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PA Bulletin, Doc. No. 03-2452

RULES AND REGULATIONS

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 Nonforfeitue Benefits

[33 Pa.B. 6420]

   The Insurance Department (Department) adopts Chapter 84d (relating to recognition of the 2001 CSO mortality table for use in determining minimum reserve liabilities and nonforfeiture benefits) to read as set forth in Annex A.

Statutory Authority

   The final-form 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)), section 410F(e)(8)(F) of The Insurance Company Law (40 P. S. § 510.1(e)(8)(F)) and 31 Pa. Code § 84c.5(a) and (b) (relating to general requirements for basic reserves and premium deficiency reserves). Likewise, this final-form rulemaking is made under the Department's rulemaking authority under the Unfair Insurance Practices Act (UIPA) (40 P. S. §§ 1171.1--1171.15) (as that 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 insurance on both a sex-distinct and sex-neutral basis. See section 5(a)(7) of the UIPA (40 P. S. § 1171.5(a)(7)).

Comments and Response

   Notice of proposed rulemaking was published at 33 Pa.B. 4297 (August 30, 2003) with a 30-day comment period. During the 30-day comment period, comments were received from the American Council of Life Insurers (ACLI) and the Insurance Federation of Pennsylvania, Inc. (IFP). Although the IFP commented on the preamble, neither the ACLI nor the IFP provided any substantive comments on the Annex and both parties supported the adoption of the rulemaking. The Independent Regulatory Review Commission (IRRC) did not submit any comments to the Department during its review. Therefore, no substantive changes were made to the Annex A in the final- form rulemaking.

   However, the Department, in reviewing the proposed rulemaking as submitted and as printed, noticed two minor errors. The table of contents indicated that the definitions section is § 84d.1 and the purpose section is § 84d.2, while the body of the rulemaking had this reversed. The proper order is in the final-form rulemaking.

   Also, when submitted, the term ''regulation'' was used in § 84d.3(a) (relating to 2001 CSO Mortality Table) but when published in proposed form, this term was changed to ''section.'' ''Section'' would not be appropriate here as the conditions in § 84d.3 apply to the entire chapter and not just this section. It was noted that the same term ''regulation'' was changed to ''chapter'' in several other subsections; therefore, the Department is requesting that the term ''section'' as used in § 84d.3(a) be changed to ''chapter.''

   As these changes are relatively minor, the Department does not believe that the final-form rulemaking has changed substantially enough to request further comments.

Affected Parties

   This final-form rulemaking will apply to insurers issuing life insurance coverage in this Commonwealth.

Fiscal impact

   State Government

   This final-form rulemaking will not increase costs 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 2001 CSO Mortality 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 final-form rulemaking will likely have no 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

   This final-form rulemaking will not impose additional paperwork on the Department or the insurance industry. The final-form rulemaking provides for the use of an additional mortality table, and does not impose additional requirements resulting in additional paperwork.

Effectiveness/Sunset Date

   This final-form rulemaking becomes effective on January 1, 2004. The Department continues to monitor the effectiveness of its regulations on a triennial basis; therefore no sunset date has been assigned.

Contact Person

   Questions regarding this final-form rulemaking should be directed to Peter J. Salvatore, Regulatory Coordinator, Office of Special Projects, 1326 Strawberry Square, Harrisburg, PA 17120, (717) 787-4429, fax (717) 705-3873, psalvatore@state.pa.us.

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 final-form rulemaking to IRRC and to the Chairpersons of the House Insurance Committee and the Senate Banking and Insurance Committee.

   In preparing this final-form rulemaking, the Department considered all comments received from IRRC, the Committees and the public. This final-form rulemaking was deemed approved by the House and Senate Committees on December 17, 2003. In accordance with section 5a(d) of the Regulatory Review Act (71 P. S. § 745.5a(d)), IRRC met on December 18, 2003, and deemed approved the final-form rulemaking in accordance with section 5a(e) of the Regulatory Review Act.

Findings

   The Commissioner finds that:

   (1)  Public notice of intention to adopt this rulemaking as amended by this order has been given under sections 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202) and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2.

   (2)  The adoption of this rulemaking in the manner provided in this order is necessary and appropriate for the administration and enforcement of the authorizing statutes.

Order

   The Commissioner, acting under the authorizing statutes, orders that:

   (a)  The regulations of the Department, 31 Pa. Code, are amended by adding §§ 84d.1--84d.6 to read as set forth in Annex A.

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

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

   (d)  The regulation adopted by this order shall take effect January 1, 2004.

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 33 Pa.B. 6472 (December 27, 2003).)

   Fiscal Note: Fiscal Note 11-21B remains valid for the final adoption of the subject regulations.

Annex A

TITLE 31.  INSURANCE

PART IV.  LIFE INSURANCE

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

Sec.

84d.1.Purpose.
84d.2.Definitions.
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 usage.

§ 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 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 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, 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. 03-2452. Filed for public inspection December 26, 2003, 9:00 a.m.]


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