Recognition of the 2001 CSO Mortality Table for Use in Determining Minimum Reserve Liabilities and Non-Forfeiture Benefits Model Regulation

BULLETIN No. 146 October 4, 2004 RECOGNITION OF THE 2001 CSO MORTALITY TABLE FOR USE IN DETERMINING MINIMUM RESERVE LIABILITIES AND NONFORFEITURE BENEFITS MODEL REGULATION Section 1. Authority This Bulletin is issued by the Commissioner of Banking, Insurance, Securities and Health Care Administration pursuant to 8 V.S.A. § 15, 8 V.S.A. § 3784(a)(2) (“Vermont Standard Valuation Law”), 8 V.S.A. § 3747a(h)(6) (“Vermont Standard Nonforfeiture Law for Life Insurance”), Sections 5A and 5B of Regulation 99-3-I (“Valuation of Life Insurance Policies”) of the Vermont Department of Banking, Insurance, Securities and Health Care Administration, and Sec. 21 of Act 105 of the 2004 session of the Vermont General Assembly. Section 2. Purpose The purpose of this Bulletin is to recognize, permit and prescribe the use of the 2001 Commissioners Standard Ordinary (CSO) Mortality Table in accordance with 8 V.S.A. § 15, 8 V.S.A. § 3784(a)(2) (“Vermont Standard Valuation Law”), 8 V.S.A. § 3747a(h)(6) (“Vermont Standard Nonforfeiture Law for Life Insurance”), Sections 5A and 5B of Regulation 99-3-I (“Valuation of Life Insurance Policies”) of the Vermont Department of Banking, Insurance, Securities and Health Care Administration, and Sec. 21 of Act 105 of the 2004 session. Section 3. Definitions As used in this Bulletin: A. “2001 CSO Mortality Table” means 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 Vermont . . . Department of Banking, Insurance, Securities and Health Care Administration 89 Main Street, Drawer 20 Montpelier, VT 05620-3101 Telephone: (802) 828-3301 Facsimile: (802) 828-3306 2 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. “2001 CSO Mortality Table (F)” means that mortality table consisting of the rates of mortality for female lives from the 2001 CSO Mortality Table. C. “2001 CSO Mortality Table (M)” means that mortality table consisting of the rates of mortality for male lives from the 2001 CSO Mortality Table. D. “Composite mortality tables” means mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers. E. “Smoker and nonsmoker mortality tables” means mortality tables with separate rates of mortality for smokers and nonsmokers. Section 4. 2001 CSO Mortality Table A. At the election of the company for any one or more specified plans of insurance and subject to the conditions stated in this Bulletin, the 2001 CSO Mortality Table may be used as the minimum standard for policies issued on or after October 8, 2004 and before the date specified in Subsection B of this Section 4 to which 8 V.S.A. § 15, 8 V.S.A. § 3784(a)(2) (“Vermont Standard Valuation Law”), 8 V.S.A. § 3747a(h)(6) (“Vermont Standard Nonforfeiture Law for Life Insurance”), Sections 5A and 5B of Regulation 99-3-I (“Valuation of Life Insurance Policies”) of the Vermont Department of Banking, Insurance, Securities and Health Care Administration are applicable. If the company elects to use the 2001 CSO Mortality Table, it shall do so for both valuation and nonforfeiture purposes. B. Subject to the conditions stated in this regulation, the 2001 CSO Mortality Table shall be used in determining minimum standards for policies issued on and after January 1, 2009, to which 8 V.S.A. § 15, 8 V.S.A. § 3784(a)(2) (“Vermont Standard Valuation Law”), 8 V.S.A. § 3747a(h)(6) (“Vermont Standard Nonforfeiture Law for Life Insurance”), Sections 5A and 5B of Regulation 99-3-I (“Valuation of Life Insurance Policies”) of the Vermont Department of Banking, Insurance, Securities and Health Care Administration are applicable. Section 5. Conditions A. For each plan of insurance with separate rates for smokers and nonsmokers, an insurer may use: 3 (1) Composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits; (2) Smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by 8 V.S.A. § 3788 and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values and amounts of paid-up nonforfeiture benefits; or (3) Smoker and nonsmoker mortality to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits. B. For plans of insurance without separate rates for smokers and nonsmokers, the composite mortality tables shall be used. C. For the purpose of determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits, the 2001 CSO Mortality Table may, at the option of the company for each plan of insurance, be used in its ultimate or select and ultimate form, subject to the restrictions of Section 6 and Regulation 99-3-I (“Valuation of Life Insurance Policies”) of the Vermont Department of Banking, Insurance, Securities and Health Care Administration relative to the use of the select and ultimate form. D. When the 2001 CSO Mortality Table is the minimum reserve standard for any plan for a company, the actuarial opinion in the statement filed with the Commissioner shall be based on an asset adequacy analysis as specified in Section 5 of Regulation 97-4 (“Actuarial Opinion and Memorandum Regulation”) of the Vermont Department of Banking, Insurance, Securities and Health Care Administration. A Commissioner may exempt a company from this requirement if it only does business in this state and in no other state. Section 6. Applicability of the 2001 CSO Mortality Table to Regulation 99-3-I (“Valuation of Life Insurance Policies”) of the Vermont Department of Banking, Insurance, Securities and Health Care Administration A. The 2001 CSO Mortality Table may be used in applying Regulation 99-3-I (“Valuation of Life Insurance Policies”) of the Vermont Department of Banking, Insurance, Securities and Health Care Administration in the following manner, subject to the transition dates for use of the 2001 CSO Mortality Table in Section 4 of this bulletin (unless otherwise noted, the references in this section are to Regulation 99-3-I (“Valuation of Life Insurance Policies”) of the Vermont Department of Banking, Insurance, Securities and Health Care Administration): 4 (1) Section 3A(2)(b): The net level reserve premium is based on the ultimate mortality rates in the 2001 CSO Mortality Table. (2) Section 4B: All calculations are made using the 2001 CSO Mortality Rate, and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in Section 6A(4) of this regulation. The value of “qx+k+t-1” is the valuation mortality rate for deficiency reserves in policy year k+t, but using the unmodified select mortality rates if modified select mortality rates are used in the computation of deficiency reserves. (3) Section 5A: The 2001 CSO Mortality Table is the minimum standard for basic reserves. (4) Section 5B: The 2001 CSO Mortality Table is the minimum standard for deficiency reserves. If select mortality rates are used, they may be multiplied by X percent for durations in the first segment, subject to the conditions specified in Sections 5B(3)(a) to (i). In demonstrating compliance with those conditions, the demonstrations may not combine the results of tests that utilize the 1980 CSO Mortality Table with those tests that utilize the 2001 CSO Mortality Table, unless the combination is explicitly required by regulation or necessary to be in compliance with relevant Actuarial Standards of Practice. (5) Section 6C: The valuation mortality table used in determining the tabular cost of insurance shall be the ultimate mortality rates in the 2001 CSO Mortality Table. (6) Section 6E(4): The calculations specified in Section 6E shall use the ultimate mortality rates in the 2001 CSO Mortality Table. (7) Section 6F(4): The calculations specified in Section 6F shall use the ultimate mortality rates in the 2001 CSO Mortality Table. (8) Section 6G(2): The calculations specified in Section 6G shall use the ultimate mortality rates in the 2001 CSO Mortality Table. (9) Section 7A(1)(b): The one-year valuation premium shall be calculated using the ultimate mortality rates in the 2001 CSO Mortality Table. B. Nothing in this section shall be construed to expand the applicability of Regulation 99-3-I (“Valuation of Life Insurance Policies”) of the Vermont Department of Banking, Insurance, Securities and Health Care Administration to include life insurance policies exempted under Section 3A of such Regulation. 5 Section 7. Gender-Blended Tables A. For any ordinary life insurance policy delivered or issued for delivery in this state on and after October 8, 2004, that utilizes the same premium rates and charges for male and female lives or is issued in circumstances where applicable law does not permit distinctions on the basis of gender, a mortality table that is a blend of the 2001 CSO Mortality Table (M) and the 2001 CSO Mortality Table (F) may, at the option of the company for each plan of insurance, be substituted for the 2001 CSO Mortality Table for use in determining minimum cash surrender values and amounts of paid-up nonforfeiture benefits. No change in minimum valuation standards is implied by this subsection of the bulletin. B. The company may choose from among the blended tables developed by the American Academy of Actuaries CSO Task Force and adopted by the NAIC in December 2002. C. It shall not, in and of itself, be a violation of 8 V.S.A., Chapter 129 (“Insurance Trade Practices”) for an insurer to issue the same kind of policy of life insurance on both a sex-distinct and sex-neutral basis. Section 8. Separability If any provision of this Bulletin or its application to any person or circumstance is for any reason held to be invalid, the remainder of the Bulletin and the application of the provision to other persons or circumstances shall not be affected. Section 9. Effective Date The effective date of this Bulletin is October 8, 2004. ___s/ John P. Crowley______________ _____10/4/04________ John P. Crowley, Commissioner Date Bulletin 146 - Recognition of the 2001 CSO Mortality Table 10-8-04