99TH GENERAL ASSEMBLY
State of Illinois
2015 and 2016
SB0094

 

Introduced 1/28/2015, by Sen. William R. Haine

 

SYNOPSIS AS INTRODUCED:
 
215 ILCS 5/223  from Ch. 73, par. 835
215 ILCS 5/229.2  from Ch. 73, par. 841.2

    Amends the Illinois Insurance Code. Specifies that the requirement that the Director annually value, or cause to be valued, the reserve liabilities for all outstanding life insurance policies and annuity and pure endowment contracts of every life insurance company doing business in the State applies to policies and contracts issued prior to the operative date of the Valuation Manual. Specifies that the requirement that the Director annually value, or cause to be valued, the reserve liabilities for all outstanding life insurance contracts, annuity and pure endowment contracts, accident and health contracts, and deposit-type contracts of every company issued on or after the operative date of the Valuation Manual applies to policies and contracts issued on or after the operative date of the Valuation Manual. Makes technical and grammatical changes.


LRB099 05120 MLM 25149 b

 

 

A BILL FOR

 

SB0094LRB099 05120 MLM 25149 b

1    AN ACT concerning insurance.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Illinois Insurance Code is amended by
5changing Sections 223 and 229.2 as follows:
 
6    (215 ILCS 5/223)  (from Ch. 73, par. 835)
7    Sec. 223. Director to value policies - Legal standard of
8valuation.
9    (1) For policies and contracts issued prior to the
10operative date of the Valuation Manual, the The Director shall
11annually value, or cause to be valued, the reserve liabilities
12(hereinafter called reserves) for all outstanding life
13insurance policies and annuity and pure endowment contracts of
14every life insurance company doing business in this State,
15except that in the case of an alien company, such valuation
16shall be limited to its United States business, and may certify
17the amount of any such reserves, specifying the mortality table
18or tables, rate or rates of interest, and methods (net level
19premium method or other) used in the calculation of such
20reserves. Other assumptions may be incorporated into the
21reserve calculation to the extent permitted by the National
22Association of Insurance Commissioners' Accounting Practices
23and Procedures Manual. In calculating such reserves, he may use

 

 

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1group methods and approximate averages for fractions of a year
2or otherwise. In lieu of the valuation of the reserves herein
3required of any foreign or alien company, he may accept any
4valuation made, or caused to be made, by the insurance
5supervisory official of any state or other jurisdiction when
6such valuation complies with the minimum standard herein
7provided in this Section.
8    The provisions set forth in this subsection (1) and in
9subsections (2), (3), (4), (5), (6), and (7) of this Section
10shall apply to all policies and contracts, as appropriate,
11subject to this Section issued prior to the operative date of
12the Valuation Manual. The provisions set forth in subsections
13(8) and (9) of this Section shall not apply to any such
14policies and contracts.
15    For policies and contracts issued on or after the operative
16date of the Valuation Manual, the Director shall annually
17value, or cause to be valued, the reserve liabilities
18(reserves) for all outstanding life insurance contracts,
19annuity and pure endowment contracts, accident and health
20contracts, and deposit-type contracts of every company issued
21on or after the operative date of the Valuation Manual. In lieu
22of the valuation of the reserves required of a foreign or alien
23company, the Director may accept a valuation made, or caused to
24be made, by the insurance supervisory official of any state or
25other jurisdiction when the valuation complies with the minimum
26standard provided in this Section.

 

 

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1    The provisions set forth in subsections (8) and (9) of this
2Section shall apply to all policies and contracts issued on or
3after the operative date of the Valuation Manual. and if the
4official of such state or jurisdiction accepts as sufficient
5and valid for all legal purposes the certificate of valuation
6of the Director when such certificate states the valuation to
7have been made in a specified manner according to which the
8aggregate reserves would be at least as large as if they had
9been computed in the manner prescribed by the law of that state
10or jurisdiction.
11    Any such company which adopts at any time a has adopted any
12standard of valuation producing greater aggregate reserves
13than those calculated according to the minimum standard herein
14provided under this Section may adopt a lower standard of
15valuation, with the approval of the Director, adopt any lower
16standard of valuation, but not lower than the minimum herein
17provided, however, that, for the purposes of this subsection,
18the holding of additional reserves previously determined by the
19appointed a qualified actuary to be necessary to render the
20opinion required by subsection (1a) shall not be deemed to be
21the adoption of a higher standard of valuation. In the
22valuation of policies the Director shall give no consideration
23to, nor make any deduction because of, the existence or the
24possession by the company of
25        (a) policy liens created by any agreement given or
26    assented to by any assured subsequent to July 1, 1937, for

 

 

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1    which liens such assured has not received cash or other
2    consideration equal in value to the amount of such liens,
3    or
4        (b) policy liens created by any agreement entered into
5    in violation of Section 232 unless the agreement imposing
6    or creating such liens has been approved by a Court in a
7    proceeding under Article XIII, or in the case of a foreign
8    or alien company has been approved by a court in a
9    rehabilitation or liquidation proceeding or by the
10    insurance official of its domiciliary state or country, in
11    accordance with the laws thereof.
12    (1a) This subsection shall become operative at the end of
13the first full calendar year following the effective date of
14this amendatory Act of 1991.
15        (A) General.
16            (1) Prior to the operative date of the Valuation
17        Manual, every Every life insurance company doing
18        business in this State shall annually submit the
19        opinion of a qualified actuary as to whether the
20        reserves and related actuarial items held in support of
21        the policies and contracts specified by the Director by
22        regulation are computed appropriately, are based on
23        assumptions that satisfy contractual provisions, are
24        consistent with prior reported amounts and comply with
25        applicable laws of this State. The Director by
26        regulation shall define the specifics of this opinion

 

 

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1        and add any other items deemed to be necessary to its
2        scope.
3            (2) The opinion shall be submitted with the annual
4        statement reflecting the valuation of reserve
5        liabilities for each year ending on or after December
6        31, 1992.
7            (3) The opinion shall apply to all business in
8        force including individual and group health insurance
9        plans, in form and substance acceptable to the Director
10        as specified by regulation.
11            (4) The opinion shall be based on standards adopted
12        from time to time by the Actuarial Standards Board and
13        on additional standards as the Director may by
14        regulation prescribe.
15            (5) In the case of an opinion required to be
16        submitted by a foreign or alien company, the Director
17        may accept the opinion filed by that company with the
18        insurance supervisory official of another state if the
19        Director determines that the opinion reasonably meets
20        the requirements applicable to a company domiciled in
21        this State.
22            (6) For the purpose of this Section, "qualified
23        actuary" means a member in good standing of the
24        American Academy of Actuaries who meets the
25        requirements set forth in its regulations.
26            (7) Except in cases of fraud or willful misconduct,

 

 

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1        the qualified actuary shall not be liable for damages
2        to any person (other than the insurance company and the
3        Director) for any act, error, omission, decision or
4        conduct with respect to the actuary's opinion.
5            (8) Disciplinary action by the Director against
6        the company or the qualified actuary shall be defined
7        in regulations by the Director.
8            (9) A memorandum, in form and substance acceptable
9        to the Director as specified by regulation, shall be
10        prepared to support each actuarial opinion.
11            (10) If the insurance company fails to provide a
12        supporting memorandum at the request of the Director
13        within a period specified by regulation or the Director
14        determines that the supporting memorandum provided by
15        the insurance company fails to meet the standards
16        prescribed by the regulations or is otherwise
17        unacceptable to the Director, the Director may engage a
18        qualified actuary at the expense of the company to
19        review the opinion and the basis for the opinion and
20        prepare the supporting memorandum as is required by the
21        Director.
22            (11) Any memorandum in support of the opinion, and
23        any other material provided by the company to the
24        Director in connection therewith, shall be kept
25        confidential by the Director and shall not be made
26        public and shall not be subject to subpoena, other than

 

 

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1        for the purpose of defending an action seeking damages
2        from any person by reason of any action required by
3        this Section or by regulations promulgated hereunder;
4        provided, however, that the memorandum or other
5        material may otherwise be released by the Director (a)
6        with the written consent of the company or (b) to the
7        American Academy of Actuaries upon request stating
8        that the memorandum or other material is required for
9        the purpose of professional disciplinary proceedings
10        and setting forth procedures satisfactory to the
11        Director for preserving the confidentiality of the
12        memorandum or other material. Once any portion of the
13        confidential memorandum is cited by the company in its
14        marketing or is cited before any governmental agency
15        other than a state insurance department or is released
16        by the company to the news media, all portions of the
17        confidential memorandum shall be no longer
18        confidential.
19        (B) Actuarial analysis of reserves and assets
20    supporting those reserves.
21            (1) Every life insurance company, except as
22        exempted by or under regulation, shall also annually
23        include in the opinion required by paragraph (A)(1) of
24        this subsection (1a), an opinion of the same qualified
25        actuary as to whether the reserves and related
26        actuarial items held in support of the policies and

 

 

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1        contracts specified by the Director by regulation,
2        when considered in light of the assets held by the
3        company with respect to the reserves and related
4        actuarial items including, but not limited to, the
5        investment earnings on the assets and the
6        considerations anticipated to be received and retained
7        under the policies and contracts, make adequate
8        provision for the company's obligations under the
9        policies and contracts including, but not limited to,
10        the benefits under and expenses associated with the
11        policies and contracts.
12            (2) The Director may provide by regulation for a
13        transition period for establishing any higher reserves
14        which the qualified actuary may deem necessary in order
15        to render the opinion required by this Section.
16    (1b) Actuarial Opinion of Reserves after the Operative Date
17of the Valuation Manual.
18        (A) General.
19            (1) Every company with outstanding life insurance
20        contracts, accident and health insurance contracts, or
21        deposit-type contracts in this State and subject to
22        regulation by the Director shall annually submit the
23        opinion of the appointed actuary as to whether the
24        reserves and related actuarial items held in support of
25        the policies and contracts are computed appropriately,
26        are based on assumptions that satisfy contractual

 

 

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1        provisions, are consistent with prior reported
2        amounts, and comply with applicable laws of this State.
3        The Valuation Manual shall prescribe the specifics of
4        this opinion, including any items deemed to be
5        necessary to its scope.
6            (2) The opinion shall be submitted with the annual
7        statement reflecting the valuation of such reserve
8        liabilities for each year ending on or after the
9        operative date of the Valuation Manual.
10            (3) The opinion shall apply to all policies and
11        contracts subject to paragraph (B) of this subsection
12        (1b), plus other actuarial liabilities as may be
13        specified in the Valuation Manual.
14            (4) The opinion shall be based on standards adopted
15        from time to time by the Actuarial Standards Board or
16        its successor and on additional standards as may be
17        prescribed in the Valuation Manual.
18            (5) In the case of an opinion required to be
19        submitted by a foreign or alien company, the Director
20        may accept the opinion filed by that company with the
21        insurance supervisory official of another state if the
22        Director determines that the opinion reasonably meets
23        the requirements applicable to a company domiciled in
24        this State.
25            (6) Except in cases of fraud or willful misconduct,
26        the appointed actuary shall not be liable for damages

 

 

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1        to any person (other than the insurance company and the
2        Director) for any act, error, omission, decision, or
3        conduct with respect to the appointed actuary's
4        opinion.
5            (7) A memorandum, in a form and substance as
6        specified in the Valuation Manual and acceptable to the
7        Director, shall be prepared to support each actuarial
8        opinion.
9            (8) If the insurance company fails to provide a
10        supporting memorandum at the request of the Director
11        within a period specified in the Valuation Manual or
12        the Director determines that the supporting memorandum
13        provided by the insurance company fails to meet the
14        standards prescribed by the Valuation Manual or is
15        otherwise unacceptable to the Director, the Director
16        may engage a qualified actuary at the expense of the
17        company to review the opinion and the basis for the
18        opinion and prepare the supporting memorandum as is
19        required by the Director.
20        (B) Every company with outstanding life insurance
21    contracts, accident and health insurance contracts, or
22    deposit-type contracts in this state and subject to
23    regulation by the Director, except as exempted in the
24    Valuation Manual, shall also annually include in the
25    opinion required by subparagraph (1) of paragraph (A) of
26    this subsection (1b), an opinion of the same appointed

 

 

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1    actuary as to whether the reserves and related actuarial
2    items held in support of the policies and contracts
3    specified in the Valuation Manual, when considered in light
4    of the assets held by the company with respect to the
5    reserves and related actuarial items, including, but not
6    limited to, the investment earnings on the assets and the
7    considerations anticipated to be received and retained
8    under the policies and contracts, make adequate provision
9    for the company's obligations under the policies and
10    contracts, including, but not limited to, the benefits
11    under and expenses associated with the policies and
12    contracts.
13    (2) This subsection shall apply to only those policies and
14contracts issued prior to the operative date of Section 229.2
15(the Standard Non-forfeiture Law).
16        (a) Except as otherwise in this Article provided, the
17    legal minimum standard for valuation of contracts issued
18    before January 1, 1908, shall be the Actuaries or Combined
19    Experience Table of Mortality with interest at 4% per annum
20    and for valuation of contracts issued on or after that date
21    shall be the American Experience Table of Mortality with
22    either Craig's or Buttolph's Extension for ages under 10
23    and with interest at 3 1/2% per annum. The legal minimum
24    standard for the valuation of group insurance policies
25    under which premium rates are not guaranteed for a period
26    in excess of 5 years shall be the American Men Ultimate

 

 

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1    Table of Mortality with interest at 3 1/2% per annum. Any
2    life company may, at its option, value its insurance
3    contracts issued on or after January 1, 1938, in accordance
4    with their terms on the basis of the American Men Ultimate
5    Table of Mortality with interest not higher than 3 1/2% per
6    annum.
7        (b) Policies issued prior to January 1, 1908, may
8    continue to be valued according to a method producing
9    reserves not less than those produced by the full
10    preliminary term method. Policies issued on and after
11    January 1, 1908, may be valued according to a method
12    producing reserves not less than those produced by the
13    modified preliminary term method hereinafter described in
14    paragraph (c). Policies issued on and after January 1,
15    1938, may be valued either according to a method producing
16    reserves not less than those produced by such modified
17    preliminary term method or by the select and ultimate
18    method on the basis that the rate of mortality during the
19    first 5 years after the issuance of such contracts
20    respectively shall be calculated according to the
21    following percentages of rates shown by the American
22    Experience Table of Mortality:
23            (i) first insurance year 50% thereof;
24            (ii) second insurance year 65% thereof;
25            (iii) third insurance year 75% thereof;
26            (iv) fourth insurance year 85% thereof;

 

 

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1            (v) fifth insurance year 95% thereof.
2        (c) If the premium charged for the first policy year
3    under a limited payment life preliminary term policy
4    providing for the payment of all premiums thereon in less
5    than 20 years from the date of the policy or under an
6    endowment preliminary term policy, exceeds that charged
7    for the first policy year under 20 payment life preliminary
8    term policies of the same company, the reserve thereon at
9    the end of any year, including the first, shall not be less
10    than the reserve on a 20 payment life preliminary term
11    policy issued in the same year at the same age, together
12    with an amount which shall be equivalent to the
13    accumulation of a net level premium sufficient to provide
14    for a pure endowment at the end of the premium payment
15    period, equal to the difference between the value at the
16    end of such period of such a 20 payment life preliminary
17    term policy and the full net level premium reserve at such
18    time of such a limited payment life or endowment policy.
19    The premium payment period is the period during which
20    premiums are concurrently payable under such 20 payment
21    life preliminary term policy and such limited payment life
22    or endowment policy.
23        (d) The legal minimum standard for the valuations of
24    annuities issued on and after January 1, 1938, shall be the
25    American Annuitant's Table with interest not higher than 3
26    3/4% per annum, and all annuities issued before that date

 

 

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1    shall be valued on a basis not lower than that used for the
2    annual statement of the year 1937; but annuities deferred
3    10 or more years and written in connection with life
4    insurance shall be valued on the same basis as that used in
5    computing the consideration or premiums therefor, or upon
6    any higher standard at the option of the company.
7        (e) The Director may vary the standards of interest and
8    mortality as to contracts issued in countries other than
9    the United States and may vary standards of mortality in
10    particular cases of invalid lives and other extra hazards.
11        (f) The legal minimum standard for valuation of waiver
12    of premium disability benefits or waiver of premium and
13    income disability benefits issued on and after January 1,
14    1938, shall be the Class (3) Disability Table (1926)
15    modified to conform to the contractual waiting period, with
16    interest at not more than 3 1/2% per annum; but in no event
17    shall the values be less than those produced by the basis
18    used in computing premiums for such benefits. The legal
19    minimum standard for the valuation of such benefits issued
20    prior to January 1, 1938, shall be such as to place an
21    adequate value, as determined by sound insurance
22    practices, on the liabilities thereunder and shall be such
23    that the value of the benefits under each and every policy
24    shall in no case be less than the value placed upon the
25    future premiums.
26        (g) The legal minimum standard for the valuation of

 

 

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1    industrial policies issued on or after January 1, 1938,
2    shall be the American Experience Table of Mortality or the
3    Standard Industrial Mortality Table or the Substandard
4    Industrial Mortality Table with interest at 3 1/2% per
5    annum by the net level premium method, or in accordance
6    with their terms by the modified preliminary term method
7    hereinabove described.
8        (h) Reserves for all such policies and contracts may be
9    calculated, at the option of the company, according to any
10    standards which produce greater aggregate reserves for all
11    such policies and contracts than the minimum reserves
12    required by this subsection.
13    (3) This subsection shall apply to only those policies and
14contracts issued on or after January 1, 1948 or such earlier
15operative date of Section 229.2 (the Standard Non-forfeiture
16Law) as shall have been elected by the insurance company
17issuing such policies or contracts.
18        (a) Except as otherwise provided in subsections (4),
19    (6), and (7), the minimum standard for the valuation of all
20    such policies and contracts shall be the Commissioners
21    Reserve valuation method defined in paragraphs (b) and (f)
22    of this subsection and in subsection 5, 3 1/2% interest for
23    such policies issued prior to September 8, 1977, 5 1/2%
24    interest for single premium life insurance policies and 4
25    1/2% interest for all other such policies issued on or
26    after September 8, 1977, and the following tables:

 

 

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1            (i) The Commissioners 1941 Standard Ordinary
2        Mortality Table for all Ordinary policies of life
3        insurance issued on the standard basis, excluding any
4        disability and accidental death benefits in such
5        policies, for such policies issued prior to the
6        operative date of subsection (4a) of Section 229.2
7        (Standard Non-forfeiture Law); and the Commissioners
8        1958 Standard Ordinary Mortality Table for such
9        policies issued on or after such operative date but
10        prior to the operative date of subsection (4c) of
11        Section 229.2 provided that for any category of such
12        policies issued on female risks all modified net
13        premiums and present values referred to in this Section
14        Act may, prior to September 8, 1977, be calculated
15        according to an age not more than 3 years younger than
16        the actual age of the insured and, after September 8,
17        1977, calculated according to an age not more than 6
18        years younger than the actual age of the insured; and
19        for such policies issued on or after the operative date
20        of subsection (4c) of Section 229.2, (i) the
21        Commissioners 1980 Standard Ordinary Mortality Table,
22        or (ii) at the election of the company for any one or
23        more specified plans of life insurance, the
24        Commissioners 1980 Standard Ordinary Mortality Table
25        with Ten-Year Select Mortality Factors, or (iii) any
26        ordinary mortality table adopted after 1980 by the NAIC

 

 

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1        National Association of Insurance Commissioners and
2        approved by regulations promulgated by the Director
3        for use in determining the minimum standard of
4        valuation for such policies.
5            (ii) For all Industrial Life Insurance policies
6        issued on the standard basis, excluding any disability
7        and accidental death benefits in such policies--the
8        1941 Standard Industrial Mortality Table for such
9        policies issued prior to the operative date of
10        subsection 4 (b) of Section 229.2 (Standard
11        Non-forfeiture Law); and for such policies issued on or
12        after such operative date the Commissioners 1961
13        Standard Industrial Mortality Table or any industrial
14        mortality table adopted after 1980 by the NAIC National
15        Association of Insurance Commissioners and approved by
16        regulations promulgated by the Director for use in
17        determining the minimum standard of valuation for such
18        policies.
19            (iii) For Individual Annuity and Pure Endowment
20        contracts, excluding any disability and accidental
21        death benefits in such policies--the 1937 Standard
22        Annuity Mortality Table--or, at the option of the
23        company, the Annuity Mortality Table for 1949,
24        Ultimate, or any modification of either of these tables
25        approved by the Director.
26            (iv) For Group Annuity and Pure Endowment

 

 

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1        contracts, excluding any disability and accidental
2        death benefits in such policies--the Group Annuity
3        Mortality Table for 1951, any modification of such
4        table approved by the Director, or, at the option of
5        the company, any of the tables or modifications of
6        tables specified for Individual Annuity and Pure
7        Endowment contracts.
8            (v) For Total and Permanent Disability Benefits in
9        or supplementary to Ordinary policies or contracts for
10        policies or contracts issued on or after January 1,
11        1966, the tables of Period 2 disablement rates and the
12        1930 to 1950 termination rates of the 1952 Disability
13        Study of the Society of Actuaries, with due regard to
14        the type of benefit, or any tables of disablement rates
15        and termination rates adopted after 1980 by the NAIC
16        National Association of Insurance Commissioners and
17        approved by regulations promulgated by the Director
18        for use in determining the minimum standard of
19        valuation for such policies; for policies or contracts
20        issued on or after January 1, 1961, and prior to
21        January 1, 1966, either such tables or, at the option
22        of the company, the Class (3) Disability Table (1926);
23        and for policies issued prior to January 1, 1961, the
24        Class (3) Disability Table (1926). Any such table
25        shall, for active lives, be combined with a mortality
26        table permitted for calculating the reserves for life

 

 

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1        insurance policies.
2            (vi) For Accidental Death benefits in or
3        supplementary to policies--for policies issued on or
4        after January 1, 1966, the 1959 Accidental Death
5        Benefits Table or any accidental death benefits table
6        adopted after 1980 by the NAIC National Association of
7        Insurance Commissioners and approved by regulations
8        promulgated by the Director for use in determining the
9        minimum standard of valuation for such policies; for
10        policies issued on or after January 1, 1961, and prior
11        to January 1, 1966, any of such tables or, at the
12        option of the company, the Inter-Company Double
13        Indemnity Mortality Table; and for policies issued
14        prior to January 1, 1961, the Inter-Company Double
15        Indemnity Mortality Table. Either table shall be
16        combined with a mortality table permitted for
17        calculating the reserves for life insurance policies.
18            (vii) For Group Life Insurance, life insurance
19        issued on the substandard basis and other special
20        benefits--such tables as may be approved by the
21        Director.
22        (b) Except as otherwise provided in paragraph (f) of
23    subsection (3), subsection (5), and subsection (7)
24    reserves according to the Commissioners reserve valuation
25    method, for the life insurance and endowment benefits of
26    policies providing for a uniform amount of insurance and

 

 

SB0094- 20 -LRB099 05120 MLM 25149 b

1    requiring the payment of uniform premiums shall be the
2    excess, if any, of the present value, at the date of
3    valuation, of such future guaranteed benefits provided for
4    by such policies, over the then present value of any future
5    modified net premiums therefor. The modified net premiums
6    for any such policy shall be such uniform percentage of the
7    respective contract premiums for such benefits that the
8    present value, at the date of issue of the policy, of all
9    such modified net premiums shall be equal to the sum of the
10    then present value of such benefits provided for by the
11    policy and the excess of (A) over (B), as follows:
12            (A) A net level annual premium equal to the present
13        value, at the date of issue, of such benefits provided
14        for after the first policy year, divided by the present
15        value, at the date of issue, of an annuity of one per
16        annum payable on the first and each subsequent
17        anniversary of such policy on which a premium falls
18        due; provided, however, that such net level annual
19        premium shall not exceed the net level annual premium
20        on the 19 year premium whole life plan for insurance of
21        the same amount at an age one year higher than the age
22        at issue of such policy.
23            (B) A net one year term premium for such benefits
24        provided for in the first policy year.
25        For any life insurance policy issued on or after
26    January 1, 1987, for which the contract premium in the

 

 

SB0094- 21 -LRB099 05120 MLM 25149 b

1    first policy year exceeds that of the second year with no
2    comparable additional benefit being provided in that first
3    year, which policy provides an endowment benefit or a cash
4    surrender value or a combination thereof in an amount
5    greater than such excess premium, the reserve according to
6    the Commissioners reserve valuation method as of any policy
7    anniversary occurring on or before the assumed ending date,
8    defined herein as the first policy anniversary on which the
9    sum of any endowment benefit and any cash surrender value
10    then available is greater than such excess premium, shall,
11    except as otherwise provided in paragraph (f) of subsection
12    (3), be the greater of the reserve as of such policy
13    anniversary calculated as described in the preceding part
14    of this paragraph (b) and the reserve as of such policy
15    anniversary calculated as described in the preceding part
16    of this paragraph (b) with (i) the value defined in subpart
17    A of the preceding part of this paragraph (b) being reduced
18    by 15% of the amount of such excess first year premium,
19    (ii) all present values of benefits and premiums being
20    determined without reference to premiums or benefits
21    provided for by the policy after the assumed ending date,
22    (iii) the policy being assumed to mature on such date as an
23    endowment, and (iv) the cash surrender value provided on
24    such date being considered as an endowment benefit. In
25    making the above comparison, the mortality and interest
26    bases stated in paragraph (a) of subsection (3) and in

 

 

SB0094- 22 -LRB099 05120 MLM 25149 b

1    subsection (6) shall be used.
2        Reserves according to the Commissioners reserve
3    valuation method for (i) life insurance policies providing
4    for a varying amount of insurance or requiring the payment
5    of varying premiums, (ii) group annuity and pure endowment
6    contracts purchased under a retirement plan or plan of
7    deferred compensation, established or maintained by an
8    employer (including a partnership or sole proprietorship)
9    or by an employee organization, or by both, other than a
10    plan providing individual retirement accounts or
11    individual retirement annuities under Section 408 of the
12    Internal Revenue Code, as now or hereafter amended, (iii)
13    disability and accidental death benefits in all policies
14    and contracts, and (iv) all other benefits, except life
15    insurance and endowment benefits in life insurance
16    policies and benefits provided by all other annuity and
17    pure endowment contracts, shall be calculated by a method
18    consistent with the principles of this paragraph (b),
19    except that any extra premiums charged because of
20    impairments or special hazards shall be disregarded in the
21    determination of modified net premiums.
22        (c) In no event shall a company's aggregate reserves
23    for all life insurance policies, excluding disability and
24    accidental death benefits be less than the aggregate
25    reserves calculated in accordance with the methods set
26    forth in paragraphs (b), (f), and (g) of subsection (3) and

 

 

SB0094- 23 -LRB099 05120 MLM 25149 b

1    in subsection (5) and the mortality table or tables and
2    rate or rates of interest used in calculating
3    non-forfeiture benefits for such policies.
4        (d) In no event shall the aggregate reserves for all
5    policies, contracts, and benefits be less than the
6    aggregate reserves determined by the appointed qualified
7    actuary to be necessary to render the opinion required by
8    subsection (1a).
9        (e) Reserves for any category of policies, contracts or
10    benefits as established by the Director, may be calculated,
11    at the option of the company, according to any standards
12    which produce greater aggregate reserves for such category
13    than those calculated according to the minimum standard
14    herein provided, but the rate or rates of interest used for
15    policies and contracts, other than annuity and pure
16    endowment contracts, shall not be higher than the
17    corresponding rate or rates of interest used in calculating
18    any nonforfeiture benefits provided for therein.
19        (f) If in any contract year the gross premium charged
20    by any life insurance company on any policy or contract is
21    less than the valuation net premium for the policy or
22    contract calculated by the method used in calculating the
23    reserve thereon but using the minimum valuation standards
24    of mortality and rate of interest, the minimum reserve
25    required for such policy or contract shall be the greater
26    of either the reserve calculated according to the mortality

 

 

SB0094- 24 -LRB099 05120 MLM 25149 b

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

 

 

SB0094- 25 -LRB099 05120 MLM 25149 b

1    and the minimum reserve calculated in accordance with this
2    paragraph (f).
3        (g) In the case of any plan of life insurance which
4    provides for future premium determination, the amounts of
5    which are to be determined by the insurance company based
6    on then estimates of future experience, or in the case of
7    any plan of life insurance or annuity which is of such a
8    nature that the minimum reserves cannot be determined by
9    the methods described in paragraphs (b) and (f) of
10    subsection (3) and subsection (5), the reserves which are
11    held under any such plan shall:
12            (i) be appropriate in relation to the benefits and
13        the pattern of premiums for that plan, and
14            (ii) be computed by a method which is consistent
15        with the principles of this Standard Valuation Law, as
16        determined by regulations promulgated by the Director.
17    (4) Except as provided in subsection (6), the minimum
18standard of for the valuation for of all individual annuity and
19pure endowment contracts issued on or after the operative date
20of this subsection, as defined herein, and for all annuities
21and pure endowments purchased on or after such operative date
22under group annuity and pure endowment contracts shall be the
23Commissioners Reserve valuation methods defined in paragraph
24(b) of subsection (3) and subsection (5) and the following
25tables and interest rates:
26        (a) For individual single premium immediate annuity

 

 

SB0094- 26 -LRB099 05120 MLM 25149 b

1    contracts, excluding any disability and accidental death
2    benefits in such contracts, the 1971 Individual Annuity
3    Mortality Table, any individual annuity mortality table
4    adopted after 1980 by the NAIC National Association of
5    Insurance Commissioners and approved by regulations
6    promulgated by the Director for use in determining the
7    minimum standard of valuation for such contracts, or any
8    modification of those tables approved by the Director, and
9    7 1/2% interest.
10        (b) For individual and pure endowment contracts other
11    than single premium annuity contracts, excluding any
12    disability and accidental death benefits in such
13    contracts, the 1971 Individual Annuity Mortality Table,
14    any individual annuity mortality table adopted after 1980
15    by the NAIC National Association of Insurance
16    Commissioners and approved by regulations promulgated by
17    the Director for use in determining the minimum standard of
18    valuation for such contracts, or any modification of those
19    tables approved by the Director, and 5 1/2% interest for
20    single premium deferred annuity and pure endowment
21    contracts and 4 1/2% interest for all other such individual
22    annuity and pure endowment contracts.
23        (c) For all annuities and pure endowments purchased
24    under group annuity and pure endowment contracts,
25    excluding any disability and accidental death benefits
26    purchased under such contracts, the 1971 Group Annuity

 

 

SB0094- 27 -LRB099 05120 MLM 25149 b

1    Mortality Table, any group annuity mortality table adopted
2    after 1980 by the NAIC National Association of Insurance
3    Commissioners and approved by regulations promulgated by
4    the Director for use in determining the minimum standard of
5    valuation for such annuities and pure endowments, or any
6    modification of those tables approved by the Director, and
7    7 1/2% interest.
8    After September 8, 1977, any company may file with the
9Director a written notice of its election to comply with the
10provisions of this subsection after a specified date before
11January 1, 1979, which shall be the operative date of this
12subsection for such company; provided, a company may elect a
13different operative date for individual annuity and pure
14endowment contracts from that elected for group annuity and
15pure endowment contracts. If a company makes no election, the
16operative date of this subsection for such company shall be
17January 1, 1979.
18    (5) This subsection shall apply to all annuity and pure
19endowment contracts other than group annuity and pure endowment
20contracts purchased under a retirement plan or plan of deferred
21compensation, established or maintained by an employer
22(including a partnership or sole proprietorship) or by an
23employee organization, or by both, other than a plan providing
24individual retirement accounts or individual retirement
25annuities under Section 408 of the Internal Revenue Code, as
26now or hereafter amended.

 

 

SB0094- 28 -LRB099 05120 MLM 25149 b

1    Reserves according to the Commissioners annuity reserve
2method for benefits under annuity or pure endowment contracts,
3excluding any disability and accidental death benefits in such
4contracts, shall be the greatest of the respective excesses of
5the present values, at the date of valuation, of the future
6guaranteed benefits, including guaranteed nonforfeiture
7benefits, provided for by such contracts at the end of each
8respective contract year, over the present value, at the date
9of valuation, of any future valuation considerations derived
10from future gross considerations, required by the terms of such
11contract, that become payable prior to the end of such
12respective contract year. The future guaranteed benefits shall
13be determined by using the mortality table, if any, and the
14interest rate, or rates, specified in such contracts for
15determining guaranteed benefits. The valuation considerations
16are the portions of the respective gross considerations applied
17under the terms of such contracts to determine nonforfeiture
18values.
19    (6)(a) Applicability of this subsection. The interest
20rates used in determining the minimum standard for the
21valuation of
22        (A) all life insurance policies issued in a particular
23    calendar year, on or after the operative date of subsection
24    (4c) of Section 229.2 (Standard Nonforfeiture Law),
25        (B) all individual annuity and pure endowment
26    contracts issued in a particular calendar year ending on or

 

 

SB0094- 29 -LRB099 05120 MLM 25149 b

1    after December 31, 1983,
2        (C) all annuities and pure endowments purchased in a
3    particular calendar year ending on or after December 31,
4    1983, under group annuity and pure endowment contracts, and
5        (D) the net increase in a particular calendar year
6    ending after December 31, 1983, in amounts held under
7    guaranteed interest contracts
8shall be the calendar year statutory valuation interest rates,
9as defined in this subsection.
10        (b) Calendar Year Statutory Valuation Interest Rates.
11            (i) The calendar year statutory valuation interest
12        rates shall be determined according to the following
13        formulae, rounding "I" to the nearest .25%.
14                (A) For life insurance,
15                    I = .03 + W (R1 - .03) + W/2 (R2 - .09).
16                (B) For single premium immediate annuities and
17            annuity benefits involving life contingencies
18            arising from other annuities with cash settlement
19            options and from guaranteed interest contracts
20            with cash settlement options,
21                    I = .03 + W (R - .03) or with prior
22                approval of the Director I = .03 + W (Rq -
23                .03).
24            For the purposes of this subparagraph (i), "I"
25        equals the calendar year statutory valuation interest
26        rate, "R" is the reference interest rate defined in

 

 

SB0094- 30 -LRB099 05120 MLM 25149 b

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

 

 

SB0094- 31 -LRB099 05120 MLM 25149 b

1            (ii) If the calendar year statutory valuation
2        interest rate for any life insurance policy issued in
3        any calendar year determined without reference to this
4        subparagraph differs from the corresponding actual
5        rate for similar policies issued in the immediately
6        preceding calendar year by less than .5%, the calendar
7        year statutory valuation interest rate for such life
8        insurance policy shall be the corresponding actual
9        rate for the immediately preceding calendar year. For
10        purposes of applying this subparagraph, the calendar
11        year statutory valuation interest rate for life
12        insurance policies issued in a calendar year shall be
13        determined for 1980, using the reference interest rate
14        defined for 1979, and shall be determined for each
15        subsequent calendar year regardless of when subsection
16        (4c) of Section 229.2 (Standard Nonforfeiture Law)
17        becomes operative.
18        (c) Weighting Factors.
19            (i) The weighting factors referred to in the
20        formulae stated in paragraph (b) are given in the
21        following tables.
22                (A) Weighting Factors for Life Insurance.
23GuaranteeWeighting
24DurationFactors
25(Years)
2610 or less.50

 

 

SB0094- 32 -LRB099 05120 MLM 25149 b

1More than 10, but not more than 20.45
2More than 20.35
3                For life insurance, the guarantee duration is
4            the maximum number of years the life insurance can
5            remain in force on a basis guaranteed in the policy
6            or under options to convert to plans of life
7            insurance with premium rates or nonforfeiture
8            values or both which are guaranteed in the original
9            policy.
10                (B) The weighting factor for single premium
11            immediate annuities and for annuity benefits
12            involving life contingencies arising from other
13            annuities with cash settlement options and
14            guaranteed interest contracts with cash settlement
15            options is .80.
16                (C) The weighting factors for other annuities
17            and for guaranteed interest contracts, except as
18            stated in (B) of this subparagraph (i), shall be as
19            specified in tables (1), (2), and (3) of this
20            subpart (C), according to the rules and
21            definitions in (4), (5) and (6) of this subpart
22            (C).
23                    (1) For annuities and guaranteed interest
24                contracts valued on an issue year basis.
25GuaranteeWeighting Factor
26Durationfor Plan Type

 

 

SB0094- 33 -LRB099 05120 MLM 25149 b

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

 

 

SB0094- 34 -LRB099 05120 MLM 25149 b

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

 

 

SB0094- 35 -LRB099 05120 MLM 25149 b

1                expiration of the interest rate guarantee, or
2                may withdraw funds before such expiration but
3                only (a) with an adjustment to reflect changes
4                in interest rates or asset values since receipt
5                of the funds by the insurance company, or (b)
6                without such adjustment but in installments
7                over 5 years or more. At the end of the
8                interest rate guarantee, funds may be
9                withdrawn without such adjustment in a single
10                sum or installments over less than 5 years.
11                    Plan Type C is a plan under which the
12                policyholder may withdraw funds before
13                expiration of the interest rate guarantee in a
14                single sum or installments over less than 5
15                years either (a) without adjustment to reflect
16                changes in interest rates or asset values since
17                receipt of the funds by the insurance company,
18                or (b) subject only to a fixed surrender charge
19                stipulated in the contract as a percentage of
20                the fund.
21                    (6) A company may elect to value
22                guaranteed interest contracts with cash
23                settlement options and annuities with cash
24                settlement options on either an issue year
25                basis or on a change in fund basis. Guaranteed
26                interest contracts with no cash settlement

 

 

SB0094- 36 -LRB099 05120 MLM 25149 b

1                options and other annuities with no cash
2                settlement options shall be valued on an issue
3                year basis. As used in this Section, "issue
4                year basis of valuation" refers to a valuation
5                basis under which the interest rate used to
6                determine the minimum valuation standard for
7                the entire duration of the annuity or
8                guaranteed interest contract is the calendar
9                year valuation interest rate for the year of
10                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
16                in the fund held under the annuity or
17                guaranteed interest contract is the calendar
18                year valuation interest rate for the year of
19                the change in the fund.
20        (d) Reference Interest Rate. The reference interest
21    rate referred to in paragraph (b) of this subsection is
22    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

 

 

SB0094- 37 -LRB099 05120 MLM 25149 b

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

 

 

SB0094- 38 -LRB099 05120 MLM 25149 b

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

 

 

SB0094- 39 -LRB099 05120 MLM 25149 b

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 NAIC 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 NAIC National

 

 

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1    Association of Insurance Commissioners and approved by
2    regulations promulgated by the Director, may be
3    substituted.
4    (7) Minimum Standards for Accident and Health (Disability,
5Accident and Sickness) Insurance Contracts Plans. The Director
6shall promulgate a regulation containing the minimum standards
7applicable to the valuation of health (disability, sickness and
8accident) plans which are issued prior to the operative date of
9the Valuation Manual. For accident and health (disability,
10accident and sickness) insurance contracts issued on or after
11the operative date of the Valuation Manual, the standard
12prescribed in the Valuation Manual is the minimum standard of
13valuation required under subsection (1).
14    (8) Valuation Manual for Policies Issued On or After the
15Operative Date of the Valuation Manual.
16        (a) For policies issued on or after the operative date
17    of the Valuation Manual, the standard prescribed in the
18    Valuation Manual is the minimum standard of valuation
19    required under subsection (1), except as provided under
20    paragraphs (e) or (g) of this subsection (8).
21        (b) The operative date of the Valuation Manual is
22    January 1 of the first calendar year following the first
23    July 1 when all of the following have occurred:
24            (i) The Valuation Manual has been adopted by the
25        NAIC by an affirmative vote of at least 42 members, or
26        three-fourths of the members voting, whichever is

 

 

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1        greater.
2            (ii) The Standard Valuation Law, as amended by the
3        NAIC in 2009, or legislation including substantially
4        similar terms and provisions, has been enacted by
5        states representing greater than 75% of the direct
6        premiums written as reported in the following annual
7        statements submitted for 2008: life, accident and
8        health annual statements; health annual statements; or
9        fraternal annual statements.
10            (iii) The Standard Valuation Law, as amended by the
11        NAIC in 2009, or legislation including substantially
12        similar terms and provisions, has been enacted by at
13        least 42 of the following 55 jurisdictions: the 50
14        states of the United States, American Samoa, the
15        American Virgin Islands, the District of Columbia,
16        Guam, and Puerto Rico.
17        (c) Unless a change in the Valuation Manual specifies a
18    later effective date, changes to the Valuation Manual shall
19    be effective on January 1 following the date when the
20    change to the Valuation Manual has been adopted by the NAIC
21    by an affirmative vote representing:
22            (i) at least three-fourths of the members of the
23        NAIC voting, but not less than a majority of the total
24        membership; and
25            (ii) members of the NAIC representing
26        jurisdictions totaling greater than 75% of the direct

 

 

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1        premiums written as reported in the following annual
2        statements most recently available prior to the vote in
3        subparagraph (i) of this paragraph (c): life, accident
4        and health annual statements; health annual
5        statements; or fraternal annual statements.
6        (d) The Valuation Manual must specify all of the
7    following:
8            (i) Minimum valuation standards for and
9        definitions of the policies or contracts subject to
10        subsection (1). Such minimum valuation standards shall
11        be:
12                (A) the Commissioners reserve valuation method
13            for life insurance contracts, other than annuity
14            contracts, subject to subsection (1);
15                (B) the Commissioners annuity reserve
16            valuation method for annuity contracts subject to
17            subsection (1); and
18                (C) minimum reserves for all other policies or
19            contracts subject to subsection (1).
20            (ii) Which policies or contracts or types of
21        policies or contracts are subject to the requirements
22        of a principle-based valuation in paragraph (a) of
23        subsection (9) and the minimum valuation standards
24        consistent with those requirements.
25            (iii) For policies and contracts subject to a
26        principle-based valuation under subsection (9):

 

 

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1                (A) Requirements for the format of reports to
2            the Director under subparagraph (iii) of paragraph
3            (b) of subsection (9), and which shall include
4            information necessary to determine if the
5            valuation is appropriate and in compliance with
6            this Section.
7                (B) Assumptions shall be prescribed for risks
8            over which the company does not have significant
9            control or influence.
10                (C) Procedures for corporate governance and
11            oversight of the actuarial function, and a process
12            for appropriate waiver or modification of such
13            procedures.
14            (iv) For policies not subject to a principle-based
15        valuation under subsection (9), the minimum valuation
16        standard shall either:
17                (A) be consistent with the minimum standard of
18            valuation prior to the operative date of the
19            Valuation Manual; or
20                (B) develop reserves that quantify the
21            benefits and guarantees and the funding associated
22            with the contracts and their risks at a level of
23            conservatism that reflects conditions that include
24            unfavorable events that have a reasonable
25            probability of occurring.
26            (v) Other requirements, including, but not limited

 

 

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1        to, those relating to reserve methods, models for
2        measuring risk, generation of economic scenarios,
3        assumptions, margins, use of company experience, risk
4        measurement, disclosure, certifications, reports,
5        actuarial opinions and memorandums, transition rules,
6        and internal controls.
7            (vi) The data and form of the data required under
8        subsection (10) of this Section, with whom the data
9        must be submitted, and may specify other requirements,
10        including data analyses and the reporting of analyses.
11        (e) In the absence of a specific valuation requirement
12    or if a specific valuation requirement in the Valuation
13    Manual is not, in the opinion of the Director, in
14    compliance with this Section, then the company shall, with
15    respect to such requirements, comply with minimum
16    valuation standards prescribed by the Director by rule.
17        (f) The Director may engage a qualified actuary, at the
18    expense of the company, to perform an actuarial examination
19    of the company and opine on the appropriateness of any
20    reserve assumption or method used by the company, or to
21    review and opine on a company's compliance with any
22    requirement set forth in this Section. The Director may
23    rely upon the opinion regarding provisions contained
24    within this Section of a qualified actuary engaged by the
25    Director of another state, district, or territory of the
26    United States. As used in this paragraph, "engage" includes

 

 

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1    employment and contracting.
2        (g) The Director may require a company to change any
3    assumption or method that in the opinion of the Director is
4    necessary in order to comply with the requirements of the
5    Valuation Manual or this Section; and the company shall
6    adjust the reserves as required by the Director. The
7    Director may take other disciplinary action as permitted
8    pursuant to law.
9    (9) Requirements of a Principle-Based Valuation.
10        (a) A company must establish reserves using a
11    principle-based valuation that meets the following
12    conditions for policies or contracts as specified in the
13    Valuation Manual:
14            (i) Quantify the benefits and guarantees, and the
15        funding, associated with the contracts and their risks
16        at a level of conservatism that reflects conditions
17        that include unfavorable events that have a reasonable
18        probability of occurring during the lifetime of the
19        contracts. For policies or contracts with significant
20        tail risk, reflect conditions appropriately adverse to
21        quantify the tail risk.
22            (ii) Incorporate assumptions, risk analysis
23        methods, and financial models and management
24        techniques that are consistent with, but not
25        necessarily identical to, those utilized within the
26        company's overall risk assessment process, while

 

 

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1        recognizing potential differences in financial
2        reporting structures and any prescribed assumptions or
3        methods.
4            (iii) Incorporate assumptions that are derived in
5        one of the following manners:
6                (A) The assumption is prescribed in the
7            Valuation Manual.
8                (B) For assumptions that are not prescribed,
9            the assumptions shall:
10                    (1) be established utilizing the company's
11                available experience, to the extent it is
12                relevant and statistically credible; or
13                    (2) to the extent that company data is not
14                available, relevant, or statistically
15                credible, be established utilizing other
16                relevant, statistically credible experience.
17            (iv) Provide margins for uncertainty, including
18        adverse deviation and estimation error, such that the
19        greater the uncertainty, the larger the margin and
20        resulting reserve.
21        (b) A company using a principle-based valuation for one
22    or more policies or contracts subject to this subsection as
23    specified in the Valuation Manual shall:
24            (i) Establish procedures for corporate governance
25        and oversight of the actuarial valuation function
26        consistent with those described in the Valuation

 

 

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1        Manual.
2            (ii) Provide to the Director and the board of
3        directors an annual certification of the effectiveness
4        of the internal controls with respect to the
5        principle-based valuation. Such controls shall be
6        designed to ensure that all material risks inherent in
7        the liabilities and associated assets subject to such
8        valuation are included in the valuation, and that
9        valuations are made in accordance with the Valuation
10        Manual. The certification shall be based on the
11        controls in place as of the end of the preceding
12        calendar year.
13            (iii) Develop and file with the Director upon
14        request a principle-based valuation report that
15        complies with standards prescribed in the Valuation
16        Manual.
17        (c) A principle-based valuation may include a
18    prescribed formulaic reserve component.
19    (10) Experience Reporting for Policies In Force On or After
20the Operative Date of the Valuation Manual. A company shall
21submit mortality, morbidity, policyholder behavior, or expense
22experience and other data as prescribed in the Valuation
23Manual.
24    (11) Confidentiality.
25        (a) For the purposes of this subsection (11),
26    "confidential information" means any of the following:

 

 

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1            (i) A memorandum in support of an opinion submitted
2        under subsection (1) of this Section and any other
3        documents, materials, and other information,
4        including, but not limited to, all working papers, and
5        copies thereof, created, produced or obtained by or
6        disclosed to the Director or any other person in
7        connection with the memorandum.
8            (ii) All documents, materials, and other
9        information, including, but not limited to, all
10        working papers, and copies thereof, created, produced,
11        or obtained by or disclosed to the Director or any
12        other person in the course of an examination made under
13        paragraph (f) of subsection (8) of this Section.
14            (iii) Any reports, documents, materials, and other
15        information developed by a company in support of, or in
16        connection with, an annual certification by the
17        company under subparagraph (ii) of paragraph (b) of
18        subsection (9) of this Section evaluating the
19        effectiveness of the company's internal controls with
20        respect to a principle-based valuation and any other
21        documents, materials, and other information,
22        including, but not limited to, all working papers, and
23        copies thereof, created, produced, or obtained by or
24        disclosed to the Director or any other person in
25        connection with such reports, documents, materials,
26        and other information.

 

 

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1            (iv) Any principle-based valuation report
2        developed under subparagraph (iii) of paragraph (b) of
3        subsection (9) of this Section and any other documents,
4        materials and other information, including, but not
5        limited to, all working papers, and copies thereof,
6        created, produced or obtained by or disclosed to the
7        Director or any other person in connection with such
8        report.
9            (v) Any documents, materials, data, and other
10        information submitted by a company under subsection
11        (10) of this Section (collectively, "experience data")
12        and any other documents, materials, data, and other
13        information, including, but not limited to, all
14        working papers, and copies thereof, created or
15        produced in connection with such experience data, in
16        each case that include any potentially
17        company-identifying or personally identifiable
18        information, that is provided to or obtained by the
19        Director (together with any experience data, the
20        "experience materials") and any other documents,
21        materials, data and other information, including, but
22        not limited to, all working papers and copies thereof,
23        created, produced, or obtained by or disclosed to the
24        Director or any other person in connection with such
25        experience materials.
26        (b) Privilege for and Confidentiality of Confidential

 

 

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1    Information.
2            (i) Except as provided in this subsection (11), a
3        company's confidential information is confidential by
4        law and privileged, and shall not be subject to the
5        Freedom of Information Act, subpoena, or discovery or
6        admissible as evidence in any private civil action;
7        however, the Director is authorized to use the
8        confidential information in the furtherance of any
9        regulatory or legal action brought against the company
10        as a part of the Director's official duties.
11            (ii) Neither the Director nor any person who
12        received confidential information while acting under
13        the authority of the Director shall be permitted or
14        required to testify in any private civil action
15        concerning any confidential information.
16            (iii) In order to assist in the performance of the
17        Director's duties, the Director may share confidential
18        information (A) with other state, federal, and
19        international regulatory agencies and with the NAIC
20        and its affiliates and subsidiaries and (B) in the case
21        of confidential information specified in subparagraphs
22        (i) and (iv) of paragraph (a) of subsection (11) only,
23        with the Actuarial Board for Counseling and Discipline
24        or its successor upon request stating that the
25        confidential information is required for the purpose
26        of professional disciplinary proceedings and with

 

 

SB0094- 51 -LRB099 05120 MLM 25149 b

1        state, federal, and international law enforcement
2        officials; in the case of (A) and (B), provided that
3        such recipient agrees and has the legal authority to
4        agree, to maintain the confidentiality and privileged
5        status of such documents, materials, data, and other
6        information in the same manner and to the same extent
7        as required for the Director.
8            (iv) The Director may receive documents,
9        materials, data, and other information, including
10        otherwise confidential and privileged documents,
11        materials, data, or information, from the NAIC and its
12        affiliates and subsidiaries, from regulatory or law
13        enforcement officials of other foreign or domestic
14        jurisdictions, and from the Actuarial Board for
15        Counseling and Discipline or its successor and shall
16        maintain as confidential or privileged any document,
17        material, data, or other information received with
18        notice or the understanding that it is confidential or
19        privileged under the laws of the jurisdiction that is
20        the source of the document, material, or other
21        information.
22            (v) The Director may enter into agreements
23        governing the sharing and use of information
24        consistent with paragraph (b) of this subsection (11).
25            (vi) No waiver of any applicable privilege or claim
26        of confidentiality in the confidential information

 

 

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1        shall occur as a result of disclosure to the Director
2        under this subsection (11) or as a result of sharing as
3        authorized in subparagraph (iii) of paragraph (b) of
4        this subsection (11).
5            (vii) A privilege established under the law of any
6        state or jurisdiction that is substantially similar to
7        the privilege established under paragraph (b) of this
8        subsection (11), shall be available and enforced in any
9        proceeding in and in any court of this State.
10            (viii) In this subsection (11) "regulatory
11        agency", "law enforcement agency", and "NAIC" include,
12        but are not limited to, their employees, agents,
13        consultants, and contractors.
14        (c) Notwithstanding paragraph (b) of this subsection
15    (11), any confidential information specified in
16    subparagraphs (i) and (iv) of paragraph (a) of this
17    subsection (11):
18            (i) may be subject to subpoena for the purpose of
19        defending an action seeking damages from the appointed
20        actuary submitting the related memorandum in support
21        of an opinion submitted under subsection (1) of this
22        Section or principle-based valuation report developed
23        under subparagraph (iii) of paragraph (b) of
24        subsection (9) of this Section by reason of an action
25        required by this Section or by regulations promulgated
26        under this Section;

 

 

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1            (ii) may otherwise be released by the Director with
2        the written consent of the company; and
3            (iii) once any portion of a memorandum in support
4        of an opinion submitted under subsection (1) of this
5        Section or a principle-based valuation report
6        developed under subparagraph (iii) of paragraph (b) of
7        subsection (9) of this Section is cited by the company
8        in its marketing or is publicly volunteered to or
9        before a governmental agency other than a state
10        insurance department or is released by the company to
11        the news media, all portions of such memorandum or
12        report shall no longer be confidential.
13    (12) Exemptions.
14        (a) The Director may exempt specific product forms or
15    product lines of a domestic company that is licensed and
16    doing business only in Illinois from the requirements of
17    subsection (8) of this Section, provided that:
18            (i) the Director has issued an exemption in writing
19        to the company and has not subsequently revoked the
20        exemption in writing; and
21            (ii) the company computes reserves using
22        assumptions and methods used prior to the operative
23        date of the Valuation Manual in addition to any
24        requirements established by the Director and adopted
25        by rule.
26        (b) A domestic company that has less than $300,000,000

 

 

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1    of ordinary life premiums and that is licensed and doing
2    business in Illinois is exempt from the requirements of
3    subsection (8), provided that:
4            (i) if the company is a member of a group of life
5        insurers, the group has combined ordinary life
6        premiums of less than $1,000,000,000;
7            (ii) the company has an RBC ratio of at least 450%
8        of authorized control level RBC;
9            (iii) the appointed actuary has provided an
10        unqualified opinion on the reserves in accordance with
11        subsection (1) of this Section; and
12            (iv) the company has provided a certification by a
13        qualified actuary that any universal life policy with a
14        secondary guarantee issued by the company after the
15        operative date of the Valuation Manual is not subject
16        to material interest rate risk or asset return
17        volatility risk, as defined in the Valuation Manual.
18        (c) For purposes of paragraph (b) of this subsection
19    (12), ordinary life premiums are measured as direct plus
20    reinsurance assumed from an unaffiliated company, not
21    reduced by reinsurance ceded, from the prior calendar year
22    annual statement.
23        (d) For any company granted an exemption under this
24    subsection, subsections (1), (2), (3), (4), (5), (6), and
25    (7) shall be applicable. With respect to any company
26    applying this exemption, any reference to subsection (8)

 

 

SB0094- 55 -LRB099 05120 MLM 25149 b

1    found in subsections (1), (2), (3), (4), (5), (6), and (7)
2    shall not be applicable.
3    (13) Definitions. For the purposes of this Section, the
4following definitions shall apply beginning on the operative
5date of the Valuation Manual:
6    "Accident and health insurance" means contracts that
7incorporate morbidity risk and provide protection against
8economic loss resulting from accident, sickness, or medical
9conditions and as may be specified in the Valuation Manual.
10    "Appointed actuary" means a qualified actuary who is
11appointed in accordance with the Valuation Manual to prepare
12the actuarial opinion required in paragraph (b) of subsection
13(1) of this Section.
14    "Company" means an entity that (a) has written, issued, or
15reinsured life insurance contracts, accident and health
16insurance contracts, or deposit-type contracts in this State
17and has at least one such policy in force or on claim or (b) has
18written, issued, or reinsured life insurance contracts,
19accident and health insurance contracts, or deposit-type
20contracts in any state and is required to hold a certificate of
21authority to write life insurance, accident and health
22insurance, or deposit-type contracts in this State.
23    "Deposit-type contract" means contracts that do not
24incorporate mortality or morbidity risks and as may be
25specified in the Valuation Manual.
26    "Life insurance" means contracts that incorporate

 

 

SB0094- 56 -LRB099 05120 MLM 25149 b

1mortality risk, including annuity and pure endowment
2contracts, and as may be specified in the Valuation Manual.
3    "NAIC" means the National Association of Insurance
4Commissioners.
5    "Policyholder behavior" means any action a policyholder,
6contract holder, or any other person with the right to elect
7options, such as a certificate holder, may take under a policy
8or contract subject to this Section including, but not limited
9to, lapse, withdrawal, transfer, deposit, premium payment,
10loan, annuitization, or benefit elections prescribed by the
11policy or contract, but excluding events of mortality or
12morbidity that result in benefits prescribed in their essential
13aspects by the terms of the policy or contract.
14    "Principle-based valuation" means a reserve valuation that
15uses one or more methods or one or more assumptions determined
16by the insurer and is required to comply with subsection (9) of
17this Section as specified in the Valuation Manual.
18    "Qualified actuary" means an individual who is qualified to
19sign the applicable statement of actuarial opinion in
20accordance with the American Academy of Actuaries
21qualification standards for actuaries signing such statements
22and who meets the requirements specified in the Valuation
23Manual.
24    "Tail risk" means a risk that occurs either where the
25frequency of low probability events is higher than expected
26under a normal probability distribution or where there are

 

 

SB0094- 57 -LRB099 05120 MLM 25149 b

1observed events of very significant size or magnitude.
2    "Valuation Manual" means the manual of valuation
3instructions adopted by the NAIC as specified in this Section
4or as subsequently amended.
5(Source: P.A. 95-86, eff. 9-25-07 (changed from 1-1-08 by P.A.
695-632); 95-876, eff. 8-21-08.)
 
7    (215 ILCS 5/229.2)  (from Ch. 73, par. 841.2)
8    Sec. 229.2. Standard Non-forfeiture Law for Life
9Insurance.
10    (1) No policy of life insurance, except as stated in
11subsection (8), shall be delivered or issued for delivery in
12this State unless it contains in substance the following
13provisions or corresponding provisions which in the opinion of
14the Director are at least as favorable to the defaulting or
15surrendering policyholder and are essentially in compliance
16with subsection (7) of this law:
17    (i) That, in the event of default in any premium payment,
18the company will grant, upon proper request not later than 60
19days after the due date of the premium in default, a paid-up
20nonforfeiture benefit on a plan stipulated in the policy,
21effective as of such due date, of such amount as may be
22hereinafter specified. In lieu of such stipulated paid-up
23nonforfeiture benefit, the company may substitute, upon proper
24request not later than 60 days after the due date of the
25premium in default, an actuarially equivalent alternative

 

 

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1paid-up nonforfeiture benefit which provides a greater amount
2or longer period of death benefits or, if applicable, a greater
3amount or earlier payment of endowment benefits.
4    (ii) That, upon surrender of the policy within 60 days
5after the due date of any premium payment in default after
6premiums have been paid for at least 3 full years in the case
7of Ordinary insurance or 5 full years in the case of Industrial
8insurance, the company will pay, in lieu of any paid-up
9nonforfeiture benefit, a cash surrender value of such amount as
10may be hereinafter specified.
11    (iii) That a specified paid-up nonforfeiture benefit shall
12become effective as specified in the policy unless the person
13entitled to make such election elects another available option
14not later than 60 days after the due date of the premium in
15default.
16    (iv) That, if the policy shall have become paid-up by
17completion of all premium payments or if it is continued under
18any paid-up nonforfeiture benefit which became effective on or
19after the third policy anniversary in the case of Ordinary
20insurance or the fifth policy anniversary in the case of
21Industrial insurance, the company will pay, upon surrender of
22the policy within 30 days after any policy anniversary, a cash
23surrender value of such amount as may be hereinafter specified.
24    (v) In the case of policies which cause on a basis
25guaranteed in the policy unscheduled changes in benefits or
26premiums, or which provide an option for changes in benefits or

 

 

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1premiums other than a change to a new policy, a statement of
2the mortality table, interest rate, and method used in
3calculating cash surrender values and the paid-up
4nonforfeiture benefits available under the policy. In the case
5of all other policies, a statement of the mortality table and
6interest rate used in calculating the cash surrender values and
7the paid-up nonforfeiture benefits available under the policy,
8together with a table showing the cash surrender value, if any,
9and paid-up nonforfeiture benefit, if any, available under the
10policy on each policy anniversary either during the first 20
11policy years or during the term of the policy, whichever is
12shorter, such values and benefits to be calculated upon the
13assumption that there are no dividends or paid-up additions
14credited to the policy and that there is no indebtedness to the
15company on the policy.
16    (vi) A statement that the cash surrender values and the
17paid-up nonforfeiture benefits available under the policy are
18not less than the minimum values and benefits required by or
19pursuant to the insurance law of the state in which the policy
20is delivered; an explanation of the manner in which the cash
21surrender values and the paid-up nonforfeiture benefits are
22altered by the existence of any paid-up additions credited to
23the policy or any indebtedness to the company on the policy; if
24a detailed statement of the method of computation of the values
25and benefits shown in the policy is not stated therein, a
26statement that such method of computation has been filed with

 

 

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1the insurance supervisory official of the state in which the
2policy is delivered; and a statement of the method to be used
3in calculating the cash surrender value and paid-up
4nonforfeiture benefit available under the policy on any policy
5anniversary beyond the last anniversary for which such values
6and benefits are consecutively shown in the policy.
7    Any of the foregoing provisions or portions thereof not
8applicable by reason of the plan of insurance may, to the
9extent inapplicable, be omitted from the policy.
10    The company shall reserve the right to defer the payment of
11any cash surrender value for a period of 6 months after demand
12therefor with surrender of the policy.
13    (2) (i) Any cash surrender value available under the policy
14in the event of default in a premium payment due on any policy
15anniversary, whether or not required by subsection (1), shall
16be an amount not less than the excess, if any, of the present
17value, on such anniversary, of the future guaranteed benefits
18which would have been provided for by the policy, including any
19existing paid-up additions, if there had been no default, over
20the sum of (i) the then present value of the adjusted premiums
21as defined in subsections 4, 4(a), 4(b) and 4(c), corresponding
22to premiums which would have fallen due on and after such
23anniversary, and (ii) the amount of any indebtedness to the
24company on the policy.
25    (ii) For any policy issued on or after the operative date
26of subsection 4(c), which provides supplemental life insurance

 

 

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1or annuity benefits at the option of the insured for an
2identifiable additional premium by rider or supplemental
3policy provision, the cash surrender value shall be an amount
4not less than the sum of the cash surrender value as determined
5in paragraph (i) for an otherwise similar policy issued at the
6same age without such rider or supplemental policy provision
7and the cash surrender value as determined in such paragraph
8for a policy which provides only the benefits otherwise
9provided by such rider or supplemental policy provision.
10    (iii) For any family policy issued on or after the
11operative date of subsection 4(c), which defines a primary
12insured and provides term insurance on the life of the spouse
13of the primary insured expiring before the spouse attains age
1471, the cash surrender value shall be an amount not less than
15the sum of the cash surrender value as determined in paragraph
16(i) for an otherwise similar policy issued at the same age
17without such term insurance on the life of the spouse and the
18cash surrender value as determined in such paragraph for a
19policy which provides only the benefits otherwise provided by
20such term insurance on the life of the spouse.
21    (iv) Any cash surrender value available within 30 days
22after any policy anniversary under any policy paid up by
23completion of all premium payments or any policy continued
24under any paid-up nonforfeiture benefit, whether or not
25required by subsection (1), shall be an amount not less than
26the present value, on such anniversary, of the future

 

 

SB0094- 62 -LRB099 05120 MLM 25149 b

1guaranteed benefits provided for by the policy, including any
2existing paid-up additions, decreased by any indebtedness to
3the company on the policy.
4    (3) Any paid-up nonforfeiture benefit available under the
5policy in the event of default in a premium payment due on any
6policy anniversary shall be such that its present value as of
7such anniversary shall be at least equal to the cash surrender
8value then provided for by the policy, or if none is provided
9for, that cash surrender value which would have been required
10by this section in the absence of the condition that premiums
11shall have been paid for at least a specified period.
12    (4) This subsection (4) shall not apply to policies issued
13on or after the operative date of subsection (4c). Except as
14provided in the third paragraph of this subsection, the
15adjusted premiums for any policy shall be calculated on an
16annual basis and shall be such uniform percentage of the
17respective premium specified in the policy for each policy
18year, excluding any extra premiums charged because of
19impairments or special hazards, that the present value, at the
20date of issue of the policy, of all such adjusted premiums
21shall be equal to the sum of (i) the then present value of the
22future guaranteed benefits provided for by the policy; (ii) 2%
23of the amount of insurance, if the insurance be uniform in
24amount, or of the equivalent uniform amount, as hereinafter
25defined, if the amount of insurance varies with duration of the
26policy; (iii) 40% of the adjusted premium for the first policy

 

 

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1year; (iv) 25% of either the adjusted premium for the first
2policy year or the adjusted premium for a whole life policy of
3the same uniform or equivalent uniform amount with uniform
4premiums for the whole of life issued at the same age for the
5same amount of insurance, whichever is less. Provided, however,
6that in applying the percentages specified in (iii) and (iv)
7above, no adjusted premium shall be deemed to exceed 4% of the
8amount of insurance or uniform amount equivalent thereto. The
9date of issue of a policy for the purpose of this subsection
10shall be the date as of which the rated age of the insured is
11determined.
12    In the case of a policy providing an amount of insurance
13varying with duration of the policy, the equivalent uniform
14amount thereof for the purpose of this subsection shall be
15deemed to be the level amount of insurance, provided by an
16otherwise similar policy, containing the same endowment
17benefit or benefits, if any, issued at the same age and for the
18same term, the amount of which does not vary with duration and
19the benefits under which have the same present value at the
20inception of the insurance as the benefits under the policy;
21provided, however, that in the case of a policy providing a
22varying amount of insurance issued on the life of a child under
23age 10, the equivalent uniform amount may be computed as though
24the amount of insurance provided by the policy prior to the
25attainment of age 10 were the amount provided by such policy at
26age 10.

 

 

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1    The adjusted premiums for any policy providing term
2insurance benefits by rider or supplemental policy provision
3shall be equal to (a) the adjusted premiums for an otherwise
4similar policy issued at the same age without such term
5insurance benefits, increased, during the period for which
6premiums for such term insurance benefits are payable, by (b)
7the adjusted premiums for such term insurance, the foregoing
8items (a) and (b) being calculated separately and as specified
9in the first 2 paragraphs of this subsection except that, for
10the purposes of (ii), (iii) and (iv) of the first such
11paragraph, the amount of insurance or equivalent uniform amount
12of insurance used in the calculation of the adjusted premiums
13referred to in (b) shall be equal to the excess of the
14corresponding amount determined for the entire policy over the
15amount used in the calculation of the adjusted premiums in (a).
16    Except as otherwise provided in subsections (4a) and (4b),
17all adjusted premiums and present values referred to in this
18section shall for all policies of Ordinary insurance be
19calculated on the basis of the Commissioners 1941 Standard
20Ordinary Mortality Table, provided that for any category of
21Ordinary insurance issued on female risks adjusted premiums and
22present values may be calculated according to an age not more
23than 3 years younger than the actual age of the insured, and
24such calculations for all policies of Industrial insurance
25shall be made on the basis of the 1941 Standard Industrial
26Mortality Table. All calculations shall be made on the basis of

 

 

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1the rate of interest, not exceeding 3 1/2% per annum, specified
2in the policy for calculating cash surrender values and paid-up
3nonforfeiture benefits. Provided, however, that in calculating
4the present value of any paid-up term insurance with
5accompanying pure endowment, if any, offered as a nonforfeiture
6benefit, the rates of mortality assumed may be not more than
7130% of the rates of mortality according to such applicable
8table. Provided, further, that for insurance issued on a
9substandard basis, the calculation of any such adjusted
10premiums and present values may be based on such other table of
11mortality as may be specified by the company and approved by
12the Director.
13    (4a) This subsection (4a) shall not apply to Ordinary
14policies issued on or after the operative date of subsection
15(4c). In the case of Ordinary policies issued on or after the
16operative date of this subsection (4a) as defined herein, all
17adjusted premiums and present values referred to in this
18Section shall be calculated on the basis of the Commissioners
191958 Standard Ordinary Mortality Table and the rate of interest
20specified in the policy for calculating cash surrender values
21and paid-up nonforfeiture benefits, provided that such rate of
22interest shall not exceed 3 1/2% per annum except that a rate
23of interest not exceeding 5 1/2% per annum may be used for
24policies issued on or after September 8, 1977, except that for
25any single premium whole life or endowment insurance policy a
26rate of interest not exceeding 6 1/2% per annum may be used and

 

 

SB0094- 66 -LRB099 05120 MLM 25149 b

1provided that for any category of Ordinary insurance issued on
2female risks, adjusted premiums and present values may be
3calculated according to an age not more than 6 years younger
4than the actual age of the insured. Provided, however, that in
5calculating the present value of any paid-up term insurance
6with accompanying pure endowment, if any, offered as a
7nonforfeiture benefit, the rates of mortality assumed may be
8not more than those shown in the Commissioners 1958 Extended
9Term Insurance Table. Provided, however, that for insurance
10issued on a substandard basis, the calculation for any such
11adjusted premiums and present values may be based on such other
12table of mortality as may be specified by the company and
13approved by the Director. After the effective date of this
14subsection (4a), any company may file with the Director written
15notice of its election to comply with the provisions of this
16subsection after a specified date before January 1, 1966. After
17the filing of such notice, then upon such specified date (which
18shall be the operative date of this subsection for such
19company), this subsection shall become operative with respect
20to the Ordinary policies thereafter issued by such company. If
21a company makes no such election, the operative date of this
22subsection for such company shall be January 1, 1966.
23    (4b) This subsection (4b) shall not apply to Industrial
24policies issued on or after the operative date of subsection
25(4c). In the case of Industrial policies issued on or after the
26operative date of this subsection (4b) as defined herein, all

 

 

SB0094- 67 -LRB099 05120 MLM 25149 b

1adjusted premiums and present values referred to in this
2Section shall be calculated on the basis of the Commissioners
31961 Standard Industrial Mortality Table and the rate of
4interest specified in the policy for calculating cash surrender
5values and paid-up nonforfeiture benefits, provided that such
6rate of interest shall not exceed 3 1/2% per annum except that
7a rate of interest not exceeding 5 1/2% per annum may be used
8for policies issued on or after September 8, 1977, except that
9for any single premium whole life or endowment insurance policy
10a rate of interest not exceeding 6 1/2% per annum may be used.
11Provided, however, that in calculating the present value of any
12paid-up term insurance with accompanying pure endowment, if
13any, offered as a nonforfeiture benefit, the rates of mortality
14assumed may be not more than those shown in the Commissioners
151961 Industrial Extended Term Insurance Table. Provided,
16further, that for insurance issued on a substandard basis, the
17calculations of any such adjusted premiums and present values
18may be based on such other table of mortality as may be
19specified by the company and approved by the Director. After
20the effective date of this subsection (4b), any company may
21file with the Director a written notice of its election to
22comply with the provisions of this subsection after a specified
23date before January 1, 1968. After the filing of such notice,
24then upon such specified date (which shall be the operative
25date of this subsection for such company), this subsection
26shall become operative with respect to the Industrial policies

 

 

SB0094- 68 -LRB099 05120 MLM 25149 b

1thereafter issued by such company. If a company makes no such
2election, the operative date of this subsection for such
3company shall be January 1, 1968.
4    (4c)(a) This subsection shall apply to all policies issued
5on or after its operative date. Except as provided in paragraph
6(g), the adjusted premiums for any policy shall be calculated
7on an annual basis and shall be such uniform percentage of the
8respective premiums specified in the policy for each policy
9year, excluding amounts payable as extra premiums to cover
10impairments or special hazards and any uniform annual contract
11charge or policy fee specified in the policy in a statement of
12the method to be used in calculating the cash surrender value
13and paid-up nonforfeiture benefits of the policy, that the
14present value, at the date of issue of the policy, of all
15adjusted premiums shall be equal to the sum of (i) the then
16present value of the future guaranteed benefits provided for by
17the policy; (ii) 1% of either the amount of insurance, if the
18insurance is uniform in amount, or the average amount of
19insurance at the beginning of each of the first 10 policy
20years; and (iii) 125% of the nonforfeiture net level premium as
21hereinafter defined. In applying the percentage specified in
22(iii), however, no nonforfeiture net level premium shall exceed
234% of either the amount of insurance, if the insurance is
24uniform in amount, or the average amount of insurance at the
25beginning of each of the first 10 policy years. The date of
26issue of a policy for the purpose of this subsection is the

 

 

SB0094- 69 -LRB099 05120 MLM 25149 b

1date as of which the rated age of the insured is determined.
2    (b) The nonforfeiture net level premium equals the present
3value, at the date of issue of the policy, of the guaranteed
4benefits provided for by the policy divided by the present
5value, at the date of issue of the policy, of an annuity of one
6per annum payable on the date of issue of the policy and on
7each anniversary of such policy on which a premium falls due.
8    (c) In the case of a policy which causes, on a basis
9guaranteed in such policy, unscheduled changes in benefits or
10premiums, or which provides an option for changes in benefits
11or premiums other than a change to a new policy, adjusted
12premiums and present values shall initially be calculated on
13the assumption that future benefits and premiums do not change
14from those stipulated at the date of issue of such policy. At
15the time of any such change in the benefits or premiums, the
16future adjusted premiums, nonforfeiture net level premiums and
17present values shall be recalculated on the assumption that
18future benefits and premiums do not change from those
19stipulated by such policy immediately after the change.
20    (d) Except as otherwise provided in paragraph (g), the
21recalculated future adjusted premiums for any policy shall be
22such uniform percentage of the respective future premiums
23specified in the policy for each policy year, excluding amounts
24payable as extra premiums to cover impairments and special
25hazards and any uniform annual contract charge or policy fee
26specified in the policy in a statement of the method to be used

 

 

SB0094- 70 -LRB099 05120 MLM 25149 b

1in calculating the cash surrender values and paid-up
2nonforfeiture benefits, that the present value, at the time of
3change to the newly defined benefits or premiums, of all such
4future adjusted premiums shall be equal to the excess of (A)
5the sum of (i) the then present value of the then future
6guaranteed benefits provided for by the policy and (ii) the
7additional expense allowance, if any, over (B) the then cash
8surrender value, if any, or present value of any paid-up
9nonforfeiture benefit under the policy.
10    (e) The additional expense allowance at the time of the
11change to the newly defined benefits or premiums shall be the
12sum of (i) 1% of the excess, if positive, of the average amount
13of insurance at the beginning of each of the first 10 policy
14years subsequent to the change over the average amount of
15insurance prior to the change at the beginning of each of the
16first 10 policy years subsequent to the time of the most recent
17previous change, or, if there has been no previous change, the
18date of issue of the policy; and (ii) 125% of the increase, if
19positive, in the nonforfeiture net level premium.
20    (f) The recalculated nonforfeiture net level premium
21equals the result obtained by dividing X by Y, where
22    (i) X equals the sum of
23    (A) the nonforfeiture net level premium applicable prior to
24the change times the present value of an annuity of one per
25annum payable on each anniversary of the policy on or
26subsequent to the date of the change on which a premium would

 

 

SB0094- 71 -LRB099 05120 MLM 25149 b

1have fallen due had the change not occurred, and
2    (B) the present value of the increase in future guaranteed
3benefits provided for by the policy; and
4    (ii) Y equals the present value of an annuity of one per
5annum payable on each anniversary of the policy on or
6subsequent to the date of change on which a premium falls due.
7    (g) Notwithstanding any other provisions of this
8subsection to the contrary, in the case of a policy issued on a
9substandard basis which provides reduced graded amounts of
10insurance so that, in each policy year, such policy has the
11same tabular mortality cost as an otherwise similar policy
12issued on the standard basis which provides higher uniform
13amounts of insurance, adjusted premiums and present values for
14such substandard policy may be calculated as if it were issued
15to provide such higher uniform amounts of insurance on the
16standard basis.
17    (h) All adjusted premiums and present values referred to in
18this Section shall for all policies of ordinary insurance be
19calculated on the basis of the Commissioners 1980 Standard
20Ordinary Mortality Table or, at the election of the company for
21any one or more specified plans of life insurance, the
22Commissioners 1980 Standard Ordinary Mortality Table with
23Ten-Year Select Mortality Factors. All adjusted premiums and
24present values referred to in this Section shall for all
25policies of Industrial insurance be calculated on the basis of
26the Commissioners 1961 Standard Industrial Mortality Table.

 

 

SB0094- 72 -LRB099 05120 MLM 25149 b

1All adjusted premiums and present values referred to in this
2Section for all policies issued in a particular calendar year
3shall be calculated on the basis of a rate of interest not
4exceeding the nonforfeiture interest rate as defined in this
5subsection for policies issued in that calendar year. The
6provisions of this paragraph are subject to the provisions set
7forth in subparagraphs (i) through (vii).
8    (i) At the option of the company, calculations for all
9policies issued in a particular calendar year may be made on
10the basis of a rate of interest not exceeding the nonforfeiture
11interest rate, as defined in this subsection, for policies
12issued in the immediately preceding calendar year.
13    (ii) Under any paid-up nonforfeiture benefit, including
14any paid-up dividend additions, any cash surrender value
15available, whether or not required by subsection (1), shall be
16calculated on the basis of the mortality table and rate of
17interest used in determining the amount of such paid-up
18nonforfeiture benefit and paid-up dividend additions, if any.
19    (iii) A company may calculate the amount of any guaranteed
20paid-up nonforfeiture benefit, including any paid-up additions
21under the policy, on the basis of an interest rate no lower
22than that specified in the policy for calculating cash
23surrender values.
24    (iv) In calculating the present value of any paid-up term
25insurance with an accompanying pure endowment, if any, offered
26as a nonforfeiture benefit, the rates of mortality assumed may

 

 

SB0094- 73 -LRB099 05120 MLM 25149 b

1be not more than those shown in the Commissioners 1980 Extended
2Term Insurance Table for policies of ordinary insurance and not
3more than the Commissioner 1961 Industrial Extended Term
4Insurance Table for policies of industrial insurance.
5    (v) For insurance issued on a substandard basis, the
6calculation of any such adjusted premiums and present values
7may be based on appropriated modifications of the
8aforementioned tables.
9    (vi) For policies issued prior to the operative date of the
10Valuation Manual, any commissioner's standard Any ordinary
11mortality tables adopted after 1980 by the National Association
12of Insurance Commissioners and approved by regulations
13promulgated by the Director for use in determining the minimum
14nonforfeiture standard may be substituted for the
15Commissioners 1980 Standard Ordinary Mortality Table with or
16without Ten-Year Select Mortality Factors or for the
17Commissioners 1980 Extended Term Insurance Table.
18    For policies issued on or after the operative date of the
19Valuation Manual, the Valuation Manual shall provide the
20Commissioners Standard mortality table for use in determining
21the minimum nonforfeiture standard that may be substituted for
22the Commissioners 1980 Standard Ordinary Mortality Table with
23or without Ten-Year Select Mortality Factors or for the
24Commissioners 1980 Extended Term Insurance Table. If the
25Director approves by regulation any Commissioner's Standard
26ordinary mortality table adopted by the National Association of

 

 

SB0094- 74 -LRB099 05120 MLM 25149 b

1Insurance Commissioners for use in determining the minimum
2nonforfeiture standard for policies issued on or after the
3operative date of the Valuation Manual, then that minimum
4nonforfeiture standard supersedes the minimum nonforfeiture
5standard provided by the Valuation Manual.
6    (vii) For policies issued prior to the operative date of
7the Valuation Manual, any Commissioner's Standard Any
8industrial mortality tables adopted after 1980 by the National
9Association of Insurance Commissioners and approved by
10regulations promulgated by the Director for use in determining
11the minimum nonforfeiture standard may be substituted for the
12Commissioners 1961 Standard Industrial Mortality Table or the
13Commissioners 1961 Industrial Extended Term Insurance Table.
14    For policies issued on or after the operative date of the
15Valuation Manual, the Valuation Manual shall provide the
16Commissioner's Standard mortality table for use in determining
17the minimum nonforfeiture standard that may be substituted for
18the Commissioners 1961 Standard Industrial Mortality Table or
19the Commissioners 1961 Industrial Extended Term Insurance
20Table. If the Director approves by regulation any
21Commissioner's Standard industrial mortality table adopted by
22the National Association of Insurance Commissioners for use in
23determining the minimum nonforfeiture standard for policies
24issued on or after the operative date of the Valuation Manual,
25then that minimum nonforfeiture standard supersedes the
26minimum nonforfeiture standard provided by the Valuation

 

 

SB0094- 75 -LRB099 05120 MLM 25149 b

1Manual.
2    (i) The nonforfeiture interest rate is defined as follows:
3        (i) For policies issued prior to the operative date of
4    the Valuation Manual, The nonforfeiture interest rate per
5    annum for any policy issued in a particular calendar year
6    shall be equal to 125% of the calendar year statutory
7    valuation interest rate for such policy, as defined in the
8    Standard Valuation Law, rounded to the nearest .25%,
9    provided, however, that the nonforfeiture interest rate
10    shall not be less than 4.00%.
11        (ii) For policies issued on and after the operative
12    date of the Valuation Manual, the nonforfeiture interest
13    rate per annum for any policy issued in a particular
14    calendar year shall be provided by the Valuation Manual.
15    (j) Notwithstanding any other provision in this Code to the
16contrary, any refiling of nonforfeiture values or their methods
17of computation for any previously approved policy form which
18involves only a change in the interest rate or mortality table
19used to compute nonforfeiture values shall not require refiling
20of any other provisions of that policy form.
21    (k) After the effective date of this subsection, any
22company may, with respect to any category of insurance, file
23with the Director a written notice of its election to comply
24with the provisions of this subsection after a specified date
25before January 1, 1989. That date shall be the operative date
26of this subsection for that category of insurance for such

 

 

SB0094- 76 -LRB099 05120 MLM 25149 b

1company. If a company makes no such election, the operative
2date of this subsection for that category of insurance issued
3by such company shall be January 1, 1989.
4    (5) In the case of any plan of life insurance which
5provides for future premium determination, the amounts of which
6are to be determined by the insurance company based on then
7estimates of future experience, or in the case of any plan of
8life insurance which is of such a nature that minimum values
9cannot be determined by the methods described in subsections
10(1), (2), (3), (4), (4a), (4b) or (4c), then
11    (a) the Director shall satisfy himself that the benefits
12provided under such plan are substantially as favorable to
13policyholders and insured parties as the minimum benefits
14otherwise required by subsections (1), (2), (3), (4), (4a),
15(4b) or (4c);
16    (b) the Director shall satisfy himself that the benefits
17and the pattern of premiums of that plan are not such as to
18mislead prospective policyholders or insured parties; and
19    (c) the cash surrender values and paid-up nonforfeiture
20benefits provided by such plan shall not be less than the
21minimum values and benefits computed by a method consistent
22with the principles of this Standard Nonforfeiture law for Life
23Insurance, as determined by regulations promulgated by the
24Director.
25    (6) Any cash surrender value and any paid-up nonforfeiture
26benefit, available under the policy in the event of default in

 

 

SB0094- 77 -LRB099 05120 MLM 25149 b

1a premium payment due at any time other than on the policy
2anniversary, shall be calculated with allowance for the lapse
3of time and the payment of fractional premiums beyond the last
4preceding policy anniversary. All values referred to in
5subsections (2), (3), (4), (4a), (4b) and (4c) may be
6calculated upon the assumption that any death benefit is
7payable at the end of the policy year of death. The net value
8of any paid-up additions, other than paid-up term additions,
9shall be not less than the amounts used to provide such
10additions. Notwithstanding the provisions of subsection (2),
11additional benefits payable (i) in the event of death or
12dismemberment by accident or accidental means, (ii) in the
13event of total and permanent disability, (iii) as reversionary
14annuity or deferred reversionary annuity benefits, (iv) as term
15insurance benefits provided by a rider or supplemental policy
16provision to which, if issued as a separate policy, this
17section would not apply, (v) as term insurance on the life of a
18child or on the lives of children provided in a policy on the
19life of a parent of the child, if such term insurance expires
20before the child's age is 26, is uniform in amount after the
21child's age is one, and has not become paid-up by reason of the
22death of a parent of the child, and (vi) as other policy
23benefits additional to life insurance and endowment benefits,
24and premiums for all such additional benefits, shall be
25disregarded in ascertaining cash surrender values and
26nonforfeiture benefits required by this section, and no such

 

 

SB0094- 78 -LRB099 05120 MLM 25149 b

1additional benefits shall be required to be included in any
2paid-up nonforfeiture benefits.
3    (7) This subsection shall apply to all policies issued on
4or after January 1, 1987. Any cash surrender value available
5under the policy in the event of default in a premium payment
6due on any policy anniversary shall be in an amount which does
7not differ by more than .2% of either the amount of insurance
8if the insurance is uniform in amount, or the average amount of
9insurance at the beginning of each of the first 10 policy
10years, from the sum of (a) the greater of zero and the basic
11cash value hereinafter specified and (b) the present value of
12any existing paid-up additions less the amount of any
13indebtedness to the company under the policy.
14    The basic cash value equals the present value, on such
15anniversary, of the future guaranteed benefits which would have
16been provided for by the policy, excluding any existing paid-up
17additions and before deduction of any indebtedness to the
18company, if there had been no default, less the then present
19value of the nonforfeiture factors, as hereinafter defined,
20corresponding to premiums which would have fallen due on and
21after such anniversary. The effects on the basic cash value of
22supplemental life insurance or annuity benefits or of family
23coverage, as described in subsection (2) or (4), whichever is
24applicable, shall, however, be the same as are the effects
25specified in subsection (2) or (4), whichever is applicable, on
26the cash surrender values defined in that subsection.

 

 

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1    The nonforfeiture factor for each policy year equals a
2percentage of the adjusted premium for the policy year, as
3defined in subsection (4) or (4c), whichever is applicable.
4Except as is required by the next succeeding sentence of this
5paragraph, such percentage
6    (a) shall be the same percentage for each policy year
7between the second policy anniversary and the later of (i) the
8fifth policy anniversary and (ii) the first policy anniversary
9at which there is available under the policy a cash surrender
10value in an amount, before including any paid-up additions and
11before deducting any indebtedness, of at least .2% of either
12the amount of insurance, if the insurance is uniform in amount,
13or the average amount of insurance at the beginning of each of
14the first 10 policy years; and
15    (b) shall be such that no percentage after the later of the
162 policy anniversaries specified in the preceding item (a) may
17apply to fewer than 5 consecutive policy years.
18    No basic cash value may be less than the value which would
19be obtained if the adjusted premiums for the policy, as defined
20in subsection (4) or (4c), whichever is applicable, were
21substituted for the nonforfeiture factors in the calculation of
22the basic cash value.
23    All adjusted premiums and present values referred to in
24this subsection shall for a particular policy be calculated on
25the same mortality and interest bases as those used in
26accordance with the other subsections of this law. The cash

 

 

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1surrender values referred to in this subsection shall include
2any endowment benefits provided for by the policy.
3    Any cash surrender value available other than in the event
4of default in a premium payment due on a policy anniversary,
5and the amount of any paid-up nonforfeiture benefit available
6under the policy in the event of default in a premium payment
7shall be determined in manners consistent with the manners
8specified for determining the analogous minimum amounts in
9subsections 1, 2, 3, 4c, and 6. The amounts of any cash
10surrender values and of any paid-up nonforfeiture benefits
11granted in connection with additional benefits such as those
12listed as items (i) through (vi) in subsection (6) shall
13conform with the principles of this subsection (7).
14    (8) This Section shall not apply to any of the following:
15    (a) reinsurance,
16    (b) group insurance,
17    (c) a pure endowment,
18    (d) an annuity or reversionary annuity contract,
19    (e) a term policy of uniform amount, which provides no
20guaranteed nonforfeiture or endowment benefits, or renewal
21thereof, of 20 years or less expiring before age 71, for which
22uniform premiums are payable during the entire term of the
23policy,
24    (f) a term policy of decreasing amount, which provides no
25guaranteed nonforfeiture or endowment benefits, on which each
26adjusted premium, calculated as specified in subsections (4),

 

 

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1(4a), (4b) and (4c), is less than the adjusted premium so
2calculated, on a term policy of uniform amount, or renewal
3thereof, which provides no guaranteed nonforfeiture or
4endowment benefits, issued at the same age and for the same
5initial amount of insurance and for a term of 20 years or less
6expiring before age 71, for which uniform premiums are payable
7during the entire term of the policy,
8    (g) a policy, which provides no guaranteed nonforfeiture or
9endowment benefits, for which no cash surrender value, if any,
10or present value of any paid-up nonforfeiture benefit, at the
11beginning of any policy year, calculated as specified in
12subsections (2), (3), (4), (4a), (4b) and (4c), exceeds 2.5% of
13the amount of insurance at the beginning of the same policy
14year,
15    (h) any policy which shall be delivered outside this State
16through an agent or other representative of the company issuing
17the policy.
18    For purposes of determining the applicability of this
19Section, the age of expiry for a joint term life insurance
20policy shall be the age of expiry of the oldest life.
21    (9) For the purposes of this Section:
22    "Operative date of the Valuation Manual" means the January
231 of the first calendar year that the Valuation Manual is
24effective.
25    "Valuation Manual" has the same meaning as set forth in
26Section 223 of this Code.

 

 

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1(Source: P.A. 83-1465.)