Title of Regulation: 14VAC5-50. Rules Governing New Annuity Mortality Tables for Use in Determining Reserve Liabilities for Annuities (amending 14VAC5-50-10 through 14VAC5-50-50; adding 14VAC5-50-35).

Statutory Authority: §§ 12.1-13 and 38.2-223 of the Code of Virginia.

Public Hearing Information: A public hearing will be scheduled upon request.

Public Comment Deadline: August 20, 2013.

Agency Contact: Raquel Pino-Moreno, Principal Insurance Analyst, Bureau of Insurance, State Corporation Commission, P.O. Box 1157, Richmond, VA 23218, telephone (804) 371-9499, FAX (804) 371-9511, or email raquel.pino-moreno@scc.virginia.gov.

Summary:

The proposed amendments address the National Association of Insurance Commissioners' December 2012 adoption of the revised Model Rule for Recognizing a New Annuity Mortality Table for Use in Determining Reserve Liabilities for Annuities. The revised model adds the 2012 Individual Annuity Reserving Mortality Table (2012 IAR Mortality Table). The proposed amendments include (i) adding the 2012 IAR Mortality Table to the list of recognized mortality tables; (ii) adding definitions for Period Table, Generational Mortality Table, 2012 IAR Mortality Table, 2012 IAM Period Table, and Projection Scale G2; and (iii) establishing when and how the 2012 IAR Mortality Table may be used. The proposed effective date is January 1, 2014.

AT RICHMOND, JUNE 21, 2013

COMMONWEALTH OF VIRGINIA, ex rel.

STATE CORPORATION COMMISSION

CASE NO. INS-2013-00127

Ex Parte: In the matter of
Amending the Rules Governing New
Annuity Mortality Tables for Use in
Determining Reserve Liabilities for Annuities

ORDER TO TAKE NOTICE

Section 12.1-13 of the Code of Virginia ("Code") provides that the State Corporation Commission ("Commission") shall have the power to promulgate rules and regulations in the enforcement and administration of all laws within its jurisdiction, and § 38.2-223 of the Code provides that the Commission may issue any rules and regulations necessary or appropriate for the administration and enforcement of Title 38.2 of the Code.

The rules and regulations issued by the Commission pursuant to § 38.2-223 of the Code are set forth in Title 14 of the Virginia Administrative Code. A copy may also be found at the Commission's website: http://www.scc.virginia.gov/boi/laws.aspx.

The Bureau of Insurance ("Bureau") has submitted to the Commission proposed amendments to rules set forth in Chapter 50 of Title 14 of the Virginia Administrative Code, entitled Rules Governing New Annuity Mortality Tables for Use in Determining Reserve Liabilities for Annuities, 14VAC5-50-10 et seq. ("Rules"), which amend the Rules at 14VAC5-50-10 through 14VAC5-50-50; and add a new Rule at 14VAC5-50-35.

The proposed amendments to Chapter 50 are necessary due to the National Association of Insurance Commissioners' adoption of the revised Model Rule for Recognizing a New Annuity Mortality Table for Use in Determining Reserve Liabilities for Annuities, which adds the 2012 Individual Annuity Reserving Mortality Table ("2012 IAR Mortality Table") to the list of recognized mortality tables. The proposed revisions to Chapter 50 include: (i) the addition of the 2012 IAR Mortality Table to the list of recognized mortality tables in 14VAC5-50-10, (ii) the addition of definitions for "Period Table," "Generational Mortality Table," "2012 Individual Annuity Reserving Mortality Table" and "2012 IAR Mortality Table," "2012 Individual Annuity Mortality Period Life (2012 IAM Period) Table," and "Projection Scale G2 (Scale G2)" in 14VAC5-50-20, (iii) the addition of language in 14VAC5-50-30 that sets forth when the 2012 IAR Table shall be used, (iv) the addition of clarifying language in 14VAC5-50-40, (v) the revision of the formula in 14VAC5-50-41 that is used to calculate the mortality rate when applying the 1994 Group Annuity Reserving Table, (vi) the revision of 14VAC5-50-50 to provide consistency with other severability sections, and (vii) the addition of 14VAC5-50-35, which explains the application of the 2012 IAR Mortality Table.

NOW THE COMMISSION is of the opinion that the proposed amendments submitted by the Bureau to amend the Rules at 14VAC5-50-10 through 14VAC5-50-50, and to add a Rule at 14VAC5-50-35, should be considered for adoption.

Accordingly, IT IS ORDERED THAT:

(1) The proposed amendments to Rules Governing New Annuity Mortality Tables for Use in Determining Reserve Liabilities for Annuities, which amend the Rules at 14VAC5-50-10 through 14VAC5-50-50; and add a new Rule at 14VAC5-50-35, be attached hereto and made a part hereof.

(2) All interested persons who desire to comment in support of or in opposition to, or request a hearing to oppose amending Chapter 50 of Title 14 of the Virginia Administrative Code, shall file such comments or hearing request on or before August 20, 2013, with Joel H. Peck, Clerk, State Corporation Commission, c/o Document Control Center, P.O. Box 2118, Richmond, Virginia 23218. Interested persons desiring to submit comments electronically may do so by following the instructions at the Commission's website: http://www.scc.virginia.gov/caseinfo.htm. All comments shall refer to Case No. INS-2013-00127.

(3) If no written request for a hearing on the proposal to amend Chapter 50 of Title 14 of the Virginia Administrative Code is received on or before August 20, 2013, the Commission, upon consideration of any comments submitted in support of or in opposition to the proposal, may amend the Rules.

(4) AN ATTESTED COPY hereof, together with a copy of the proposal to amend rules, shall be sent by the Clerk of the Commission to the Bureau in care of Deputy Commissioner Douglas C. Stolte, who forthwith shall give further notice of the proposal to amend rules by mailing a copy of this Order, together with the proposal, to all life insurers, burial societies, fraternal benefit societies and qualified reinsurers, as well as to all interested parties.

(5) The Commission's Division of Information Resources forthwith shall cause a copy of this Order, together with the proposal to amend rules, to be forwarded to the Virginia Registrar of Regulations for appropriate publication in the Virginia Register of Regulations.

(6) The Commission's Division of Information Resources shall make available this Order and the attached proposed amendments to the rules on the Commission's website: http://www.scc.virginia.gov/case.

(7) The Bureau shall file with the Clerk of the Commission an affidavit of compliance with the notice requirements of Ordering Paragraph (4) above.

(8) This matter is continued.

14VAC5-50-10. Purpose.

The purpose of this chapter (14VAC5-50-10 et seq.) is to recognize the following mortality tables for use in determining the minimum standard of valuation for annuity and pure endowment contracts: the 1983 Group Annuity Mortality (1983 GAM) Table, the 1983 Table "a," the Annuity 2000 Mortality Table, the 2012 Individual Annuity Reserving (2012 IAR) Mortality Table, and the 1994 Group Annuity Reserving (1994 GAR) Table.

14VAC5-50-20. Definitions.

As The following words and terms when used in this chapter (14VAC5-50-10 et seq.) shall have the following meanings unless the context clearly indicates otherwise:

"1983 Group Annuity Mortality Table" and "1983 GAM Table" mean that mortality table developed by the Society of Actuaries Committee on Annuities and adopted as a recognized mortality table for annuities in December 1983 by the National Association of Insurance Commissioners (NAIC).

"1983 Table "a'" means that mortality table developed by the Society of Actuaries Committee to Recommend a New Mortality Basis for Individual Annuity Valuation and adopted as a recognized mortality table for annuities in June 1982 by the National Association of Insurance Commissioners NAIC.

"1994 Group Annuity Reserving Table" and "1994 GAR Table" mean that mortality table developed by the Society of Actuaries Group Annuity Valuation Table Task Force and adopted as a recognized mortality table for annuities in December 1995 1996 by the National Association of Insurance Commissioners NAIC.

"2012 Individual Annuity Mortality Period Life Table" and "2012 IAM Period Table" mean the Period Table containing loaded mortality rates for calendar year 2012. This table contains rates, qx²⁰¹², developed by the Society of Actuaries Committee on Life Insurance Research.

"2012 Individual Annuity Reserving Mortality Table" and "2012 IAR Mortality Table" mean that Generational Mortality Table developed by the Society of Actuaries Committee on Life Insurance Research and containing rates, qx²⁰¹²⁺ⁿ, derived from a combination of the 2012 IAM Period Table and Projection Scale G2, using the methodology stated in 14VAC5-50-35, and adopted as a recognized mortality table for annuities in December 2012 by the NAIC.

"Annuity 2000 Mortality Table" means that mortality table developed by the Society of Actuaries Committee on Life Insurance Research and adopted as a recognized mortality table for annuities in December 1996 by the National Association of Insurance Commissioners NAIC.

"Generational Mortality Table" means a mortality table containing a set of mortality rates that decrease for a given age from one year to the next based on a combination of a Period Table and a projection scale containing rates of mortality improvement.

"Period Table" means a table of mortality rates applicable to a given calendar year (the Period).

"Projection Scale G2" and "Scale G2" mean a table of annual rates, G2_x, of mortality improvement by age for projecting future mortality rates beyond calendar year 2012. This table was developed by the Society of Actuaries Committee on Life Insurance Research.

14VAC5-50-30. Individual annuity or pure endowment contracts.

A. Except as provided in subsections B and C of this section, the 1983 Table "a" is recognized and approved as an individual annuity mortality table for valuation and, at the option of the company, may be used for purposes of determining the minimum standard of valuation for any individual annuity or pure endowment contract issued on or after July 1, 1979.

B. Except as provided in subsection C of this section, either the 1983 Table "a" or the Annuity 2000 Mortality Table shall be used for determining the minimum standard of valuation for any individual annuity or pure endowment contract issued on or after January 1, 1987.

C. Except as provided in subsection D of this section, the Annuity 2000 Mortality Table shall be used for determining the minimum standard of valuation for an any individual annuity or a pure endowment contract issued on or after January 1, 1999.

D. Except as provided in subsection E of this section, the 2012 IAR Mortality Table shall be used for determining the minimum standard of valuation for any individual annuity or pure endowment contract issued on or after January 1, 2014.

E. The 1983 Table "a" without projection is to be used for determining the minimum standards of valuation for an individual annuity or pure endowment contract issued on or after January 1, 1999, solely when the contract is based on life contingencies and is issued to fund periodic benefits arising from:

1. Settlements of various forms of claims pertaining to court settlements or out of court settlements from tort actions;

2. Settlements involving similar actions such as workers' compensation claims; or

3. Settlements of long-term disability claims where a temporary or life annuity has been used in lieu of continuing disability payments.

14VAC5-50-35. Application of the 2012 IAR Mortality Table.

In using the 2012 IAR Mortality Table, the mortality rate for a person age x in year (2012 + n) is calculated as follows:

q_x²⁰¹²⁺ⁿ = q_x²⁰¹²(1 – G2_x)ⁿ

The resulting q_x²⁰¹²⁺ⁿ shall be rounded to three decimal places per 1,000 (e.g., 0.741 deaths per 1,000). Also, the rounding shall occur according to the formula above, starting at the 2012 Period Table rate.

For example, for a male age 30, q_x²⁰¹² = 0.741.

q_x²⁰¹³ = 0.741 * (1 – 0.010) ^ 1 = 0.73359, which is rounded to 0.734.

q_x²⁰¹⁴ = 0.741 * (1 – 0.010) ^ 2 = 0.7262541, which is rounded to 0.726.

A method leading to incorrect rounding would be to calculate q_x²⁰¹⁴ as q_x²⁰¹³ * (1 – 0.010), or 0.734 * 0.99 = 0.727. It is incorrect to use the already rounded q_x²⁰¹³ to calculate q_x²⁰¹⁴.

14VAC5-50-40. Group annuity or pure endowment contracts.

A. Except as provided in subsections B and C of this section, the 1983 GAM Table, 1983 Table "a," and the 1994 GAR Table are recognized and approved as group annuity mortality tables for valuation and, at the option of the company, any one of these tables may be used for purposes of valuation for any annuity or a pure endowment purchased on or after July 1, 1979, under a group annuity or pure endowment contract.

B. Except as provided in subsection C of this section, either the 1983 GAM Table or the 1994 GAR Table shall be used for determining the minimum standard of valuation for any annuity or a pure endowment purchased on or after January 1, 1987, under a group annuity or pure endowment contract.

C. The 1994 GAR Table shall be used for determining the minimum standard of valuation for any annuity or a pure endowment purchased on or after January 1, 1999, under a group annuity or pure endowment contract.

14VAC5-50-41. Application of the 1994 GAR Table.

In using the 1994 GAR Table, the mortality rate for a person age x in year (1994 + n) is calculated as follows:

q_x1994+n = q_x1994(1 - AA_x)n q_x¹⁹⁹⁴⁺ⁿ = q_x¹⁹⁹⁴(1 – AA_x)ⁿ

where the q_x1994's q_x¹⁹⁹⁴ and AA_x's AA_x are as specified in the 1994 GAR Table.

14VAC5-50-50. Severability.

If any provision of this chapter (14VAC5-50-10 et seq.), or the its application thereof to any person or circumstances circumstance is for any reason held to be invalid by a court, the remainder of the this chapter and the application of such provision the provisions to other persons or circumstances shall not be affected thereby.