230-RICR-20-25-12. Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values (version Adoption, 01/20/2009 to 01/20/2009)

State of Rhode Island and Providence Plantations DEPARTMENT OF BUSINESS REGULATION Division of Insurance 1511 Pontiac Avenue, Bldg. 69-2 Cranston, RI 02920 INSURANCE REGULATION 111 PRENEED LIFE INSURANCE MINIMUM STANDARDS FOR DETERMINING RESERVE LIABILITIES AND NONFORFEITURE VALUES Table of Contents Section 1. Authority Section 2. Scope Section 3. Purpose Section 4. Definitions Section 5. Minimum Valuation Mortality Standards Section 6. Minimum Valuation Interest Rate Standards Section 7. Minimum Valuation Method Standards Section 8. Transition Rules Section 9. Effective Date Section 1 Authority This Regulation is promulgated in accordance with R.I. Gen. Laws §§ 27-4.5-1 et seq. and 42-14-17. Section 2 Scope This rule applies to preneed insurance contracts, as defined in this regulation, and to similar policies and certificates. The definition of preneed insurance is not well defined. The definition in this model regulation is based on policies used in the study that determined the 2001 CSO was inappropriate for determining reserves for policies used to fund funeral services and expenses. The commissioner shall have the authority to determine what constitutes similar policies and certificates. Section 3 Purpose The purpose of this regulation is to establish for preneed insurance products minimum mortality standards for reserves and nonforfeiture values, and to require the use of the 1980 Commissioners Standard Ordinary (CSO) Life Valuation Mortality Table for use in determining the minimum standard of valuation of reserves and the minimum standard nonforfeiture values for preneed insurance products. Page 1 of 4 Reg. # 111 Research completed by the Deloitte University of Connecticut Actuarial Center and commissioned by the Society of Actuaries as a part of a study of preneed mortality determined that the 2001 CSO Mortality Table, currently recognized as the prevailing table for the purposes of calculating reserves and nonforfeiture values both on a statutory basis and on a tax basis, produced inadequate reserves for policies issued in support of a prearrangement agreement which provides goods and services at the time of an insured’s death. Section 4 Definitions As used in this Regulation: A. "2001 CSO Mortality Table shall mean that mortality table, consisting of separate rates of mortality for male and female lives, developed by the American Academy of Actuaries CSO Task Force from the Valuation Basic Mortality Table developed by the Society of Actuaries Individual Life Insurance Valuation Mortality Task Force, and adopted by the NAIC in December 2002. The 2001 CSO Mortality Table is included in the Proceedings of the NAIC (2nd Quarter 2002). Unless the context indicates otherwise, the “2001 CSO Mortality Table” includes both the ultimate form of that table and the select and ultimate form of that table and includes both the smoker and nonsmoker mortality tables and the composite mortality tables. It also includes both the age-nearest-birthday and age- last-birthday bases of the mortality tables. B. " Ultimate 1980 CSO " shall mean the Commissioners’ 1980 Standard Ordinary Life Valuation Mortality Tables (1980 CSO) without ten-year (10-year) selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law approved in December 1983. C. “Insurance Commissioner” or “Commissioner” means the Director of the Department of Business Regulation or his or her designee. D. "Preneed insurance" shall mean any life insurance policy or certificate that is issued in combination with, in support of, with an assignment to, or as a guarantee for a prearrangement agreement for goods and services to be provided at the time of and immediately following the death of the insured. Goods and services may include, but are not limited to embalming, cremation, body preparation, viewing or visitation, coffin or urn, memorial stone, and transportation of the deceased. The status of the policy or contract as preneed insurance is determined at the time of issue in accordance with the policy form filing. Page 2 of 4 Reg. # 111 Section 4 Minimum Valuation Mortality Standards For preneed insurance contracts, as defined in this regulation, and similar policies and contracts, the minimum mortality standard for determining reserve liabilities and nonforfeiture values for both male and female insureds shall be the Ultimate 1980 CSO. Section 5 Minimum Valuation Interest Rate Standards A. The interest rates used in determining the minimum standard for valuation of preneed insurance shall be the calendar year statutory valuation interest rates as defined in R.I. Gen. Laws § 27-4.5-4.1. B. The interest rates used in determining the minimum standard for nonforfeiture values for preneed insurance shall be the calendar year statutory nonforfeiture interest rates as defined in R.I. Gen. Laws § 27-4.3-5(i). Section 6 Minimum Valuation Method Standards A. The method used in determining the standard for the minimum valuation of reserves of preneed insurance shall be the method defined in R.I. Gen. Laws § 27- 4.5-1 et seq. B. The method used in determining the standard for the minimum nonforfeiture values for preneed insurance shall be the method defined in R.I. Gen. Laws § 27- 4.3-1 et seq. Section 7 Transition Rules A. For preneed insurance policies issued on or after the effective date of this regulation and before January 1, 2012, the 2001 CSO may be used as the minimum standard for reserves and minimum standard for nonforfeiture benefits for both male and female insureds. B. If an insurer elects to use the 2001 CSO as a minimum standard for any policy issued on or after the effective date of this regulation and before January 1, 2012, the insurer shall provide, as a part of the actuarial opinion memorandum submitted in support of the company’s asset adequacy testing, an annual written notification to the domiciliary commissioner. The notification shall include: (1) A complete list of all preneed policy forms that use the 2001 CSO as a minimum standard; (2) A certification signed by the appointed actuary stating that the reserve methodology employed by the company in determining reserves for the preneed policies issued after the effective date and using the 2001 CSO as a minimum standard, develops adequate reserves (For the purposes of this Page 3 of 4 Reg. # 111 certification, the preneed insurance policies using the 2001 CSO as a minimum standard cannot be aggregated with any other policies.); and (3) Supporting information regarding the adequacy of reserves for preneed insurance policies issued after the effective date of this regulation and using the 2001 CSO as a minimum standard for reserves. C. Preneed insurance policies issued on or after January 1, 2012, must use the Ultimate 1980 CSO in the calculation of minimum nonforfeiture values and minimum reserves. Section 8 Severability If any provision of this Regulation or the application thereof to any person or circumstances is held invalid or unconstitutional, the invalidity or unconstitutionality shall not affect other provisions or applications of this Regulation which can be given effect without the invalid or unconstitutional provision or application, and to this end the provisions of this Regulation are severable. Section 9 Effective Date This regulation is applicable to preneed insurance policies and certificates and similar contracts and certificates, as specified in this regulation, issued on or after January 1, 2009. EFFECTIVE DATE: January 20, 2009. Page 4 of 4 Reg. # 111