1552 Tables approved for use in determining minimum nonforfeiture standards and minimum standards for valuation

INSURANCE DEPARTMENT

[31 PA. CODE CH. 84]

Tables Approved for Use in Determining Minimum Nonforfeiture Standards and Minimum Standards for Valuation

[28 Pa.B. 4794]

   The Insurance Department (Department) proposes to amend Chapter 84 (relating to tables approved for use in determining minimum nonforfeiture standards and minimum standards for valuation) to read as set forth in Annex A, 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 section 410F (e)(8)(F) of The Insurance Company Law (40 P. S. § 510.1(e)(8)(F)).

Purpose

   The purpose of the proposed amendments to Chapter 84 is to adopt new mortality tables for use in determining the minimum reserves for annuities. These new minimum standards apply to annuities issued on or after the effective date of adoption of the proposed amendments. The proposed mortality tables are based on historical experience and have been developed by the Society of Actuaries. In December 1996, the National Association of Insurance Commissioners adopted the proposed mortality tables as part of its Model Rule (Regulation) For Recognizing A New Annuity Mortality Table For Use In Determining Reserve Liabilities For Annuities. The Department's adoption of the proposed mortality tables will help to assure the solvency of insurance companies by requiring adequate reserves based on the most recent mortality tables.

   The Insurance Federation of Pennsylvania, representing a substantial portion of the life insurance industry operating in this Commonwealth, has expressed a desire that the new annuity mortality tables set forth in the proposed rulemaking be adopted for use in this Commonwealth in determining the minimum reserves.

Explanation of Regulatory Requirements

   The following is a description of the significant features of and changes contained in the proposed rulemaking:

   Section 84.3 (relating to 1983 Table ''a''). This section provides for the use of the Annuity 2000 Mortality Table excluding mortality rates independent of sex and the 1994 GAR Table as additional mortality tables which may be used to determine minimum reserves for annuities issued prior to the effective date of adoption of the proposed amendment and as the mortality tables which must be used to determine minimum reserves for annuities on and after the effective date of adoption of the proposed amendment.

Affected Parties

   This proposed rulemaking will apply to life insurance companies marketing annuity contracts in this Commonwealth.

Fiscal Impact

State Government

   There will be no increase in cost to the Department due to the adoption of new annuity tables since the proposed rulemaking does not impose additional requirements on the insurance industry which the Department must monitor for compliance.

General Public

   It is unlikely that there will be any adverse fiscal impact on the consumers who purchase annuity contracts. The general public will be purchasing annuity contracts from more financially stable insurers.

Political Subdivisions

   The proposed rulemaking will strengthen the solvency requirements of insurance companies issuing annuity contracts. Increasing insurance company solvency requirements has the potential to minimize insurance company insolvencies which could result in less erosion of the tax base since insurers pay premium taxes on premium income and pay salaries which are taxed.

Private Sector

   The proposed rulemaking may have some fiscal impact on insurance companies marketing annuity contracts. Insurers will be required to expend the time necessary to determine if their current annuity reserve standards meet the new requirements. To the extent that the standards do not comply with the new requirements, an insurance company must increase the reserves for contracts issued on or after the effective date of adoption of the proposed amendment to Chapter 84.

Paperwork

   The adoption of this proposed rulemaking will not impose additional paperwork on the Department and the insurance industry. The proposed rulemaking provides for the use of additional mortality tables 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 rulemaking. No sunset date has been assigned.

Contact Person

   Questions or comments concerning this proposed rulemaking may be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, 1326 Strawberry Square, Harrisburg, PA 17120, within 30 days of the publication of this proposed rulemaking in the Pennsylvania Bulletin.

Regulatory Review

   Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on September 14, 1998, the Department submitted a copy of these proposed amendments to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House Insurance Committee and the Senate Banking and Insurance Committee. In addition to submitting the proposed amendments, the Department has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Department in compliance with Executive Order 1996-1, ''Regulatory Review and Promulgation.'' A copy of that material is available to the public upon request.

   If IRRC has objections to any portion of the proposed amendments, it will notify the Department within 10 days of the close of the Committees' review period. The notification shall specify the regulatory review criteria which 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 amendments.

M. DIANE KOKEN,   
Insurance Commissioner

   Fiscal Note: 11-181. No fiscal impact; (8) recommends adoption.

Annex A

TITLE 31.  INSURANCE

PART IV.  LIFE INSURANCE

CHAPTER 84.  TABLES APPROVED FOR USE IN DETERMINING MINIMUM NONFORFEITURE STANDARDS AND MINIMUM STANDARDS FOR VALUATION

§ 84.2.  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 [one thousand nine hundred and twenty-one] 1921 (40 P. S. §§ 1--321).

   Annuity 2000 Mortality Table--The mortality table developed by the Society of Actuaries Committee on Life Insurance Research and shown on page 240 of Volume XLVII of the Transactions of the Society of Actuaries (1995) and adopted as a recognized mortality table for annuities in December 1996 by the NAIC.

*      *      *      *      *

   1983 Table ''a''--The mortality table developed by the Society of Actuaries Committee to Recommend a New Mortality Basis for Individual Annuity Valuation and adopted as a recognized mortality table for annuities in June 1982 by the NAIC.

   1983 GAM Table--The mortality table developed by the Society of Actuaries Committee on Annuities and adopted as a recognized mortality table for annuities in December 1983 by the NAIC.

   1994 GAR Table--The mortality table developed by the Society of Actuaries Group Annuity Valuation Table Task Force and shown on pages 866--867 of volume XLVII of the Transactions of the Society of Actuaries (1995) and adopted as a recognized mortality table for annuities in December 1996 by the NAIC.

§ 84.3.  [1983 Table ''a'']  1983 Table ''a,'' Annuity 2000 Mortality Table, 1983 GAM Table and 1994 GAR Table.

   (a)  The 1983 Table ''a'' [was adopted as a recognized mortality table for annuities in June 1982 by the NAIC], the Annuity 2000 Mortality Table excluding mortality rates independent of sex, the 1983 GAM Table and the 1994 GAR Table are approved by the Commissioner as annuity mortality tables for valuation.

   (b)  [The 1983 Table ''a'' is approved by the Commissioner.] At the option of the company, [it] the 1983 Table ''a'' may be used [for the purpose of] in determining the minimum standard of valuation for an individual annuity or pure endowment contract issued prior to January 1, 1986, and for an annuity or pure endowment purchased prior to January 1, 1986, under a group annuity or pure endowment contract.

   (c)  The 1983 Table ''a,'' or [a modification of this table approved by the Commissioner,] the Annuity 2000 Mortality Table excluding mortality rates independent of sex shall be used in determining the minimum standard of valuation for an individual annuity or pure endowment contract issued on or after January 1, 1986, and prior to  ______.  (Editor's Note: The blank refers to the effective date of adoption of this proposal.)

   (d)  The Annuity 2000 Mortality Table excluding mortality rates independent of sex shall be used, except as provided by subsection (e), in determining the minimum standard of valuation for an individual annuity or pure endowment contract issued on or after ______.  (Editor's Note: The blank refers to the effective date of this proposal.)

   (e)  The 1983 Table ''a'' shall be used in determining the minimum standard of valuation for an individual annuity or pure endowment contract issued on or after ______  (Editor's Note: The blank refers to the effective date of adoption of this proposal.) when the contract is based on life contingencies and is issued to fund periodic benefits arising from:

   (1)  Settlements of claims pertaining to court settlements or out of court settlements from tort actions.

   (2)  Settlements of claims, such as worker's compensation claims.

   (3)  Settlements of long term disability claims when a temporary or life annuity has been used in lieu of continuing disability payments.

   (f)  At the option of the company, the 1983 GAM Table or the 1994 GAR Table may be used in determining the minimum standard of valuation for an annuity or pure endowment purchased prior to January 1, 1986, under a group annuity or pure endowment contract.

   (g)  The 1983 GAM Table or the 1994 GAR Table shall be used in determining the minimum standard of valuation for an annuity or pure endowment purchased on or after January 1, 1986, and prior to ______  (Editor's Note: The blank refers to the effective date of adoption of this proposal.) under a group annuity or pure endowment contract.

   (h)  1994 GAR Table.

   (1)  The 1994 GAR Table shall be used in determining the minimum standard of valuation for an annuity or pure endowment purchased on or after ______  (Editor's Note: The blank refers to the effective date of adoption of this proposal.) under a group annuity or pure endowment contract.

   (2)  In using the 1994 GAR Table, the mortality rate for a person age x in year (1994 + n) shall be calculated as follows:

   q_x¹⁹⁹⁴⁺ⁿ = q_x¹⁹⁹⁴ (1-AA_x)ⁿ

where the values of q_x¹⁹⁹⁴ and AA_x are as specified in the 1994 GAR Table.

§ 84.4. [1983 GAM table] (Reserved).

   [(a)  The 1983 GAM Table was adopted as a recognized mortality table for annuities in December 1983 by the NAIC.

   (b)  The 1983 GAM Table is approved by the Commissioner. At the option of the company, it may be used for the purpose of determining the minimum standard of valuation for an annuity or pure endowment purchased under a group annuity or pure endowment contract.

   (c)  The 1983 GAM Table, or a modification of this table approved by the Commissioner, shall be used in determining the minimum standard of valuation for an annuity or pure endowment purchased on or after January 1, 1986, under a group annuity or pure endowment contract.]

[Pa.B. Doc. No. 98-1552. Filed for public inspection September 25, 1998, 9:00 a.m.]