1691 Recognition of the 2001 CSO Mortality Table for use in determining minimum reserve liabilities and nonforfeiture benefits
INSURANCE DEPARTMENT [31 PA. CODE CH. 84d] Recognition of the 2001 CSO Mortality Table for Use in Determining Minimum Reserve Liabilities and Nonforfeiture Benefits [33 Pa.B. 4297] The Insurance Department (Department) proposes to add Chapter 84d (relating to recognition of the 2001 CSO mortality table for use in determining minimum nonforfeiture standards and minimum standards for valuation) to read as set forth in Annex A. The proposal is made 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 (act) (40 P. S. § 71(c)(1)), section 410A (e)(8)(F) of The Insurance Company Law (law) (40 P. S. § 510.1(e)(8)(F)) and 31 Pa. Code § 84c.5(a) and (b) (relating to basic reserves minimum standard; and deficiency reserves minimum standard). Likewise, this proposal is made under the Department's rulemaking authority under the Unfair Insurance Practices Act (UIPA) (40 P. S. §§ 1171.1--1171.15) (as such authority is further explained in PALU v. Insurance Department, 371 A.2d 564 (Pa. Cmwlth. 1977)), because the Insurance Commissioner (Commissioner) has determined that, in and of itself, it is not a violation of the UIPA for a company to determine nonforfeiture benefits for the same type of policy of life on both a sex-distinct and sex-neutral basis. See section 5(a)(7) of the UIPA (40 P. S. § 1171.5(a)(7)).
Purpose
Section 301(c)(1) of the act, section 410A (e)(8)(F) of the law and 31 Pa. Code § 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 and minimum nonforfeiture standards for life insurance policies. The purpose of this rulemaking is to add Chapter 84d to specify the 2001 CSO Mortality Table as a new mortality table. The 2001 CSO Mortality Table shall be used by January 1, 2009, but may be used earlier upon election by an insurer.
The 2001 CSO Mortality Table is based on historical experience and has been developed by the American Academy of Actuaries. In December 2002, the NAIC adopted the proposed mortality table in its ''Recognition of the 2001 CSO Mortality Table for Use in Determining Minimum Reserve Liabilities and Nonforfeiture Benefits Model Regulation.'' This proposed rulemaking was patterned after the NAIC model regulation. Changes to the model regulation of an editorial nature were made for consistency with current Commonwealth regulations relating to valuation standards and nonforfeiture standards, and for wording clarification. The language of § 84d.6 (relating to permitted issuance) of the proposed rulemaking was modified because the NAIC language is vague and subject to interpretation that would conflict with the UIPA. See section 5(a)(7) of the UIPA. The section was modified to relate to the determination of nonforfeiture benefits under the same type of policy.
The use of the 2001 CSO Mortality Table will allow insurers to provide minimum reserves and nonforfeiture benefits based on a table recognizing current mortality.
A copy of this proposed rulemaking was shared with the Insurance Federation of Pennsylvania, Inc. (IFP), the Pennsylvania Association of Mutual Insurance Companies (PAMIC) and the Fraternal Insurance Organization. There were no negative comments received and the IFP, representing a substantial portion of the life insurance industry operating in this Commonwealth, expressed a desire that the 2001 CSO Mortality Table be recognized in this Commonwealth for use in determining minimum reserves and nonforfeiture benefits.
Explanation of Regulatory Requirements
Section 84d.1 (relating to purpose) explains the purpose of the rulemaking.
Section 84d.2 (relating to definitions) defines the terms used in the rulemaking.
Section 84d.3 (relating to 2001 CSO mortality table) provides for the use of the 2001 CSO Mortality Table as an additional mortality table which may be used, upon election by the insurer, to determine minimum reserves and nonforfeiture benefits for life insurance issued prior to January 1, 2009, and as the mortality table that shall be used to determine minimum reserves and nonforfeiture benefits for life insurance issued on and after January 1, 2009.
Section 84d.4 (relating to applicability of the 2001 CSO mortality table to Chapter 84c (relating to valuation of life insurance policies)). This section provides specific rules for using the 2001 CSO Mortality Table in applying the requirements of Chapter 84c in the determination of reserves for life insurance policies.
Section 84d.5 (relating to gender-blended tables). This section provides for the use in determining minimum nonforfeiture benefits of a mortality table that is a blend of the 2001 sex distinct tables.
Section 84d.6 (relating to permitted usage). This section establishes that the determination of nonforfeiture benefits for the same kind of life insurance policy on both a sex-distinct and sex-neutral basis is not, in and of itself, a violation of the UUIPA.
Affected Parties
This proposed rulemaking will apply 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 nonforfeiture benefits and reserves.
General Public
It is unlikely that there will be any adverse fiscal impact on consumers who purchase life insurance coverage. The use of the 1980 CSO table may result in a reduction in nonforfeiture benefit amounts; however, with the highly competitive life insurance market in this Commonwealth there will most likely be a reduction in the cost of insurance due to improved mortality recognized by the 2001 CSO Mortality Table.
Political Subdivisions
There will be no fiscal impact on political subdivisions as insurers will continue to maintain adequate reserves and provide adequate nonforfeiture benefits. 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 proposed rulemaking may have some fiscal impact on insurance companies issuing life insurance coverage. Insurers will be required to expend some time to prepare and submit to the Department forms using the 2001 CSO Mortality Table.
Paperwork
The proposed rulemaking will not impose additional paperwork on the Department and the insurance industry. The proposed rulemaking provides for the use of an additional mortality table and does not impose additional requirements resulting in additional paperwork.
Effectiveness/Sunset Date
The proposed rulemaking will become effective upon final adoption and publication in the Pennsylvania Bulletin as final-form rulemaking. No sunset date has been assigned.
Contact Person
Questions or comments regarding the proposed rulemaking may be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, Insurance Department, 1326 Strawberry Square, Harrisburg, PA 17120, within 30 days following the publication of this notice in the Pennsylvania Bulletin. Questions and comments may also be e-mailed to psalvatore@state.pa.us or faxed to (717) 772-1969.
Under the Regulatory Review Act (71 P. S. §§ 745.1--745.15), the Department is required to write to all commentators, requesting whether or not they wish to receive a copy of the final-form rulemaking. To better serve our stakeholders, the Department has made a determination that all commentators will receive a copy of the final-form rulemaking when it is made available to the Independent Regulatory Review Commission (IRRC) and the legislative standing committees.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on August 19, 2003, the Department submitted a copy of this proposed rulemaking to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the Senate Banking and Insurance Committee and the House Insurance Committee. In addition to the submitted proposed rulemaking, the Department has, as required by the Regulatory Review Act, provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Department. A copy of that material is available to the public upon request.
IRRC will notify the Department of any objections to any portion of the proposed rulemaking within 30 days of the close of the public comment period. The notification shall specify the regulatory review criteria that have not been met by that portion. The Regulatory Review Act specifies detailed procedures for the Department, the Governor, and the General Assembly to review these objections before final publication of the regulations.
M. DIANE KOKEN,
Insurance Commissioner(Fiscal Note: 11-218. 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 Sec.
84d.1. Definitions. 84d.2. Purpose. 84d.3. 2001 CSO Mortality Table. 84d.4. Applicability of the 2001 CSO Mortality Table to chapter 84c (relating to valuation of life insurance policies). 84d.5. Gender-blended tables. 84d.6. Permitted issuance. § 84d.1. Purpose.
This chapter implements section 301(c)(1) of the act (40 P. S. § 71(c)(1)), section 410A(e)(8)(F) of the law (40 P. S. § 510.1(e)(8)(F)) and § 84c.5(a) and (b) (relating to general requirements for basic reserves and premium deficiency reserves) which authorize the Commissioner to promulgate regulations specifying tables adopted after 1980 by the NAIC for use in determining minimum nonforfeiture standards and minimum valuation standards.
§ 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.
Composite Mortality Tables--The 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.
Smoker and nonsmoker mortality tables--The 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.
§ 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 section, 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 Composite Mortality Tables as the minimum nonforfeiture standard and the minimum valuation standard.
(2) The 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 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 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 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.4. Applicability of the 2001 CSO Mortality Table to Chapter 84c (relating to valuation of life insurance policies).
(a) The 2001 CSO Mortality Table shall be used in applying Chapter 84c (relating to valuation of life insurance policies) in the following manner, subject to the transition dates for use of the 2001 CSO Mortality Table in § 84d.3(a) (relating to 2001 CSO mortality table) and § 84d.3(b).
(1) The net level reserve premium referenced in § 84c.2(b)(2)(ii) (relating to applicability) shall be based on the ultimate mortality rates in the 2001 CSO Mortality Table.
(2) All calculations in § 84c.4(b)(1) (relating to segmented and unitary reserve methods) shall be made using the 2001 CSO Mortality Table. The value of ''qx+k+t-1'' is the valuation mortality rate for deficiency reserves in policy year k+t, but using the unmodified select mortality rates if modified select mortality rates are used in the computation of deficiency reserves.
(3) The basic reserves minimum standard in § 84c.5(a) (relating to general requirements for basic reserves and premium deficiency reserves) shall be the 2001 CSO Mortality Table.
(4) The deficiency reserves minimum standard in § 84c.5(b) shall be the 2001 CSO Mortality Table. If select mortality rates are used, they may be multiplied by X% for durations in the first segment, subject to the conditions specified in § 84c.5(b)(3)(i)--(ix). In demonstrating compliance with those conditions, the demonstrations may not combine the results of tests that utilize the 1980 CSO Mortality Table with those tests that utilize the 2001 CSO Mortality Table, unless the combination is explicitly required by regulation or necessary to be in compliance with relevant standards of practice as promulgated by the Actuarial Standards Board.
(5) The valuation mortality table used in determining the tabular cost of insurance in § 84c.6(c) (relating to minimum valuation standard for policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits (other than universal life policies)) shall be the ultimate mortality rates in the 2001 CSO Mortality Table.
(6) The calculations specified in § 84c.6(e)(4) shall use the ultimate mortality rates in the 2001 CSO Mortality Table.
(7) The calculations specified in § 84c.6(f)(4) shall use the ultimate mortality rates in the 2001 CSO Mortality Table.
(8) The net premiums referenced in § 84c.6(g)(2) shall be calculated using the ultimate mortality rates in the 2001 CSO Mortality Table.
(9) The 1-year valuation premium in § 84c.7(a)(1)(ii) (relating to minimum valuation standard for universal life insurance policies that contain provisions resulting in the ability of a policy owner to keep a policy in force over a secondary guarantee period) shall be calculated using the ultimate mortality rates in the 2001 CSO Mortality Table.
(b) Nothing in this section expands the applicability of Chapter 84c to include life insurance policies exempted under § 84c.2(b).
§ 84d.5. Gender-blended tables.
(a) For any ordinary life insurance policy delivered or issued for delivery in this Commonwealth on and after January 1, 2004, that utilizes the same premium rates and charges for male and female lives or is issued in circumstances when applicable law does not permit distinctions on the basis of gender, a mortality table that is a blend of the 2001 CSO Mortality Table (M) and the 2001 CSO Mortality Table (F) may, at the option of the company for each policy form, be substituted for the 2001 CSO Mortality Table as the minimum nonforfeiture standard. The blended tables may not be used as the minimum valuation standard.
(b) If blended tables are used as the minimum nonforfeiture standard, the company shall choose from among the blended tables developed by the American Academy of Actuaries CSO Task Force and adopted by the NAIC in December 2002.
§ 84d.6. Permitted usage.
In and of itself, it is not a violation of the Unfair Insurance Practices Act (40 P. S. §§ 1171.1--1171.15) for a company to determine nonforfeiture benefits for the same type of policy of life insurance on both a sex-distinct and sex-neutral basis.
[Pa.B. Doc. No. 03-1691. Filed for public inspection August 29, 2003, 9:00 a.m.]
