State Codes and Statutes

Statutes > North-carolina > Chapter_58 > GS_58-58-50

§ 58‑58‑50. Standard Valuation Law.

(a)        This section shallbe known as the Standard Valuation Law.

(b)        Each year theCommissioner shall value or cause to be valued the reserve liabilities("reserves") for all outstanding life insurance policies, annuity contracts,and pure endowment contracts of every life insurance company doing business inthis State. In the case of an alien company, the valuation shall be limited toits United States business. The Commissioner may certify the amount of eachcompany's reserves, specifying the mortality or morbidity tables, withdrawalrates, and other assumptions regarding when, and the degree to which,policyholders exercise contract options, such as full or partial withdrawal,rate or rates of interest, and methods, such as net level premium method orother, used in the Commissioner's calculation of the company's reserves. Groupmethods and approximate averages for fractions of a year or otherwise may beused by the Commissioner in calculating the company's reserves, and theCommissioner may accept the valuation made by the company upon evidence of itscorrectness that the Commissioner requires. For foreign or alien insurancecompanies, the Commissioner may accept any valuation made or caused to be madeby the insurance regulator of any state or other jurisdiction if (i) thatvaluation complies with the minimum standard provided in this section and (ii)that regulator accepts as legally sufficient and valid the Commissioner'scertificate of valuation when that certificate states that the valuation hasbeen made in a specified manner according to which the aggregate reserves wouldbe at least as great as if they had been computed in the manner prescribed bythe law of that state or jurisdiction.

(c)       (1)        Exceptas otherwise provided in subdivisions (3) and (4) of this subsection, theminimum standard for the valuation of all such policies and contracts issuedbefore the effective date of this section shall be that provided by the laws ineffect immediately before that date, except that the minimum standard for thevaluation of annuities and pure endowments purchased under group annuity andpure endowment contracts issued before that date shall be that provided by thelaws in effect immediately before that date but replacing the interest ratesspecified in such laws by an interest rate of five percent (5%) per annum, andfive and one‑half percent (5 ½%) interest for single premium lifeinsurance policies.

(2)        Except as otherwiseprovided in subdivisions (3) and (4) of this subsection, the minimum standardsfor the valuation of all such policies and contracts issued on or after theeffective date of this section shall be the Commissioner's reserve valuationmethods defined in subsections (d), (d‑1) and (g), five percent (5%)interest for group annuity and pure endowment contracts and three and one‑halfpercent (3 ½%) interest for all other policies and contracts, or, in the caseof policies and contracts other than annuity and pure endowment contracts,issued on or after July 1, 1975, four percent (4%) interest for such policiesissued prior to April 19, 1979, and four and one‑half percent (4 ½%)interest for such policies issued on or after April 19, 1979, and the followingtables:

a.         For all ordinarypolicies of life insurance issued on the standard basis, excluding anydisability and accidental death benefits in such policies – the Commissioner's1941 Standard Ordinary Mortality Table for such policies issued prior to theoperative date of subdivision (e)(2) of G.S. 58‑58‑55, the Commissioner's1958 Standard Ordinary Mortality Table for such policies issued on or after theoperative date of subdivision (e)(2) of G.S. 58‑58‑55 prior to theoperative date of subdivision (e)(4) of G.S. 58‑58‑55, providedthat for any category of such policies issued on female risks, all modified netpremiums and present values referred to in this section may be calculatedaccording to an age not more than six years younger than the actual age of theinsured; and, for such policies issued on or after the operative date ofsubdivision (e)(4) of G.S. 58‑58‑55, (i) the Commissioner's 1980Standard Ordinary Mortality Table, or (ii) at the election of the company forany one or  more specified plans of life insurance, the Commissioner's 1980Standard Ordinary Mortality Table with Ten‑Year Select Mortality Factors,or (iii) any ordinary mortality table, adopted after 1980 by the NAIC, that isapproved by regulation promulgated by the Commissioner for use in determiningthe minimum standard of valuation for such policies;

b.         For all industriallife insurance policies issued on the standard basis, excluding any disabilityand accidental death benefits in such policies – the 1941 Standard IndustrialMortality Table for such policies issued prior to the operative date ofsubdivision (e)(3) of G.S. 58‑58‑55 and for such policies issued onor after such operative date the Commissioner's 1961 Standard IndustrialMortality Table or any industrial mortality table, adopted after 1980 by theNAIC, that is approved by regulation promulgated by the Commissioner for use indetermining the minimum standard of valuation for such policies;

c.         For individualannuity and pure endowment contracts, excluding any disability and accidentaldeath 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 either of these tables approved by the Commissioner;

d.         For group annuityand pure endowment contracts, excluding any disability and accidental deathbenefits in such policies – the Group Annuity Mortality Table for 1951, anymodification of such table approved by the Commissioner, or, at the option ofthe company, any of the tables or modifications of tables specified for individualannuity and pure endowment contracts;

e.         For total andpermanent disability benefits in or supplementary to ordinary policies orcontracts – for policies or contracts issued on or after January 1, 1966, thetables of Period 2 disablement rates and the 1930 to 1950 termination rates ofthe 1952 Disability Study of the Society of Actuaries, with due regard to thetype of benefit or any tables of disablement rates and termination rates,adopted after 1980 by the NAIC, that are approved by regulation promulgated bythe Commissioner for use in determining the minimum standard of valuation forsuch 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 thecompany, the Class (3) Disability Table (1926); and for policies issued priorto January 1, 1961, the Class (3) Disability Table (1926). Any such tableshall, for active lives, be combined with a mortality table permitted forcalculating the reserves for life insurance policies;

f.          For accidentaldeath benefits in or supplementary to policies – for policies issued on orafter January 1, 1966, the 1959 Accidental Death Benefits Table or anyaccidental death benefits table, adopted after 1980 by the NAIC, that isapproved by regulation promulgated by the Commissioner for use in determiningthe minimum standard of valuation for such policies; for policies issued on orafter January 1, 1961, and prior to January 1, 1966, either such table or, atthe option of the company, the Inter‑Company Double Indemnity MortalityTable; and for policies issued prior to January 1, 1961, the Inter‑CompanyDouble Indemnity Mortality Table. Either table shall be combined with amortality table permitted for calculating the reserves for life insurancepolicies;

g.         For group lifeinsurance, life insurance issued on the substandard basis and other specialbenefits – such tables as may be approved by the Commissioner.

(3)        Except as providedin subdivision (4) of this subsection, the minimum standard for the valuationof all individual annuity and pure endowment contracts issued on or after theoperative date of this subdivision (3), as defined herein, and for allannuities and pure endowments purchased on or after such operative date undergroup annuity and pure endowment contracts, shall be the Commissioner's reservevaluation methods defined in subsections (d) and (d‑1) and the followingtables and interest rates:

a.         For individualannuity and pure endowment contracts issued prior to April 19, 1979, excludingany disability and accidental death benefits in such contracts – the 1971Individual Annuity Mortality Table, or any modification of this table approvedby the Commissioner, and six percent (6%) interest for single premium immediateannuity contracts, and four percent (4%) interest for all other individualannuity and pure endowment contracts;

b.         For individualsingle premium immediate annuity contracts issued on or after April 19, 1979,excluding any disability and accidental death benefits in such contracts – the1971 Individual Annuity Mortality Table or any individual annuity mortalitytable, adopted after 1980 by the NAIC, that is approved by regulationpromulgated by the Commissioner for use in determining the minimum standard ofvaluation for such contracts, or any modification of these tables approved bythe Commissioner, and seven and one‑half percent (7 ½%) interest;

c.         For individualannuity and pure endowment contracts issued on or after April 19, 1979, otherthan single premium immediate annuity contracts, excluding any disability andaccidental death benefits in such contracts – the 1971 Individual AnnuityMortality Table or any individual annuity mortality table, adopted after 1980by the NAIC, that is approved by regulation promulgated by the Commissioner foruse in determining the minimum standard of valuation for such contracts, or anymodification of these tables approved by the Commissioner, and five and one‑halfpercent (5 ½%) interest for single premium deferred annuity and pure endowmentcontracts and four and one‑half percent (4 ½%) interest for all othersuch individual annuity and pure endowment contracts;

d.         For all annuitiesand pure endowments purchased prior to April 19, 1979, under group annuity andpure endowment contracts, excluding any disability and accidental deathbenefits purchased under such contracts – the 1971 Group Annuity MortalityTable, or any modification of this table approved by the Commissioner, and sixpercent (6%) interest;

e.         For all annuitiesand pure endowments purchased on or after April 19, 1979, under group annuityand pure endowment contracts, excluding any disability and accidental deathbenefits purchased under such contracts – the 1971 Group Annuity MortalityTable or any group annuity mortality table, adopted after 1980 by the NAIC,that is approved by regulation promulgated by the Commissioner for use indetermining the minimum standard of valuation for such annuities and pureendowments, or any modification of these tables approved by the Commissioner,and seven and one‑half percent (7 ½%) interest.

            AfterJuly 1, 1975, any company may file with the Commissioner a written notice ofits election to comply with the provisions of this subdivision (3) after aspecified date before January 1, 1979, which shall be the operative date ofthis subdivision for such company, provided, a company may elect a differentoperative date for individual annuity and pure endowment contracts from thatelected for group annuity and pure endowment contracts. If a company makes nosuch election, the operative date of this subdivision for such company shall beJanuary 1, 1979.

(4)       a.         Applicabilityof This Subdivision. The interest rates used in determining the minimumstandard for the valuation of:

1.         All life insurancepolicies issued in a particular calendar year, on or after the operative dateof subdivision (e)(4) of G.S. 58‑58‑55,

2.         All individualannuity and pure endowment contracts issued in a particular calendar year on orafter January 1, 1982,

3.         All annuities andpure endowments purchased in a particular calendar year on or after January 1,1982, under group annuity and pure endowment contracts, and

4.         The net increase, ifany, in a particular calendar year after January 1, 1982, in amounts held underguaranteed interest contracts

shall be the calendar year statutory valuationinterest rates as defined in this subdivision.

b.         Calendar YearStatutory Valuation Interest Rates.

1.         The calendar yearstatutory valuation interest rates, I shall be determined as follows and theresults rounded to the nearer one‑quarter of one percent (¼ of 1%):

I.          For life insurance,

I = .03 plus W (R1 – .03) plus W/2 : (R2– .09);

II.         For single premiumimmediate annuities and for annuity benefits involving life contingenciesarising from other annuities with cash settlement options and from guaranteedinterest contracts with cash settlement options,

I = .03 plus W (R – .03)

whereR1 is the lesser of R and .09,

R2is the greater of R and .09,

R isthe reference interest rate defined in this subdivision, and W is the weightingfactor defined in this subdivision,

III.       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on an issue year basis, except as stated in II above,the formula for life insurance stated in I above shall apply to annuities andguaranteed interest contracts with guarantee durations in excess of 10 yearsand the formula for single premium immediate annuities stated in II above shallapply to annuities and guaranteed interest contracts with guarantee duration of10 years or less,

IV.       For other annuitieswith no cash settlement options and for guaranteed interest contracts with nocash settlement options, the formula for single premium immediate annuitiesstated in II above shall apply,

V.        For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on a change in fund basis, the formula for singlepremium immediate annuities stated in II above shall apply.

2.         However, if thecalendar year statutory valuation interest rate for any life insurance policiesissued in any calendar year determined without reference to this sentencediffers from the corresponding actual rate for similar policies issued in theimmediately preceding calendar year by less than one‑half of one percent(½ of 1%), the calendar year statutory valuation interest rate for such lifeinsurance policies shall be equal to the corresponding actual rate for theimmediately preceding calendar year. For purposes of applying the immediatelypreceding sentence, the calendar year statutory valuation interest rate forlife insurance policies issued in a calendar year shall be determined for 1980(using the reference interest rate defined for 1979) and shall be determinedfor each subsequent calendar year regardless of when subdivision (e)(4) of G.S.58‑58‑55 becomes operative.

c.         Weighting Factors.

1.         The weightingfactors referred to in the formulas stated above are given in the followingtables:

I.          Weighting Factorsfor Life Insurance:

Guarantee

Duration                                                           Weighting

(Years)                                                                Factors

10 orless                                                                   .50

Morethan 10, but not more than 20                           .45

Morethan 20                                                             .35

                 For life insurance, the guaranteeduration is the maximum number of years the life insurance can remain in forceon a basis guaranteed in the policy or under options to convert to plans oflife insurance with premium rates or nonforfeiture values or both which areguaranteed in the original policy;

II.         Weighting factorfor single premium immediate annuities and for annuity benefits involving lifecontingencies arising from other annuities with cash settlement options andguaranteed interest contracts with cash settlement options:

.80

III.       Weighting factorsfor other annuities and for guaranteed interest contracts, except as stated inII. above, shall be as specified in tables (i), (ii), and (iii) below,according to the rules and definitions in (iv), (v) and (vi) below:

(i)         For annuities andguaranteed interest contracts valued on an issue year basis:

Guarantee                                  WeightingFactor

Duration                                        ForPlan Type

(Years)                                     A       B      C

5 orless:                                        .80     .60  .50

Morethan 5, but not

more than 10:                            .75     .60  .50

Morethan 10, but not

more than 20:                            .65     .50  .45

More than 20:                                .45     .35  .35

(ii)        For annuities and                            PlanType

guaranteed interest                         A       B      C

contracts valued on

achange in fund basis,

thefactors shown in

(i)above increased

by:                                                 .15     .25  .05

(iii)       For annuities and                            PlanType

guaranteed interest                         A       B      C

contractsvalued

on anissue year

basis(other than

thosewith no cash

settlementoptions)

whichdo not

guaranteeinterest on

considerationsreceived

morethan one year

afterissue or

purchaseand for

annuitiesand

guaranteedinterest

contractsvalued

on achange in fund

basiswhich do not

guaranteeinterest

rateson considerations

receivedmore than 12

monthsbeyond the

valuationdate, the

factorsshown in (i)

orderived in (ii)

increased by:                                  .05     .05  .05

(iv)       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, the guarantee duration is the number of years for which thecontract guarantees interest rates in excess of the calendar year statutoryvaluation interest rate for life insurance policies with guarantee duration inexcess of 20 years. For other annuities with no cash settlement options and forguaranteed interest contracts with no cash settlement options, the guaranteeduration is the number of years from the date of issue or date of purchase tothe date annuity benefits are scheduled to commence.

(v)        Plan type as used inthe above tables is defined as follows:

Plan     Type A:   At any time policyholder maywithdraw funds only (1) with an adjustment to reflect changes in interest ratesor 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) asan immediate life annuity, or (4) no withdrawal permitted.

Plan     Type B:   Before expiration of the interestrate guarantee, policyholder may withdraw funds only (1) with an adjustment toreflect changes in interest rates or asset values since receipt of the funds bythe insurance company, or (2) without such adjustment but in installments overfive years or more, or (3) no withdrawal permitted. At the end of interest rateguarantee, funds may be withdrawn without such adjustment in a single sum orinstallments over less than five years.

Plan     Type C:   Policyholder may withdraw fundsbefore expiration of interest rate guarantee in a single sum or installmentsover less than five years either (1) without adjustment to reflect changes ininterest rates or asset values since receipt of the funds by the insurancecompany, or (2) subject only to a fixed surrender charge stipulated in thecontract as a percentage of the fund.

(vi)       A company may electto value guaranteed interest contracts with cash settlement options andannuities with cash settlement options on either an issue year basis or on achange in fund basis. Guaranteed interest contracts with no cash settlementoptions and other annuities with no cash settlement options must be valued onan issue year basis. As used in this section, an issue year basis of valuationrefers to a valuation basis under which the interest rate used to determine theminimum valuation standard for the entire duration of the annuity or guaranteedinterest contract is the calendar year valuation interest rate for the year ofissue or year of purchase of the annuity or guaranteed interest contract, andthe change in fund basis of valuation refers to a valuation basis under which theinterest rate used to determine the minimum valuation standard applicable toeach change in the fund held under the annuity or guaranteed interest contractis the calendar year valuation interest rate for the year of the change in thefund.

d.         Reference InterestRate.

1.         The referenceinterest rate referred to in paragraph b of this subdivision shall be definedas follows:

I.          For all lifeinsurance, the lesser of the average over a period of 36 months and the averageover a period of 12 months, ending on June 30 of the calendar year nextpreceding the year of issue, of Moody's Corporate Bond Yield Average – MonthlyAverage Corporates, as published by Moody's Investors Service, Inc.

II.         For single premiumimmediate annuities and for annuity benefits involving life contingenciesarising from other annuities with cash settlement options and guaranteedinterest contracts with cash settlement options, the average over a period of12 months, ending on June 30 of the calendar year of issue or year of purchase,of Moody's Corporate Bond Yield Average – Monthly Average Corporates, aspublished by Moody's Investors Service, Inc.

III.       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on a year of issue basis, except as stated in IIabove, with guarantee duration in excess of 10 years, the lesser of the averageover a period of 36 months and the average over a period of 12 months, endingon June 30 of the calendar year of issue or purchase, of Moody's Corporate BondYield Average – Monthly Average Corporates, as published by Moody's InvestorsService, Inc.

IV.       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on a year of issue basis, except as stated in IIabove, with guarantee duration of 10 years or less, the average over a periodof 12 months, ending on June 30 of the calendar year of issue or purchase, ofMoody's Corporate Bond Yield Average – Monthly Average Corporates, as publishedby Moody's Investors Service, Inc.

V.        For other annuitieswith no cash settlement options and for guaranteed interest contracts with nocash settlement options, the average over a period of 12 months, ending on June30 of the calendar year of issue or purchase, of Moody's Corporate Bond YieldAverage – Monthly Average Corporates, as published by Moody's InvestorsService, Inc.

VI.       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on a change in fund basis, except as stated in IIabove, the average over a period of 12 months, ending on June 30 of thecalendar year of the change in the fund, of Moody's Corporate Bond YieldAverage – Monthly Average Corporates, as published by Moody's InvestorsService, Inc.

e.         Alternative Methodfor Determining Reference Interest Rates.

1.         In the event thatMoody's Corporate Bond Yield Average – Monthly Average Corporates is no longerpublished by Moody's Investors Service, Inc., or in the event that the NAICdetermines that Moody's Corporate Bond Yield Average – Monthly AverageCorporates as published by Moody's Investors Service, Inc., is no longerappropriate for the determination of the reference interest rate, than analternative method for determination of the reference interest rate, which isadopted by the NAIC and approved by regulation promulgated by the Commissioner,may be substituted.

(d)        Except as otherwiseprovided in subsections (d‑1) and (g), reserves according to theCommissioner's reserve valuation method, for the life insurance and endowmentbenefits of policies providing for a uniform amount of insurance and requiringthe payment of uniform premiums, shall be the excess, if any, of the presentvalue, at the date of valuation, of such future guaranteed benefits providedfor by such policies, over the then present value of any future modified netpremiums therefor. The modified net premiums for any such policy shall be suchuniform percentage of the respective contract premiums for such benefits thatthe present value, at the date of issue of the policy, of all such modified netpremiums shall be equal to the sum of the then present value of such benefitsprovided for by the policy and the excess of (1) and (2), as follows:

(1)        A net level annualpremium equal to the present value, at the date of issue, of such benefitsprovided for after the first policy year, divided by the present value, at thedate of issue, of an annuity of one per annum payable on the first and eachsubsequent anniversary of such policy on which a premium falls due; provided,however, that such net level annual premium shall not exceed the net levelannual premium on the 19‑year premium whole life plan for insurance ofthe same amount at an age one year higher than the age at issue of such policy.

(2)        A net one year termpremium for such benefits provided for in the first policy year.

Provided that for any lifeinsurance policy issued on or after January 1, 1985, for which the contractpremium in the first policy year exceeds that of the second year and for whichno comparable additional benefits are provided in the first year for suchexcess and which provides an endowment benefit or a cash surrender value of acombination thereof in an amount greater than such excess premium, the reserveaccording to the Commissioner's reserve valuation method as of any policyanniversary occurring on or before the assumed ending date defined herein asthe first policy anniversary on which the sum of any endowment benefit and anycash surrender value then available is greater than such excess premium shall,except as otherwise provided in subsection (g), be the greater of the reserveas of such policy anniversary calculated as described in the first paragraph ofthis subsection and the reserve as of such policy anniversary calculated asdescribed in that paragraph, but with (i) the value defined in subparagraph (1)of that paragraph being reduced by fifteen percent (15%) of the amount of suchexcess first year premium, (ii) all present values of benefits and premiumsbeing determined without reference to premiums or benefits provided for by thepolicy after the assumed ending date, (iii) the policy being assumed to matureon such date as an endowment, and (iv) the cash surrender value provided onsuch date being considered as an endowment benefit. In making the abovecomparison the mortality and interest bases stated in subdivisions (2) and (4)of subsection (c) shall be used.

Reserves according to theCommissioner's reserve valuation method for: (i) life insurance policiesproviding for a varying amount of insurance or requiring the payment of varyingpremiums; (ii) group annuity and pure endowment contracts purchased under aretirement plan or plan of deferred compensation, established or maintained byan employer (including a partnership or sole proprietorship) or by an employeeorganization, or by both, other than a plan providing individual retirementaccounts or individual retirement annuities under section 408 of the InternalRevenue Code, as now or hereafter amended; (iii) disability and accidentaldeath benefits in all policies and contracts; and (iv) all other benefits,except life insurance and endowment benefits in life insurance policies andbenefits provided by all other annuity and pure endowment contracts, shall becalculated by a method consistent with the principles of this subsection exceptthat any extra premiums charged because of impairments or special hazards shallbe disregarded in the determination of modified net premiums.

(d‑1)    This subsectionshall apply to all annuity and pure endowment contracts other than groupannuity and pure endowment contracts purchased under a retirement plan or planof deferred compensation, established or maintained by an employer (including apartnership or sole proprietorship) or by an employee organization, or by both,other than a plan providing individual retirement accounts or individualretirement annuities under section 408 of the Internal Revenue Code, as now orhereafter amended.

Reserves according to theCommissioner's annuity reserve method for benefits under annuity or pureendowment contracts, excluding any disability and accidental death benefits insuch contracts, shall be the greatest of the respective excesses of the presentvalues, at the date of valuation, of the future guaranteed benefits, includingguaranteed nonforfeiture benefits, provided for by such contracts at the end ofeach respective contract year, over the present value, at the date ofvaluation, of any future valuation considerations derived from future grossconsiderations, required by the terms of such contract, that become payableprior to the end of such respective contract year. The future guaranteedbenefits shall be determined by using the mortality table, if any, and theinterest rate, or rates, specified in such contracts for determining guaranteedbenefits. The valuation considerations are the portions of the respective grossconsiderations applied under the terms of such contracts to determine nonforfeiturevalues.

(e)        In no event shall acompany's aggregate reserves for all life insurance policies, excludingdisability and accidental death benefits, issued on or after the effective dateof this section, be less than the aggregate reserves calculated in accordancewith the methods set forth in subsections (d), (d‑1), (g) and (h) of thissection and the mortality table or tables and rate or rates of interest used incalculating nonforfeiture benefits for such policies. In no event shall theaggregate reserves for all policies, contracts, and benefits be less than theaggregate reserves determined by the qualified actuary to be necessary torender the opinion required by subsection (i) of this section.

(f)         Reserves for allpolicies and contracts issued before the effective date of this section may becalculated, at the option of the company, according to any standards thatproduce greater aggregate reserves for those policies and contracts than theminimum reserves required by the laws in effect immediately before that date.

Reserves for any category ofpolicies, contracts or benefits as established by the Commissioner, issued onor after the effective date of this section may be calculated, at the option ofthe company, according to any standards that produce greater aggregate reservesfor such category than those calculated according to the minimum standardherein provided, but the rate or rates of interest used for policies andcontracts, other than annuity and pure endowment contracts, shall not be higherthan the corresponding rate or rates of interest used in calculating anynonforfeiture benefits provided for therein.

Any such company that adoptsany standard of valuation producing greater aggregate reserves than thosecalculated according to the minimum standard herein provided may, with theapproval of the Commissioner, adopt any lower standard of valuation, but notlower than the minimum herein provided. Provided, however, that for thepurposes of this section, the holding of additional reserves previouslydetermined by a qualified actuary to be necessary to render the opinionrequired by subsection (c) of this section shall not be deemed to be theadoption of a higher standard of valuation.

(g)        If in any contractyear the gross premium charged by any life insurance company on any policy orcontract is less than the valuation net premium for the policy or contractcalculated by the method used in calculating the reserve thereon but using theminimum valuation standards of mortality and rate of interest, the minimumreserve required for such policy or contract shall be the greater of either thereserve calculated according to the mortality table, rate of interest, andmethod actually used for such policy or contract, or the reserve calculated bythe method actually used for such policy or contract but using the minimumvaluation standards of mortality and rate of interest and replacing thevaluation net premium by the actual gross premium in each contract year forwhich the valuation net premium exceeds the actual gross premium. The minimumvaluation standards of mortality and rate of interest referred to in thissubsection are those standards stated in subdivisions (1), (2) and (4) ofsubsection (c).

Provided that for any lifeinsurance policy issued on or after January 1, 1985, for which the grosspremium in the first policy year exceeds that of the second year and for whichno comparable additional benefit is provided in the first year for such excessand which provides an endowment benefit or a cash surrender value or acombination thereof in an amount greater than such excess premium, theforegoing provisions of this subsection (g) shall be applied as if the methodactually used in calculating the reserve for such policy were the methoddescribed in subsection (d), ignoring the second paragraph of subsection (d).The minimum reserve at each policy anniversary of such a policy shall be thegreater of the minimum reserve calculated in accordance with subsection (d),including the second paragraph of that subsection, and the minimum reservecalculated in accordance with this subsection (g).

(h)        In the case of anyplan of life insurance which provides for future premium determination, theamounts of which are to be determined by the insurance company based on thenestimates of future experience, or in the case of any plan of life insurance orannuity which is of such a nature that the minimum reserves cannot bedetermined by the methods described in subsections (d), (d‑1), and (g),the reserves which are held under any such plan must:

(1)        Be appropriate inrelation to the benefits and the pattern of premiums for that plan, and

(2)        Be computed by amethod which is consistent with the principles of this Standard Valuation Law,as determined by regulations promulgated by the Commissioner.

(i)         Every lifeinsurance company doing business in this State shall annually submit theopinion of a qualified actuary as to whether the reserves and related actuarialitems held in support of the policies and contracts specified by theCommissioner by rule are computed appropriately, are based on assumptions thatsatisfy contractual provisions, are consistent with previously reportedamounts, and comply with applicable laws of this State. The Commissioner byrule shall define the specifics of this opinion and add any other items deemedto be necessary to its scope. Every life insurance company, except as exemptedby or pursuant to rule, shall also annually include in the opinion required bythis subsection, an opinion of the same qualified actuary as to whether thereserves and related actuarial items held in support of the policies andcontracts specified by the Commissioner by rule, when considered in light ofthe assets held by the company with respect to the reserves and related actuarialitems, including but not limited to the investment earnings on the assets andthe considerations anticipated to be received and retained under the policiesand contracts, make adequate provision for the company's obligations under thepolicies and contracts, including but not limited to the benefits under andexpenses associated with the policies and contracts. The Commissioner mayprovide by rule for a transition period for establishing any higher reservesthat the qualified actuary may deem to be necessary in order to render theopinion required by this subsection.

(j)         Each opinionrequired by subsection (i) of this section shall be governed by the followingprovisions:

(1)        A memorandum, inform and substance acceptable to the Commissioner as specified by rule, shallbe prepared to support each actuarial opinion.

(2)        If the insurancecompany fails to provide a supporting memorandum at the request of theCommissioner within a period specified by rule or the Commissioner determinesthat the supporting memorandum provided by the insurance company fails to meetthe standards prescribed by the rules or is otherwise unacceptable to theCommissioner, the Commissioner may engage a qualified actuary at the expense ofthe company to review the opinion and the basis for the opinion and preparesuch supporting memorandum as is required by the Commissioner.

(3)        The opinion shall besubmitted with the annual statement reflecting the valuation of such reserveliabilities for each year ending on or after December 31, 1994.

(4)        The opinion shallapply to all business in force including individual and group health insuranceplans, in form and substance acceptable to the Commissioner as specified byrule.

(5)        The opinion shall bebased on standards adopted from time to time by the actuarial standards boardand on such additional standards as the Commissioner may by rule prescribe.

(6)        In the case of anopinion required to be submitted by a foreign or alien company, theCommissioner may accept the opinion filed by that company with the insurancesupervisory official of another state if the Commissioner determines that theopinion reasonably meets the requirements applicable to a company domiciled inthis State.

(7)        For the purposes ofthis section, "qualified actuary" means a member in good standing ofthe American Academy of Actuaries who meets the requirement set forth in suchrules.

(8)        Except in cases offraud or willful misconduct, the qualified actuary shall not be liable fordamages to any person (other than the insurance company and the Commissioner)for any act, error, omission, decision, or conduct with respect to theactuary's opinion.

(9)        Disciplinary actionby the Commissioner against the company or the qualified actuary shall bedefined in rules by the Commissioner.

(10)      Any memorandum insupport of the opinion, and any other material provided by the company to theCommissioner in connection therewith, shall be kept confidential by theCommissioner and shall not be made public and shall not be subject to subpoena,other than for the purpose of defending an action seeking damages from anyperson by reason of any action required by this section or by rules adoptedunder this section; provided, however, that the memorandum or other materialmay otherwise be released by the Commissioner (i) with the written consent ofthe company or (ii) to the American Academy of Actuaries upon request statingthe memorandum or other material is required for the purpose of professionaldisciplinary proceedings and setting forth procedures satisfactory to theCommissioner for preserving the confidentiality of the memorandum or othermaterial. Once any portion of the confidential memorandum is cited by thecompany in its marketing or is cited before any governmental agency other thana state insurance department or is released by the company to the news media,all portions of the confidential memorandum shall be no longer confidential.

(k)        The Commissionershall adopt rules containing the minimum standards applicable to the valuationof health plans. The Commissioner may also adopt rules for the purpose ofrecognizing new annuity mortality tables for use in determining reserveliabilities for annuities and may adopt rules that govern minimum valuationstandards for reserves of life insurance companies. In adopting these rules,the Commissioner may consider model laws and regulations promulgated andamended from time to time by the NAIC.

(l)         The Commissionermay adopt rules for life insurers for the following matters:

(1)        Reserves for contractsissued by insurers.

(2)        Optional smoker‑nonsmokermortality tables permitted for use in determining minimum reserve liabilitiesand nonforfeiture benefits.

(3)        Optional blendedgender mortality tables permitted for use in determining nonforfeiture benefitsfor individual life policies.

(4)        Optional tablesacceptable for use in determining reserves and minimum cash surrender valuesand amounts of paid‑up nonforfeiture benefits.

(5)        Assumptions forpolicyholder withdrawal rates for use in determining minimum reserveliabilities.

In adopting these rules, theCommissioner may consider model laws and regulations promulgated and amendedfrom time to time by the NAIC. (1945, c. 379; 1959, c. 484, s. 1; 1961, c. 255, ss. 1‑3;1963, c. 791, ss. 1, 2; 1975, c. 603, s. 1; 1979, c. 409, ss. 1‑6; 1981,c. 761, ss. 1‑5; 1985, c. 666, s. 46; 1991, c. 720, s. 19; 1993, c. 452,ss. 52‑56; 1999‑219, s. 10; 2001‑334, s. 17.1; 2007‑127,ss. 17, 18.)

State Codes and Statutes

Statutes > North-carolina > Chapter_58 > GS_58-58-50

§ 58‑58‑50. Standard Valuation Law.

(a)        This section shallbe known as the Standard Valuation Law.

(b)        Each year theCommissioner shall value or cause to be valued the reserve liabilities("reserves") for all outstanding life insurance policies, annuity contracts,and pure endowment contracts of every life insurance company doing business inthis State. In the case of an alien company, the valuation shall be limited toits United States business. The Commissioner may certify the amount of eachcompany's reserves, specifying the mortality or morbidity tables, withdrawalrates, and other assumptions regarding when, and the degree to which,policyholders exercise contract options, such as full or partial withdrawal,rate or rates of interest, and methods, such as net level premium method orother, used in the Commissioner's calculation of the company's reserves. Groupmethods and approximate averages for fractions of a year or otherwise may beused by the Commissioner in calculating the company's reserves, and theCommissioner may accept the valuation made by the company upon evidence of itscorrectness that the Commissioner requires. For foreign or alien insurancecompanies, the Commissioner may accept any valuation made or caused to be madeby the insurance regulator of any state or other jurisdiction if (i) thatvaluation complies with the minimum standard provided in this section and (ii)that regulator accepts as legally sufficient and valid the Commissioner'scertificate of valuation when that certificate states that the valuation hasbeen made in a specified manner according to which the aggregate reserves wouldbe at least as great as if they had been computed in the manner prescribed bythe law of that state or jurisdiction.

(c)       (1)        Exceptas otherwise provided in subdivisions (3) and (4) of this subsection, theminimum standard for the valuation of all such policies and contracts issuedbefore the effective date of this section shall be that provided by the laws ineffect immediately before that date, except that the minimum standard for thevaluation of annuities and pure endowments purchased under group annuity andpure endowment contracts issued before that date shall be that provided by thelaws in effect immediately before that date but replacing the interest ratesspecified in such laws by an interest rate of five percent (5%) per annum, andfive and one‑half percent (5 ½%) interest for single premium lifeinsurance policies.

(2)        Except as otherwiseprovided in subdivisions (3) and (4) of this subsection, the minimum standardsfor the valuation of all such policies and contracts issued on or after theeffective date of this section shall be the Commissioner's reserve valuationmethods defined in subsections (d), (d‑1) and (g), five percent (5%)interest for group annuity and pure endowment contracts and three and one‑halfpercent (3 ½%) interest for all other policies and contracts, or, in the caseof policies and contracts other than annuity and pure endowment contracts,issued on or after July 1, 1975, four percent (4%) interest for such policiesissued prior to April 19, 1979, and four and one‑half percent (4 ½%)interest for such policies issued on or after April 19, 1979, and the followingtables:

a.         For all ordinarypolicies of life insurance issued on the standard basis, excluding anydisability and accidental death benefits in such policies – the Commissioner's1941 Standard Ordinary Mortality Table for such policies issued prior to theoperative date of subdivision (e)(2) of G.S. 58‑58‑55, the Commissioner's1958 Standard Ordinary Mortality Table for such policies issued on or after theoperative date of subdivision (e)(2) of G.S. 58‑58‑55 prior to theoperative date of subdivision (e)(4) of G.S. 58‑58‑55, providedthat for any category of such policies issued on female risks, all modified netpremiums and present values referred to in this section may be calculatedaccording to an age not more than six years younger than the actual age of theinsured; and, for such policies issued on or after the operative date ofsubdivision (e)(4) of G.S. 58‑58‑55, (i) the Commissioner's 1980Standard Ordinary Mortality Table, or (ii) at the election of the company forany one or  more specified plans of life insurance, the Commissioner's 1980Standard Ordinary Mortality Table with Ten‑Year Select Mortality Factors,or (iii) any ordinary mortality table, adopted after 1980 by the NAIC, that isapproved by regulation promulgated by the Commissioner for use in determiningthe minimum standard of valuation for such policies;

b.         For all industriallife insurance policies issued on the standard basis, excluding any disabilityand accidental death benefits in such policies – the 1941 Standard IndustrialMortality Table for such policies issued prior to the operative date ofsubdivision (e)(3) of G.S. 58‑58‑55 and for such policies issued onor after such operative date the Commissioner's 1961 Standard IndustrialMortality Table or any industrial mortality table, adopted after 1980 by theNAIC, that is approved by regulation promulgated by the Commissioner for use indetermining the minimum standard of valuation for such policies;

c.         For individualannuity and pure endowment contracts, excluding any disability and accidentaldeath 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 either of these tables approved by the Commissioner;

d.         For group annuityand pure endowment contracts, excluding any disability and accidental deathbenefits in such policies – the Group Annuity Mortality Table for 1951, anymodification of such table approved by the Commissioner, or, at the option ofthe company, any of the tables or modifications of tables specified for individualannuity and pure endowment contracts;

e.         For total andpermanent disability benefits in or supplementary to ordinary policies orcontracts – for policies or contracts issued on or after January 1, 1966, thetables of Period 2 disablement rates and the 1930 to 1950 termination rates ofthe 1952 Disability Study of the Society of Actuaries, with due regard to thetype of benefit or any tables of disablement rates and termination rates,adopted after 1980 by the NAIC, that are approved by regulation promulgated bythe Commissioner for use in determining the minimum standard of valuation forsuch 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 thecompany, the Class (3) Disability Table (1926); and for policies issued priorto January 1, 1961, the Class (3) Disability Table (1926). Any such tableshall, for active lives, be combined with a mortality table permitted forcalculating the reserves for life insurance policies;

f.          For accidentaldeath benefits in or supplementary to policies – for policies issued on orafter January 1, 1966, the 1959 Accidental Death Benefits Table or anyaccidental death benefits table, adopted after 1980 by the NAIC, that isapproved by regulation promulgated by the Commissioner for use in determiningthe minimum standard of valuation for such policies; for policies issued on orafter January 1, 1961, and prior to January 1, 1966, either such table or, atthe option of the company, the Inter‑Company Double Indemnity MortalityTable; and for policies issued prior to January 1, 1961, the Inter‑CompanyDouble Indemnity Mortality Table. Either table shall be combined with amortality table permitted for calculating the reserves for life insurancepolicies;

g.         For group lifeinsurance, life insurance issued on the substandard basis and other specialbenefits – such tables as may be approved by the Commissioner.

(3)        Except as providedin subdivision (4) of this subsection, the minimum standard for the valuationof all individual annuity and pure endowment contracts issued on or after theoperative date of this subdivision (3), as defined herein, and for allannuities and pure endowments purchased on or after such operative date undergroup annuity and pure endowment contracts, shall be the Commissioner's reservevaluation methods defined in subsections (d) and (d‑1) and the followingtables and interest rates:

a.         For individualannuity and pure endowment contracts issued prior to April 19, 1979, excludingany disability and accidental death benefits in such contracts – the 1971Individual Annuity Mortality Table, or any modification of this table approvedby the Commissioner, and six percent (6%) interest for single premium immediateannuity contracts, and four percent (4%) interest for all other individualannuity and pure endowment contracts;

b.         For individualsingle premium immediate annuity contracts issued on or after April 19, 1979,excluding any disability and accidental death benefits in such contracts – the1971 Individual Annuity Mortality Table or any individual annuity mortalitytable, adopted after 1980 by the NAIC, that is approved by regulationpromulgated by the Commissioner for use in determining the minimum standard ofvaluation for such contracts, or any modification of these tables approved bythe Commissioner, and seven and one‑half percent (7 ½%) interest;

c.         For individualannuity and pure endowment contracts issued on or after April 19, 1979, otherthan single premium immediate annuity contracts, excluding any disability andaccidental death benefits in such contracts – the 1971 Individual AnnuityMortality Table or any individual annuity mortality table, adopted after 1980by the NAIC, that is approved by regulation promulgated by the Commissioner foruse in determining the minimum standard of valuation for such contracts, or anymodification of these tables approved by the Commissioner, and five and one‑halfpercent (5 ½%) interest for single premium deferred annuity and pure endowmentcontracts and four and one‑half percent (4 ½%) interest for all othersuch individual annuity and pure endowment contracts;

d.         For all annuitiesand pure endowments purchased prior to April 19, 1979, under group annuity andpure endowment contracts, excluding any disability and accidental deathbenefits purchased under such contracts – the 1971 Group Annuity MortalityTable, or any modification of this table approved by the Commissioner, and sixpercent (6%) interest;

e.         For all annuitiesand pure endowments purchased on or after April 19, 1979, under group annuityand pure endowment contracts, excluding any disability and accidental deathbenefits purchased under such contracts – the 1971 Group Annuity MortalityTable or any group annuity mortality table, adopted after 1980 by the NAIC,that is approved by regulation promulgated by the Commissioner for use indetermining the minimum standard of valuation for such annuities and pureendowments, or any modification of these tables approved by the Commissioner,and seven and one‑half percent (7 ½%) interest.

            AfterJuly 1, 1975, any company may file with the Commissioner a written notice ofits election to comply with the provisions of this subdivision (3) after aspecified date before January 1, 1979, which shall be the operative date ofthis subdivision for such company, provided, a company may elect a differentoperative date for individual annuity and pure endowment contracts from thatelected for group annuity and pure endowment contracts. If a company makes nosuch election, the operative date of this subdivision for such company shall beJanuary 1, 1979.

(4)       a.         Applicabilityof This Subdivision. The interest rates used in determining the minimumstandard for the valuation of:

1.         All life insurancepolicies issued in a particular calendar year, on or after the operative dateof subdivision (e)(4) of G.S. 58‑58‑55,

2.         All individualannuity and pure endowment contracts issued in a particular calendar year on orafter January 1, 1982,

3.         All annuities andpure endowments purchased in a particular calendar year on or after January 1,1982, under group annuity and pure endowment contracts, and

4.         The net increase, ifany, in a particular calendar year after January 1, 1982, in amounts held underguaranteed interest contracts

shall be the calendar year statutory valuationinterest rates as defined in this subdivision.

b.         Calendar YearStatutory Valuation Interest Rates.

1.         The calendar yearstatutory valuation interest rates, I shall be determined as follows and theresults rounded to the nearer one‑quarter of one percent (¼ of 1%):

I.          For life insurance,

I = .03 plus W (R1 – .03) plus W/2 : (R2– .09);

II.         For single premiumimmediate annuities and for annuity benefits involving life contingenciesarising from other annuities with cash settlement options and from guaranteedinterest contracts with cash settlement options,

I = .03 plus W (R – .03)

whereR1 is the lesser of R and .09,

R2is the greater of R and .09,

R isthe reference interest rate defined in this subdivision, and W is the weightingfactor defined in this subdivision,

III.       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on an issue year basis, except as stated in II above,the formula for life insurance stated in I above shall apply to annuities andguaranteed interest contracts with guarantee durations in excess of 10 yearsand the formula for single premium immediate annuities stated in II above shallapply to annuities and guaranteed interest contracts with guarantee duration of10 years or less,

IV.       For other annuitieswith no cash settlement options and for guaranteed interest contracts with nocash settlement options, the formula for single premium immediate annuitiesstated in II above shall apply,

V.        For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on a change in fund basis, the formula for singlepremium immediate annuities stated in II above shall apply.

2.         However, if thecalendar year statutory valuation interest rate for any life insurance policiesissued in any calendar year determined without reference to this sentencediffers from the corresponding actual rate for similar policies issued in theimmediately preceding calendar year by less than one‑half of one percent(½ of 1%), the calendar year statutory valuation interest rate for such lifeinsurance policies shall be equal to the corresponding actual rate for theimmediately preceding calendar year. For purposes of applying the immediatelypreceding sentence, the calendar year statutory valuation interest rate forlife insurance policies issued in a calendar year shall be determined for 1980(using the reference interest rate defined for 1979) and shall be determinedfor each subsequent calendar year regardless of when subdivision (e)(4) of G.S.58‑58‑55 becomes operative.

c.         Weighting Factors.

1.         The weightingfactors referred to in the formulas stated above are given in the followingtables:

I.          Weighting Factorsfor Life Insurance:

Guarantee

Duration                                                           Weighting

(Years)                                                                Factors

10 orless                                                                   .50

Morethan 10, but not more than 20                           .45

Morethan 20                                                             .35

                 For life insurance, the guaranteeduration is the maximum number of years the life insurance can remain in forceon a basis guaranteed in the policy or under options to convert to plans oflife insurance with premium rates or nonforfeiture values or both which areguaranteed in the original policy;

II.         Weighting factorfor single premium immediate annuities and for annuity benefits involving lifecontingencies arising from other annuities with cash settlement options andguaranteed interest contracts with cash settlement options:

.80

III.       Weighting factorsfor other annuities and for guaranteed interest contracts, except as stated inII. above, shall be as specified in tables (i), (ii), and (iii) below,according to the rules and definitions in (iv), (v) and (vi) below:

(i)         For annuities andguaranteed interest contracts valued on an issue year basis:

Guarantee                                  WeightingFactor

Duration                                        ForPlan Type

(Years)                                     A       B      C

5 orless:                                        .80     .60  .50

Morethan 5, but not

more than 10:                            .75     .60  .50

Morethan 10, but not

more than 20:                            .65     .50  .45

More than 20:                                .45     .35  .35

(ii)        For annuities and                            PlanType

guaranteed interest                         A       B      C

contracts valued on

achange in fund basis,

thefactors shown in

(i)above increased

by:                                                 .15     .25  .05

(iii)       For annuities and                            PlanType

guaranteed interest                         A       B      C

contractsvalued

on anissue year

basis(other than

thosewith no cash

settlementoptions)

whichdo not

guaranteeinterest on

considerationsreceived

morethan one year

afterissue or

purchaseand for

annuitiesand

guaranteedinterest

contractsvalued

on achange in fund

basiswhich do not

guaranteeinterest

rateson considerations

receivedmore than 12

monthsbeyond the

valuationdate, the

factorsshown in (i)

orderived in (ii)

increased by:                                  .05     .05  .05

(iv)       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, the guarantee duration is the number of years for which thecontract guarantees interest rates in excess of the calendar year statutoryvaluation interest rate for life insurance policies with guarantee duration inexcess of 20 years. For other annuities with no cash settlement options and forguaranteed interest contracts with no cash settlement options, the guaranteeduration is the number of years from the date of issue or date of purchase tothe date annuity benefits are scheduled to commence.

(v)        Plan type as used inthe above tables is defined as follows:

Plan     Type A:   At any time policyholder maywithdraw funds only (1) with an adjustment to reflect changes in interest ratesor 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) asan immediate life annuity, or (4) no withdrawal permitted.

Plan     Type B:   Before expiration of the interestrate guarantee, policyholder may withdraw funds only (1) with an adjustment toreflect changes in interest rates or asset values since receipt of the funds bythe insurance company, or (2) without such adjustment but in installments overfive years or more, or (3) no withdrawal permitted. At the end of interest rateguarantee, funds may be withdrawn without such adjustment in a single sum orinstallments over less than five years.

Plan     Type C:   Policyholder may withdraw fundsbefore expiration of interest rate guarantee in a single sum or installmentsover less than five years either (1) without adjustment to reflect changes ininterest rates or asset values since receipt of the funds by the insurancecompany, or (2) subject only to a fixed surrender charge stipulated in thecontract as a percentage of the fund.

(vi)       A company may electto value guaranteed interest contracts with cash settlement options andannuities with cash settlement options on either an issue year basis or on achange in fund basis. Guaranteed interest contracts with no cash settlementoptions and other annuities with no cash settlement options must be valued onan issue year basis. As used in this section, an issue year basis of valuationrefers to a valuation basis under which the interest rate used to determine theminimum valuation standard for the entire duration of the annuity or guaranteedinterest contract is the calendar year valuation interest rate for the year ofissue or year of purchase of the annuity or guaranteed interest contract, andthe change in fund basis of valuation refers to a valuation basis under which theinterest rate used to determine the minimum valuation standard applicable toeach change in the fund held under the annuity or guaranteed interest contractis the calendar year valuation interest rate for the year of the change in thefund.

d.         Reference InterestRate.

1.         The referenceinterest rate referred to in paragraph b of this subdivision shall be definedas follows:

I.          For all lifeinsurance, the lesser of the average over a period of 36 months and the averageover a period of 12 months, ending on June 30 of the calendar year nextpreceding the year of issue, of Moody's Corporate Bond Yield Average – MonthlyAverage Corporates, as published by Moody's Investors Service, Inc.

II.         For single premiumimmediate annuities and for annuity benefits involving life contingenciesarising from other annuities with cash settlement options and guaranteedinterest contracts with cash settlement options, the average over a period of12 months, ending on June 30 of the calendar year of issue or year of purchase,of Moody's Corporate Bond Yield Average – Monthly Average Corporates, aspublished by Moody's Investors Service, Inc.

III.       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on a year of issue basis, except as stated in IIabove, with guarantee duration in excess of 10 years, the lesser of the averageover a period of 36 months and the average over a period of 12 months, endingon June 30 of the calendar year of issue or purchase, of Moody's Corporate BondYield Average – Monthly Average Corporates, as published by Moody's InvestorsService, Inc.

IV.       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on a year of issue basis, except as stated in IIabove, with guarantee duration of 10 years or less, the average over a periodof 12 months, ending on June 30 of the calendar year of issue or purchase, ofMoody's Corporate Bond Yield Average – Monthly Average Corporates, as publishedby Moody's Investors Service, Inc.

V.        For other annuitieswith no cash settlement options and for guaranteed interest contracts with nocash settlement options, the average over a period of 12 months, ending on June30 of the calendar year of issue or purchase, of Moody's Corporate Bond YieldAverage – Monthly Average Corporates, as published by Moody's InvestorsService, Inc.

VI.       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on a change in fund basis, except as stated in IIabove, the average over a period of 12 months, ending on June 30 of thecalendar year of the change in the fund, of Moody's Corporate Bond YieldAverage – Monthly Average Corporates, as published by Moody's InvestorsService, Inc.

e.         Alternative Methodfor Determining Reference Interest Rates.

1.         In the event thatMoody's Corporate Bond Yield Average – Monthly Average Corporates is no longerpublished by Moody's Investors Service, Inc., or in the event that the NAICdetermines that Moody's Corporate Bond Yield Average – Monthly AverageCorporates as published by Moody's Investors Service, Inc., is no longerappropriate for the determination of the reference interest rate, than analternative method for determination of the reference interest rate, which isadopted by the NAIC and approved by regulation promulgated by the Commissioner,may be substituted.

(d)        Except as otherwiseprovided in subsections (d‑1) and (g), reserves according to theCommissioner's reserve valuation method, for the life insurance and endowmentbenefits of policies providing for a uniform amount of insurance and requiringthe payment of uniform premiums, shall be the excess, if any, of the presentvalue, at the date of valuation, of such future guaranteed benefits providedfor by such policies, over the then present value of any future modified netpremiums therefor. The modified net premiums for any such policy shall be suchuniform percentage of the respective contract premiums for such benefits thatthe present value, at the date of issue of the policy, of all such modified netpremiums shall be equal to the sum of the then present value of such benefitsprovided for by the policy and the excess of (1) and (2), as follows:

(1)        A net level annualpremium equal to the present value, at the date of issue, of such benefitsprovided for after the first policy year, divided by the present value, at thedate of issue, of an annuity of one per annum payable on the first and eachsubsequent anniversary of such policy on which a premium falls due; provided,however, that such net level annual premium shall not exceed the net levelannual premium on the 19‑year premium whole life plan for insurance ofthe same amount at an age one year higher than the age at issue of such policy.

(2)        A net one year termpremium for such benefits provided for in the first policy year.

Provided that for any lifeinsurance policy issued on or after January 1, 1985, for which the contractpremium in the first policy year exceeds that of the second year and for whichno comparable additional benefits are provided in the first year for suchexcess and which provides an endowment benefit or a cash surrender value of acombination thereof in an amount greater than such excess premium, the reserveaccording to the Commissioner's reserve valuation method as of any policyanniversary occurring on or before the assumed ending date defined herein asthe first policy anniversary on which the sum of any endowment benefit and anycash surrender value then available is greater than such excess premium shall,except as otherwise provided in subsection (g), be the greater of the reserveas of such policy anniversary calculated as described in the first paragraph ofthis subsection and the reserve as of such policy anniversary calculated asdescribed in that paragraph, but with (i) the value defined in subparagraph (1)of that paragraph being reduced by fifteen percent (15%) of the amount of suchexcess first year premium, (ii) all present values of benefits and premiumsbeing determined without reference to premiums or benefits provided for by thepolicy after the assumed ending date, (iii) the policy being assumed to matureon such date as an endowment, and (iv) the cash surrender value provided onsuch date being considered as an endowment benefit. In making the abovecomparison the mortality and interest bases stated in subdivisions (2) and (4)of subsection (c) shall be used.

Reserves according to theCommissioner's reserve valuation method for: (i) life insurance policiesproviding for a varying amount of insurance or requiring the payment of varyingpremiums; (ii) group annuity and pure endowment contracts purchased under aretirement plan or plan of deferred compensation, established or maintained byan employer (including a partnership or sole proprietorship) or by an employeeorganization, or by both, other than a plan providing individual retirementaccounts or individual retirement annuities under section 408 of the InternalRevenue Code, as now or hereafter amended; (iii) disability and accidentaldeath benefits in all policies and contracts; and (iv) all other benefits,except life insurance and endowment benefits in life insurance policies andbenefits provided by all other annuity and pure endowment contracts, shall becalculated by a method consistent with the principles of this subsection exceptthat any extra premiums charged because of impairments or special hazards shallbe disregarded in the determination of modified net premiums.

(d‑1)    This subsectionshall apply to all annuity and pure endowment contracts other than groupannuity and pure endowment contracts purchased under a retirement plan or planof deferred compensation, established or maintained by an employer (including apartnership or sole proprietorship) or by an employee organization, or by both,other than a plan providing individual retirement accounts or individualretirement annuities under section 408 of the Internal Revenue Code, as now orhereafter amended.

Reserves according to theCommissioner's annuity reserve method for benefits under annuity or pureendowment contracts, excluding any disability and accidental death benefits insuch contracts, shall be the greatest of the respective excesses of the presentvalues, at the date of valuation, of the future guaranteed benefits, includingguaranteed nonforfeiture benefits, provided for by such contracts at the end ofeach respective contract year, over the present value, at the date ofvaluation, of any future valuation considerations derived from future grossconsiderations, required by the terms of such contract, that become payableprior to the end of such respective contract year. The future guaranteedbenefits shall be determined by using the mortality table, if any, and theinterest rate, or rates, specified in such contracts for determining guaranteedbenefits. The valuation considerations are the portions of the respective grossconsiderations applied under the terms of such contracts to determine nonforfeiturevalues.

(e)        In no event shall acompany's aggregate reserves for all life insurance policies, excludingdisability and accidental death benefits, issued on or after the effective dateof this section, be less than the aggregate reserves calculated in accordancewith the methods set forth in subsections (d), (d‑1), (g) and (h) of thissection and the mortality table or tables and rate or rates of interest used incalculating nonforfeiture benefits for such policies. In no event shall theaggregate reserves for all policies, contracts, and benefits be less than theaggregate reserves determined by the qualified actuary to be necessary torender the opinion required by subsection (i) of this section.

(f)         Reserves for allpolicies and contracts issued before the effective date of this section may becalculated, at the option of the company, according to any standards thatproduce greater aggregate reserves for those policies and contracts than theminimum reserves required by the laws in effect immediately before that date.

Reserves for any category ofpolicies, contracts or benefits as established by the Commissioner, issued onor after the effective date of this section may be calculated, at the option ofthe company, according to any standards that produce greater aggregate reservesfor such category than those calculated according to the minimum standardherein provided, but the rate or rates of interest used for policies andcontracts, other than annuity and pure endowment contracts, shall not be higherthan the corresponding rate or rates of interest used in calculating anynonforfeiture benefits provided for therein.

Any such company that adoptsany standard of valuation producing greater aggregate reserves than thosecalculated according to the minimum standard herein provided may, with theapproval of the Commissioner, adopt any lower standard of valuation, but notlower than the minimum herein provided. Provided, however, that for thepurposes of this section, the holding of additional reserves previouslydetermined by a qualified actuary to be necessary to render the opinionrequired by subsection (c) of this section shall not be deemed to be theadoption of a higher standard of valuation.

(g)        If in any contractyear the gross premium charged by any life insurance company on any policy orcontract is less than the valuation net premium for the policy or contractcalculated by the method used in calculating the reserve thereon but using theminimum valuation standards of mortality and rate of interest, the minimumreserve required for such policy or contract shall be the greater of either thereserve calculated according to the mortality table, rate of interest, andmethod actually used for such policy or contract, or the reserve calculated bythe method actually used for such policy or contract but using the minimumvaluation standards of mortality and rate of interest and replacing thevaluation net premium by the actual gross premium in each contract year forwhich the valuation net premium exceeds the actual gross premium. The minimumvaluation standards of mortality and rate of interest referred to in thissubsection are those standards stated in subdivisions (1), (2) and (4) ofsubsection (c).

Provided that for any lifeinsurance policy issued on or after January 1, 1985, for which the grosspremium in the first policy year exceeds that of the second year and for whichno comparable additional benefit is provided in the first year for such excessand which provides an endowment benefit or a cash surrender value or acombination thereof in an amount greater than such excess premium, theforegoing provisions of this subsection (g) shall be applied as if the methodactually used in calculating the reserve for such policy were the methoddescribed in subsection (d), ignoring the second paragraph of subsection (d).The minimum reserve at each policy anniversary of such a policy shall be thegreater of the minimum reserve calculated in accordance with subsection (d),including the second paragraph of that subsection, and the minimum reservecalculated in accordance with this subsection (g).

(h)        In the case of anyplan of life insurance which provides for future premium determination, theamounts of which are to be determined by the insurance company based on thenestimates of future experience, or in the case of any plan of life insurance orannuity which is of such a nature that the minimum reserves cannot bedetermined by the methods described in subsections (d), (d‑1), and (g),the reserves which are held under any such plan must:

(1)        Be appropriate inrelation to the benefits and the pattern of premiums for that plan, and

(2)        Be computed by amethod which is consistent with the principles of this Standard Valuation Law,as determined by regulations promulgated by the Commissioner.

(i)         Every lifeinsurance company doing business in this State shall annually submit theopinion of a qualified actuary as to whether the reserves and related actuarialitems held in support of the policies and contracts specified by theCommissioner by rule are computed appropriately, are based on assumptions thatsatisfy contractual provisions, are consistent with previously reportedamounts, and comply with applicable laws of this State. The Commissioner byrule shall define the specifics of this opinion and add any other items deemedto be necessary to its scope. Every life insurance company, except as exemptedby or pursuant to rule, shall also annually include in the opinion required bythis subsection, an opinion of the same qualified actuary as to whether thereserves and related actuarial items held in support of the policies andcontracts specified by the Commissioner by rule, when considered in light ofthe assets held by the company with respect to the reserves and related actuarialitems, including but not limited to the investment earnings on the assets andthe considerations anticipated to be received and retained under the policiesand contracts, make adequate provision for the company's obligations under thepolicies and contracts, including but not limited to the benefits under andexpenses associated with the policies and contracts. The Commissioner mayprovide by rule for a transition period for establishing any higher reservesthat the qualified actuary may deem to be necessary in order to render theopinion required by this subsection.

(j)         Each opinionrequired by subsection (i) of this section shall be governed by the followingprovisions:

(1)        A memorandum, inform and substance acceptable to the Commissioner as specified by rule, shallbe prepared to support each actuarial opinion.

(2)        If the insurancecompany fails to provide a supporting memorandum at the request of theCommissioner within a period specified by rule or the Commissioner determinesthat the supporting memorandum provided by the insurance company fails to meetthe standards prescribed by the rules or is otherwise unacceptable to theCommissioner, the Commissioner may engage a qualified actuary at the expense ofthe company to review the opinion and the basis for the opinion and preparesuch supporting memorandum as is required by the Commissioner.

(3)        The opinion shall besubmitted with the annual statement reflecting the valuation of such reserveliabilities for each year ending on or after December 31, 1994.

(4)        The opinion shallapply to all business in force including individual and group health insuranceplans, in form and substance acceptable to the Commissioner as specified byrule.

(5)        The opinion shall bebased on standards adopted from time to time by the actuarial standards boardand on such additional standards as the Commissioner may by rule prescribe.

(6)        In the case of anopinion required to be submitted by a foreign or alien company, theCommissioner may accept the opinion filed by that company with the insurancesupervisory official of another state if the Commissioner determines that theopinion reasonably meets the requirements applicable to a company domiciled inthis State.

(7)        For the purposes ofthis section, "qualified actuary" means a member in good standing ofthe American Academy of Actuaries who meets the requirement set forth in suchrules.

(8)        Except in cases offraud or willful misconduct, the qualified actuary shall not be liable fordamages to any person (other than the insurance company and the Commissioner)for any act, error, omission, decision, or conduct with respect to theactuary's opinion.

(9)        Disciplinary actionby the Commissioner against the company or the qualified actuary shall bedefined in rules by the Commissioner.

(10)      Any memorandum insupport of the opinion, and any other material provided by the company to theCommissioner in connection therewith, shall be kept confidential by theCommissioner and shall not be made public and shall not be subject to subpoena,other than for the purpose of defending an action seeking damages from anyperson by reason of any action required by this section or by rules adoptedunder this section; provided, however, that the memorandum or other materialmay otherwise be released by the Commissioner (i) with the written consent ofthe company or (ii) to the American Academy of Actuaries upon request statingthe memorandum or other material is required for the purpose of professionaldisciplinary proceedings and setting forth procedures satisfactory to theCommissioner for preserving the confidentiality of the memorandum or othermaterial. Once any portion of the confidential memorandum is cited by thecompany in its marketing or is cited before any governmental agency other thana state insurance department or is released by the company to the news media,all portions of the confidential memorandum shall be no longer confidential.

(k)        The Commissionershall adopt rules containing the minimum standards applicable to the valuationof health plans. The Commissioner may also adopt rules for the purpose ofrecognizing new annuity mortality tables for use in determining reserveliabilities for annuities and may adopt rules that govern minimum valuationstandards for reserves of life insurance companies. In adopting these rules,the Commissioner may consider model laws and regulations promulgated andamended from time to time by the NAIC.

(l)         The Commissionermay adopt rules for life insurers for the following matters:

(1)        Reserves for contractsissued by insurers.

(2)        Optional smoker‑nonsmokermortality tables permitted for use in determining minimum reserve liabilitiesand nonforfeiture benefits.

(3)        Optional blendedgender mortality tables permitted for use in determining nonforfeiture benefitsfor individual life policies.

(4)        Optional tablesacceptable for use in determining reserves and minimum cash surrender valuesand amounts of paid‑up nonforfeiture benefits.

(5)        Assumptions forpolicyholder withdrawal rates for use in determining minimum reserveliabilities.

In adopting these rules, theCommissioner may consider model laws and regulations promulgated and amendedfrom time to time by the NAIC. (1945, c. 379; 1959, c. 484, s. 1; 1961, c. 255, ss. 1‑3;1963, c. 791, ss. 1, 2; 1975, c. 603, s. 1; 1979, c. 409, ss. 1‑6; 1981,c. 761, ss. 1‑5; 1985, c. 666, s. 46; 1991, c. 720, s. 19; 1993, c. 452,ss. 52‑56; 1999‑219, s. 10; 2001‑334, s. 17.1; 2007‑127,ss. 17, 18.)


State Codes and Statutes

State Codes and Statutes

Statutes > North-carolina > Chapter_58 > GS_58-58-50

§ 58‑58‑50. Standard Valuation Law.

(a)        This section shallbe known as the Standard Valuation Law.

(b)        Each year theCommissioner shall value or cause to be valued the reserve liabilities("reserves") for all outstanding life insurance policies, annuity contracts,and pure endowment contracts of every life insurance company doing business inthis State. In the case of an alien company, the valuation shall be limited toits United States business. The Commissioner may certify the amount of eachcompany's reserves, specifying the mortality or morbidity tables, withdrawalrates, and other assumptions regarding when, and the degree to which,policyholders exercise contract options, such as full or partial withdrawal,rate or rates of interest, and methods, such as net level premium method orother, used in the Commissioner's calculation of the company's reserves. Groupmethods and approximate averages for fractions of a year or otherwise may beused by the Commissioner in calculating the company's reserves, and theCommissioner may accept the valuation made by the company upon evidence of itscorrectness that the Commissioner requires. For foreign or alien insurancecompanies, the Commissioner may accept any valuation made or caused to be madeby the insurance regulator of any state or other jurisdiction if (i) thatvaluation complies with the minimum standard provided in this section and (ii)that regulator accepts as legally sufficient and valid the Commissioner'scertificate of valuation when that certificate states that the valuation hasbeen made in a specified manner according to which the aggregate reserves wouldbe at least as great as if they had been computed in the manner prescribed bythe law of that state or jurisdiction.

(c)       (1)        Exceptas otherwise provided in subdivisions (3) and (4) of this subsection, theminimum standard for the valuation of all such policies and contracts issuedbefore the effective date of this section shall be that provided by the laws ineffect immediately before that date, except that the minimum standard for thevaluation of annuities and pure endowments purchased under group annuity andpure endowment contracts issued before that date shall be that provided by thelaws in effect immediately before that date but replacing the interest ratesspecified in such laws by an interest rate of five percent (5%) per annum, andfive and one‑half percent (5 ½%) interest for single premium lifeinsurance policies.

(2)        Except as otherwiseprovided in subdivisions (3) and (4) of this subsection, the minimum standardsfor the valuation of all such policies and contracts issued on or after theeffective date of this section shall be the Commissioner's reserve valuationmethods defined in subsections (d), (d‑1) and (g), five percent (5%)interest for group annuity and pure endowment contracts and three and one‑halfpercent (3 ½%) interest for all other policies and contracts, or, in the caseof policies and contracts other than annuity and pure endowment contracts,issued on or after July 1, 1975, four percent (4%) interest for such policiesissued prior to April 19, 1979, and four and one‑half percent (4 ½%)interest for such policies issued on or after April 19, 1979, and the followingtables:

a.         For all ordinarypolicies of life insurance issued on the standard basis, excluding anydisability and accidental death benefits in such policies – the Commissioner's1941 Standard Ordinary Mortality Table for such policies issued prior to theoperative date of subdivision (e)(2) of G.S. 58‑58‑55, the Commissioner's1958 Standard Ordinary Mortality Table for such policies issued on or after theoperative date of subdivision (e)(2) of G.S. 58‑58‑55 prior to theoperative date of subdivision (e)(4) of G.S. 58‑58‑55, providedthat for any category of such policies issued on female risks, all modified netpremiums and present values referred to in this section may be calculatedaccording to an age not more than six years younger than the actual age of theinsured; and, for such policies issued on or after the operative date ofsubdivision (e)(4) of G.S. 58‑58‑55, (i) the Commissioner's 1980Standard Ordinary Mortality Table, or (ii) at the election of the company forany one or  more specified plans of life insurance, the Commissioner's 1980Standard Ordinary Mortality Table with Ten‑Year Select Mortality Factors,or (iii) any ordinary mortality table, adopted after 1980 by the NAIC, that isapproved by regulation promulgated by the Commissioner for use in determiningthe minimum standard of valuation for such policies;

b.         For all industriallife insurance policies issued on the standard basis, excluding any disabilityand accidental death benefits in such policies – the 1941 Standard IndustrialMortality Table for such policies issued prior to the operative date ofsubdivision (e)(3) of G.S. 58‑58‑55 and for such policies issued onor after such operative date the Commissioner's 1961 Standard IndustrialMortality Table or any industrial mortality table, adopted after 1980 by theNAIC, that is approved by regulation promulgated by the Commissioner for use indetermining the minimum standard of valuation for such policies;

c.         For individualannuity and pure endowment contracts, excluding any disability and accidentaldeath 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 either of these tables approved by the Commissioner;

d.         For group annuityand pure endowment contracts, excluding any disability and accidental deathbenefits in such policies – the Group Annuity Mortality Table for 1951, anymodification of such table approved by the Commissioner, or, at the option ofthe company, any of the tables or modifications of tables specified for individualannuity and pure endowment contracts;

e.         For total andpermanent disability benefits in or supplementary to ordinary policies orcontracts – for policies or contracts issued on or after January 1, 1966, thetables of Period 2 disablement rates and the 1930 to 1950 termination rates ofthe 1952 Disability Study of the Society of Actuaries, with due regard to thetype of benefit or any tables of disablement rates and termination rates,adopted after 1980 by the NAIC, that are approved by regulation promulgated bythe Commissioner for use in determining the minimum standard of valuation forsuch 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 thecompany, the Class (3) Disability Table (1926); and for policies issued priorto January 1, 1961, the Class (3) Disability Table (1926). Any such tableshall, for active lives, be combined with a mortality table permitted forcalculating the reserves for life insurance policies;

f.          For accidentaldeath benefits in or supplementary to policies – for policies issued on orafter January 1, 1966, the 1959 Accidental Death Benefits Table or anyaccidental death benefits table, adopted after 1980 by the NAIC, that isapproved by regulation promulgated by the Commissioner for use in determiningthe minimum standard of valuation for such policies; for policies issued on orafter January 1, 1961, and prior to January 1, 1966, either such table or, atthe option of the company, the Inter‑Company Double Indemnity MortalityTable; and for policies issued prior to January 1, 1961, the Inter‑CompanyDouble Indemnity Mortality Table. Either table shall be combined with amortality table permitted for calculating the reserves for life insurancepolicies;

g.         For group lifeinsurance, life insurance issued on the substandard basis and other specialbenefits – such tables as may be approved by the Commissioner.

(3)        Except as providedin subdivision (4) of this subsection, the minimum standard for the valuationof all individual annuity and pure endowment contracts issued on or after theoperative date of this subdivision (3), as defined herein, and for allannuities and pure endowments purchased on or after such operative date undergroup annuity and pure endowment contracts, shall be the Commissioner's reservevaluation methods defined in subsections (d) and (d‑1) and the followingtables and interest rates:

a.         For individualannuity and pure endowment contracts issued prior to April 19, 1979, excludingany disability and accidental death benefits in such contracts – the 1971Individual Annuity Mortality Table, or any modification of this table approvedby the Commissioner, and six percent (6%) interest for single premium immediateannuity contracts, and four percent (4%) interest for all other individualannuity and pure endowment contracts;

b.         For individualsingle premium immediate annuity contracts issued on or after April 19, 1979,excluding any disability and accidental death benefits in such contracts – the1971 Individual Annuity Mortality Table or any individual annuity mortalitytable, adopted after 1980 by the NAIC, that is approved by regulationpromulgated by the Commissioner for use in determining the minimum standard ofvaluation for such contracts, or any modification of these tables approved bythe Commissioner, and seven and one‑half percent (7 ½%) interest;

c.         For individualannuity and pure endowment contracts issued on or after April 19, 1979, otherthan single premium immediate annuity contracts, excluding any disability andaccidental death benefits in such contracts – the 1971 Individual AnnuityMortality Table or any individual annuity mortality table, adopted after 1980by the NAIC, that is approved by regulation promulgated by the Commissioner foruse in determining the minimum standard of valuation for such contracts, or anymodification of these tables approved by the Commissioner, and five and one‑halfpercent (5 ½%) interest for single premium deferred annuity and pure endowmentcontracts and four and one‑half percent (4 ½%) interest for all othersuch individual annuity and pure endowment contracts;

d.         For all annuitiesand pure endowments purchased prior to April 19, 1979, under group annuity andpure endowment contracts, excluding any disability and accidental deathbenefits purchased under such contracts – the 1971 Group Annuity MortalityTable, or any modification of this table approved by the Commissioner, and sixpercent (6%) interest;

e.         For all annuitiesand pure endowments purchased on or after April 19, 1979, under group annuityand pure endowment contracts, excluding any disability and accidental deathbenefits purchased under such contracts – the 1971 Group Annuity MortalityTable or any group annuity mortality table, adopted after 1980 by the NAIC,that is approved by regulation promulgated by the Commissioner for use indetermining the minimum standard of valuation for such annuities and pureendowments, or any modification of these tables approved by the Commissioner,and seven and one‑half percent (7 ½%) interest.

            AfterJuly 1, 1975, any company may file with the Commissioner a written notice ofits election to comply with the provisions of this subdivision (3) after aspecified date before January 1, 1979, which shall be the operative date ofthis subdivision for such company, provided, a company may elect a differentoperative date for individual annuity and pure endowment contracts from thatelected for group annuity and pure endowment contracts. If a company makes nosuch election, the operative date of this subdivision for such company shall beJanuary 1, 1979.

(4)       a.         Applicabilityof This Subdivision. The interest rates used in determining the minimumstandard for the valuation of:

1.         All life insurancepolicies issued in a particular calendar year, on or after the operative dateof subdivision (e)(4) of G.S. 58‑58‑55,

2.         All individualannuity and pure endowment contracts issued in a particular calendar year on orafter January 1, 1982,

3.         All annuities andpure endowments purchased in a particular calendar year on or after January 1,1982, under group annuity and pure endowment contracts, and

4.         The net increase, ifany, in a particular calendar year after January 1, 1982, in amounts held underguaranteed interest contracts

shall be the calendar year statutory valuationinterest rates as defined in this subdivision.

b.         Calendar YearStatutory Valuation Interest Rates.

1.         The calendar yearstatutory valuation interest rates, I shall be determined as follows and theresults rounded to the nearer one‑quarter of one percent (¼ of 1%):

I.          For life insurance,

I = .03 plus W (R1 – .03) plus W/2 : (R2– .09);

II.         For single premiumimmediate annuities and for annuity benefits involving life contingenciesarising from other annuities with cash settlement options and from guaranteedinterest contracts with cash settlement options,

I = .03 plus W (R – .03)

whereR1 is the lesser of R and .09,

R2is the greater of R and .09,

R isthe reference interest rate defined in this subdivision, and W is the weightingfactor defined in this subdivision,

III.       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on an issue year basis, except as stated in II above,the formula for life insurance stated in I above shall apply to annuities andguaranteed interest contracts with guarantee durations in excess of 10 yearsand the formula for single premium immediate annuities stated in II above shallapply to annuities and guaranteed interest contracts with guarantee duration of10 years or less,

IV.       For other annuitieswith no cash settlement options and for guaranteed interest contracts with nocash settlement options, the formula for single premium immediate annuitiesstated in II above shall apply,

V.        For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on a change in fund basis, the formula for singlepremium immediate annuities stated in II above shall apply.

2.         However, if thecalendar year statutory valuation interest rate for any life insurance policiesissued in any calendar year determined without reference to this sentencediffers from the corresponding actual rate for similar policies issued in theimmediately preceding calendar year by less than one‑half of one percent(½ of 1%), the calendar year statutory valuation interest rate for such lifeinsurance policies shall be equal to the corresponding actual rate for theimmediately preceding calendar year. For purposes of applying the immediatelypreceding sentence, the calendar year statutory valuation interest rate forlife insurance policies issued in a calendar year shall be determined for 1980(using the reference interest rate defined for 1979) and shall be determinedfor each subsequent calendar year regardless of when subdivision (e)(4) of G.S.58‑58‑55 becomes operative.

c.         Weighting Factors.

1.         The weightingfactors referred to in the formulas stated above are given in the followingtables:

I.          Weighting Factorsfor Life Insurance:

Guarantee

Duration                                                           Weighting

(Years)                                                                Factors

10 orless                                                                   .50

Morethan 10, but not more than 20                           .45

Morethan 20                                                             .35

                 For life insurance, the guaranteeduration is the maximum number of years the life insurance can remain in forceon a basis guaranteed in the policy or under options to convert to plans oflife insurance with premium rates or nonforfeiture values or both which areguaranteed in the original policy;

II.         Weighting factorfor single premium immediate annuities and for annuity benefits involving lifecontingencies arising from other annuities with cash settlement options andguaranteed interest contracts with cash settlement options:

.80

III.       Weighting factorsfor other annuities and for guaranteed interest contracts, except as stated inII. above, shall be as specified in tables (i), (ii), and (iii) below,according to the rules and definitions in (iv), (v) and (vi) below:

(i)         For annuities andguaranteed interest contracts valued on an issue year basis:

Guarantee                                  WeightingFactor

Duration                                        ForPlan Type

(Years)                                     A       B      C

5 orless:                                        .80     .60  .50

Morethan 5, but not

more than 10:                            .75     .60  .50

Morethan 10, but not

more than 20:                            .65     .50  .45

More than 20:                                .45     .35  .35

(ii)        For annuities and                            PlanType

guaranteed interest                         A       B      C

contracts valued on

achange in fund basis,

thefactors shown in

(i)above increased

by:                                                 .15     .25  .05

(iii)       For annuities and                            PlanType

guaranteed interest                         A       B      C

contractsvalued

on anissue year

basis(other than

thosewith no cash

settlementoptions)

whichdo not

guaranteeinterest on

considerationsreceived

morethan one year

afterissue or

purchaseand for

annuitiesand

guaranteedinterest

contractsvalued

on achange in fund

basiswhich do not

guaranteeinterest

rateson considerations

receivedmore than 12

monthsbeyond the

valuationdate, the

factorsshown in (i)

orderived in (ii)

increased by:                                  .05     .05  .05

(iv)       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, the guarantee duration is the number of years for which thecontract guarantees interest rates in excess of the calendar year statutoryvaluation interest rate for life insurance policies with guarantee duration inexcess of 20 years. For other annuities with no cash settlement options and forguaranteed interest contracts with no cash settlement options, the guaranteeduration is the number of years from the date of issue or date of purchase tothe date annuity benefits are scheduled to commence.

(v)        Plan type as used inthe above tables is defined as follows:

Plan     Type A:   At any time policyholder maywithdraw funds only (1) with an adjustment to reflect changes in interest ratesor 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) asan immediate life annuity, or (4) no withdrawal permitted.

Plan     Type B:   Before expiration of the interestrate guarantee, policyholder may withdraw funds only (1) with an adjustment toreflect changes in interest rates or asset values since receipt of the funds bythe insurance company, or (2) without such adjustment but in installments overfive years or more, or (3) no withdrawal permitted. At the end of interest rateguarantee, funds may be withdrawn without such adjustment in a single sum orinstallments over less than five years.

Plan     Type C:   Policyholder may withdraw fundsbefore expiration of interest rate guarantee in a single sum or installmentsover less than five years either (1) without adjustment to reflect changes ininterest rates or asset values since receipt of the funds by the insurancecompany, or (2) subject only to a fixed surrender charge stipulated in thecontract as a percentage of the fund.

(vi)       A company may electto value guaranteed interest contracts with cash settlement options andannuities with cash settlement options on either an issue year basis or on achange in fund basis. Guaranteed interest contracts with no cash settlementoptions and other annuities with no cash settlement options must be valued onan issue year basis. As used in this section, an issue year basis of valuationrefers to a valuation basis under which the interest rate used to determine theminimum valuation standard for the entire duration of the annuity or guaranteedinterest contract is the calendar year valuation interest rate for the year ofissue or year of purchase of the annuity or guaranteed interest contract, andthe change in fund basis of valuation refers to a valuation basis under which theinterest rate used to determine the minimum valuation standard applicable toeach change in the fund held under the annuity or guaranteed interest contractis the calendar year valuation interest rate for the year of the change in thefund.

d.         Reference InterestRate.

1.         The referenceinterest rate referred to in paragraph b of this subdivision shall be definedas follows:

I.          For all lifeinsurance, the lesser of the average over a period of 36 months and the averageover a period of 12 months, ending on June 30 of the calendar year nextpreceding the year of issue, of Moody's Corporate Bond Yield Average – MonthlyAverage Corporates, as published by Moody's Investors Service, Inc.

II.         For single premiumimmediate annuities and for annuity benefits involving life contingenciesarising from other annuities with cash settlement options and guaranteedinterest contracts with cash settlement options, the average over a period of12 months, ending on June 30 of the calendar year of issue or year of purchase,of Moody's Corporate Bond Yield Average – Monthly Average Corporates, aspublished by Moody's Investors Service, Inc.

III.       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on a year of issue basis, except as stated in IIabove, with guarantee duration in excess of 10 years, the lesser of the averageover a period of 36 months and the average over a period of 12 months, endingon June 30 of the calendar year of issue or purchase, of Moody's Corporate BondYield Average – Monthly Average Corporates, as published by Moody's InvestorsService, Inc.

IV.       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on a year of issue basis, except as stated in IIabove, with guarantee duration of 10 years or less, the average over a periodof 12 months, ending on June 30 of the calendar year of issue or purchase, ofMoody's Corporate Bond Yield Average – Monthly Average Corporates, as publishedby Moody's Investors Service, Inc.

V.        For other annuitieswith no cash settlement options and for guaranteed interest contracts with nocash settlement options, the average over a period of 12 months, ending on June30 of the calendar year of issue or purchase, of Moody's Corporate Bond YieldAverage – Monthly Average Corporates, as published by Moody's InvestorsService, Inc.

VI.       For other annuitieswith cash settlement options and guaranteed interest contracts with cashsettlement options, valued on a change in fund basis, except as stated in IIabove, the average over a period of 12 months, ending on June 30 of thecalendar year of the change in the fund, of Moody's Corporate Bond YieldAverage – Monthly Average Corporates, as published by Moody's InvestorsService, Inc.

e.         Alternative Methodfor Determining Reference Interest Rates.

1.         In the event thatMoody's Corporate Bond Yield Average – Monthly Average Corporates is no longerpublished by Moody's Investors Service, Inc., or in the event that the NAICdetermines that Moody's Corporate Bond Yield Average – Monthly AverageCorporates as published by Moody's Investors Service, Inc., is no longerappropriate for the determination of the reference interest rate, than analternative method for determination of the reference interest rate, which isadopted by the NAIC and approved by regulation promulgated by the Commissioner,may be substituted.

(d)        Except as otherwiseprovided in subsections (d‑1) and (g), reserves according to theCommissioner's reserve valuation method, for the life insurance and endowmentbenefits of policies providing for a uniform amount of insurance and requiringthe payment of uniform premiums, shall be the excess, if any, of the presentvalue, at the date of valuation, of such future guaranteed benefits providedfor by such policies, over the then present value of any future modified netpremiums therefor. The modified net premiums for any such policy shall be suchuniform percentage of the respective contract premiums for such benefits thatthe present value, at the date of issue of the policy, of all such modified netpremiums shall be equal to the sum of the then present value of such benefitsprovided for by the policy and the excess of (1) and (2), as follows:

(1)        A net level annualpremium equal to the present value, at the date of issue, of such benefitsprovided for after the first policy year, divided by the present value, at thedate of issue, of an annuity of one per annum payable on the first and eachsubsequent anniversary of such policy on which a premium falls due; provided,however, that such net level annual premium shall not exceed the net levelannual premium on the 19‑year premium whole life plan for insurance ofthe same amount at an age one year higher than the age at issue of such policy.

(2)        A net one year termpremium for such benefits provided for in the first policy year.

Provided that for any lifeinsurance policy issued on or after January 1, 1985, for which the contractpremium in the first policy year exceeds that of the second year and for whichno comparable additional benefits are provided in the first year for suchexcess and which provides an endowment benefit or a cash surrender value of acombination thereof in an amount greater than such excess premium, the reserveaccording to the Commissioner's reserve valuation method as of any policyanniversary occurring on or before the assumed ending date defined herein asthe first policy anniversary on which the sum of any endowment benefit and anycash surrender value then available is greater than such excess premium shall,except as otherwise provided in subsection (g), be the greater of the reserveas of such policy anniversary calculated as described in the first paragraph ofthis subsection and the reserve as of such policy anniversary calculated asdescribed in that paragraph, but with (i) the value defined in subparagraph (1)of that paragraph being reduced by fifteen percent (15%) of the amount of suchexcess first year premium, (ii) all present values of benefits and premiumsbeing determined without reference to premiums or benefits provided for by thepolicy after the assumed ending date, (iii) the policy being assumed to matureon such date as an endowment, and (iv) the cash surrender value provided onsuch date being considered as an endowment benefit. In making the abovecomparison the mortality and interest bases stated in subdivisions (2) and (4)of subsection (c) shall be used.

Reserves according to theCommissioner's reserve valuation method for: (i) life insurance policiesproviding for a varying amount of insurance or requiring the payment of varyingpremiums; (ii) group annuity and pure endowment contracts purchased under aretirement plan or plan of deferred compensation, established or maintained byan employer (including a partnership or sole proprietorship) or by an employeeorganization, or by both, other than a plan providing individual retirementaccounts or individual retirement annuities under section 408 of the InternalRevenue Code, as now or hereafter amended; (iii) disability and accidentaldeath benefits in all policies and contracts; and (iv) all other benefits,except life insurance and endowment benefits in life insurance policies andbenefits provided by all other annuity and pure endowment contracts, shall becalculated by a method consistent with the principles of this subsection exceptthat any extra premiums charged because of impairments or special hazards shallbe disregarded in the determination of modified net premiums.

(d‑1)    This subsectionshall apply to all annuity and pure endowment contracts other than groupannuity and pure endowment contracts purchased under a retirement plan or planof deferred compensation, established or maintained by an employer (including apartnership or sole proprietorship) or by an employee organization, or by both,other than a plan providing individual retirement accounts or individualretirement annuities under section 408 of the Internal Revenue Code, as now orhereafter amended.

Reserves according to theCommissioner's annuity reserve method for benefits under annuity or pureendowment contracts, excluding any disability and accidental death benefits insuch contracts, shall be the greatest of the respective excesses of the presentvalues, at the date of valuation, of the future guaranteed benefits, includingguaranteed nonforfeiture benefits, provided for by such contracts at the end ofeach respective contract year, over the present value, at the date ofvaluation, of any future valuation considerations derived from future grossconsiderations, required by the terms of such contract, that become payableprior to the end of such respective contract year. The future guaranteedbenefits shall be determined by using the mortality table, if any, and theinterest rate, or rates, specified in such contracts for determining guaranteedbenefits. The valuation considerations are the portions of the respective grossconsiderations applied under the terms of such contracts to determine nonforfeiturevalues.

(e)        In no event shall acompany's aggregate reserves for all life insurance policies, excludingdisability and accidental death benefits, issued on or after the effective dateof this section, be less than the aggregate reserves calculated in accordancewith the methods set forth in subsections (d), (d‑1), (g) and (h) of thissection and the mortality table or tables and rate or rates of interest used incalculating nonforfeiture benefits for such policies. In no event shall theaggregate reserves for all policies, contracts, and benefits be less than theaggregate reserves determined by the qualified actuary to be necessary torender the opinion required by subsection (i) of this section.

(f)         Reserves for allpolicies and contracts issued before the effective date of this section may becalculated, at the option of the company, according to any standards thatproduce greater aggregate reserves for those policies and contracts than theminimum reserves required by the laws in effect immediately before that date.

Reserves for any category ofpolicies, contracts or benefits as established by the Commissioner, issued onor after the effective date of this section may be calculated, at the option ofthe company, according to any standards that produce greater aggregate reservesfor such category than those calculated according to the minimum standardherein provided, but the rate or rates of interest used for policies andcontracts, other than annuity and pure endowment contracts, shall not be higherthan the corresponding rate or rates of interest used in calculating anynonforfeiture benefits provided for therein.

Any such company that adoptsany standard of valuation producing greater aggregate reserves than thosecalculated according to the minimum standard herein provided may, with theapproval of the Commissioner, adopt any lower standard of valuation, but notlower than the minimum herein provided. Provided, however, that for thepurposes of this section, the holding of additional reserves previouslydetermined by a qualified actuary to be necessary to render the opinionrequired by subsection (c) of this section shall not be deemed to be theadoption of a higher standard of valuation.

(g)        If in any contractyear the gross premium charged by any life insurance company on any policy orcontract is less than the valuation net premium for the policy or contractcalculated by the method used in calculating the reserve thereon but using theminimum valuation standards of mortality and rate of interest, the minimumreserve required for such policy or contract shall be the greater of either thereserve calculated according to the mortality table, rate of interest, andmethod actually used for such policy or contract, or the reserve calculated bythe method actually used for such policy or contract but using the minimumvaluation standards of mortality and rate of interest and replacing thevaluation net premium by the actual gross premium in each contract year forwhich the valuation net premium exceeds the actual gross premium. The minimumvaluation standards of mortality and rate of interest referred to in thissubsection are those standards stated in subdivisions (1), (2) and (4) ofsubsection (c).

Provided that for any lifeinsurance policy issued on or after January 1, 1985, for which the grosspremium in the first policy year exceeds that of the second year and for whichno comparable additional benefit is provided in the first year for such excessand which provides an endowment benefit or a cash surrender value or acombination thereof in an amount greater than such excess premium, theforegoing provisions of this subsection (g) shall be applied as if the methodactually used in calculating the reserve for such policy were the methoddescribed in subsection (d), ignoring the second paragraph of subsection (d).The minimum reserve at each policy anniversary of such a policy shall be thegreater of the minimum reserve calculated in accordance with subsection (d),including the second paragraph of that subsection, and the minimum reservecalculated in accordance with this subsection (g).

(h)        In the case of anyplan of life insurance which provides for future premium determination, theamounts of which are to be determined by the insurance company based on thenestimates of future experience, or in the case of any plan of life insurance orannuity which is of such a nature that the minimum reserves cannot bedetermined by the methods described in subsections (d), (d‑1), and (g),the reserves which are held under any such plan must:

(1)        Be appropriate inrelation to the benefits and the pattern of premiums for that plan, and

(2)        Be computed by amethod which is consistent with the principles of this Standard Valuation Law,as determined by regulations promulgated by the Commissioner.

(i)         Every lifeinsurance company doing business in this State shall annually submit theopinion of a qualified actuary as to whether the reserves and related actuarialitems held in support of the policies and contracts specified by theCommissioner by rule are computed appropriately, are based on assumptions thatsatisfy contractual provisions, are consistent with previously reportedamounts, and comply with applicable laws of this State. The Commissioner byrule shall define the specifics of this opinion and add any other items deemedto be necessary to its scope. Every life insurance company, except as exemptedby or pursuant to rule, shall also annually include in the opinion required bythis subsection, an opinion of the same qualified actuary as to whether thereserves and related actuarial items held in support of the policies andcontracts specified by the Commissioner by rule, when considered in light ofthe assets held by the company with respect to the reserves and related actuarialitems, including but not limited to the investment earnings on the assets andthe considerations anticipated to be received and retained under the policiesand contracts, make adequate provision for the company's obligations under thepolicies and contracts, including but not limited to the benefits under andexpenses associated with the policies and contracts. The Commissioner mayprovide by rule for a transition period for establishing any higher reservesthat the qualified actuary may deem to be necessary in order to render theopinion required by this subsection.

(j)         Each opinionrequired by subsection (i) of this section shall be governed by the followingprovisions:

(1)        A memorandum, inform and substance acceptable to the Commissioner as specified by rule, shallbe prepared to support each actuarial opinion.

(2)        If the insurancecompany fails to provide a supporting memorandum at the request of theCommissioner within a period specified by rule or the Commissioner determinesthat the supporting memorandum provided by the insurance company fails to meetthe standards prescribed by the rules or is otherwise unacceptable to theCommissioner, the Commissioner may engage a qualified actuary at the expense ofthe company to review the opinion and the basis for the opinion and preparesuch supporting memorandum as is required by the Commissioner.

(3)        The opinion shall besubmitted with the annual statement reflecting the valuation of such reserveliabilities for each year ending on or after December 31, 1994.

(4)        The opinion shallapply to all business in force including individual and group health insuranceplans, in form and substance acceptable to the Commissioner as specified byrule.

(5)        The opinion shall bebased on standards adopted from time to time by the actuarial standards boardand on such additional standards as the Commissioner may by rule prescribe.

(6)        In the case of anopinion required to be submitted by a foreign or alien company, theCommissioner may accept the opinion filed by that company with the insurancesupervisory official of another state if the Commissioner determines that theopinion reasonably meets the requirements applicable to a company domiciled inthis State.

(7)        For the purposes ofthis section, "qualified actuary" means a member in good standing ofthe American Academy of Actuaries who meets the requirement set forth in suchrules.

(8)        Except in cases offraud or willful misconduct, the qualified actuary shall not be liable fordamages to any person (other than the insurance company and the Commissioner)for any act, error, omission, decision, or conduct with respect to theactuary's opinion.

(9)        Disciplinary actionby the Commissioner against the company or the qualified actuary shall bedefined in rules by the Commissioner.

(10)      Any memorandum insupport of the opinion, and any other material provided by the company to theCommissioner in connection therewith, shall be kept confidential by theCommissioner and shall not be made public and shall not be subject to subpoena,other than for the purpose of defending an action seeking damages from anyperson by reason of any action required by this section or by rules adoptedunder this section; provided, however, that the memorandum or other materialmay otherwise be released by the Commissioner (i) with the written consent ofthe company or (ii) to the American Academy of Actuaries upon request statingthe memorandum or other material is required for the purpose of professionaldisciplinary proceedings and setting forth procedures satisfactory to theCommissioner for preserving the confidentiality of the memorandum or othermaterial. Once any portion of the confidential memorandum is cited by thecompany in its marketing or is cited before any governmental agency other thana state insurance department or is released by the company to the news media,all portions of the confidential memorandum shall be no longer confidential.

(k)        The Commissionershall adopt rules containing the minimum standards applicable to the valuationof health plans. The Commissioner may also adopt rules for the purpose ofrecognizing new annuity mortality tables for use in determining reserveliabilities for annuities and may adopt rules that govern minimum valuationstandards for reserves of life insurance companies. In adopting these rules,the Commissioner may consider model laws and regulations promulgated andamended from time to time by the NAIC.

(l)         The Commissionermay adopt rules for life insurers for the following matters:

(1)        Reserves for contractsissued by insurers.

(2)        Optional smoker‑nonsmokermortality tables permitted for use in determining minimum reserve liabilitiesand nonforfeiture benefits.

(3)        Optional blendedgender mortality tables permitted for use in determining nonforfeiture benefitsfor individual life policies.

(4)        Optional tablesacceptable for use in determining reserves and minimum cash surrender valuesand amounts of paid‑up nonforfeiture benefits.

(5)        Assumptions forpolicyholder withdrawal rates for use in determining minimum reserveliabilities.

In adopting these rules, theCommissioner may consider model laws and regulations promulgated and amendedfrom time to time by the NAIC. (1945, c. 379; 1959, c. 484, s. 1; 1961, c. 255, ss. 1‑3;1963, c. 791, ss. 1, 2; 1975, c. 603, s. 1; 1979, c. 409, ss. 1‑6; 1981,c. 761, ss. 1‑5; 1985, c. 666, s. 46; 1991, c. 720, s. 19; 1993, c. 452,ss. 52‑56; 1999‑219, s. 10; 2001‑334, s. 17.1; 2007‑127,ss. 17, 18.)