TITLE 14. INSURANCE

STATE CORPORATION COMMISSION

Proposed Regulation

REGISTRAR'S NOTICE: The State Corporation Commission is exempt from the Administrative Process Act in accordance with §2.2-4002 A 2 of the Code of Virginia, which exempts courts, any agency of the Supreme Court, and any agency that by the Constitution is expressly granted any of the powers of a court of record.

Title of Regulation: 14VAC5-323. Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values (adding 14VAC5-323-10 through 14VAC5-323-70).

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

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

Public Comments: Public comments may be submitted until November 14, 2008.

Agency Contact: Raquel Pino-Moreno, Principal Insurance Analyst, State Corporation Commission, Insurance Bureau, 1300 East Main Street, 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 regulation increases the reserves required for preneed insurance policies by not allowing the 2001 Commissioners Standard Ordinary Mortality Table to be used (mandatory after January 1, 2012) and instead requiring that reserves be based on the older Commissioners 1980 Standard Ordinary Life Valuation Mortality Table. The proposed regulation is based on the Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values Model Regulation (Model), which was adopted by the National Association of Insurance Commissioners in March 2008. The higher reserves may qualify as tax reserves (tax deductible) per the Internal Revenue Code if 26 states adopt the Model by January 1, 2009.

AT RICHMOND, SEPTEMBER 9, 2008

COMMONWEALTH OF VIRGINIA

At the relation of the

STATE CORPORATION COMMISSION

CASE NO. INS-2008-00194

Ex parte: In the matter of
Adopting Rules Governing
Preneed Life Insurance
Minimum Standards for
Determining Reserve Liabilities
And Nonforfeiture Values

ORDER TO TAKE NOTICE

Section 12.1-13 of the Code of Virginia 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 of Virginia 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 of Virginia.

The rules and regulations issued by the Commission pursuant to §38.2-223 of the Code of Virginia are set forth in Title 14 of the Virginia Administrative Code.

The Bureau of Insurance ("Bureau") has submitted to the Commission a proposal to adopt new "Rules Governing Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values" which are recommended to be set out at 14 VAC 5-323-10 through 14 VAC 5-323-70.

The proposed new rules follow closely the National Association of Insurance Commissioners (NAIC) Model Regulation on the same subject.  The purpose of the regulation is to establish minimum mortality standards for reserve liabilities and nonforfeiture values for preneed insurance products, 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.  Research commissioned by the Society of Actuaries determined that the 2001 CSO Mortality Table 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.  The Bureau has recommended that there be a proposed effective date of January 1, 2009.

The Commission is of the opinion that the proposed new rules submitted by the Bureau and set out at 14 VAC 5-323-10 through 14 VAC 5-323-70 should be considered for adoption with an effective date of January 1, 2009.

IT IS THEREFORE ORDERED THAT:

(1) The proposed new rules entitled "Rules Governing Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values" which are recommended to be set out at 14 VAC 5-323-10 through 14 VAC 5-323-70 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 the adoption of the proposed new rules shall file such comments or hearing request on or before November 14, 2008, in writing with the Clerk of the Commission, Document Control Center, P.O. Box 2118, Richmond, Virginia 23218 and shall refer to Case No. INS-2008-00194.

(3) If no written request for a hearing on the proposed new rules is filed on or before November 14, 2008, the Commission, upon consideration of any comments submitted in support of or in opposition to the proposed new rules, may adopt the rules as submitted by the Bureau.

(4) AN ATTESTED COPY hereof, together with a copy of the proposed new 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 proposed adoption of the new rules by mailing a copy of this Order, together with the proposed new rules, to all licensed life insurers, burial societies, and fraternal benefit societies authorized by the Commission pursuant to Title 38.2 of the Code of Virginia, and certain interested parties designated by the Bureau.

(5) The Commission's Division of Information Resources forthwith shall cause a copy of this Order, together with the proposed new 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 new 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.

CHAPTER 323
PRENEED LIFE INSURANCE MINIMUM STANDARDS FOR DETERMINING RESERVE LIABILITIES AND NONFORFEITURE VALUES

14VAC5-323-10. Authority.

This chapter is promulgated by the commission, pursuant to §38.2-223 of the Code of Virginia and in accordance with §§38.2-3130, 38.2-3206 through 38.2-3209, and 38.2-4120 of the Code of Virginia and 14VAC5-319-40, to approve, recognize, permit, and prescribe 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 insurers offering preneed insurance in this Commonwealth.

14VAC5-323-20. Definitions.

The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:

"2001 CSO Mortality Table" means that mortality table, which is included in the Proceedings of the NAIC (2nd Quarter 2002), 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. 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.

"Commission" means the State Corporation Commission.

"NAIC" means the National Association of Insurance Commissioners.

"Preneed insurance," "preneed insurance contract," or "preneed insurance policy" means a life insurance policy, or other life insurance contract which at issue, whether by assignment or otherwise, has for a purpose, the funding of a preneed funeral contract as defined in §54.1-2800 of the Code of Virginia.

"Ultimate 1980 CSO" means the Commissioners 1980 Standard Ordinary Life Valuation Mortality Table without any selection factors, incorporated into the 1980 NAIC amendments to the Standard Valuation Law and Standard Nonforfeiture Law for Life Insurance models, and adopted by the NAIC in December 1983.  It is a mortality table consisting of separate rates of mortality for male and female lives, developed by the Society of Actuaries Committee to recommend new mortality tables for valuation of standard individual ordinary life insurance, as set forth in Transactions, Society of Actuaries, Vol. XXXIII (1981), pp. 673 and 674.

14VAC5-323-30. Minimum valuation mortality standards.

For preneed insurance contracts, 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.

14VAC5-323-40. 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 §§38.2-3133 through 38.2-3136 of the Code of Virginia.

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 §38.2-3209 of the Code of Virginia.

14VAC5-323-50. 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 §§38.2-3129 and 38.2-3130 of the Code of Virginia.

B. The method used in determining the standard for the minimum nonforfeiture values for preneed insurance shall be the method defined in §38.2-3209 of the Code of Virginia.

14VAC5-323-60. Transition provisions.

A. For preneed insurance policies issued on or after January 1, 2009, and before January 1, 2012, the 2001 CSO Mortality Table may be used as the minimum standard for reserves and minimum standard for nonforfeiture benefits for both male and female insureds pursuant to the requirements of the rules entitled "Use of the 2001 CSO Mortality Table in Determining Minimum Reserve Liabilities and Nonforfeiture Benefits (14VAC 5-321)."

B. If an insurer elects to use the 2001 CSO Mortality Table as a minimum standard for any preneed insurance policy issued on or after January 1, 2009, 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 insurance 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 insurance policies issued after January 1, 2009, and using the 2001 CSO as a minimum standard, develops adequate reserves (for the purposes of this certification, the preneed insurance policies using the 2001 CSO as a minimum standard cannot be aggregated with any other insurance policies.); and

3. Supporting information regarding the adequacy of reserves for preneed insurance policies issued after January 1, 2009, and using the 2001 CSO as a minimum standard for reserves.

C. Preneed insurance policies issued on or after January 1, 2012, shall use the Ultimate 1980 CSO in the calculation of minimum nonforfeiture values and minimum reserves.

14VAC5-323-70. Severability.

If any provision of this chapter or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the chapter and the application of the provision to other persons or circumstances shall not be affected thereby.

VA.R. Doc. No. R09-1348; Filed September 9, 2008, 9:29 a.m.