PROPOSED RULEMAKINGS
[ 31 PA. CODE CH. 84c ]
Valuation of Life Insurance Policies
[40 Pa.B. 5069]
[Saturday, September 4, 2010]The Insurance Department (Department) proposes to amend Chapter 84c (relating to valuation of life insurance policies) to read as set forth in Annex A. This rulemaking is proposed 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 section 301(c) of The Insurance Department Act of 1921 (40 P. S. § 71(c)).
Purpose
The purpose of the proposed rulemaking is to amend § 84c.5 (relating to general requirements for basic reserves and premium deficiency reserves) to include amendments to Model Regulation 830 by the National Association of Insurance Commissioners (NAIC) to remove restrictions on mortality adjustment factors. These amendments are proposed in conjunction with amendments to Chapters 84b and 84d (relating to actuarial opinion and memorandum; and 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). A copy of the copyrighted NAIC model regulation was provided to the legislative standing committees, the Independent Regulatory Review Commission (IRRC), the Governor's Office of Policy and Planning, the Governor's Office of General Counsel and the Attorney General to assist in their analysis of this proposed rulemaking. Copies of NAIC model regulations are available to the general public by contacting the NAIC.
Explanation of Regulatory Requirements
The following is a description of the changes in the proposed rulemaking:
Section 84c.5 is being amended to delete restrictions on the mortality adjustment factors (X factors) in the deficiency reserve calculation required by the regulation. Additionally, the proposed rulemaking requires an appointed actuary to annually opine for policies subject to this regulation as to whether the mortality rates resulting from the application of the X factors meet the regulation's requirements for deficiency reserves. Further, this regulation requires that the opinion be supported by an actuarial report, subject to appropriate Actuarial Standards of Practice promulgated by the Actuarial Standards Board of the American Academy of Actuaries.
Affected Parties
The proposed rulemaking will apply to insurers issuing life insurance coverage in this Commonwealth.
Fiscal Impact
State government
There will not be an increase in cost to the Department due to the proposed rulemaking. The Department currently reviews valuation filings submitted by domestic life insurance companies and fraternal benefit societies for compliance with the minimum standards of valuation.
General public
It is possible that the cost of insurance will be reduced for consumers who purchase life insurance coverage due to this proposed rulemaking to the requirements for the calculation of reserves.
Political subdivisions
There will not be fiscal impact on political subdivisions as insurers will continue to maintain adequate reserves.
Private sector
The model regulation requires the appointed actuary to annually opine for policies subject to this regulation as to whether the mortality rates resulting from the application of the X factors meet the requirements of Chapter 84c for deficiency reserves. This opinion must be supported by an actuarial report.
Paperwork
The adoption of this proposed rulemaking would not impose additional paperwork on the Department.
Effectiveness/Sunset Date
The rulemaking will become effective on the first of the month following 60 days from the publication date of the final-form rulemaking. The Department continues to monitor the effectiveness of regulations on a triennial basis; therefore, a sunset date has not been assigned.
Contact Person
Questions or comments regarding the proposed rulemaking should be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, Insurance Department, 1326 Strawberry Square, Harrisburg, PA 17120 within 30 days following the publication in the Pennsylvania Bulletin. Questions or comments also may be e-mailed to psalvatore@state.pa.us or faxed to (717) 705-3873.
Under the Regulatory Review Act (71 P. S. §§ 745.1—745.12), 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 the stakeholders, the Department determined that all commentators will receive a copy of the final-form rulemaking when it is made available to the 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 24, 2010, the Department submitted a copy of this proposed rulemaking and a copy of a Regulatory Analysis Form to IRRC and to 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.
JOEL SCOTT ARIO,
Insurance Commissioner(Editor's Note: For a proposed rulemaking amending Chapter 84b relating to this proposed rulemaking, see 40 Pa.B. 5066 (September 4, 2010).)
(Editor's Note: For a proposed rulemaking amending Chapter 84d relating to this proposed rulemaking, see 40 Pa.B. 5067 (September 4, 2010).)
Fiscal Note: 11-247. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 31. INSURANCE
PART IV. LIFE INSURANCE
CHAPTER 84c. VALUATION OF LIFE INSURANCE POLICIES § 84c.5. General requirements for basic reserves and premium deficiency reserves.
* * * * * (b) Deficiency reserves minimum standard. Deficiency reserves, if any, are calculated for each policy as the excess, if greater than zero, of the quantity A over the basic reserve. The quantity A is obtained by recalculating the basic reserve for the policy using guaranteed gross premiums instead of net premiums when the guaranteed gross premiums are less than the corresponding net premiums. At the election of the company for any one or more specified plans of insurance, the quantity A and the corresponding net premiums used in the determination of quantity A may be based upon the 1980 CSO valuation tables (or any other valuation mortality table adopted by the NAIC after May 6, 2000, and promulgated by regulation by the Commissioner for the purpose of calculating deficiency reserves) with select mortality factors. If select mortality factors are elected, they may be one of the following:
* * * * * (3) For durations in the first segment, X% of the select mortality factors in Appendix A, subject to the following:
(i) X may vary by policy year, policy form, underwriting classification, issue age, or any other policy factor expected to affect mortality experience.
(ii) [X may not be less than 20%.
(iii) X may not decrease in any successive policy years.
(iv)] X is such that, when using the valuation interest rate used for basic reserves, the actuarial present value of future death benefits, calculated using the mortality rates resulting from the application of X, is greater than or equal to the actuarial present value of future death benefits calculated using anticipated mortality experience without recognition of mortality improvement beyond the valuation date.
[(v)] (iii) X is such that the mortality rates resulting from the application of X are at least as great as the anticipated mortality experience, without recognition of mortality improvement beyond the valuation date, in each of the first 5 years after the valuation date.
[(vi)] (iv) The appointed actuary shall increase X at any valuation date when it is necessary to continue to meet [all] the requirements of this paragraph [(3)].
[(vii)] (v) The appointed actuary may decrease X at any valuation date as long as X [does not decrease in any successive policy years and as long as it] continues to meet [all] the requirements of this paragraph [(3)].
[(viii)] (vi) The appointed actuary shall specifically take into account the adverse effect on expected mortality and lapsation of any anticipated or actual increase in gross premiums.
[(ix)] (vii) If X is less than 100% at any duration for any policy, the following requirements shall be met:
(A) The appointed actuary shall annually prepare an actuarial opinion and memorandum for the company in conformance with § 84b.8 (relating to statement of actuarial opinion based on an asset adequacy analysis).
(B) The appointed actuary shall disclose, in the Regulatory Asset Adequacy Issues Summary, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods.
(C) The appointed actuary shall annually opine for all policies subject to this chapter as to whether the mortality rates resulting from the application of X meet the requirements of this paragraph [(3)]. This opinion shall be supported by an actuarial report, subject to appropriate Actuarial Standards of Practice promulgated by the Actuarial Standards Board of the American Academy of Actuaries. The X factors shall reflect anticipated future mortality, without recognition of mortality improvement beyond the valuation date, taking into account relevant emerging experience.
* * * * *
[Pa.B. Doc. No. 10-1629. Filed for public inspection September 3, 2010, 9:00 a.m.]
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