2338 Recognition of the 2001 CSO mortality table for use in determining minimum reserve liabilities and nonforfeiture benefits and the 2001 CSO preferred class structure mortality table for use in determining minimum reserve liabilities

Title 31--INSURANCE

INSURANCE DEPARTMENT

[31 PA. CODE CH. 84d]

Recognition of the 2001 CSO Mortality Table for Use in Determining Minimum Reserve Liabilities and Nonforfeiture Benefits and the 2001 CSO Preferred Class Structure Mortality Table for Use in Determining Minimum Reserve Liabilities

[36 Pa.B. 7244]
[Saturday, December 2, 2006]

   The Insurance Department (Department) amends Chapter 84d (relating to recognition of the 2001 CSO mortality table for use in determining minimum reserve liabilities and nonforfeiture benefits and the 2001 CSO preferred class structure mortality table for use in determining minimum reserve liabilities) to read as set forth in Annex A. This final-omitted rulemaking is adopted under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. §§ 66, 186, 411 and 412), section 301(c)(1) of The Insurance Department Act of 1921 (40 P. S. § 71(c)(1)) and § 84c.5(a) and (b) (relating to general requirements for basic reserves and premium deficiency reserves).

   Notice of proposed rulemaking is omitted in accordance with section 204(3) of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. § 1204(3)), known as the Commonwealth Documents Law (CDL). Under section 204(3) of the CDL, notice of proposed rulemaking may be omitted when the agency for good cause finds that public notice of its intention to amend an administrative regulation is, under the circumstances, impracticable and unnecessary.

Purpose

   Section 301(c)(1) of The Insurance Department Act of 1921 and § 84c.5(a) and (b) authorize the Commissioner to promulgate regulations specifying new mortality tables adopted after 1980 by the National Association of Insurance Commissioners (NAIC) for use in determining minimum valuation standards. The purpose of this final-omitted rulemaking is to amend Chapter 84d to specify the 2001 CSO Preferred Class Structure Mortality Table as a mortality table that may be used, at the option of the insurer, instead of the 2001 CSO Mortality Table as the minimum valuation standard for policies issued on or after January 1, 2007.

   The 2001 CSO Preferred Class Structure Mortality Table is a split of the 2001 CSO Mortality Table to separate preferred and standard tables. The table was adopted by the NAIC in September, 2006.

Explanation of Regulatory Requirements

   The following is a description of the amendments in this final-omitted rulemaking.

   The heading of Chapter 84d is amended to read ''Recognition of the 2001 CSO Mortality Table for Use in Determining Minimum Reserve Liabilities and Nonforfeiture Benefits and the 2001 CSO Preferred Class Structure Mortality Table for Use in Determining Minimum Reserve Liabilities.''

   Section 84d.2 (relating to definitions) is amended to add definitions of ''2001 CSO Preferred Class Structure Mortality Table'' and ''statistical agent.'' Various editorial changes were also made to clearly identify the applicable mortality tables.

   Section 84d.3 (relating to 2001 CSO mortality table) is amended to clearly identify the applicable mortality table.

   Section 84d.3a (relating to 2001 CSO preferred class structure mortality table) is added to allow for the optional use of the 2001 CSO Preferred Class Structure Mortality Table as a minimum valuation standard. Conditions for the use of the table are established. In addition, a requirement for filing statistical reports is added.

Affected Parties

   This final-omitted rulemaking applies to insurers issuing life insurance coverage in this Commonwealth.

Fiscal Impact

   State government. There will be no increase in cost to the Department due to the use of the new mortality table since the extent of the analysis performed by the Department is not affected by the mortality table used in the calculation of reserves.

   General public. It is possible that the cost of insurance will be reduced for consumers who purchase life insurance coverage due to improved mortality recognized by the 2001 CSO Preferred Class Structure Mortality Table.

   Political subdivisions. There will be no fiscal impact on political subdivisions as insurers will continue to maintain adequate reserves. Adequate reserves have the potential to minimize insurer insolvencies that could result in less erosion of the tax base since insurers pay premium taxes on premium income and pay salaries that are taxed.

   Private sector. The use of the 2001 CSO Preferred Class Structure Mortality Table generally will reduce the reserve liabilities of an insurance company. In addition, the use of the table is optional.

Paperwork

   The final-omitted rulemaking will not impose additional paperwork on the Department. An insurance company that elects to use the 2001 CSO Preferred Class Structure Mortality Table as the minimum valuation standard will be required to submit an election and annually thereafter a certification to the Commissioner that the conditions for use of the table are satisfied.

Effectiveness/Sunset Date

   The final-omitted rulemaking will become effective January 1, 2007. No sunset date has been assigned.

Contact Person

   Questions or comments regarding the final-omitted rulemaking should be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, Insurance Department, 1326 Strawberry Square, Harrisburg, PA 17120, fax [phone], [e-mail].

Regulatory Review

   Under section 5.1(a) of the Regulatory Review Act (71 P. S. § 745.5a(a)), on October 13, 2006, the Department submitted a copy of the final-omitted rulemaking and a copy of a Regulatory Analysis Form to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House Committee on Insurance and the Senate Committee on Banking and Insurance. On the same date, the regulations were submitted to the Office of Attorney General for review and approval under the Commonwealth Attorneys Act (71 P. S. §§ 732-101--732-506).

   Under section 5.1(j.2) of the Regulatory Review Act, on November 15, 2006, the final-omitted rulemaking was deemed approved by the House and Senate Committees. The Attorney General approved the final-omitted rulemaking on October 27, 2006. Under section 5.1(e) of the Regulatory Review Act, IRRC met on November 16, 2006, and approved the final-omitted rulemaking.

Findings

   The Insurance Commissioner finds that:

   (1)  There is good cause to amend Chapter 84d effective upon publication of this final-omitted rulemaking. Deferral of the effective date of these amendments would be impractical and not serve the public interest. Under section 204(3) of the CDL, there is no purpose to be served by deferring the effective date.

   (2)  There is good cause to forego public notice of the intention to amend Chapter 84d because notice of the amendments under the circumstances is unnecessary and impractical under section 204(3) of the CDL for the following reasons:

   (i)  Section 301(c)(1) of The Insurance Department Act of 1921 allows an ordinary mortality table adopted after 1980 by the NAIC, which is approved by regulation promulgated by the Insurance Commissioner, to be used when determining the minimum standard of valuation for policies.

   (ii)  Public comment is unnecessary because the purpose of this final-omitted rulemaking is to merely recognize a division within an existing and previously promulgated mortality table by preferred and standard categories. Because these tables have already been promulgated, because the life insurance industry is supportive of this division and because the division will benefit both insurance companies (by requiring lower reserve levels) and insurance consumers (by possibly lowering insurance premiums), public notice of the intention to amend Chapter 84d is unnecessary and impractical.

   (iii)  In the interest of uniformity with the NAIC's adoption of the divided 2001 CSO Mortality Tables and the NAIC's intent to have these tables be available for the valuation of life insurance policies issued on or after January 1, 2007, there is an immediacy for the need to promulgate this regulation prior to that date.

Order

   The Insurance Commissioner, acting under the authority in sections 206, 506, 1501 and 1502 of The Administrative Code of 1929, orders that:

   (1)  The regulations of the Department, 31 Pa Code, Chapter 84d, are amended by amending §§ 84d.2 and 84d.3 and by adding § 84d.3a to read as set forth in Annex A.

   (2)  The Department shall submit this order and Annex A to the Office of Attorney General and the Office of General Counsel for approval as to form and legality as required by law.

   (3)  The Department shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.

   (4) This order shall take effect upon its publication in the Pennsylvania Bulletin.

M. DIANE KOKEN,   
Insurance Commissioner

   (Editor's Note:  For the text of the order of the Independent Regulatory Review Commission, relating to this document, see 36 Pa.B. 7353 (December 2, 2006).)

   Fiscal Note:  11-236. No fiscal impact; (8) recommends adoption.

Annex A

TITLE 31.  INSURANCE

PART VI.  LIFE INSURANCE

CHAPTER 84d.  RECOGNITION OF THE 2001 CSO MORTALITY TABLE FOR USE IN DETERMINING MINIMUM RESERVE LIABILITIES AND NONFORFEITURE BENEFITS AND THE 2001 CSO PREFERRED CLASS STRUCTURE MORTALITY TABLE FOR USE IN DETERMINING MINIMUM RESERVE LIABILITIES

§ 84d.2.  Definitions.

   The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:

   Act--The Insurance Department Act of 1921 (40 P. S. §§ 1--324).

   Actuarial Standards Board--The board established by the American Academy of Actuaries, or a successor thereto, to develop and promulgate standards of actuarial practice.

   Commissioner--The Insurance Commissioner of the Commonwealth.

   2001 CSO Composite Mortality Tables--The 2001 CSO Mortality Tables with rates of mortality that do not distinguish between smokers and nonsmokers.

   Law--The Insurance Company Law of 1921 (40 P. S. §§ 341--991)

   NAIC--The National Association of Insurance Commissioners.

   2001 CSO Smoker and Nonsmoker Mortality Tables--The 2001 CSO Mortality Tables with separate rates of mortality for smokers and nonsmokers.

   2001 CSO Mortality Table--The mortality table, consisting of separate rates of mortality for male and female lives, developed by the American Academy of Actuaries CSO Task Force from the Valuation Basic Mortality Table developed by the Society of Actuaries Individual Life Insurance Valuation Mortality Task Force, and adopted by the NAIC in December 2002. The 2001 CSO Mortality Table is included in the Proceedings of the NAIC (2nd Quarter 2002). Unless the context indicates otherwise, the 2001 CSO Mortality Table includes both the ultimate form of that table and the select and ultimate form of that table and includes both the smoker and nonsmoker mortality tables and the composite mortality tables. It also includes both the age-nearest-birthday and age-last-birthday bases of the mortality tables.

   2001 CSO Mortality Table (F)--The mortality table consisting of the rates of mortality for female lives from the 2001 CSO Mortality Table.

   2001 CSO Mortality Table (M)--The mortality table consisting of the rates of mortality for male lives from the 2001 CSO Mortality Table.

   2001 CSO Preferred Class Structure Mortality Table--The mortality tables with separate rates of mortality for Super Preferred Nonsmoker, Preferred Nonsmoker, Residual Standard Nonsmoker, Preferred Smoker and Residual Standard Smoker splits of the 2001 CSO Nonsmoker and Smoker Mortality Tables as adopted by the NAIC at the September 2006 meeting and published in the NAIC minutes for that meeting. Unless the context indicates otherwise, the 2001 CSO Preferred Class Structure Mortality Table includes both the ultimate form of that table and the select and ultimate form of that table. The table includes both the male and female mortality tables and also includes both the age-nearest-birthday and age-last-birthday bases of the mortality table.

   Statistical agent--An entity with proven systems for protecting the confidentially of individual insured and company information, demonstrated resources for and history of ongoing electronic communications and data transfer ensuring data integrity with insurance companies, which are its members or subscribers, and a history of and means for aggregation of data and accurate promulgation of the experience modifications in a timely manner.

§ 84d.3.  2001 CSO Mortality Table.

   (a)  At the election of the company for any one or more specified plans of insurance and subject to the conditions stated in this chapter, the 2001 CSO Mortality Table may be used as the minimum nonforfeiture standard and the minimum valuation standard for policies issued on or after January 1, 2004, and before the date specified in subsection (b). If the company elects to use the 2001 CSO Mortality Table, it shall do so for both nonforfeiture and valuation purposes.

   (b)  Subject to the conditions stated in this chapter, the 2001 CSO Mortality Table shall be used as the minimum nonforfeiture standard and the minimum valuation standard for policies issued on and after January 1, 2009.

   (c)  For each policy form with separate rates for smokers and nonsmokers a company may use the 2001 CSO Mortality Tables in one of the following ways:

   (1)  The 2001 CSO Composite Mortality Tables as the minimum nonforfeiture standard and the minimum valuation standard.

   (2)  The 2001 CSO Composite Mortality Tables as the minimum nonforfeiture standard and to determine the minimum reserves required by section 301 of the act (40 P. S. § 71) and the 2001 CSO Smoker and Nonsmoker Mortality Tables as the minimum valuation standard to determine the additional minimum reserves, if any, required by section 303 of the act (40 P. S. § 73).

   (3)  The 2001 CSO Smoker and Nonsmoker Mortality Tables as the minimum nonforfeiture standard and the minimum valuation standard.

   (d)  For each policy form without separate rates for smokers and nonsmokers the 2001 CSO Composite Mortality Tables shall be used as the minimum nonforfeiture standard and the minimum valuation standard.

   (e)  Subject to the restrictions of § 84d.4 (relating to applicability of the 2001 CSO Mortality Table to Chapter 84c (relating to valuation of life insurance policies)) and Chapter 84c (relating to valuation of life insurance policies), the 2001 CSO Mortality Table may, at the option of the company for each policy form, be used in its ultimate or select and ultimate form as the minimum nonforfeiture standard and the minimum valuation standard.

   (f)  When the 2001 CSO Mortality Table is the minimum reserve standard for any policy form for a company, the actuarial opinion in the annual statement filed with the Commissioner shall be based on an asset adequacy analysis as specified in Chapter 84b (relating to actuarial opinion and memorandum). The Commissioner may exempt a company from this requirement if it only does business in this Commonwealth.

§ 84d.3a.  2001 CSO Preferred Class Structure Mortality Table.

   (a)  At the election of the company, for each calendar year of issue, for any one or more specified plans of insurance and subject to satisfying the conditions stated in this chapter, the 2001 CSO Preferred Class Structure Mortality Table may be substituted in place of the 2001 CSO Smoker or Nonsmoker Mortality Table as the minimum valuation standard for policies issued on or after January 1, 2007. Prior to that election, the company shall demonstrate to the satisfaction of the Commissioner that at least 20% of the business to be valued on this table is in one or more of the preferred classes.

   (b)  For each policy form with separate rates for preferred and standard nonsmokers, a company may use the Super Preferred Nonsmoker, Preferred Nonsmoker, and Residual Standard Nonsmoker Tables to substitute for the 2001 CSO Nonsmoker Mortality Tables as the minimum valuation standard. At the time of election and annually thereafter, except for business valued using the Residual Standard Nonsmoker Table, the company shall provide the Commissioner a certification from the appointed actuary of the following:

   (1)  For each class, the present value of death benefits over the next 10 years after the valuation date using anticipated mortality experience without recognition of mortality improvement beyond the valuation date is less than the present value of death benefits using the valuation basic table corresponding to the valuation table used for that class.

   (2)  For each class, the present value of death benefits over the future life of the contracts using anticipated mortality experience without recognition of mortality improvement beyond the valuation date is less than the present value of death benefits using the valuation basic table corresponding to the valuation table used for that class.

   (c)  For each policy form with separate rates for preferred and standard smokers, a company may use the Preferred Smoker and Residual Standard Smoker Tables to substitute for the 2001 CSO Smoker Mortality Tables as the minimum valuation standard. At the time of election and annually thereafter for business valued using the Preferred Smoker Table, the company shall provide the Commissioner a certification from the appointed actuary of the following:

   (1)  The present value of death benefits over the next 10 years after the valuation date using anticipated mortality experience without recognition of mortality improvement beyond the valuation date is less than the present value of death benefits using the valuation basic table corresponding to the Preferred Smoker Table.

   (2)  The present value of death benefits over the future life of the contracts using anticipated mortality experience without recognition of mortality improvement beyond the valuation date is less than the present value of death benefits using the valuation basic table corresponding to the Preferred Smoker Table.

   (d)  When the 2001 CSO Preferred Class Structure Mortality Table is the minimum reserve standard for any policy form for a company, the actuarial opinion in the annual statement filed with the Commissioner shall be based on an asset adequacy analysis as specified in Chapter 84b (relating to actuarial opinion and memorandum). The Commissioner may exempt a company from this requirement if it only does business in this Commonwealth.

   (e)  Unless exempted by the Commissioner, every authorized company using the 2001 CSO Preferred Class Structure Mortality Table shall annually file with the Commissioner, with the NAIC, or with a statistical agent designated by the NAIC and acceptable to the Commissioner, statistical reports showing mortality and such other information as the Commissioner may deem necessary or expedient for the administration of the previsions of this chapter. The form of the reports shall be established by the Commissioner or the Commissioner may require the use of a form established by the NAIC or by a statistical agent designated by the NAIC and acceptable to the Commissioner.

[Pa.B. Doc. No. 06-2338. Filed for public inspection December 1, 2006, 9:00 a.m.]