10489.1. This article and Sections 10479, 10480, 10481, 10483,
10484, 10486, and 10489 shall apply to the valuation of policies and
contracts issued on or after the operative date as to policies or
contracts of Article 3a (commencing with Section 10159.1) of Chapter
1 of Part 2 of Division 2 and shall also apply as provided in Section
10489.3 to the valuation of benefits purchased under group annuity
and pure endowment contracts issued prior to such operative date.
10489.15. (a) Every life and disability insurer doing business in
this state shall annually submit the opinion of a qualified actuary
as to whether the reserves and related actuarial items held in
support of the policies and contracts specified by the commissioner
by regulation are computed appropriately, are based on assumptions
that satisfy contractual provisions, are consistent with prior
reported amounts, and comply with applicable laws of this state. The
commissioner, by regulation, shall define the specifics of this
opinion and add any other items deemed to be necessary to its scope.
(b) (1) Every life and disability insurer, except as exempted by
or pursuant to regulation, shall also annually include in the opinion
required by subdivision (a), an opinion of the same qualified
actuary as to whether the reserves and related actuarial items held
in support of the policies and contracts specified by the
commissioner by regulation, when considered in light of the assets
held by the insurer with respect to the reserves and related
actuarial items, including, but not limited to, the investment
earnings on the assets and the considerations anticipated to be
received and retained under the policies and contracts, make adequate
provision for the insurer's obligations under the policies and
contracts, including, but not limited to, the benefits under and
expenses associated with the policies and contracts.
(2) The commissioner may provide by regulation for a transition
period for establishing any higher reserves that the qualified
actuary may deem necessary in order to render the opinion required by
this section.
(c) The opinion required by either subdivision (a) or subdivision
(b) shall be governed by all of the following provisions:
(1) The opinion shall be submitted with the annual statement
reflecting the valuation of the reserve liabilities for each year
ending on or after December 31, 1992.
(2) The opinion shall apply to all business in force, including
individual and group life and disability insurance, in form and
substance acceptable to the commissioner as specified by regulation.
(3) The opinion shall be based on standards adopted from time to
time by the Actuarial Standards Board and on any additional standards
that the commissioner may by regulation prescribe.
(4) In the case of an opinion required to be submitted by a
foreign or alien insurer, the commissioner may accept the opinion
filed by that insurer with the insurance supervisory official of
another state if the commissioner determines that the opinion
reasonably meets the requirements applicable to an insurer domiciled
in this state.
(5) For the purposes of this section, "qualified actuary" means a
member in good standing of the American Academy of Actuaries who
meets the requirements set forth in regulations of the commissioner.
(6) The qualified actuary shall be liable for his or her
negligence or other tortious conduct.
(7) Disciplinary action by the commissioner against the insurer or
the qualified actuary shall be defined in regulations by the
commissioner.
(8) (A) Any memorandum or other material submitted by the insurer
to the commissioner in support of the opinion shall be kept
confidential by the commissioner and shall not be made public,
provided, however, that the memorandum or the other material may be
released by the commissioner (i) to any party, with the written
consent of the insurer, or (ii) to the American Academy of Actuaries
upon the academy's written request and statement that the memorandum
or the material is required for professional disciplinary proceedings
and that the academy will observe procedures satisfactory to the
commissioner to preserve the confidentiality of the memorandum or the
other material. The entirety of the confidential memorandum shall
lose its confidential status on the occurrence of any of the
following events: the citation of any part of the confidential
memorandum by the insurer in its marketing efforts, the citation of
any part of the confidential memorandum by the insurer before any
governmental agency other than a state insurance department, or the
release of any part of the confidential memorandum by the insurer to
any news medium.
(B) Notwithstanding subparagraph (A), the confidential memorandum
shall be subject to subpoena (i) on the commissioner's consent, or
(ii) after notice to the commissioner and all other interested
parties and a hearing in which the superior court determines that (I)
the need for the subpoena outweighs the interests of the insurer or
actuary in preventing release of the confidential memorandum and the
other material, and (II) the public interest and any ongoing
investigation or proceeding conducted by the commissioner will not be
unnecessarily jeopardized by compliance with the subpoena.
(d) The opinion required by subdivision (b) shall be governed by
all of the following provisions:
(1) A memorandum, in form and substance acceptable to the
commissioner as specified by regulation, shall be prepared to support
each actuarial opinion.
(2) If the insurer fails to provide a supporting memorandum at the
request of the commissioner within a period specified by regulation
or the commissioner determines that the supporting memorandum
provided by the insurer fails to meet the standards prescribed by the
regulations or is otherwise unacceptable to the commissioner, the
commissioner may engage a qualified actuary at the expense of the
insurer to review the opinion and the basis for the opinion and
prepare supporting memorandum as is required by the commissioner.
10489.2. Except as otherwise provided in Sections 10489.3, 10489.4,
and 10489.95, the minimum standard for the valuation of all such
policies and contracts shall be the commissioners reserve valuation
methods defined in Sections 10489.5, 10489.6, 10489.9, and 10489.95,
3 1/2 percent per annum interest, except that the interest specified
in subdivisions (c) and (d) may be used for certain annuity and pure
endowment contracts, 4 percent per annum interest for such policies
issued or contracts entered into on or after January 1, 1970, but
prior to January 1, 1980, 5 1/2 percent per annum interest may be
used for single premium life insurance policies and 4 1/2 percent per
annum interest for all other such policies issued on or after
January 1, 1980, and the following tables:
(a) For all ordinary policies of life insurance issued on the
standard basis, excluding any disability and accidental death
benefits in such policies--the Commissioners 1941 Standard Ordinary
Mortality Table for such policies issued prior to the operative date
of subdivision (a) of Section 10163.1, and the Commissioners 1958
Standard Ordinary Mortality Table for such policies issued on or
after such operative date and prior to the operative date of Section
10163.2, provided that for any category of such policies issued on
female risks, all modified net premiums and present values referred
to in Sections 10489.5, and 10489.9 may be calculated, at the option
of the insurer, according to an age not more than six years younger
than the actual age of the insured; and for such policies issued on
or after the operative date of Section 10163.2, as amended (i) the
Commissioners 1980 Standard Ordinary Mortality Table, or (ii) at the
election of the company for any one or more specified plans of life
insurance, the Commissioners 1980 Standard Ordinary Mortality Table
with Ten-Year Select Mortality Factors, or (iii) any ordinary
mortality table, adopted after 1980 by the National Association of
Insurance Commissioners, or its successor, that is approved by
regulation promulgated or bulletin issued by the commissioner for use
in determining the minimum standard of valuation for such policies.
(b) For all industrial life insurance policies issued on the
standard basis, excluding any disability and accidental death
benefits in such policies, the 1941 Standard Industrial Mortality
Table for such policies issued prior to the operative date of
subdivision (b) of Section 10163.1, and for such policies issued on
or after such operative date the Commissioners 1961 Standard
Industrial Mortality Table or any industrial mortality table, adopted
after 1980 by the National Association of Insurance Commissioners,
or its successor that is approved by regulation promulgated or
bulletin issued by the commissioner for use in determining the
minimum standard of valuation for such policies.
(c) For individual annuity and pure endowment contracts issued
prior to the compliance date of Section 10489.3, excluding any
disability and accidental death benefits in such policies--the 1937
Standard Annuity Mortality Table or, at the option of the company,
the Annuity Mortality Table for 1949, ultimate, or any modification
of these tables approved by the commissioner. However, the minimum
standard for such contracts issued from January 1, 1968, through
December 31, 1968, with commencement of benefits deferred not more
than one year from date of issue, may be, at the option of the
company, 4 percent per annum interest, and for contracts issued from
January 1, 1969, to the compliance date of Section 10489.3, with
commencement of benefits deferred not more than 10 years from date of
issue and with premiums payable in one sum may be, at the option of
the company, 5 percent per annum interest.
(d) For group annuity and pure endowment contracts, excluding any
disability and accidental death benefits in such policies--the Group
Annuity Mortality Table for 1951, any modification of such table
approved by the commissioner, or, at the option of the company, any
of the tables or modifications of the tables specified for individual
annuity and pure endowment contracts. However, the minimum standard
for annuities and pure endowments purchased or to be purchased prior
to the compliance date of Section 10489.3, under group annuity and
pure endowment contracts with considerations received on or after
January 1, 1968, through December 31, 1968, may be, at the option of
the company, 4 percent per annum interest, and for annuities and pure
endowments purchased or to be purchased prior to the compliance date
of Section 10489.3, under group annuity and pure endowment contracts
with considerations received from January 1, 1969, to the compliance
date of Section 10489.3, may be at the option of the company, 5
percent per annum interest.
(e) For total and permanent disability benefits in or
supplementary to ordinary policies or contracts--for policies or
contracts issued on or after January 1, 1966, the tables of Period 2
disablement rates and the 1930 to 1950 termination rates of the 1952
Disability Study of the Society of Actuaries, with due regard to the
type of benefit or any tables of disablement rates and termination
rates, adopted after 1980 by the National Association of Insurance
Commissioners, or its successor, that are approved by regulation
promulgated or bulletin issued by the commissioner for use in
determining the minimum standard of valuation for such policies; for
policies or contracts issued on or after January 1, 1961, and prior
to January 1, 1966, either such tables or, at the option of the
company, the Class (3) Disability Table (1926); and for policies
issued prior to January 1, 1961, the Class (3) Disability Table
(1926). Any such table shall for active lives, be combined with a
mortality table permitted for calculating the reserves for life
insurance policies.
(f) For accidental death benefits in or supplementary to policies
for policies issued on or after January 1, 1966, the 1959 Accidental
Death Benefits Table or any accidental death benefits table, adopted
after 1980 by the National Association of Insurance Commissioners, or
its successor, that is approved by regulation promulgated or
bulletin issued by the commissioner for use in determining the
minimum standard of valuation for such policies; for policies issued
on or after January 1, 1961, and prior to January 1, 1966, either
such table or, at the option of the company, the Inter-Company Double
Indemnity Mortality Table; and for policies issued prior to January
1, 1961, the Inter-Company Double Indemnity Mortality Table. Either
table shall be combined with a mortality table permitted for
calculating the reserves for life insurance policies.
(g) For group life insurance, life insurance issued on the
substandard basis and other special benefits, such tables as may be
approved by the commissioner.
(h) With the adoption of tables by the National Association of
Insurance Commissioners after 1980, the commissioner may, by
regulation or bulletin, withdraw approval of the use of previously
adopted tables replaced by the newly adopted tables.
10489.3. Except as provided in Section 10489.4, the minimum
standard for the valuation of all individual annuity and pure
endowment contracts issued on or after the compliance date of Section
10489.3, and for all annuities and pure endowments purchased on or
after the compliance date of Section 10489.3, under group annuity and
pure endowment contracts, shall be the commissioners reserve
valuation methods defined in Sections 10489.5 and 10489.6, and the
following tables and interest rates:
(a) For individual annuity and pure endowment contracts issued
prior to January 1, 1980, excluding any disability and accidental
death benefits in such contracts, the Individual Annuity Mortality
Table for 1971, or any modification of such table approved by the
commissioner, and an interest rate of:
(1) Six percent per annum for all such contracts with commencement
of benefits deferred not more than 10 years from date of issue and
with premiums payable in one sum.
(2) Four percent per annum for all other such contracts.
(b) For individual single premium immediate annuity contracts
issued on or after January 1, 1980, excluding any disability and
accidental death benefits in such contracts, the Individual Annuity
Mortality Table for 1971 or any individual annuity mortality table,
adopted after 1980 by the National Association of Insurance
Commissioners, or its successor, that is approved by regulation
promulgated or bulletin issued by the commissioner for use in
determining the minimum standard of valuation for such contracts, or
any modification of these tables approved by the commissioner, and 7
1/2 percent per annum interest.
(c) For individual annuity and pure endowment contracts issued on
or after January 1, 1980, other than single premium immediate annuity
contracts, excluding any disability and accidental death benefits in
such contracts, the individual Annuity Mortality Table for 1971 or
any individual annuity mortality table, adopted after 1980 by the
National Association of Insurance Commissioners, or its successor,
that is approved by regulation promulgated or bulletin issued by the
commissioner for use in determining the minimum standard of valuation
for such contracts, or any modification of these tables approved by
the commissioner, and 5 1/2 percent per annum interest for single
premium deferred annuity and pure endowment contracts and 4 1/2
percent per annum interest for all other such individual annuity and
pure endowment contracts.
(d) For all annuities and pure endowments purchased prior to
January 1, 1980, under group annuity and pure endowment contracts,
excluding any disability and accidental death benefits purchased
under such contracts, the Group Annuity Mortality Table for 1971, or
any modification of this table approved by the commissioner, and 6
percent per annum interest.
(e) For all annuities and pure endowments purchased on or after
January 1, 1980, under group annuity and pure endowment contracts,
excluding any disability and accidental death benefits purchased
under such contracts, the Group Annuity Mortality Table for 1971 or
any group annuity mortality table, adopted after 1980 by the National
Association of Insurance Commissioners, or its successor, that is
approved by regulation promulgated or bulletin issued by the
commissioner for use in determining the minimum standard of valuation
for such annuities and pure endowments, or any modification of these
tables approved by the commissioner, and 7 1/2 percent per annum
interest.
All individual annuity and pure endowment contracts entered into
prior to January 1, 1980, and all annuities and pure endowments
purchased prior to January 1, 1980, under group annuity and pure
endowment contracts shall remain subject to the provisions of Article
3A (commencing with Section 10489.1) as it existed prior to January
1, 1980.
(f) With the adoption of tables by the National Association of
Insurance Commissioners after 1980, the commissioner may, by
regulation or bulletin, withdraw approval of the use of previously
adopted tables replaced by the newly adopted tables.
10489.4. (a) The interest rates used in determining the minimum
standard for the valuation of all life insurance policies issued in a
particular calendar year, on or after the operative date of Section
10163.2, all individual annuity and pure endowment contracts issued
in a particular calendar year on or after January 1, 1982, all
annuities and pure endowments purchased in a particular calendar year
on or after January 1, 1982, under group annuity and pure endowment
contracts, and the net increase, if any, in a particular calendar
year after January 1, 1982, in amounts held under guaranteed interest
contracts shall be the calendar year statutory valuation interest
rates as defined in subdivision (b).
(b) (1) The calendar year statutory valuation interest rates, I,
shall be determined as follows and the results rounded to the nearer
one-quarter of 1 percent:
(A) For life insurance:
I = .03 + W (R1- .03) + W/2 (R2- .09)
(B) For single premium immediate annuities and for annuity
benefits involving life contingencies arising from other annuities
with cash settlement options and from guaranteed interest contracts
with cash settlement options:
I = .03 + W(R - .03)
Where
R1 is the lesser of R and .09,
R2 is the greater of R and .09,
R is the reference interest rate defined in
subdivision (d) or
(e) of this section, and
W is the weighting factor defined in
subdivision (c) of this
section.
(C) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
an issue year basis, except as stated in (B), the formula for life
insurance stated in (A) shall apply to annuities and guaranteed
interest contracts with guarantee durations in excess of 10 years and
the formula for single premium immediate annuities stated in (B)
shall apply to annuities and guaranteed interest contracts with
guarantee duration of 10 years or less.
(D) For other annuities with no cash settlement options and for
guaranteed interest contracts with no cash settlement options, the
formula for single premium immediate annuities stated in (B) shall
apply.
(E) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
a change-in-fund basis, the formula for single premium immediate
annuities stated in (B) shall apply.
(2) However, if the calendar year statutory valuation interest
rate for any life insurance policies issued in any calendar year
determined without reference to this sentence differs from the
corresponding actual rate for similar policies issued in the
immediately preceding calendar year by less than one-half of 1
percent, the calendar year statutory valuation interest rate for such
life insurance policies shall be equal to the corresponding actual
rate for the immediately preceding calendar year. For purposes of
applying the immediately preceding sentence, the calendar year
statutory valuation interest rate for life insurance policies issued
in a calendar year shall be determined for 1980 (using the reference
interest rate defined for 1979) and shall be determined for each
subsequent calendar year regardless of the operative date of Section
10163.2.
(c) Weighting Factors.
(1) The weighting factors referred to in the formulas stated above
are given in the following tables:
(A) Weighting Factors for Life Insurance:
Weighting
Guarantee Duration (Years) Factors
10 or less............................. .50
More than 10, but not more than 20..... .45
More than 20........................... .35
For life insurance, the guarantee duration is the maximum number
of years the life insurance can remain in force on a basis guaranteed
in the policy or under options to convert to plans of life insurance
with premium rates or nonforfeiture values or both which are
guaranteed in the original policy.
(B) Weighting factor for single premium immediate annuities and
for annuity benefits involving life contingencies arising from other
annuities with cash settlement options and guaranteed interest
contracts with cash settlement options:
.80
(C) Weighting factors for other annuities and for guaranteed
interest contracts, except as stated in (B), shall be as specified in
tables (i), (ii), and (iii) below, according to the rules and
definitions in (iv), (v), and (vi):
(i) For annuities and
guaranteed interest
contracts valued on an issue
year
basis:
Weighting Factor
for Plan Type
-----------------
+ +
Guarantee Duration (Years) A B C
5 or less .80 .60 .50
More than 5, but not more .75 .60 .50
than 10
More than 10, but not more .65 .50 .45
than 20
More than 20 .45 .35 35
(ii) For annuities and
guaranteed interest
contracts valued on a change-in-
fund .15 .25 .05
basis, the factors shown in (i)
above
increased by:
(iii) For annuities and
guaranteed interest
contracts valued on an issue
year basis
(other than those with no cash
settlement
options) which do not guarantee
interest
on considerations received more
than one
year after issue or purchase
and for
annuities and guaranteed .05 .05 .05
interest
contracts valued on a change-in-
fund
basis which do not guarantee
interest
rates on considerations
received more
than 12 months beyond the
valuation
date, the factors shown in (i)
or derived
in (ii) increased by:
(iv) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, the
guarantee duration is the number of years for which the contract
guarantees interest rates in excess of the calendar year statutory
valuation interest rate for life insurance policies with guarantee
duration in excess of 20 years. For other annuities with no cash
settlement options and for guaranteed interest contracts with no cash
settlement options, the guarantee duration is the number of years
from the date of issue or date of purchase to the date annuity
benefits are scheduled to commence.
(v) Plan type as used in the above tables is defined as follows:
Plan Type A: At any time policyholder may withdraw funds only (1)
with an adjustment to reflect changes in interest rates or asset
values since receipt of the funds by the insurance company, or (2)
without such adjustment but in installments over five years or more,
or (3) as an immediate life annuity, or (4) no withdrawal permitted.
Plan Type B: Before expiration of the interest rate guarantee,
policyholder may withdraw funds only (1) with an adjustment to
reflect changes in interest rates or asset values since receipt of
the funds by the insurance company, or (2) without such adjustment
but in installments over five years or more, or (3) no withdrawal
permitted. At the end of interest rate guarantee, funds may be
withdrawn without such adjustment in a single sum or installments
over less than five years.
Plan Type C: Policyholder may withdraw funds before expiration of
interest rate guarantee in a single sum or installments over less
than five years either (1) without adjustment to reflect changes in
interest rates or asset values since receipt of the funds by the
insurance company, or (2) subject only to a fixed surrender charge
stipulated in the contract as a percentage of the fund.
(vi) A company may elect to value guaranteed interest contracts
with cash settlement options and annuities with cash settlement
options on either an issue year basis or on a change-in-fund basis.
Guaranteed interest contracts with no cash settlement options and
other annuities with no cash settlement options must be valued on an
issue year basis. As used in this section, an issue year basis of
valuation refers to a valuation basis under which the interest rate
used to determine the minimum valuation standard for the entire
duration of the annuity or guaranteed interest contract is the
calendar year valuation interest rate for the year of issue or year
of purchase of the annuity or guaranteed interest contract, and the
change-in-fund basis of valuation refers to a valuation basis under
which the interest rate used to determine the minimum valuation
standard applicable to each change in the fund held under the annuity
or guaranteed interest contract is the calendar year valuation
interest rate for the year of the change in the fund.
(d) The reference interest rate referred to in subdivision (b) of
this section shall be defined as follows:
(1) For all life insurance, the lesser of the average over a
period of 36 months and the average over a period of 12 months,
ending on June 30 of the calendar year next preceding the year of
issue, of the Monthly Average of the Composite Yield on Seasoned
Corporate Bonds, as published by Moody's Investors Service, Inc.
(2) For single premium immediate annuities and for annuity
benefits involving life contingencies arising from other annuities
with cash settlement options and guaranteed interest contracts with
cash settlement options, the average over a period of 12 months,
ending on June 30 of the calendar year of issue or year of purchase,
of the Monthly Average of the Composite Yield on Seasoned Corporate
Bonds, as published by Moody's Investors Service, Inc.
(3) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
a year-of-issue basis, except as stated in (2) above, with guarantee
duration in excess of 10 years, the lesser of the average over a
period of 36 months and the average over a period of 12 months,
ending on June 30 of the calendar year of issue or purchase, of the
Monthly Average of the Composite Yield on Seasoned Corporate Bonds,
as published by Moody's Investors Service, Inc.
(4) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
a year-of-issue basis, except as stated in (2) above, with guarantee
duration of 10 years or less, the average over a period of 12
months, ending on June 30 of the calendar year of issue or purchase,
of the Monthly Average of the Composite Yield on Seasoned Corporate
Bonds, as published by Moody's Investors Service, Inc.
(5) For other annuities with no cash settlement options and for
guaranteed interest contracts with no cash settlement options, the
average over a period of 12 months, ending on June 30 of the calendar
year of issue or purchase, of the Monthly Average of the Composite
Yield on Seasoned Corporate Bonds, as published by Moody's Investors
Service, Inc.
(6) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
a change-in-fund basis, except as stated in (2) above, the average
over a period of 12 months, ending on June 30 of the calendar year of
the change in the fund, of the Monthly Average of the Composite
Yield on Seasoned Corporate Bonds, as published by Moody's Investors
Service, Inc.
(e) In the event that the Monthly Average of the Composite Yield
on Seasoned Corporate Bonds is no longer published by Moody's
Investors Service, Inc., or in the event that the National
Association of Insurance Commissioners, or its successor, determines
that Moody's Corporate Bond Yield Average--Monthly Average Corporates
as published by Moody's Investors Service, Inc. is no longer
appropriate for the determination of the reference interest rate,
then an alternative method for determination of the reference
interest rate, which is adopted by the National Association of
Insurance Commissioners, or its successor, and approved by regulation
promulgated by the commissioner, may be substituted.
(f) This section shall apply to all certificates and contracts
issued by a fraternal benefit society.
10489.5. Except as otherwise provided in Sections 10489.6, 10489.9,
and 10489. 95, reserves according to the commissioners reserve
valuation method, for the life insurance and endowment benefits of
policies providing for a uniform amount of insurance and requiring
the payment of uniform premiums shall be the excess, if any, of the
present value, at the date of valuation, of such future guaranteed
benefits provided for by such policies, over the then present value
of any future modified net premiums therefor. The modified net
premiums for any such policy shall be such uniform percentage of the
respective contract premiums for such benefits that the present
value, at the date of issue of the policy, of all such modified net
premiums shall be equal to the sum of the then present value of such
benefits provided for by the policy and the excess of (a) of (b), as
follows:
(a) A net level annual premium equal to the present value, at the
date of issue of such benefits provided for after the first policy
year, divided by the present value, at the date of issue, of an
annuity of one per annum payable on the first and each subsequent
anniversary of such policy on which a premium falls due; except that
such net level annual premium shall not exceed the net level annual
premium, on the 19-year premium whole life plan for insurance of the
same amount at an age one year higher than the age at issue of such
policy.
(b) A net one-year term premium for such benefits provided for in
the first policy year.
Provided that for any life insurance policy issued on or after
January 1, 1986, for which the contract premium in the first policy
year exceeds that of the second year and for which no comparable
additional benefit is provided in the first year for such excess and
which provides an endowment benefit or a cash surrender value or a
combination thereof in an amount greater than such excess premium,
the reserve according to the commissioners reserve valuation method
as of any policy anniversary occurring on or before the assumed
ending date defined herein as the first policy anniversary on which
the sum of any endowment benefit and any cash surrender value then
available is greater than such excess premium shall, except as
otherwise provided in Section 10489.9, be the greater of the reserve
as of such policy anniversary calculated as described in the first
paragraph of this section and the reserve as of such policy
anniversary calculated as described in the first paragraph of this
section, but with (i) the value defined in subparagraph (a) of that
paragraph being reduced by 15 percent of the amount of such excess
first year premium, (ii) all present values of benefits and premiums
being determined without reference to premiums or benefits provided
for by the policy after the assumed ending date, (iii) the policy
being assumed to mature on such date as an endowment, and (iv) the
cash surrender value provided on such date being considered as an
endowment benefit. In making the above comparison the mortality and
interest bases stated in Sections 10489.2 and 10489.4 shall be used.
Reserves according to the commissioners reserve valuation method
for (1) life insurance policies providing for a varying amount of
insurance or requiring the payment of varying premiums, (2) group
annuity and pure endowment contracts purchased under a retirement
plan or plan of deferred compensation, established or maintained by
an employer (including a partnership or sole proprietorship) or by an
employee organization, or by both, other than a plan providing
individual retirement accounts or individual retirement annuities
under Section 408 of the Internal Revenue Code, as now or hereafter
amended; (3) disability and accidental death benefits in all policies
and contracts; and (4) all other benefits, except life insurance and
endowment benefits in life insurance policies and benefits provided
by all other annuity and pure endowment contracts, shall be
calculated by a method consistent with the principles of the
preceding paragraphs of this section, except that any extra premiums
charged because of impairments or special hazards shall be
disregarded in the determination of modified net premiums.
10489.6. This section shall apply to all annuity and pure endowment
contracts other than group annuity and pure endowment contracts
purchased under a retirement plan or plan of deferred compensation,
established or maintained by an employer (including a partnership or
sole proprietorship) or by an employee organization, or by both,
other than a plan providing individual retirement accounts or
individual retirement annuities under Section 408 of the Internal
Revenue Code, as now or hereafter amended.
Reserves according to the commissioners annuity reserve method for
benefits under annuity or pure endowment contracts, excluding any
disability and accidental death benefits in such contracts, shall be
the greatest of the respective excesses of the present values, at the
date of valuation, of the future guaranteed benefits, including
guaranteed nonforfeiture benefits, provided for by such contracts at
the end of each respective contract year, over the present value, at
the date of valuation, of any future valuation considerations derived
from future gross considerations, required by the terms of such
contract, that become payable prior to the end of such respective
contract year. The future guaranteed benefits shall be determined by
using the mortality table, if any, and the interest rate, or rates,
specified in such contracts for determining guaranteed benefits. The
valuation considerations are the portions of the respective gross
considerations applied under the terms of such contracts to determine
nonforfeiture values.
10489.7. (a) In no event shall an insurer's aggregate reserves for
all life insurance policies, excluding disability and accidental
death benefits, be less than the aggregate reserves calculated in
accordance with the methods set forth in Sections 10489.5, 10489.6,
10489.9, and 10489.93 and the mortality table or tables and rate or
rates of interest used in calculating nonforfeiture benefits for such
policies.
(b) In no event shall the aggregate reserves for all policies,
contracts, and benefits be less than the aggregate reserves
determined by the qualified actuary to be necessary to render the
opinion required by Section 10489.15.
10489.8. Reserves for any category of policies, contracts or
benefits as established by the commissioner may be calculated, at the
option of the insurer, according to any standards which produce
greater aggregate reserves for such category than those calculated
according to the minimum standard herein provided, but the rate or
rates of interest used for policies and contracts, other than annuity
and pure endowment contracts, shall not be higher than the
corresponding rate or rates of interest used in calculating any
nonforfeiture benefits provided for therein.
Any such company which at any time shall have adopted any standard
of valuation producing greater aggregate reserves than those
calculated according to the minimum standard provided in this article
may, with the approval of the commissioner, adopt any lower standard
of valuation, but not lower than the minimum provided in this
article. However, for the purposes of this section, the holding of
additional reserves previously determined by a qualified actuary to
be necessary to render the opinion required by Section 10489.15 shall
not be deemed to be the adoption of a higher standard of valuation.
10489.9. If in any contract year the gross premium charged by any
life insurer on any policy or contract is less than the valuation net
premium for the policy or contract calculated by the method used in
calculating the reserve thereon but using the minimum valuation
standards of mortality and rate of interest, the minimum reserve
required for such policy or contract shall be the greater of either
the reserve calculated according to the mortality table, rate of
interest, and method actually used for such policy or contract, or
the reserve calculated by the method actually used for such policy or
contract but using the minimum valuation standards of mortality and
rate of interest and replacing the valuation net premium by the
actual gross premium in each contract year for which the valuation
net premium exceeds the actual gross premium.
Provided that for any life insurance policy issued on or after
January 1, 1986, for which the gross premium in the first policy year
exceeds that of the second year and for which no comparable
additional benefit is provided in the first year for such excess and
which provides an endowment benefit or a cash surrender value or a
combination thereof in an amount greater than such excess premium,
the foregoing provisions of this section shall be applied as if the
method actually used in calculating the reserve for such policy were
the method described in Section 10489.5, ignoring the second
paragraph of Section 10489.5. The minimum reserve at each policy
anniversary of such a policy shall be the greater of the minimum
reserve calculated in accordance with Section 10489.5, including the
second paragraph of that section, and the minimum reserve calculated
in accordance with this section.
10489.93. In the case of any plan of life insurance that provides
for future premium determination, the amounts of which are to be
determined by the insurance company based on then estimates of future
experience, or in the case of any plan of life insurance or annuity
that is of such a nature that the minimum reserves cannot be
determined by the methods described in Sections 10489.5, 10489.6, and
10489.9, the reserves which are held under any such plan must:
(a) Be appropriate in relation to the benefits and the pattern of
premiums for that plan; and
(b) Be computed by a method which is consistent with the
principles of this Standard Valuation Law, as determined by
regulations promulgated by the commissioner.
10489.94. (a) The Commissioner may issue a bulletin to provide
tables of select mortality factors and rules for their use, rules
concerning a minimum standard for the valuation of plans with
nonlevel premiums of benefits, and rules concerning a minimum
standard for the valuation of plans with secondary guarantees. The
bulletin authorized by this subdivision shall have the same force and
effect, and may be enforced by the commissioner to the same extent
and degree, as regulations issued by the commissioner. The
commissioner shall adopt regulations that shall supersede the
bulletin authorized by this section no later than December 31, 2002.
(b) It is the intent of the Legislature that the bulletin
described in subdivision (a) and the superseding regulations shall
contain the provisions of the National Association of Insurance
Commissioners Valuation of Life Insurance Model Regulation Number 830
as adopted in March of 1999.
10489.95. The commissioner shall adopt a regulation concerning the
minimum standards applicable to the valuation of disability
insurance.
10489.1. This article and Sections 10479, 10480, 10481, 10483,
10484, 10486, and 10489 shall apply to the valuation of policies and
contracts issued on or after the operative date as to policies or
contracts of Article 3a (commencing with Section 10159.1) of Chapter
1 of Part 2 of Division 2 and shall also apply as provided in Section
10489.3 to the valuation of benefits purchased under group annuity
and pure endowment contracts issued prior to such operative date.
10489.15. (a) Every life and disability insurer doing business in
this state shall annually submit the opinion of a qualified actuary
as to whether the reserves and related actuarial items held in
support of the policies and contracts specified by the commissioner
by regulation are computed appropriately, are based on assumptions
that satisfy contractual provisions, are consistent with prior
reported amounts, and comply with applicable laws of this state. The
commissioner, by regulation, shall define the specifics of this
opinion and add any other items deemed to be necessary to its scope.
(b) (1) Every life and disability insurer, except as exempted by
or pursuant to regulation, shall also annually include in the opinion
required by subdivision (a), an opinion of the same qualified
actuary as to whether the reserves and related actuarial items held
in support of the policies and contracts specified by the
commissioner by regulation, when considered in light of the assets
held by the insurer with respect to the reserves and related
actuarial items, including, but not limited to, the investment
earnings on the assets and the considerations anticipated to be
received and retained under the policies and contracts, make adequate
provision for the insurer's obligations under the policies and
contracts, including, but not limited to, the benefits under and
expenses associated with the policies and contracts.
(2) The commissioner may provide by regulation for a transition
period for establishing any higher reserves that the qualified
actuary may deem necessary in order to render the opinion required by
this section.
(c) The opinion required by either subdivision (a) or subdivision
(b) shall be governed by all of the following provisions:
(1) The opinion shall be submitted with the annual statement
reflecting the valuation of the reserve liabilities for each year
ending on or after December 31, 1992.
(2) The opinion shall apply to all business in force, including
individual and group life and disability insurance, in form and
substance acceptable to the commissioner as specified by regulation.
(3) The opinion shall be based on standards adopted from time to
time by the Actuarial Standards Board and on any additional standards
that the commissioner may by regulation prescribe.
(4) In the case of an opinion required to be submitted by a
foreign or alien insurer, the commissioner may accept the opinion
filed by that insurer with the insurance supervisory official of
another state if the commissioner determines that the opinion
reasonably meets the requirements applicable to an insurer domiciled
in this state.
(5) For the purposes of this section, "qualified actuary" means a
member in good standing of the American Academy of Actuaries who
meets the requirements set forth in regulations of the commissioner.
(6) The qualified actuary shall be liable for his or her
negligence or other tortious conduct.
(7) Disciplinary action by the commissioner against the insurer or
the qualified actuary shall be defined in regulations by the
commissioner.
(8) (A) Any memorandum or other material submitted by the insurer
to the commissioner in support of the opinion shall be kept
confidential by the commissioner and shall not be made public,
provided, however, that the memorandum or the other material may be
released by the commissioner (i) to any party, with the written
consent of the insurer, or (ii) to the American Academy of Actuaries
upon the academy's written request and statement that the memorandum
or the material is required for professional disciplinary proceedings
and that the academy will observe procedures satisfactory to the
commissioner to preserve the confidentiality of the memorandum or the
other material. The entirety of the confidential memorandum shall
lose its confidential status on the occurrence of any of the
following events: the citation of any part of the confidential
memorandum by the insurer in its marketing efforts, the citation of
any part of the confidential memorandum by the insurer before any
governmental agency other than a state insurance department, or the
release of any part of the confidential memorandum by the insurer to
any news medium.
(B) Notwithstanding subparagraph (A), the confidential memorandum
shall be subject to subpoena (i) on the commissioner's consent, or
(ii) after notice to the commissioner and all other interested
parties and a hearing in which the superior court determines that (I)
the need for the subpoena outweighs the interests of the insurer or
actuary in preventing release of the confidential memorandum and the
other material, and (II) the public interest and any ongoing
investigation or proceeding conducted by the commissioner will not be
unnecessarily jeopardized by compliance with the subpoena.
(d) The opinion required by subdivision (b) shall be governed by
all of the following provisions:
(1) A memorandum, in form and substance acceptable to the
commissioner as specified by regulation, shall be prepared to support
each actuarial opinion.
(2) If the insurer fails to provide a supporting memorandum at the
request of the commissioner within a period specified by regulation
or the commissioner determines that the supporting memorandum
provided by the insurer fails to meet the standards prescribed by the
regulations or is otherwise unacceptable to the commissioner, the
commissioner may engage a qualified actuary at the expense of the
insurer to review the opinion and the basis for the opinion and
prepare supporting memorandum as is required by the commissioner.
10489.2. Except as otherwise provided in Sections 10489.3, 10489.4,
and 10489.95, the minimum standard for the valuation of all such
policies and contracts shall be the commissioners reserve valuation
methods defined in Sections 10489.5, 10489.6, 10489.9, and 10489.95,
3 1/2 percent per annum interest, except that the interest specified
in subdivisions (c) and (d) may be used for certain annuity and pure
endowment contracts, 4 percent per annum interest for such policies
issued or contracts entered into on or after January 1, 1970, but
prior to January 1, 1980, 5 1/2 percent per annum interest may be
used for single premium life insurance policies and 4 1/2 percent per
annum interest for all other such policies issued on or after
January 1, 1980, and the following tables:
(a) For all ordinary policies of life insurance issued on the
standard basis, excluding any disability and accidental death
benefits in such policies--the Commissioners 1941 Standard Ordinary
Mortality Table for such policies issued prior to the operative date
of subdivision (a) of Section 10163.1, and the Commissioners 1958
Standard Ordinary Mortality Table for such policies issued on or
after such operative date and prior to the operative date of Section
10163.2, provided that for any category of such policies issued on
female risks, all modified net premiums and present values referred
to in Sections 10489.5, and 10489.9 may be calculated, at the option
of the insurer, according to an age not more than six years younger
than the actual age of the insured; and for such policies issued on
or after the operative date of Section 10163.2, as amended (i) the
Commissioners 1980 Standard Ordinary Mortality Table, or (ii) at the
election of the company for any one or more specified plans of life
insurance, the Commissioners 1980 Standard Ordinary Mortality Table
with Ten-Year Select Mortality Factors, or (iii) any ordinary
mortality table, adopted after 1980 by the National Association of
Insurance Commissioners, or its successor, that is approved by
regulation promulgated or bulletin issued by the commissioner for use
in determining the minimum standard of valuation for such policies.
(b) For all industrial life insurance policies issued on the
standard basis, excluding any disability and accidental death
benefits in such policies, the 1941 Standard Industrial Mortality
Table for such policies issued prior to the operative date of
subdivision (b) of Section 10163.1, and for such policies issued on
or after such operative date the Commissioners 1961 Standard
Industrial Mortality Table or any industrial mortality table, adopted
after 1980 by the National Association of Insurance Commissioners,
or its successor that is approved by regulation promulgated or
bulletin issued by the commissioner for use in determining the
minimum standard of valuation for such policies.
(c) For individual annuity and pure endowment contracts issued
prior to the compliance date of Section 10489.3, excluding any
disability and accidental death benefits in such policies--the 1937
Standard Annuity Mortality Table or, at the option of the company,
the Annuity Mortality Table for 1949, ultimate, or any modification
of these tables approved by the commissioner. However, the minimum
standard for such contracts issued from January 1, 1968, through
December 31, 1968, with commencement of benefits deferred not more
than one year from date of issue, may be, at the option of the
company, 4 percent per annum interest, and for contracts issued from
January 1, 1969, to the compliance date of Section 10489.3, with
commencement of benefits deferred not more than 10 years from date of
issue and with premiums payable in one sum may be, at the option of
the company, 5 percent per annum interest.
(d) For group annuity and pure endowment contracts, excluding any
disability and accidental death benefits in such policies--the Group
Annuity Mortality Table for 1951, any modification of such table
approved by the commissioner, or, at the option of the company, any
of the tables or modifications of the tables specified for individual
annuity and pure endowment contracts. However, the minimum standard
for annuities and pure endowments purchased or to be purchased prior
to the compliance date of Section 10489.3, under group annuity and
pure endowment contracts with considerations received on or after
January 1, 1968, through December 31, 1968, may be, at the option of
the company, 4 percent per annum interest, and for annuities and pure
endowments purchased or to be purchased prior to the compliance date
of Section 10489.3, under group annuity and pure endowment contracts
with considerations received from January 1, 1969, to the compliance
date of Section 10489.3, may be at the option of the company, 5
percent per annum interest.
(e) For total and permanent disability benefits in or
supplementary to ordinary policies or contracts--for policies or
contracts issued on or after January 1, 1966, the tables of Period 2
disablement rates and the 1930 to 1950 termination rates of the 1952
Disability Study of the Society of Actuaries, with due regard to the
type of benefit or any tables of disablement rates and termination
rates, adopted after 1980 by the National Association of Insurance
Commissioners, or its successor, that are approved by regulation
promulgated or bulletin issued by the commissioner for use in
determining the minimum standard of valuation for such policies; for
policies or contracts issued on or after January 1, 1961, and prior
to January 1, 1966, either such tables or, at the option of the
company, the Class (3) Disability Table (1926); and for policies
issued prior to January 1, 1961, the Class (3) Disability Table
(1926). Any such table shall for active lives, be combined with a
mortality table permitted for calculating the reserves for life
insurance policies.
(f) For accidental death benefits in or supplementary to policies
for policies issued on or after January 1, 1966, the 1959 Accidental
Death Benefits Table or any accidental death benefits table, adopted
after 1980 by the National Association of Insurance Commissioners, or
its successor, that is approved by regulation promulgated or
bulletin issued by the commissioner for use in determining the
minimum standard of valuation for such policies; for policies issued
on or after January 1, 1961, and prior to January 1, 1966, either
such table or, at the option of the company, the Inter-Company Double
Indemnity Mortality Table; and for policies issued prior to January
1, 1961, the Inter-Company Double Indemnity Mortality Table. Either
table shall be combined with a mortality table permitted for
calculating the reserves for life insurance policies.
(g) For group life insurance, life insurance issued on the
substandard basis and other special benefits, such tables as may be
approved by the commissioner.
(h) With the adoption of tables by the National Association of
Insurance Commissioners after 1980, the commissioner may, by
regulation or bulletin, withdraw approval of the use of previously
adopted tables replaced by the newly adopted tables.
10489.3. Except as provided in Section 10489.4, the minimum
standard for the valuation of all individual annuity and pure
endowment contracts issued on or after the compliance date of Section
10489.3, and for all annuities and pure endowments purchased on or
after the compliance date of Section 10489.3, under group annuity and
pure endowment contracts, shall be the commissioners reserve
valuation methods defined in Sections 10489.5 and 10489.6, and the
following tables and interest rates:
(a) For individual annuity and pure endowment contracts issued
prior to January 1, 1980, excluding any disability and accidental
death benefits in such contracts, the Individual Annuity Mortality
Table for 1971, or any modification of such table approved by the
commissioner, and an interest rate of:
(1) Six percent per annum for all such contracts with commencement
of benefits deferred not more than 10 years from date of issue and
with premiums payable in one sum.
(2) Four percent per annum for all other such contracts.
(b) For individual single premium immediate annuity contracts
issued on or after January 1, 1980, excluding any disability and
accidental death benefits in such contracts, the Individual Annuity
Mortality Table for 1971 or any individual annuity mortality table,
adopted after 1980 by the National Association of Insurance
Commissioners, or its successor, that is approved by regulation
promulgated or bulletin issued by the commissioner for use in
determining the minimum standard of valuation for such contracts, or
any modification of these tables approved by the commissioner, and 7
1/2 percent per annum interest.
(c) For individual annuity and pure endowment contracts issued on
or after January 1, 1980, other than single premium immediate annuity
contracts, excluding any disability and accidental death benefits in
such contracts, the individual Annuity Mortality Table for 1971 or
any individual annuity mortality table, adopted after 1980 by the
National Association of Insurance Commissioners, or its successor,
that is approved by regulation promulgated or bulletin issued by the
commissioner for use in determining the minimum standard of valuation
for such contracts, or any modification of these tables approved by
the commissioner, and 5 1/2 percent per annum interest for single
premium deferred annuity and pure endowment contracts and 4 1/2
percent per annum interest for all other such individual annuity and
pure endowment contracts.
(d) For all annuities and pure endowments purchased prior to
January 1, 1980, under group annuity and pure endowment contracts,
excluding any disability and accidental death benefits purchased
under such contracts, the Group Annuity Mortality Table for 1971, or
any modification of this table approved by the commissioner, and 6
percent per annum interest.
(e) For all annuities and pure endowments purchased on or after
January 1, 1980, under group annuity and pure endowment contracts,
excluding any disability and accidental death benefits purchased
under such contracts, the Group Annuity Mortality Table for 1971 or
any group annuity mortality table, adopted after 1980 by the National
Association of Insurance Commissioners, or its successor, that is
approved by regulation promulgated or bulletin issued by the
commissioner for use in determining the minimum standard of valuation
for such annuities and pure endowments, or any modification of these
tables approved by the commissioner, and 7 1/2 percent per annum
interest.
All individual annuity and pure endowment contracts entered into
prior to January 1, 1980, and all annuities and pure endowments
purchased prior to January 1, 1980, under group annuity and pure
endowment contracts shall remain subject to the provisions of Article
3A (commencing with Section 10489.1) as it existed prior to January
1, 1980.
(f) With the adoption of tables by the National Association of
Insurance Commissioners after 1980, the commissioner may, by
regulation or bulletin, withdraw approval of the use of previously
adopted tables replaced by the newly adopted tables.
10489.4. (a) The interest rates used in determining the minimum
standard for the valuation of all life insurance policies issued in a
particular calendar year, on or after the operative date of Section
10163.2, all individual annuity and pure endowment contracts issued
in a particular calendar year on or after January 1, 1982, all
annuities and pure endowments purchased in a particular calendar year
on or after January 1, 1982, under group annuity and pure endowment
contracts, and the net increase, if any, in a particular calendar
year after January 1, 1982, in amounts held under guaranteed interest
contracts shall be the calendar year statutory valuation interest
rates as defined in subdivision (b).
(b) (1) The calendar year statutory valuation interest rates, I,
shall be determined as follows and the results rounded to the nearer
one-quarter of 1 percent:
(A) For life insurance:
I = .03 + W (R1- .03) + W/2 (R2- .09)
(B) For single premium immediate annuities and for annuity
benefits involving life contingencies arising from other annuities
with cash settlement options and from guaranteed interest contracts
with cash settlement options:
I = .03 + W(R - .03)
Where
R1 is the lesser of R and .09,
R2 is the greater of R and .09,
R is the reference interest rate defined in
subdivision (d) or
(e) of this section, and
W is the weighting factor defined in
subdivision (c) of this
section.
(C) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
an issue year basis, except as stated in (B), the formula for life
insurance stated in (A) shall apply to annuities and guaranteed
interest contracts with guarantee durations in excess of 10 years and
the formula for single premium immediate annuities stated in (B)
shall apply to annuities and guaranteed interest contracts with
guarantee duration of 10 years or less.
(D) For other annuities with no cash settlement options and for
guaranteed interest contracts with no cash settlement options, the
formula for single premium immediate annuities stated in (B) shall
apply.
(E) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
a change-in-fund basis, the formula for single premium immediate
annuities stated in (B) shall apply.
(2) However, if the calendar year statutory valuation interest
rate for any life insurance policies issued in any calendar year
determined without reference to this sentence differs from the
corresponding actual rate for similar policies issued in the
immediately preceding calendar year by less than one-half of 1
percent, the calendar year statutory valuation interest rate for such
life insurance policies shall be equal to the corresponding actual
rate for the immediately preceding calendar year. For purposes of
applying the immediately preceding sentence, the calendar year
statutory valuation interest rate for life insurance policies issued
in a calendar year shall be determined for 1980 (using the reference
interest rate defined for 1979) and shall be determined for each
subsequent calendar year regardless of the operative date of Section
10163.2.
(c) Weighting Factors.
(1) The weighting factors referred to in the formulas stated above
are given in the following tables:
(A) Weighting Factors for Life Insurance:
Weighting
Guarantee Duration (Years) Factors
10 or less............................. .50
More than 10, but not more than 20..... .45
More than 20........................... .35
For life insurance, the guarantee duration is the maximum number
of years the life insurance can remain in force on a basis guaranteed
in the policy or under options to convert to plans of life insurance
with premium rates or nonforfeiture values or both which are
guaranteed in the original policy.
(B) Weighting factor for single premium immediate annuities and
for annuity benefits involving life contingencies arising from other
annuities with cash settlement options and guaranteed interest
contracts with cash settlement options:
.80
(C) Weighting factors for other annuities and for guaranteed
interest contracts, except as stated in (B), shall be as specified in
tables (i), (ii), and (iii) below, according to the rules and
definitions in (iv), (v), and (vi):
(i) For annuities and
guaranteed interest
contracts valued on an issue
year
basis:
Weighting Factor
for Plan Type
-----------------
+ +
Guarantee Duration (Years) A B C
5 or less .80 .60 .50
More than 5, but not more .75 .60 .50
than 10
More than 10, but not more .65 .50 .45
than 20
More than 20 .45 .35 35
(ii) For annuities and
guaranteed interest
contracts valued on a change-in-
fund .15 .25 .05
basis, the factors shown in (i)
above
increased by:
(iii) For annuities and
guaranteed interest
contracts valued on an issue
year basis
(other than those with no cash
settlement
options) which do not guarantee
interest
on considerations received more
than one
year after issue or purchase
and for
annuities and guaranteed .05 .05 .05
interest
contracts valued on a change-in-
fund
basis which do not guarantee
interest
rates on considerations
received more
than 12 months beyond the
valuation
date, the factors shown in (i)
or derived
in (ii) increased by:
(iv) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, the
guarantee duration is the number of years for which the contract
guarantees interest rates in excess of the calendar year statutory
valuation interest rate for life insurance policies with guarantee
duration in excess of 20 years. For other annuities with no cash
settlement options and for guaranteed interest contracts with no cash
settlement options, the guarantee duration is the number of years
from the date of issue or date of purchase to the date annuity
benefits are scheduled to commence.
(v) Plan type as used in the above tables is defined as follows:
Plan Type A: At any time policyholder may withdraw funds only (1)
with an adjustment to reflect changes in interest rates or asset
values since receipt of the funds by the insurance company, or (2)
without such adjustment but in installments over five years or more,
or (3) as an immediate life annuity, or (4) no withdrawal permitted.
Plan Type B: Before expiration of the interest rate guarantee,
policyholder may withdraw funds only (1) with an adjustment to
reflect changes in interest rates or asset values since receipt of
the funds by the insurance company, or (2) without such adjustment
but in installments over five years or more, or (3) no withdrawal
permitted. At the end of interest rate guarantee, funds may be
withdrawn without such adjustment in a single sum or installments
over less than five years.
Plan Type C: Policyholder may withdraw funds before expiration of
interest rate guarantee in a single sum or installments over less
than five years either (1) without adjustment to reflect changes in
interest rates or asset values since receipt of the funds by the
insurance company, or (2) subject only to a fixed surrender charge
stipulated in the contract as a percentage of the fund.
(vi) A company may elect to value guaranteed interest contracts
with cash settlement options and annuities with cash settlement
options on either an issue year basis or on a change-in-fund basis.
Guaranteed interest contracts with no cash settlement options and
other annuities with no cash settlement options must be valued on an
issue year basis. As used in this section, an issue year basis of
valuation refers to a valuation basis under which the interest rate
used to determine the minimum valuation standard for the entire
duration of the annuity or guaranteed interest contract is the
calendar year valuation interest rate for the year of issue or year
of purchase of the annuity or guaranteed interest contract, and the
change-in-fund basis of valuation refers to a valuation basis under
which the interest rate used to determine the minimum valuation
standard applicable to each change in the fund held under the annuity
or guaranteed interest contract is the calendar year valuation
interest rate for the year of the change in the fund.
(d) The reference interest rate referred to in subdivision (b) of
this section shall be defined as follows:
(1) For all life insurance, the lesser of the average over a
period of 36 months and the average over a period of 12 months,
ending on June 30 of the calendar year next preceding the year of
issue, of the Monthly Average of the Composite Yield on Seasoned
Corporate Bonds, as published by Moody's Investors Service, Inc.
(2) For single premium immediate annuities and for annuity
benefits involving life contingencies arising from other annuities
with cash settlement options and guaranteed interest contracts with
cash settlement options, the average over a period of 12 months,
ending on June 30 of the calendar year of issue or year of purchase,
of the Monthly Average of the Composite Yield on Seasoned Corporate
Bonds, as published by Moody's Investors Service, Inc.
(3) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
a year-of-issue basis, except as stated in (2) above, with guarantee
duration in excess of 10 years, the lesser of the average over a
period of 36 months and the average over a period of 12 months,
ending on June 30 of the calendar year of issue or purchase, of the
Monthly Average of the Composite Yield on Seasoned Corporate Bonds,
as published by Moody's Investors Service, Inc.
(4) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
a year-of-issue basis, except as stated in (2) above, with guarantee
duration of 10 years or less, the average over a period of 12
months, ending on June 30 of the calendar year of issue or purchase,
of the Monthly Average of the Composite Yield on Seasoned Corporate
Bonds, as published by Moody's Investors Service, Inc.
(5) For other annuities with no cash settlement options and for
guaranteed interest contracts with no cash settlement options, the
average over a period of 12 months, ending on June 30 of the calendar
year of issue or purchase, of the Monthly Average of the Composite
Yield on Seasoned Corporate Bonds, as published by Moody's Investors
Service, Inc.
(6) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
a change-in-fund basis, except as stated in (2) above, the average
over a period of 12 months, ending on June 30 of the calendar year of
the change in the fund, of the Monthly Average of the Composite
Yield on Seasoned Corporate Bonds, as published by Moody's Investors
Service, Inc.
(e) In the event that the Monthly Average of the Composite Yield
on Seasoned Corporate Bonds is no longer published by Moody's
Investors Service, Inc., or in the event that the National
Association of Insurance Commissioners, or its successor, determines
that Moody's Corporate Bond Yield Average--Monthly Average Corporates
as published by Moody's Investors Service, Inc. is no longer
appropriate for the determination of the reference interest rate,
then an alternative method for determination of the reference
interest rate, which is adopted by the National Association of
Insurance Commissioners, or its successor, and approved by regulation
promulgated by the commissioner, may be substituted.
(f) This section shall apply to all certificates and contracts
issued by a fraternal benefit society.
10489.5. Except as otherwise provided in Sections 10489.6, 10489.9,
and 10489. 95, reserves according to the commissioners reserve
valuation method, for the life insurance and endowment benefits of
policies providing for a uniform amount of insurance and requiring
the payment of uniform premiums shall be the excess, if any, of the
present value, at the date of valuation, of such future guaranteed
benefits provided for by such policies, over the then present value
of any future modified net premiums therefor. The modified net
premiums for any such policy shall be such uniform percentage of the
respective contract premiums for such benefits that the present
value, at the date of issue of the policy, of all such modified net
premiums shall be equal to the sum of the then present value of such
benefits provided for by the policy and the excess of (a) of (b), as
follows:
(a) A net level annual premium equal to the present value, at the
date of issue of such benefits provided for after the first policy
year, divided by the present value, at the date of issue, of an
annuity of one per annum payable on the first and each subsequent
anniversary of such policy on which a premium falls due; except that
such net level annual premium shall not exceed the net level annual
premium, on the 19-year premium whole life plan for insurance of the
same amount at an age one year higher than the age at issue of such
policy.
(b) A net one-year term premium for such benefits provided for in
the first policy year.
Provided that for any life insurance policy issued on or after
January 1, 1986, for which the contract premium in the first policy
year exceeds that of the second year and for which no comparable
additional benefit is provided in the first year for such excess and
which provides an endowment benefit or a cash surrender value or a
combination thereof in an amount greater than such excess premium,
the reserve according to the commissioners reserve valuation method
as of any policy anniversary occurring on or before the assumed
ending date defined herein as the first policy anniversary on which
the sum of any endowment benefit and any cash surrender value then
available is greater than such excess premium shall, except as
otherwise provided in Section 10489.9, be the greater of the reserve
as of such policy anniversary calculated as described in the first
paragraph of this section and the reserve as of such policy
anniversary calculated as described in the first paragraph of this
section, but with (i) the value defined in subparagraph (a) of that
paragraph being reduced by 15 percent of the amount of such excess
first year premium, (ii) all present values of benefits and premiums
being determined without reference to premiums or benefits provided
for by the policy after the assumed ending date, (iii) the policy
being assumed to mature on such date as an endowment, and (iv) the
cash surrender value provided on such date being considered as an
endowment benefit. In making the above comparison the mortality and
interest bases stated in Sections 10489.2 and 10489.4 shall be used.
Reserves according to the commissioners reserve valuation method
for (1) life insurance policies providing for a varying amount of
insurance or requiring the payment of varying premiums, (2) group
annuity and pure endowment contracts purchased under a retirement
plan or plan of deferred compensation, established or maintained by
an employer (including a partnership or sole proprietorship) or by an
employee organization, or by both, other than a plan providing
individual retirement accounts or individual retirement annuities
under Section 408 of the Internal Revenue Code, as now or hereafter
amended; (3) disability and accidental death benefits in all policies
and contracts; and (4) all other benefits, except life insurance and
endowment benefits in life insurance policies and benefits provided
by all other annuity and pure endowment contracts, shall be
calculated by a method consistent with the principles of the
preceding paragraphs of this section, except that any extra premiums
charged because of impairments or special hazards shall be
disregarded in the determination of modified net premiums.
10489.6. This section shall apply to all annuity and pure endowment
contracts other than group annuity and pure endowment contracts
purchased under a retirement plan or plan of deferred compensation,
established or maintained by an employer (including a partnership or
sole proprietorship) or by an employee organization, or by both,
other than a plan providing individual retirement accounts or
individual retirement annuities under Section 408 of the Internal
Revenue Code, as now or hereafter amended.
Reserves according to the commissioners annuity reserve method for
benefits under annuity or pure endowment contracts, excluding any
disability and accidental death benefits in such contracts, shall be
the greatest of the respective excesses of the present values, at the
date of valuation, of the future guaranteed benefits, including
guaranteed nonforfeiture benefits, provided for by such contracts at
the end of each respective contract year, over the present value, at
the date of valuation, of any future valuation considerations derived
from future gross considerations, required by the terms of such
contract, that become payable prior to the end of such respective
contract year. The future guaranteed benefits shall be determined by
using the mortality table, if any, and the interest rate, or rates,
specified in such contracts for determining guaranteed benefits. The
valuation considerations are the portions of the respective gross
considerations applied under the terms of such contracts to determine
nonforfeiture values.
10489.7. (a) In no event shall an insurer's aggregate reserves for
all life insurance policies, excluding disability and accidental
death benefits, be less than the aggregate reserves calculated in
accordance with the methods set forth in Sections 10489.5, 10489.6,
10489.9, and 10489.93 and the mortality table or tables and rate or
rates of interest used in calculating nonforfeiture benefits for such
policies.
(b) In no event shall the aggregate reserves for all policies,
contracts, and benefits be less than the aggregate reserves
determined by the qualified actuary to be necessary to render the
opinion required by Section 10489.15.
10489.8. Reserves for any category of policies, contracts or
benefits as established by the commissioner may be calculated, at the
option of the insurer, according to any standards which produce
greater aggregate reserves for such category than those calculated
according to the minimum standard herein provided, but the rate or
rates of interest used for policies and contracts, other than annuity
and pure endowment contracts, shall not be higher than the
corresponding rate or rates of interest used in calculating any
nonforfeiture benefits provided for therein.
Any such company which at any time shall have adopted any standard
of valuation producing greater aggregate reserves than those
calculated according to the minimum standard provided in this article
may, with the approval of the commissioner, adopt any lower standard
of valuation, but not lower than the minimum provided in this
article. However, for the purposes of this section, the holding of
additional reserves previously determined by a qualified actuary to
be necessary to render the opinion required by Section 10489.15 shall
not be deemed to be the adoption of a higher standard of valuation.
10489.9. If in any contract year the gross premium charged by any
life insurer on any policy or contract is less than the valuation net
premium for the policy or contract calculated by the method used in
calculating the reserve thereon but using the minimum valuation
standards of mortality and rate of interest, the minimum reserve
required for such policy or contract shall be the greater of either
the reserve calculated according to the mortality table, rate of
interest, and method actually used for such policy or contract, or
the reserve calculated by the method actually used for such policy or
contract but using the minimum valuation standards of mortality and
rate of interest and replacing the valuation net premium by the
actual gross premium in each contract year for which the valuation
net premium exceeds the actual gross premium.
Provided that for any life insurance policy issued on or after
January 1, 1986, for which the gross premium in the first policy year
exceeds that of the second year and for which no comparable
additional benefit is provided in the first year for such excess and
which provides an endowment benefit or a cash surrender value or a
combination thereof in an amount greater than such excess premium,
the foregoing provisions of this section shall be applied as if the
method actually used in calculating the reserve for such policy were
the method described in Section 10489.5, ignoring the second
paragraph of Section 10489.5. The minimum reserve at each policy
anniversary of such a policy shall be the greater of the minimum
reserve calculated in accordance with Section 10489.5, including the
second paragraph of that section, and the minimum reserve calculated
in accordance with this section.
10489.93. In the case of any plan of life insurance that provides
for future premium determination, the amounts of which are to be
determined by the insurance company based on then estimates of future
experience, or in the case of any plan of life insurance or annuity
that is of such a nature that the minimum reserves cannot be
determined by the methods described in Sections 10489.5, 10489.6, and
10489.9, the reserves which are held under any such plan must:
(a) Be appropriate in relation to the benefits and the pattern of
premiums for that plan; and
(b) Be computed by a method which is consistent with the
principles of this Standard Valuation Law, as determined by
regulations promulgated by the commissioner.
10489.94. (a) The Commissioner may issue a bulletin to provide
tables of select mortality factors and rules for their use, rules
concerning a minimum standard for the valuation of plans with
nonlevel premiums of benefits, and rules concerning a minimum
standard for the valuation of plans with secondary guarantees. The
bulletin authorized by this subdivision shall have the same force and
effect, and may be enforced by the commissioner to the same extent
and degree, as regulations issued by the commissioner. The
commissioner shall adopt regulations that shall supersede the
bulletin authorized by this section no later than December 31, 2002.
(b) It is the intent of the Legislature that the bulletin
described in subdivision (a) and the superseding regulations shall
contain the provisions of the National Association of Insurance
Commissioners Valuation of Life Insurance Model Regulation Number 830
as adopted in March of 1999.
10489.95. The commissioner shall adopt a regulation concerning the
minimum standards applicable to the valuation of disability
insurance.
10489.1. This article and Sections 10479, 10480, 10481, 10483,
10484, 10486, and 10489 shall apply to the valuation of policies and
contracts issued on or after the operative date as to policies or
contracts of Article 3a (commencing with Section 10159.1) of Chapter
1 of Part 2 of Division 2 and shall also apply as provided in Section
10489.3 to the valuation of benefits purchased under group annuity
and pure endowment contracts issued prior to such operative date.
10489.15. (a) Every life and disability insurer doing business in
this state shall annually submit the opinion of a qualified actuary
as to whether the reserves and related actuarial items held in
support of the policies and contracts specified by the commissioner
by regulation are computed appropriately, are based on assumptions
that satisfy contractual provisions, are consistent with prior
reported amounts, and comply with applicable laws of this state. The
commissioner, by regulation, shall define the specifics of this
opinion and add any other items deemed to be necessary to its scope.
(b) (1) Every life and disability insurer, except as exempted by
or pursuant to regulation, shall also annually include in the opinion
required by subdivision (a), an opinion of the same qualified
actuary as to whether the reserves and related actuarial items held
in support of the policies and contracts specified by the
commissioner by regulation, when considered in light of the assets
held by the insurer with respect to the reserves and related
actuarial items, including, but not limited to, the investment
earnings on the assets and the considerations anticipated to be
received and retained under the policies and contracts, make adequate
provision for the insurer's obligations under the policies and
contracts, including, but not limited to, the benefits under and
expenses associated with the policies and contracts.
(2) The commissioner may provide by regulation for a transition
period for establishing any higher reserves that the qualified
actuary may deem necessary in order to render the opinion required by
this section.
(c) The opinion required by either subdivision (a) or subdivision
(b) shall be governed by all of the following provisions:
(1) The opinion shall be submitted with the annual statement
reflecting the valuation of the reserve liabilities for each year
ending on or after December 31, 1992.
(2) The opinion shall apply to all business in force, including
individual and group life and disability insurance, in form and
substance acceptable to the commissioner as specified by regulation.
(3) The opinion shall be based on standards adopted from time to
time by the Actuarial Standards Board and on any additional standards
that the commissioner may by regulation prescribe.
(4) In the case of an opinion required to be submitted by a
foreign or alien insurer, the commissioner may accept the opinion
filed by that insurer with the insurance supervisory official of
another state if the commissioner determines that the opinion
reasonably meets the requirements applicable to an insurer domiciled
in this state.
(5) For the purposes of this section, "qualified actuary" means a
member in good standing of the American Academy of Actuaries who
meets the requirements set forth in regulations of the commissioner.
(6) The qualified actuary shall be liable for his or her
negligence or other tortious conduct.
(7) Disciplinary action by the commissioner against the insurer or
the qualified actuary shall be defined in regulations by the
commissioner.
(8) (A) Any memorandum or other material submitted by the insurer
to the commissioner in support of the opinion shall be kept
confidential by the commissioner and shall not be made public,
provided, however, that the memorandum or the other material may be
released by the commissioner (i) to any party, with the written
consent of the insurer, or (ii) to the American Academy of Actuaries
upon the academy's written request and statement that the memorandum
or the material is required for professional disciplinary proceedings
and that the academy will observe procedures satisfactory to the
commissioner to preserve the confidentiality of the memorandum or the
other material. The entirety of the confidential memorandum shall
lose its confidential status on the occurrence of any of the
following events: the citation of any part of the confidential
memorandum by the insurer in its marketing efforts, the citation of
any part of the confidential memorandum by the insurer before any
governmental agency other than a state insurance department, or the
release of any part of the confidential memorandum by the insurer to
any news medium.
(B) Notwithstanding subparagraph (A), the confidential memorandum
shall be subject to subpoena (i) on the commissioner's consent, or
(ii) after notice to the commissioner and all other interested
parties and a hearing in which the superior court determines that (I)
the need for the subpoena outweighs the interests of the insurer or
actuary in preventing release of the confidential memorandum and the
other material, and (II) the public interest and any ongoing
investigation or proceeding conducted by the commissioner will not be
unnecessarily jeopardized by compliance with the subpoena.
(d) The opinion required by subdivision (b) shall be governed by
all of the following provisions:
(1) A memorandum, in form and substance acceptable to the
commissioner as specified by regulation, shall be prepared to support
each actuarial opinion.
(2) If the insurer fails to provide a supporting memorandum at the
request of the commissioner within a period specified by regulation
or the commissioner determines that the supporting memorandum
provided by the insurer fails to meet the standards prescribed by the
regulations or is otherwise unacceptable to the commissioner, the
commissioner may engage a qualified actuary at the expense of the
insurer to review the opinion and the basis for the opinion and
prepare supporting memorandum as is required by the commissioner.
10489.2. Except as otherwise provided in Sections 10489.3, 10489.4,
and 10489.95, the minimum standard for the valuation of all such
policies and contracts shall be the commissioners reserve valuation
methods defined in Sections 10489.5, 10489.6, 10489.9, and 10489.95,
3 1/2 percent per annum interest, except that the interest specified
in subdivisions (c) and (d) may be used for certain annuity and pure
endowment contracts, 4 percent per annum interest for such policies
issued or contracts entered into on or after January 1, 1970, but
prior to January 1, 1980, 5 1/2 percent per annum interest may be
used for single premium life insurance policies and 4 1/2 percent per
annum interest for all other such policies issued on or after
January 1, 1980, and the following tables:
(a) For all ordinary policies of life insurance issued on the
standard basis, excluding any disability and accidental death
benefits in such policies--the Commissioners 1941 Standard Ordinary
Mortality Table for such policies issued prior to the operative date
of subdivision (a) of Section 10163.1, and the Commissioners 1958
Standard Ordinary Mortality Table for such policies issued on or
after such operative date and prior to the operative date of Section
10163.2, provided that for any category of such policies issued on
female risks, all modified net premiums and present values referred
to in Sections 10489.5, and 10489.9 may be calculated, at the option
of the insurer, according to an age not more than six years younger
than the actual age of the insured; and for such policies issued on
or after the operative date of Section 10163.2, as amended (i) the
Commissioners 1980 Standard Ordinary Mortality Table, or (ii) at the
election of the company for any one or more specified plans of life
insurance, the Commissioners 1980 Standard Ordinary Mortality Table
with Ten-Year Select Mortality Factors, or (iii) any ordinary
mortality table, adopted after 1980 by the National Association of
Insurance Commissioners, or its successor, that is approved by
regulation promulgated or bulletin issued by the commissioner for use
in determining the minimum standard of valuation for such policies.
(b) For all industrial life insurance policies issued on the
standard basis, excluding any disability and accidental death
benefits in such policies, the 1941 Standard Industrial Mortality
Table for such policies issued prior to the operative date of
subdivision (b) of Section 10163.1, and for such policies issued on
or after such operative date the Commissioners 1961 Standard
Industrial Mortality Table or any industrial mortality table, adopted
after 1980 by the National Association of Insurance Commissioners,
or its successor that is approved by regulation promulgated or
bulletin issued by the commissioner for use in determining the
minimum standard of valuation for such policies.
(c) For individual annuity and pure endowment contracts issued
prior to the compliance date of Section 10489.3, excluding any
disability and accidental death benefits in such policies--the 1937
Standard Annuity Mortality Table or, at the option of the company,
the Annuity Mortality Table for 1949, ultimate, or any modification
of these tables approved by the commissioner. However, the minimum
standard for such contracts issued from January 1, 1968, through
December 31, 1968, with commencement of benefits deferred not more
than one year from date of issue, may be, at the option of the
company, 4 percent per annum interest, and for contracts issued from
January 1, 1969, to the compliance date of Section 10489.3, with
commencement of benefits deferred not more than 10 years from date of
issue and with premiums payable in one sum may be, at the option of
the company, 5 percent per annum interest.
(d) For group annuity and pure endowment contracts, excluding any
disability and accidental death benefits in such policies--the Group
Annuity Mortality Table for 1951, any modification of such table
approved by the commissioner, or, at the option of the company, any
of the tables or modifications of the tables specified for individual
annuity and pure endowment contracts. However, the minimum standard
for annuities and pure endowments purchased or to be purchased prior
to the compliance date of Section 10489.3, under group annuity and
pure endowment contracts with considerations received on or after
January 1, 1968, through December 31, 1968, may be, at the option of
the company, 4 percent per annum interest, and for annuities and pure
endowments purchased or to be purchased prior to the compliance date
of Section 10489.3, under group annuity and pure endowment contracts
with considerations received from January 1, 1969, to the compliance
date of Section 10489.3, may be at the option of the company, 5
percent per annum interest.
(e) For total and permanent disability benefits in or
supplementary to ordinary policies or contracts--for policies or
contracts issued on or after January 1, 1966, the tables of Period 2
disablement rates and the 1930 to 1950 termination rates of the 1952
Disability Study of the Society of Actuaries, with due regard to the
type of benefit or any tables of disablement rates and termination
rates, adopted after 1980 by the National Association of Insurance
Commissioners, or its successor, that are approved by regulation
promulgated or bulletin issued by the commissioner for use in
determining the minimum standard of valuation for such policies; for
policies or contracts issued on or after January 1, 1961, and prior
to January 1, 1966, either such tables or, at the option of the
company, the Class (3) Disability Table (1926); and for policies
issued prior to January 1, 1961, the Class (3) Disability Table
(1926). Any such table shall for active lives, be combined with a
mortality table permitted for calculating the reserves for life
insurance policies.
(f) For accidental death benefits in or supplementary to policies
for policies issued on or after January 1, 1966, the 1959 Accidental
Death Benefits Table or any accidental death benefits table, adopted
after 1980 by the National Association of Insurance Commissioners, or
its successor, that is approved by regulation promulgated or
bulletin issued by the commissioner for use in determining the
minimum standard of valuation for such policies; for policies issued
on or after January 1, 1961, and prior to January 1, 1966, either
such table or, at the option of the company, the Inter-Company Double
Indemnity Mortality Table; and for policies issued prior to January
1, 1961, the Inter-Company Double Indemnity Mortality Table. Either
table shall be combined with a mortality table permitted for
calculating the reserves for life insurance policies.
(g) For group life insurance, life insurance issued on the
substandard basis and other special benefits, such tables as may be
approved by the commissioner.
(h) With the adoption of tables by the National Association of
Insurance Commissioners after 1980, the commissioner may, by
regulation or bulletin, withdraw approval of the use of previously
adopted tables replaced by the newly adopted tables.
10489.3. Except as provided in Section 10489.4, the minimum
standard for the valuation of all individual annuity and pure
endowment contracts issued on or after the compliance date of Section
10489.3, and for all annuities and pure endowments purchased on or
after the compliance date of Section 10489.3, under group annuity and
pure endowment contracts, shall be the commissioners reserve
valuation methods defined in Sections 10489.5 and 10489.6, and the
following tables and interest rates:
(a) For individual annuity and pure endowment contracts issued
prior to January 1, 1980, excluding any disability and accidental
death benefits in such contracts, the Individual Annuity Mortality
Table for 1971, or any modification of such table approved by the
commissioner, and an interest rate of:
(1) Six percent per annum for all such contracts with commencement
of benefits deferred not more than 10 years from date of issue and
with premiums payable in one sum.
(2) Four percent per annum for all other such contracts.
(b) For individual single premium immediate annuity contracts
issued on or after January 1, 1980, excluding any disability and
accidental death benefits in such contracts, the Individual Annuity
Mortality Table for 1971 or any individual annuity mortality table,
adopted after 1980 by the National Association of Insurance
Commissioners, or its successor, that is approved by regulation
promulgated or bulletin issued by the commissioner for use in
determining the minimum standard of valuation for such contracts, or
any modification of these tables approved by the commissioner, and 7
1/2 percent per annum interest.
(c) For individual annuity and pure endowment contracts issued on
or after January 1, 1980, other than single premium immediate annuity
contracts, excluding any disability and accidental death benefits in
such contracts, the individual Annuity Mortality Table for 1971 or
any individual annuity mortality table, adopted after 1980 by the
National Association of Insurance Commissioners, or its successor,
that is approved by regulation promulgated or bulletin issued by the
commissioner for use in determining the minimum standard of valuation
for such contracts, or any modification of these tables approved by
the commissioner, and 5 1/2 percent per annum interest for single
premium deferred annuity and pure endowment contracts and 4 1/2
percent per annum interest for all other such individual annuity and
pure endowment contracts.
(d) For all annuities and pure endowments purchased prior to
January 1, 1980, under group annuity and pure endowment contracts,
excluding any disability and accidental death benefits purchased
under such contracts, the Group Annuity Mortality Table for 1971, or
any modification of this table approved by the commissioner, and 6
percent per annum interest.
(e) For all annuities and pure endowments purchased on or after
January 1, 1980, under group annuity and pure endowment contracts,
excluding any disability and accidental death benefits purchased
under such contracts, the Group Annuity Mortality Table for 1971 or
any group annuity mortality table, adopted after 1980 by the National
Association of Insurance Commissioners, or its successor, that is
approved by regulation promulgated or bulletin issued by the
commissioner for use in determining the minimum standard of valuation
for such annuities and pure endowments, or any modification of these
tables approved by the commissioner, and 7 1/2 percent per annum
interest.
All individual annuity and pure endowment contracts entered into
prior to January 1, 1980, and all annuities and pure endowments
purchased prior to January 1, 1980, under group annuity and pure
endowment contracts shall remain subject to the provisions of Article
3A (commencing with Section 10489.1) as it existed prior to January
1, 1980.
(f) With the adoption of tables by the National Association of
Insurance Commissioners after 1980, the commissioner may, by
regulation or bulletin, withdraw approval of the use of previously
adopted tables replaced by the newly adopted tables.
10489.4. (a) The interest rates used in determining the minimum
standard for the valuation of all life insurance policies issued in a
particular calendar year, on or after the operative date of Section
10163.2, all individual annuity and pure endowment contracts issued
in a particular calendar year on or after January 1, 1982, all
annuities and pure endowments purchased in a particular calendar year
on or after January 1, 1982, under group annuity and pure endowment
contracts, and the net increase, if any, in a particular calendar
year after January 1, 1982, in amounts held under guaranteed interest
contracts shall be the calendar year statutory valuation interest
rates as defined in subdivision (b).
(b) (1) The calendar year statutory valuation interest rates, I,
shall be determined as follows and the results rounded to the nearer
one-quarter of 1 percent:
(A) For life insurance:
I = .03 + W (R1- .03) + W/2 (R2- .09)
(B) For single premium immediate annuities and for annuity
benefits involving life contingencies arising from other annuities
with cash settlement options and from guaranteed interest contracts
with cash settlement options:
I = .03 + W(R - .03)
Where
R1 is the lesser of R and .09,
R2 is the greater of R and .09,
R is the reference interest rate defined in
subdivision (d) or
(e) of this section, and
W is the weighting factor defined in
subdivision (c) of this
section.
(C) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
an issue year basis, except as stated in (B), the formula for life
insurance stated in (A) shall apply to annuities and guaranteed
interest contracts with guarantee durations in excess of 10 years and
the formula for single premium immediate annuities stated in (B)
shall apply to annuities and guaranteed interest contracts with
guarantee duration of 10 years or less.
(D) For other annuities with no cash settlement options and for
guaranteed interest contracts with no cash settlement options, the
formula for single premium immediate annuities stated in (B) shall
apply.
(E) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
a change-in-fund basis, the formula for single premium immediate
annuities stated in (B) shall apply.
(2) However, if the calendar year statutory valuation interest
rate for any life insurance policies issued in any calendar year
determined without reference to this sentence differs from the
corresponding actual rate for similar policies issued in the
immediately preceding calendar year by less than one-half of 1
percent, the calendar year statutory valuation interest rate for such
life insurance policies shall be equal to the corresponding actual
rate for the immediately preceding calendar year. For purposes of
applying the immediately preceding sentence, the calendar year
statutory valuation interest rate for life insurance policies issued
in a calendar year shall be determined for 1980 (using the reference
interest rate defined for 1979) and shall be determined for each
subsequent calendar year regardless of the operative date of Section
10163.2.
(c) Weighting Factors.
(1) The weighting factors referred to in the formulas stated above
are given in the following tables:
(A) Weighting Factors for Life Insurance:
Weighting
Guarantee Duration (Years) Factors
10 or less............................. .50
More than 10, but not more than 20..... .45
More than 20........................... .35
For life insurance, the guarantee duration is the maximum number
of years the life insurance can remain in force on a basis guaranteed
in the policy or under options to convert to plans of life insurance
with premium rates or nonforfeiture values or both which are
guaranteed in the original policy.
(B) Weighting factor for single premium immediate annuities and
for annuity benefits involving life contingencies arising from other
annuities with cash settlement options and guaranteed interest
contracts with cash settlement options:
.80
(C) Weighting factors for other annuities and for guaranteed
interest contracts, except as stated in (B), shall be as specified in
tables (i), (ii), and (iii) below, according to the rules and
definitions in (iv), (v), and (vi):
(i) For annuities and
guaranteed interest
contracts valued on an issue
year
basis:
Weighting Factor
for Plan Type
-----------------
+ +
Guarantee Duration (Years) A B C
5 or less .80 .60 .50
More than 5, but not more .75 .60 .50
than 10
More than 10, but not more .65 .50 .45
than 20
More than 20 .45 .35 35
(ii) For annuities and
guaranteed interest
contracts valued on a change-in-
fund .15 .25 .05
basis, the factors shown in (i)
above
increased by:
(iii) For annuities and
guaranteed interest
contracts valued on an issue
year basis
(other than those with no cash
settlement
options) which do not guarantee
interest
on considerations received more
than one
year after issue or purchase
and for
annuities and guaranteed .05 .05 .05
interest
contracts valued on a change-in-
fund
basis which do not guarantee
interest
rates on considerations
received more
than 12 months beyond the
valuation
date, the factors shown in (i)
or derived
in (ii) increased by:
(iv) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, the
guarantee duration is the number of years for which the contract
guarantees interest rates in excess of the calendar year statutory
valuation interest rate for life insurance policies with guarantee
duration in excess of 20 years. For other annuities with no cash
settlement options and for guaranteed interest contracts with no cash
settlement options, the guarantee duration is the number of years
from the date of issue or date of purchase to the date annuity
benefits are scheduled to commence.
(v) Plan type as used in the above tables is defined as follows:
Plan Type A: At any time policyholder may withdraw funds only (1)
with an adjustment to reflect changes in interest rates or asset
values since receipt of the funds by the insurance company, or (2)
without such adjustment but in installments over five years or more,
or (3) as an immediate life annuity, or (4) no withdrawal permitted.
Plan Type B: Before expiration of the interest rate guarantee,
policyholder may withdraw funds only (1) with an adjustment to
reflect changes in interest rates or asset values since receipt of
the funds by the insurance company, or (2) without such adjustment
but in installments over five years or more, or (3) no withdrawal
permitted. At the end of interest rate guarantee, funds may be
withdrawn without such adjustment in a single sum or installments
over less than five years.
Plan Type C: Policyholder may withdraw funds before expiration of
interest rate guarantee in a single sum or installments over less
than five years either (1) without adjustment to reflect changes in
interest rates or asset values since receipt of the funds by the
insurance company, or (2) subject only to a fixed surrender charge
stipulated in the contract as a percentage of the fund.
(vi) A company may elect to value guaranteed interest contracts
with cash settlement options and annuities with cash settlement
options on either an issue year basis or on a change-in-fund basis.
Guaranteed interest contracts with no cash settlement options and
other annuities with no cash settlement options must be valued on an
issue year basis. As used in this section, an issue year basis of
valuation refers to a valuation basis under which the interest rate
used to determine the minimum valuation standard for the entire
duration of the annuity or guaranteed interest contract is the
calendar year valuation interest rate for the year of issue or year
of purchase of the annuity or guaranteed interest contract, and the
change-in-fund basis of valuation refers to a valuation basis under
which the interest rate used to determine the minimum valuation
standard applicable to each change in the fund held under the annuity
or guaranteed interest contract is the calendar year valuation
interest rate for the year of the change in the fund.
(d) The reference interest rate referred to in subdivision (b) of
this section shall be defined as follows:
(1) For all life insurance, the lesser of the average over a
period of 36 months and the average over a period of 12 months,
ending on June 30 of the calendar year next preceding the year of
issue, of the Monthly Average of the Composite Yield on Seasoned
Corporate Bonds, as published by Moody's Investors Service, Inc.
(2) For single premium immediate annuities and for annuity
benefits involving life contingencies arising from other annuities
with cash settlement options and guaranteed interest contracts with
cash settlement options, the average over a period of 12 months,
ending on June 30 of the calendar year of issue or year of purchase,
of the Monthly Average of the Composite Yield on Seasoned Corporate
Bonds, as published by Moody's Investors Service, Inc.
(3) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
a year-of-issue basis, except as stated in (2) above, with guarantee
duration in excess of 10 years, the lesser of the average over a
period of 36 months and the average over a period of 12 months,
ending on June 30 of the calendar year of issue or purchase, of the
Monthly Average of the Composite Yield on Seasoned Corporate Bonds,
as published by Moody's Investors Service, Inc.
(4) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
a year-of-issue basis, except as stated in (2) above, with guarantee
duration of 10 years or less, the average over a period of 12
months, ending on June 30 of the calendar year of issue or purchase,
of the Monthly Average of the Composite Yield on Seasoned Corporate
Bonds, as published by Moody's Investors Service, Inc.
(5) For other annuities with no cash settlement options and for
guaranteed interest contracts with no cash settlement options, the
average over a period of 12 months, ending on June 30 of the calendar
year of issue or purchase, of the Monthly Average of the Composite
Yield on Seasoned Corporate Bonds, as published by Moody's Investors
Service, Inc.
(6) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued on
a change-in-fund basis, except as stated in (2) above, the average
over a period of 12 months, ending on June 30 of the calendar year of
the change in the fund, of the Monthly Average of the Composite
Yield on Seasoned Corporate Bonds, as published by Moody's Investors
Service, Inc.
(e) In the event that the Monthly Average of the Composite Yield
on Seasoned Corporate Bonds is no longer published by Moody's
Investors Service, Inc., or in the event that the National
Association of Insurance Commissioners, or its successor, determines
that Moody's Corporate Bond Yield Average--Monthly Average Corporates
as published by Moody's Investors Service, Inc. is no longer
appropriate for the determination of the reference interest rate,
then an alternative method for determination of the reference
interest rate, which is adopted by the National Association of
Insurance Commissioners, or its successor, and approved by regulation
promulgated by the commissioner, may be substituted.
(f) This section shall apply to all certificates and contracts
issued by a fraternal benefit society.
10489.5. Except as otherwise provided in Sections 10489.6, 10489.9,
and 10489. 95, reserves according to the commissioners reserve
valuation method, for the life insurance and endowment benefits of
policies providing for a uniform amount of insurance and requiring
the payment of uniform premiums shall be the excess, if any, of the
present value, at the date of valuation, of such future guaranteed
benefits provided for by such policies, over the then present value
of any future modified net premiums therefor. The modified net
premiums for any such policy shall be such uniform percentage of the
respective contract premiums for such benefits that the present
value, at the date of issue of the policy, of all such modified net
premiums shall be equal to the sum of the then present value of such
benefits provided for by the policy and the excess of (a) of (b), as
follows:
(a) A net level annual premium equal to the present value, at the
date of issue of such benefits provided for after the first policy
year, divided by the present value, at the date of issue, of an
annuity of one per annum payable on the first and each subsequent
anniversary of such policy on which a premium falls due; except that
such net level annual premium shall not exceed the net level annual
premium, on the 19-year premium whole life plan for insurance of the
same amount at an age one year higher than the age at issue of such
policy.
(b) A net one-year term premium for such benefits provided for in
the first policy year.
Provided that for any life insurance policy issued on or after
January 1, 1986, for which the contract premium in the first policy
year exceeds that of the second year and for which no comparable
additional benefit is provided in the first year for such excess and
which provides an endowment benefit or a cash surrender value or a
combination thereof in an amount greater than such excess premium,
the reserve according to the commissioners reserve valuation method
as of any policy anniversary occurring on or before the assumed
ending date defined herein as the first policy anniversary on which
the sum of any endowment benefit and any cash surrender value then
available is greater than such excess premium shall, except as
otherwise provided in Section 10489.9, be the greater of the reserve
as of such policy anniversary calculated as described in the first
paragraph of this section and the reserve as of such policy
anniversary calculated as described in the first paragraph of this
section, but with (i) the value defined in subparagraph (a) of that
paragraph being reduced by 15 percent of the amount of such excess
first year premium, (ii) all present values of benefits and premiums
being determined without reference to premiums or benefits provided
for by the policy after the assumed ending date, (iii) the policy
being assumed to mature on such date as an endowment, and (iv) the
cash surrender value provided on such date being considered as an
endowment benefit. In making the above comparison the mortality and
interest bases stated in Sections 10489.2 and 10489.4 shall be used.
Reserves according to the commissioners reserve valuation method
for (1) life insurance policies providing for a varying amount of
insurance or requiring the payment of varying premiums, (2) group
annuity and pure endowment contracts purchased under a retirement
plan or plan of deferred compensation, established or maintained by
an employer (including a partnership or sole proprietorship) or by an
employee organization, or by both, other than a plan providing
individual retirement accounts or individual retirement annuities
under Section 408 of the Internal Revenue Code, as now or hereafter
amended; (3) disability and accidental death benefits in all policies
and contracts; and (4) all other benefits, except life insurance and
endowment benefits in life insurance policies and benefits provided
by all other annuity and pure endowment contracts, shall be
calculated by a method consistent with the principles of the
preceding paragraphs of this section, except that any extra premiums
charged because of impairments or special hazards shall be
disregarded in the determination of modified net premiums.
10489.6. This section shall apply to all annuity and pure endowment
contracts other than group annuity and pure endowment contracts
purchased under a retirement plan or plan of deferred compensation,
established or maintained by an employer (including a partnership or
sole proprietorship) or by an employee organization, or by both,
other than a plan providing individual retirement accounts or
individual retirement annuities under Section 408 of the Internal
Revenue Code, as now or hereafter amended.
Reserves according to the commissioners annuity reserve method for
benefits under annuity or pure endowment contracts, excluding any
disability and accidental death benefits in such contracts, shall be
the greatest of the respective excesses of the present values, at the
date of valuation, of the future guaranteed benefits, including
guaranteed nonforfeiture benefits, provided for by such contracts at
the end of each respective contract year, over the present value, at
the date of valuation, of any future valuation considerations derived
from future gross considerations, required by the terms of such
contract, that become payable prior to the end of such respective
contract year. The future guaranteed benefits shall be determined by
using the mortality table, if any, and the interest rate, or rates,
specified in such contracts for determining guaranteed benefits. The
valuation considerations are the portions of the respective gross
considerations applied under the terms of such contracts to determine
nonforfeiture values.
10489.7. (a) In no event shall an insurer's aggregate reserves for
all life insurance policies, excluding disability and accidental
death benefits, be less than the aggregate reserves calculated in
accordance with the methods set forth in Sections 10489.5, 10489.6,
10489.9, and 10489.93 and the mortality table or tables and rate or
rates of interest used in calculating nonforfeiture benefits for such
policies.
(b) In no event shall the aggregate reserves for all policies,
contracts, and benefits be less than the aggregate reserves
determined by the qualified actuary to be necessary to render the
opinion required by Section 10489.15.
10489.8. Reserves for any category of policies, contracts or
benefits as established by the commissioner may be calculated, at the
option of the insurer, according to any standards which produce
greater aggregate reserves for such category than those calculated
according to the minimum standard herein provided, but the rate or
rates of interest used for policies and contracts, other than annuity
and pure endowment contracts, shall not be higher than the
corresponding rate or rates of interest used in calculating any
nonforfeiture benefits provided for therein.
Any such company which at any time shall have adopted any standard
of valuation producing greater aggregate reserves than those
calculated according to the minimum standard provided in this article
may, with the approval of the commissioner, adopt any lower standard
of valuation, but not lower than the minimum provided in this
article. However, for the purposes of this section, the holding of
additional reserves previously determined by a qualified actuary to
be necessary to render the opinion required by Section 10489.15 shall
not be deemed to be the adoption of a higher standard of valuation.
10489.9. If in any contract year the gross premium charged by any
life insurer on any policy or contract is less than the valuation net
premium for the policy or contract calculated by the method used in
calculating the reserve thereon but using the minimum valuation
standards of mortality and rate of interest, the minimum reserve
required for such policy or contract shall be the greater of either
the reserve calculated according to the mortality table, rate of
interest, and method actually used for such policy or contract, or
the reserve calculated by the method actually used for such policy or
contract but using the minimum valuation standards of mortality and
rate of interest and replacing the valuation net premium by the
actual gross premium in each contract year for which the valuation
net premium exceeds the actual gross premium.
Provided that for any life insurance policy issued on or after
January 1, 1986, for which the gross premium in the first policy year
exceeds that of the second year and for which no comparable
additional benefit is provided in the first year for such excess and
which provides an endowment benefit or a cash surrender value or a
combination thereof in an amount greater than such excess premium,
the foregoing provisions of this section shall be applied as if the
method actually used in calculating the reserve for such policy were
the method described in Section 10489.5, ignoring the second
paragraph of Section 10489.5. The minimum reserve at each policy
anniversary of such a policy shall be the greater of the minimum
reserve calculated in accordance with Section 10489.5, including the
second paragraph of that section, and the minimum reserve calculated
in accordance with this section.
10489.93. In the case of any plan of life insurance that provides
for future premium determination, the amounts of which are to be
determined by the insurance company based on then estimates of future
experience, or in the case of any plan of life insurance or annuity
that is of such a nature that the minimum reserves cannot be
determined by the methods described in Sections 10489.5, 10489.6, and
10489.9, the reserves which are held under any such plan must:
(a) Be appropriate in relation to the benefits and the pattern of
premiums for that plan; and
(b) Be computed by a method which is consistent with the
principles of this Standard Valuation Law, as determined by
regulations promulgated by the commissioner.
10489.94. (a) The Commissioner may issue a bulletin to provide
tables of select mortality factors and rules for their use, rules
concerning a minimum standard for the valuation of plans with
nonlevel premiums of benefits, and rules concerning a minimum
standard for the valuation of plans with secondary guarantees. The
bulletin authorized by this subdivision shall have the same force and
effect, and may be enforced by the commissioner to the same extent
and degree, as regulations issued by the commissioner. The
commissioner shall adopt regulations that shall supersede the
bulletin authorized by this section no later than December 31, 2002.
(b) It is the intent of the Legislature that the bulletin
described in subdivision (a) and the superseding regulations shall
contain the provisions of the National Association of Insurance
Commissioners Valuation of Life Insurance Model Regulation Number 830
as adopted in March of 1999.
10489.95. The commissioner shall adopt a regulation concerning the
minimum standards applicable to the valuation of disability
insurance.
