28 TAC §§3.9401 - 3.9404
The Commissioner of Insurance adopts new Subchapter MM, §§3.9401
- 3.9404, concerning the optional use of preferred mortality tables for life
insurance policies issued on and after January 1, 2007, excluding any disability
and accidental death benefits in such policies. The sections are adopted with
three minor, non-substantive changes to the proposed text published in the
January 5, 2007, issue of the
Texas Register
(32
TexReg 26).
The new sections are necessary to allow the use of preferred mortality
tables for valuation purposes only. Insurance Code, Article 3.28 (Chapter
425 effective April 1, 2007) authorizes a company to use any ordinary mortality
table that is adopted after 1980 by the National Association of Insurance
Commissioners and approved by regulation promulgated by the Commissioner.
In September 2006, the National Association of Insurance Commissioners adopted
ordinary mortality tables that reflect differences in mortality between preferred
and standard lives in determining minimum reserve liabilities. Minor changes
to the proposed text have been made in §3.9401 to provide an updated
cross reference, in §3.9402(1) to spell out the acronym NAIC upon first
reference, and in §3.9404(c) to correct a typographical error.
Adopted §3.9401 specifies the purpose of the subchapter. Adopted §3.9402
sets forth definitions used in the subchapter. Adopted §3.9403 allows
an insurer to substitute the 2001 Preferred Class Structure Mortality Table
in place of the 2001 CSO Smoker or Nonsmoker Mortality Table as the minimum
valuation standard for policies issued on or after January 1, 2007 and adopts
the 2001 Preferred Class Structure Mortality Table by reference. Adopted §3.9404
sets out conditions on the use of the 2001 Preferred Class Structure Mortality
Table and requires each insurer that opts to use the preferred mortality tables
to file statistical reports showing experience, which can be used in future
updates to the preferred mortality tables.
Comment: The Department received a single comment, expressing appreciation
for the Department's willingness to adopt mortality tables that more accurately
reflect differences in mortality in determining minimum reserve liabilities
for certain life products and describing it as a critically important interim
step toward a system of principles-based reserving.
Agency Response. The Department appreciates the comment.
NAMES OF THOSE COMMENTING FOR AND AGAINST THE SECTIONS.
For: American Council of Life Insurers.
Against: None.
The new sections are adopted pursuant to the Insurance Code,
Article 3.28 (Chapter 425 effective April 1, 2007) and §36.001. Article
3.28, §3(a)(iii) (§425.058(c)(3) effective April 1, 2007) provides
for the use of any ordinary mortality table adopted after 1980 by the National
Association of Insurance Commissioners that is approved by regulation promulgated
by the Commissioner for use in determining the minimum standard valuation
for life insurance policies, excluding any disability and accidental death
benefits in such policies. Section 36.001 provides that the Commissioner may
adopt any rules necessary and appropriate to implement the powers and duties
of the Texas Department of Insurance under the Insurance Code and other laws
of this state.
§3.9401.Purpose.
The purpose of this subchapter is to recognize and permit the use of
mortality tables that reflect differences in mortality between preferred and
standard lives in determining minimum reserve liabilities in accordance with
Insurance Code Article 3.28, §3(a)(iii) (§425.058(c)(3) effective
April 1, 2007) and §3.4505 of this title (relating to General Calculation
requirements for Basic Reserves and Premium Deficiency Reserves).
§3.9402.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 (NAIC) in December 2002. The 2001 CSO Mortality Table is included
in the Proceedings of the NAIC (2nd Quarter 2002) and supplemented by the
2001 CSO Preferred Class Structure Mortality Table defined below. 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. Mortality tables in the 2001 CSO Mortality
Table include the following:
(A)
2001 CSO Mortality Table (F)--Mortality table consisting
of the rates of mortality for female lives from the 2001 CSO Mortality Table.
(B)
2001 CSO Mortality Table (M)--Mortality table consisting
of the rates of mortality for male lives from the 2001 CSO Mortality Table.
(C)
Composite mortality tables--Mortality tables with rates
of mortality that do not distinguish between smokers and nonsmokers.
(D)
Smoker and nonsmoker mortality tables--Mortality tables
with separate rates of mortality for smokers and nonsmokers.
(2)
2001 CSO Preferred Class Structure Mortality Table--Mortality
tables with separate rates of mortality for super preferred nonsmokers, preferred
nonsmokers, residual standard nonsmokers, preferred smokers, and residual
standard smoker splits of the 2001 CSO Nonsmoker and Smoker tables as adopted
by the NAIC at the September 2006 national meeting and published in the Proceedings
of the NAIC (3rd Quarter 2006). Unless the context indicates otherwise, the
2001 CSO Preferred Class Structure Mortality Table includes both the ultimate
form of that table and the select and ultimate form of that table. It includes
both the smoker and nonsmoker mortality tables. It includes both the male
and female mortality tables and the gender composite mortality tables. It
also includes both the age-nearest-birthday and age-last-birthday bases of
the mortality table.
(3)
Statistical agent--An entity with proven systems for protecting
the confidentiality of individual insured and insurer information, demonstrated
resources for and history of ongoing electronic communications and data transfer
ensuring data integrity with insurers, which are its members or subscribers,
and a history of and means for aggregation of data and accurate promulgation
of the experience modifications in a timely manner.
§3.9404.Conditions.
(a)
For each plan of insurance with separate rates for preferred
and standard nonsmoker lives, an insurer may use the super preferred nonsmoker,
preferred nonsmoker, and residual standard nonsmoker tables to substitute
for the nonsmoker mortality table found in the 2001 CSO Mortality Table to
determine minimum reserves. At the time of election and annually thereafter,
except for business valued under the residual standard nonsmoker table, the
appointed actuary shall certify that:
(1)
the present value of death benefits over the next ten years
after the valuation date, using the anticipated mortality experience without
recognition of mortality improvement beyond the valuation date for each class,
is less than the present value of death benefits using the valuation basic
table corresponding to the valuation table being used for that class; and
(2)
the present value of death benefits over the future life
of the contracts, using anticipated mortality experience without recognition
of mortality improvement beyond the valuation date for each class, is less
than the present value of death benefits using the valuation basic table corresponding
to the valuation table being used for that class.
(b)
For each plan of insurance with separate rates for preferred
and standard smoker lives, an insurer may use the preferred smoker and residual
standard smoker tables to substitute for the smoker mortality table found
in the 2001 CSO Mortality Table to determine minimum reserves. At the time
of election and annually thereafter, for business valued under the preferred
smoker table, the appointed actuary shall certify that:
(1)
the present value of death benefits over the next ten years
after the valuation date, using the anticipated mortality experience without
recognition of mortality improvement beyond the valuation date for each class,
is less than the present value of death benefits using the preferred smoker
valuation basic table; and
(2)
the present value of death benefits over the future life
of the contracts, using anticipated mortality experience without recognition
of mortality improvement beyond the valuation date for each class, is less
than the present value of death benefits using the preferred smoker valuation
basic table.
(c)
Unless exempted by the commissioner, every insurer using
the 2001 CSO Preferred Class Structure Table shall annually file with the
commissioner, with the NAIC, or with a statistical agent designated by the
NAIC and acceptable to the commissioner, statistical reports showing mortality
and such other information as the commissioner may deem necessary or expedient
for the administration of the provisions of this regulation. The form of the
reports shall be established by the commissioner, or the commissioner may
require the use of a form established by the NAIC or by a statistical agent
designated by the NAIC and acceptable to the commissioner. The form of the
statistical reports shall be promulgated by rule. Insurers are not required
to file such statistical reports until such rule has been adopted by the commissioner.
At the commissioner's discretion, the commissioner may request mortality and
other information at any time.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on February 20, 2007.
TRD-200700662
Gene C. Jarmon
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: March 12, 2007
Proposal publication date: January 5, 2007
For further information, please call: (512) 463-6327