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.

Effective Date: January 1, 2015.

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 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 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 only change from the proposed version of the rules has been to the individual annuity or pure endowment contracts section (14VAC5-50-30) making the use of the 2012 IAR Mortality Table a requirement for contracts issued on or after January 1, 2015, and not January 1, 2014, as was originally proposed. The effective date of the amendments will be January 1, 2015.

AT RICHMOND, OCTOBER 8, 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 ADOPTING RULES

By Order to Take Notice entered June 21, 2013 ("June 21 Order"), all interested persons were ordered to take notice that subsequent to August 20, 2013, the State Corporation Commission ("Commission") would consider entry of an order to adopt 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, 14 VAC 5-50-10 et seq. ("Rules"), which amend the Rules at 14 VAC 5-50-10 through 14 VAC 5-50-50 and add a new Rule at 14 VAC 5-50-35. These amendments were proposed by the Bureau of Insurance ("Bureau").

The June 21 Order required that on or before August 20, 2013, any person objecting to the amendments to the Rules shall have filed a request for hearing with the Clerk of the Commission ("Clerk"). No request for a hearing was filed with the Clerk.

The June 21 Order also required all interested persons to file their comments in support of or in opposition to the amendments to the Rules on or before August 20, 2013. Genworth Financial timely filed comments with the Clerk, to which the Bureau provided a response in the form of a Statement of Position filed with the Clerk on September 17, 2013.

As a result of these comments received, the Bureau recommended that the proposed amendments to the Rules be further revised as follows: amend the Rule at 14 VAC 5-50-30, making the use of the 2012 Individual Annuity Reserving Mortality Table ("2012 IAR Mortality Table") a requirement for contracts issued on or after January 1, 2015, and not January 1, 2014, as originally proposed.

The 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 IAR Mortality Table to the list of recognized mortality tables. The revisions to Chapter 50 include: (i) the addition of the 2012 IAR Mortality Table to the list of recognized mortality tables in 14 VAC 5-50-10; (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 Table" and "2012 IAM Period Table," and "Projection Scale G2" and "Scale G2" in 14 VAC 5-50-20; (iii) the addition of language in 14 VAC 5-50-30 that sets forth when the 2012 IAR Mortality Table shall be used; (iv) the addition of clarifying language in 14 VAC 5-50-40; (v) the revision of the formula in 14 VAC 5-50-41 that is used to calculate the mortality rate when applying the 1994 Group Annuity Reserving Table; (vi) the revision of 14 VAC 5-50-50 to provide consistency with other severability sections; (vii) the addition of 14 VAC 5-50-35, which explains the application of the 2012 IAR Mortality Table; and (viii) the revision of 14 VAC 5-50-30 making the use of the 2012 IAR Mortality Table a requirement for contracts issued on or after January 1, 2015, and not January 1, 2014, as originally proposed.

NOW THE COMMISSION, having considered this matter, the Bureau's response to the comments, and the Bureau's recommendation to amend and revise the Rules, is of the opinion that the Rules should be adopted as amended and revised.

Accordingly, IT IS ORDERED THAT:

(1) The amendments to the Rules Governing New Annuity Mortality Tables for Use in Determining Reserve Liabilities for Annuities that amend the Rules at 14 VAC 5-50-10 through 14 VAC 5-50-50 and add a new Rule at 14 VAC 5-50-35, which are attached hereto and made a part hereof, are hereby ADOPTED effective January 1, 2015.

(2) AN ATTESTED COPY hereof, together with a copy of the adopted, amended, and revised 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 adopted, amended, and revised Rules by mailing a copy of this Order, including a clean copy of the Rules, to all life insurers, burial societies, fraternal benefit societies and qualified reinsurers, as well as to all interested parties.

(3) The Commission's Division of Information Resources forthwith shall cause a copy of this Order, together with the adopted, amended, and revised Rules at 14 VAC 5-50-10 through 14 VAC 5-50-50, and new Rule at 14 VAC 5-50-35, 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 attached adopted, amended, and revised Rules on the Commission's website: http://www.scc.virginia.gov/case.

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

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 2015 ].

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.