Part 1.
TEXAS DEPARTMENT OF INSURANCE
Chapter 3.
LIFE, ACCIDENT AND HEALTH INSURANCE AND ANNUITIES
The Texas Department of Insurance proposes new §§3.1307,
3.1406, 3.4509 and 3.9101-3.9106 concerning the adoption by reference of the
2001 Commissioners Standard Ordinary (CSO) Mortality Table. These new sections
are necessary to prescribe the use of the 2001 CSO Mortality Table in determining
minimum reserve liabilities and nonforfeiture benefits and recognize the use
of the 2001 CSO Mortality Table. Insurers may use the table only for new policies
issued after May 1, 2003. Beginning January 1, 2009, insurers will be required
to use the 2001 CSO Mortality Table for their insurance products issued after
that date. Insurance Code Articles 3.28 and 3.44a authorize the commissioner
to adopt any mortality table adopted by the National Association of Insurance
Commissioners. The table was adopted by the National Association of Insurance
Commissioners in December 2002. The table reflects increases in life expectancy
since the adoption of the 1980 CSO Mortality Table. The new table is expected
to lower reserve levels for a number of products which use the new table versus
reserve levels produced by the 1980 CSO Mortality Table which insurers are
currently required to use. Term insurance reserves are estimated to be 30%
lower in the aggregate. Whole life insurance reserves are estimated to be
10% to 15% lower in the aggregate. Universal life and variable life products
are estimated to experience a reduction in reserves of 5.0% or less. The 2001
CSO Mortality Table is available from the Actuarial Division, Texas Department
of Insurance, 333 Guadalupe, Austin, Texas or on the internet by accessing
the department's website at www.tdi.state.tx.us/2001 CSO.
The department will consider the adoption of the proposed sections in a
public hearing under Docket Number 2546, scheduled for 9:30 a.m. March 12,
2003 in Room 100 of the William P. Hobby, Jr. State Office Building, 333 Guadalupe
Street in Austin, Texas.
Betty Patterson, Senior Associate Commissioner, Financial Program has determined
that for each year of the first five years the proposed sections will be in
effect, there will be no fiscal impact to state and local governments as a
result of the enforcement or administration of the rule. There will be no
measurable effect on local employment or the local economy as a result of
the proposal.
Ms. Patterson has determined that for each year of the first five years
the sections are in effect, the public benefits anticipated as a result of
the use of the 2001 CSO Mortality Table proposed for adoption in these sections
will be more appropriate levels of reserve liabilities relative to the expected
mortality and lower premiums for a number of life insurance products. Costs
for insurers to implement the use of the 2001 CSO Mortality Table involve
the costs of changing their currently marketed products to use the 2001 CSO
Mortality Table. Such costs largely involve compliance, actuarial, legal,
and programming personnel. Based on discussion with insurance industry representatives,
hourly rates for such personnel range as follows: Compliance ($20 to $100),
Actuarial ($30 to $100), Legal ($30 to $100), and Programming ($30 to $70).
The range of these hourly rates is dependent on whether internal or consulting
resources are used. The average number of hours to revise an existing policy
form is dependent on many factors, including the complexity of the policy
form, the level of automation of the insurer, and number of similar existing
policy forms over which these costs can be spread. Other costs include departmental
filing fees of $100 for a non-exempt form or $50 for an exempt form. Since
the use of the 2001 CSO Mortality Table is not required until January 1, 2009,
companies will not incur any costs if they do not use the table. For small
or micro businesses which choose to use the 2001 CSO Mortality Table, the
costs are expected to be the same as those for other companies, although fewer
hours of staff or consultant services are likely since they typically offer
fewer and less complicated products than larger companies. The department
finds it neither legal or feasible to reduce the effect of the proposal on
small or micro businesses since mortality tables are used to establish minimum
reserves and nonforfeiture values to assure an insurer's ability to perform
its obligations and protect policyholders.
To be considered, written comments on the proposal must be submitted no
later than 5:00 p.m. on March 24, 2003, to Gene C. Jarmon, General Counsel
and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P. O. Box
149104, Austin, Texas 78714-9104. An additional copy of the comment must be
simultaneously submitted to Betty Patterson, Senior Associate Commissioner,
Financial Program, Mail Code 305-2A, Texas Department of Insurance, P.O. Box
149104, Austin, Texas 78714-9104.
Subchapter N. NONFORFEITURE STANDARDS FOR INDIVIDUAL LIFE INSURANCE IN EMPLOYER PENSION PLANS
28 TAC §3.1307
The new sections are proposed under the Insurance Code Articles
3.28 and 3.44a, and §36.001. Article 3.28 provides for the use of any
ordinary mortality table adopted after 1980 by the National Association of
Insurance Commissioners that is approved by regulation adopted by the commissioner
for use in determining the minimum standard valuation for such policies. Article
3.44a provides that any ordinary mortality tables, adopted after 1980 by the
National Association of Insurance Commissioners, that are approved by regulation
adopted by the commissioner for use in determining the minimum nonforfeiture
standard may be substituted for the 1980 CSO Mortality Table with or without
Ten-Year Select Mortality Factors. Section 36.001 provides the commissioner
may adopt rules to execute the duties and functions of the department as authorized
by statute.
Insurance Code Articles 3.28 and 3.44a are affected by this proposal.
§3.1307.2001 CSO Mortality Table.
The 2001 CSO Mortality Table shall be used for purposes of this subchapter
pursuant to the requirements of §§3.9101 - 3.9106 of this title
(relating to 2001 CSO Mortality Table).
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on February 10, 2003.
TRD-200300951
Gene C. Jarmon
General Counsel and Chief Clerk
Texas Department of Insurance
Earliest possible date of adoption: March 23, 2003
For further information, please call: (512) 463-6327
28 TAC §3.1406
The new sections are proposed under the Insurance Code Articles
3.28 and 3.44a, and §36.001. Article 3.28 provides for the use of any
ordinary mortality table adopted after 1980 by the National Association of
Insurance Commissioners that is approved by regulation adopted by the commissioner
for use in determining the minimum standard valuation for such policies. Article
3.44a provides that any ordinary mortality tables, adopted after 1980 by the
National Association of Insurance Commissioners, that are approved by regulation
adopted by the commissioner for use in determining the minimum nonforfeiture
standard may be substituted for the 1980 CSO Mortality Table with or without
Ten-Year Select Mortality Factors. Section 36.001 provides the commissioner
may adopt rules to execute the duties and functions of the department as authorized
by statute.
Insurance Code Articles 3.28 and 3.44a are affected by this proposal.
§3.1406.2001 CSO Mortality Table.
The 2001 CSO Mortality Table shall be used for purposes of this subchapter
pursuant to the requirements of §§3.9101 - 3.9106 of this title
(relating to 2001 CSO Mortality Table).
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed
with the Office of the Secretary of State on February 10, 2003.
TRD-200300952
Gene C. Jarmon
General Counsel and Chief Clerk
Texas Department of Insurance
Earliest possible date of adoption: March 23, 2003
For further information, please call: (512) 463-6327
28 TAC §3.4509
The new sections are proposed under the Insurance Code Articles
3.28 and 3.44a, and §36.001. Article 3.28 provides for the use of any
ordinary mortality table adopted after 1980 by the National Association of
Insurance Commissioners that is approved by regulation adopted by the commissioner
for use in determining the minimum standard valuation for such policies. Article
3.44a provides that any ordinary mortality tables, adopted after 1980 by the
National Association of Insurance Commissioners, that are approved by regulation
adopted by the commissioner for use in determining the minimum nonforfeiture
standard may be substituted for the 1980 CSO Mortality Table with or without
Ten-Year Select Mortality Factors. Section 36.001 provides the commissioner
may adopt rules to execute the duties and functions of the department as authorized
by statute.
Insurance Code Articles 3.28 and 3.44a are affected by this proposal.
§3.4509.2001 CSO Mortality Table.
The 2001 CSO Mortality Table shall be used for purposes of this subchapter
pursuant to the requirements of §§3.9101 - 3.9106 of this title
(relating to 2001 CSO Mortality Table).
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed
with the Office of the Secretary of State on February 10, 2003.
TRD-200300953
Gene C. Jarmon
General Counsel and Chief Clerk
Texas Department of Insurance
Earliest possible date of adoption: March 23, 2003
For further information, please call: (512) 463-6327
28 TAC §§3.9101 - 3.9106
The new sections are proposed under the Insurance Code Articles
3.28 and 3.44a, and §36.001. Article 3.28 provides for the use of any
ordinary mortality table adopted after 1980 by the National Association of
Insurance Commissioners that is approved by regulation adopted by the commissioner
for use in determining the minimum standard valuation for such policies. Article
3.44a provides that any ordinary mortality tables, adopted after 1980 by the
National Association of Insurance Commissioners, that are approved by regulation
adopted by the commissioner for use in determining the minimum nonforfeiture
standard may be substituted for the 1980 CSO Mortality Table with or without
Ten-Year Select Mortality Factors. Section 36.001 provides the commissioner
may adopt rules to execute the duties and functions of the department as authorized
by statute.
Insurance Code Articles 3.28 and 3.44a are affected by this proposal.
§3.9101.Purpose.
The purpose of this subchapter is to recognize, permit and prescribe
the use of the 2001 Commissioners Standard Ordinary (CSO) Mortality Table
in accordance with Insurance Code Articles 3.28 §3(a)(iii) and 3.44a §(8)(e)(6)
and §3.4505 of this title (relating to General Calculation Requirements
for Basic Reserves and Premium Deficiency Reserves).
§3.9102.Definitions.
The following words and terms, when used in this subchapter, shall
have the following meanings, unless the context clearly indicates otherwise.
(1)
2001 CSO Mortality Table -- mortality tables, 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 National Association of Insurance
Commissioners in December 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.
(2)
2001 CSO Mortality Table (F) -- mortality table consisting
of the rates of mortality for female lives from the 2001 CSO Mortality Table.
(3)
2001 CSO Mortality Table (M) -- mortality table consisting
of the rates of mortality for male lives from the 2001 CSO Mortality Table.
(4)
Composite mortality tables -- mortality tables with rates
of mortality that do not distinguish between smokers and nonsmokers.
(5)
Smoker and nonsmoker mortality tables -- mortality tables
with separate rates of mortality for smokers and nonsmokers.
§3.9103.2001 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 subchapter,
the 2001 CSO Mortality Table may be used as the minimum standard for policies
issued on or after May 1, 2003 and before the date specified in subsection
(b) of this section to which Insurance Code Article 3.28 §3(a)(iii) and
Article 3.44a §(8)(e)(6) and §3.4505 of this title (relating to
General Calculation Requirements for Basic Reserves and Premium Deficiency
Reserves) 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 subchapter, the
2001 CSO Mortality Table shall be used in determining minimum standards for
policies issued on and after January 1, 2009, to which Insurance Code Articles
3.28 §3(a)(iii) and 3.44a §(8)(e)(6) and §3.4505 of this title
(relating to General Calculation Requirements for Basic Reserves and Premium
Deficiency Reserves) are applicable.
(c)
The minimum basis for computation of values related to
extended term benefits will be the 2001 CSO Mortality Table pursuant to the
requirements of this subchapter.
(d)
The Commissioner of Insurance adopts by reference the 2001
CSO Mortality Table. The tables is available from the Actuarial Division,
Texas Department of Insurance, 333 Guadalupe, Austin, Texas or on the internet
by accessing the department's website at www.tdi.state.tex.us/2001 CSO.
§3.9104.Conditions.
(a)
For each plan of insurance with separate rates for smokers
and nonsmokers an insurer may use:
(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
Insurance Code Article 3.28 §10 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 tables 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 §3.9105 of this title (relating to Applicability
of the 2001 CSO Mortality Table to Chapter 3, Subchapter EE of this Title)
relative to use of the select and ultimate form.
§3.9105.Applicability of the 2001 CSO Mortality Table to Chapter 3, Subchapter EE of this Title.
(a)
The 2001 CSO Mortality Table may be used in applying Chapter
3, Subchapter EE of this title (relating to Valuation of Life Insurance Policies)
in the following manner, subject to the transition dates for use of the 2001
CSO Mortality Table in §3.9103 of this title (relating to 2001 CSO Mortality
Table):
(1)
Section 3.4503(1)(B)(ii) of this title (relating to Applicability):
The net level reserve premium is based on the ultimate mortality rates in
the 2001 CSO Mortality Table.
(2)
Section 3.4504(2) of this title (relating to Definitions).
All calculations are made using the 2001 CSO Mortality Rate, and, if elected,
the optional minimum mortality standard for deficiency reserves stipulated
in paragraph (4) of this subsection. 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 3.4505(a) of this title (relating to General Calculation
Requirements for Basic Reserves and Premium Deficiency Reserves). The 2001
CSO Mortality Table is the minimum standard for basic reserves.
(4)
Section 3.4505(b) of this title. 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 §3.4505(b)(3)(A) to (I)
of this title. 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 3.4506(c) of this title (relating to Calculation
of Minimum Valuation Standard for Policies with Guaranteed Nonlevel Gross
Premiums or Guaranteed Nonlevel Benefits (Other than Universal Life Policies)).
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 3.4506(e)(4) of this title. The calculations specified
in §3.4506(e) of this title shall use the ultimate mortality rates in
the 2001 CSO Mortality Table.
(7)
Section 3.4506(f)(4) of this title. The calculations specified
in §3.4506(f) of this title shall use the ultimate mortality rates in
the 2001 CSO Mortality Table.
(8)
Section 3.4506(g)(2) of this title. The calculations specified
in §3.4506(g) of this title shall use the ultimate mortality rates in
the 2001 CSO Mortality Table.
(9)
Section 3.4507(a)(1)(B) of this title (relating to Calculation
of Minimum Valuation Standard for Flexible Premium and Fixed Premium Universal
Life Insurance Policies That Contain Provisions Resulting in the Ability of
a Policyowner to Keep a Policy in Force Over a Second Guarantee Period). 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 Chapter 3, Subchapter EE to include life insurance policies
exempted under §3.4503(1) of this title.
§3.9106.Gender-Blended Tables.
(a)
For any ordinary life insurance policy delivered or issued
for delivery in this state on and after May 1, 2003, 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.
(b)
The company may choose from among the blended tables developed
by the American Academy of Actuaries CSO Task Force and adopted by the National
Association of Insurance Commissioners in December 2002. These blended tables
are available from the Actuarial Division, Texas Department of Insurance,
333 Guadalupe, Austin, Texas or on the internet by accessing the department's
website at www.tdi.state.tx.us/2001 CSO.
(c)
It shall not, in and of itself, be a violation of Insurance
Code Article 21.21 for an insurer to issue the same kind of policy of life
insurance on both a sex-distinct and sex-neutral basis.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed
with the Office of the Secretary of State on February 10, 2003.
TRD-200300954
Gene C. Jarmon
General Counsel and Chief Clerk
Texas Department of Insurance
Earliest possible date of adoption: March 23, 2003
For further information, please call: (512) 463-6327
Subchapter A. BASIC MANUAL OF RULES, RATES, AND FORMS FOR THE WRITING OF TITLE INSURANCE IN THE STATE OF TEXAS
Subchapter O. SMOKER-NONSMOKER COMPOSITE MORTALITY TABLES
Subchapter EE. VALUATION OF LIFE INSURANCE POLICIES
Subchapter JJ. 2001 CSO MORTALITY TABLE
Chapter 9.
TITLE INSURANCE