may withdraw
funds only: (1) with an adjustment to
reflect changes in interest rates or asset values since receipt of the funds by
the insurance company; (2) without an adjustment, but in installments over five
years or more; (3) as an immediate life annuity; or (4) no withdrawal
permitted;
Plan Type B: Before expiration of the interest rate
guarantee, the policyholder may withdraw funds only: (1) with an adjustment to reflect changes in
interest rates or asset values since receipt of the funds by the insurance
company; (2) without an adjustment, but in installments over five years or
more; or (3) no withdrawal permitted. At
the end of the interest rate guarantee, funds may be withdrawn without
adjustment in a single sum or in installments over less than five years;
Plan Type C: The policyholder may withdraw funds before
expiration of the interest rate guarantee in a single sum or in installments
over less than five years either: (1)
without adjustment to reflect changes in interest rates or asset values since
receipt of the funds by the insurance company; or (2) subject only to a fixed
surrender charge stipulated in the contract as a percentage of the fund.
A company may elect to value guaranteed
interest contracts with cash settlement options and annuities with cash
settlement options on either an issue year basis or on a change in fund
basis. Guaranteed interest contracts
with no cash settlement options and other annuities with no cash settlement
options shall be valued on an issue year basis.
As used in this subsection, "issue year basis" means a
valuation basis under which the interest rate used to determine the minimum
valuation standard for the entire duration of the annuity or guaranteed
interest contract is the calendar year valuation interest rate for the year of
issue or year of purchase of the annuity or guaranteed interest contract, and
"change in fund basis" means a valuation basis under which the
interest rate used to determine the minimum valuation standard applicable to
each change in the fund held under the annuity or guaranteed interest contract
is the calendar year valuation interest rate for the year of the change in the
fund;
(4) The
reference interest rate referred to in paragraph (2) shall be defined as
follows:
(A) For
life insurance, the lesser of the average over a period of thirty-six months
and the average over a period of twelve months, ending on June 30 of the
calendar year preceding the year, of the monthly average of composite yield on
seasoned corporate bonds, as published by Moody's Investors Service, Inc.;
(B) For
single premium immediate annuities and for annuity benefits involving life
contingencies arising from other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, the average over a
period of twelve months, ending on June 30 of the calendar year of issue or
year of purchase, of the monthly average of the composite yield on seasoned
corporate bonds, as published by Moody's Investors Service, Inc.;
(C) For
other annuities with cash settlement options and guaranteed interest contracts
with cash settlement options, valued on an issue year basis, except as stated
in subparagraph (B), with guarantee duration in excess of ten years, the lesser
of the average over a period of thirty-six months and the average over a period
of twelve months, ending on June 30 of the calendar year of issue or purchase,
of the monthly average of the composite yield on seasoned corporate bonds, as
published by Moody's Investors Service, Inc.;
(D) For
other annuities with cash settlement options and guaranteed interest contracts
with cash settlement options, valued on an issue year basis, except as stated
in subparagraph (B), with guarantee duration of ten years or less, the average
over a period of twelve months, ending on June 30 of the calendar year of issue
or purchase, of the monthly average of the composite yield on seasoned
corporate bonds, as published by Moody's Investors Service, Inc.;
(E) For
other annuities with no cash settlement options and for guaranteed interest
contracts with no cash settlement options, the average over a period of twelve
months, ending on June 30 of the calendar year of issue or purchase, of the
monthly average of the composite yield on seasoned corporate bonds, as
published by Moody's Investors Service, Inc.; and
(F) For
other annuities with cash settlement options and guaranteed interest contracts
with cash settlement options, valued on a change in fund basis, except as
stated in subparagraph (B), the average over a period of twelve months, ending
on June 30 of the calendar year of the change in the fund, of the monthly
average of the composite yield on seasoned corporate bonds, as published by
Moody's Investors Service, Inc.; and
(5) In the event that the monthly average of the composite yield on
seasoned corporate bonds is no longer published by Moody's Investors Service,
Inc., or in the event that the National Association of Insurance Commissioners
determines that the monthly average of the composite yield on seasoned
corporate bonds as published by Moody's Investors Service, Inc., is no longer
appropriate for the determination of the reference interest rate, then an
alternative method for determination of the reference interest rate adopted by
the National Association of Insurance Commissioners and approved by rules
adopted by the commissioner may be substituted.
(h)(1) Except as otherwise provided in subsections (i),
(l), and (n), reserves, according to the commissioner's reserve valuation
method, for the life insurance and endowment benefits of policies providing for
a uniform amount of insurance and requiring the payment of uniform premiums
shall be the excess, if any, of the present value, at the date of valuation, of
the future guaranteed benefits provided for by the policies, over the then
present value of any future modified net premiums therefor. The modified net premiums for a policy shall
be the uniform percentage of the respective contract premiums for the benefits
such that the present value, at the date of issue of the policy, of all the
modified net premiums shall be equal to the sum of the then present value of
the benefits provided for by the policy and the excess of subparagraph (A) over
subparagraph (B) as follows:
(A) A net
level annual premium equal to the present value, at the date of issue, of the
benefits provided for after the first policy year, divided by the present
value, at the date of issue, of an annuity of one per annum payable on the
first and each subsequent anniversary of the policy on which a premium falls
due; provided that the net level annual premium shall not exceed the net level
annual premium on the nineteen-year premium whole life plan for insurance of
the same amount at an age one year higher than the age of issue of the policy;
and
(B) A net one-year
term premium for the benefits provided for in the first policy year;
(2) For a life
insurance policy issued on or after January 1, 1986, for which the
contract premium in the first policy year exceeds that of the second year, and
for which no comparable additional benefit is provided in the first year for
the excess, and that provides an endowment benefit, a cash surrender value, or
a combination thereof, in an amount greater than the excess premium, the
reserve, according to the commissioner's reserve valuation method as of any
policy anniversary occurring on or before the assumed ending date, defined
herein as the first policy anniversary on which the sum of any endowment
benefit and any cash surrender value then available is greater than the excess
premium, except as otherwise provided in subsection (l), shall be the greater
of the reserve as of the policy anniversary calculated pursuant to this paragraph
and the reserve as of the policy anniversary calculated as described, but with:
(A) The
value defined in paragraph (1) being reduced by fifteen per cent of the amount
of the excess first year premium;
(B) All
present values of benefits and premiums being determined without reference to
premiums or benefits provided for by the policy after the assumed ending date;
(C) The
policy being assumed to mature on that date as an endowment; and
(D) The
cash surrender value provided on that date being considered as an endowment
benefit.
In making the above comparison, the mortality and interest
bases stated in subsections (e) and (g) shall be used; and
(3) Reserves
according to the commissioner's reserve valuation method shall be calculated by
a method consistent with the principles of paragraphs (1) and (2) for:
(A) Life
insurance policies providing for a varying amount of insurance or requiring the
payment of varying premiums;
(B) Group
annuity and pure endowment contracts purchased under a retirement plan or plan
of deferred compensation, established or maintained by an employer (including a
partnership or sole proprietorship) or by an employee organization, or by both,
other than a plan providing individual retirement accounts or individual retirement
annuities under section 408 of the Internal Revenue Code, as now or hereafter
amended;
(C) Accident
and health or sickness and accidental death benefits in all policies and
contracts; and
(D) All other
benefits, except life insurance and endowment benefits in life insurance
policies and benefits provided by all other annuity and pure endowment
contracts.
(i) This subsection shall apply to all annuity
and pure endowment contracts other than group annuity and pure endowment
contracts purchased under a retirement plan or plan of deferred compensation,
established or maintained by an employer (including a partnership or sole
proprietorship) or by an employee organization, or by both, other than a plan
providing individual retirement accounts or individual retirement annuities
under section 408 of the Internal Revenue Code, as now or hereafter amended.
Reserves according to the commissioner's annuity reserve method
for benefits under annuity or pure endowment contracts, excluding any accident
and health or sickness and accidental death benefits in the contracts, shall be
the greatest of the respective excesses of the present values, at the date of
valuation, of the future guaranteed benefits, including guaranteed nonforfeiture benefits, provided for by the contracts at
the end of each respective contract year, over the present value, at the date
of valuation, of any future valuation considerations derived from future gross
considerations, required by the terms of the contract, that become payable prior
to the end of the respective contract year.
The future guaranteed benefits shall be determined by using the
mortality table, if any, and the interest rate, or rates, specified in the
contracts for determining guaranteed benefits.
The valuation considerations are the portions of the respective gross
considerations applied under the terms of the contracts to determine nonforfeiture values.
(j) In no event shall a
company's aggregate reserves for all life insurance policies, excluding
accident and health and accidental death benefits, issued on or after January
1, 1956, be less than the aggregate reserves calculated in accordance with the
methods set forth in subsections (h), (i), (l), and
(m), and the mortality table or tables and rate or rates of interest used in
calculating nonforfeiture benefits for those
policies. In no event shall the
aggregate reserves for all policies, contracts, and benefits be less than the
aggregate reserves determined by the appointed actuary to be necessary to
render the opinion required by subsections (c) and (d).
(k) With regard to
optional reserve calculation:
(1) Reserves
for policies and contracts issued prior to January 1, 1956, may be calculated,
at the option of the company, according to any standards that produce greater
aggregate reserves for all such policies and contracts than the minimum
reserves required by the laws in effect immediately prior to that date;
(2) Reserves
for any category of policies, contracts, or benefits established by the
commissioner, issued on or after January 1, 1956, may be calculated, at the
option of the company, according to any standards that produce greater
aggregate reserves for the category than those calculated according to the
minimum standard provided herein, but the rate or rates of interest used for
policies and contracts, other than annuity and pure endowment contracts, shall
not be greater than the corresponding rate or rates of interest used in
calculating any nonforfeiture benefits provided in
the policies or contracts; and
(3) A company,
which adopts at any time a standard valuation producing greater aggregate
reserves than those calculated according to the minimum standard provided under
this section, may adopt a lower standard of valuation with the approval of the
commissioner, but not lower than the minimum provided herein; provided that for
the purposes of this section, the holding of additional reserves previously
determined by the appointed actuary to be necessary to render the opinion
required by subsections (c) and (d) shall not be deemed to be the adoption of a
higher standard of valuation.
(l)
If in any contract year the gross premium charged by a company on a
policy or contract is less than the valuation net premium for the policy or
contract calculated by the method used in calculating the reserve but using the
minimum valuation standards of mortality and rate of interest, the minimum
reserve required for the policy or contract shall be the greater of either the
reserve calculated according to the mortality table, rate of interest, and
method actually used for the policy or contract, or the reserve calculated by
the method actually used for the policy or contract, but using the minimum
valuation standards of mortality and rate of interest and replacing the valuation
net premium by the actual gross premium in each contract year for which the
valuation net premium exceeds the actual gross premium. The minimum valuation standards of mortality
and rate of interest referred to in this subsection are those standards stated
in subsections (e) and (g). For a life
insurance policy issued on or after January 1, 1986, for which the gross
premium in the first policy year exceeds that of the second year and for which
no comparable additional benefit is provided in the first year for the excess
and that provides an endowment benefit or a cash surrender value, or a
combination thereof, in an amount greater than the excess premium, this
subsection shall be applied as if the method actually used in calculating the
reserve for the policy were the method described in subsection (h), ignoring
subsection (h)(2). The minimum reserve
at each policy anniversary of such a policy shall be the greater of the minimum
reserve calculated in accordance with subsection (h), including subsection
(h)(2) and the minimum reserve calculated in accordance with this subsection.
(m) In the case of any
plan of life insurance that provides for future premium determination, the
amounts of which are to be determined by the insurance company based on then
estimates of future experience, or in the case of any plan of life insurance or
annuity that is of such a nature that the minimum reserves cannot be determined
by the methods described in subsections (h), (i), and
(l), the reserves that are held under the plan shall:
(1) Be
appropriate in relation to the benefits and the pattern of premiums for that
plan; and
(2) Be
computed by a method that is consistent with the principles of this section, as
determined by rules adopted by the commissioner.
(n)
For accident and health insurance contracts issued on or after the
operative date of the valuation manual, the standard prescribed in the
valuation manual is the minimum standard of valuation required under subsection
(b)(2). For accident and health or
sickness insurance contracts issued on or after January 1, 1956, and prior to
the operative date of the valuation manual, the minimum standard of valuation
is the standard adopted by the commissioner by rule.
(o)(1) For policies issued on or after the operative date of the valuation
manual, the standard prescribed in the valuation manual is the minimum standard
of valuation required under subsection (b)(2), except as provided under
paragraph (5) or (7) of this subsection;
(2) The
operative date of the valuation manual is January 1 of the first calendar
year following the first July 1 as of which all of the following have occurred:
(A) The
valuation manual has been adopted by the National Association of Insurance
Commissioners by an affirmative vote of at least forty-two members, or
three-fourths of the members voting, whichever is greater;
(B) The
Standard Valuation Law, as amended by the National Association of Insurance
Commissioners in 2009, or legislation including substantially similar terms and
provisions, has been enacted by states representing greater than seventy-five
per cent of the direct premiums written as reported in the following annual
statements submitted for 2008: life,
accident and health annual statements; health annual statements; or fraternal
annual statements; and
(C) The
Standard Valuation Law, as amended by the National Association of Insurance
Commissioners in 2009, or legislation including substantially similar terms and
provisions, has been enacted by at least forty-two of the following fifty-five
jurisdictions: the fifty states of the
United States, American Samoa, the American Virgin Islands, the District of
Columbia, Guam, and Puerto Rico;
(3) Unless a
change in the valuation manual specifies a later effective date, changes to the
valuation manual shall be effective on January 1 following the date when all of
the following have occurred:
(A) The change
to the valuation manual has been adopted by the National Association of
Insurance Commissioners by an affirmative vote representing:
(i) At least three-fourths of the members of the National Association
of Insurance Commissioners voting, but not less than a majority of the total
membership; and
(ii) Members of
the National Association of Insurance Commissioners representing jurisdictions
totaling greater than seventy-five per cent of the direct premiums written as
reported in the following annual statements most recently available prior to
the vote in clause (i): life, accident and health annual statements;
health annual statements; or fraternal annual statements; and
(B) The
valuation manual becomes effective pursuant to rules adopted by the
commissioner;
(4) The
valuation manual shall specify all of the following:
(A) Minimum valuation
standards for and definitions of the policies or contracts subject to
subsection (b)(2).
These minimum valuation standards shall be:
(i) The commissioner's reserve valuation method for life insurance
contracts, other than annuity contracts, subject to subsection (b)(2);
(ii) The commissioner's
annuity reserve valuation method for annuity contracts subject to subsection (b)(2); and
(iii) Minimum
reserves for all other policies or contracts subject to subsection (b)(2);
(B) Which policies or
contracts or types of policies or contracts that are subject to the
requirements of a principle-based valuation in subsection (p)(1) and the
minimum valuation standards consistent with those requirements;
(C) For policies and
contracts subject to a principle-based valuation under subsection (p):
(i) Requirements for the format of reports to the commissioner under
subsection (p)(2)(C) that shall include information necessary to determine if
the valuation is appropriate and in compliance with this section;
(ii) Assumptions
shall be prescribed for risks over which the company does not have significant
control or influence; and
(iii) Procedures
for corporate governance and oversight of the actuarial function, and a process
for appropriate waiver or modification of such procedures;
(D) For policies not
subject to a principle-based valuation under subsection (p), the minimum
valuation standard shall either:
(i) Be consistent with the minimum
standard of valuation prior to the operative date of the valuation manual; or
(ii) Develop reserves
that 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;
(E) Other requirements
including but not limited to those relating to reserve methods, models for
measuring risk, generation of economic scenarios, assumptions, margins, use of
company experience, risk measurement, disclosure, certifications, reports,
actuarial opinions and memorandums, transition rules, and internal controls;
and
(F) The data and form
of the data required under subsection (q), with whom the data shall be
submitted, and may specify other requirements including data analyses and
reporting of analyses;
(5) In the
absence of a specific valuation requirement or if a specific valuation
requirement in the valuation manual is not, in the opinion of the commissioner,
in compliance with this section, then the company shall, with respect to these
requirements, comply with minimum valuation standards prescribed by the
commissioner by rule;
(6) The
commissioner may engage a qualified actuary, at the expense of the company, to
perform an actuarial examination of the company and opine on the
appropriateness of any reserve assumption or method used by the company, or to
review and opine on a company's compliance with any requirement set forth in
this section. The commissioner may rely
upon the opinion, regarding provisions contained within this section, of a qualified
actuary engaged by the commissioner of another state, district, or territory of
the United States. As used in this
paragraph, "engage" includes employment and contracting; and
(7) The
commissioner may require a company to change any assumption or method that in
the opinion of the commissioner is necessary to comply with the requirements of
the valuation manual or this section, and the company shall adjust the reserves
as required by the commissioner. The commissioner
may take other disciplinary action as permitted pursuant to this chapter.
(p)(1) A company shall establish reserves using a
principle-based valuation that meets the following conditions for policies or
contracts as specified in the valuation manual:
(A) 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 policies
or contracts with significant tail risk, the valuation shall reflect conditions
appropriately adverse to quantify the tail risk;
(B) Incorporate
assumptions, risk analysis methods and financial models, and management
techniques that are consistent with, but not necessarily identical to, those
used within the company's overall risk assessment process, while recognizing
potential differences in financial reporting structures and any prescribed
assumptions or methods;
(C) Incorporate
assumptions that are prescribed in the valuation manual, or for assumptions
that are not prescribed, the assumptions shall:
(i) Be established using the company's available experience, to the
extent it 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; and
(D) Provide
margins for uncertainty including adverse deviation and estimation error, such
that the greater the uncertainty, the larger the margin and resulting reserve;
(2) A company
using a principle-based valuation for one 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 to the company's board of directors an annual
certification of the effectiveness of the internal controls with respect to the
principle-based valuation. These
controls shall be designed to assure that all material risks inherent in the
liabilities and associated assets subject to the valuation are included in the valuation,
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; and
(3) A
principle-based valuation may include a prescribed formulaic reserve component.
(q)
On or after the operative date of the valuation manual, a company shall
submit mortality, morbidity, policyholder behavior, or expense experience and
other data as prescribed in the valuation manual.
(r)(1) With respect to privilege for, and
confidentiality of, confidential information:
(A) Except as
provided in this subsection, a company's confidential information is
confidential by law and privileged, and shall not be disclosable
under chapter 92F, shall not be subject to subpoena, and shall not be subject
to discovery or admissible in evidence in any private civil action; provided
that the commissioner may use the confidential information in the furtherance
of any regulatory or legal action brought against the company as a part of the
commissioner's official duties;
(B) Neither the
commissioner nor any person who received confidential information while acting
under the authority of the commissioner shall be permitted or required to
testify in any private civil action concerning any confidential information;
(C) To assist in the
performance of the commissioner's duties, the commissioner may share confidential
information:
(i) With other state, federal, and international regulatory agencies
and with the National Association of Insurance Commissioners and its affiliates
and subsidiaries; and
(ii) In the
case of confidential information specified in paragraph (3)(A)(i) and (iv) only, with the Actuarial Board for Counseling
and Discipline or its successor upon request stating that the confidential
information is required for the purpose of professional disciplinary
proceedings and with the state, federal, and international law enforcement
officials in the case of this clause and clause (i);
provided that the recipient agrees, and has the legal authority to agree, to
maintain the confidentiality and privileged status of the documents, materials,
data, and other information in the same manner and to the same extent as
required for the commissioner;
(D) The
commissioner may receive documents, materials, data, and other information,
including otherwise confidential and privileged documents, materials, data, or
information, from the National Association of Insurance Commissioners and its
affiliates and subsidiaries, from regulatory or law enforcement officials of
other foreign or domestic jurisdictions, and from the Actuarial Board for
Counseling and Discipline or its successor and shall maintain as confidential
or privileged any document, material, data, or other information received with
notice or the understanding that it is confidential or privileged under the
laws of the jurisdiction that is the source of the document, material, or other
information;
(E) The
commissioner may enter into agreements governing the sharing and use of
information consistent with this paragraph;
(F) No waiver
of any applicable privilege or claim of confidentiality in the confidential
information shall occur as a result of disclosure to the commissioner under
this subsection or as a result of sharing as authorized in subparagraph (C);
and
(G) A
privilege established under the law of any state or jurisdiction that is
substantially similar to the privilege established under this paragraph shall
be available and enforced in any proceeding in, and in any court of, this
State;
(2) Notwithstanding
paragraph (1), any confidential information specified in paragraph (3)(A)(i) and (iv):
(A) May be
subject to subpoena for the purpose of defending an action seeking damages from
the appointed actuary submitting the related memorandum in support of an
opinion submitted under subsections (c) and (d) or principle-based valuation
report developed under subsection (p)(2)(C) by reason of an action required by
this section or by rules adopted hereunder;
(B) May
otherwise be released by the commissioner with the written consent of the
company; and
(C) Once any
portion of a memorandum in support of an opinion submitted under subsections
(c) and (d) or a principle-based valuation report developed under subsection (p)(2)(C) is cited by the company in its marketing, is
publicly volunteered to or before a governmental agency other than a state insurance
department, or is released by the company to the news media, all portions of
the memorandum or report shall no longer be confidential; and
(3) For
purposes of this section:
(A) "Confidential
information" means:
(i) A memorandum in support of an opinion submitted under subsections
(c) and (d) and any other documents, materials, and other information,
including but not limited to all working papers and copies thereof, created,
produced, or obtained by or disclosed to the commissioner or any other person
in connection with such memorandum;
(ii) All
documents, materials, and other information, including but not limited to all
working papers and copies thereof, created, produced, or obtained by or
disclosed to the commissioner or any other person in the course of an
examination made under subsection (o)(6); provided that if an examination
report or other material prepared in connection with an examination made under
section 431:2-302 is not held as private and confidential information under
section 431:2-305, an examination report or other material prepared in
connection with an examination made under subsection (o)(6) shall not be
"confidential information" to the same extent as if the examination
report or other material had been prepared under section 431:2-305;
(iii) Any
reports, documents, materials, and other information developed by a company in
support of, or in connection with, an annual certification by the company under
subsection (p)(2)(B) evaluating the effectiveness of the company's internal
controls with respect to a principle-based valuation and any other documents,
materials, and other information, including but not limited to all working
papers and copies thereof, created, produced, or obtained by, or disclosed to
the commissioner or any other person in connection with such reports,
documents, materials, and other information;
(iv) Any
principle-based valuation report developed under subsection (p)(2)(C) and any
other documents, materials, and other information, including but not limited to
all working papers and copies thereof, created, produced, or obtained by, or
disclosed to the commissioner or any other person in connection with the
report; and
(v) Any
documents, materials, data, and other information submitted by a company under
subsection (q) (collectively, "experience data") and any other
documents, materials, data, and other information, including but not limited to
all working papers and copies thereof, created or produced in connection with
the experience data, in each case that include any potentially
company-identifying or personally identifiable information, that is provided to
or obtained by the commissioner (together with any "experience data",
the "experience materials") and any other documents, materials, data,
and other information, including but not limited to all working papers and
copies thereof, created, produced, or obtained by, or disclosed to the
commissioner or any other person in connection with the experience materials;
and
(B) "Regulatory
agency", "law enforcement agency", and "National
Association of Insurance Commissioners" include but shall not be limited
to their employees, agents, consultants, and contractors.
(s)
The commissioner may exempt specific product forms or product lines of a
domestic company that is licensed and doing business only in this State from
the requirements of subsection (o); provided that:
(1) The
commissioner has issued an exemption in writing to the company and has not
subsequently revoked the exemption in writing; and
(2) The
company computes reserves using assumptions and methods used prior to the
operative date of the valuation manual in addition to any requirements
established by the commissioner and adopted by rule.
For
any company granted an exemption under this subsection, subsections (c) to (n)
shall be applicable. With respect to any
company applying this exemption, any reference to subsection (o) found in
subsections (c) to (n) shall not be applicable.
(t) As used in this section, the following
definitions shall apply on or after the operative date of the valuation manual:
"Accident and
health insurance" means a contract that incorporates morbidity risk and
provides protection against economic loss resulting from accident, sickness, or
medical conditions and as may be specified in the valuation manual.
"Appointed
actuary" means a qualified actuary who is appointed in accordance with the
valuation manual to prepare the actuarial opinion required in subsection (d).
"Company"
means an entity that:
(1) Has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in this State and has at least one such policy in force or on claim; or
(2) Has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in any state and is required to hold a certificate of authority to write life insurance, accident and health insurance, or deposit-type contracts in this State.
"Deposit-type
contract" means a contract that does not incorporate mortality or
morbidity risks and as may be specified in the valuation manual.
"Life
insurance" means a contract that incorporates mortality risk, including an
annuity and a pure endowment contract, and as may be specified in the valuation
manual.
"Policyholder
behavior" means any action that a policyholder, contract holder, or any
other person with the right to elect options, such as a certificate holder, may
take under a policy or contract subject to this section including but not
limited to lapse, withdrawal, transfer, deposit, premium payment, loan, annuitization, or benefit elections prescribed by the
policy or contract, but excluding events of mortality or morbidity that result
in benefits prescribed in their essential aspects by the terms of the policy or
contract.
"Principle-based
valuation" means a reserve valuation that uses one or more methods or one
or more assumptions determined by the insurer and is required to comply with
subsection (p) as specified in the valuation manual.
"Qualified
actuary" means an individual who is qualified to sign the applicable
statement of actuarial opinion in accordance with the American Academy of
Actuaries qualification standards for actuaries signing the statement and who
meets the requirements specified in the valuation manual.
"Tail risk"
means a risk that occurs either where the frequency of low probability events
is higher than expected under a normal probability distribution or where there
are observed events of very significant size or magnitude.
"Valuation manual" means the manual of valuation instructions adopted by the National Association of Insurance Commissioners as specified in this section or as subsequently amended. [L 1987, c 347, pt of §2; am L 1994, c 190, §§3, 10; am L 1995, c 61, §2 as superseded by c 232, §4; am L 1999, c 302, §9 as superseded by c 128, §2; am L 2003, c 212, §40; am L 2014, c 234, §4]