PROPOSED RULEMAKING
INSURANCE DEPARTMENT
[31 PA. CODE CH. 73]
Credit Life Insurance and Credit Accident and Health Insurance
[36 Pa.B. 391] The Insurance Department (Department), under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. §§ 66, 186, 411 and 412) and sections 301.1 and 311.1 of The Insurance Department Act (40 P. S. §§ 71.1 and 93), proposes to amend Chapter 73 (relating to credit life insurance and credit accident and health insurance) to read as set forth in Annex A.
Purpose
The purpose of the proposed rulemaking is to: (1) modify the mortality standards in calculating minimum reserves for credit life insurance; and (2) delete the standards for calculating minimum reserves for single premium credit accident and health insurance because these standards are addressed in amendments to Chapter 84a (relating to minimum reserve standards for individual and group health and accident insurance contracts), which are being promulgated in conjunction with this proposed rulemaking.
The proposed rulemaking is patterned after the Determining Reserve Liabilities For Credit Life Insurance Model Regulation (model regulation) adopted by the National Association of Insurance Commissioners in June 2004. A copy of the copyrighted model regulation was provided to the Legislative Standing Committees, the Independent Regulatory Review Commission (IRRC), the Governor's Office of Policy, the Governor's Office of General Counsel and the Attorney General to help in their analysis of this proposed rulemaking.
Explanation of Regulatory Requirements
The following is a description of the amendments in this proposed rulemaking.
The definition of ''2001 CSO Male Composite Ultimate Mortality Table'' is proposed to be added to § 73.103 (relating to definitions).
Section 73.138 (relating to financial statement reserves) establishes the standards used in calculating minimum reserves for credit life insurance and credit accident and health insurance. The proposed rulemaking establishes the 2001 CSO Male Composite Ultimate Mortality Table as the mortality standard in calculating the minimum reserves for credit life insurance issued after the effective date of this proposed rulemaking. In addition, the proposed rulemaking clarifies that Chapter 84c (relating to valuation of life insurance policies) does not apply to credit life insurance. The proposed rulemaking also deletes the standards used in calculating minimum reserves for single premium credit accident and health insurance because those standards are being simultaneously proposed for modification and inclusion as amendments to Chapter 84a.
Affected Parties
The proposed rulemaking will apply to life insurance companies, property and casualty insurance companies and fraternal benefit societies marketing and soliciting the sale of credit life insurance and credit accident and health insurance in this Commonwealth.
Fiscal Impact
State government
There will be no increase in cost to the Department as a result of this proposed rulemaking. As part of its solvency monitoring responsibilities, the Department currently reviews the methodology used by an insurer to calculate credit life insurance reserves to ensure that the reserves are adequate and comply with the minimum standard requirements. Thus, this proposed rulemaking will not require any additional staff time or resources to perform the analysis.
General public
Since the proposed rulemaking concerns the solvency requirements applied to insurers, the public will benefit from a financially sound insurance industry in the ability of insurers to fulfill their contractual obligations under credit life insurance and credit accident and health insurance policies.
Political subdivisions
The proposed rulemaking will not impose additional costs on political subdivisions. However, because the proposed rulemaking promotes stability in this Commonwealth's insurance industry, political subdivisions' tax revenues would benefit as a result of fewer insurer insolvencies. Fewer insolvencies would result in less unemployment and would also increase incentives for insurers to market new insurance products in this Commonwealth.
Private sector
The proposed rulemaking does not apply to policies issued prior to adoption of the final-form rulemaking. Some expense may be incurred by an insurer in modifying the reserve calculation system to comply with amended minimum reserve standards.
Paperwork
The adoption of this proposed rulemaking does not impose additional paperwork on the Department or the insurance industry. The amendment to the minimum standards applies to the reserve calculation, but will not result in additional paperwork.
Effectiveness/Sunset Date
The proposed rulemaking will become effective January 1, 2007. The Department continues to monitor the effectiveness of regulations on a triennial basis; therefore, 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, fax (717) 772-1969, psalvatore@state.pa.us within 30 days following the publication of this proposed rulemaking in the Pennsylvania Bulletin.
Under the Regulatory Review Act (71 P. S. §§ 745.1--745.14), the Department is required to write to commentators requesting whether or not they wish to receive a copy of the final-form rulemaking. To better serve 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 IRRC and the Legislative Standing Committees.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on January 13, 2006, the Department submitted a copy of this proposed rulemaking and a copy of a Regulatory Analysis Form to IRRC and to the Chairpersons of the Senate Banking and Insurance Committee and the House Insurance Committee. A copy of this material is available to the public upon request.
Under section 5(g) of the Regulatory Review Act, IRRC may convey any comments, recommendations or objections to the proposed rulemaking within 30 days of the close of the public comment period. The comments, recommendations or objections must specify the regulatory review criteria which have not been met. The Regulatory Review Act specifies detailed procedures for review, prior to final publication of the rulemaking, by the Department, the General Assembly and the Governor of comments, recommendations or objections raised.
M. DIANE KOKEN,
Insurance Commissioner(Editor's Note: For a document relating to this proposed rulemaking, see 36 Pa.B. 392 (January 28, 2006).)
Fiscal Note: 11-227. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 31. INSURANCE
PART III. CREDIT INSURANCE
CHAPTER 73. CREDIT LIFE INSURANCE AND CREDIT ACCIDENT AND HEALTH INSURANCE § 73.103. Definitions.
The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:
* * * * * 2001 CSO Male Composite Ultimate Mortality Table--The ultimate version of the mortality table, consisting of separate rates of mortality for male lives that do not distinguish between smokers and nonsmokers, 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 National Association of Insurance Commissioners in December 2002. The table includes both the age-nearest birthday and age-last birthday version.
* * * * * § 73.138. Financial statement reserves.
The following reserves for all credit insurance policies shall be maintained by insurers doing credit life insurance or credit A and H insurance business in this Commonwealth[.]:
(1) The reserves for credit life insurance may not be less than the reserves as computed using the Commissioners 1980 Extended Term Mortality Table, using mortality rates applicable to male lives for insurance issued prior to [or on or after June 19, 1998] January 1, 2007, with interest at the rate specified in section 301(c) of The Insurance Department Act of 1921 (40 P. S. § [1] 71(c)).
(2) The reserves for credit life insurance may not be less than the reserves as computed using the 2001 CSO Male Composite Ultimate Mortality Table for insurance issued on or after January 1, 2007 with interest at the rate specified in section 301(c) of The Insurance Department Act of 1921.
(3) If the credit life insurance policy or certificate insures two lives, the minimum standard must be twice the mortality in the 2001 CSO Male Composite Ultimate Mortality Table based on the age of the older insured.
(4) Chapter 84c (relating to valuation of life insurance policies) does not apply to credit life insurance.
(5) The reserves for single premium credit [A and H insurance or] TPD benefits may not be less than the mean of the amounts of unearned premium calculated from gross premiums in force on the following bases:
* * * * * (6) The reserves for single premium credit A and H insurance are regulated under Chapter 84a (relating to minimum reserve standards for individual and group health and accident insurance contracts).
[(3)] (7) * * *
[(4)] (8) * * *
[Pa.B. Doc. No. 06-141. Filed for public inspection January 27, 2006, 9:00 a.m.]
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