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.

Effective Date: January 1, 2009.

Agency Contact: Raquel Pino-Moreno, Principal Insurance Analyst, State Corporation Commission, Bureau of Insurance, 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 regulations increase 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 regulations are 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. There were no changes from the proposed version of the regulations.

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

By Order to Take Notice ("Order") entered September 9, 2008, all interested persons were ordered to take notice that subsequent to November 14, 2008, the State Corporation Commission ("Commission") would consider the entry of an order adopting new rules proposed by the Bureau of Insurance ("Bureau") entitled "Rules Governing Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values" ("Rules"), set forth in Chapter 323 of Title 14 of the Virginia Administrative Code, unless on or before November 14, 2008, any person objecting to the adoption of the proposed new Rules filed a request for a hearing with the Clerk of the Commission ("Clerk").

The Order also required all interested persons to file their comments in support of or in opposition to the proposed new Rules on or before November 14, 2008.

The Funeral Directors Life Insurance Company timely filed comments with the Clerk in support of the proposed new Rules. There were no other comments or requests for a hearing filed with the Clerk.

The Bureau does not recommend further changes to the proposed new Rules and, further, recommends that the Rules be adopted as proposed.

THE COMMISSION, having considered the comments and the Bureau's recommendation, is of the opinion that the attached proposed new Rules should be adopted.

IT IS THEREFORE ORDERED THAT:

(1) The proposed new Rules at Chapter 323 of Title 14 of the Virginia Administrative Code entitled "Rules Governing Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values," which are attached hereto and made a part hereof, should be, and they are hereby, ADOPTED to be effective January 1, 2009.

(2) AN ATTESTED COPY hereof, together with a copy of the adopted 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 adoption of the new Rules by mailing a copy of this Order, together with a clean copy of the attached 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.

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

(4) The Commission's Division of Information Resources shall make available this Order and the adopted Rules on the Commission's website, http://www.scc.virginia.gov/case.

(5) The Bureau shall file with the Clerk of the Commission an affidavit of compliance with the notice requirements of Ordering Paragraph (2) 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.