2013 -- S 0598

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LC01414

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2013

____________

A N A C T

RELATING TO INSURANCE -- THE STANDARD NONFORFEITURE LAW FOR LIFE

INSURANCE

     Introduced By: Senators Picard, and Walaska

     Date Introduced: March 06, 2013

     Referred To: Senate Corporations

It is enacted by the General Assembly as follows:

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     SECTION 1. Section 27-4.3-5 of the General Laws in Chapter 27-4.3 entitled "The

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Standard Nonforfeiture Law for Life Insurance" is hereby amended to read as follows:

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     27-4.3-5. Calculations of adjusted premiums by the nonforfeiture net level premium

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method. -- (a) This section shall apply to all policies issued on or after January 1, 1994. Except as

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provided in subsection (g) of this section, the adjusted premiums for any policy shall be

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calculated on an annual basis and shall be such a uniform percentage of the respective premiums

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specified in the policy for each policy year, excluding amounts payable as extra premiums to

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cover impairments or special hazards, and also excluding any uniform annual contract charge or

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policy fee specified in the policy in a statement of the method to be used in calculating the cash

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surrender values and paid up nonforfeiture benefits, so that the present value, at the date of issue

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of the policy, of all adjusted premiums shall be equal to the sum of: (1) the then present value of

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the future guaranteed benefits provided for by the policy; (2) one percent (1%) of either the

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amount of insurance, if the insurance is be uniform in amount, or the average amount of insurance

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at the beginning of each of the first ten (10) policy years; and (3) one hundred twenty-five percent

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(125%) of the nonforfeiture net level premium as defined in subsection (b); provided, however,

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that in applying the percentage specified in subdivision (a)(3), no nonforfeiture net level premium

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shall be deemed to exceed four percent (4%) of either the amount of insurance, if the insurance is

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be uniform in amount, or the average amount of insurance at the beginning of each of the first ten

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(10) policy years. The date of issue of a policy for the purpose of this section shall be the date as

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of which the rated age of the insured is determined.

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      (b) The nonforfeiture net level premium shall be equal to the present value, at the date of

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issue of the policy, of the guaranteed benefits provided for by the policy divided by the present

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value, at the date of issue of the policy of an annuity of one per annum payable on the date of

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issue of the policy and on each anniversary of the policy on which a premium falls due.

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      (c) In the case of policies which cause, on a basis guaranteed in the policy, unscheduled

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changes in benefits or premiums, or which provide an option for changes in benefits or premiums,

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other than a change to a new policy, the adjusted premiums and present values shall initially be

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calculated on the assumption that future benefits and premiums do not change from those

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stipulated at the date of issue of the policy. At the time of any change in the benefits or premiums,

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the future adjusted premiums, nonforfeiture net level premiums, and present values shall be

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recalculated on the assumption that future benefits and premiums do not change from those

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stipulated by the policy immediately after the change.

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      (d) Except as provided in subsection (g), the recalculated future adjusted premiums for

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any policy shall be a uniform percentage of the future premiums specified in the policy for each

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policy year, excluding amounts payable as extra premiums to cover impairments and special

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hazards, and also excluding any uniform annual contract charge or policy fee specified in the

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policy in a statement of the method to be used in calculating the cash surrender values and paid

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up nonforfeiture benefits, so that the present value, at the time of change to the newly defined

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benefits or premiums, of all future adjusted premiums shall be equal to the excess of: (1) the sum

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of: (i) the then present value of the then future guaranteed benefits provided for by the policy and

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(ii) the additional expense allowance, if any, over (2) the then cash surrender value, if any, or

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present value of any paid up nonforfeiture benefit under this policy.

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      (e) The additional expense allowance, at the time of the change to the newly defined

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benefits or premiums, shall be the sum of: (1) one percent (1%) of the excess, if positive, of the

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average amount of insurance at the beginning of each of the first ten (10) policy years subsequent

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to the change over the average amount of insurance prior to the change at the beginning of each

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of the first ten (10) policy years subsequent to the time of the most recent previous change, or, if

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there has been no previous change, the date of issue of the policy; and (2) one hundred twenty-

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five percent (125%) of the increase, if positive, in the nonforfeiture net level premium.

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      (f) The recalculated nonforfeiture net level premium shall be equal to the result obtained

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by dividing subdivision (f)(1) by subdivision (f)(2) where:

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      (1) Equals the sum of:

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      (i) The nonforfeiture net level premium applicable prior to the change multiplied by the

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present value of an annuity of one per annum payable on each anniversary of the policy on or

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subsequent to the date of the change on which a premium would have fallen due had the change

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not occurred, and

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      (ii) The present value of the increase in future guaranteed benefits provided for by the

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policy; and

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      (2) Equals the present value of an annuity of one per annum payable on each anniversary

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of the policy on or subsequent to the date of change on which a premium falls due.

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      (g) Notwithstanding any other provisions of this section to the contrary, in the case of a

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policy issued on a substandard basis which provides reduced graded amounts of insurance so that,

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in each policy year, the policy has the same tabular mortality cost as a similar policy issued on the

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standard basis which provides for a higher uniform amount of insurance, adjusted premiums and

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present values for the substandard policy may be calculated as if it were issued to provide the

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higher uniform amounts of insurance on the standard basis.

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      (h) All adjusted premiums and present values referred to in this chapter shall for all

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policies of ordinary insurance be calculated on the basis of the commissioners 1980 standard

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ordinary mortality table or, at the election of the insurance company for any one or more

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specified plans of life insurance, the commissioners 1980 standard ordinary mortality table with

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ten (10) year select mortality factors; adjusted premiums and present values shall for all policies

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of industrial insurance be calculated on the basis of the commissioners 1961 standard industrial

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mortality table; and adjusted premiums and present values shall for all policies issued in a

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particular calendar year be calculated on the basis of a rate of interest not exceeding the

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nonforfeiture interest rate as defined in this section, for policies issued in that calendar year; .

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Provided provided, however that:

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      (1) At the option of the insurance company, calculations for all policies issued in a

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particular calendar year may be made on the basis of a rate of interest not exceeding the

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nonforfeiture interest rate, as defined in this section, for policies issued in the immediately

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preceding calendar year;

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      (2) Under any paid-up nonforfeiture benefit, including any paid-up dividend additions,

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any cash surrender value available, whether or not required by section 27-4.3-2, shall be

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calculated on the basis of the mortality table and rate of interest used in determining the amount

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of any paid-up nonforfeiture benefit and paid-up dividend additions, if any;

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      (3) An insurance company may calculate the amount of any guaranteed paid-up

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nonforfeiture benefit including any paid-up additions under the policy on the basis of an interest

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rate no lower than that specified in the policy for calculating cash surrender values;

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      (4) In calculating the present value of any paid-up term insurance with accompanying

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pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed may be

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not more than those shown in the commissioners 1980 extended term insurance table for policies

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of ordinary insurance and not more than the commissioners 1961 industrial extended term

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insurance table for policies of industrial insurance;

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      (5) For insurance issued on a substandard basis, the calculation of any adjusted

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premiums and present values may be based on appropriate modifications of the tables mentioned

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in this subsection;

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      (6)(i) For policies issued prior to the operative date of the valuation manual, any Any

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commissioners' standard ordinary mortality tables, adopted after 1980 by the National

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Association of Insurance Commissioners, that are approved by regulation promulgated by the

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commissioner of insurance for use in determining the minimum nonforfeiture standard, may be

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substituted for the commissioners 1980 standard ordinary mortality table with or without ten (10)

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year select mortality factors or for the commissioners 1980 extended term insurance table.; and

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     (ii) For policies issued on or after the operative date of the valuation manual the valuation

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manual shall provide the commissioners' standard mortality table for use in determining the

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minimum nonforfeiture standard that may be substituted for the commissioners 1980 Standard

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Ordinary Mortality Table with or without ten (10) year Select Mortality Factors or for the

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Commissioners 1980 Extended Term Insurance Table. If the commissioner approves by

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regulation any commissioners' standard ordinary mortality table adopted by the NAIC for use in

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determining the minimum nonforfeiture standard for policies issued on or after the operative date

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of the valuation manual then that minimum nonforfeiture standard supersedes the minimum

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nonforfeiture standard provided by the valuation manual.

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      (7)(i) For policies issued prior to the operative date of the valuation manual, any Any

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commissioners' standard industrial mortality tables, adopted after 1980 by the National

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Association of Insurance Commissioners, that are approved by regulation promulgated by the

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commissioner of insurance for use in determining the minimum nonforfeiture standard, may be

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substituted for the commissioners 1961 standard industrial mortality table or the commissioners

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1961 industrial extended term insurance table.

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     (ii) For policies issued on or after the operative date of the valuation manual the valuation

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manual shall provide the commissioners' standard mortality table for use in determining the

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minimum nonforfeiture standard that may be substituted for the Commissioners 1961 Standard

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Industrial Mortality Table or the Commissioners 1961 Industrial Extended Term Insurance Table.

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If the commissioner approves by regulation any commissioners' standard industrial mortality

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table adopted by the NAIC for use in determining the minimum nonforfeiture standard for

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policies issued on or after the operative date of the valuation manual than that minimum

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nonforfeiture standard supersedes the minimum nonforfeiture standard provided by the valuation

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manual.

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      (i) The nonforfeiture interest rate is defined below:

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     (A) For policies issued prior to the operative date of the valuation manual, the

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nonforfeiture interest rate per annum for any policy issued in a particular calendar year shall be

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equal to one hundred and twenty-five percent (125%) of the calendar year statutory valuation

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interest rate for the policy as defined in chapter 4.5 of this title, rounded to the nearer one-quarter

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of one percent (.25%).

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     (B) For policies issued on and after the operative date of the valuation manual the

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nonforfeiture interest rate per annum for any policy issued in a particular calendar year shall be

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provided by the valuation manual.

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      (j) Notwithstanding any other provision in this title to the contrary, any re-filing of

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nonforfeiture values or their methods of computation for any previously approved policy form

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which involves only a change in the interest rate or mortality table used to compute nonforfeiture

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values shall not require re-filing of any other provisions of that policy form.

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     SECTION 2. Sections 27-4.5-1, 27-4.5-2, 27-4.5-3, 27-4.5-4, 27-4.5-4.1, 27-4.5-5, 27-

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4.5-6, 27-4.5-7, 27-4.5-8, 27-4.5-9 and 27-4.5-10 of the General Laws in Chapter 27-4.5 entitled

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"The Standard Valuation Law" are hereby amended to read as follows:

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     27-4.5-1. Short title Short title and Definitions. -- (a) This chapter shall be known as

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the "Standard Valuation Law."

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     (b) For the purpose of this chapter, the following definitions shall apply on or after the

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operative date of the valuation manual:

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     (1) "Accident and health insurance" means contracts that incorporate morbidity risk and

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provide protection against economic loss resulting from accident, sickness, or medical conditions

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and as may be specified in the valuation manual.

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      (2) "Appointed actuary" means a qualified actuary who is appointed in accordance with

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the valuation manual to prepare the actuarial opinion required in subsection 27-4.5-3(a).

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     (3) "Commissioner of insurance" means the director of the department of business

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regulation or his or her designee.

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     (4) "Company" means an entity, which: (i) Has written, issued, or reinsured life insurance

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contracts, accident and health insurance contracts, or deposit-type contracts in this state and has at

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least one such policy in force or one claim; or (ii) Has written, issued, or reinsured life insurance

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contracts, accident and health insurance contracts, or deposit-type contracts in any state and is

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required to hold a certificate of authority to write life insurance, accident and health insurance, or

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deposit-type contracts in this state.

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     (5) "Deposit-type contract" means contracts that do not incorporate mortality or

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morbidity risks and as may be specified in the valuation manual.

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     (6) "Life insurance" means contracts that incorporate mortality risk, including annuity

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and pure endowment contracts, and as may be specified in the valuation manual.

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     (7) "NAIC" means the National Association of Insurance Commissioners.

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     (8) "Policyholder behavior" means any action a policyholder, contract holder or any other

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person with the right to elect options, such as a certificate holder, may take under a policy or

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contract subject to this chapter including, but not limited to, lapse, withdrawal, transfer, deposit,

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premium payment, loan, annuitization , or benefit elections prescribed by the policy or contract,

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but excluding events of mortality or morbidity that result in benefits prescribed in their essential

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aspects by the terms of the policy or contract.

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     (9) "Principle-based valuation" means a reserve valuation that uses one or more methods

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or one or more assumptions determined by the insurer and is required to comply with section 27-

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4.5-14 as specified in the valuation manual.

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     (10) "Qualified actuary" means an individual who is qualified to sign the applicable

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statement of actuarial opinion in accordance with the American Academy of Actuaries

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qualification standards for actuaries signing such statements and who meets the requirements

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specified in the valuation manual.

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     (11) "Tail risk" means a risk that occurs either where the frequency of low probability

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events is higher than expected under a normal probability distribution or where there are observed

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events of very significant size or magnitude.

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     (12) "Valuation manual" means the manual of valuation instructions adopted by the

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NAIC as specified in this chapter or as subsequently amended.

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     27-4.5-2. Reserve valuation. -- (a) Policies and contracts issued prior to the operative

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date of the valuation manual:

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     (1) The commissioner of insurance shall annually value, or cause to be valued, the

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reserve liabilities, called "reserves" in this chapter, for all outstanding life insurance policies and

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annuity and pure endowment contracts of every life insurance company doing business in this

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state, and may certify the amount of any reserves, specifying the mortality table or tables, rate or

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rates of interest, and methods, net level premium method or other, used in the calculation of the

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reserves issued on or after January 1, 1994, and prior to the operative date of the valuation

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manual. In calculating the reserves, the commissioner may use group methods and approximate

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averages for fractions of a year or otherwise. In lieu of the valuation of the reserves required in

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this chapter of any foreign or alien company companies, the commissioner may accept any the

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valuation made or caused to be made by the insurance supervisory official of any state or other

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jurisdiction when the valuation complies with the minimum standard provided in this chapter, and

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if the official of the other state or jurisdiction accepts as sufficient and for all valid legal purposes

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the certificate of valuation of the commissioner of insurance when the certificate states the

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valuation to have been made in a specified manner according to which the aggregate reserves

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would be at least as large as if they had been computed in the manner prescribed by the law of

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that state or jurisdiction.

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     (2) The provisions set forth in sections 27-4.5-4, 27-4.5-4.1, 27-4.5-5, 27-4.5-5.1, 27-4.5-

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6, 27-4.5-7, 27-4.5-8, 27-4.5-9, and 27-4.5-10 shall apply to all policies and contracts, as

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appropriate, subject to this chapter issued on or after January 1, 1994 and prior to the operative

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date of the valuation manual and the provisions set forth in sections 27-4.5-13 and 27-4.5-14 shall

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not apply to any such policies and contracts.

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     (3) The minimum standard for the valuation of policies and contracts issued prior to

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January 1, 1994 shall be that provided by the laws in effect immediately prior to that date.

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     (b) Policies and contracts issued on or after the operative date of the valuation manual.

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(1) The commissioner shall annually value, or cause to be valued, the reserve liabilities

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(hereinafter called reserves) for all outstanding life insurance contracts, annuity and pure

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endowment contracts, accident and health contracts, and deposit-type contracts of every company

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issued on or after the operative date of the valuation manual. In lieu of the valuation of the

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reserves required of a foreign or alien company, the commissioner may accept a valuation made,

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or caused to be made, by the insurance supervisory official of any state or other jurisdiction when

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the valuation complies with the minimum standard provided in this chapter.

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     (2) The provisions set forth in sections 27-4.5-13 and 27-4.5-14 shall apply to all policies

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and contracts issued on or after the operative date of the valuation manual.

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     27-4.5-3. Actuarial opinion of reserves. -- (a) Actuarial opinion prior to the operative

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date of the valuation manual:

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     (1) General. - Every life insurance company doing business in this state shall annually

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submit the opinion of a qualified actuary as to whether the reserves and related actuarial items

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held in support of the policies and contracts specified by the commissioner of insurance by

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regulation are computed appropriately, are based on assumptions which satisfy contractual

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provisions, are consistent with prior reported amounts, and comply with applicable laws of this

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state. The commissioner of insurance by regulation shall define the specifics of this opinion and

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add any other items deemed to be necessary to its scope.

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      (b)(2) Actuarial analysis of reserves and assets supporting the reserves. -

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     (1)(i) Every life insurance company, except as exempted by or pursuant to regulation,

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shall also annually include in the opinion required by subsection (a) above an opinion of the same

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qualified actuary as to whether the reserves and related actuarial items held in support of the

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policies and contracts specified by the commissioner of insurance by regulation, when considered

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in light of the assets held by the company with respect to the reserves and related actuarial items,

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including, but not limited to, the investment earnings on the assets and the considerations

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anticipated to be received and retained under the policies and contracts, make adequate provision

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for the company's obligations under the policies and contracts, including, but not limited to, the

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benefits under and expenses associated with the policies and contracts.

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      (2)(ii) The commissioner of insurance may provide by regulation for a transition period

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for establishing any higher reserves that the qualified actuary may deem necessary in order to

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render the opinion required by this section.

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      (c)(3) Requirement for opinion under subsection (b) subdivision (2) above. - Each

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opinion required by subdivision (2) shall be governed by the following provisions:

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      (1)(i) A memorandum, in form and substance acceptable to the commissioner of

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insurance as specified by regulation, shall be prepared to support each actuarial opinion; and

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      (2)(ii) If the insurance company fails to provide a supporting memorandum at the request

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of the commissioner of insurance within a period specified by regulation or the commissioner of

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insurance determines that the supporting memorandum provided by the insurance company fails

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to meet the standards prescribed by the regulations or is otherwise unacceptable to the

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commissioner of insurance, the commissioner of insurance may engage a qualified actuary at the

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expense of the company to review the opinion and the basis for the opinion and prepare the

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supporting memorandum required by the commissioner of insurance.

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      (d)(4) Requirement for all opinions subject to subsection (a). - Every opinion required by

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subsection (a) shall be governed by the following provisions:

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      (1)(i) The opinion shall be submitted with the annual statement reflecting the valuation

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of the reserve liabilities for each year ending on or after December 31, 1994;

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      (2)(ii) The opinion shall apply to all business in force including individual and group

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health insurance plans, in a form and substance acceptable to the commissioner of insurance as

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specified by regulation;

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      (3)(iii) The opinion shall be based on standards adopted by the actuarial standards board

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and on any additional standards as that commissioner of insurance may by regulation prescribe;

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      (4)(iv) In the case of an opinion required to be submitted by a foreign or alien company,

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the commissioner of insurance may accept the opinion filed by that company with the insurance

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supervisory official of another state if the commissioner of insurance determines that the opinion

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reasonably meets the requirements applicable to a company domiciled in this state;

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      (5)(v) For the purposes of this section, "qualified actuary" means a member in good

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standing of the American Academy of Actuaries who meets the requirements set forth in the

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regulations;

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      (6)(vi) Except in cases of fraud or willful misconduct, the qualified actuary shall not be

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liable for damages to any person, other than the insurance company and the commissioner of

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insurance, for any act, error, omission, decision, or conduct with respect to the actuary's opinion;

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      (7)(vii) Disciplinary action by the commissioner of insurance against the company or the

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qualified actuary shall be defined in regulations by the commissioner of insurance; and

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      (8)(viii) Except as provided in paragraphs (xii), (xiii) and (xiv) below, documents,

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materials or other information in the possession or control of the department of insurance that are

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a Any memorandum in support of the opinion, and any other material provided by law, and

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privileged, shall not be subject to chapter 42-35, the company to the commissioner of insurance in

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connection with the opinion, shall be kept confidential by the commissioner of insurance and

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shall not be made public and shall not be subject to subpoena, and shall not be subject to

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discovery or admissible as evidence as any private/civil action. other than for the purpose of

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defending an action seeking damages from any person by reason of any action required by this

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section or by regulations promulgated under this section; provided, that the memorandum or other

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material may be released by the commissioner of insurance (i) with the written consent of the

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company or (ii) to the American Academy of Actuaries upon request stating that the

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memorandum or other material is required for the purpose of professional disciplinary

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proceedings and setting forth procedures satisfactory to the commissioner of insurance for

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preserving the confidentiality of the memorandum or other material. Once any portion of the

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confidential memorandum is cited by the company in its marketing or is cited before any

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governmental agency other than a state insurance department or is released by the company to the

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news media, all portions of the confidential memorandum shall be no longer confidential.

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However, the commissioner is authorized to use the documents, materials or other information in

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the furtherance of any regulatory or legal action brought as a part of the commissioner's official

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duties.

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     (ix) Neither the commissioner nor any person who received documents, materials or other

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information while acting under the authority of the commissioner shall be permitted or required to

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testify in any private civil action concerning any confidential documents, materials or information

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subject to subsection (h).

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     (x) In order to assist in the performance of the commissioner's duties, the commissioner:

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     (A) May share documents, materials or other information, including the confidential and

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privileged documents, materials or information subject to paragraph (viii) with other state, federal

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and international regulatory agencies, with the NAIC and its affiliates and subsidiaries, and with

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state, federal and international law enforcement authorities, provided that the recipient agrees to

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maintain the confidentiality and privileged status of the document, material or other information;

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     (B) May receive documents, materials or information, including otherwise confidential

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and privileged documents, materials or information, from the NAIC and its affiliates and

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subsidiaries, and from regulatory and law enforcement officials of other foreign or domestic

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jurisdictions, and shall maintain as confidential or privileged any document, material or

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information received with notice or the understanding that it is confidential or privileged under

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the laws of the jurisdiction that is the source of the document, material or information; and

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     (C) May enter into agreements governing sharing and use of information consistent with

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paragraphs (viii) through (x).

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     (xi) No waiver of any applicable privilege or claim of confidentiality in the documents,

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materials or information shall occur as a result of disclosure to the commissioner under this

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section or as a result of sharing as authorized in paragraph (x).

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     (xii) A memorandum in support of the opinion, and any other material provided by the

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company to the commissioner in connection with the memorandum, may be subject to subpoena

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for the purpose of defending an action seeking damages from the actuary submitting the

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memorandum by reason of an action required by this section or by regulations promulgated

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hereunder.

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     (xiii) The memorandum or other material may otherwise be released by the commissioner

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with the written consent of the company or to the American Academy of Actuaries upon request

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stating that the memorandum or other material is required for the purpose of professional

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disciplinary proceedings and setting forth procedures satisfactory to the commissioner for

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preserving the confidentiality of the memorandum or other material.

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     (xiv) Once any portion of the confidential memorandum is cited by the company in its

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marketing or is cited before a governmental agency other than a state insurance department or is

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released by the company to the news media, all portions of the confidential memorandum shall be

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no longer confidential.

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     (b) Actuarial opinion of reserves after the operative date of the valuation manual.

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     (1) General. Every company with outstanding life insurance contracts, accident and

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health insurance contracts or deposit-type contracts in this state and subject to regulation by the

11-4

commissioner shall annually submit the opinion of the appointed actuary as to whether the

11-5

reserves and related actuarial items held in support of the policies and contracts are computed

11-6

appropriately, are based on assumptions that satisfy contractual provisions, are consistent with

11-7

prior reported amounts and comply with applicable laws of this state. The valuation manual will

11-8

prescribe the specifics of this opinion including any items deemed to be necessary to its scope.

11-9

     (2) Actuarial analysis of reserves and assets supporting reserves. Every company with

11-10

outstanding life insurance contracts, accident and health insurance contracts or deposit-type

11-11

contracts in this state and subject to regulation by the commissioner, except as exempted in the

11-12

valuation manual, shall also annually include in the opinion required by subdivision (1) of this

11-13

section, an opinion of the same appointed actuary as to whether the reserves and related actuarial

11-14

items held in support of the policies and contracts specified in the valuation manual, when

11-15

considered in light of the assets held by the company with respect to the reserves and related

11-16

actuarial items, including, but not limited to, the investment earnings on the assets and the

11-17

considerations anticipated to be received and retained under the policies and contracts, make

11-18

adequate provision for the company's obligations under the policies and contracts, including but

11-19

not limited to the benefits under and expenses associated with the policies and contracts.

11-20

     (3) Requirements for opinions subject to subdivision 27-4.5-3(b)(2). Each opinion

11-21

required by subdivision 27-4.5-3(b)(2) shall be governed by the following provisions:

11-22

     (i) A memorandum, in form and substance as specified in the valuation manual, and

11-23

acceptable to the commissioner, shall be prepared to support each actuarial opinion.

11-24

     (ii) If the insurance company fails to provide a supporting memorandum at the request of

11-25

the commissioner within a period specified in the valuation manual or the commissioner

11-26

determines that the supporting memorandum provided by the insurance company fails to meet the

11-27

standards prescribed by the valuation manual or is otherwise unacceptable to the commissioner,

11-28

the commissioner may engage a qualified actuary at the expense of the company to review the

11-29

opinion and the basis for the opinion and prepare the supporting memorandum required by the

11-30

commissioner.

11-31

     (4) Requirement for all opinions Subject to subsection 27-4.5-3(b). Every opinion shall

11-32

be governed by the following provisions:

11-33

     (i) The opinion shall be in form and substance as specified in the valuation manual and

11-34

acceptable to the commissioner.

12-1

     (ii) The opinion shall be submitted with the annual statement reflecting the valuation of

12-2

such reserve liabilities for each year ending on or after the operative date of the valuation manual.

12-3

     (iii) The opinion shall apply to all policies and contracts subject to subdivision 27-4.5-

12-4

3(b)(2), plus other actuarial liabilities as may be specified in the valuation manual.

12-5

     (iv) The opinion shall be based on standards adopted from time to time by the actuarial

12-6

standards board or its successor, and on such additional standards as may be prescribed in the

12-7

valuation manual.

12-8

     (v) In the case of an opinion required to be submitted by a foreign or alien company, the

12-9

commissioner may accept the opinion filed by that company with the insurance supervisory

12-10

official of another state if the commissioner determines that the opinion reasonably meets the

12-11

requirements applicable to a company domiciled in this state.

12-12

     (vi) Except in cases of fraud or willful misconduct, the appointed actuary shall not be

12-13

liable for damages to any person (other than the insurance company and the commissioner) for

12-14

any act, error, omission, decision or conduct with respect to the appointed actuary's opinion.

12-15

     (vii) Disciplinary action by the commissioner against the company or the appointed

12-16

actuary shall be defined in regulations by the commissioner.

12-17

     27-4.5-4. Computation of minimum standard. -- (a) Except as provided in this section

12-18

27-4.5-4, section 27-4.5-4.1 and section 27-4.5-10, the minimum standard for valuation of all

12-19

policies and contracts described in section 27-4.5-2 shall be consistent with the provisions of

12-20

section 27-4-17 issued prior to the effective date of this chapter shall be that provided by the laws

12-21

in effect immediately prior to that date. Except as otherwise provided in sections 27-4.5-4, 27-

12-22

4.5-4.1 and 27-4.5-10, the minimum standard for the valuation of all policies and contracts issued

12-23

on or after January 1, 1994 shall be the commissioners reserve valuation methods defined in

12-24

sections 27-4.5-5, 27-4.5-5.1, 27-4.5-8 and 27-4.5-10, three and one-half percent (3 1/2%)

12-25

interest, or in the case of life insurance policies and contracts, other than annuity and pure

12-26

endowment contracts, issued on or after the 1972 NAIC amendments to the standard valuation

12-27

law, four percent (4%) interest for policies issued prior to the 1976 NAIC amendments to the

12-28

standard valuation law, and the following tables:

12-29

      (b) The valuation of all policies and contracts issued on or after January 1, 2000 shall be

12-30

subject to sections 27-4.5-4.1 and 27-4.5-10 and the following tables:

12-31

     (1) For ordinary policies of life insurance issued on the standard basis, excluding any

12-32

disability and accidental death benefits in the policies: The Commissioners 1941 Standard

12-33

Ordinary Mortality Table for policies issued prior to the operative date of section 27-4.3-5.2 the

12-34

Commissioners 1958 Standard Ordinary Mortality Table for policies issued on or after the

13-1

operative date of section 27-4.3-5.2 and prior to the operative date of section 27-4.3-5, provided

13-2

that for any category of policies issued on female risks, all modified net premiums and present

13-3

values referred to in this chapter may be calculated according to an age not more than six (6)

13-4

years younger than the actual age of the insured; and for policies issued on or after the operative

13-5

date of section 27-4.3-5:

13-6

     (i) The Commissioners 1980 Standard Ordinary Mortality Table;

13-7

     (ii) At the election of the company for any one or more specified plans of life insurance,

13-8

the Commissioners 1980 Standard Ordinary Mortality Table with Ten (10) Year Select Mortality

13-9

Factors; or

13-10

     (iii) Any ordinary mortality table, adopted after 1980 by the NAIC, which is approved by

13-11

regulation promulgated by the commissioner for use in determining the minimum standard of

13-12

valuation for such policies;

13-13

     (2) For industrial life insurance policies issued on the standard basis, excluding any

13-14

disability and accidental death benefits in the policies: the 1941 Standard Industrial Mortality

13-15

Table for policies issued prior to the operative date of section 27-4.3-5.3, and for policies issued

13-16

on or after the operative date of section 27-4.3-5.3, the Commissioners 1961 Standard Industrial

13-17

Mortality Table or any industrial mortality table adopted after 1980 by the NAIC that is approved

13-18

by regulation promulgated by the commissioner for use in determining the minimum standard of

13-19

valuation for the policies;

13-20

      (1)(3) For individual annuity and pure endowment contracts, excluding any disability

13-21

and accidental death benefits in those contracts the policies, the Standard Annuity 1937 2000

13-22

Mortality Table or at the option of the company, the Annuity Mortality table for 1949, Ultimate,

13-23

or any modification of either of the these table approved by the commissioner. any individual

13-24

annuity mortality table adopted after 2000 by the National Association of Insurance

13-25

Commissioners, that is approved by regulation promulgated by the insurance commissioner for

13-26

use in determining the minimum standard of valuation for those contracts;

13-27

      (2) For all annuities and pure endowments purchased under group annuity and pure

13-28

endowment contracts, excluding any disability and accidental death benefits purchased under

13-29

those contracts, the 1994 Group Annuity Reserving Table, or any group annuity mortality table

13-30

adopted after 2000 by the National Association of Insurance Commissioners that is approved by

13-31

regulation promulgated by the insurance commissioner for use in determining the minimum

13-32

standard of valuation for annuities and pure endowments, or any modification of these tables

13-33

approved by the insurance commissioner; and

14-34

      (c) For group life insurance, life insurance issued on the substandard basis and other

14-35

special benefits and tables approved by the insurance commissioner.

14-36

     (4) For group annuity and pure endowment contracts, excluding any disability and

14-37

accidental death benefits in the policies: the Group Annuity Mortality Table for 1951, a

14-38

modification of the table approved by the commissioner, or at the option of the company, any of

14-39

the tables or modifications of tables specified for individual annuity and pure endowment

14-40

contracts;

14-41

     (5) For total and permanent disability benefits in or supplementary to ordinary policies or

14-42

contracts: for policies or contracts issued on or after January 1, 1966, the tables of Period 2

14-43

disablement rates and the 1930 to 1950 termination rates of the 1952 Disability Study of the

14-44

Society of Actuaries, with due regard to the type of benefit or any tables of disablement rates and

14-45

termination rates adopted after 1980 by the NAIC, that are approved by regulation promulgated

14-46

by the commissioner for use in determining the minimum standard of valuation for those policies;

14-47

for policies or contracts issued on or after January 1, 1961 and prior to January 1, 1966, either

14-48

those tables or, at the option of the company, the Class (3) Disability Table (1926); and for

14-49

policies issued prior to January 1, 1961, the Class (3) Disability Table (1926). Any such table

14-50

shall, for active lives, be combined with a mortality table permitted for calculating the reserves

14-51

for life insurance policies;

14-52

     (6) For accidental death benefits in or supplementary to policies issued on or after

14-53

January 1, 1966: the 1959 Accidental Death Benefits Table or any accidental death benefits table

14-54

adopted after 1980 by the NAIC that is approved by regulation promulgated by the commissioner

14-55

for use in determining the minimum standard of valuation for those policies, for policies issued

14-56

on or after January 1, 1961 and prior to January 1, 1966, either that table or, at the option of the

14-57

company, the Inter-Company Double Indemnity Mortality Table; and for policies issued prior to

14-58

January 1, 1961, the Inter-Company Double Indemnity Mortality Table. Either table shall be

14-59

combined with a mortality table for calculating the reserves for life insurance policies; and

14-60

     (7) For group life insurance, life insurance issued on the substandard basis and other

14-61

special benefits: tables approved by the commissioner.

14-62

     27-4.5-4.1. Computation of minimum standard by calendar year of issue. -- (a)

14-63

Applicability. - The interest rates used in determining the minimum standards standard for the

14-64

valuation of interest rates as defined in this section: (1) all life insurance policies issued in a

14-65

particular calendar year on or after January 1, 1994; (2) all individual annuity and pure

14-66

endowment contracts issued in a particular calendar year on or after January 1, 1994; (3) all

14-67

annuities and pure endowments purchased in a particular calendar year on or after January 1,

14-68

1994, under group annuity and pure endowment contracts; and (4) the net increase, if any, in a

15-1

particular calendar year after January 1, 1994, in amounts held under guaranteed interest

15-2

contracts; shall be the calendar year statutory valuation interest rates as defined in this section.

15-3

     (b) Calendar year statutory valuation interest rates. (1) The calendar year statutory

15-4

valuation interest rates, "I", shall be determined as follows and the results rounded to the nearer

15-5

one-quarter of one percent (.25%) (1/4 of 1%), where R1 is the lesser of R and .09, R2 is the

15-6

greater of R and .09, R is the reference interest rate as defined in this section, and W is the

15-7

weighting factor as defined in this section:

15-8

      (i) For life insurance: I = .03 + W(R1 -.03) + W/2(R2 -.09) I=.03+W(R1-.03)+W/2(R2-

15-9

.09);

15-10

     (ii) For single premium immediate annuities and for annuity benefits involving life

15-11

contingencies arising from other annuities with cash settlement options and from guaranteed

15-12

interest contracts with cash settlement options: I = .03 + W(R1 -.03) I=.03+W(R-.03);

15-13

     Where R1 is the lesser of R and .09,

15-14

     R2 is the greater of R and .09,

15-15

     R is the reference interest rate defined in this section,

15-16

     W is the weighting factor defined in this section;

15-17

     (iii) For other annuities with cash settlement options and guaranteed interest contracts

15-18

with cash settlement options, valued on an issued issue year basis, except as stated in subdivision

15-19

paragraph (b)(1)(ii) above, the formula for life insurance stated in subdivision paragraph (b)(1)(i)

15-20

above shall apply to annuities and guaranteed interest contracts with guarantee durations in

15-21

excess of ten (10) years and the formula for single premium immediate annuities stated in

15-22

subdivision paragraph (b)(1)(ii) above shall apply to annuities and guaranteed interest contracts

15-23

with guarantee duration of ten (10) years or less;

15-24

     (iv) For other annuities with no cash settlement options and for guaranteed interest

15-25

contracts with no cash settlement options, the formula for single premium immediate annuities

15-26

stated in subdivision paragraph (b)(1)(ii) above shall apply; and

15-27

     (v) For other annuities with cash settlement options and guaranteed interest contracts with

15-28

cash settlement options, valued on a change in fund basis, the formula for single premium

15-29

immediate annuities stated in subdivision paragraph (b)(1)(ii) above shall apply; and

15-30

     (2) If However if the calendar year statutory valuation interest rate for any life insurance

15-31

policies issued in any calendar year determined without reference to this subsection sentence

15-32

differs from the corresponding actual rate for similar policies issued in the immediately preceding

15-33

calendar year by less than one-half of one percent (.5%) (1/2 of 1%), the calendar year statutory

15-34

valuation interest rate for those the life insurance policies shall be equal to the corresponding

16-1

actual rate for the immediately preceding calendar year.

16-2

     For purposes of applying the immediately preceding sentence, the calendar year statutory

16-3

valuation interest rate for life insurance policies issued in a calendar year shall be determined for

16-4

1980 (using the reference interest rate defined in 1979) and shall be determined for each

16-5

subsequent calendar year regardless of when section 27-4.3-5 becomes operative.

16-6

     (c) Weighting factors. - (1) The weighting factors referred to in the formulas stated in

16-7

subdivisions (b)(1)(i) and (ii) above are as follows given in the following tables:

16-8

     (i) WEIGHTING FACTORS FOR LIFE INSURANCE:

16-9

     Guarantee Duration (Years) Weighting Factors

16-10

     10 or less .50

16-11

     More than 10, but not more than 20 .45

16-12

     More than 20 .35

16-13

      For life insurance, the guarantee duration is the maximum number of years the life

16-14

insurance can remain in force on a basis guaranteed in the policy or under options to convert to

16-15

plans of life insurance with premium rates or nonforfeiture values or both which are guaranteed in

16-16

the original policy;

16-17

     (2)(ii) Weighting factor for single premium immediate annuities and for annuity benefits

16-18

involving life contingencies arising from other annuities with cash settlement options and

16-19

guaranteed interest contracts with cash settlement options is .80;

16-20

     (3)(iii) Weighting factors for other annuities and for guaranteed interest contracts, except

16-21

as stated in subdivision (c)(2) paragraph (ii) above, shall be as specified in paragraphs

16-22

subparagraphs (i)(A), (ii)(B) and (iii)(C) in this subdivision below, according to the rules and

16-23

definitions in paragraphs subparagraphs (iv)(D), (v)(E) and (vi)(F) in this subdivision below:

16-24

     (i)(A) For annuities and guaranteed interest contracts valued on an issue year basis:

16-25

     Guarantee Duration (Years) Weighting Factor for Plan Type

16-26

      A B C

16-27

     5 or less: .80 .60 .50

16-28

     More than 5, but not more than 10: .75 .60 .50

16-29

     More than 10, but not more than 20: .65 .50 . 45

16-30

     More than 20: .45 .35 .35

16-31

      (ii)(B) For annuities and guaranteed interest contracts valued on a change in fund basis,

16-32

the factors show in subdivision (c)(3) paragraph (i) above increased by:

16-33

     Plan Type

17-34

      A B C

17-35

     .15 .25 .05

17-36

      (iii)(C) For annuities and guaranteed interest contracts valued on an issued issue year

17-37

basis, other than those with no cash settlement options, which do not guarantee interest on

17-38

considerations received more than one year after issue or purchase and for annuities and

17-39

guaranteed interest contracts valued on a change in fund basis which that do not guarantee

17-40

interest rates on consideration considerations received more than twelve (12) months beyond the

17-41

valuation date, the factors shown in subdivision (c)(3) paragraph (i) or derived in subdivision

17-42

(c)(3) paragraph (ii) increased by:

17-43

     Plan Type

17-44

      A B C

17-45

     .05 .05 .05

17-46

     (iv)(D) For other annuities with cash settlement options and guaranteed interest contracts

17-47

with cash settlement options, the guarantee duration is the number of years for which the contract

17-48

guarantees interest rates in excess of the calendar year statutory valuation interest rate for life

17-49

insurance policies with guarantee durations in excess of twenty (20) years. For other annuities

17-50

with no cash settlement options and for guaranteed interest contracts with no cash settlement

17-51

options, the guaranteed duration is the number of years from the date of issue or date of purchase

17-52

to the date annuity benefits are scheduled to commence;

17-53

     (v)(E) Plan Type as used in the tables in this subdivision is defined as follows:

17-54

     (A)(I) Plan Type A: At any time the policyholder may withdraw funds only (I) with an

17-55

adjustment to reflect changes in interest rates or asset values since receipt of the funds by the

17-56

insurance company, or (II) without an adjustment but in installments over five (5) years or more,

17-57

or (III) as an immediate life annuity, or (IV) no withdrawal permitted;

17-58

     (B)(II) Plan Type B: Before expiration of the interest rate guarantee, the policyholder

17-59

may withdraw funds only (I) with an adjustment to reflect changes in interest rates or asset values

17-60

since receipt of the funds by the insurance company, or (II) without an adjustment but in

17-61

installments over five (5) years or more, or (III) no withdrawal permitted. At the end of the

17-62

interest rate guarantee, funds may be withdrawn without the an adjustment in a single sum or

17-63

installments over less than five (5) years; and

17-64

     (C)(III) Plan Type C: The policyholder Policyholder may withdraw funds before the

17-65

expiration of interest rate guarantee in a single sum or installments over less than five (5) years

17-66

either (I) without adjustment to reflect changes in interest rates or asset values since receipt of the

17-67

funds by the insurance company, or (II) subject only to a fixed surrender charge stipulated in the

17-68

contract as a percentage of the fund; and

18-1

     (vi)(F) A company may elect to value guaranteed interest contracts with cash settlement

18-2

options and annuities with cash settlement options on either an issue year basis or on a change in

18-3

fund basis. Guaranteed interest contracts with no cash settlement options and other annuities with

18-4

no cash settlement options must be valued on an issue year basis. As used in this section, "issue

18-5

year basis of valuation" refers to a valuation basis under which the interest rate used to determine

18-6

the minimum valuation standard for the entire duration of the annuity or guaranteed interest

18-7

contract is the calendar year valuation interest rate for the year of issue or year of purchase of the

18-8

annuity or guaranteed interest contract, and "change in fund basis of valuation" refers to a

18-9

valuation basis under which the interest rate used to determine the minimum valuation standard

18-10

applicable to each change in the fund held under the annuity or guaranteed interest contract is the

18-11

calendar year valuation interest rate for the year of the change in the fund.

18-12

     (d) Reference interest rate. - Reference interest rate referred to in subsection (b) is

18-13

defined as follows:

18-14

     (1) For all life insurance, the lesser of the average over a period of thirty-six (36) months

18-15

and the average over a period of twelve (12) months, ending on June 30 of the calendar year next

18-16

preceding the year of issue, of the monthly average of the composite yield on seasoned corporate

18-17

bonds, as published by Moody's Investors Service, Inc.;

18-18

     (2) For single premium immediate annuities and for annuity benefits involving life

18-19

contingencies arising from other annuities with cash settlement options and guaranteed interest

18-20

contracts with cash settlement options, the average over a period of twelve (12) months, ending

18-21

on June 30 of the calendar year of issue or year of purchase, of the monthly average of the

18-22

composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.;

18-23

     (3) For other annuities with cash settlement options and guaranteed interest contracts with

18-24

cash settlement options, valued on a year of issue basis, except as stated in subdivision paragraph

18-25

(d)(2) above, with guarantee duration in excess of ten (10) years, the lesser of the average over a

18-26

period of thirty-six (36) months and the average over a period of twelve (12) months, ending on

18-27

June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield

18-28

on seasoned corporate bonds, as published by Moody's Investors Service, Inc.;

18-29

     (4) For other annuities with cash settlement options and guaranteed interest contracts with

18-30

cash settlement options, valued on a year of issue basis, except as stated in subdivision paragraph

18-31

(d)(2) above, with guarantee duration of ten (10) years or less, the average over a period of twelve

18-32

(12) months, ending on June 30 of the calendar year of issue or purchase, of the monthly average

18-33

of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service,

18-34

Inc.;

19-1

     (5) For other annuities with no cash settlement options and for guaranteed interest

19-2

contracts with no cash settlement options, the average over a period of twelve (12) months,

19-3

ending on June 30 of the calendar year of issue or purchase, of the monthly average of the

19-4

composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.;

19-5

and

19-6

     (6) For other annuities with cash settlement options and guaranteed interest contracts with

19-7

cash settlement options, valued on a change in fund basis, except as stated in subdivision (d)(2),

19-8

the average over a period of twelve (12) months, ending on June 30 of the calendar year of the

19-9

change in the fund, of the monthly average of the composite yield on seasoned corporate bonds,

19-10

as published by Moody's Investors Service, Inc.

19-11

     (e) Alternative method for determining reference interest rates. - In the event that the

19-12

monthly average of the composite yield on seasoned corporate bonds is no longer published by

19-13

Moody's Investors Service, Inc., or in the event that the National Association of Insurance

19-14

Commissioners determines that the monthly average of the composite yield on seasoned

19-15

corporate bonds as published by Moody's Investors Service, Inc. is no longer appropriate for the

19-16

determination of the reference interest rate, then an alternative method for determination of the

19-17

reference interest rate, which is adopted by the National Association of Insurance Commissioners

19-18

and approved by regulation promulgated by the commissioner of insurance, may be substituted.

19-19

     27-4.5-5. Reserve valuation method -- Life insurance and endowment benefits. -- (a)

19-20

Except as provided in sections 27-4.5-5.1, 27-4.5-8 and 27-4.5-10, reserves according to the

19-21

commissioners' reserve valuation method for the life insurance and endowment benefits of

19-22

policies providing for a uniform amount of insurance and requiring the payment of uniform

19-23

premiums shall be the excess, if any, of the present value, at the date of valuation, of the future

19-24

guaranteed benefits provided for by the policies therefor, over the then present value of any future

19-25

modified net premiums. The modified net premiums for any policy shall be a the uniform

19-26

percentage of the respective contract premiums for the benefits so such that the present value, at

19-27

the date of issue of the policy, of all modified net premiums shall be equal to the sum of the then

19-28

present value of the benefits provided for by the policy and the excess of (1) over (2), as follows:

19-29

      (1) A net level annual premium equal to the present value, at the date of issue, of the

19-30

benefits provided for after the first policy year, divided by the present value, at the date of issue,

19-31

of an annuity of one per annum payable on the first and each subsequent anniversary of the policy

19-32

on which a premium falls due; provided however, that the net level annual premium shall not

19-33

exceed the net level annual premium on the nineteen (19) year premium whole life plan for

19-34

insurance of the same amount at an age one year higher than the age at issue of the policy; and

20-1

      (2) A net one year term premium for the benefits provided for in the first policy year.

20-2

      (b) For any life insurance policy issued on or after January 1, 1994 for which the contract

20-3

premium in the first policy year exceeds that of the second year and for which no comparable

20-4

additional benefit is provided in the first year for the excess, and which provides an endowment

20-5

benefit or a cash surrender value or a combination of them in an amount greater than the excess

20-6

premium, the reserve according to the commissioner's reserve valuation method as of any policy

20-7

anniversary occurring on or before the assumed ending date, defined herein as the first policy

20-8

anniversary on which the sum of any endowment benefit and any cash surrender value then

20-9

available is greater than the excess premium, shall, except as provided in section 27-4.5-8, be the

20-10

greater of the reserve as of the policy anniversary calculated as described in subsection (a) and the

20-11

reserve as of the policy anniversary calculated as described in subsection (a), but with:

20-12

     (1) the value defined in subdivision subsection (a)(1) being reduced by fifteen percent

20-13

(15%) of the amount of the such excess first year premium,

20-14

     (2) all present values of benefits and premiums being determined without reference to

20-15

premiums or benefits provided for by the policy after the assumed ending date,

20-16

     (3) the policy being assumed to mature on the that date as an endowment, and

20-17

     (4) the cash surrender value provided on the that date being considered as an endowment

20-18

benefit. In making the comparison contained in this subsection the mortality and interest basis

20-19

bases stated in sections 27-4.5-4 and 27-4.5-4.1 shall be used.

20-20

      (c) Reserves according to the commissioner's reserve valuation method shall be

20-21

calculated by a method consistent with the principles of the preceding paragraphs of this section

20-22

for: (1) life insurance policies providing for a varying amount of insurance or requiring the

20-23

payment of varying premiums; (2) group annuity and pure endowment contracts purchased under

20-24

a retirement plan or plan of deferred compensation, established or maintained by an employer

20-25

including a partnership or sole proprietorship or by an employee organization, or by both, other

20-26

than a plan providing individual retirement accounts or individual retirement annuities under 26

20-27

U.S.C. section 408; (3) disability and accidental death benefits in all policies and contracts; and

20-28

(4) all other benefits, except life insurance and endowment benefits in life insurance policies and

20-29

benefits provided by all other annuity and pure endowment contracts; shall be calculated by a

20-30

method consistent with the principles of subsections (a) and (b) of this section.

20-31

     27-4.5-6. Minimum reserves. -- (a) In no event shall a company's aggregate reserves for

20-32

all life insurance policies, excluding disability and accidental death benefits, issued on or after

20-33

January 1, 1994, be less than the aggregate reserves calculated in accordance with the methods set

20-34

forth in sections 27-4.5-5, 27-4.5-5.1, 27-4.5-8 and 27-4.5-9 and the mortality table or tables and

21-1

rate or rates of interest used in calculating nonforfeiture benefits for the policies.

21-2

      (b) In no event shall the aggregate reserves for all policies, contracts, and benefits be less

21-3

than the aggregate reserves determined by the qualified appointed actuary to be necessary to

21-4

render the opinion required by section 27-4.5-3.

21-5

     27-4.5-7. Optional reserve calculation. -- (a) Reserves for all policies and contracts

21-6

issued prior to January 1, 1994, may be calculated, at the option of the company, according to any

21-7

standards that produce greater aggregate reserves for all such policies and contracts than the

21-8

minimum reserves required by consistent with the laws in effect immediately prior to that date.

21-9

      (b) Reserves for any category of policies, contracts, or benefits as established by the

21-10

commissioner of insurance, issued on or after the January 1, 1994, may be calculated, at the

21-11

option of the company, according to any standards which produce greater aggregate reserves for

21-12

the category than those calculated according to the minimum standard provided in this chapter,

21-13

but the rate or rates of interest used for policies and contracts, other than annuity and pure

21-14

endowment contracts, shall not be higher greater than the corresponding rate or rates of interest

21-15

used in calculating any nonforfeiture benefits provided in them the policies or contracts.

21-16

      (c) Any A company which adopts at any time shall have adopted any a standard of

21-17

valuation producing greater aggregate reserves than those calculated according to the minimum

21-18

standard provided in this chapter may adopt a lower standard of valuation, with the approval of

21-19

the commissioner of insurance, adopt any lower standard of valuation, but not lower than the

21-20

minimum provided in this chapter; provided that, for the purposes of this section, the holding of

21-21

additional reserves previously determined by a qualified the appointed actuary to be necessary to

21-22

render the opinion required by section 27-4.5-3 shall not be deemed to be the adoption of a higher

21-23

standard of valuation.

21-24

     27-4.5-8. Reserve calculation -- Valuation net premium exceeding the gross

21-25

premium charged. -- (a) If in any contract year the gross premium charged by the any life

21-26

insurance company on any policy or contract is less than the valuation net premium for the policy

21-27

or contract calculated by the method used in calculating the reserve on it but using the minimum

21-28

valuation standards of mortality and rate of interest, the minimum reserve required for the policy

21-29

or contract shall be the greater of either the reserve calculated according to the mortality table,

21-30

rate of interest, and method actually used for the policy or contract, or the reserve calculated by

21-31

the method actually used for the policy or contract but using the minimum valuation standards of

21-32

mortality and rate of interest and replacing the valuation net premium by the actual gross

21-33

premium in each contract year for which the valuation net premium exceeds the actual gross

21-34

premium. The minimum valuation standards of mortality and rate of interest referred to in this

22-1

section are those standards stated in sections 27-4.5-4 and 27-4.5-4.1.

22-2

      (b) For any life insurance policy issued on or after January 1, 1994, for which the gross

22-3

premium in the first policy year exceeds that of the second year and for which no comparable

22-4

additional benefit is provided in the first year for the excess, and which provides an endowment

22-5

benefit or a cash surrender value or a combination of them in an amount greater than the excess

22-6

premium, the provisions of subsection (a) this section shall be applied as if the method actually

22-7

used in calculating the reserve for the policy were the method described in section 27-4.5-5,

22-8

ignoring section 27-4.5-5(b). The minimum reserve at each policy anniversary of the such a

22-9

policy shall be the greater of the minimum reserve calculated in accordance with section 27-4.5-5,

22-10

including section 27-4.5-5(b), and the minimum reserve calculated in accordance with this

22-11

section.

22-12

     27-4.5-9. Reserve calculation -- Indeterminate premium plans. -- In the case of any

22-13

plan of life insurance which that provides for future premium determination, the amounts of

22-14

which are to be determined by the insurance company based on the then estimates of future

22-15

experience, or in the case of any plan of life insurance or annuity which that is of a nature that the

22-16

minimum reserves cannot be determined by the methods described in sections 27-4.5-5, 27-4.5-

22-17

5.1 and 27-4.5-8, the reserves which that are held under that the plan must shall:

22-18

      (1) Be appropriate in relation to the benefits and the pattern of premiums for that plan;

22-19

and

22-20

      (2) Be computed by a method that is consistent with the principles of this chapter, as

22-21

determined by regulations promulgated by the commissioner of insurance.

22-22

     Notwithstanding any other provision in the laws of this state, a policy, contract or

22-23

certificate providing life insurance under such a plan shall be affirmatively approved by the

22-24

commissioner before it can be marketed, issued, delivered or used in this state.

22-25

     27-4.5-10. Minimum standards for accident and sickness plans Minimum standards

22-26

for accident and health insurance contracts. -- The commissioner of insurance shall

22-27

promulgate a regulation containing the minimum standards applicable to the valuation of accident

22-28

and sickness plans.For accident and health insurance contracts issued on or after the operative

22-29

date of the valuation manual, the standard prescribed in the valuation manual is the minimum

22-30

standard of valuation required under subsection 27-4.5-2(b). For accident and health insurance

22-31

contracts issued on or after January 1, 1994 and prior to the operative date of the valuation

22-32

manual the minimum standard of valuation is the standard adopted by the commissioner by

22-33

regulation.

23-34

     SECTION 3. Chapter 27-4.3 of the General Laws entitled "The Standard Nonforfeiture

23-35

Law for Life Insurance" is hereby amended by adding thereto the following sections:

23-36

     27-4.3-1.1. Definitions. -- "Operative date of the valuation manual" means January 1 of

23-37

the first calendar year that the valuation manual as defined in chapter 27-4.5 is effective.

23-38

     27-4.3-5.1. Calculation of adjusted premiums. -- This section shall not apply to policies

23-39

issued on or after the operative date of section 27-4.3-5. Except as provided in subsection (c) of

23-40

this section, the adjusted premiums for any policy shall be calculated on an annual basis and shall

23-41

be such uniform percentage of the respective premiums specified in the policy for each policy

23-42

year, excluding amounts stated in the policy as extra premiums to cover impairments or special

23-43

hazards, that the present value, at the date of issue of the policy, of all such adjusted premiums

23-44

shall be equal to the sum of:

23-45

     (1) The then present value of the future guaranteed benefits provided for by the policy;

23-46

     (2) Two percent (2%) of the amount of insurance, if the insurance be uniform in amount,

23-47

or of the equivalent uniform amount, as hereinafter defined, if the amount of insurance varies

23-48

with duration of the policy;

23-49

     (3) Forty percent (40%) of the adjusted premium for the first policy year;

23-50

     (4) Twenty-five percent (25%) of either the adjusted premium for the first policy year or

23-51

the adjusted premium for a whole life policy of the same uniform or equivalent uniform amount

23-52

with uniform premiums for the whole of life issued at the same age for the same amount of

23-53

insurance, whichever is less.

23-54

     Provided, however, that in applying the percentages specified in subdivisions (3) and (4)

23-55

above, no adjusted premium shall be deemed to exceed four percent (4%) of the amount of

23-56

insurance or level amount equivalent. The date of issue of a policy for the purpose of this section

23-57

shall be the date as of which the rated age of the insured is determined.

23-58

     (b) In the case of a policy providing an amount of insurance varying with duration of the

23-59

policy, the equivalent level amount for the purpose of this section shall be deemed to be the level

23-60

amount of insurance provided by an otherwise similar policy, containing the same endowment

23-61

benefit or benefits, if any, issued at the same age and for the same term, the amount of which does

23-62

not vary with duration and the benefits under which have the same present value at the inception

23-63

of the insurance as the benefits under the policy.

23-64

     (c) The adjusted premiums for any policy providing term insurance benefits by rider or

23-65

supplemental policy provision shall be equal to:

23-66

     (1) The adjusted premiums for an otherwise similar policy issued at the same age without

23-67

such term insurance benefits, increased, during the period for which premiums for such term

23-68

insurance benefits are payable, by

24-1

     (2) The adjusted premiums for such term insurance, the foregoing subdivisions (1) and

24-2

(2) being calculated separately and as specified in subsections (a) and (b) except that, for the

24-3

purposes of subdivisions (a)(2), (a)(3) and (a)(4), the amount of insurance or equivalent uniform

24-4

amount of insurance used in the calculation of the adjusted premiums referred to in subdivision

24-5

(a)(2) shall be equal to the excess of the corresponding amount determined for the entire policy

24-6

over the amount used in the calculation of the adjusted premiums in subdivision (c)(1).

24-7

     (d) Except as otherwise provided in sections 27-4.3-5.2 and 27-4.5-5.3, all adjusted

24-8

premiums and present values referred to in this chapter shall, for all policies of ordinary

24-9

insurance, be calculated on the basis of the Commissioners 1941 Standard Ordinary Mortality

24-10

Table, provided that for any category of ordinary insurance issued on female risks, adjusted

24-11

premiums and present values may be calculated according to any age not more than three (3)

24-12

years younger than the actual age of the insured and such calculations for all policies of industrial

24-13

insurance shall be made on the basis of the 1941 Standard Industrial Mortality Table. All

24-14

calculations shall be made on the basis of the rate of interest, not exceeding three and one-half

24-15

percent (3 1/2%) per annum, specified in the policy for calculating cash surrender values and

24-16

paid-up nonforfeiture benefits. Provided, however, that in calculating the present value of any

24-17

paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture

24-18

benefit, the rates of mortality assumed may be not more than one hundred and thirty percent

24-19

(130%) of the rates of mortality according to the applicable table. Provided, further, that for

24-20

insurance issued on a substandard basis, the calculation of any adjusted premiums and present

24-21

values may be based on such other table of mortality as may be specified by the company and

24-22

approved by the commissioner.

24-23

     27-4.3-5.2. Calculation of adjusted premiums -- Ordinary policies. -- This section

24-24

shall not apply to ordinary policies issued on or after the operative date of section 27-4.3-5. In

24-25

the case of ordinary policies issued on or after the operative date of this section, all adjusted

24-26

premiums and present values referred to in this chapter shall be calculated on the basis of the

24-27

Commissioners 1958 Standard Ordinary Mortality Table and the rate of interest specified in the

24-28

policy for calculating cash surrender values and paid-up nonforfeiture benefits provided that such

24-29

rate of interest shall not exceed three and one-half percent (3 1/2%) per annum except that a rate

24-30

of interest not exceeding five and one-half percent (5 1/2%) per annum may be used; for policies

24-31

issued on or after January 1, 1994, except that for any single premium whole life or endowment

24-32

insurance policy, a rate of interest not exceeding six and one-half percent (6 1/2%) per annum

24-33

may be used; and provided that for any category of ordinary insurance issued on female risks,

24-34

adjusted premiums and present values may be calculated according to an age not more than six

25-1

(6) years younger than the actual age of the insured. Provided, however, that in calculating the

25-2

present value of any paid-up term insurance with accompanying pure endowment, if any, offered

25-3

as a nonforfeiture benefit, the rates of mortality assumed may be not more than those shown in

25-4

the Commissioners 1958 Extended Term Insurance Table. Provided, further, that for insurance

25-5

issued on a substandard basis, the calculation of any adjusted premiums and present values may

25-6

be based on such other table of mortality as may be specified by the company and approved by

25-7

the commissioner.

25-8

     27-4.3-5.3. Calculation of adjusted premiums -- Industrial policies. -- This section

25-9

shall not apply to industrial policies issued on or after the operative date of section 27-4.3-5. In

25-10

the case of industrial policies issued on or after the operative date of this section, all adjusted

25-11

premiums and present values referred to in this chapter shall be calculated on the basis of the

25-12

Commissioners 1961 Standard Industrial Mortality Table and the rate of interest specified in the

25-13

policy for calculating cash surrender values and paid-up nonforfeiture benefits provided that such

25-14

rate of interest shall not exceed three and one-half percent (3 1/2%) per annum, except that a rate

25-15

of interest not exceeding five and one-half percent (51/2%) per annum may be used for policies

25-16

issued on or after January 1, 1994, except that for any single premium whole life or endowment

25-17

insurance policy a rate of interest not exceeding six and one-half percent (6 1/2%) per annum may

25-18

be used. Provided, however, that in calculating the present value of any paid-up term insurance

25-19

with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of

25-20

mortality assumed may be not more than those shown in the Commissioners 1961 Industrial

25-21

Extended Term Insurance Table. Provided, further, that for insurance issued on a substandard

25-22

basis, the calculations of any such adjusted premiums and present values may be based on such

25-23

other table of mortality as may be specified by the company and approved by the commissioner.

25-24

     SECTION 4. Chapter 27-4.5 of the General Laws entitled "The Standard Valuation Law"

25-25

is hereby amended by adding thereto the following sections:

25-26

     27-4.5-4.2. Computation of minimum standard for annuities. -- Except as provided in

25-27

section 27-4.5-4.1, the minimum standard of valuation for individual annuity and pure

25-28

endowment contracts issued on or after the operative date of this section and for annuities and

25-29

pure endowments purchased on or after the operative date under group annuity and pure

25-30

endowment contracts, shall be the commissioners reserve valuation methods defined in sections

25-31

27-4.5-5 and 27-4.5-5.1 and the following tables and interest rates:

25-32

     (1) For individual annuity and pure endowment contracts issued prior to January 1, 1994,

25-33

excluding any disability and accidental death benefits in those contracts: the 1971 Individual

25-34

Annuity Mortality Table, or any modification of this table approved by the commissioner, and six

26-1

percent (6%) interest for single premium immediate annuity contracts and four percent (4%)

26-2

interest for all other individual annuity and pure endowment contracts;

26-3

     (2) For individual single premium immediate annuity contracts issued on or after January

26-4

1, 1994, excluding any disability and accidental death benefits in those contracts: the 1971

26-5

Individual Annuity Mortality Table or any individual annuity mortality table adopted after 1980

26-6

by the NAIC that is approved by regulation promulgated by the commissioner for use in

26-7

determining the minimum standard of valuation for these contracts, or any modification of these

26-8

tables approved by the commissioner, and seven and one-half percent (7 1/2%) interest;

26-9

     (3) For individual annuity and pure endowment contracts issued on or after January 1,

26-10

1994, other than single premium immediate annuity contracts, excluding any disability and

26-11

accidental death benefits in those contracts: the 1971 Individual Annuity Mortality Table or any

26-12

individual annuity mortality table adopted after 1980 by the NAIC, that is approved by regulation

26-13

promulgated by the commissioner for use in determining the minimum standard of valuation for

26-14

those contracts, or any modification of these tables approved by the commissioner, and five and

26-15

one-half percent (5 1/2%) interest for single premium deferred annuity and pure endowment

26-16

contracts and four and one-half percent (4 1/2%) interest for all other individual annuity and pure

26-17

endowment contracts;

26-18

     (4) For annuities and pure endowments purchased prior to January 1, 1994 under group

26-19

annuity and pure endowment contracts, excluding any disability and accidental death benefits

26-20

purchased under those contracts: the 1971 Group Annuity Mortality Table or any modification of

26-21

this table approved by the commissioner, and six percent (6%) interest; and

26-22

     (5) For annuities and pure endowments purchased on or after January 1, 1994 under

26-23

group annuity and pure endowment contracts, excluding any disability and accidental death

26-24

benefits purchased under those contracts: the 1971 Group Annuity Mortality Table, or any group

26-25

annuity mortality table adopted after 1980 by the NAIC that is approved by regulation

26-26

promulgated by the commissioner for use in determining the minimum standard of valuation for

26-27

annuities and pure endowments, or any modification of these tables approved by the

26-28

commissioner, and seven and one-half percent (7 1/2%) interest.

26-29

     27-4.5-13. Valuation manual for policies issued on or after the operative date of the

26-30

valuation manual. -- (a) For policies issued on or after the operative date of the valuation

26-31

manual, the standard prescribed in the valuation manual is the minimum standard of valuation

26-32

required under subsection 27-4.5-2(b), except as provided under subsections (e) or (g) of this

26-33

section.

27-34

     (b) The operative date of the valuation manual is January 1 of the first calendar year

27-35

following the first July 1 as of which all of the following have occurred:

27-36

     (1) The valuation manual has been adopted by the NAIC by an affirmative vote of at least

27-37

forty-two (42) members, or three-fourths (3/4) of the members voting, whichever is greater.

27-38

     (2) The Standard Valuation Law, as amended by the NAIC in 2009, or legislation

27-39

including substantially similar terms and provisions, has been enacted by states representing

27-40

greater than seventy-five percent (75%) of the direct premiums written as reported in the

27-41

following annual statements submitted for 2008: life, accident and health annual statements;

27-42

health annual statements; or fraternal annual statements.

27-43

     (3) The Standard Valuation Law, as amended by the NAIC in 2009, or legislation

27-44

including substantially similar terms and provisions, has been enacted by at least forty-two (42)

27-45

of the following fifty-five (55) jurisdictions: The fifty (50) States of the United States, American

27-46

Samoa, the American Virgin Islands, the District of Columbia, Guam, and Puerto Rico.

27-47

     (c) Unless a change in the valuation manual specifies a later effective date, changes to the

27-48

valuation manual shall be effective on January 1 following the date when all of the following

27-49

have occurred:

27-50

     (1) The change to the valuation manual has been adopted by the NAIC by an affirmative

27-51

vote representing:

27-52

     (i) At least three-fourths (3/4) of the members of the NAIC voting, but not less than a

27-53

majority of the total membership, and

27-54

     (ii) Members of the NAIC representing jurisdictions totaling greater than seventy-five

27-55

percent (75%) of the direct premiums written as reported in the following annual statements most

27-56

recently available prior to the vote in subsection (c)(1)(i): life, accident and health annual

27-57

statements, health annual statements, or fraternal annual statements.

27-58

     (2) The valuation manual becomes effective pursuant to a regulation adopted by the

27-59

commissioner.

27-60

     (d) The valuation manual must specify all of the following:

27-61

     (1) Minimum valuation standards for and definitions of the policies or contracts subject

27-62

to subsection 27-4.5-2(b). Such minimum valuation standards shall be:

27-63

     (i) The commissioner's reserve valuation method for life insurance contracts, other than

27-64

annuity contracts, subject to subsection 27-4.5-2(b);

27-65

     (ii) The commissioner's annuity reserve valuation method for annuity contracts subject to

27-66

subsection 27-4.5- 2(b); and

27-67

     (iii) Minimum reserves for all other policies or contracts subject to subsection 27-4.5-

27-68

2(b).

28-1

     (2) Which policies or contracts or types of policies or contracts that are subject to the

28-2

requirements of a principle-based valuation in subsection 27-4.5-14(a) and the minimum

28-3

valuation standards consistent with those requirements;

28-4

     (3) For policies and contracts subject to a principle-based valuation under section 27-4.5-

28-5

14:

28-6

     (i) Requirements for the format of reports to the commissioner under subdivision 27-4.5-

28-7

14(b)(2) and which shall include information necessary to determine if the valuation is

28-8

appropriate and in compliance with this chapter;

28-9

     (ii) Assumptions shall be prescribed for risks over which the company does not have

28-10

significant control or influence.

28-11

     (iii) Procedures for corporate governance and oversight of the actuarial function, and a

28-12

process for appropriate waiver or modification of such procedures.

28-13

     (4) For policies not subject to a principle-based valuation under section 27-4.5-14 the

28-14

minimum valuation standard shall either:

28-15

     (i) Be consistent with the minimum standard of valuation prior to the operative date of

28-16

the valuation manual; or

28-17

     (ii) Develop reserves that quantify the benefits and guarantees, and the funding,

28-18

associated with the contracts and their risks at a level of conservatism that reflects conditions that

28-19

include unfavorable events that have a reasonable probability of occurring.

28-20

     (5) Other requirements, including, but not limited to, those relating to reserve methods,

28-21

models for measuring risk, generation of economic scenarios, assumptions, margins, use of

28-22

company experience, risk measurement, disclosure, certifications, reports, actuarial opinions and

28-23

memorandums, transition rules and internal controls; and

28-24

     (6) The data and form of the data required under section 27-4.5-15, with whom the data

28-25

must be submitted, and may specify other requirements including data analyses and reporting of

28-26

analyses.

28-27

     (e) In the absence of a specific valuation requirement or if a specific valuation

28-28

requirement in the valuation manual is not, in the opinion of the commissioner, in compliance

28-29

with this chapter, then the company shall, with respect to such requirements, comply with

28-30

minimum valuation standards prescribed by the commissioner by regulation.

28-31

     (f) The commissioner may engage a qualified actuary, at the expense of the company, to

28-32

perform an actuarial examination of the company and opine on the appropriateness of any reserve

28-33

assumption or method used by the company, or to review and opine on a company's compliance

28-34

with any requirement set forth in this chapter. The commissioner may rely upon the opinion,

29-1

regarding provisions contained within this chapter, of a qualified actuary engaged by the

29-2

commissioner of another state, district or territory of the United States. As used in this

29-3

subsection, term "engage" includes employment and contracting.

29-4

     (g) The commissioner may require a company to change any assumption or method that

29-5

in the opinion of the commissioner is necessary in order to comply with the requirements of the

29-6

valuation manual or this chapter; and the company shall adjust the reserves as required by the

29-7

commissioner. The commissioner may take other disciplinary action as permitted pursuant to

29-8

section 42-14-16.

29-9

     27-4.5-14. Requirements of a principle-based valuation. -- (a) A company must

29-10

establish reserves using a principle-based valuation that meets the following conditions for

29-11

policies or contracts as specified in the valuation manual:

29-12

     (1) Quantify the benefits and guarantees, and the funding, associated with the contracts

29-13

and their risks at a level of conservatism that reflects conditions that include unfavorable events

29-14

that have a reasonable probability of occurring during the lifetime of the contracts. For policies

29-15

or contracts with significant tail risk, reflects conditions appropriately adverse to quantify the tail

29-16

risk.

29-17

     (2) Incorporate assumptions, risk analysis methods and financial models and management

29-18

techniques that are consistent with, but not necessarily identical to, those utilized within the

29-19

company's overall risk assessment process, while recognizing potential differences in financial

29-20

reporting structures and any prescribed assumptions or methods.

29-21

     (3) Incorporate assumptions that are derived in one of the following manners:

29-22

     (i) The assumption is prescribed in the valuation manual.

29-23

     (ii) For assumptions that are not prescribed, the assumptions shall:

29-24

     (A) Be established utilizing the company's available experience, to the extent it is

29-25

relevant and statistically credible; or

29-26

     (B) To the extent that company data is not available, relevant, or statistically credible, be

29-27

established utilizing other relevant, statistically credible experience.

29-28

     (4) Provide margins for uncertainty including adverse deviation and estimation error,

29-29

such that the greater the uncertainty the larger the margin and resulting reserve.

29-30

     (b) A company using a principle-based valuation for one or more policies or contracts

29-31

subject to this section as specified in the valuation manual shall:

29-32

     (1) Establish procedures for corporate governance and oversight of the actuarial valuation

29-33

function consistent with those described in the valuation manual.

30-34

     (2) Provide to the commissioner and the board of directors an annual certification of the

30-35

effectiveness of the internal controls with respect to the principle-based valuation. Such controls

30-36

shall be designed to assure that all material risks inherent in the liabilities and associated assets

30-37

subject to such valuation are included in the valuation, and that valuations are made in accordance

30-38

with the valuation manual. The certification shall be based on the controls in place as of the end

30-39

of the preceding calendar year.

30-40

     (3) Develop, and file with the commissioner upon request, a principle-based valuation

30-41

report that complies with standards prescribed in the valuation manual.

30-42

     (c) A principle-based valuation may include a prescribed formulaic reserve component.

30-43

     27-4.5-15. Experience reporting for policies in force on or after the operative date of

30-44

the valuation manual. -- A company shall submit mortality, morbidity, policyholder behavior, or

30-45

expense experience and other data as prescribed in the valuation manual.

30-46

     27-4.5-16. Confidentiality. -- (a) For purposes of this section, "confidential information"

30-47

shall mean:

30-48

     (1) A memorandum in support of an opinion submitted under section 27-4-3 and any

30-49

other documents, materials and other information, including, but not limited to, all working

30-50

papers, and copies thereof, created, produced or obtained by or disclosed to the commissioner or

30-51

any other person in connection with such memorandum;

30-52

     (2) All documents, materials and other information, including, but not limited to, all

30-53

working papers, and copies thereof, created, produced or obtained by or disclosed to the

30-54

commissioner or any other person in the course of an examination made under subsection 27-4.5-

30-55

13(f); provided, however, that if an examination report or other material prepared in connection

30-56

with an examination made under chapter 27-13.1 is not held as private and confidential

30-57

information under chapter 27-13.1, an examination report or other material prepared in

30-58

connection with an examination made under subsection 27-4.5-13(f) of this chapter shall not be

30-59

"confidential information" to the same extent as if such examination report or other material had

30-60

been prepared in accordance with chapter 27-13.1;

30-61

     (3) Any reports, documents, materials and other information developed by a company in

30-62

support of, or in connection with, an annual certification by the company under subdivision 27-

30-63

4.5- 14(b)(1) of this chapter evaluating the effectiveness of the company's internal controls with

30-64

respect to a principle-based valuation and any other documents, materials and other information,

30-65

including, but not limited to, all working papers, and copies thereof, created, produced or

30-66

obtained by or disclosed to the commissioner or any other person in connection with such reports,

30-67

documents, materials and other information;

31-68

     (4) Any principle-based valuation report developed under subdivision 27-4.5-14(b)(2)

31-69

and any other documents, materials and other information, including, but not limited to, all

31-70

working papers, and copies thereof, created, produced or obtained by or disclosed to the

31-71

commissioner or any other person in connection with such report; and

31-72

     (5) Any documents, materials, data and other information submitted by a company under

31-73

section 27-4.5- 15 (collectively, "experience data") and any other documents, materials, data and

31-74

other information, including, but not limited to, all working papers, and copies thereof, created or

31-75

produced in connection with such experience data, in each case that include any potentially

31-76

company-identifying or personally identifiable information, that is provided to or obtained by the

31-77

commissioner (together with any "experience data", the "experience materials") and any other

31-78

documents, materials, data and other information, including, but not limited to, all working

31-79

papers, and copies thereof, created, produced or obtained by or disclosed to the commissioner or

31-80

any other person in connection with such experience materials.

31-81

     (b) Privilege for, and confidentiality of, confidential information.

31-82

     (1) Except as provided in this section 27-4.5-16, a company's confidential information is

31-83

confidential by law and privileged, and shall not be subject to chapter 38-2, shall not be subject to

31-84

subpoena and shall not be subject to discovery or admissible in evidence in any private civil

31-85

action; provided, however, that the commissioner is authorized to use the confidential information

31-86

in the furtherance of any regulatory or legal action brought against the company as a part of the

31-87

commissioner's official duties.

31-88

     (2) Neither the commissioner nor any person who received confidential information

31-89

while acting under the authority of the commissioner shall be permitted or required to testify in

31-90

any private civil action concerning any confidential information.

31-91

     (3) In order to assist in the performance of the commissioner's duties, the commissioner

31-92

may share confidential information: (i) With other state, federal and international regulatory

31-93

agencies and with the NAIC and its affiliates and subsidiaries; and (ii) In the case of confidential

31-94

information specified in subdivisions 27-4.5-16(a)(1) and 27-4.5-16(a)(4) only, with the actuarial

31-95

board for counseling and discipline or its successor upon request stating that the confidential

31-96

information is required for the purpose of professional disciplinary proceedings and with state,

31-97

federal and international law enforcement officials; in the case of subsections (a) and (b),

31-98

provided, that, such recipient agrees, and has the legal authority to agree, to maintain the

31-99

confidentiality and privileged status of such documents, materials, data and other information in

31-100

the same manner and to the same extent as required for the commissioner.

31-101

     (4) The commissioner may receive documents, materials, data and other information,

31-102

including otherwise confidential and privileged documents, materials, data or information, from

32-1

the NAIC and its affiliates and subsidiaries, from regulatory or law enforcement officials of other

32-2

foreign or domestic jurisdictions and from the actuarial board for counseling and discipline or its

32-3

successor and shall maintain as confidential or privileged any document, material, data or other

32-4

information received with notice or the understanding that it is confidential or privileged under

32-5

the laws of the jurisdiction that is the source of the document, material or other information.

32-6

     (5) The commissioner may enter into agreements governing sharing and use of

32-7

information consistent with subsection 27-4.5-16(b).

32-8

     (6) No waiver of any applicable privilege or claim of confidentiality in the confidential

32-9

information shall occur as a result of disclosure to the commissioner under this section or as a

32-10

result of sharing as authorized in subdivision 27-4.5-16(b)(3).

32-11

     (7) A privilege established under the law of any state or jurisdiction that is substantially

32-12

similar to the privilege established under subsection 27-4.5-16(b) shall be available and enforced

32-13

in any proceeding in, and in any court of, this state.

32-14

     (8) In section 27-4.5-16 "regulatory agency," "law enforcement agency" and the "NAIC"

32-15

include, but are not limited to, their employees, agents, consultants and contractors.

32-16

     (c) Notwithstanding subsection 27-4.5-16(b), any confidential information specified in

32-17

subdivisions 27-4.5-16(a)(1) and 27-4.5-14(a)(4):

32-18

     (1) May be subject to subpoena for the purpose of defending an action seeking damages

32-19

from the appointed actuary submitting the related memorandum in support of an opinion

32-20

submitted under section 27-4.5-3 or principle-based valuation report developed under subdivision

32-21

27-4.5-16(b)(3) by reason of an action required by this chapter or by regulations promulgated

32-22

hereunder;

32-23

     (2) May otherwise be released by the commissioner with the written consent of the

32-24

company; and

32-25

     (3) Once any portion of a memorandum in support of an opinion submitted under section

32-26

27-4.5-3 or a principle-based valuation report developed under subdivision 27-4.5-14(b)(3) is

32-27

cited by the company in its marketing or is publicly volunteered to or before a governmental

32-28

agency other than a state insurance department or is released by the company to the news media,

32-29

all portions of such memorandum or report shall no longer be confidential.

32-30

     27-4.5-17. Single state exemption. -- (a) The commissioner may exempt specific product

32-31

forms or product lines of a domestic company that is licensed and doing business only in Rhode

32-32

Island from the requirements of section 27-4.5-13 provided:

32-33

     (1) The commissioner has issued an exemption in writing to the company and has not

32-34

subsequently revoked the exemption in writing; and

33-1

     (2) The company computes reserves using assumptions and methods used prior to the

33-2

operative date of the valuation manual in addition to any requirements established by the

33-3

commissioner and promulgated by regulation.

33-4

     (b) For any company granted an exemption under this section, and sections 27-4.5-3, 27-

33-5

4.5-4, 27-4.5-4.1, 27-4.5-4.2, 27-4.5-5, 27-4.5-5.1, 27-4.5-6, 27-4.5-7, 27-4.5-8, 27-4.5-9 and 27-

33-6

4.5-10 shall be applicable. With respect to any company applying this exemption, any reference

33-7

to section 27-4.5-13 found in sections 27-4.5-3, 27-4.5-4, 27-4.5-4.1, 27-4.5-4.2, 27-4.5-5, 27-

33-8

4.5-5.1, 27-4.5-6, 27-4.5-7, 27-4.5-8, 27-4.5-9 and 27-4.5-10 shall not be applicable.

33-9

     SECTION 5. Sections 27-4-17, 27-4-18, 27-4-19, 27-4-20 and 27-4-21 of the General

33-10

Laws in Chapter 27-4 entitled "Life Insurance Policies and Reserves" are hereby repealed.

33-11

     27-4-17. Annual valuation of policies and reserves. -- (a) The director of business

33-12

regulation shall make annual valuations of all outstanding policies, additions to policies, unpaid

33-13

dividends, and all other obligations of every life insurance corporation doing business in this

33-14

state. All valuations made by the director, or by his or her authority, shall be made upon the net

33-15

premium basis. The legal minimum standard for valuation of contracts issued before January 1,

33-16

1907, shall be the American experience table of mortality with the interest at four percent (4%)

33-17

per annum, and for contracts issued on or after that date the same table of mortality with interest

33-18

at three and one-half percent (3 1/2%) per annum. Any company may adopt as a legal minimum

33-19

standard, for the valuation of life insurance policies issued on or after January 1, 1948, the

33-20

commissioners reserve valuation method, with interest at three and one-half percent (3 1/2%) per

33-21

annum, or in the case of policies issued on or after April 17, 1975, four percent (4%) per annum

33-22

for policies issued prior to April 27, 1979, and four and one-half percent (4 1/2%) per annum for

33-23

policies issued on or after April 27, 1979, and either the commissioners 1941 standard ordinary

33-24

mortality table or the commissioners 1958 standard ordinary mortality table for ordinary policies,

33-25

and either the 1941 standard industrial mortality table or the commissioners 1961 standard

33-26

industrial mortality table or any industrial mortality table, adopted after 1980 by the National

33-27

Association of Insurance Commissioners, that is approved by regulation promulgated by the

33-28

commissioner for use in determining the minimum standard of valuation for industrial policies,

33-29

for industrial policies in lieu of the legal minimum standard allowed by this section. (b) The

33-30

interest rates used in determining the minimum standard for the valuation of all life insurance

33-31

policies issued in a particular calendar year on or after May 15, 1981, shall be the calendar year

33-32

statutory valuation interest rates as defined in this section. (c) (1) The calendar year statutory

33-33

valuation interest rates shall be determined as follows and the results rounded to the nearer one-

33-34

quarter of one percent (.25%): For life insurance: = I = .03 + W (R1 -.03) + W/2 (R1 -.09);

34-1

where R1 is the lesser of R and .09, R2 is the greater of R and .09, R is the reference interest rate

34-2

defined in this section, and W is the weighting factor defined in this section; (2) If the calendar

34-3

year statutory valuation interest rate for any life insurance policies issued in any calendar year

34-4

determined without reference to subdivision (c)(1) differs from the corresponding actual rate for

34-5

similar policies issued in the immediately preceding calendar year by less than one-half of one

34-6

percent (.5%), the calendar year statutory valuation interest rate for these life insurance policies

34-7

shall be equal to the corresponding actual rate for the immediately preceding calendar year. For

34-8

the purposes of applying the provisions in this subdivision, the calendar year statutory valuation

34-9

interest rate for life insurance policies issued in a calendar year shall be determined for 1980

34-10

using the reference interest rate defined for 1979 and shall be determined for each subsequent

34-11

calendar year. (3) The weighting factors referred to in the formula stated in subdivision (c)(1) are

34-12

given in the following table:

34-13

     Weighting Factors for Life Insurance: Guarantee Duration
Weighting (Years) Factors

34-14

10 or less
.50 More than 10, but not more than 20
.45 More than 20
.35 For life insurance,

34-15

the guarantee duration is the maximum number of years the life insurance can remain in force on

34-16

a basis guaranteed in the policy or under options to convert to plans of life insurance with

34-17

premium rates or non-forfeiture values or both which are guaranteed in the original policy.

34-18

      (4) The reference interest rate referred to in subdivision (c)(1) shall be defined as

34-19

follows: (i) For all life insurance, the lesser of the average over a period of thirty-six (36) months

34-20

and the average over a period of twelve (12) months, ending on June 30 of the calendar year next

34-21

preceding the year of issue, of Moody's corporate bond yield average -- monthly average

34-22

corporates, as published by Moody's Investors Service, Inc., or any successor; or (ii) In the event

34-23

that the Moody's corporate bond yield average -- monthly average corporates is no longer

34-24

published by Moody's Investors Service, Inc., or in the event that the National Association of

34-25

Insurance Commissioners determines that the Moody's corporate bond yield average -- monthly

34-26

average corporates, as published by Moody's Investors Service, Inc., is no longer appropriate for

34-27

the determination of the reference interest rate, then an alternative method for determination of

34-28

the references interest rate, which is adopted by the National Association of Insurance

34-29

Commissioners and approved by regulation promulgated by the commissioner, may be

34-30

substituted. (d) The mortality table used in determining the minimum standard for the valuation

34-31

of ordinary life insurance policies issued on or after May 15, 1981, shall be: (1) The

34-32

commissioners 1980 standard ordinary mortality table; (2) At the election of the company for

34-33

any one or more specified plans of life insurance, the commissioners 1980 standard ordinary

34-34

mortality table with ten (10) year select mortality factors; or (3) Any ordinary mortality table,

35-1

adopted after 1980 by the National Association of Insurance Commissioners, that is approved by

35-2

regulation promulgated by the commissioner for use in determining the minimum standard of

35-3

valuation for these policies. (e) Reserves for any category of policies or contracts may be

35-4

calculated, at the option of the insurer, according to any standard or standards which produce

35-5

greater aggregate reserves for all policies or contracts than the legal minimum standard or

35-6

standards.

35-7

     27-4-18. Variance from valuation standards. -- The director of business regulation may

35-8

vary the standards of interest and mortality in the case of corporations from foreign countries as

35-9

to contracts issued by these corporations in countries other than the United States, and in

35-10

particular cases of invalid lives and other extra hazards, and value policies seriatim or in groups,

35-11

use approximate averages for fractions of a year and otherwise, and accept the valuation of the

35-12

department of insurance of any other state or country if made upon the basis of, and according to,

35-13

standards not lower than required or authorized by sections 27-4-17 -- 27-4-20, in place of the

35-14

valuation required by sections 27-4-17 -- 27-4-20.

35-15

     27-4-19. Valuation of bonds and fixed obligation investments. -- All bonds or other

35-16

evidences of debt having a fixed term and rate held by any life insurance company, assessment

35-17

life association, or fraternal beneficiary association authorized to do business in this state, may, if

35-18

amply secured and not in default as to principal or interest, be valued as follows: if purchased at

35-19

par, at the par value; and if purchased above or below par, on the basis of the purchase price

35-20

adjusted so as to bring the value to par at maturity and so as to yield in the meantime the effective

35-21

rate of interest at which the purchase was made; provided, that the purchase price shall in no case

35-22

be taken at a higher figure than the actual market value at the time of purchase; and provided, that

35-23

the director of business regulation shall have full discretion in determining the method of

35-24

calculating values according to this rule.

35-25

     27-4-20. Employment of actuary to make valuation -- Acceptance of valuation by

35-26

company. -- For the purpose of making a valuation, the director of business regulation may

35-27

employ a competent actuary to do the valuation, who shall be paid by the company for which the

35-28

services are rendered, but nothing in this chapter shall prevent any company from making the

35-29

valuation contemplated in this section, which may be received by the director upon the proof that

35-30

he or she may determine. The expense of procuring that proof shall be paid by the company.

35-31

     27-4-21. Certificate of compliance with reserve requirements. -- Upon the valuation

35-32

being made as provided in sections 27-4-17 -- 27-4-20, the director of business regulation shall

35-33

issue a certificate setting forth the corporate name of the company, its principal office, that it has

35-34

fully complied with the provisions of this chapter, stating the amount of the net reserve value of

36-1

outstanding policies and the table upon which that value is computed, and that it is authorized to

36-2

transact the business of life insurance in this state.

36-3

     SECTION 6. This act shall take effect upon passage.

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LC01414

========

EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO INSURANCE -- THE STANDARD NONFORFEITURE LAW FOR LIFE

INSURANCE

***

37-1

     This act would bring the Standard Valuation and Standard Nonforfeiture for Life

37-2

Insurance laws into compliance with the current version of the National Association of Insurance

37-3

Commissioners Model Act by amending and adding a number of provisions to chapters 27-4.3

37-4

and 27-4.5, and repealing the provisions of chapter 27-4 that are addressed in the amended

37-5

version of chapter 27-4.5.

37-6

     This act would take effect upon passage.

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LC01414

=======