Insurance Committee

Filed: 2/28/2007

 

 


 

 


 
09500HB0938ham001 LRB095 07026 KBJ 32285 a

1
AMENDMENT TO HOUSE BILL 938

2     AMENDMENT NO. ______. Amend House Bill 938 on page 1, line
3 5, by replacing "Section" with "Sections 223 and"; and
 
4 on page 1, immediately below line 5, by inserting the
5 following:
 
6     "(215 ILCS 5/223)  (from Ch. 73, par. 835)
7     Sec. 223. Director to value policies - Legal standard of
8 valuation.
9     (1) The Director shall annually value, or cause to be
10 valued, the reserve liabilities (hereinafter called reserves)
11 for all outstanding life insurance policies and annuity and
12 pure endowment contracts of every life insurance company doing
13 business in this State, except that in the case of an alien
14 company, such valuation shall be limited to its United States
15 business, and may certify the amount of any such reserves,
16 specifying the mortality table or tables, rate or rates of

 

 

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1 interest, and methods (net level premium method or other) used
2 in the calculation of such reserves. Other assumptions may be
3 incorporated into the reserve calculation to the extent
4 permitted by the National Association of Insurance
5 Commissioners' Accounting Practices and Procedures Manual. In
6 calculating such reserves, he may use group methods and
7 approximate averages for fractions of a year or otherwise. In
8 lieu of the valuation of the reserves herein required of any
9 foreign or alien company, he may accept any valuation made, or
10 caused to be made, by the insurance supervisory official of any
11 state or other jurisdiction when such valuation complies with
12 the minimum standard herein provided and if the official of
13 such state or jurisdiction accepts as sufficient and valid for
14 all legal purposes the certificate of valuation of the Director
15 when such certificate states the valuation to have been made in
16 a specified manner according to which the aggregate reserves
17 would be at least as large as if they had been computed in the
18 manner prescribed by the law of that state or jurisdiction.
19     Any such company which at any time has adopted any standard
20 of valuation producing greater aggregate reserves than those
21 calculated according to the minimum standard herein provided
22 may, with the approval of the Director, adopt any lower
23 standard of valuation, but not lower than the minimum herein
24 provided, however, that, for the purposes of this subsection,
25 the holding of additional reserves previously determined by a
26 qualified actuary to be necessary to render the opinion

 

 

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1 required by subsection (1a) shall not be deemed to be the
2 adoption of a higher standard of valuation. In the valuation of
3 policies the Director shall give no consideration to, nor make
4 any deduction because of, the existence or the possession by
5 the company of
6         (a) policy liens created by any agreement given or
7     assented to by any assured subsequent to July 1, 1937, for
8     which liens such assured has not received cash or other
9     consideration equal in value to the amount of such liens,
10     or
11         (b) policy liens created by any agreement entered into
12     in violation of section 232 unless the agreement imposing
13     or creating such liens has been approved by a Court in a
14     proceeding under Article XIII, or in the case of a foreign
15     or alien company has been approved by a court in a
16     rehabilitation or liquidation proceeding or by the
17     insurance official of its domiciliary state or country, in
18     accordance with the laws thereof.
19     (1a) This subsection shall become operative at the end of
20 the first full calendar year following the effective date of
21 this amendatory Act of 1991.
22         (A) General.
23             (1) Every life insurance company doing business in
24         this State shall annually submit the opinion of a
25         qualified actuary as to whether the reserves and
26         related actuarial items held in support of the policies

 

 

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1         and contracts specified by the Director by regulation
2         are computed appropriately, are based on assumptions
3         that satisfy contractual provisions, are consistent
4         with prior reported amounts and comply with applicable
5         laws of this State. The Director by regulation shall
6         define the specifics of this opinion and add any other
7         items deemed to be necessary to its scope.
8             (2) The opinion shall be submitted with the annual
9         statement reflecting the valuation of reserve
10         liabilities for each year ending on or after December
11         31, 1992.
12             (3) The opinion shall apply to all business in
13         force including individual and group health insurance
14         plans, in form and substance acceptable to the Director
15         as specified by regulation.
16             (4) The opinion shall be based on standards adopted
17         from time to time by the Actuarial Standards Board and
18         on additional standards as the Director may by
19         regulation prescribe.
20             (5) In the case of an opinion required to be
21         submitted by a foreign or alien company, the Director
22         may accept the opinion filed by that company with the
23         insurance supervisory official of another state if the
24         Director determines that the opinion reasonably meets
25         the requirements applicable to a company domiciled in
26         this State.

 

 

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1             (6) For the purpose of this Section, "qualified
2         actuary" means a member in good standing of the
3         American Academy of Actuaries who meets the
4         requirements set forth in its regulations.
5             (7) Except in cases of fraud or willful misconduct,
6         the qualified actuary shall not be liable for damages
7         to any person (other than the insurance company and the
8         Director) for any act, error, omission, decision or
9         conduct with respect to the actuary's opinion.
10             (8) Disciplinary action by the Director against
11         the company or the qualified actuary shall be defined
12         in regulations by the Director.
13             (9) A memorandum, in form and substance acceptable
14         to the Director as specified by regulation, shall be
15         prepared to support each actuarial opinion.
16             (10) If the insurance company fails to provide a
17         supporting memorandum at the request of the Director
18         within a period specified by regulation or the Director
19         determines that the supporting memorandum provided by
20         the insurance company fails to meet the standards
21         prescribed by the regulations or is otherwise
22         unacceptable to the Director, the Director may engage a
23         qualified actuary at the expense of the company to
24         review the opinion and the basis for the opinion and
25         prepare the supporting memorandum as is required by the
26         Director.

 

 

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1             (11) Any memorandum in support of the opinion, and
2         any other material provided by the company to the
3         Director in connection therewith, shall be kept
4         confidential by the Director and shall not be made
5         public and shall not be subject to subpoena, other than
6         for the purpose of defending an action seeking damages
7         from any person by reason of any action required by
8         this Section or by regulations promulgated hereunder;
9         provided, however, that the memorandum or other
10         material may otherwise be released by the Director (a)
11         with the written consent of the company or (b) to the
12         American Academy of Actuaries upon request stating
13         that the memorandum or other material is required for
14         the purpose of professional disciplinary proceedings
15         and setting forth procedures satisfactory to the
16         Director for preserving the confidentiality of the
17         memorandum or other material. Once any portion of the
18         confidential memorandum is cited by the company in its
19         marketing or is cited before any governmental agency
20         other than a state insurance department or is released
21         by the company to the news media, all portions of the
22         confidential memorandum shall be no longer
23         confidential.
24         (B) Actuarial analysis of reserves and assets
25     supporting those reserves.
26             (1) Every life insurance company, except as

 

 

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1         exempted by or under regulation, shall also annually
2         include in the opinion required by paragraph (A)(1) of
3         this subsection (1a), an opinion of the same qualified
4         actuary as to whether the reserves and related
5         actuarial items held in support of the policies and
6         contracts specified by the Director by regulation,
7         when considered in light of the assets held by the
8         company with respect to the reserves and related
9         actuarial items including, but not limited to, the
10         investment earnings on the assets and the
11         considerations anticipated to be received and retained
12         under the policies and contracts, make adequate
13         provision for the company's obligations under the
14         policies and contracts including, but not limited to,
15         the benefits under and expenses associated with the
16         policies and contracts.
17             (2) The Director may provide by regulation for a
18         transition period for establishing any higher reserves
19         which the qualified actuary may deem necessary in order
20         to render the opinion required by this Section.
21     (2) This subsection shall apply to only those policies and
22 contracts issued prior to the operative date of section 229.2
23 (the Standard Non-forfeiture Law).
24         (a) Except as otherwise in this Article provided, the
25     legal minimum standard for valuation of contracts issued
26     before January 1, 1908, shall be the Actuaries or Combined

 

 

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1     Experience Table of Mortality with interest at 4% per annum
2     and for valuation of contracts issued on or after that date
3     shall be the American Experience Table of Mortality with
4     either Craig's or Buttolph's Extension for ages under 10
5     and with interest at 3 1/2% per annum. The legal minimum
6     standard for the valuation of group insurance policies
7     under which premium rates are not guaranteed for a period
8     in excess of 5 years shall be the American Men Ultimate
9     Table of Mortality with interest at 3 1/2% per annum. Any
10     life company may, at its option, value its insurance
11     contracts issued on or after January 1, 1938, in accordance
12     with their terms on the basis of the American Men Ultimate
13     Table of Mortality with interest not higher than 3 1/2% per
14     annum.
15         (b) Policies issued prior to January 1, 1908, may
16     continue to be valued according to a method producing
17     reserves not less than those produced by the full
18     preliminary term method. Policies issued on and after
19     January 1, 1908, may be valued according to a method
20     producing reserves not less than those produced by the
21     modified preliminary term method hereinafter described in
22     paragraph (c). Policies issued on and after January 1,
23     1938, may be valued either according to a method producing
24     reserves not less than those produced by such modified
25     preliminary term method or by the select and ultimate
26     method on the basis that the rate of mortality during the

 

 

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1     first 5 years after the issuance of such contracts
2     respectively shall be calculated according to the
3     following percentages of rates shown by the American
4     Experience Table of Mortality:
5             (i) first insurance year 50% thereof;
6             (ii) second insurance year 65% thereof;
7             (iii) third insurance year 75% thereof;
8             (iv) fourth insurance year 85% thereof;
9             (v) fifth insurance year 95% thereof;
10         (c) If the premium charged for the first policy year
11     under a limited payment life preliminary term policy
12     providing for the payment of all premiums thereon in less
13     than 20 years from the date of the policy or under an
14     endowment preliminary term policy, exceeds that charged
15     for the first policy year under 20 payment life preliminary
16     term policies of the same company, the reserve thereon at
17     the end of any year, including the first, shall not be less
18     than the reserve on a 20 payment life preliminary term
19     policy issued in the same year at the same age, together
20     with an amount which shall be equivalent to the
21     accumulation of a net level premium sufficient to provide
22     for a pure endowment at the end of the premium payment
23     period, equal to the difference between the value at the
24     end of such period of such a 20 payment life preliminary
25     term policy and the full net level premium reserve at such
26     time of such a limited payment life or endowment policy.

 

 

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1     The premium payment period is the period during which
2     premiums are concurrently payable under such 20 payment
3     life preliminary term policy and such limited payment life
4     or endowment policy.
5         (d) The legal minimum standard for the valuations of
6     annuities issued on and after January 1, 1938, shall be the
7     American Annuitant's Table with interest not higher than 3
8     3/4% per annum, and all annuities issued before that date
9     shall be valued on a basis not lower than that used for the
10     annual statement of the year 1937; but annuities deferred
11     10 or more years and written in connection with life
12     insurance shall be valued on the same basis as that used in
13     computing the consideration or premiums therefor, or upon
14     any higher standard at the option of the company.
15         (e) The Director may vary the standards of interest and
16     mortality as to contracts issued in countries other than
17     the United States and may vary standards of mortality in
18     particular cases of invalid lives and other extra hazards.
19         (f) The legal minimum standard for valuation of waiver
20     of premium disability benefits or waiver of premium and
21     income disability benefits issued on and after January 1,
22     1938, shall be the Class (3) Disability Table (1926)
23     modified to conform to the contractual waiting period, with
24     interest at not more than 3 1/2% per annum; but in no event
25     shall the values be less than those produced by the basis
26     used in computing premiums for such benefits. The legal

 

 

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1     minimum standard for the valuation of such benefits issued
2     prior to January 1, 1938, shall be such as to place an
3     adequate value, as determined by sound insurance
4     practices, on the liabilities thereunder and shall be such
5     that the value of the benefits under each and every policy
6     shall in no case be less than the value placed upon the
7     future premiums.
8         (g) The legal minimum standard for the valuation of
9     industrial policies issued on or after January 1, 1938,
10     shall be the American Experience Table of Mortality or the
11     Standard Industrial Mortality Table or the Substandard
12     Industrial Mortality Table with interest at 3 1/2% per
13     annum by the net level premium method, or in accordance
14     with their terms by the modified preliminary term method
15     hereinabove described.
16         (h) Reserves for all such policies and contracts may be
17     calculated, at the option of the company, according to any
18     standards which produce greater aggregate reserves for all
19     such policies and contracts than the minimum reserves
20     required by this subsection.
21     (3) This subsection shall apply to only those policies and
22 contracts issued on or after January 1, 1948 or such earlier
23 operative date of Section 229.2 (the Standard Non-forfeiture
24 Law) as shall have been elected by the insurance company
25 issuing such policies or contracts.
26         (a) Except as otherwise provided in subsections (4),

 

 

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1     (6), and (7), the minimum standard for the valuation of all
2     such policies and contracts shall be the Commissioners
3     Reserve valuation method defined in paragraphs (b) and (f)
4     of this subsection and in subsection 5, 3 1/2% interest for
5     such policies issued prior to September 8, 1977, 5 1/2%
6     interest for single premium life insurance policies and 4
7     1/2% interest for all other such policies issued on or
8     after September 8, 1977, and the following tables:
9             (i) The Commissioners 1941 Standard Ordinary
10         Mortality Table for all Ordinary policies of life
11         insurance issued on the standard basis, excluding any
12         disability and accidental death benefits in such
13         policies, for such policies issued prior to the
14         operative date of subsection (4a) of Section 229.2
15         (Standard Non-forfeiture Law); and the Commissioners
16         1958 Standard Ordinary Mortality Table for such
17         policies issued on or after such operative date but
18         prior to the operative date of subsection (4c) of
19         Section 229.2 provided that for any category of such
20         policies issued on female risks all modified net
21         premiums and present values referred to in this Act
22         may, prior to September 8, 1977, be calculated
23         according to an age not more than 3 years younger than
24         the actual age of the insured and, after September 8,
25         1977, calculated according to an age not more than 6
26         years younger than the actual age of the insured; and

 

 

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1         for such policies issued on or after the operative date
2         of subsection (4c) of Section 229.2, (i) the
3         Commissioners 1980 Standard Ordinary Mortality Table,
4         or (ii) at the election of the company for any one or
5         more specified plans of life insurance, the
6         Commissioners 1980 Standard Ordinary Mortality Table
7         with Ten-Year Select Mortality Factors, or (iii) any
8         ordinary mortality table adopted after 1980 by the
9         National Association of Insurance Commissioners and
10         approved by regulations promulgated by the Director
11         for use in determining the minimum standard of
12         valuation for such policies.
13             (ii) For all Industrial Life Insurance policies
14         issued on the standard basis, excluding any disability
15         and accidental death benefits in such policies--the
16         1941 Standard Industrial Mortality Table for such
17         policies issued prior to the operative date of
18         subsection 4 (b) of Section 229.2 (Standard
19         Non-forfeiture Law); and for such policies issued on or
20         after such operative date the Commissioners 1961
21         Standard Industrial Mortality Table or any industrial
22         mortality table adopted after 1980 by the National
23         Association of Insurance Commissioners and approved by
24         regulations promulgated by the Director for use in
25         determining the minimum standard of valuation for such
26         policies.

 

 

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1             (iii) For Individual Annuity and Pure Endowment
2         contracts, excluding any disability and accidental
3         death benefits in such policies--the 1937 Standard
4         Annuity Mortality Table--or, at the option of the
5         company, the Annuity Mortality Table for 1949,
6         Ultimate, or any modification of either of these tables
7         approved by the Director.
8             (iv) For Group Annuity and Pure Endowment
9         contracts, excluding any disability and accidental
10         death benefits in such policies--the Group Annuity
11         Mortality Table for 1951, any modification of such
12         table approved by the Director, or, at the option of
13         the company, any of the tables or modifications of
14         tables specified for Individual Annuity and Pure
15         Endowment contracts.
16             (v) For Total and Permanent Disability Benefits in
17         or supplementary to Ordinary policies or contracts for
18         policies or contracts issued on or after January 1,
19         1966, the tables of Period 2 disablement rates and the
20         1930 to 1950 termination rates of the 1952 Disability
21         Study of the Society of Actuaries, with due regard to
22         the type of benefit, or any tables of disablement rates
23         and termination rates adopted after 1980 by the
24         National Association of Insurance Commissioners and
25         approved by regulations promulgated by the Director
26         for use in determining the minimum standard of

 

 

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1         valuation for such policies; for policies or contracts
2         issued on or after January 1, 1961, and prior to
3         January 1, 1966, either such tables or, at the option
4         of the company, the Class (3) Disability Table (1926);
5         and for policies issued prior to January 1, 1961, the
6         Class (3) Disability Table (1926). Any such table
7         shall, for active lives, be combined with a mortality
8         table permitted for calculating the reserves for life
9         insurance policies.
10             (vi) For Accidental Death benefits in or
11         supplementary to policies--for policies issued on or
12         after January 1, 1966, the 1959 Accidental Death
13         Benefits Table or any accidental death benefits table
14         adopted after 1980 by the National Association of
15         Insurance Commissioners and approved by regulations
16         promulgated by the Director for use in determining the
17         minimum standard of valuation for such policies; for
18         policies issued on or after January 1, 1961, and prior
19         to January 1, 1966, any of such tables or, at the
20         option of the company, the Inter-Company Double
21         Indemnity Mortality Table; and for policies issued
22         prior to January 1, 1961, the Inter-Company Double
23         Indemnity Mortality Table. Either table shall be
24         combined with a mortality table permitted for
25         calculating the reserves for life insurance policies.
26             (vii) For Group Life Insurance, life insurance

 

 

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1         issued on the substandard basis and other special
2         benefits--such tables as may be approved by the
3         Director.
4         (b) Except as otherwise provided in paragraph (f) of
5     subsection (3), subsection (5), and subsection (7)
6     reserves according to the Commissioners reserve valuation
7     method, for the life insurance and endowment benefits of
8     policies providing for a uniform amount of insurance and
9     requiring the payment of uniform premiums shall be the
10     excess, if any, of the present value, at the date of
11     valuation, of such future guaranteed benefits provided for
12     by such policies, over the then present value of any future
13     modified net premiums therefor. The modified net premiums
14     for any such policy shall be such uniform percentage of the
15     respective contract premiums for such benefits that the
16     present value, at the date of issue of the policy, of all
17     such modified net premiums shall be equal to the sum of the
18     then present value of such benefits provided for by the
19     policy and the excess of (A) over (B), as follows:
20             (A) A net level annual premium equal to the present
21         value, at the date of issue, of such benefits provided
22         for after the first policy year, divided by the present
23         value, at the date of issue, of an annuity of one per
24         annum payable on the first and each subsequent
25         anniversary of such policy on which a premium falls
26         due; provided, however, that such net level annual

 

 

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1         premium shall not exceed the net level annual premium
2         on the 19 year premium whole life plan for insurance of
3         the same amount at an age one year higher than the age
4         at issue of such policy.
5             (B) A net one year term premium for such benefits
6         provided for in the first policy year.
7         For any life insurance policy issued on or after
8     January 1, 1987, for which the contract premium in the
9     first policy year exceeds that of the second year with no
10     comparable additional benefit being provided in that first
11     year, which policy provides an endowment benefit or a cash
12     surrender value or a combination thereof in an amount
13     greater than such excess premium, the reserve according to
14     the Commissioners reserve valuation method as of any policy
15     anniversary occurring on or before the assumed ending date,
16     defined herein as the first policy anniversary on which the
17     sum of any endowment benefit and any cash surrender value
18     then available is greater than such excess premium, shall,
19     except as otherwise provided in paragraph (f) of subsection
20     (3), be the greater of the reserve as of such policy
21     anniversary calculated as described in the preceding part
22     of this paragraph (b) and the reserve as of such policy
23     anniversary calculated as described in the preceding part
24     of this paragraph (b) with (i) the value defined in subpart
25     A of the preceding part of this paragraph (b) being reduced
26     by 15% of the amount of such excess first year premium,

 

 

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1     (ii) all present values of benefits and premiums being
2     determined without reference to premiums or benefits
3     provided for by the policy after the assumed ending date,
4     (iii) the policy being assumed to mature on such date as an
5     endowment, and (iv) the cash surrender value provided on
6     such date being considered as an endowment benefit. In
7     making the above comparison, the mortality and interest
8     bases stated in paragraph (a) of subsection (3) and in
9     subsection 6 shall be used.
10         Reserves according to the Commissioners reserve
11     valuation method for (i) life insurance policies providing
12     for a varying amount of insurance or requiring the payment
13     of varying premiums, (ii) group annuity and pure endowment
14     contracts purchased under a retirement plan or plan of
15     deferred compensation, established or maintained by an
16     employer (including a partnership or sole proprietorship)
17     or by an employee organization, or by both, other than a
18     plan providing individual retirement accounts or
19     individual retirement annuities under Section 408 of the
20     Internal Revenue Code, as now or hereafter amended, (iii)
21     disability and accidental death benefits in all policies
22     and contracts, and (iv) all other benefits, except life
23     insurance and endowment benefits in life insurance
24     policies and benefits provided by all other annuity and
25     pure endowment contracts, shall be calculated by a method
26     consistent with the principles of this paragraph (b),

 

 

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1     except that any extra premiums charged because of
2     impairments or special hazards shall be disregarded in the
3     determination of modified net premiums.
4         (c) In no event shall a company's aggregate reserves
5     for all life insurance policies, excluding disability and
6     accidental death benefits be less than the aggregate
7     reserves calculated in accordance with the methods set
8     forth in paragraphs (b), (f), and (g) of subsection (3) and
9     in subsection (5) and the mortality table or tables and
10     rate or rates of interest used in calculating
11     non-forfeiture benefits for such policies.
12         (d) In no event shall the aggregate reserves for all
13     policies, contracts, and benefits be less than the
14     aggregate reserves determined by the qualified actuary to
15     be necessary to render the opinion required by subsection
16     (1a).
17         (e) Reserves for any category of policies, contracts or
18     benefits as established by the Director, may be calculated,
19     at the option of the company, according to any standards
20     which produce greater aggregate reserves for such category
21     than those calculated according to the minimum standard
22     herein provided, but the rate or rates of interest used for
23     policies and contracts, other than annuity and pure
24     endowment contracts, shall not be higher than the
25     corresponding rate or rates of interest used in calculating
26     any nonforfeiture benefits provided for therein.

 

 

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1         (f) If in any contract year the gross premium charged
2     by any life insurance company on any policy or contract is
3     less than the valuation net premium for the policy or
4     contract calculated by the method used in calculating the
5     reserve thereon but using the minimum valuation standards
6     of mortality and rate of interest, the minimum reserve
7     required for such policy or contract shall be the greater
8     of either the reserve calculated according to the mortality
9     table, rate of interest, and method actually used for such
10     policy or contract, or the reserve calculated by the method
11     actually used for such policy or contract but using the
12     minimum standards of mortality and rate of interest and
13     replacing the valuation net premium by the actual gross
14     premium in each contract year for which the valuation net
15     premium exceeds the actual gross premium. The minimum
16     valuation standards of mortality and rate of interest
17     referred to in this paragraph (f) are those standards
18     stated in subsection (6) and paragraph (a) of subsection
19     (3).
20         For any life insurance policy issued on or after
21     January 1, 1987, for which the gross premium in the first
22     policy year exceeds that of the second year with no
23     comparable additional benefit provided in that first year,
24     which policy provides an endowment benefit or a cash
25     surrender value or a combination thereof in an amount
26     greater than such excess premium, the foregoing provisions

 

 

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1     of this paragraph (f) shall be applied as if the method
2     actually used in calculating the reserve for such policy
3     were the method described in paragraph (b) of subsection
4     (3), ignoring the second paragraph of said paragraph (b).
5     The minimum reserve at each policy anniversary of such a
6     policy shall be the greater of the minimum reserve
7     calculated in accordance with paragraph (b) of subsection
8     (3), including the second paragraph of said paragraph (b),
9     and the minimum reserve calculated in accordance with this
10     paragraph (f).
11         (g) In the case of any plan of life insurance which
12     provides for future premium determination, the amounts of
13     which are to be determined by the insurance company based
14     on then estimates of future experience, or in the case of
15     any plan of life insurance or annuity which is of such a
16     nature that the minimum reserves cannot be determined by
17     the methods described in paragraphs (b) and (f) of
18     subsection (3) and subsection (5), the reserves which are
19     held under any such plan shall:
20             (i) be appropriate in relation to the benefits and
21         the pattern of premiums for that plan, and
22             (ii) be computed by a method which is consistent
23         with the principles of this Standard Valuation Law, as
24         determined by regulations promulgated by the Director.
25     (4) Except as provided in subsection (6), the minimum
26 standard for the valuation of all individual annuity and pure

 

 

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1 endowment contracts issued on or after the operative date of
2 this subsection, as defined herein, and for all annuities and
3 pure endowments purchased on or after such operative date under
4 group annuity and pure endowment contracts shall be the
5 Commissioners Reserve valuation methods defined in paragraph
6 (b) of subsection (3) and subsection (5) and the following
7 tables and interest rates:
8         (a) For individual single premium immediate annuity
9     contracts, excluding any disability and accidental death
10     benefits in such contracts, the 1971 Individual Annuity
11     Mortality Table, any individual annuity mortality table
12     adopted after 1980 by the National Association of Insurance
13     Commissioners and approved by regulations promulgated by
14     the Director for use in determining the minimum standard of
15     valuation for such contracts, or any modification of those
16     tables approved by the Director, and 7 1/2% interest.
17         (b) For individual and pure endowment contracts other
18     than single premium annuity contracts, excluding any
19     disability and accidental death benefits in such
20     contracts, the 1971 Individual Annuity Mortality Table,
21     any individual annuity mortality table adopted after 1980
22     by the National Association of Insurance Commissioners and
23     approved by regulations promulgated by the Director for use
24     in determining the minimum standard of valuation for such
25     contracts, or any modification of those tables approved by
26     the Director, and 5 1/2% interest for single premium

 

 

09500HB0938ham001 - 23 - LRB095 07026 KBJ 32285 a

1     deferred annuity and pure endowment contracts and 4 1/2%
2     interest for all other such individual annuity and pure
3     endowment contracts.
4         (c) For all annuities and pure endowments purchased
5     under group annuity and pure endowment contracts,
6     excluding any disability and accidental death benefits
7     purchased under such contracts, the 1971 Group Annuity
8     Mortality Table, any group annuity mortality table adopted
9     after 1980 by the National Association of Insurance
10     Commissioners and approved by regulations promulgated by
11     the Director for use in determining the minimum standard of
12     valuation for such annuities and pure endowments, or any
13     modification of those tables approved by the Director, and
14     7 1/2% interest.
15     After September 8, 1977, any company may file with the
16 Director a written notice of its election to comply with the
17 provisions of this subsection after a specified date before
18 January 1, 1979, which shall be the operative date of this
19 subsection for such company; provided, a company may elect a
20 different operative date for individual annuity and pure
21 endowment contracts from that elected for group annuity and
22 pure endowment contracts. If a company makes no election, the
23 operative date of this subsection for such company shall be
24 January 1, 1979.
25     (5) This subsection shall apply to all annuity and pure
26 endowment contracts other than group annuity and pure endowment

 

 

09500HB0938ham001 - 24 - LRB095 07026 KBJ 32285 a

1 contracts purchased under a retirement plan or plan of deferred
2 compensation, established or maintained by an employer
3 (including a partnership or sole proprietorship) or by an
4 employee organization, or by both, other than a plan providing
5 individual retirement accounts or individual retirement
6 annuities under Section 408 of the Internal Revenue Code, as
7 now or hereafter amended.
8     Reserves according to the Commissioners annuity reserve
9 method for benefits under annuity or pure endowment contracts,
10 excluding any disability and accidental death benefits in such
11 contracts, shall be the greatest of the respective excesses of
12 the present values, at the date of valuation, of the future
13 guaranteed benefits, including guaranteed nonforfeiture
14 benefits, provided for by such contracts at the end of each
15 respective contract year, over the present value, at the date
16 of valuation, of any future valuation considerations derived
17 from future gross considerations, required by the terms of such
18 contract, that become payable prior to the end of such
19 respective contract year. The future guaranteed benefits shall
20 be determined by using the mortality table, if any, and the
21 interest rate, or rates, specified in such contracts for
22 determining guaranteed benefits. The valuation considerations
23 are the portions of the respective gross considerations applied
24 under the terms of such contracts to determine nonforfeiture
25 values.
26     (6) (a) Applicability of this subsection. (i) The interest

 

 

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1     rates used in determining the minimum standard for the
2     valuation of
3             (A) all life insurance policies issued in a
4         particular calendar year, on or after the operative
5         date of subsection (4c) of Section 229.2 (Standard
6         Nonforfeiture Law),
7             (B) all individual annuity and pure endowment
8         contracts issued in a particular calendar year ending
9         on or after December 31, 1983,
10             (C) all annuities and pure endowments purchased in
11         a particular calendar year ending on or after December
12         31, 1983, under group annuity and pure endowment
13         contracts, and
14             (D) the net increase in a particular calendar year
15         ending after December 31, 1983, in amounts held under
16         guaranteed interest contracts
17     shall be the calendar year statutory valuation interest
18     rates, as defined in this subsection.
19         (b) Calendar Year Statutory Valuation Interest Rates.
20             (i) The calendar year statutory valuation interest
21         rates shall be determined according to the following
22         formulae, rounding "I" to the nearest .25%.
23                 (A) For life insurance,
24                 I = .03 + W (R1 - .03) + W/2 (R2 - .09).
25                 (B) For single premium immediate annuities and
26             annuity benefits involving life contingencies

 

 

09500HB0938ham001 - 26 - LRB095 07026 KBJ 32285 a

1             arising from other annuities with cash settlement
2             options and from guaranteed interest contracts
3             with cash settlement options,
4                 I = .03 + W (R - .03) or with prior approval of
5             the Director I = .03 + W (Rq - .03).
6             For the purposes of this subparagraph (i), "I"
7         equals the calendar year statutory valuation interest
8         rate, "R" is the reference interest rate defined in
9         this subsection, "R1" is the lesser of R and .09, "R2"
10         is the greater of R and .09, "Rq" is the quarterly
11         reference interest rate defined in this subsection,
12         and "W" is the weighting factor defined in this
13         subsection.
14                 (C) For other annuities with cash settlement
15             options and guaranteed interest contracts with
16             cash settlement options, valued on an issue year
17             basis, except as stated in (B), the formula for
18             life insurance stated in (A) applies to annuities
19             and guaranteed interest contracts with guarantee
20             durations in excess of 10 years, and the formula
21             for single premium immediate annuities stated in
22             (B) above applies to annuities and guaranteed
23             interest contracts with guarantee durations of 10
24             years or less.
25                 (D) For other annuities with no cash
26             settlement options and for guaranteed interest

 

 

09500HB0938ham001 - 27 - LRB095 07026 KBJ 32285 a

1             contracts with no cash settlement options, the
2             formula for single premium immediate annuities
3             stated in (B) applies.
4                 (E) For other annuities with cash settlement
5             options and guaranteed interest contracts with
6             cash settlement options, valued on a change in fund
7             basis, the formula for single premium immediate
8             annuities stated in (B) applies.
9             (ii) If the calendar year statutory valuation
10         interest rate for any life insurance policy issued in
11         any calendar year determined without reference to this
12         subparagraph differs from the corresponding actual
13         rate for similar policies issued in the immediately
14         preceding calendar year by less than .5%, the calendar
15         year statutory valuation interest rate for such life
16         insurance policy shall be the corresponding actual
17         rate for the immediately preceding calendar year. For
18         purposes of applying this subparagraph, the calendar
19         year statutory valuation interest rate for life
20         insurance policies issued in a calendar year shall be
21         determined for 1980, using the reference interest rate
22         defined for 1979, and shall be determined for each
23         subsequent calendar year regardless of when subsection
24         (4c) of Section 229.2 (Standard Nonforfeiture Law)
25         becomes operative.
26         (c) Weighting Factors.

 

 

09500HB0938ham001 - 28 - LRB095 07026 KBJ 32285 a

1             (i) The weighting factors referred to in the
2         formulae stated in paragraph (b) are given in the
3         following tables.
4                 (A) Weighting Factors for Life Insurance.
5GuaranteeWeighting
6DurationFactors
7(Years)
810 or less.50
9More than 10, but not more than 20.45
10More than 20.35
11                 For life insurance, the guarantee duration is
12             the maximum number of years the life insurance can
13             remain in force on a basis guaranteed in the policy
14             or under options to convert to plans of life
15             insurance with premium rates or nonforfeiture
16             values or both which are guaranteed in the original
17             policy.
18                 (B) The weighting factor for single premium
19             immediate annuities and for annuity benefits
20             involving life contingencies arising from other
21             annuities with cash settlement options and
22             guaranteed interest contracts with cash settlement
23             options is .80.
24                 (C) The weighting factors for other annuities
25             and for guaranteed interest contracts, except as
26             stated in (B) of this subparagraph (i), shall be as

 

 

09500HB0938ham001 - 29 - LRB095 07026 KBJ 32285 a

1             specified in tables (1), (2), and (3) of this
2             subpart (C), according to the rules and
3             definitions in (4), (5) and (6) of this subpart
4             (C).
5                 (1) For annuities and guaranteed interest
6             contracts valued on an issue year basis.
7GuaranteeWeighting Factor
8Durationfor Plan Type
9(Years) A    B   C
105 or less......................................80  .60 .50
11More than 5, but not
12more than 10...................................75  .60 .50
13More than 10, but not
14more than 20...................................65  .50 .45
15More than 20...................................45  .35 .35
16                 (2) For annuities and guaranteed interest
17             contracts valued on a change in fund basis, the
18             factors shown in (1) for Plan Types A, B and C are
19             increased by .15, .25 and .05, respectively.
20                 (3) For annuities and guaranteed interest
21             contracts valued on an issue year basis, other than
22             those with no cash settlement options, which do not
23             guarantee interest on considerations received more
24             than one year after issue or purchase, and for
25             annuities and guaranteed interest contracts valued
26             on a change in fund basis which do not guarantee

 

 

09500HB0938ham001 - 30 - LRB095 07026 KBJ 32285 a

1             interest rates on considerations received more
2             than 12 months beyond the valuation date, the
3             factors shown in (1), or derived in (2), for Plan
4             Types A, B and C are increased by .05.
5                 (4) For other annuities with cash settlement
6             options and guaranteed interest contracts with
7             cash settlement options, the guarantee duration is
8             the number of years for which the contract
9             guarantees interest rates in excess of the
10             calendar year statutory valuation interest rate
11             for life insurance policies with guarantee
12             durations in excess of 20 years. For other
13             annuities with no cash settlement options, and for
14             guaranteed interest contracts with no cash
15             settlement options, the guarantee duration is the
16             number of years from the date of issue or date of
17             purchase to the date annuity benefits are
18             scheduled to commence.
19                 (5) The plan types used in the above tables are
20             defined as follows.
21                 Plan Type A is a plan under which the
22             policyholder may not withdraw funds, or may
23             withdraw funds at any time but only (a) with an
24             adjustment to reflect changes in interest rates or
25             asset values since receipt of the funds by the
26             insurance company, (b) without such an adjustment

 

 

09500HB0938ham001 - 31 - LRB095 07026 KBJ 32285 a

1             but in installments over 5 years or more, or (c) as
2             an immediate life annuity.
3                 Plan Type B is a plan under which the
4             policyholder may not withdraw funds before
5             expiration of the interest rate guarantee, or may
6             withdraw funds before such expiration but only (a)
7             with an adjustment to reflect changes in interest
8             rates or asset values since receipt of the funds by
9             the insurance company, or (b) without such
10             adjustment but in installments over 5 years or
11             more. At the end of the interest rate guarantee,
12             funds may be withdrawn without such adjustment in a
13             single sum or installments over less than 5 years.
14                 Plan Type C is a plan under which the
15             policyholder may withdraw funds before expiration
16             of the interest rate guarantee in a single sum or
17             installments over less than 5 years either (a)
18             without adjustment to reflect changes in interest
19             rates or asset values since receipt of the funds by
20             the insurance company, or (b) subject only to a
21             fixed surrender charge stipulated in the contract
22             as a percentage of the fund.
23                 (6) A company may elect to value guaranteed
24             interest contracts with cash settlement options
25             and annuities with cash settlement options on
26             either an issue year basis or on a change in fund

 

 

09500HB0938ham001 - 32 - LRB095 07026 KBJ 32285 a

1             basis. Guaranteed interest contracts with no cash
2             settlement options and other annuities with no
3             cash settlement options shall be valued on an issue
4             year basis. As used in this Section, "issue year
5             basis of valuation" refers to a valuation basis
6             under which the interest rate used to determine the
7             minimum valuation standard for the entire duration
8             of the annuity or guaranteed interest contract is
9             the calendar year valuation interest rate for the
10             year of issue or year of purchase of the annuity or
11             guaranteed interest contract. "Change in fund
12             basis of valuation", as used in this Section,
13             refers to a valuation basis under which the
14             interest rate used to determine the minimum
15             valuation standard applicable to each change in
16             the fund held under the annuity or guaranteed
17             interest contract is the calendar year valuation
18             interest rate for the year of the change in the
19             fund.
20         (d) Reference Interest Rate. (i) The reference
21     interest rate referred to in paragraph (b) of this
22     subsection is defined as follows.
23             (A) For all life insurance, the reference interest
24         rate is the lesser of the average over a period of 36
25         months, and the average over a period of 12 months,
26         with both periods ending on June 30, or with prior

 

 

09500HB0938ham001 - 33 - LRB095 07026 KBJ 32285 a

1         approval of the Director ending on December 31, of the
2         calendar year next preceding the year of issue, of
3         Moody's Corporate Bond Yield Average - Monthly Average
4         Corporates, as published by Moody's Investors Service,
5         Inc.
6             (B) For single premium immediate annuities and for
7         annuity benefits involving life contingencies arising
8         from other annuities with cash settlement options and
9         guaranteed interest contracts with cash settlement
10         options, the reference interest rate is the average
11         over a period of 12 months, ending on June 30, or with
12         prior approval of the Director ending on December 31,
13         of the calendar year of issue or year of purchase, of
14         Moody's Corporate Bond Yield Average - Monthly Average
15         Corporates, as published by Moody's Investors Service,
16         Inc.
17             (C) For annuities with cash settlement options and
18         guaranteed interest contracts with cash settlement
19         options, valued on a year of issue basis, except those
20         described in (B), with guarantee durations in excess of
21         10 years, the reference interest rate is the lesser of
22         the average over a period of 36 months and the average
23         over a period of 12 months, ending on June 30, or with
24         prior approval of the Director ending on December 31,
25         of the calendar year of issue or purchase, of Moody's
26         Corporate Bond Yield Average-Monthly Average

 

 

09500HB0938ham001 - 34 - LRB095 07026 KBJ 32285 a

1         Corporates, as published by Moody's Investors Service,
2         Inc.
3             (D) For other annuities with cash settlement
4         options and guaranteed interest contracts with cash
5         settlement options, valued on a year of issue basis,
6         except those described in (B), with guarantee
7         durations of 10 years or less, the reference interest
8         rate is the average over a period of 12 months, ending
9         on June 30, or with prior approval of the Director
10         ending on December 31, of the calendar year of issue or
11         purchase, of Moody's Corporate Bond Yield
12         Average-Monthly Average Corporates, as published by
13         Moody's Investors Service, Inc.
14             (E) For annuities with no cash settlement options
15         and for guaranteed interest contracts with no cash
16         settlement options, the reference interest rate is the
17         average over a period of 12 months, ending on June 30,
18         or with prior approval of the Director ending on
19         December 31, of the calendar year of issue or purchase,
20         of Moody's Corporate Bond Yield Average-Monthly
21         Average Corporates, as published by Moody's Investors
22         Service, Inc.
23             (F) For annuities with cash settlement options and
24         guaranteed interest contracts with cash settlement
25         options, valued on a change in fund basis, except those
26         described in (B), the reference interest rate is the

 

 

09500HB0938ham001 - 35 - LRB095 07026 KBJ 32285 a

1         average over a period of 12 months, ending on June 30,
2         or with prior approval of the Director ending on
3         December 31, of the calendar year of the change in the
4         fund, of Moody's Corporate Bond Yield Average-Monthly
5         Average Corporates, as published by Moody's Investors
6         Service, Inc.
7             (G) For annuities valued by a formula based on Rq,
8         the quarterly reference interest rate is, with the
9         prior approval of the Director, the average within each
10         of the 4 consecutive calendar year quarters ending on
11         March 31, June 30, September 30 and December 31 of the
12         calendar year of issue or year of purchase of Moody's
13         Corporate Bond Yield Average-Monthly Average
14         Corporates, as published by Moody's Investors Service,
15         Inc.
16         (e) Alternative Method for Determining Reference
17     Interest Rates. In the event that the Moody's Corporate
18     Bond Yield Average-Monthly Average Corporates is no longer
19     published by Moody's Investors Services, Inc., or in the
20     event that the National Association of Insurance
21     Commissioners determines that Moody's Corporate Bond Yield
22     Average-Monthly Average Corporates as published by Moody's
23     Investors Service, Inc. is no longer appropriate for the
24     determination of the reference interest rate, then an
25     alternative method for determination of the reference
26     interest rate, which is adopted by the National Association

 

 

09500HB0938ham001 - 36 - LRB095 07026 KBJ 32285 a

1     of Insurance Commissioners and approved by regulations
2     promulgated by the Director, may be substituted.
3     (7) Minimum Standards for Health (Disability, Accident and
4 Sickness) Plans. The Director shall promulgate a regulation
5 containing the minimum standards applicable to the valuation of
6 health (disability, sickness and accident) plans.
7 (Source: P.A. 91-357, eff. 7-29-99.)".