TITLE 4. CONSERVATION AND NATURAL RESOURCES
VIRGINIA SOIL AND WATER CONSERVATION BOARD
Fast-Track Regulation
Title of Regulation: 4VAC50-85. Nutrient Management Training and Certification Regulations (amending 4VAC50-85-10, 4VAC50-85-100, 4VAC50-85-110, 4VAC50-85-140).
Statutory Authority: § 10.1-104.2 of the Code of Virginia.
Public Hearing Information: No public hearings are scheduled.
Public Comment Deadline: November 5, 2014.
Effective Date: November 20, 2014.
Agency Contact: David C. Dowling, Policy and Planning Director, Department of Conservation and Recreation, 600 East Main Street, 24th Floor, Richmond, VA 23219, telephone (804) 786-2291, FAX (804) 786-6141, or email david.dowling@dcr.virginia.gov.
Basis: Sections 10.1-104.2 and 10.1-505 of the Code of Virginia provide authority to the Virginia Soil and Water Conservation Board to promulgate Nutrient Management Training and Certification Regulations and amendments thereto.
Section 10.1-104.5 of the Code of Virginia specifies that golf course nutrient management plans may be good for up to five years. This regulatory action amends the Nutrient Management Training and Certification Regulations (4VAC50-85) to clarify that golf course nutrient management plans may be good for up to five years in accordance with § 10.1-104.5 of the Code of Virginia, which was added pursuant to Chapters 341 and 353 of the 2011 Acts of Assembly.
Purpose: This is a technical amendment requested by the Virginia Agribusiness Council to clarify that golf course nutrient management plans may be good for up to five years in accordance with § 10.1-104.5 of the Code of Virginia. The Nutrient Management Training and Certification Regulations provide a tool through which the Commonwealth manages both urban and agricultural nutrients found in fertilizers, manure, biosolids, and other sources so that they retain their efficient use yet do not impair the quality of Virginia's ground and surface waters. The protection of water quality has a positive impact on public health, safety, and welfare. This action clarifies the implementation of these water quality regulations related to the duration of golf course nutrient management plans.
Rationale for Using Fast-Track Process: In the past, a clarifying technical amendment of this nature to conform state regulations with the Code of Virginia would typically have been exempt; however, legislation was passed in 2011 limiting the exemption in § 2.2-4006 A 4 a of the Code of Virginia, to those actions taken within 90 days of the of the law's effective date.
A review of the regulations in 2011, following the passage of the legislation, did not identify a need for any amendments to the regulations. However, in recent months, the Virginia Agribusiness Council has requested that the Nutrient Management Training and Certification Regulations be amended to clarify that golf course nutrient management plans may be good for up to five years in accordance with § 10.1-104.5 of the Code of Virginia.
Accordingly, the action cannot be considered exempt as over 90 days have lapsed since the passage of the legislation, and the use of a fast-track action is the next best option available to make this conforming technical amendment.
Substance: This regulatory action amends the Nutrient Management Training and Certification Regulations to clarify that golf course nutrient management plans may be good for up to five years in accordance with § 10.1-104.5 of the Code of Virginia.
Issues: This is a clarifying technical amendment to conform state regulations to the Code of Virginia as requested by the Virginia Agribusiness Council. The regulatory amendment creates no new requirements. There are no disadvantages.
Department of Planning and Budget Economic Impact Analysis:
Summary of the Proposed Amendments to Regulation. The Virginia Soil and Water Conservation Board (Board) proposes to add language to the Nutrient Management Training and Certification Regulations in order to make clear that golf course nutrient management plans may be good for up to five years before they must be revised and resubmitted for approval to the Department of Conservation and Recreation.
Result of Analysis. The benefits likely exceed the costs for all proposed changes.
Estimated Economic Impact. The Board's proposal to add clarifying language in the regulation does not change requirements. It creates no costs and is potentially beneficial in that it may reduce the likelihood of confusion over the law.
Businesses and Entities Affected. The proposed amendment is a clarification and does not change requirements. In that the clarification concerns golf courses, the proposed amendment pertains to businesses and other entities that own golf courses. According to the National Golf Federation there are 336 golf courses in Virginia.
Localities Particularly Affected. The proposed amendment does not disproportionately affect particular entities.
Projected Impact on Employment. The proposed amendments are unlikely to significantly affect employment.
Effects on the Use and Value of Private Property. The proposed amendments are unlikely to significantly affect the use and value of private property.
Small Businesses: Costs and Other Effects. The proposed amendments are unlikely to significantly affect small businesses.
Small Businesses: Alternative Method that Minimizes Adverse Impact. The proposed amendments will not adversely affect small businesses.
Real Estate Development Costs. The proposed amendments are unlikely to significantly affect real estate development costs.
Legal Mandate.
General: The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Code of Virginia and Executive Order Number 14 (2010). Section 2.2-4007.04 requires that such economic impact analyses determine the public benefits and costs of the proposed amendments. Further the report should include but not be limited to:
• the projected number of businesses or other entities to whom the proposed regulation would apply,
• the identity of any localities and types of businesses or other entities particularly affected,
• the projected number of persons and employment positions to be affected,
• the projected costs to affected businesses or entities to implement or comply with the regulation, and
• the impact on the use and value of private property.
Small Businesses: If the proposed regulation will have an adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include:
• an identification and estimate of the number of small businesses subject to the proposed regulation,
• the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the proposed regulation, including the type of professional skills necessary for preparing required reports and other documents,
• a statement of the probable effect of the proposed regulation on affected small businesses, and
• a description of any less intrusive or less costly alternative methods of achieving the purpose of the proposed regulation.
Additionally, pursuant to § 2.2-4007.1, if there is a finding that a proposed regulation may have an adverse impact on small business, the Joint Commission on Administrative Rules (JCAR) is notified at the time the proposed regulation is submitted to the Virginia Register of Regulations for publication. This analysis shall represent DPB's best estimate for the purposes of public review and comment on the proposed regulation.
Agency's Response to Economic Impact Analysis: The Department of Conservation and Recreation concurs with the economic impact analysis prepared by the Department of Planning and Budget regarding the proposed amendment to the Nutrient Management Training and Certification Regulations.
Summary:
The amendments (i) clarify that nutrient management plans for golf courses may be good for up to five years (as opposed to three years) pursuant to Chapters 341 and 353 of the 2011 Acts of Assembly, (ii) update Code of Virginia references pursuant to Chapters 881 and 929 of the 2007 Acts of Assembly, and (iii) update Virginia Administrative Code references to reflect the transfer of authority for the biosolids regulations to the State Water Control Board.
4VAC50-85-10. Definitions.
The words and terms used in this chapter shall have the following meanings unless the context clearly indicates otherwise.
"Application rate" or "nutrient rate" means the quantity of major nutrients, nitrogen as N, phosphorus as P2O5, and potassium as K2O on a per acre basis to supply crop or plant nutrient needs, and to achieve realistic expected crop yields.
"Banding" or "sideband" means the placement of fertilizer approximately two inches to the side and two inches below the seed.
"Best management practice" means a conservation or pollution control practice that manages soil, nutrient losses, or other potential pollutant sources to minimize pollution of water resources, such as split applications of nitrogen, or use of cereal grain cover crops to trap available nitrogen and reduce soil erosion.
"Biosolids" means a sewage sludge that has received an established treatment for required pathogen control and is treated or managed to reduce vector attraction to a satisfactory level and contains acceptable levels of pollutants, such that it is acceptable for use for land application, marketing, or distribution in accordance with 12VAC5-585, Biosolids Use Regulations of the Board of Health 9VAC25-31, Virginia Pollutant Discharge Elimination System (VPDES) Permit Regulation, and 9VAC25-32, Virginia Pollution Abatement (VPA) Permit Regulation, of the State Water Control Board.
"Broadcast" means the uniform application of a material over a field.
"Calibration" means the systematic determination of the operational parameters, such as speed and quantity delivered, of application equipment.
"Cereal crop" or "small grain" means barley, rye, triticale, or wheat.
"Certified nutrient management planner" or "nutrient management planner" or "planner" means a person who holds a current Virginia nutrient management certificate of competence.
"Cool season grass" means grass species of temperate zone origin which exhibit the greatest rates of dry matter production in the day/night temperature range of 60°/50°F to 80°/70°F. Examples of cool season grasses include fescue, bluegrass, and ryegrass.
"Commonwealth" means the Commonwealth of Virginia.
"Composted organic nutrient source" means the relatively stable, humus-like product resulting from the controlled aerobic, thermophilic biological decomposition of organic material that bears little physical resemblance to the raw materials from which it originated.
"Cover crop" means a crop including, but not limited to, cereal grains, which is planted following the harvest of the preceding crop for the purpose of:
1. Seasonal protection of soil, or
2. Assimilation of residual soil nitrogen left from a previous crop or from continued mineralization of nitrogen.
"Crop" means cultivated plants or agricultural produce such as grain, silage, forages, oilseeds, vegetables, fruit, nursery stock, or turfgrass.
"Cropland" means land used for the production of grain, oilseeds, silage, industrial crops, and any other category of crop not defined as specialty crop, hay, or pasture.
"Crop nutrient needs" means the primary nutrient requirements of a crop determined as pounds per acre or pounds per 1,000 square feet of nitrogen as N, phosphorus as P2O5, and potassium as K2O required to support crop growth for production of an expected crop yield based upon soil analysis results as specified in Virginia Nutrient Management Standards and Criteria, revised July 2014, or Virginia Commercial Vegetable Production Recommendations for 2005.
"Crop nutrient removal" means the amount of nutrients per acre expected to be taken up by a plant and removed from the site in the harvested portion at the expected yield level, generally expressed as tons per acre or bushels per acre, at rates specified in Virginia Nutrient Management Standards and Criteria, revised July 2014.
"Crop rotation" means one complete sequence of one or more crops grown in succession that may assist in minimizing disease, insects and weeds. For permanent hay, pasture, or a single crop planted continuously, the crop rotation is defined as the life of the nutrient management plan.
"Department" means the Department of Conservation and Recreation.
"Double crop" means the production and harvesting of two crops in succession within a consecutive 12-month growing season.
"Dry manure" or "semisolid manure" means manure containing less than 85.5% moisture.
"Environmentally sensitive site" means any field which is particularly susceptible to nutrient loss to groundwater or surface water since it contains or drains to areas which contain sinkholes, or where at least 33% of the area in a specific field contains one or any combination of the following features:
1. Soils with high potential for leaching based on soil texture or excessive drainage;
2. Shallow soils less than 41 inches deep likely to be located over fractured or limestone bedrock;
3. Subsurface tile drains;
4. Soils with high potential for subsurface lateral flow based on soil texture and poor drainage;
5. Floodplains as identified by soils prone to frequent flooding in county soil surveys; or
6. Lands with slopes greater than 15%.
"Expected crop yield" means a realistic crop yield for a given farm field determined by using yield records or soil productivity information.
"Fertilizer" means any organic or inorganic material of natural or synthetic origin that is added to a soil to supply certain nutrients essential to plant growth.
"Field" means a unit of contiguous nonwooded land generally used for crop production that is separated by permanent boundaries, such as fences, permanent waterways, woodlands, croplines not subject to change because of farming practices, and other similar features or as determined by the United States Department of Agriculture Farm Service Agency.
"Field identification number" means a number used by a farmer (or the United States Department of Agriculture Farm Service Agency) to distinguish or identify the location of a field on a farm.
"Grid soil sampling" means a process whereby farm fields or other areas are subdivided into smaller areas or squares for the purpose of obtaining more detailed soil analysis results.
"Groundwater" means any water beneath the land surface in a water saturated layer of soil or rock.
"Hay" means a grass, legume, or other plants, such as clover or alfalfa, which is cut and dried for feed, bedding, or mulch.
"Hydrologic soil group" means a classification of soils into one of four groups, A, B, C, or D, according to their hydrologic properties, ranging from low runoff potential (high infiltration potential) in group A to high runoff potential (low infiltration potential) in group D.
"Incorporation" means the process whereby materials are mixed into soils and not exposed on the soil surface, such as would be achieved by disking one time to a depth of six inches.
"Industrial waste" means liquid or other waste resulting from any process of industry, manufacture, trade or business, or from the development of any natural resources.
"Irrigation" means the application of water to land to assist in crop growth.
"Irrigation scheduling" means the time and amount of irrigation water to be applied to an area for optimum crop growth and to minimize leaching and runoff.
"Leaching" means the movement of soluble material, such as nitrate, in solution through the soil profile by means of percolation.
"Legume" means a plant capable of fixing nitrogen from the atmosphere such as peas, soybeans, peanuts, clovers, and alfalfas.
"Legume nitrogen credit" means the amount of nitrogen a legume is expected to supply to a succeeding crop.
"Liming" means the application of materials containing the carbonates, oxides, or hydroxides of calcium or magnesium in a condition and in a quantity suitable for neutralizing soil acidity.
"Liquid manure" means manure containing at least 85.5% moisture or which can be applied through subsurface injection or surface application with liquid application equipment.
"Livestock" means domesticated animals such as cattle, chickens, turkeys, hogs, and horses raised for home use or for profit.
"Manure" or "animal waste" means animal fecal and urinary excretions and waste byproducts, which may include spilled feed, bedding litter, soil, lactase, process wastewater, and runoff water from animal confinement areas.
"Mehlich I" means the North Carolina Double-Acid soil analysis procedure to determine extractable levels of certain nutrients in soils as described in Methods of Soil Analysis, Part 3, Chemical Methods, 1996.
"Mehlich III" or "Mehlich 3" means a modified version of the Mehlich I method used to determine extractable levels of certain nutrients in soils as described in Methods of Soil Analysis, Part 3, Chemical Methods, 1996 and in Reference Soil and Media Diagnostic Procedures for the Southern Region of the United States, Southern Cooperative Series Bulletin No. 374.
"Micronutrient" means a nutrient necessary only in extremely small amounts for plant growth.
"Mineralization" means the process when plant unavailable organic forms of nutrients are converted to a plant available inorganic state as a result of soil microbial decomposition.
"No-till" means the soil is left undisturbed from the time of harvest or the killing of the preceding crop or cover crop until and including the time of planting of the current crop except for strips up to 1/3 of the row width that are disturbed by coulters or disk openers during the planting operation.
"NRCS" means the United States Department of Agriculture, Natural Resource Conservation Service, formerly the Soil Conservation Service (SCS).
"Nutrient" means an element or compound essential as raw materials for plant growth and development such as carbon, nitrogen, and phosphorus.
"Nutrient content" means the percentage of any primary nutrients such as nitrogen as N, phosphorus as P2O5, and potassium as K2O contained in any type or source of plant nutrients.
"Nutrient management plan" or "plan" means a plan prepared by a Virginia certified nutrient management planner to manage the amount, placement, timing, and application of manure, fertilizer, biosolids, or other materials containing plant nutrients in order to reduce nutrient loss to the environment and to produce crops.
"Nutrient Management Training and Certification Fund" means the fund established by § 10.1-104.2 of the Code of Virginia to support the department's Nutrient Management Training and Certification Program.
"Organic nutrient source" or "organic source" means manure, biosolids, sludge, industrial waste, green manure, compost, or other plant or animal residues which contain plant nutrients.
"Organic residuals" means nutrients released over time from manure, biosolids, industrial wastes, legumes, or other organic sources of nutrients.
"Pasture" means land which supports the grazing of animals for forages.
"Person" means an individual, corporation, partnership, association, a governmental body and its subordinate units, a municipal corporation or any other legal entity.
"Phosphorus index" means the Virginia Phosphorus Index Version 2.0 Technical Guide, revised October 2005.
"Phosphorus saturation level" means the ratio of phosphorus to aluminum plus iron (P/(Al+Fe)) in a soil using the Acid Ammonium Oxalate in Darkness method described in Methods of Soil Analysis, Part 3, Chemical Methods, 1996 (pp. 649-650) or estimated with another extraction procedure correlated to the Acid Ammonium Oxalate in Darkness method and approved by the department.
"Plant available nutrients" means the portion of nutrients contained in nutrient sources which is expected to be available for potential use by plants during the growing season or the crop rotation.
"Pre-sidedress nitrate test" or "PSNT" means a procedure used to determine soil nitrate-nitrogen levels at a specific time during a corn crop growing season.
"Primary nutrients" means nitrogen as N, phosphorus as P2O5, and potassium as K2O.
"Residual nutrients" means the level of nitrogen, phosphorus, and potassium remaining or available in the soil from previously applied nutrient sources, or unharvested plants or plant parts, or naturally occurring nutrient levels in the soil.
"Runoff" means that part of precipitation, snow melt, or irrigation water that runs off the land into streams or other surface water which can carry pollutants from the land.
"RUSLE2" means the USDA—NRCS Revised Universal Soil Loss Equation Version 2 software package.
"Secondary nutrient" means calcium, magnesium, or sulfur.
"Sewage sludge" or "sludge" means any solid, semisolid, or liquid residues which contain materials removed from municipal or domestic wastewater during treatment including primary and secondary residues. Other residuals or solid wastes consisting of materials collected and removed by sewage treatment, septage, and portable toilet wastes are also included in this definition. Liquid sludge contains less than 15% dry residue by weight or can be applied through subsurface injection or surface application with liquid application equipment. Dewatered sludge contains 15% or more dry residue by weight.
"Shall" means a mandatory requirement.
"Should" means a recommendation.
"Sidedress" means the placement of fertilizer beside or between the rows of a crop after crop emergence.
"Sinkhole" means a depression in the earth's surface caused by dissolving of underlying limestone, salt, or gypsum having drainage patterns through underground channels.
"Slope" means the degree of deviation of a surface from horizontal, measured as a percentage, as a numerical ratio, or in degrees.
"Slowly available nitrogen" means nitrogen sources that have delayed plant availability involving compounds which dissolve slowly, materials that must be microbially decomposed, or soluble compounds coated with substances highly impermeable to water such as polymer coated products, methylene urea, isobutylidene diurea (IBDU), urea formaldehyde based (UF), sulfur coated urea, and natural organics.
"Soil erosion" or "erosion" or "soil loss" means the wearing away of the land surface by water, wind, or waves.
"Soil management group" means a grouping of soils based on their similarity in profile characteristics which affect crop production and require specific soil and crop management practices.
"Soil pH level" means the negative logarithm of the hydrogen-ion activity of a soil which measures the relative acidity or alkalinity of the soil. The pH level affects the availability and plant utilization of nutrients.
"Soil productivity group" means a grouping of soils based upon expected yield levels for a given crop type.
"Soil series" means a classification of a specific soil type by name based on the morphological, chemical and physical properties of the soil.
"Soil survey" means a published or electronically available document developed by a governmental entity using the standards and protocols of the National Cooperative Soil Survey that includes detailed descriptions and classifications of soils, mapping of various soil series, and the interpretation of soils according to their adaptability for various crops and trees.
"Specialty crop" means vegetables, tree crops, perennial vine crops, ornamentals, horticultural crops, and other similar crops.
"Split application" means utilizing a sequence of two or more nutrient applications, separated by approximately three weeks or more, to a single crop in order to improve nutrient uptake efficiency.
"Surface water" means all water whose surface is exposed to the atmosphere.
"Tilled" means soil is disturbed between the time of harvest of the preceding crop through the time of planting of the current crop in that greater than 1/3 of the row width is disturbed by tillage implements such as moldboard plows, chisel plows, subsoilers, disks, field cultivators, roto-tillers, coulters or disk openers.
"Tillering" means the formation of lateral shoots from the axillary buds of small grains and grasses.
"Tissue test" means an analysis of crop tissue for the percentage of nitrogen at key growth stages, and used as an intensive nutrient management technique with small grain crops.
"Topdress" means broadcast applications of fertilizer on crops such as small grains or forage after crop emergence has occurred.
"Trap crop" means a timely planted cereal crop for the purposes of capturing residual soil nitrogen and nitrogen that is released during the decomposition of manure or biosolids in order to manage limited manure or sewage sludge storage availability.
"Turfgrass" means selected grass species planted or sodded and managed for such uses as home lawns, golf courses, office parks and rights-of-way.
"Volatilization" means a process by which nitrogen is lost to the atmosphere as ammonia gas.
"Warm season grass" means a grass species of tropical origin that exhibits the highest rate of dry matter production in the day/night temperature range of 90°/79°F at a minimum to a maximum of 97°/88°F. Examples of warm season grasses include zoysia and bermuda grasses.
"Water insoluble nitrogen" or "WIN" means the amount of a type of slowly available nitrogen listed on fertilizer bags and reported as a percentage.
"Watershed" means a drainage area or basin in which all land and water areas drain or flow toward a central collector such as a stream, river, or lake at a lower elevation.
"Watershed code" means the letter and number used by the department to identify a watershed or hydrologic unit area.
"Zadoks' growth stage" means the numerical scale ranging from 0-93 which assigns values to small grain growth stages, e.g. Growth Stage 30 is just prior to the stem elongation phase in wheat growth.
4VAC50-85-100. Recordkeeping and reporting requirements.
A. Certified nutrient management planner reporting requirements. A person who holds a certificate under these regulations shall keep records and file with the department by September 30 of each year an annual activity report on a form supplied by the department covering the previous year (July 1 through June 30). The annual activity report shall contain the following information:
1. Name and certificate number of the certified nutrient management planner;
2. Any change of mailing address during the previous year;
3. Number of nutrient management plans completed;
4. Acreage covered by plans and planned acreage by county and state watershed codes specified by plan categories of new or revised;
5. Breakdown of planned acreage by cropland, hay, pasture, and specialty crops by county and watershed code specified by plan categories of new or revised; and
6. Other information indicating number of practices facilitated by the planner such as manure testing and use of the PSNT.
B. Certified nutrient management planner recordkeeping requirements. The department may periodically inspect nutrient management plans prepared by certified persons and required records for the purpose of review for compliance with 4VAC50-85-130 and 4VAC50-85-140. A certified nutrient management planner shall maintain the following plan records for a period of not less than three years from the date the plan was prepared:
1. A complete copy of each nutrient management plan prepared and shall make such plans available for inspection by department personnel upon request within one week of receiving such request;
2. Records for each plan with all of the following information if the information is not already contained in the plan:
a. Representative soil analysis results for fields, or field grids if grid soil sampling is used, dated not more than three years prior to the date the nutrient management plan was completed to include information on soil fertility levels for phosphorus and potassium, and pH level;
b. Copies of soil survey maps or a soil survey book containing maps for each field unless a soil survey has not been published for the county;
c. Yield records for each field to include calculations used to determine the planning yield if upward adjustments to soil productivity based yields were made to more than 20% of the fields covered by the plan;
d. Type and number of livestock, if any, as well as a description of the livestock to include average weight;
e. Calculations or records indicating annual quantity of manure produced or expected to be produced; and
f. Organic nutrient source analysis, if applicable, to include information on percentage of moisture, total nitrogen or total Kjeldahl nitrogen, ammonium nitrogen, total phosphorus, and total potassium.
3. A summary listing of all plans prepared to include landowner or operator's name and the date the plan was prepared or revised.
C. Certified nutrient management planners shall provide the department with a copy of a nutrient management plan within two weeks following the modification of any plan required by regulations promulgated under § 32.1-164.5 62.1-44.19:3 for sewage sludge, § 62.1-44.17:1 for animal waste, and § 62.1-44.17:1.1 for poultry waste.
4VAC50-85-110. Compliance with regulations and disciplinary action.
If the department finds that a certified person or an applicant for certification violated any requirements of this chapter, including the circumstances listed below, the department may deny, suspend or revoke certification, following the informal fact-finding procedures of the Virginia Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia).
1. Providing misleading, false, or fraudulent information in applying for a certificate;
2. Providing the department with any misleading, false, or fraudulent report;
3. Offering or preparing a nutrient management plan claimed to be prepared by a person certified as a nutrient management planner in Virginia as provided by these regulations without a certificate;
4. Offering, preparing, modifying, or revising a nutrient management plan that does not comply with the requirements of these regulations;
5. Failing to promptly provide any report or to allow the department access to inspect any records required to be kept by these regulations;
6. Failing to provide the department with a copy of a nutrient management plan within two weeks following the modification of any plan required by regulations promulgated under § 32.1-164.5 62.1-44.19:3 of the Code of Virginia for sewage sludge, § 62.1-44.17:1 of the Code of Virginia for animal waste, or § 62.1-44.17:1.1 of the Code of Virginia for poultry waste; or
7. Conviction of a felony related in any way to the responsibilities of a certified nutrient management planner.
4VAC50-85-140. Required nutrient management plan procedures.
A. Nutrient application.
1. A certified nutrient management planner shall include, in each plan, nutrient application practices for each field in the plan. The nutrient application rates shall be calculated for nitrogen (N), phosphate (P2O5), and potash (K2O). Individual field recommendations shall be made after considering nutrients contained in fertilizers, manure, biosolids, industrial wastes, legumes in the crop rotation, crop residues, residual nutrients, and all other sources of nutrients. Individual fields may be grouped together if similar soil productivity levels, soil fertility levels, and environmentally sensitive site features exist.
2. Nutrient application rates.
a. Determination of crop nutrient needs shall be consistent with tables and procedures contained in Virginia Nutrient Management Standards and Criteria, revised July 2014, and the Commercial Vegetable Production Recommendations, 2005 (Virginia Cooperative Extension Publication 456-420), and shall be based on soil test results for P2O5 and K2O.
b. Nitrogen applications rates in nutrient management plans shall not exceed crop nutrient needs in subdivision 2 a of this subsection.
c. Phosphorus application rates shall be managed to minimize adverse water quality impacts consistent with subdivisions 2 c (1) through (5) of this subsection.
(1) Phosphorus applications from inorganic nutrient sources shall not exceed crop nutrient needs over the crop rotation based on a soil test.
(2) Phosphorus applications shall not be included in nutrient management plans developed after December 31, 2005, for soils exceeding 65% phosphorus saturation levels as listed in Virginia Nutrient Management Standards and Criteria, revised July 2014, regardless of the outcome of other procedures specified in this subsection except as allowed in subdivision 2 c (4) of this subsection.
(3) Whenever possible, phosphorus applications from organic nutrient sources should not exceed crop needs based on a soil test over the duration of the crop rotation. If this is not possible, maximum phosphorus application rates and phosphorus control practices contained in nutrient management plans shall be consistent with the phosphorus management provisions contained in Virginia Nutrient Management Standards and Criteria, revised July 2014, except as allowed in subdivision 2 c (4) of this subsection.
(4) Fields controlled by existing operations that receive phosphorus applications only from on-farm or on-site generated liquid dairy manure, liquid swine manure, or liquid sewage sludge shall be limited to a maximum of crop removal amounts of applied phosphorus until December 31, 2010, if the field exceeds 65% phosphorus saturation levels or has a phosphorus index rating that exceeds 100. New operations that begin production after December 31, 2005, or operations that expand after December 31, 2005, by increasing the total phosphorus generated in liquid dairy manure, liquid swine manure or liquid sewage sludge by more than 10% shall not be considered existing operations.
(5) A single phosphorus application may be recommended to address multiple crops in the crop rotation identified within the timeframe covered by the nutrient management plan consistent with 4VAC50-85-140 D 1 if the single application does not exceed the sum of the appropriate application rates for individual crops as determined by subdivisions 2 c (1) through (3) of this subsection.
d. Recommended application rates for secondary nutrients and micronutrients should be at agronomically or economically justifiable levels for expected crop production. Potassium applications sufficient to meet crop nutrient needs shall be included in nutrient management plans for all fields consistent with recommendations contained in Virginia Nutrient Management Standards and Criteria, revised July 2014.
e. Expected crop yield shall be determined from any of the following methods on a given field:
(1) Soil productivity group expected crop yields based on and consistent with soil productivity information contained in Virginia Nutrient Management Standards and Criteria, revised July 2014;
(2) The farmer's past experience with crop yields in specific fields may be used to make reasonable adjustments to expected crop yields in subdivision 2 e (1) of this subsection in lieu of verifiable yield records provided the upward adjustments impact no more than 20% of the acreage of any crop on a particular farm; or
(3) Verifiable past crop yields are utilized to determined expected crop yield. The calculation of expected crop yield shall be an average of the three highest yielding years taken from the last five years the particular crop was grown in the specific field.
f. Representative soil analysis results for fields shall be determined by using standard soil sampling and analysis methods according to Methods of Soil Analysis, Part 3, Chemical Methods, 1996, utilizing the Mehlich I extraction procedure for phosphorus or other methods and laboratories approved by the department and correlated to Mehlich I and utilizing correlation procedures contained in Virginia Nutrient Management Standards and Criteria, revised July 2014. Soil analysis results shall be dated no more than three years prior to the beginning date of the nutrient management plan. A single composite soil sample should represent an area up to approximately 20 acres. Fields such as those common to strip cropping may be combined when soils, previous cropping history, and soil fertility are similar. Representative soil sample cores shall be obtained from the soil surface to a depth of four inches (0-4") for fields that have not been tilled within the past three years, and from the soil surface to a depth of six inches (0-6") for fields which that are tilled or have been tilled within the past three years. Soil sampling of fields based on subfield grids or management zones may be utilized.
g. For existing operations, the most recent organic nutrient source analysis results or an average of past nutrient analysis results for the specific operation within the last three-year period shall be used to determine the nutrient content of organic nutrient sources. Manure analyses shall include percent moisture, total nitrogen or total Kjeldahl nitrogen, ammonium nitrogen, total phosphorus, and total potassium determined using laboratory methods consistent with Recommended Methods of Manure Analysis, publication A3769, University of Wisconsin, 2003, or other methods approved by the department. For plans on new animal waste facilities, average analyses published in Virginia Nutrient Management Standards and Criteria, revised July 2014, should be utilized unless proposed manure storage and treatment conditions warrant the use of alternative data. Plant available nutrient content shall be determined using the mineralization rates and availability coefficients found in Virginia Nutrient Management Standards and Criteria, revised July 2014, for different forms and sources of organic nutrients. Mineralization of organic nutrients from previous applications shall be accounted for in the plan.
h. The expected nitrogen contributions from legumes shall be credited when determining nutrient application rates at levels listed in Virginia Nutrient Management Standards and Criteria, revised July 2014.
3. Soil pH influences nutrient availability and crop nutrient utilization and should be adjusted to the level suited for the crop. Nutrient management plans shall contain lime recommendations to adjust soil pH to a level within the appropriate agronomic range for the existing crop or crop(s) to be grown. Recommendations shall address lime application if soil pH is below the optimal range. Nutrient management planners shall not recommend the application of lime, lime-amended materials, or nutrient sources that are expected to raise the soil pH to a level that exceeds the appropriate agronomic range for the growing crop or crop(s) to be grown based on recommendations contained in Virginia Nutrient Management Standards and Criteria, revised July 2014.
4. Nutrient application timing.
a. Timing recommendations for nutrient sources containing nitrogen shall be as close to plant nutrient uptake periods as reasonably possible. A certified nutrient management planner shall utilize procedures contained in Virginia Nutrient Management Standards and Criteria, revised July 2014, to determine the timing of nutrient applications. To reduce the potential for nutrient leaching or runoff, a certified nutrient management planner shall recommend applications of nitrogen-containing materials only to sites where an actively growing crop is in place at the time of application or where a timely planted crop will be established within 30 days of the planned nutrient application, except as specified in subdivisions 4 b through e of this subsection. If such nutrient applications are made to fall-seeded crops such as small grain, the crop planted shall be capable of germination and significant growth before the onset of winter so the crop is able to take up the available applied nitrogen.
b. Organic nutrient source applications may be applied at differing times than specified in subdivision 4 a of this subsection in order to manage storage constraints in accordance with the following conditions:
(1) Applications of organic nutrient sources shall be within 60 days of planting a spring seeded crop to sites that are not environmentally sensitive sites as identified in 4VAC50-85-10 or the Virginia Nutrient Management Standards and Criteria, revised July 2014, except as specified in subdivision 4 b (2) of this subsection. Such nutrient applications shall not exceed allowable application rates of the spring seeded crop;
(2) Applications shall be within 90 days of planting a spring seeded crop to sites that meet all of the following requirements:
(a) Are not environmentally sensitive sites as identified in 4VAC50-85-10 or the Virginia Nutrient Management Standards and Criteria, revised July 2014;
(b) Have slopes of less than 7.0% throughout the application area unless: (i) at least 60% uniformly distributed crop residue cover exists following application or (ii) the application and any associated tillage is in conformance with an existing and implemented soil conservation plan meeting NRCS requirements for the site; and
(c) The organic sources being applied are one of the following: semi-solid beef manure, semi-solid dairy manure with sawdust bedding or straw bedding, dewatered anaerobically digested sewage sludge, or dewatered lime stabilized sewage sludge. Such nutrient applications shall not exceed allowable application rates of the spring planted crop;
(3) Applications of organic nutrient sources may occur prior to the times specified in subdivisions 4 b (1) and (2) of this subsection on:
(a) Sites that are not environmentally sensitive sites if all of the following requirements are met: (i) a trap crop exists that has reached a Zadoks growth stage of 23 or greater having a uniform stand throughout the site area of at least 20 plants per square foot; (ii) the trap crop shall be allowed to continue growing on the entire site until within two weeks of the spring crop planting date; (iii) all such nitrogen applications of organic nutrient sources to trap crops shall not exceed the crop nutrient needs of the upcoming spring planted crop subtracting at least 30 pounds per acre of nitrogen to be reserved for use as a banded starter fertilizer at the time of spring planting; and (iv) the rate of organic nutrient source applied does not smother the crop.
(b) Environmentally sensitive sites as identified in 4VAC50-85-10 or the Virginia Nutrient Management Standards and Criteria, revised July 2014, in addition to those criteria outlined in subdivision 4 b (3) (a) of this subsection, such applications to a trap crop must be within 60 days of planting a spring planted crop.
c. The nutrient timing requirements of subdivisions 4 a and b of this subsection for application of sewage sludge to nonenvironmentally sensitive sites in nutrient management plans shall not be effective until January 1, 2009. The delayed implementation time is provided to allow for the development of adequate winter storage capacity, landfilling, or alternative uses. All applications of sewage sludge to environmentally sensitive sites in nutrient management plans will fully comply with the requirements of subdivisions 4 a and b of this subsection by January 11, 2006.
d. Composted organic nutrient sources having a final carbon to nitrogen ratio of 20:1 or greater are exempt from requirements of subdivisions 4 a and b of this subsection if analyzed for carbon to nitrogen ratio at the conclusion of the composting process and results are obtained prior to land application. The planner shall recommend soil nitrate testing to determine nitrogen application rates during the growing season following the application of composted organic nutrient sources.
e. The nutrient management planner shall recommend split application of inorganic nitrogen fertilizers as starter or broadcast and sidedressing or top dressing in row crops and small grains consistent with procedures contained in Virginia Nutrient Management Standards and Criteria, revised July 2014, on environmentally sensitive sites as identified in 4VAC50-85-10. Split applications of inorganic nitrogen fertilizers and irrigation scheduling shall be recommended for crops to receive irrigation. The use of a pre-sidedress nitrogen test (PSNT) can help to determine nitrogen needs during the growing period. In lieu of split applications, the planner may recommend the application of the total nitrogen requirement for spring-planted row crops within one week prior to planting if at least 50% of the plant available nitrogen requirement of the crop is supplied with slowly available nitrogen sources.
f. Nutrient management plans shall include a statement indicating that applications of inorganic nutrient sources, liquid manure, liquid sewage sludge, or liquid industrial waste are not to occur on frozen or snow-covered ground. When ground is frozen, dry or semi-solid manures, dewatered sludges, or dewatered industrial wastes may only be applied if the field has: (i) slopes not greater than 6.0%; (ii) 60% uniform ground cover from crop residue or an existing actively growing crop such as a small grain or fescue with exposed plant height of three inches or more; (iii) a minimum of a 200-foot vegetated or adequate crop residue buffer between the application area and all surface water courses; and (iv) soils characterized by USDA as "well drained."
5. Application method for nutrients.
a. The application of nitrogen containing materials shall be managed to minimize runoff, leaching, and volatilization losses.
b. Applications of liquid manures or sludges utilizing irrigation shall not be recommended to be applied at hydraulic rates above those contained in Virginia Nutrient Management Standards and Criteria, revised July 2014.
c. Plans shall not recommend liquid manure or sludge application rates utilizing nonirrigation liquid spreading equipment which exceed 14,000 gallons per acre (approximately one-half (0.5) inch) per application. The amount of liquid manure or sludge application in plans will not exceed the hydraulic loading capacity of the soil at the time of each application. If a subsequent pass across a field is necessary to achieve the desired application rate, the plan will allow for sufficient drying time.
d. Where possible, the planner should recommend that biosolids, industrial wastes and manures be incorporated or injected in the crop root zone in order to reduce losses of nitrogen to the atmosphere and to increase the plant available nitrogen to phosphorus ratio of these nutrient sources relative to crop nutrient needs. Lime stabilized biosolids should not be injected due to the creation of a localized band of high soil pH unless subsequent practices are utilized, such as disking, in order to adequately mix the soil.
e. The planner shall recommend setbacks around wells, springs, surface waters, sinkholes, and rock outcrops where manure, biosolids, or industrial waste should not be applied. Such setbacks recommended shall be consistent with criteria contained in Virginia Nutrient Management Standards and Criteria, revised July 2014, unless alternative setbacks or buffers are specified in regulations or permits pertaining to the site. For sites impacted by other regulations or permits, the planner shall include the setbacks and buffers specified in regulations promulgated under § 32.1-164.5 62.1-44.19:3 of the Code of Virginia for sewage sludge, § 62.1-44.17:1 of the Code of Virginia for animal waste, § 62.1-44.17:1.1 of the Code of Virginia for poultry waste, and Article 2.5 (§ 62.1-44.15:67 et seq.) of Chapter 3.1 of Title 62.1 of the Code of Virginia for sites in Chesapeake Bay Preservation areas, and permits for industrial waste land application. The land area within setback and buffer areas shall be deducted from field acreage to determine usable field acreage for nutrient application in nutrient management plans.
B. Manure production and utilization.
1. The planner shall estimate the annual manure quantity produced on each farm utilizing tables and forms contained in Virginia Nutrient Management Standards and Criteria, revised July 2014, or from actual farm records of manure pumped or hauled during a representative 12-month period.
2. The nutrient management plan shall state the total amount of manure produced and the amount that can be used on the farm, utilizing the information and methods provided in the Virginia Nutrient Management Standards and Criteria, revised July 2014. The plan shall discuss any excess manure and shall provide recommendations concerning options for the proper use of such excess manure.
C. Plans shall identify and address the protection from nutrient pollution of environmentally sensitive sites.
D. Plan maintenance and revisions.
1. A site-specific nutrient management plan developed in accordance with all requirements of these regulations, including specified crops or crop rotations, shall provide information on soil fertility and seasonal application of required nutrients for one to five years of crop production. Plans developed for a period of time greater than three years and up to five years shall be limited to sites in permanent pasture or continuous hay or that are golf courses.
2. The plan shall state a need for immediate modification if (i) animal numbers are to increase above the level specified in the plan,; (ii) animal types including intended market weights are to be changed,; (iii) additional imported manure, biosolids, or industrial waste that was not identified in the existing plan is to be applied to fields under the control of the operator,; or (iv) available land area for the utilization of manure decreases below the level necessary to utilize manure in the plan. The plan shall also state a need for modification prior to subsequent nutrient applications if cropping systems, rotations, or fields are changed and phosphorus will be applied at levels greater than crop nutrient needs based on soil analysis as determined from procedures in Virginia Nutrient Management Standards and Criteria, revised July 2014.
3. Adjustments to manure production and application should be made if there are increases in animal numbers or changes in how animal waste is stored or applied, or when there are changes in nutrient content of manure resulting from changing feed rations, animal types, or new sampling and analysis for nutrient content and application rate calculations.
4. Soil analysis shall be recommended for each field at least once every three years to determine the soil fertility and pH, and to update the nutrient management plan.
5. Manure analysis shall be recommended before field application until a baseline nutrient content is established for the specific manure type on the corresponding farm operation. After a baseline nutrient content is established, a manure analysis shall be recommended at least once every three years for dry or semisolid manures, and at least once every year for liquid manures.
6. Modified top dressing or sidedressing application rates of nitrogen may be recommended if a pre-sidedress nitrogen test (PSNT) administered during the growing season indicates different levels of nitrogen than planning time calculations if the use of the PSNT and interpretation of the test results are consistent with Virginia Nutrient Management Standards and Criteria, revised July 2014.
VA.R. Doc. No. R15-3954; Filed September 14, 2014, 5:23 p.m.
TITLE 9. ENVIRONMENT
STATE WATER CONTROL BOARD
Forms
REGISTRAR'S NOTICE: Forms used in administering the following regulation have been filed by the State Water Control Board. The forms are not being published; however, online users of this issue of the Virginia Register of Regulations may click on the name of the new or amended form to access it. The forms are also available from the agency contact or may be viewed at the Office of the Registrar of Regulations, General Assembly Building, 2nd Floor, Richmond, Virginia 23219.
Title of Regulation: 9VAC25-190. Virginia Pollutant Discharge Elimination System (VPDES) General Permit Regulation for Nonmetallic Mineral Mining.
Agency Contact: Cindy M. Berndt, Director Regulatory Affairs, Department of Environmental Quality, 629 East Main Street, P.O. Box 1105, Richmond, VA 23218, telephone (804) 698-4378, FAX (804) 698-4019, or email cindy.berndt@deq.virginia.gov.
FORMS (9VAC25-190)
Department of Environmental Quality Water Division Permit Application Fee (rev. 5/13)
Virginia Pollutant Discharge Elimination System Change of Ownership Agreement Form (undated)
Virginia Pollutant Discharge Elimination System General Permit Registration Statement - Nonmetallic Mineral Mining
Change of Ownership Agreement Form (rev. 3/14)
VPDES General Permit for Nonmetallic Mineral Mining (VAG84) - Notice of Termination (eff. 7/14)
VPDES General Permit Registration Statement - Nonmetallic Mineral Mining (rev. 2014)
VA.R. Doc. No. R15-4169; Filed September 17, 2014, 1:15 p.m.
TITLE 9. ENVIRONMENT
STATE WATER CONTROL BOARD
Forms
REGISTRAR'S NOTICE: Forms used in administering the following regulation have been filed by the State Water Control Board. The forms are not being published; however, online users of this issue of the Virginia Register of Regulations may click on the name of the new or amended form to access it. The forms are also available from the agency contact or may be viewed at the Office of the Registrar of Regulations, General Assembly Building, 2nd Floor, Richmond, Virginia 23219.
Title of Regulation: 9VAC25-194. General Permit for Vehicle Wash Facilities and Laundry Facilities.
Agency Contact: Cindy M. Berndt, Director Regulatory Affairs, Department of Environmental Quality, 629 East Main Street, P.O. Box 1105, Richmond, VA 23218, telephone (804) 698-4378, FAX (804) 698-4019, or email cindy.berndt@deq.virginia.gov.
FORMS (9VAC25-194)
Registration Statement for the General Virginia Pollutant Discharge Elimination System (VPDES) Permit for Vehicle Wash Facilities and Laundry Facilities 2012 Reissuance (rev. 8/14)
VA.R. Doc. No. R15-4166; Filed September 17, 2014, 12:26 p.m.
TITLE 9. ENVIRONMENT
STATE WATER CONTROL BOARD
Forms
REGISTRAR'S NOTICE: Forms used in administering the following regulation have been filed by the State Water Control Board. The forms are not being published; however, online users of this issue of the Virginia Register of Regulations may click on the name of the new or amended form to access it. The forms are also available from the agency contact or may be viewed at the Office of the Registrar of Regulations, General Assembly Building, 2nd Floor, Richmond, Virginia 23219.
Title of Regulation: 9VAC25-880. General VPDES Permit for Discharges of Stormwater from Construction Activities.
Agency Contact: Cindy M. Berndt, Director Regulatory Affairs, Department of Environmental Quality, 629 East Main Street, P.O. Box 1105, Richmond, VA 23218, telephone (804) 698-4378, FAX (804) 698-4019, or email cindy.berndt@deq.virginia.gov.
FORMS (9VAC25-880)
Department of Environmental Quality Construction Activity Operator Permit Fee Form (rev. 1/14)
Notice of Termination - General VPDES Permit for Discharges of Stormwater from Construction Activities (VAR10) (rev. 1/14)
Registration Statement - General VPDES Permit for Discharges of Stormwater from Construction Activities (VAR10) (rev. 01/2014)
Registration Statement - General VPDES Permit for Discharges of Stormwater from Construction Activities (VAR10) (rev. 7/14)
Transfer Agreement - General VPDES Permit for Discharges of Stormwater from Construction Activities (VAR10) (rev. 1/14)
VA.R. Doc. No. R15-4167; Filed September 17, 2014, 12:43 p.m.
TITLE 11. GAMING
VIRGINIA LOTTERY BOARD
Final Regulation
REGISTRAR'S NOTICE: The Virginia Lottery Board is claiming an exclusion from Article 2 of the Administrative Process Act in accordance with § 2.2-4006 A 4 a of the Code of Virginia, which excludes regulations that are necessary to conform to changes in Virginia statutory law where no agency discretion is involved. The Virginia Lottery Board will receive, consider, and respond to petitions by any interested person at any time with respect to reconsideration or revision.
Titles of Regulations: 11VAC5-11. Public Participation Guidelines (amending 11VAC5-11-10, 11VAC5-11-20).
11VAC5-20. Administration Regulations (amending 11VAC5-20-10, 11VAC5-20-60, 11VAC5-20-80, 11VAC5-20-160 through 11VAC5-20-200).
11VAC5-31. Licensing Regulations (amending 11VAC5-31-10 through 11VAC5-31-80, 11VAC5-31-130, 11VAC5-31-140, 11VAC5-31-160 through 11VAC5-31-200).
11VAC5-41. Lottery Game Regulations (amending 11VAC5-41-10, 11VAC5-41-60, 11VAC5-41-80, 11VAC5-41-100 through 11VAC5-41-190, 11VAC5-41-220, 11VAC5-41-230, 11VAC5-41-250, 11VAC5-41-290 through 11VAC5-41-320).
Statutory Authority: §§ 2.2-4007.02 and 58.1-4007 of the Code of Virginia (11VAC5-11-10, 11VAC5-11-20).
§ 58.1-4007 of the Code of Virginia (all other sections).
Effective Date: November 5, 2014.
Agency Contact: Amy Roper, Regulatory Coordinator, Virginia Lottery, 900 East Main Street, 9th Floor, Richmond, VA 23219, telephone (804) 692-7133, FAX (804) 692-7325, or email aroper@valottery.com.
Summary:
The amendments conform regulations to changes to the Code of Virginia pursuant to (i) Chapter 225 of the 2014 Acts of Assembly, which changes the name of the "State Lottery Department" to the "Virginia Lottery," and (ii) Chapter 224 of the 2014 Acts of Assembly, which establishes a new waiting period for relicensing of retailers under § 58.1-4009 D of the Code of Virginia.
Part I
Purpose and Definitions
11VAC5-11-10. Purpose.
The purpose of this chapter is to promote public involvement in the development, amendment, or repeal of the regulations of the State Virginia Lottery Department. This chapter does not apply to regulations, guidelines, or other documents exempted or excluded from the provisions of the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia).
11VAC5-11-20. Definitions.
The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:
"Administrative Process Act" means Chapter 40 (§ 2.2-4000 et seq.) of Title 2.2 of the Code of Virginia.
"Agency" means the State Virginia Lottery Department, which is the unit of state government empowered by the agency's basic law to make regulations or decide cases. Actions specified in this chapter may be fulfilled by state employees as delegated by the agency.
"Basic law" means provisions in the Code of Virginia that delineate the basic authority and responsibilities of an agency.
"Commonwealth Calendar" means the electronic calendar for official government meetings open to the public as required by § 2.2-3707 C of the Freedom of Information Act.
''Negotiated rulemaking panel'' or ''NRP'' means an ad hoc advisory panel of interested parties established by an agency to consider issues that are controversial with the assistance of a facilitator or mediator, for the purpose of reaching a consensus in the development of a proposed regulatory action.
"Notification list" means a list used to notify persons pursuant to this chapter. Such a list may include an electronic list maintained through the Virginia Regulatory Town Hall or other list maintained by the agency.
"Open meeting" means any scheduled gathering of a unit of state government empowered by an agency's basic law to make regulations or decide cases, which is related to promulgating, amending or repealing a regulation.
"Person" means any individual, corporation, partnership, association, cooperative, limited liability company, trust, joint venture, government, political subdivision, or any other legal or commercial entity and any successor, representative, agent, agency, or instrumentality thereof.
"Public hearing" means a scheduled time at which members or staff of the agency will meet for the purpose of receiving public comment on a regulatory action.
"Regulation" means any statement of general application having the force of law, affecting the rights or conduct of any person, adopted by the agency in accordance with the authority conferred on it by applicable laws.
"Regulatory action" means the promulgation, amendment, or repeal of a regulation by the agency.
"Regulatory advisory panel" or "RAP" means a standing or ad hoc advisory panel of interested parties established by the agency for the purpose of assisting in regulatory actions.
"Town Hall" means the Virginia Regulatory Town Hall, the website operated by the Virginia Department of Planning and Budget at www.townhall.virginia.gov, which has online public comment forums and displays information about regulatory meetings and regulatory actions under consideration in Virginia and sends this information to registered public users.
"Virginia Register" means the Virginia Register of Regulations, the publication that provides official legal notice of new, amended, and repealed regulations of state agencies, which is published under the provisions of Article 6 (§ 2.2-4031 et seq.) of the Administrative Process Act.
Part I
General Parameters
11VAC5-20-10. Definitions.
The following words and terms when used in any of the department's agency's regulations shall have the following meanings unless the context clearly indicates otherwise:
"Administrative Process Act" or "APA" means Chapter 40 (§ 2.2-4000 et seq.) of Title 2.2 of the Code of Virginia.
"Agency" means the Virginia Lottery created by the Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Appeal" means a proceeding initiated by a retailer, bidder, or offeror (for a contract negotiated on a sole source basis), contractor or individual for an informal conference or formal hearing contesting the director's decision (i) to refuse to issue or renew, to suspend or to revoke a lottery license; or (ii) regarding a procurement action.
"Bank" means any commercial bank, savings bank, savings and loan association, credit union, trust company, and any other type or form of banking institution organized under the authority of the Commonwealth of Virginia or of the United States of America which that is designated by the State Treasurer to perform functions, activities or services in connection with the operations of the lottery for the deposit, handling and safekeeping of lottery funds, accounting for those funds and the safekeeping of records.
"Board" means the State Virginia Lottery Board established by the State Virginia Lottery Law.
"Conference" or "consultation" means a type of appeal in the nature of an informational or factual proceeding of an informal nature provided for in § 2.2-4019 of the Administrative Process Act.
"Conference officer" means the director, or a person appointed by the director, who is empowered to preside at informal conferences or consultations and to provide a recommendation, conclusion or decision in such matter.
"Consideration" means something of value given for a promise to make the promise binding. It is one of the essentials of a legal contract.
"Contract" means a binding agreement, enforceable by law, between two or more parties for the supply of goods or services.
"Department" means the State Lottery Department created by the State Lottery Law.
"Depository" means any person, including a bonded courier service, armored car service, bank, central or regional offices of the department agency, or any state agency that performs any or all of the following activities or services for the lottery:
1. The safekeeping and distribution of tickets to retailers;
2. The handling of lottery funds;
3. The deposit of lottery funds; or
4. The accounting for lottery funds.
"Director" means the Executive Director of the State Virginia Lottery Department or his designee.
"Electronic funds transfer (EFT)" or "EFT" means a computerized transaction that withdraws or deposits money from or to a bank account.
"Goods" means all material, equipment, supplies, printing, and automated data processing hardware and software.
"Hearing" means agency processes other than those informational or factual inquiries of an informal nature provided in §§ 2.2-4007 and 2.2-4019 of the Code of Virginia and includes only (i) opportunity for private parties to submit factual proofs in formal proceedings as provided in § 2.2-4009 of the Code of Virginia in connection with the making of regulations or (ii) a similar right of private parties or requirement of public agencies as provided in § 2.2-4020 of the Code of Virginia in connection with case decisions.
"Household" means members of a group who reside at the same address.
"Immediate family" means (i) a spouse and (ii) any other person residing in the same household as the officer or employee, who is a dependent of the officer or employee or of whom the officer or employee is a dependent.
"Inspection" means the close and critical examination of goods and services delivered to determine compliance with applicable contract requirements or specifications. It is the basis for acceptance or rejection.
"Legal entity" means an entity, other than a natural person, which has sufficient existence in legal contemplation that it can function legally, sue or be sued and make decisions through agents, as in the case of a corporation.
"Lottery" or "state lottery" means the lottery or lotteries established and operated pursuant to Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
"Person" means a natural person and may extend and be applied to groups of persons, as well as a corporation, company, partnership, association, club, trust, estate, society, joint stock company, receiver, trustee, assignee, referee, or any other person acting in a fiduciary or representative capacity, whether appointed by a court or otherwise, and any combination of individuals, as well as all departments, commissions, agencies, and instrumentalities of the Commonwealth, including counties, cities, municipalities, political subdivisions, agencies and instrumentalities thereof.
"Procurement" means the process for obtaining goods or services, including all activities from planning and preparation to processing of a request through the processing of a final invoice for payment.
"Retailer and sales agent" means a person or business licensed by the department agency as an agent to sell lottery tickets or shares.
"Sales," "gross sales," "annual sales" and similar terms mean total ticket sales including any discount allowed to a retailer for his compensation.
"Services" means any work performed by an independent contractor where the service rendered does not consist primarily of acquisition of equipment or materials, or the rental of equipment, materials and supplies.
"Sole source" means that only one source is practicably available to furnish a product or service.
"State Lottery Law" means Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
"Surety bond" means an insurance agreement in which a third party agrees to be liable to pay a specified amount of money to the department agency in the event the retailer fails to meet his obligations to the department agency.
"Transaction" means any matter considered by any governmental or advisory agency, whether in a committee, subcommittee, or other entity of that agency or before the agency itself, on which official action is taken or contemplated.
"Vendor" means one who provides goods or services to the department agency.
"Virginia Lottery Law" means Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
11VAC5-20-60. Advertising.
A. Advertising may include, but is not limited to, print advertisements; radio and television advertisements; digital, electronic, and video advertisements; billboards; point of purchase materials; point-of-sale display materials; and Internet and social media.
B. Any lottery retailer may use his own advertising materials unless the department agency objects thereto. The department agency shall develop written guidelines for such materials.
C. The department agency may provide information displays or other material to the retailer, who shall position the material so it can be seen easily by the general public.
D. The department agency may produce special posters, brochures or flyers describing various aspects of the lottery and provide these to lottery retailers to post or distribute.
Part II
Banks and Depositories
11VAC5-20-80. Approval of banks.
A. The State Treasurer, with the concurrence of the director, and in accordance with applicable Treasury directives, shall approve a bank or banks to provide services to the department agency.
B. A bank or banks shall serve as agent or agents for electronic funds transfers between the department agency and lottery retailers as required by Chapters 20 (11VAC5-20), 31 (11VAC5-31), and 41 (11VAC5-41) and by contracts between the department agency, the State Treasury, retailers, and the banks.
11VAC5-20-160. Procedure for appealing a licensing decision.
A. Upon receiving a notice that (i) an application for a license or the renewal of a license has been denied by the director, or (ii) the director intends to or has already taken action to suspend or revoke a current license, the applicant or licensed retailer may appeal by filing a written notice of appeal requesting a conference on the licensing action. The notice of appeal shall be submitted within 30 days of receipt of the notice of the licensing action.
1. Receipt of a notice of the licensing action that is mailed in an envelope bearing a United States Postal Service postmark is presumed to have taken place not later than the third day following the day of mailing to the last known address of the applicant or licensed retailer. If the third day falls upon a day on which mail is not delivered by the United States Postal Service, the notice is presumed to have been received on the next business day. The "last known address" means the address shown on the application of an applicant or licensed retailer unless a more current address has been provided to the department agency by the applicant or licensed retailer.
2. The notice of appeal will be timely if it bears a United States Postal Service postmark showing mailing on or before the 30th day prescribed in subdivision 1 of this subsection.
B. A notice of appeal may be mailed or hand delivered to the director at the State Virginia Lottery Department headquarters office.
1. A notice of appeal delivered by hand will be timely only if received at the headquarters of the State Virginia Lottery Department within the time allowed by subsection A of this section.
2. Delivery to any other State Virginia Lottery Department office or to lottery sales personnel by hand or by mail is not sufficient.
3. The appellant assumes full responsibility for the method chosen to file the notice of appeal.
C. The notice of appeal shall state:
1. The decision of the director that is being appealed;
2. The legal and factual basis for the appeal;
3. The retailer's license number; and
4. Any additional information the appellant may wish to include concerning the appeal.
11VAC5-20-170. Procedures for conducting informal fact-finding licensing conferences.
A. The conference officer will conduct an informal fact-finding conference with the appellant for the purpose of resolving the licensing action at issue.
B. The conference officer will hold the conference as soon as possible but not later than 30 days after the notice of appeal is filed, unless an alternate date is designated by the conference officer or his designee and accepted by the appellant. A notice setting out the conference date, time, and location will be sent to the appellant, by certified mail, return receipt requested, at least 10 days before the day set for the conference, unless a shorter time is agreed to by the appellant.
C. A conference may be conducted by telephone, at the option of the appellant.
D. The conferences shall be informal.
1. The conferences will be electronically recorded. The recordings will be kept until the time limit for any subsequent appeal has expired.
2. A court reporter may be used. The court reporter shall be paid by the person who requested him. If the appellant elects to have a court reporter, a transcript shall be provided to the department agency. The transcript shall become part of the department's agency's records.
3. The appellant may appear in person or may be represented by counsel to present his facts, argument, or proof in the matter to be heard and may request other parties to appear to present testimony.
4. The department agency will present its facts in the case and may request other parties to appear to present testimony.
5. Questions may be asked by any of the parties at any time during the presentation of information subject to the conference officer's prerogative to regulate the order of presentation in a manner which that, in his sole discretion, best serves the interest of fairly developing the facts.
6. The conference officer may exclude information at any time that he believes, in his sole discretion, is not germane or that repeats information already received.
7. The conference officer shall declare the conference completed when the time established by the conference officer has expired.
E. Normally, the conference officer shall issue his decision within 15 days after the conclusion of an informal conference. However, for a conference with a court reporter, the conference officer shall issue his decision within 15 days after receipt of the transcript of the conference. In all cases the agency shall comply with the APA. The decision will be in the form of a letter to the appellant summarizing the case and setting out his decision on the matter. The decision will be sent to the appellant by certified mail, return receipt requested.
F. After receiving the conference officer's decision on the informal conference, the appellant may elect to appeal to the board for a formal hearing on the licensing action. The request for appeal shall:
1. Be submitted in writing within 15 days of receipt of the conference officer's decision on the informal conference.
2. Be mailed or hand delivered to the chairman of the board at the headquarters of the State Virginia Lottery Department.
3. Be governed by the same procedures in 11VAC5-20-160 B for filing the original notice of appeal.
4. State:
a. The decision of the conference officer that is being appealed;
b. The legal and factual basis for the appeal;
c. The retailer's license number; and
d. Any additional information the appellant may wish to include concerning the appeal.
11VAC5-20-180. Procedures for conducting formal licensing hearings.
A. The board will conduct a formal hearing at its next regularly scheduled meeting following the receipt of a notice of appeal on a licensing action if the date of the scheduled meeting permits the required 10 days notice to the appellant or at a date to be determined by the chairman of the board and accepted by the appellant.
B. A majority of members of the board is required to hear an appeal. If the chairman and vice chairman of the board are not present, the members present shall choose one from among them to preside over the hearing.
C. The board chairman, at his discretion, may designate a committee of the board to hear licensing appeals and act on its behalf. Such committee shall have at least three members who will hear the appeal on behalf of the board. If the chairman of the board is not present, the members of the committee shall choose one from among them to preside over the hearing.
D. A notice setting the hearing date, time, and location will be sent to the appellant by certified mail, return receipt requested, at least 10 days before the day set for the hearing, unless a shorter time is agreed to by the appellant.
E. The hearing shall be conducted in accordance with the provisions of Article 3 (§ 2.2-4018 et seq.) of the APA and shall be open to the public.
1. The hearing will be electronically recorded and the recording will be kept until any time limits for any subsequent court appeals have expired.
2. A court reporter may be used. The court reporter shall be paid by the person who requested him. If the appellant elects to have a court reporter, a transcript shall be provided to the department agency. The transcript shall become part of the department's agency's records.
3. The provisions of §§ 2.2-4020 through 2.2-4023 of the APA shall apply with respect to the rights and responsibilities of the appellant and of the department agency.
F. Normally, the board will issue its written decision within 21 days of the conclusion of the hearing. However, for a hearing with a court reporter, the board will issue its written decision within 21 days of receipt of the transcript of the hearing. In all cases the agency shall comply with the APA.
1. A copy of the board's written decision will be sent to the appellant by certified mail, return receipt requested. The original written decision shall be retained by the department agency and become a part of the case file.
2. The written decision will contain:
a. A statement of the facts to be called "Findings of Facts";
b. A statement of conclusions to be called "Conclusions" and to include as much detail as the board feels is necessary to set out the reasons and basis for its decision; and
c. A statement, to be called "Decision and Order," which sets out the board's decision and order in the case.
G. After receiving the board's decision on the case, the appellant may elect to pursue court review as provided for in the APA.
Part IV
Procurement
11VAC5-20-200. Procurement in general.
The State Virginia Lottery Department will purchase goods or services in accordance with procedures established by the board, after consultation with the director, pursuant to Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
11VAC5-31-10. Definitions.
The following words and terms when used in any of the department's agency's regulations shall have the same meanings as defined in this chapter unless the context clearly indicates otherwise:
"Agency" means the Virginia Lottery created by the Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Board" means the State Virginia Lottery Board established by the State Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Department" means the State Lottery Department created by the State Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Director" means the Executive Director of the State Virginia Lottery Department or his designee.
"License" means the certificate issued by the department agency to a retailer who has met the requirements established by the department agency to sell lottery products.
"Lottery retailer," "lottery sales agent" or "retailer" means a person licensed by the director to sell and dispense lottery tickets or products and act as the department's agency's representative to collect, preserve, and account for Commonwealth of Virginia trust funds.
"Person," for purposes of licensing, means an individual, association, partnership, corporation, club, trust, estate, society, company, joint stock company, receiver, trustee, assignee, referee, or any other person acting in a fiduciary or representative capacity, whether appointed by a court or otherwise, and any combination of individuals, as well as all departments, commissions, agencies and instrumentalities of the Commonwealth, including its counties, cities, municipalities, political subdivisions, agencies and instrumentalities thereof.
"Vacuum fluorescent display" means a player display unit that, when connected to the lottery terminal, presents messages to the customer, such as customer transaction totals, validation and cancellation amounts, and jackpot drawing messages.
11VAC5-31-20. Eligibility.
Any person who is 18 years of age or older may submit an application for licensure as a lottery retailer in accordance with the provisions and requirements of the department's agency's licensing procedures, except no person may submit an application for licensure:
1. Who will be engaged primarily in the business of selling lottery tickets;
2. Who is a board member, officer, or employee of the State Virginia Lottery Department or who resides in the same household as a board member, officer, or employee of the department agency; or
3. Who is a board member, officer, or employee of any vendor to the department agency of lottery ticket goods or services, working directly on a contract with the department agency, or whose business owns, is owned by or controlled by, or affiliated with that vendor.
11VAC5-31-30. Application procedure.
A. Any eligible person shall first file an application with the department agency by completing all information requested on forms supplied for that purpose, along with submitting any required fees.
B. The submission of application forms or data for licensure does not in any way entitle any person to receive a license to act as a lottery retailer.
C. In the event an applicant is a former lottery sales agent whose license was suspended, revoked, or refused renewal pursuant to § 58.1-4009 or 58.1-4012 of the Code of Virginia, no application for a new license to sell lottery tickets or shares shall be considered for a minimum period of 90 days following the suspension, revocation, or refusal to renew.
D. The person shall submit all required forms and information to the department agency to be considered for licensing. Failure to submit required forms within the department's agency's licensing procedures may result in the loss of opportunity to become or remain a licensed retailer.
11VAC5-31-40. General standards for licensing.
A. The director or his designee may license those persons who, in his opinion, will best serve the public interest and convenience and public trust in the lottery and promote the sale of lottery tickets. Before issuing or renewing a license, the director may consider factors including, but not limited to, the following:
1. Those factors set out in § 58.1-4009 of the Code of Virginia, these regulations, and the department's agency's licensing procedures;
2. The ability to offer a high level of customer service to lottery players;
3. The person's prior history, record, and performance with the department agency;
4. Whether the place of business caters to or is frequented predominately by persons under 18 years of age;
5. Whether the nature of the business constitutes a threat to the health or safety of prospective patrons;
6. Whether the nature of the business is consonant with the probity of the Commonwealth; and
7. Whether the person or retailer has (i) committed any act of fraud, deceit, misrepresentation, moral turpitude, or illegal gambling or (ii) engaged in conduct prejudicial to public confidence in the state lottery.
B. Special retailer licensing.
1. The director may license special lottery retailers subject to such conditions or limitations as the director may deem prudent and if the director finds there is a need to develop alternative business models to engage in partnerships with certain retailers that are consistent with the laws of the Commonwealth of Virginia and these regulations. These limitations or conditions may include, but are not limited to:
a. Length of license period;
b. Hours or day of sale;
c. Selling of only limited products;
d. Specific persons who are allowed to sell lottery tickets;
e. Specific sporting, charitable, social, or other special events where lottery tickets may be sold if in conformity with law; or
f. Different commission and payment structures and bonding requirements.
2. Special licensed agents will be subject to these regulations.
11VAC5-31-50. Bonding of lottery retailers.
A. A lottery retailer shall have and maintain a surety bond from a surety company entitled to do business in this Commonwealth. The surety bond shall be in an amount as deemed necessary to secure the interests of the Commonwealth and the department agency, in the sole discretion of the director, and shall be payable to the department agency and conditioned upon the faithful performance of the lottery retailer's duties.
B. The department agency may establish a sliding scale for surety bonding requirements based on the average volume of lottery ticket sales by a retailer to ensure that the Commonwealth's interest in tickets to be sold by a licensed lottery retailer is adequately safeguarded.
C. Prior to issuance of a license, every lottery sales agent shall either (i) be bonded by a surety company entitled to do business in this Commonwealth in such amount and penalty as may be prescribed by the regulations of the department or (ii) provide such other surety as may be satisfactory to the director, payable to the department agency, and conditioned upon the faithful performance of his duties. Such alternate surety instruments or arrangements may include, but not be limited to, a combination of surety instruments, including cash.
11VAC5-31-60. Lottery bank accounts and electronic funds transfer (EFT) authorization.
A. A lottery retailer shall have and maintain a separate bank account in a bank participating in the Automatic Clearing House (ACH) system. This account shall be styled in the name of the retailer followed by "Virginia Lottery Trust" and shall be used exclusively for lottery business.
B. The lottery account shall be used by the retailer to make funds available to permit withdrawals and deposits initiated by the department agency through the EFT process to settle a retailer's account for funds owed by or due to the retailer from the sale of tickets and the payment of prizes. All retailers shall make payments to the department agency through the EFT process in accordance with the department's agency's licensing procedures, unless the director designates another form of payment and settlement under terms and conditions he deems appropriate.
C. The retailer shall be responsible for payment of any fees or service charges assessed by the bank for maintaining the required account.
D. The director will establish a schedule for processing the EFT transactions against retailers' lottery trust accounts and issue instructions regarding the settlement of accounts.
11VAC5-31-70. License term and periodic review.
A. A general license for an approved lottery sales agent shall be issued for a specific term and is thereafter subject to a periodic determination of continued retailer eligibility and the payment of any fees fixed by the board.
B. The director may issue special licenses to persons for specific events and activities in accordance with the requirements of the department's agency's licensing procedures.
11VAC5-31-80. License fees.
An initial licensing fee up to $100 and an annual license fee up to $70 shall be collected from each lottery sales agent and shall be paid in accordance with the department's agency's licensing procedures. These fees are nonrefundable, unless otherwise determined by the director in his sole discretion or specified in the department's agency's procedures. The license fees shall be paid for each location.
11VAC5-31-130. Retailers' conduct.
A. Each retailer shall comply with all applicable state and federal laws and regulations, as well as all rules, policies and procedures of the department agency, license terms and conditions, specific rules for all applicable lottery games, directives and instructions that may be issued by the director, and licensing and equipment agreements and contracts signed by the retailer.
B. No retailer or his employee or agent shall attempt through any means whatsoever to identify or otherwise determine whether any unsold ticket creates a winning play. This includes, but is not limited to, trying to determine the numbers or symbols appearing under the removable latex or electronically produced coverings or otherwise attempting to identify unsold winning tickets. However, this shall not prevent the removal of the covering over the validation code or validation number after the ticket is sold.
C. No retailer or his employee or agent shall impose a fee or additional charge for selling a lottery game ticket or for cashing a winning lottery game ticket.
D. No retailer or his employee or agent shall purchase a winning lottery game ticket from a player at a discounted price.
11VAC5-31-140. Deposit of lottery receipts; interest and penalty for late payment; dishonored EFT transactions or checks.
A. Payments shall be due from retailers as specified by the director in accordance with department agency policies.
B. Any retailer who fails to make payment when payment is due will be contacted by the department agency and instructed to make immediate deposit of the funds due. If the retailer is not able to deposit the necessary funds or if the item is returned to the department unpaid for a second time, the retailer's license may be inactivated. If inactivated, the license will not be reactivated until payment is made by cashier's check, certified check or EFT transaction, and if the retailer is deemed a continuing credit risk by the department agency, not until an informal conference is held to determine if the licensee is able and willing to meet the terms of his retailer contract. Additionally, interest may be charged on the moneys due plus a $25 penalty. The interest charge will be equal to the "Underpayment Rate" established pursuant to § 58.1-15 of the Code of Virginia. The interest charge will be calculated beginning the date following the retailer's due date for payment through the day preceding receipt of the late payment by the department agency for deposit.
C. In addition to the penalty authorized by subsection B of this section, the director may assess a $25 service charge against any retailer whose payment through EFT transaction or by check is dishonored.
D. The service charge, interest, and penalty charges may be waived if it is determined by the department agency that the event that otherwise would result in the assessment of a service charge, interest, or penalty is not in any way the fault of the lottery retailer.
11VAC5-31-160. Denial, suspension, revocation or noncontinuation of license.
A. The director may refuse to issue a license to a person if the person does not meet the eligibility criteria and standards for licensing as set out in § 58.1-4009 of the Code of Virginia, these regulations, and in the department's agency's licensing procedures, or if:
1. The person's place of business caters to or is frequented predominantly by persons under 18 years of age, but excluding family-oriented businesses;
2. The nature of the person's business constitutes a threat to the health or safety of prospective lottery patrons;
3. The nature of the person's business is not consonant with the probity of the Commonwealth;
4. The person has committed any act of fraud, deceit, misrepresentation, moral turpitude, or illegal gambling or engaged in conduct prejudicial to public confidence in the state lottery;
5. The person falsifies or misrepresents a material fact on any application, form, document, or data submitted during the licensure process;
6. The person has an unsatisfactory prior history, record, or performance with the lottery;
7. The person's place of business represents a substantial risk for the collection, deposit, preservation, accounting, or safeguarding of Commonwealth of Virginia Trust Funds, irrespective of the bond or surety provided by the person;
8. The person has been suspended permanently from a federal or state licensing or authorization program and that person has exhausted all administrative remedies pursuant to the respective agency's regulations or procedures; or
9. The proposed retailer's licensed location or locations does not comply with the requirements of the department's Retailer Accessibility Guidelines effective January 1, 2011, as applicable.
B. The director may suspend, revoke, or refuse to continue a license for any of the reasons enumerated in § 58.1-4012 of the Code of Virginia, in subsection A of this section, in the department's agency's procedures, or for any of the following reasons:
1. Failure to maintain the required lottery trust account;
2. Failure to comply with lottery game rules;
3. Failure to properly care for, or prevent the abuse of, the department's agency's equipment, or failure to properly position and display the vacuum fluorescent display or LED device;
4. Failure to meet minimum point-of-sale standards;
5. Failure to continue to meet the eligibility criteria and standards for licensing; or
6. Failure to comply with (i) any applicable law or statute, rule, policy, or procedure of the department agency; (ii) license terms and conditions; (iii) specific rules for all applicable department agency games; (iv) directives and instructions that may be issued by the director; and (v) licensing and equipment agreements and contracts signed by the retailer.
C. Any person refused a license under subsections A or B of this section may appeal the director's decision in the manner provided by 11VAC5-20-150.
D. Before taking action under subsection A or B of this section, the director will notify the retailer in writing of his intent to suspend, revoke or deny continuation of the license. The notification will include the reason or reasons for the proposed action and will provide the retailer with the procedures for requesting a conference. Such notice shall be given to the retailer in accordance with the provisions of the department's agency's regulations.
E. If the director deems it necessary in order to serve the public interest and maintain public trust in the lottery, he may temporarily suspend a license without first notifying the retailer. Such suspension will be in effect until any prosecution, hearing, or investigation into alleged violations is concluded.
F. A retailer shall surrender his license to the director by the date specified in the notice of revocation or suspension. The retailer shall also surrender the lottery property in his possession and give a final lottery accounting of his lottery activities by the date specified by the director.
11VAC5-31-170. License termination by retailer.
The licensed retailer may voluntarily terminate his license with the department agency by first notifying the department agency in writing at least 15 calendar days before the proposed termination date. The department agency will then notify the retailer of the date by which settlement of the retailer's account will take place. The retailer shall maintain his bond and the required accounts and records until settlement is completed and all lottery property has been surrendered.
11VAC5-31-180. Inspection of premises.
Each lottery retailer shall provide access during normal business hours or at such other times as may be required by the director or department agency representatives to enter the premises of the licensed retailer. The premises include the licensed location where lottery tickets are sold or any other location under the control of the licensed retailer where the director may have good cause to believe lottery materials, equipment, or tickets are stored or kept in order to inspect the licensed premises and inspect, or if necessary remove lottery materials, equipment, or tickets.
11VAC5-31-190. Examination of records and equipment; seizure of records and equipment.
A. Each lottery retailer shall make all books and records pertaining to his lottery activities available for inspection, auditing and copying, and make all equipment related to his lottery activities available for inspection, as required by the director or department agency representatives during normal business hours of the licensed retailer.
B. All books, records and equipment pertaining to the licensed retailer's lottery activities may be seized with good cause by the director or department agency representatives without prior notice.
11VAC5-31-200. Audit of records.
The director may require a lottery retailer to submit to the department agency an audit report conducted by an independent certified public accountant on the licensed retailer's lottery activities. The retailer shall be responsible for the cost of only the first such audit in any one license term.
NOTICE: The following forms used in administering the regulation were filed by the agency. The forms are not being published; however, online users of this issue of the Virginia Register of Regulations may click on the name of a form with a hyperlink to access it. The forms are also available from the agency contact or may be viewed at the Office of the Registrar of Regulations, General Assembly Building, 2nd Floor, Richmond, Virginia 23219.
FORMS (11VAC5-31)
Retailer License Application, SLD-0062 (rev. 10/07).
Retailer Contract (rev. 5/10).
Retailer License Application, VAL-0062 (rev. 9/14)
Retailer Contract (rev. 1/14)
11VAC5-41-10. Definitions for lottery games.
The following words and terms when used in any of the department's agency's regulations shall have the same meanings as defined in this chapter unless the context clearly indicates otherwise:
"Agency" means the Virginia Lottery created by Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Altered ticket" means a lottery ticket that has been forged, counterfeited, or tampered with in any manner.
"Board" means the State Virginia Lottery Board established by the State Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Breakage" means the money accumulated from the rounding down of the pari-mutuel prize levels to the next lowest whole dollar amount.
"Cashing retailer" means a department an agency licensed retailer that sells lottery products and is authorized to pay prizes.
"Computer gaming system" means any computer system owned, operated, or contracted by the department agency that supports the sale, redemption, or validation of lottery tickets or wagers.
"Coupon" is a device (electronic or paper or otherwise) that is approved by the department agency for redemption.
"Department" means the State Lottery Department created by State Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Director" means the Executive Director of the State Virginia Lottery Department or his designee.
"Drawing" means a formal process of randomly selecting numbers, names, or items in accordance with the specific game or promotion rules for games or promotions requiring the random selection of numbers, names, or items.
"Game" means any individual or particular type of lottery authorized by the board.
"Instant game" means a game that, when played, reveals or informs the player immediately whether he has won a prize, entry into a prize drawing, prize points, or any or all of the aforementioned as specified in game rules.
"Misprinted ticket" means a lottery ticket or play that contains a manufacturing, programming, or printing defect that causes the game to no longer play as defined in game rules or does not properly validate against the game's validation files.
"Natural person" means a human being, and not a corporation, company, partnership, association, trust or other entity.
"Prize" means any cash or noncash award to a holder of a winning entry or play.
"Prize structure" means the number, value, and odds of winning prizes for a game and the prize tiers within a game and the chances of winning a prize in each tier in an individual game as determined by the department agency and as specified in the game rules.
"Probability game" means a game in which all of the tickets sold are potentially winning tickets and the outcome of the game depends entirely upon the player's choice or choices during game play.
"Promotion" is defined as means an "added value" offer to consumers or licensed retailers sanctioned by the director or approved by the board when required.
"Roll stock" or "ticket stock" means the paper roll issued or approved for use by the department agency from which a unique lottery ticket is generated displaying the selected items or numbers.
"Scratch ticket" means a printed instant win ticket with a covering over the play area that when scratched reveals a specific result.
"Share" means a percentage of ownership in a winning ticket, play, or subscription plan.
"Terminal" means a device that is authorized by the department agency to function in an interactive mode with the department's agency's computer gaming system or systems for the purpose of issuing tickets, plays, or an electronic facsimile thereof, and entering, receiving, and processing game-related transactions.
"Terminal ticket" means a computer-generated or electronically-produced ticket issued through the computer gaming system by a retailer to a player as a receipt for the number, numbers, or items or combination of numbers or items the player has selected.
"Ticket number" means the preassigned unique number or combination of letters and numbers or barcode that identifies that particular ticket as one within a particular game or drawing.
"Validation" means the process of reviewing and certifying a lottery ticket to determine whether it is a winning ticket.
"Validation barcode" means the unique number or number-and-letter code or barcode used to determine whether a lottery ticket is a winning ticket.
"Winning ticket," "winning wager," or "winning play" means the ticket, wager, or play that meets the criteria and specific rules for winning prizes as published for each game by the director.
11VAC5-41-60. Drawing and selling times.
A. Drawings shall be conducted at times and places designated by the director and publicly announced by the department agency.
B. Retailers may sell tickets from new instant games upon receipt of the tickets from the department agency, but shall not sell tickets for an instant game after the announced end of that game.
C. Retailers may sell terminal tickets up to a designated time prior to the drawing as specified in the terminal game rules. That time will be designated by the director.
11VAC5-41-80. Scratch ticket returns.
A. Ticket sales to retailers are final. The department agency will not accept returned, unsold tickets for credit except as specifically authorized by and provided for in the department's agency's procedures.
B. Once tickets are accepted by a retailer, the department agency:
1. May hold the retailer financially responsible for the replacement of mutilated, damaged, or otherwise unaccounted for tickets.
2. Will not be responsible for lost, stolen, destroyed, or otherwise unaccounted for tickets, unless specifically authorized and provided for in the department's agency's procedures.
11VAC5-41-100. Validation requirements.
To receive payment for a prize, a Virginia lottery game ticket or play shall be validated by the retailer or the department agency as set out in this chapter and in any other manner that the director may prescribe in the specific rules for the lottery game, which shall include but not be limited to the following:
1. If the game's rules specify that the physical ticket must be presented for validation then:
a. The original ticket must be presented for validation;
b. The ticket shall not be mutilated, altered, or tampered with in any manner. If a ticket is partially mutilated or if the ticket is not intact and cannot be validated through normal procedures but can still be validated by other validation tests, the director may pay the prize for that ticket;
c. The ticket may not be misregistered or defectively printed to an extent that it cannot be processed by the department;
d. The ticket shall pass all other confidential security checks of the department agency;
e. The ticket validation number shall be present in its entirety; and
f. The ticket shall not be counterfeited, forged, fraudulently made, or a duplicate of another winning ticket.
2. Where a winning ticket or play has been issued by a terminal:
a. The ticket or play shall have been issued by the department agency or by a licensed lottery retailer in an authorized manner;
b. The terminal ticket or play shall not have been cancelled canceled or previously paid;
c. The terminal ticket or play shall be validated in accordance with procedures for claiming and paying prizes as set out in the game rules; and
d. The terminal ticket or play data shall have been recorded in the computer gaming system before the drawing or the instant game ticket sale, and the ticket data shall match this computer record in every respect.
3. If the games rules specify that a physical ticket, play, or record of play is not required for validation there may be other lottery requirements, as defined by the director, for winners to collect prizes.
11VAC5-41-110. Use of playslips.
A. A playslip issued by the department agency may be used to select a player's choice or choices to be played in a department-authorized an agency-authorized computer gaming system. If a playslip is used to select the player's choice or choices for use in a computer gaming system, the playslip selections shall be manually or electronically marked as authorized by the department's agency's game rules and not marked by any electro-mechanical, electronic printing, or other automated device, except for play utilizing materials or systems developed by the department agency.
B. Any playslip marked by methods other than those authorized by this chapter is invalid and subject to seizure by the department if presented for play at any lottery terminal. Any tickets produced from the use of invalid playslips are also invalid and subject to seizure by the department agency.
C. Nothing in this chapter shall be deemed to prevent a person with a physical handicap who is unable to mark a playslip manually from using any device intended to permit such person to make such a mark for his sole personal use or benefit.
11VAC5-41-120. Replacement of ticket.
If a misprinted or otherwise defective ticket is purchased, the department's agency's only liability or responsibility shall be to replace the misprinted ticket with an unplayed ticket of equal price from the same or another current game or to refund the purchase price of the defective ticket.
11VAC5-41-130. Terminal-generated winning tickets.
A. When more than one ticket containing the winning numbers is issued for the same drawing of the same game, the holder of each ticket is entitled only to his share of the prize, regardless of whether the other holders of tickets with the winning numbers actually claim their share of the prize.
B. The department agency shall not redeem prizes for tickets that would have been winning tickets but for the fact that they have been cancelled canceled by the retailer unless specifically authorized by the director.
C. When the department's agency's internal controls indicate that a winning ticket was issued but no claim is made for the prize, there shall be a rebuttable presumption that such ticket was in fact issued and the prize shall be paid in accordance with the provisions of § 58.1-4020 of the Code of Virginia and regulations of the department agency.
11VAC5-41-140. Where prizes claimed.
Winners may claim game prizes as specified in this chapter or in the game rules, including:
1. At department agency headquarters;
2. At a department an agency customer service center;
3. From a cashing retailer;
4. By mail; or
5. At any other location specifically authorized by the department agency.
11VAC5-41-150. Retailers' prize payment procedures.
Procedures for prize payments by retailers are as follows:
1. Retailers may pay cash prizes in cash, by certified check, cashier's check, business check, money order, other cash equivalent or by any combination of these methods.
2. If a check for payment of a prize by a retailer to a claimant is denied for any reason, the retailer is subject to the same service charge, interest and penalty payments for referring a debt to the department agency for collection that would apply if the check were made payable to the department agency. A claimant whose prize check is denied shall notify the department agency to obtain the prize.
3. During normal business hours of the lottery retailer with operational validation equipment by which the ticket claim can be validated, a lottery retailer shall pay any lottery prize of $600 or less, unless otherwise determined by the director, regardless of the location from which the winning ticket was purchased.
4. A prize claim shall be paid only at the location specified on the retailer's license or at a lottery office.
5. The department agency will reimburse a retailer for all valid prizes paid by the retailer within the specified prize redemption period for the game from which the prize resulted.
6. In no case shall a retailer impose a fee, additional charge or discount for cashing a winning lottery game ticket.
7. Retailers who pay claims without validating the tickets do so at their own financial risk.
11VAC5-41-160. No reimbursement for retailer errors.
Unless otherwise determined by the director, the department agency shall not reimburse retailers for prize claims a retailer has paid in error or for which a retailer failed to properly and completely validate the lottery game tickets in accordance with department agency procedures.
11VAC5-41-170. When prize shall be claimed from the department agency.
A. The department agency will pay prizes in any of the following circumstances:
1. If a retailer cannot validate a claim which that the retailer otherwise would pay, the ticket holder shall present the original signed ticket to any department agency office including the department's agency's headquarters or mail the signed ticket to the department's agency's headquarters;
2. If a ticket holder is unable to return to any retailer to claim a prize that the retailer otherwise would pay, the ticket holder may present the original signed ticket at any department agency office or mail the signed ticket to the department's agency's headquarters;
3. If the prize amount is more than $600, the ticket holder may present the original signed ticket at any department agency office or mail the signed ticket to the department agency headquarters; or
4. Where an electronic entry or an electronic record of a ticket is permitted, a presentation of a physical ticket may not be required to claim a prize.
B. The department agency may require a claim form.
C. A player shall bear all risk of loss or damage by sending the ticket through the mail.
11VAC5-41-180. Department Agency action on claims for prizes submitted to department agency.
A. The department agency shall validate the winning ticket claim according to procedures contained in this chapter.
B. If the claim cannot be validated, the department agency will promptly notify the ticket holder.
C. If the claim is mailed to the department agency and the department agency validates the claim, a check for the prize amount, merchandise, or experiential prizes will be presented or mailed to the winner.
D. If an individual presents a claim to the department agency in person and the department agency validates the claim, a check for the prize amount, merchandise, or experiential prizes will be presented to the winner.
11VAC5-41-190. Withholding, notification of prize payments.
A. When paying any prize in excess of $600, the department agency shall:
1. File the appropriate income reporting forms with the Virginia Department of Taxation and the federal Internal Revenue Service; and
2. Withhold federal and state taxes from any winning ticket in accordance with the tax regulation in effect at the time.
B. Additionally, when paying any cash prize of $100 or more, the department agency shall withhold any moneys due for delinquent debts as provided by the Commonwealth's Setoff Debt Collection Act, Article 21 (§ 58.1-520 et seq.) of Chapter 3 of Title 58.1 of the Code of Virginia.
11VAC5-41-220. How prize claim entered.
A prize claim shall be entered in the name of a natural person as prescribed by § 58.1-4019 B of the Code of Virginia. In all cases, the identity and social security number of all natural persons who receive a prize or share of a prize greater than $100 from a winning ticket redeemed at any department agency office shall be provided.
1. A nonresident alien shall furnish his Immigration and Naturalization Service (INS) Number.
2. Two or more natural persons claiming a single prize may file IRS Form 5754, "Statement by Person(s) Receiving Gambling Winnings," with the department agency. This form designates to whom winnings are to be paid and the person or persons to whom winnings are taxable.
3. Two or more natural persons wishing to divide a jackpot prize shall complete an "Agreement to Share Ownership and Proceeds of Lottery Ticket" form. The filing of this form is an irrevocable election that may only be changed by an appropriate judicial order.
11VAC5-41-230. Delay of payment allowed.
A. Subject to the provisions in § 58.1-4013 D of the Code of Virginia, the director may refrain from making payment of a prize pending a final determination by the director under any of the following circumstances:
1. If a dispute arises, or it appears that a dispute may arise, relative to any ownership of a winning ticket or any prize;
2. If there is any question regarding the identity of the claimant;
3. If there is any question regarding the validity of any ticket presented for payment;
4. If there is any question whether a claimant has made a valid cash option election; or
5. If the claim is subject to any set off for delinquent debts owed to any agency eligible to participate in the Setoff Debt Collection Act (Article 21 (§ 58.1-520 et seq.) of Chapter 3 of Title 58.1 of the Code of Virginia) if the agency has registered such debt with the Virginia Department of Taxation and timely notice of the debt has been furnished by the Virginia Department of Taxation to the department.
B. The director may, at any time, delay any periodic or installment payment in order to review a change in circumstance relative to the prize awarded, the payee, the claim, or any other matter that has been brought to the department's agency's attention. All delayed installments shall be brought up to date immediately upon the director's confirmation. Delayed installments shall continue to be paid according to the original payment schedule after the director's decision is given.
C. No liability for interest for any delay of any prize payment in accordance with subsections A and B of this section, or any delay beyond the department's agency's control, shall accrue to the benefit of the claimant pending payment of the claim. The department agency is neither liable for nor has it any responsibility to resolve disputes between or among competing claimants.
11VAC5-41-250. Using winners' names and information.
The department agency can use a winner's name and the city, town, or county in which a winner lives, as well as the prizes won, for public information purposes and to foster the integrity of the games. The department agency may require prize winners to participate in news conferences. The department agency can use the winner's information described in this section and winner's photographs for public information or promotional purposes in mediums such as, but not limited to, the department's agency's website (www.valottery.com), social media, in-store, television, Internet, and radio. No consideration shall be paid by the department agency for these purposes.
11VAC5-41-290. Liability ends with prize payment.
All liability of the Commonwealth, its officials, officers and employees, and of the department agency, the board, the director and employees of the department agency, terminates upon final payment of a lottery prize, or sooner if so provided in the game rules or these regulations.
11VAC5-41-300. Marking tickets prohibited; exceptions.
Marking of tickets in any way is prohibited except by a player to play a game according to the rules of that specific game or to claim a prize or by the department agency or a retailer to identify or to void the ticket.
11VAC5-41-310. Lost, stolen, or destroyed tickets.
The department agency is not liable for lost, stolen, or destroyed tickets. The director may honor a prize claim of an apparent winner who does not possess the original ticket if the claimant is in possession of information that demonstrates that the original ticket meets the following criteria and can be validated through other means. Such information may include, but is not limited to, the following:
1. The claim form, if required, and a photocopy of the ticket, or photocopy of the original claim form, if required, and ticket, are timely filed with the department agency;
2. The prize for which the claim is filed is a winning prize that has not been claimed, as verified in the department's agency's records.
3. The claim is filed within the redemption period, as established by the game rules; and
4. Except in extenuating circumstances or for just cause as the director may deem appropriate, the redemption period for claims has expired.
11VAC5-41-320. Unclaimed prizes.
A. Except for a free ticket prize, a claim for a lottery game winning ticket must be mailed in an envelope bearing a postmark of the United States Postal Service or another sovereign nation or received for payment as prescribed in this chapter within either 180 days after the date of the drawing for which the ticket was purchased, or of the event which that caused the ticket to be a winning entry, or, in the case of an instant game ticket, within 180 days after the announced end of the game. In the event that the 180th day falls on a Saturday, Sunday, or legal holiday, the winning ticket will be accepted for validation on the next business day only at a lottery office.
B. Any lottery cash prize that remains unclaimed after either 180 days following the drawing that determined the prize or 180 days after the announced end of the instant game shall revert to the State Literary Fund. Cash prizes do not include free ticket prizes or other noncash prizes such as merchandise, vacations, admission to events and the like.
C. All claims for terminal game winning tickets for which the prize is a free ticket must be mailed in an envelope bearing a postmark of the United States Postal Service or another sovereign nation or received for redemption as prescribed in this chapter within 180 days after the date of the drawing for which the ticket was purchased. In the event the 180th day falls on a Saturday, Sunday, or legal holiday, a claimant may only redeem his winning ticket for a free ticket at a cashing retailer on or before the 180th day.
Except for claims for free ticket prizes mailed to lottery headquarters and postmarked on or before the 180th day, claims for such prizes will not be accepted at any lottery office after the sixtieth 60th day. This section does not apply to the redemption of free tickets awarded through the subscription program.
D. Any instant game winning ticket of $25 or less that has been purchased, but that is not claimed within 180 days after the announced end of the instant game, shall revert to the State Virginia Lottery Fund.
E. In case of a prize payable over time, if such prize is shared by two or more winning tickets, one or more of which is not presented to the department agency for payment within the prize redemption period as established by the game rules, the department agency will transfer that portion of the prize to the State Literary Fund in accordance with procedures approved by the State Treasurer.
F. In accordance with the provisions of the Servicemembers Civil Relief Act of 1940 (50 USC App § 526), any person while in active military service may claim exemption from the 180-day ticket redemption requirement. Such person, however, must claim his winning ticket or share as soon as practicable, and in no event later than 180 days after discharge from active military service.
VA.R. Doc. No. R15-4146; Filed September 4, 2014, 2:41 p.m.
TITLE 11. GAMING
VIRGINIA LOTTERY BOARD
Final Regulation
REGISTRAR'S NOTICE: The Virginia Lottery Board is claiming an exclusion from Article 2 of the Administrative Process Act in accordance with § 2.2-4006 A 4 a of the Code of Virginia, which excludes regulations that are necessary to conform to changes in Virginia statutory law where no agency discretion is involved. The Virginia Lottery Board will receive, consider, and respond to petitions by any interested person at any time with respect to reconsideration or revision.
Titles of Regulations: 11VAC5-11. Public Participation Guidelines (amending 11VAC5-11-10, 11VAC5-11-20).
11VAC5-20. Administration Regulations (amending 11VAC5-20-10, 11VAC5-20-60, 11VAC5-20-80, 11VAC5-20-160 through 11VAC5-20-200).
11VAC5-31. Licensing Regulations (amending 11VAC5-31-10 through 11VAC5-31-80, 11VAC5-31-130, 11VAC5-31-140, 11VAC5-31-160 through 11VAC5-31-200).
11VAC5-41. Lottery Game Regulations (amending 11VAC5-41-10, 11VAC5-41-60, 11VAC5-41-80, 11VAC5-41-100 through 11VAC5-41-190, 11VAC5-41-220, 11VAC5-41-230, 11VAC5-41-250, 11VAC5-41-290 through 11VAC5-41-320).
Statutory Authority: §§ 2.2-4007.02 and 58.1-4007 of the Code of Virginia (11VAC5-11-10, 11VAC5-11-20).
§ 58.1-4007 of the Code of Virginia (all other sections).
Effective Date: November 5, 2014.
Agency Contact: Amy Roper, Regulatory Coordinator, Virginia Lottery, 900 East Main Street, 9th Floor, Richmond, VA 23219, telephone (804) 692-7133, FAX (804) 692-7325, or email aroper@valottery.com.
Summary:
The amendments conform regulations to changes to the Code of Virginia pursuant to (i) Chapter 225 of the 2014 Acts of Assembly, which changes the name of the "State Lottery Department" to the "Virginia Lottery," and (ii) Chapter 224 of the 2014 Acts of Assembly, which establishes a new waiting period for relicensing of retailers under § 58.1-4009 D of the Code of Virginia.
Part I
Purpose and Definitions
11VAC5-11-10. Purpose.
The purpose of this chapter is to promote public involvement in the development, amendment, or repeal of the regulations of the State Virginia Lottery Department. This chapter does not apply to regulations, guidelines, or other documents exempted or excluded from the provisions of the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia).
11VAC5-11-20. Definitions.
The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:
"Administrative Process Act" means Chapter 40 (§ 2.2-4000 et seq.) of Title 2.2 of the Code of Virginia.
"Agency" means the State Virginia Lottery Department, which is the unit of state government empowered by the agency's basic law to make regulations or decide cases. Actions specified in this chapter may be fulfilled by state employees as delegated by the agency.
"Basic law" means provisions in the Code of Virginia that delineate the basic authority and responsibilities of an agency.
"Commonwealth Calendar" means the electronic calendar for official government meetings open to the public as required by § 2.2-3707 C of the Freedom of Information Act.
''Negotiated rulemaking panel'' or ''NRP'' means an ad hoc advisory panel of interested parties established by an agency to consider issues that are controversial with the assistance of a facilitator or mediator, for the purpose of reaching a consensus in the development of a proposed regulatory action.
"Notification list" means a list used to notify persons pursuant to this chapter. Such a list may include an electronic list maintained through the Virginia Regulatory Town Hall or other list maintained by the agency.
"Open meeting" means any scheduled gathering of a unit of state government empowered by an agency's basic law to make regulations or decide cases, which is related to promulgating, amending or repealing a regulation.
"Person" means any individual, corporation, partnership, association, cooperative, limited liability company, trust, joint venture, government, political subdivision, or any other legal or commercial entity and any successor, representative, agent, agency, or instrumentality thereof.
"Public hearing" means a scheduled time at which members or staff of the agency will meet for the purpose of receiving public comment on a regulatory action.
"Regulation" means any statement of general application having the force of law, affecting the rights or conduct of any person, adopted by the agency in accordance with the authority conferred on it by applicable laws.
"Regulatory action" means the promulgation, amendment, or repeal of a regulation by the agency.
"Regulatory advisory panel" or "RAP" means a standing or ad hoc advisory panel of interested parties established by the agency for the purpose of assisting in regulatory actions.
"Town Hall" means the Virginia Regulatory Town Hall, the website operated by the Virginia Department of Planning and Budget at www.townhall.virginia.gov, which has online public comment forums and displays information about regulatory meetings and regulatory actions under consideration in Virginia and sends this information to registered public users.
"Virginia Register" means the Virginia Register of Regulations, the publication that provides official legal notice of new, amended, and repealed regulations of state agencies, which is published under the provisions of Article 6 (§ 2.2-4031 et seq.) of the Administrative Process Act.
Part I
General Parameters
11VAC5-20-10. Definitions.
The following words and terms when used in any of the department's agency's regulations shall have the following meanings unless the context clearly indicates otherwise:
"Administrative Process Act" or "APA" means Chapter 40 (§ 2.2-4000 et seq.) of Title 2.2 of the Code of Virginia.
"Agency" means the Virginia Lottery created by the Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Appeal" means a proceeding initiated by a retailer, bidder, or offeror (for a contract negotiated on a sole source basis), contractor or individual for an informal conference or formal hearing contesting the director's decision (i) to refuse to issue or renew, to suspend or to revoke a lottery license; or (ii) regarding a procurement action.
"Bank" means any commercial bank, savings bank, savings and loan association, credit union, trust company, and any other type or form of banking institution organized under the authority of the Commonwealth of Virginia or of the United States of America which that is designated by the State Treasurer to perform functions, activities or services in connection with the operations of the lottery for the deposit, handling and safekeeping of lottery funds, accounting for those funds and the safekeeping of records.
"Board" means the State Virginia Lottery Board established by the State Virginia Lottery Law.
"Conference" or "consultation" means a type of appeal in the nature of an informational or factual proceeding of an informal nature provided for in § 2.2-4019 of the Administrative Process Act.
"Conference officer" means the director, or a person appointed by the director, who is empowered to preside at informal conferences or consultations and to provide a recommendation, conclusion or decision in such matter.
"Consideration" means something of value given for a promise to make the promise binding. It is one of the essentials of a legal contract.
"Contract" means a binding agreement, enforceable by law, between two or more parties for the supply of goods or services.
"Department" means the State Lottery Department created by the State Lottery Law.
"Depository" means any person, including a bonded courier service, armored car service, bank, central or regional offices of the department agency, or any state agency that performs any or all of the following activities or services for the lottery:
1. The safekeeping and distribution of tickets to retailers;
2. The handling of lottery funds;
3. The deposit of lottery funds; or
4. The accounting for lottery funds.
"Director" means the Executive Director of the State Virginia Lottery Department or his designee.
"Electronic funds transfer (EFT)" or "EFT" means a computerized transaction that withdraws or deposits money from or to a bank account.
"Goods" means all material, equipment, supplies, printing, and automated data processing hardware and software.
"Hearing" means agency processes other than those informational or factual inquiries of an informal nature provided in §§ 2.2-4007 and 2.2-4019 of the Code of Virginia and includes only (i) opportunity for private parties to submit factual proofs in formal proceedings as provided in § 2.2-4009 of the Code of Virginia in connection with the making of regulations or (ii) a similar right of private parties or requirement of public agencies as provided in § 2.2-4020 of the Code of Virginia in connection with case decisions.
"Household" means members of a group who reside at the same address.
"Immediate family" means (i) a spouse and (ii) any other person residing in the same household as the officer or employee, who is a dependent of the officer or employee or of whom the officer or employee is a dependent.
"Inspection" means the close and critical examination of goods and services delivered to determine compliance with applicable contract requirements or specifications. It is the basis for acceptance or rejection.
"Legal entity" means an entity, other than a natural person, which has sufficient existence in legal contemplation that it can function legally, sue or be sued and make decisions through agents, as in the case of a corporation.
"Lottery" or "state lottery" means the lottery or lotteries established and operated pursuant to Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
"Person" means a natural person and may extend and be applied to groups of persons, as well as a corporation, company, partnership, association, club, trust, estate, society, joint stock company, receiver, trustee, assignee, referee, or any other person acting in a fiduciary or representative capacity, whether appointed by a court or otherwise, and any combination of individuals, as well as all departments, commissions, agencies, and instrumentalities of the Commonwealth, including counties, cities, municipalities, political subdivisions, agencies and instrumentalities thereof.
"Procurement" means the process for obtaining goods or services, including all activities from planning and preparation to processing of a request through the processing of a final invoice for payment.
"Retailer and sales agent" means a person or business licensed by the department agency as an agent to sell lottery tickets or shares.
"Sales," "gross sales," "annual sales" and similar terms mean total ticket sales including any discount allowed to a retailer for his compensation.
"Services" means any work performed by an independent contractor where the service rendered does not consist primarily of acquisition of equipment or materials, or the rental of equipment, materials and supplies.
"Sole source" means that only one source is practicably available to furnish a product or service.
"State Lottery Law" means Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
"Surety bond" means an insurance agreement in which a third party agrees to be liable to pay a specified amount of money to the department agency in the event the retailer fails to meet his obligations to the department agency.
"Transaction" means any matter considered by any governmental or advisory agency, whether in a committee, subcommittee, or other entity of that agency or before the agency itself, on which official action is taken or contemplated.
"Vendor" means one who provides goods or services to the department agency.
"Virginia Lottery Law" means Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
11VAC5-20-60. Advertising.
A. Advertising may include, but is not limited to, print advertisements; radio and television advertisements; digital, electronic, and video advertisements; billboards; point of purchase materials; point-of-sale display materials; and Internet and social media.
B. Any lottery retailer may use his own advertising materials unless the department agency objects thereto. The department agency shall develop written guidelines for such materials.
C. The department agency may provide information displays or other material to the retailer, who shall position the material so it can be seen easily by the general public.
D. The department agency may produce special posters, brochures or flyers describing various aspects of the lottery and provide these to lottery retailers to post or distribute.
Part II
Banks and Depositories
11VAC5-20-80. Approval of banks.
A. The State Treasurer, with the concurrence of the director, and in accordance with applicable Treasury directives, shall approve a bank or banks to provide services to the department agency.
B. A bank or banks shall serve as agent or agents for electronic funds transfers between the department agency and lottery retailers as required by Chapters 20 (11VAC5-20), 31 (11VAC5-31), and 41 (11VAC5-41) and by contracts between the department agency, the State Treasury, retailers, and the banks.
11VAC5-20-160. Procedure for appealing a licensing decision.
A. Upon receiving a notice that (i) an application for a license or the renewal of a license has been denied by the director, or (ii) the director intends to or has already taken action to suspend or revoke a current license, the applicant or licensed retailer may appeal by filing a written notice of appeal requesting a conference on the licensing action. The notice of appeal shall be submitted within 30 days of receipt of the notice of the licensing action.
1. Receipt of a notice of the licensing action that is mailed in an envelope bearing a United States Postal Service postmark is presumed to have taken place not later than the third day following the day of mailing to the last known address of the applicant or licensed retailer. If the third day falls upon a day on which mail is not delivered by the United States Postal Service, the notice is presumed to have been received on the next business day. The "last known address" means the address shown on the application of an applicant or licensed retailer unless a more current address has been provided to the department agency by the applicant or licensed retailer.
2. The notice of appeal will be timely if it bears a United States Postal Service postmark showing mailing on or before the 30th day prescribed in subdivision 1 of this subsection.
B. A notice of appeal may be mailed or hand delivered to the director at the State Virginia Lottery Department headquarters office.
1. A notice of appeal delivered by hand will be timely only if received at the headquarters of the State Virginia Lottery Department within the time allowed by subsection A of this section.
2. Delivery to any other State Virginia Lottery Department office or to lottery sales personnel by hand or by mail is not sufficient.
3. The appellant assumes full responsibility for the method chosen to file the notice of appeal.
C. The notice of appeal shall state:
1. The decision of the director that is being appealed;
2. The legal and factual basis for the appeal;
3. The retailer's license number; and
4. Any additional information the appellant may wish to include concerning the appeal.
11VAC5-20-170. Procedures for conducting informal fact-finding licensing conferences.
A. The conference officer will conduct an informal fact-finding conference with the appellant for the purpose of resolving the licensing action at issue.
B. The conference officer will hold the conference as soon as possible but not later than 30 days after the notice of appeal is filed, unless an alternate date is designated by the conference officer or his designee and accepted by the appellant. A notice setting out the conference date, time, and location will be sent to the appellant, by certified mail, return receipt requested, at least 10 days before the day set for the conference, unless a shorter time is agreed to by the appellant.
C. A conference may be conducted by telephone, at the option of the appellant.
D. The conferences shall be informal.
1. The conferences will be electronically recorded. The recordings will be kept until the time limit for any subsequent appeal has expired.
2. A court reporter may be used. The court reporter shall be paid by the person who requested him. If the appellant elects to have a court reporter, a transcript shall be provided to the department agency. The transcript shall become part of the department's agency's records.
3. The appellant may appear in person or may be represented by counsel to present his facts, argument, or proof in the matter to be heard and may request other parties to appear to present testimony.
4. The department agency will present its facts in the case and may request other parties to appear to present testimony.
5. Questions may be asked by any of the parties at any time during the presentation of information subject to the conference officer's prerogative to regulate the order of presentation in a manner which that, in his sole discretion, best serves the interest of fairly developing the facts.
6. The conference officer may exclude information at any time that he believes, in his sole discretion, is not germane or that repeats information already received.
7. The conference officer shall declare the conference completed when the time established by the conference officer has expired.
E. Normally, the conference officer shall issue his decision within 15 days after the conclusion of an informal conference. However, for a conference with a court reporter, the conference officer shall issue his decision within 15 days after receipt of the transcript of the conference. In all cases the agency shall comply with the APA. The decision will be in the form of a letter to the appellant summarizing the case and setting out his decision on the matter. The decision will be sent to the appellant by certified mail, return receipt requested.
F. After receiving the conference officer's decision on the informal conference, the appellant may elect to appeal to the board for a formal hearing on the licensing action. The request for appeal shall:
1. Be submitted in writing within 15 days of receipt of the conference officer's decision on the informal conference.
2. Be mailed or hand delivered to the chairman of the board at the headquarters of the State Virginia Lottery Department.
3. Be governed by the same procedures in 11VAC5-20-160 B for filing the original notice of appeal.
4. State:
a. The decision of the conference officer that is being appealed;
b. The legal and factual basis for the appeal;
c. The retailer's license number; and
d. Any additional information the appellant may wish to include concerning the appeal.
11VAC5-20-180. Procedures for conducting formal licensing hearings.
A. The board will conduct a formal hearing at its next regularly scheduled meeting following the receipt of a notice of appeal on a licensing action if the date of the scheduled meeting permits the required 10 days notice to the appellant or at a date to be determined by the chairman of the board and accepted by the appellant.
B. A majority of members of the board is required to hear an appeal. If the chairman and vice chairman of the board are not present, the members present shall choose one from among them to preside over the hearing.
C. The board chairman, at his discretion, may designate a committee of the board to hear licensing appeals and act on its behalf. Such committee shall have at least three members who will hear the appeal on behalf of the board. If the chairman of the board is not present, the members of the committee shall choose one from among them to preside over the hearing.
D. A notice setting the hearing date, time, and location will be sent to the appellant by certified mail, return receipt requested, at least 10 days before the day set for the hearing, unless a shorter time is agreed to by the appellant.
E. The hearing shall be conducted in accordance with the provisions of Article 3 (§ 2.2-4018 et seq.) of the APA and shall be open to the public.
1. The hearing will be electronically recorded and the recording will be kept until any time limits for any subsequent court appeals have expired.
2. A court reporter may be used. The court reporter shall be paid by the person who requested him. If the appellant elects to have a court reporter, a transcript shall be provided to the department agency. The transcript shall become part of the department's agency's records.
3. The provisions of §§ 2.2-4020 through 2.2-4023 of the APA shall apply with respect to the rights and responsibilities of the appellant and of the department agency.
F. Normally, the board will issue its written decision within 21 days of the conclusion of the hearing. However, for a hearing with a court reporter, the board will issue its written decision within 21 days of receipt of the transcript of the hearing. In all cases the agency shall comply with the APA.
1. A copy of the board's written decision will be sent to the appellant by certified mail, return receipt requested. The original written decision shall be retained by the department agency and become a part of the case file.
2. The written decision will contain:
a. A statement of the facts to be called "Findings of Facts";
b. A statement of conclusions to be called "Conclusions" and to include as much detail as the board feels is necessary to set out the reasons and basis for its decision; and
c. A statement, to be called "Decision and Order," which sets out the board's decision and order in the case.
G. After receiving the board's decision on the case, the appellant may elect to pursue court review as provided for in the APA.
Part IV
Procurement
11VAC5-20-200. Procurement in general.
The State Virginia Lottery Department will purchase goods or services in accordance with procedures established by the board, after consultation with the director, pursuant to Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
11VAC5-31-10. Definitions.
The following words and terms when used in any of the department's agency's regulations shall have the same meanings as defined in this chapter unless the context clearly indicates otherwise:
"Agency" means the Virginia Lottery created by the Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Board" means the State Virginia Lottery Board established by the State Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Department" means the State Lottery Department created by the State Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Director" means the Executive Director of the State Virginia Lottery Department or his designee.
"License" means the certificate issued by the department agency to a retailer who has met the requirements established by the department agency to sell lottery products.
"Lottery retailer," "lottery sales agent" or "retailer" means a person licensed by the director to sell and dispense lottery tickets or products and act as the department's agency's representative to collect, preserve, and account for Commonwealth of Virginia trust funds.
"Person," for purposes of licensing, means an individual, association, partnership, corporation, club, trust, estate, society, company, joint stock company, receiver, trustee, assignee, referee, or any other person acting in a fiduciary or representative capacity, whether appointed by a court or otherwise, and any combination of individuals, as well as all departments, commissions, agencies and instrumentalities of the Commonwealth, including its counties, cities, municipalities, political subdivisions, agencies and instrumentalities thereof.
"Vacuum fluorescent display" means a player display unit that, when connected to the lottery terminal, presents messages to the customer, such as customer transaction totals, validation and cancellation amounts, and jackpot drawing messages.
11VAC5-31-20. Eligibility.
Any person who is 18 years of age or older may submit an application for licensure as a lottery retailer in accordance with the provisions and requirements of the department's agency's licensing procedures, except no person may submit an application for licensure:
1. Who will be engaged primarily in the business of selling lottery tickets;
2. Who is a board member, officer, or employee of the State Virginia Lottery Department or who resides in the same household as a board member, officer, or employee of the department agency; or
3. Who is a board member, officer, or employee of any vendor to the department agency of lottery ticket goods or services, working directly on a contract with the department agency, or whose business owns, is owned by or controlled by, or affiliated with that vendor.
11VAC5-31-30. Application procedure.
A. Any eligible person shall first file an application with the department agency by completing all information requested on forms supplied for that purpose, along with submitting any required fees.
B. The submission of application forms or data for licensure does not in any way entitle any person to receive a license to act as a lottery retailer.
C. In the event an applicant is a former lottery sales agent whose license was suspended, revoked, or refused renewal pursuant to § 58.1-4009 or 58.1-4012 of the Code of Virginia, no application for a new license to sell lottery tickets or shares shall be considered for a minimum period of 90 days following the suspension, revocation, or refusal to renew.
D. The person shall submit all required forms and information to the department agency to be considered for licensing. Failure to submit required forms within the department's agency's licensing procedures may result in the loss of opportunity to become or remain a licensed retailer.
11VAC5-31-40. General standards for licensing.
A. The director or his designee may license those persons who, in his opinion, will best serve the public interest and convenience and public trust in the lottery and promote the sale of lottery tickets. Before issuing or renewing a license, the director may consider factors including, but not limited to, the following:
1. Those factors set out in § 58.1-4009 of the Code of Virginia, these regulations, and the department's agency's licensing procedures;
2. The ability to offer a high level of customer service to lottery players;
3. The person's prior history, record, and performance with the department agency;
4. Whether the place of business caters to or is frequented predominately by persons under 18 years of age;
5. Whether the nature of the business constitutes a threat to the health or safety of prospective patrons;
6. Whether the nature of the business is consonant with the probity of the Commonwealth; and
7. Whether the person or retailer has (i) committed any act of fraud, deceit, misrepresentation, moral turpitude, or illegal gambling or (ii) engaged in conduct prejudicial to public confidence in the state lottery.
B. Special retailer licensing.
1. The director may license special lottery retailers subject to such conditions or limitations as the director may deem prudent and if the director finds there is a need to develop alternative business models to engage in partnerships with certain retailers that are consistent with the laws of the Commonwealth of Virginia and these regulations. These limitations or conditions may include, but are not limited to:
a. Length of license period;
b. Hours or day of sale;
c. Selling of only limited products;
d. Specific persons who are allowed to sell lottery tickets;
e. Specific sporting, charitable, social, or other special events where lottery tickets may be sold if in conformity with law; or
f. Different commission and payment structures and bonding requirements.
2. Special licensed agents will be subject to these regulations.
11VAC5-31-50. Bonding of lottery retailers.
A. A lottery retailer shall have and maintain a surety bond from a surety company entitled to do business in this Commonwealth. The surety bond shall be in an amount as deemed necessary to secure the interests of the Commonwealth and the department agency, in the sole discretion of the director, and shall be payable to the department agency and conditioned upon the faithful performance of the lottery retailer's duties.
B. The department agency may establish a sliding scale for surety bonding requirements based on the average volume of lottery ticket sales by a retailer to ensure that the Commonwealth's interest in tickets to be sold by a licensed lottery retailer is adequately safeguarded.
C. Prior to issuance of a license, every lottery sales agent shall either (i) be bonded by a surety company entitled to do business in this Commonwealth in such amount and penalty as may be prescribed by the regulations of the department or (ii) provide such other surety as may be satisfactory to the director, payable to the department agency, and conditioned upon the faithful performance of his duties. Such alternate surety instruments or arrangements may include, but not be limited to, a combination of surety instruments, including cash.
11VAC5-31-60. Lottery bank accounts and electronic funds transfer (EFT) authorization.
A. A lottery retailer shall have and maintain a separate bank account in a bank participating in the Automatic Clearing House (ACH) system. This account shall be styled in the name of the retailer followed by "Virginia Lottery Trust" and shall be used exclusively for lottery business.
B. The lottery account shall be used by the retailer to make funds available to permit withdrawals and deposits initiated by the department agency through the EFT process to settle a retailer's account for funds owed by or due to the retailer from the sale of tickets and the payment of prizes. All retailers shall make payments to the department agency through the EFT process in accordance with the department's agency's licensing procedures, unless the director designates another form of payment and settlement under terms and conditions he deems appropriate.
C. The retailer shall be responsible for payment of any fees or service charges assessed by the bank for maintaining the required account.
D. The director will establish a schedule for processing the EFT transactions against retailers' lottery trust accounts and issue instructions regarding the settlement of accounts.
11VAC5-31-70. License term and periodic review.
A. A general license for an approved lottery sales agent shall be issued for a specific term and is thereafter subject to a periodic determination of continued retailer eligibility and the payment of any fees fixed by the board.
B. The director may issue special licenses to persons for specific events and activities in accordance with the requirements of the department's agency's licensing procedures.
11VAC5-31-80. License fees.
An initial licensing fee up to $100 and an annual license fee up to $70 shall be collected from each lottery sales agent and shall be paid in accordance with the department's agency's licensing procedures. These fees are nonrefundable, unless otherwise determined by the director in his sole discretion or specified in the department's agency's procedures. The license fees shall be paid for each location.
11VAC5-31-130. Retailers' conduct.
A. Each retailer shall comply with all applicable state and federal laws and regulations, as well as all rules, policies and procedures of the department agency, license terms and conditions, specific rules for all applicable lottery games, directives and instructions that may be issued by the director, and licensing and equipment agreements and contracts signed by the retailer.
B. No retailer or his employee or agent shall attempt through any means whatsoever to identify or otherwise determine whether any unsold ticket creates a winning play. This includes, but is not limited to, trying to determine the numbers or symbols appearing under the removable latex or electronically produced coverings or otherwise attempting to identify unsold winning tickets. However, this shall not prevent the removal of the covering over the validation code or validation number after the ticket is sold.
C. No retailer or his employee or agent shall impose a fee or additional charge for selling a lottery game ticket or for cashing a winning lottery game ticket.
D. No retailer or his employee or agent shall purchase a winning lottery game ticket from a player at a discounted price.
11VAC5-31-140. Deposit of lottery receipts; interest and penalty for late payment; dishonored EFT transactions or checks.
A. Payments shall be due from retailers as specified by the director in accordance with department agency policies.
B. Any retailer who fails to make payment when payment is due will be contacted by the department agency and instructed to make immediate deposit of the funds due. If the retailer is not able to deposit the necessary funds or if the item is returned to the department unpaid for a second time, the retailer's license may be inactivated. If inactivated, the license will not be reactivated until payment is made by cashier's check, certified check or EFT transaction, and if the retailer is deemed a continuing credit risk by the department agency, not until an informal conference is held to determine if the licensee is able and willing to meet the terms of his retailer contract. Additionally, interest may be charged on the moneys due plus a $25 penalty. The interest charge will be equal to the "Underpayment Rate" established pursuant to § 58.1-15 of the Code of Virginia. The interest charge will be calculated beginning the date following the retailer's due date for payment through the day preceding receipt of the late payment by the department agency for deposit.
C. In addition to the penalty authorized by subsection B of this section, the director may assess a $25 service charge against any retailer whose payment through EFT transaction or by check is dishonored.
D. The service charge, interest, and penalty charges may be waived if it is determined by the department agency that the event that otherwise would result in the assessment of a service charge, interest, or penalty is not in any way the fault of the lottery retailer.
11VAC5-31-160. Denial, suspension, revocation or noncontinuation of license.
A. The director may refuse to issue a license to a person if the person does not meet the eligibility criteria and standards for licensing as set out in § 58.1-4009 of the Code of Virginia, these regulations, and in the department's agency's licensing procedures, or if:
1. The person's place of business caters to or is frequented predominantly by persons under 18 years of age, but excluding family-oriented businesses;
2. The nature of the person's business constitutes a threat to the health or safety of prospective lottery patrons;
3. The nature of the person's business is not consonant with the probity of the Commonwealth;
4. The person has committed any act of fraud, deceit, misrepresentation, moral turpitude, or illegal gambling or engaged in conduct prejudicial to public confidence in the state lottery;
5. The person falsifies or misrepresents a material fact on any application, form, document, or data submitted during the licensure process;
6. The person has an unsatisfactory prior history, record, or performance with the lottery;
7. The person's place of business represents a substantial risk for the collection, deposit, preservation, accounting, or safeguarding of Commonwealth of Virginia Trust Funds, irrespective of the bond or surety provided by the person;
8. The person has been suspended permanently from a federal or state licensing or authorization program and that person has exhausted all administrative remedies pursuant to the respective agency's regulations or procedures; or
9. The proposed retailer's licensed location or locations does not comply with the requirements of the department's Retailer Accessibility Guidelines effective January 1, 2011, as applicable.
B. The director may suspend, revoke, or refuse to continue a license for any of the reasons enumerated in § 58.1-4012 of the Code of Virginia, in subsection A of this section, in the department's agency's procedures, or for any of the following reasons:
1. Failure to maintain the required lottery trust account;
2. Failure to comply with lottery game rules;
3. Failure to properly care for, or prevent the abuse of, the department's agency's equipment, or failure to properly position and display the vacuum fluorescent display or LED device;
4. Failure to meet minimum point-of-sale standards;
5. Failure to continue to meet the eligibility criteria and standards for licensing; or
6. Failure to comply with (i) any applicable law or statute, rule, policy, or procedure of the department agency; (ii) license terms and conditions; (iii) specific rules for all applicable department agency games; (iv) directives and instructions that may be issued by the director; and (v) licensing and equipment agreements and contracts signed by the retailer.
C. Any person refused a license under subsections A or B of this section may appeal the director's decision in the manner provided by 11VAC5-20-150.
D. Before taking action under subsection A or B of this section, the director will notify the retailer in writing of his intent to suspend, revoke or deny continuation of the license. The notification will include the reason or reasons for the proposed action and will provide the retailer with the procedures for requesting a conference. Such notice shall be given to the retailer in accordance with the provisions of the department's agency's regulations.
E. If the director deems it necessary in order to serve the public interest and maintain public trust in the lottery, he may temporarily suspend a license without first notifying the retailer. Such suspension will be in effect until any prosecution, hearing, or investigation into alleged violations is concluded.
F. A retailer shall surrender his license to the director by the date specified in the notice of revocation or suspension. The retailer shall also surrender the lottery property in his possession and give a final lottery accounting of his lottery activities by the date specified by the director.
11VAC5-31-170. License termination by retailer.
The licensed retailer may voluntarily terminate his license with the department agency by first notifying the department agency in writing at least 15 calendar days before the proposed termination date. The department agency will then notify the retailer of the date by which settlement of the retailer's account will take place. The retailer shall maintain his bond and the required accounts and records until settlement is completed and all lottery property has been surrendered.
11VAC5-31-180. Inspection of premises.
Each lottery retailer shall provide access during normal business hours or at such other times as may be required by the director or department agency representatives to enter the premises of the licensed retailer. The premises include the licensed location where lottery tickets are sold or any other location under the control of the licensed retailer where the director may have good cause to believe lottery materials, equipment, or tickets are stored or kept in order to inspect the licensed premises and inspect, or if necessary remove lottery materials, equipment, or tickets.
11VAC5-31-190. Examination of records and equipment; seizure of records and equipment.
A. Each lottery retailer shall make all books and records pertaining to his lottery activities available for inspection, auditing and copying, and make all equipment related to his lottery activities available for inspection, as required by the director or department agency representatives during normal business hours of the licensed retailer.
B. All books, records and equipment pertaining to the licensed retailer's lottery activities may be seized with good cause by the director or department agency representatives without prior notice.
11VAC5-31-200. Audit of records.
The director may require a lottery retailer to submit to the department agency an audit report conducted by an independent certified public accountant on the licensed retailer's lottery activities. The retailer shall be responsible for the cost of only the first such audit in any one license term.
NOTICE: The following forms used in administering the regulation were filed by the agency. The forms are not being published; however, online users of this issue of the Virginia Register of Regulations may click on the name of a form with a hyperlink to access it. The forms are also available from the agency contact or may be viewed at the Office of the Registrar of Regulations, General Assembly Building, 2nd Floor, Richmond, Virginia 23219.
FORMS (11VAC5-31)
Retailer License Application, SLD-0062 (rev. 10/07).
Retailer Contract (rev. 5/10).
Retailer License Application, VAL-0062 (rev. 9/14)
Retailer Contract (rev. 1/14)
11VAC5-41-10. Definitions for lottery games.
The following words and terms when used in any of the department's agency's regulations shall have the same meanings as defined in this chapter unless the context clearly indicates otherwise:
"Agency" means the Virginia Lottery created by Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Altered ticket" means a lottery ticket that has been forged, counterfeited, or tampered with in any manner.
"Board" means the State Virginia Lottery Board established by the State Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Breakage" means the money accumulated from the rounding down of the pari-mutuel prize levels to the next lowest whole dollar amount.
"Cashing retailer" means a department an agency licensed retailer that sells lottery products and is authorized to pay prizes.
"Computer gaming system" means any computer system owned, operated, or contracted by the department agency that supports the sale, redemption, or validation of lottery tickets or wagers.
"Coupon" is a device (electronic or paper or otherwise) that is approved by the department agency for redemption.
"Department" means the State Lottery Department created by State Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Director" means the Executive Director of the State Virginia Lottery Department or his designee.
"Drawing" means a formal process of randomly selecting numbers, names, or items in accordance with the specific game or promotion rules for games or promotions requiring the random selection of numbers, names, or items.
"Game" means any individual or particular type of lottery authorized by the board.
"Instant game" means a game that, when played, reveals or informs the player immediately whether he has won a prize, entry into a prize drawing, prize points, or any or all of the aforementioned as specified in game rules.
"Misprinted ticket" means a lottery ticket or play that contains a manufacturing, programming, or printing defect that causes the game to no longer play as defined in game rules or does not properly validate against the game's validation files.
"Natural person" means a human being, and not a corporation, company, partnership, association, trust or other entity.
"Prize" means any cash or noncash award to a holder of a winning entry or play.
"Prize structure" means the number, value, and odds of winning prizes for a game and the prize tiers within a game and the chances of winning a prize in each tier in an individual game as determined by the department agency and as specified in the game rules.
"Probability game" means a game in which all of the tickets sold are potentially winning tickets and the outcome of the game depends entirely upon the player's choice or choices during game play.
"Promotion" is defined as means an "added value" offer to consumers or licensed retailers sanctioned by the director or approved by the board when required.
"Roll stock" or "ticket stock" means the paper roll issued or approved for use by the department agency from which a unique lottery ticket is generated displaying the selected items or numbers.
"Scratch ticket" means a printed instant win ticket with a covering over the play area that when scratched reveals a specific result.
"Share" means a percentage of ownership in a winning ticket, play, or subscription plan.
"Terminal" means a device that is authorized by the department agency to function in an interactive mode with the department's agency's computer gaming system or systems for the purpose of issuing tickets, plays, or an electronic facsimile thereof, and entering, receiving, and processing game-related transactions.
"Terminal ticket" means a computer-generated or electronically-produced ticket issued through the computer gaming system by a retailer to a player as a receipt for the number, numbers, or items or combination of numbers or items the player has selected.
"Ticket number" means the preassigned unique number or combination of letters and numbers or barcode that identifies that particular ticket as one within a particular game or drawing.
"Validation" means the process of reviewing and certifying a lottery ticket to determine whether it is a winning ticket.
"Validation barcode" means the unique number or number-and-letter code or barcode used to determine whether a lottery ticket is a winning ticket.
"Winning ticket," "winning wager," or "winning play" means the ticket, wager, or play that meets the criteria and specific rules for winning prizes as published for each game by the director.
11VAC5-41-60. Drawing and selling times.
A. Drawings shall be conducted at times and places designated by the director and publicly announced by the department agency.
B. Retailers may sell tickets from new instant games upon receipt of the tickets from the department agency, but shall not sell tickets for an instant game after the announced end of that game.
C. Retailers may sell terminal tickets up to a designated time prior to the drawing as specified in the terminal game rules. That time will be designated by the director.
11VAC5-41-80. Scratch ticket returns.
A. Ticket sales to retailers are final. The department agency will not accept returned, unsold tickets for credit except as specifically authorized by and provided for in the department's agency's procedures.
B. Once tickets are accepted by a retailer, the department agency:
1. May hold the retailer financially responsible for the replacement of mutilated, damaged, or otherwise unaccounted for tickets.
2. Will not be responsible for lost, stolen, destroyed, or otherwise unaccounted for tickets, unless specifically authorized and provided for in the department's agency's procedures.
11VAC5-41-100. Validation requirements.
To receive payment for a prize, a Virginia lottery game ticket or play shall be validated by the retailer or the department agency as set out in this chapter and in any other manner that the director may prescribe in the specific rules for the lottery game, which shall include but not be limited to the following:
1. If the game's rules specify that the physical ticket must be presented for validation then:
a. The original ticket must be presented for validation;
b. The ticket shall not be mutilated, altered, or tampered with in any manner. If a ticket is partially mutilated or if the ticket is not intact and cannot be validated through normal procedures but can still be validated by other validation tests, the director may pay the prize for that ticket;
c. The ticket may not be misregistered or defectively printed to an extent that it cannot be processed by the department;
d. The ticket shall pass all other confidential security checks of the department agency;
e. The ticket validation number shall be present in its entirety; and
f. The ticket shall not be counterfeited, forged, fraudulently made, or a duplicate of another winning ticket.
2. Where a winning ticket or play has been issued by a terminal:
a. The ticket or play shall have been issued by the department agency or by a licensed lottery retailer in an authorized manner;
b. The terminal ticket or play shall not have been cancelled canceled or previously paid;
c. The terminal ticket or play shall be validated in accordance with procedures for claiming and paying prizes as set out in the game rules; and
d. The terminal ticket or play data shall have been recorded in the computer gaming system before the drawing or the instant game ticket sale, and the ticket data shall match this computer record in every respect.
3. If the games rules specify that a physical ticket, play, or record of play is not required for validation there may be other lottery requirements, as defined by the director, for winners to collect prizes.
11VAC5-41-110. Use of playslips.
A. A playslip issued by the department agency may be used to select a player's choice or choices to be played in a department-authorized an agency-authorized computer gaming system. If a playslip is used to select the player's choice or choices for use in a computer gaming system, the playslip selections shall be manually or electronically marked as authorized by the department's agency's game rules and not marked by any electro-mechanical, electronic printing, or other automated device, except for play utilizing materials or systems developed by the department agency.
B. Any playslip marked by methods other than those authorized by this chapter is invalid and subject to seizure by the department if presented for play at any lottery terminal. Any tickets produced from the use of invalid playslips are also invalid and subject to seizure by the department agency.
C. Nothing in this chapter shall be deemed to prevent a person with a physical handicap who is unable to mark a playslip manually from using any device intended to permit such person to make such a mark for his sole personal use or benefit.
11VAC5-41-120. Replacement of ticket.
If a misprinted or otherwise defective ticket is purchased, the department's agency's only liability or responsibility shall be to replace the misprinted ticket with an unplayed ticket of equal price from the same or another current game or to refund the purchase price of the defective ticket.
11VAC5-41-130. Terminal-generated winning tickets.
A. When more than one ticket containing the winning numbers is issued for the same drawing of the same game, the holder of each ticket is entitled only to his share of the prize, regardless of whether the other holders of tickets with the winning numbers actually claim their share of the prize.
B. The department agency shall not redeem prizes for tickets that would have been winning tickets but for the fact that they have been cancelled canceled by the retailer unless specifically authorized by the director.
C. When the department's agency's internal controls indicate that a winning ticket was issued but no claim is made for the prize, there shall be a rebuttable presumption that such ticket was in fact issued and the prize shall be paid in accordance with the provisions of § 58.1-4020 of the Code of Virginia and regulations of the department agency.
11VAC5-41-140. Where prizes claimed.
Winners may claim game prizes as specified in this chapter or in the game rules, including:
1. At department agency headquarters;
2. At a department an agency customer service center;
3. From a cashing retailer;
4. By mail; or
5. At any other location specifically authorized by the department agency.
11VAC5-41-150. Retailers' prize payment procedures.
Procedures for prize payments by retailers are as follows:
1. Retailers may pay cash prizes in cash, by certified check, cashier's check, business check, money order, other cash equivalent or by any combination of these methods.
2. If a check for payment of a prize by a retailer to a claimant is denied for any reason, the retailer is subject to the same service charge, interest and penalty payments for referring a debt to the department agency for collection that would apply if the check were made payable to the department agency. A claimant whose prize check is denied shall notify the department agency to obtain the prize.
3. During normal business hours of the lottery retailer with operational validation equipment by which the ticket claim can be validated, a lottery retailer shall pay any lottery prize of $600 or less, unless otherwise determined by the director, regardless of the location from which the winning ticket was purchased.
4. A prize claim shall be paid only at the location specified on the retailer's license or at a lottery office.
5. The department agency will reimburse a retailer for all valid prizes paid by the retailer within the specified prize redemption period for the game from which the prize resulted.
6. In no case shall a retailer impose a fee, additional charge or discount for cashing a winning lottery game ticket.
7. Retailers who pay claims without validating the tickets do so at their own financial risk.
11VAC5-41-160. No reimbursement for retailer errors.
Unless otherwise determined by the director, the department agency shall not reimburse retailers for prize claims a retailer has paid in error or for which a retailer failed to properly and completely validate the lottery game tickets in accordance with department agency procedures.
11VAC5-41-170. When prize shall be claimed from the department agency.
A. The department agency will pay prizes in any of the following circumstances:
1. If a retailer cannot validate a claim which that the retailer otherwise would pay, the ticket holder shall present the original signed ticket to any department agency office including the department's agency's headquarters or mail the signed ticket to the department's agency's headquarters;
2. If a ticket holder is unable to return to any retailer to claim a prize that the retailer otherwise would pay, the ticket holder may present the original signed ticket at any department agency office or mail the signed ticket to the department's agency's headquarters;
3. If the prize amount is more than $600, the ticket holder may present the original signed ticket at any department agency office or mail the signed ticket to the department agency headquarters; or
4. Where an electronic entry or an electronic record of a ticket is permitted, a presentation of a physical ticket may not be required to claim a prize.
B. The department agency may require a claim form.
C. A player shall bear all risk of loss or damage by sending the ticket through the mail.
11VAC5-41-180. Department Agency action on claims for prizes submitted to department agency.
A. The department agency shall validate the winning ticket claim according to procedures contained in this chapter.
B. If the claim cannot be validated, the department agency will promptly notify the ticket holder.
C. If the claim is mailed to the department agency and the department agency validates the claim, a check for the prize amount, merchandise, or experiential prizes will be presented or mailed to the winner.
D. If an individual presents a claim to the department agency in person and the department agency validates the claim, a check for the prize amount, merchandise, or experiential prizes will be presented to the winner.
11VAC5-41-190. Withholding, notification of prize payments.
A. When paying any prize in excess of $600, the department agency shall:
1. File the appropriate income reporting forms with the Virginia Department of Taxation and the federal Internal Revenue Service; and
2. Withhold federal and state taxes from any winning ticket in accordance with the tax regulation in effect at the time.
B. Additionally, when paying any cash prize of $100 or more, the department agency shall withhold any moneys due for delinquent debts as provided by the Commonwealth's Setoff Debt Collection Act, Article 21 (§ 58.1-520 et seq.) of Chapter 3 of Title 58.1 of the Code of Virginia.
11VAC5-41-220. How prize claim entered.
A prize claim shall be entered in the name of a natural person as prescribed by § 58.1-4019 B of the Code of Virginia. In all cases, the identity and social security number of all natural persons who receive a prize or share of a prize greater than $100 from a winning ticket redeemed at any department agency office shall be provided.
1. A nonresident alien shall furnish his Immigration and Naturalization Service (INS) Number.
2. Two or more natural persons claiming a single prize may file IRS Form 5754, "Statement by Person(s) Receiving Gambling Winnings," with the department agency. This form designates to whom winnings are to be paid and the person or persons to whom winnings are taxable.
3. Two or more natural persons wishing to divide a jackpot prize shall complete an "Agreement to Share Ownership and Proceeds of Lottery Ticket" form. The filing of this form is an irrevocable election that may only be changed by an appropriate judicial order.
11VAC5-41-230. Delay of payment allowed.
A. Subject to the provisions in § 58.1-4013 D of the Code of Virginia, the director may refrain from making payment of a prize pending a final determination by the director under any of the following circumstances:
1. If a dispute arises, or it appears that a dispute may arise, relative to any ownership of a winning ticket or any prize;
2. If there is any question regarding the identity of the claimant;
3. If there is any question regarding the validity of any ticket presented for payment;
4. If there is any question whether a claimant has made a valid cash option election; or
5. If the claim is subject to any set off for delinquent debts owed to any agency eligible to participate in the Setoff Debt Collection Act (Article 21 (§ 58.1-520 et seq.) of Chapter 3 of Title 58.1 of the Code of Virginia) if the agency has registered such debt with the Virginia Department of Taxation and timely notice of the debt has been furnished by the Virginia Department of Taxation to the department.
B. The director may, at any time, delay any periodic or installment payment in order to review a change in circumstance relative to the prize awarded, the payee, the claim, or any other matter that has been brought to the department's agency's attention. All delayed installments shall be brought up to date immediately upon the director's confirmation. Delayed installments shall continue to be paid according to the original payment schedule after the director's decision is given.
C. No liability for interest for any delay of any prize payment in accordance with subsections A and B of this section, or any delay beyond the department's agency's control, shall accrue to the benefit of the claimant pending payment of the claim. The department agency is neither liable for nor has it any responsibility to resolve disputes between or among competing claimants.
11VAC5-41-250. Using winners' names and information.
The department agency can use a winner's name and the city, town, or county in which a winner lives, as well as the prizes won, for public information purposes and to foster the integrity of the games. The department agency may require prize winners to participate in news conferences. The department agency can use the winner's information described in this section and winner's photographs for public information or promotional purposes in mediums such as, but not limited to, the department's agency's website (www.valottery.com), social media, in-store, television, Internet, and radio. No consideration shall be paid by the department agency for these purposes.
11VAC5-41-290. Liability ends with prize payment.
All liability of the Commonwealth, its officials, officers and employees, and of the department agency, the board, the director and employees of the department agency, terminates upon final payment of a lottery prize, or sooner if so provided in the game rules or these regulations.
11VAC5-41-300. Marking tickets prohibited; exceptions.
Marking of tickets in any way is prohibited except by a player to play a game according to the rules of that specific game or to claim a prize or by the department agency or a retailer to identify or to void the ticket.
11VAC5-41-310. Lost, stolen, or destroyed tickets.
The department agency is not liable for lost, stolen, or destroyed tickets. The director may honor a prize claim of an apparent winner who does not possess the original ticket if the claimant is in possession of information that demonstrates that the original ticket meets the following criteria and can be validated through other means. Such information may include, but is not limited to, the following:
1. The claim form, if required, and a photocopy of the ticket, or photocopy of the original claim form, if required, and ticket, are timely filed with the department agency;
2. The prize for which the claim is filed is a winning prize that has not been claimed, as verified in the department's agency's records.
3. The claim is filed within the redemption period, as established by the game rules; and
4. Except in extenuating circumstances or for just cause as the director may deem appropriate, the redemption period for claims has expired.
11VAC5-41-320. Unclaimed prizes.
A. Except for a free ticket prize, a claim for a lottery game winning ticket must be mailed in an envelope bearing a postmark of the United States Postal Service or another sovereign nation or received for payment as prescribed in this chapter within either 180 days after the date of the drawing for which the ticket was purchased, or of the event which that caused the ticket to be a winning entry, or, in the case of an instant game ticket, within 180 days after the announced end of the game. In the event that the 180th day falls on a Saturday, Sunday, or legal holiday, the winning ticket will be accepted for validation on the next business day only at a lottery office.
B. Any lottery cash prize that remains unclaimed after either 180 days following the drawing that determined the prize or 180 days after the announced end of the instant game shall revert to the State Literary Fund. Cash prizes do not include free ticket prizes or other noncash prizes such as merchandise, vacations, admission to events and the like.
C. All claims for terminal game winning tickets for which the prize is a free ticket must be mailed in an envelope bearing a postmark of the United States Postal Service or another sovereign nation or received for redemption as prescribed in this chapter within 180 days after the date of the drawing for which the ticket was purchased. In the event the 180th day falls on a Saturday, Sunday, or legal holiday, a claimant may only redeem his winning ticket for a free ticket at a cashing retailer on or before the 180th day.
Except for claims for free ticket prizes mailed to lottery headquarters and postmarked on or before the 180th day, claims for such prizes will not be accepted at any lottery office after the sixtieth 60th day. This section does not apply to the redemption of free tickets awarded through the subscription program.
D. Any instant game winning ticket of $25 or less that has been purchased, but that is not claimed within 180 days after the announced end of the instant game, shall revert to the State Virginia Lottery Fund.
E. In case of a prize payable over time, if such prize is shared by two or more winning tickets, one or more of which is not presented to the department agency for payment within the prize redemption period as established by the game rules, the department agency will transfer that portion of the prize to the State Literary Fund in accordance with procedures approved by the State Treasurer.
F. In accordance with the provisions of the Servicemembers Civil Relief Act of 1940 (50 USC App § 526), any person while in active military service may claim exemption from the 180-day ticket redemption requirement. Such person, however, must claim his winning ticket or share as soon as practicable, and in no event later than 180 days after discharge from active military service.
VA.R. Doc. No. R15-4146; Filed September 4, 2014, 2:41 p.m.
TITLE 11. GAMING
VIRGINIA LOTTERY BOARD
Final Regulation
REGISTRAR'S NOTICE: The Virginia Lottery Board is claiming an exclusion from Article 2 of the Administrative Process Act in accordance with § 2.2-4006 A 4 a of the Code of Virginia, which excludes regulations that are necessary to conform to changes in Virginia statutory law where no agency discretion is involved. The Virginia Lottery Board will receive, consider, and respond to petitions by any interested person at any time with respect to reconsideration or revision.
Titles of Regulations: 11VAC5-11. Public Participation Guidelines (amending 11VAC5-11-10, 11VAC5-11-20).
11VAC5-20. Administration Regulations (amending 11VAC5-20-10, 11VAC5-20-60, 11VAC5-20-80, 11VAC5-20-160 through 11VAC5-20-200).
11VAC5-31. Licensing Regulations (amending 11VAC5-31-10 through 11VAC5-31-80, 11VAC5-31-130, 11VAC5-31-140, 11VAC5-31-160 through 11VAC5-31-200).
11VAC5-41. Lottery Game Regulations (amending 11VAC5-41-10, 11VAC5-41-60, 11VAC5-41-80, 11VAC5-41-100 through 11VAC5-41-190, 11VAC5-41-220, 11VAC5-41-230, 11VAC5-41-250, 11VAC5-41-290 through 11VAC5-41-320).
Statutory Authority: §§ 2.2-4007.02 and 58.1-4007 of the Code of Virginia (11VAC5-11-10, 11VAC5-11-20).
§ 58.1-4007 of the Code of Virginia (all other sections).
Effective Date: November 5, 2014.
Agency Contact: Amy Roper, Regulatory Coordinator, Virginia Lottery, 900 East Main Street, 9th Floor, Richmond, VA 23219, telephone (804) 692-7133, FAX (804) 692-7325, or email aroper@valottery.com.
Summary:
The amendments conform regulations to changes to the Code of Virginia pursuant to (i) Chapter 225 of the 2014 Acts of Assembly, which changes the name of the "State Lottery Department" to the "Virginia Lottery," and (ii) Chapter 224 of the 2014 Acts of Assembly, which establishes a new waiting period for relicensing of retailers under § 58.1-4009 D of the Code of Virginia.
Part I
Purpose and Definitions
11VAC5-11-10. Purpose.
The purpose of this chapter is to promote public involvement in the development, amendment, or repeal of the regulations of the State Virginia Lottery Department. This chapter does not apply to regulations, guidelines, or other documents exempted or excluded from the provisions of the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia).
11VAC5-11-20. Definitions.
The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:
"Administrative Process Act" means Chapter 40 (§ 2.2-4000 et seq.) of Title 2.2 of the Code of Virginia.
"Agency" means the State Virginia Lottery Department, which is the unit of state government empowered by the agency's basic law to make regulations or decide cases. Actions specified in this chapter may be fulfilled by state employees as delegated by the agency.
"Basic law" means provisions in the Code of Virginia that delineate the basic authority and responsibilities of an agency.
"Commonwealth Calendar" means the electronic calendar for official government meetings open to the public as required by § 2.2-3707 C of the Freedom of Information Act.
''Negotiated rulemaking panel'' or ''NRP'' means an ad hoc advisory panel of interested parties established by an agency to consider issues that are controversial with the assistance of a facilitator or mediator, for the purpose of reaching a consensus in the development of a proposed regulatory action.
"Notification list" means a list used to notify persons pursuant to this chapter. Such a list may include an electronic list maintained through the Virginia Regulatory Town Hall or other list maintained by the agency.
"Open meeting" means any scheduled gathering of a unit of state government empowered by an agency's basic law to make regulations or decide cases, which is related to promulgating, amending or repealing a regulation.
"Person" means any individual, corporation, partnership, association, cooperative, limited liability company, trust, joint venture, government, political subdivision, or any other legal or commercial entity and any successor, representative, agent, agency, or instrumentality thereof.
"Public hearing" means a scheduled time at which members or staff of the agency will meet for the purpose of receiving public comment on a regulatory action.
"Regulation" means any statement of general application having the force of law, affecting the rights or conduct of any person, adopted by the agency in accordance with the authority conferred on it by applicable laws.
"Regulatory action" means the promulgation, amendment, or repeal of a regulation by the agency.
"Regulatory advisory panel" or "RAP" means a standing or ad hoc advisory panel of interested parties established by the agency for the purpose of assisting in regulatory actions.
"Town Hall" means the Virginia Regulatory Town Hall, the website operated by the Virginia Department of Planning and Budget at www.townhall.virginia.gov, which has online public comment forums and displays information about regulatory meetings and regulatory actions under consideration in Virginia and sends this information to registered public users.
"Virginia Register" means the Virginia Register of Regulations, the publication that provides official legal notice of new, amended, and repealed regulations of state agencies, which is published under the provisions of Article 6 (§ 2.2-4031 et seq.) of the Administrative Process Act.
Part I
General Parameters
11VAC5-20-10. Definitions.
The following words and terms when used in any of the department's agency's regulations shall have the following meanings unless the context clearly indicates otherwise:
"Administrative Process Act" or "APA" means Chapter 40 (§ 2.2-4000 et seq.) of Title 2.2 of the Code of Virginia.
"Agency" means the Virginia Lottery created by the Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Appeal" means a proceeding initiated by a retailer, bidder, or offeror (for a contract negotiated on a sole source basis), contractor or individual for an informal conference or formal hearing contesting the director's decision (i) to refuse to issue or renew, to suspend or to revoke a lottery license; or (ii) regarding a procurement action.
"Bank" means any commercial bank, savings bank, savings and loan association, credit union, trust company, and any other type or form of banking institution organized under the authority of the Commonwealth of Virginia or of the United States of America which that is designated by the State Treasurer to perform functions, activities or services in connection with the operations of the lottery for the deposit, handling and safekeeping of lottery funds, accounting for those funds and the safekeeping of records.
"Board" means the State Virginia Lottery Board established by the State Virginia Lottery Law.
"Conference" or "consultation" means a type of appeal in the nature of an informational or factual proceeding of an informal nature provided for in § 2.2-4019 of the Administrative Process Act.
"Conference officer" means the director, or a person appointed by the director, who is empowered to preside at informal conferences or consultations and to provide a recommendation, conclusion or decision in such matter.
"Consideration" means something of value given for a promise to make the promise binding. It is one of the essentials of a legal contract.
"Contract" means a binding agreement, enforceable by law, between two or more parties for the supply of goods or services.
"Department" means the State Lottery Department created by the State Lottery Law.
"Depository" means any person, including a bonded courier service, armored car service, bank, central or regional offices of the department agency, or any state agency that performs any or all of the following activities or services for the lottery:
1. The safekeeping and distribution of tickets to retailers;
2. The handling of lottery funds;
3. The deposit of lottery funds; or
4. The accounting for lottery funds.
"Director" means the Executive Director of the State Virginia Lottery Department or his designee.
"Electronic funds transfer (EFT)" or "EFT" means a computerized transaction that withdraws or deposits money from or to a bank account.
"Goods" means all material, equipment, supplies, printing, and automated data processing hardware and software.
"Hearing" means agency processes other than those informational or factual inquiries of an informal nature provided in §§ 2.2-4007 and 2.2-4019 of the Code of Virginia and includes only (i) opportunity for private parties to submit factual proofs in formal proceedings as provided in § 2.2-4009 of the Code of Virginia in connection with the making of regulations or (ii) a similar right of private parties or requirement of public agencies as provided in § 2.2-4020 of the Code of Virginia in connection with case decisions.
"Household" means members of a group who reside at the same address.
"Immediate family" means (i) a spouse and (ii) any other person residing in the same household as the officer or employee, who is a dependent of the officer or employee or of whom the officer or employee is a dependent.
"Inspection" means the close and critical examination of goods and services delivered to determine compliance with applicable contract requirements or specifications. It is the basis for acceptance or rejection.
"Legal entity" means an entity, other than a natural person, which has sufficient existence in legal contemplation that it can function legally, sue or be sued and make decisions through agents, as in the case of a corporation.
"Lottery" or "state lottery" means the lottery or lotteries established and operated pursuant to Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
"Person" means a natural person and may extend and be applied to groups of persons, as well as a corporation, company, partnership, association, club, trust, estate, society, joint stock company, receiver, trustee, assignee, referee, or any other person acting in a fiduciary or representative capacity, whether appointed by a court or otherwise, and any combination of individuals, as well as all departments, commissions, agencies, and instrumentalities of the Commonwealth, including counties, cities, municipalities, political subdivisions, agencies and instrumentalities thereof.
"Procurement" means the process for obtaining goods or services, including all activities from planning and preparation to processing of a request through the processing of a final invoice for payment.
"Retailer and sales agent" means a person or business licensed by the department agency as an agent to sell lottery tickets or shares.
"Sales," "gross sales," "annual sales" and similar terms mean total ticket sales including any discount allowed to a retailer for his compensation.
"Services" means any work performed by an independent contractor where the service rendered does not consist primarily of acquisition of equipment or materials, or the rental of equipment, materials and supplies.
"Sole source" means that only one source is practicably available to furnish a product or service.
"State Lottery Law" means Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
"Surety bond" means an insurance agreement in which a third party agrees to be liable to pay a specified amount of money to the department agency in the event the retailer fails to meet his obligations to the department agency.
"Transaction" means any matter considered by any governmental or advisory agency, whether in a committee, subcommittee, or other entity of that agency or before the agency itself, on which official action is taken or contemplated.
"Vendor" means one who provides goods or services to the department agency.
"Virginia Lottery Law" means Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
11VAC5-20-60. Advertising.
A. Advertising may include, but is not limited to, print advertisements; radio and television advertisements; digital, electronic, and video advertisements; billboards; point of purchase materials; point-of-sale display materials; and Internet and social media.
B. Any lottery retailer may use his own advertising materials unless the department agency objects thereto. The department agency shall develop written guidelines for such materials.
C. The department agency may provide information displays or other material to the retailer, who shall position the material so it can be seen easily by the general public.
D. The department agency may produce special posters, brochures or flyers describing various aspects of the lottery and provide these to lottery retailers to post or distribute.
Part II
Banks and Depositories
11VAC5-20-80. Approval of banks.
A. The State Treasurer, with the concurrence of the director, and in accordance with applicable Treasury directives, shall approve a bank or banks to provide services to the department agency.
B. A bank or banks shall serve as agent or agents for electronic funds transfers between the department agency and lottery retailers as required by Chapters 20 (11VAC5-20), 31 (11VAC5-31), and 41 (11VAC5-41) and by contracts between the department agency, the State Treasury, retailers, and the banks.
11VAC5-20-160. Procedure for appealing a licensing decision.
A. Upon receiving a notice that (i) an application for a license or the renewal of a license has been denied by the director, or (ii) the director intends to or has already taken action to suspend or revoke a current license, the applicant or licensed retailer may appeal by filing a written notice of appeal requesting a conference on the licensing action. The notice of appeal shall be submitted within 30 days of receipt of the notice of the licensing action.
1. Receipt of a notice of the licensing action that is mailed in an envelope bearing a United States Postal Service postmark is presumed to have taken place not later than the third day following the day of mailing to the last known address of the applicant or licensed retailer. If the third day falls upon a day on which mail is not delivered by the United States Postal Service, the notice is presumed to have been received on the next business day. The "last known address" means the address shown on the application of an applicant or licensed retailer unless a more current address has been provided to the department agency by the applicant or licensed retailer.
2. The notice of appeal will be timely if it bears a United States Postal Service postmark showing mailing on or before the 30th day prescribed in subdivision 1 of this subsection.
B. A notice of appeal may be mailed or hand delivered to the director at the State Virginia Lottery Department headquarters office.
1. A notice of appeal delivered by hand will be timely only if received at the headquarters of the State Virginia Lottery Department within the time allowed by subsection A of this section.
2. Delivery to any other State Virginia Lottery Department office or to lottery sales personnel by hand or by mail is not sufficient.
3. The appellant assumes full responsibility for the method chosen to file the notice of appeal.
C. The notice of appeal shall state:
1. The decision of the director that is being appealed;
2. The legal and factual basis for the appeal;
3. The retailer's license number; and
4. Any additional information the appellant may wish to include concerning the appeal.
11VAC5-20-170. Procedures for conducting informal fact-finding licensing conferences.
A. The conference officer will conduct an informal fact-finding conference with the appellant for the purpose of resolving the licensing action at issue.
B. The conference officer will hold the conference as soon as possible but not later than 30 days after the notice of appeal is filed, unless an alternate date is designated by the conference officer or his designee and accepted by the appellant. A notice setting out the conference date, time, and location will be sent to the appellant, by certified mail, return receipt requested, at least 10 days before the day set for the conference, unless a shorter time is agreed to by the appellant.
C. A conference may be conducted by telephone, at the option of the appellant.
D. The conferences shall be informal.
1. The conferences will be electronically recorded. The recordings will be kept until the time limit for any subsequent appeal has expired.
2. A court reporter may be used. The court reporter shall be paid by the person who requested him. If the appellant elects to have a court reporter, a transcript shall be provided to the department agency. The transcript shall become part of the department's agency's records.
3. The appellant may appear in person or may be represented by counsel to present his facts, argument, or proof in the matter to be heard and may request other parties to appear to present testimony.
4. The department agency will present its facts in the case and may request other parties to appear to present testimony.
5. Questions may be asked by any of the parties at any time during the presentation of information subject to the conference officer's prerogative to regulate the order of presentation in a manner which that, in his sole discretion, best serves the interest of fairly developing the facts.
6. The conference officer may exclude information at any time that he believes, in his sole discretion, is not germane or that repeats information already received.
7. The conference officer shall declare the conference completed when the time established by the conference officer has expired.
E. Normally, the conference officer shall issue his decision within 15 days after the conclusion of an informal conference. However, for a conference with a court reporter, the conference officer shall issue his decision within 15 days after receipt of the transcript of the conference. In all cases the agency shall comply with the APA. The decision will be in the form of a letter to the appellant summarizing the case and setting out his decision on the matter. The decision will be sent to the appellant by certified mail, return receipt requested.
F. After receiving the conference officer's decision on the informal conference, the appellant may elect to appeal to the board for a formal hearing on the licensing action. The request for appeal shall:
1. Be submitted in writing within 15 days of receipt of the conference officer's decision on the informal conference.
2. Be mailed or hand delivered to the chairman of the board at the headquarters of the State Virginia Lottery Department.
3. Be governed by the same procedures in 11VAC5-20-160 B for filing the original notice of appeal.
4. State:
a. The decision of the conference officer that is being appealed;
b. The legal and factual basis for the appeal;
c. The retailer's license number; and
d. Any additional information the appellant may wish to include concerning the appeal.
11VAC5-20-180. Procedures for conducting formal licensing hearings.
A. The board will conduct a formal hearing at its next regularly scheduled meeting following the receipt of a notice of appeal on a licensing action if the date of the scheduled meeting permits the required 10 days notice to the appellant or at a date to be determined by the chairman of the board and accepted by the appellant.
B. A majority of members of the board is required to hear an appeal. If the chairman and vice chairman of the board are not present, the members present shall choose one from among them to preside over the hearing.
C. The board chairman, at his discretion, may designate a committee of the board to hear licensing appeals and act on its behalf. Such committee shall have at least three members who will hear the appeal on behalf of the board. If the chairman of the board is not present, the members of the committee shall choose one from among them to preside over the hearing.
D. A notice setting the hearing date, time, and location will be sent to the appellant by certified mail, return receipt requested, at least 10 days before the day set for the hearing, unless a shorter time is agreed to by the appellant.
E. The hearing shall be conducted in accordance with the provisions of Article 3 (§ 2.2-4018 et seq.) of the APA and shall be open to the public.
1. The hearing will be electronically recorded and the recording will be kept until any time limits for any subsequent court appeals have expired.
2. A court reporter may be used. The court reporter shall be paid by the person who requested him. If the appellant elects to have a court reporter, a transcript shall be provided to the department agency. The transcript shall become part of the department's agency's records.
3. The provisions of §§ 2.2-4020 through 2.2-4023 of the APA shall apply with respect to the rights and responsibilities of the appellant and of the department agency.
F. Normally, the board will issue its written decision within 21 days of the conclusion of the hearing. However, for a hearing with a court reporter, the board will issue its written decision within 21 days of receipt of the transcript of the hearing. In all cases the agency shall comply with the APA.
1. A copy of the board's written decision will be sent to the appellant by certified mail, return receipt requested. The original written decision shall be retained by the department agency and become a part of the case file.
2. The written decision will contain:
a. A statement of the facts to be called "Findings of Facts";
b. A statement of conclusions to be called "Conclusions" and to include as much detail as the board feels is necessary to set out the reasons and basis for its decision; and
c. A statement, to be called "Decision and Order," which sets out the board's decision and order in the case.
G. After receiving the board's decision on the case, the appellant may elect to pursue court review as provided for in the APA.
Part IV
Procurement
11VAC5-20-200. Procurement in general.
The State Virginia Lottery Department will purchase goods or services in accordance with procedures established by the board, after consultation with the director, pursuant to Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
11VAC5-31-10. Definitions.
The following words and terms when used in any of the department's agency's regulations shall have the same meanings as defined in this chapter unless the context clearly indicates otherwise:
"Agency" means the Virginia Lottery created by the Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Board" means the State Virginia Lottery Board established by the State Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Department" means the State Lottery Department created by the State Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Director" means the Executive Director of the State Virginia Lottery Department or his designee.
"License" means the certificate issued by the department agency to a retailer who has met the requirements established by the department agency to sell lottery products.
"Lottery retailer," "lottery sales agent" or "retailer" means a person licensed by the director to sell and dispense lottery tickets or products and act as the department's agency's representative to collect, preserve, and account for Commonwealth of Virginia trust funds.
"Person," for purposes of licensing, means an individual, association, partnership, corporation, club, trust, estate, society, company, joint stock company, receiver, trustee, assignee, referee, or any other person acting in a fiduciary or representative capacity, whether appointed by a court or otherwise, and any combination of individuals, as well as all departments, commissions, agencies and instrumentalities of the Commonwealth, including its counties, cities, municipalities, political subdivisions, agencies and instrumentalities thereof.
"Vacuum fluorescent display" means a player display unit that, when connected to the lottery terminal, presents messages to the customer, such as customer transaction totals, validation and cancellation amounts, and jackpot drawing messages.
11VAC5-31-20. Eligibility.
Any person who is 18 years of age or older may submit an application for licensure as a lottery retailer in accordance with the provisions and requirements of the department's agency's licensing procedures, except no person may submit an application for licensure:
1. Who will be engaged primarily in the business of selling lottery tickets;
2. Who is a board member, officer, or employee of the State Virginia Lottery Department or who resides in the same household as a board member, officer, or employee of the department agency; or
3. Who is a board member, officer, or employee of any vendor to the department agency of lottery ticket goods or services, working directly on a contract with the department agency, or whose business owns, is owned by or controlled by, or affiliated with that vendor.
11VAC5-31-30. Application procedure.
A. Any eligible person shall first file an application with the department agency by completing all information requested on forms supplied for that purpose, along with submitting any required fees.
B. The submission of application forms or data for licensure does not in any way entitle any person to receive a license to act as a lottery retailer.
C. In the event an applicant is a former lottery sales agent whose license was suspended, revoked, or refused renewal pursuant to § 58.1-4009 or 58.1-4012 of the Code of Virginia, no application for a new license to sell lottery tickets or shares shall be considered for a minimum period of 90 days following the suspension, revocation, or refusal to renew.
D. The person shall submit all required forms and information to the department agency to be considered for licensing. Failure to submit required forms within the department's agency's licensing procedures may result in the loss of opportunity to become or remain a licensed retailer.
11VAC5-31-40. General standards for licensing.
A. The director or his designee may license those persons who, in his opinion, will best serve the public interest and convenience and public trust in the lottery and promote the sale of lottery tickets. Before issuing or renewing a license, the director may consider factors including, but not limited to, the following:
1. Those factors set out in § 58.1-4009 of the Code of Virginia, these regulations, and the department's agency's licensing procedures;
2. The ability to offer a high level of customer service to lottery players;
3. The person's prior history, record, and performance with the department agency;
4. Whether the place of business caters to or is frequented predominately by persons under 18 years of age;
5. Whether the nature of the business constitutes a threat to the health or safety of prospective patrons;
6. Whether the nature of the business is consonant with the probity of the Commonwealth; and
7. Whether the person or retailer has (i) committed any act of fraud, deceit, misrepresentation, moral turpitude, or illegal gambling or (ii) engaged in conduct prejudicial to public confidence in the state lottery.
B. Special retailer licensing.
1. The director may license special lottery retailers subject to such conditions or limitations as the director may deem prudent and if the director finds there is a need to develop alternative business models to engage in partnerships with certain retailers that are consistent with the laws of the Commonwealth of Virginia and these regulations. These limitations or conditions may include, but are not limited to:
a. Length of license period;
b. Hours or day of sale;
c. Selling of only limited products;
d. Specific persons who are allowed to sell lottery tickets;
e. Specific sporting, charitable, social, or other special events where lottery tickets may be sold if in conformity with law; or
f. Different commission and payment structures and bonding requirements.
2. Special licensed agents will be subject to these regulations.
11VAC5-31-50. Bonding of lottery retailers.
A. A lottery retailer shall have and maintain a surety bond from a surety company entitled to do business in this Commonwealth. The surety bond shall be in an amount as deemed necessary to secure the interests of the Commonwealth and the department agency, in the sole discretion of the director, and shall be payable to the department agency and conditioned upon the faithful performance of the lottery retailer's duties.
B. The department agency may establish a sliding scale for surety bonding requirements based on the average volume of lottery ticket sales by a retailer to ensure that the Commonwealth's interest in tickets to be sold by a licensed lottery retailer is adequately safeguarded.
C. Prior to issuance of a license, every lottery sales agent shall either (i) be bonded by a surety company entitled to do business in this Commonwealth in such amount and penalty as may be prescribed by the regulations of the department or (ii) provide such other surety as may be satisfactory to the director, payable to the department agency, and conditioned upon the faithful performance of his duties. Such alternate surety instruments or arrangements may include, but not be limited to, a combination of surety instruments, including cash.
11VAC5-31-60. Lottery bank accounts and electronic funds transfer (EFT) authorization.
A. A lottery retailer shall have and maintain a separate bank account in a bank participating in the Automatic Clearing House (ACH) system. This account shall be styled in the name of the retailer followed by "Virginia Lottery Trust" and shall be used exclusively for lottery business.
B. The lottery account shall be used by the retailer to make funds available to permit withdrawals and deposits initiated by the department agency through the EFT process to settle a retailer's account for funds owed by or due to the retailer from the sale of tickets and the payment of prizes. All retailers shall make payments to the department agency through the EFT process in accordance with the department's agency's licensing procedures, unless the director designates another form of payment and settlement under terms and conditions he deems appropriate.
C. The retailer shall be responsible for payment of any fees or service charges assessed by the bank for maintaining the required account.
D. The director will establish a schedule for processing the EFT transactions against retailers' lottery trust accounts and issue instructions regarding the settlement of accounts.
11VAC5-31-70. License term and periodic review.
A. A general license for an approved lottery sales agent shall be issued for a specific term and is thereafter subject to a periodic determination of continued retailer eligibility and the payment of any fees fixed by the board.
B. The director may issue special licenses to persons for specific events and activities in accordance with the requirements of the department's agency's licensing procedures.
11VAC5-31-80. License fees.
An initial licensing fee up to $100 and an annual license fee up to $70 shall be collected from each lottery sales agent and shall be paid in accordance with the department's agency's licensing procedures. These fees are nonrefundable, unless otherwise determined by the director in his sole discretion or specified in the department's agency's procedures. The license fees shall be paid for each location.
11VAC5-31-130. Retailers' conduct.
A. Each retailer shall comply with all applicable state and federal laws and regulations, as well as all rules, policies and procedures of the department agency, license terms and conditions, specific rules for all applicable lottery games, directives and instructions that may be issued by the director, and licensing and equipment agreements and contracts signed by the retailer.
B. No retailer or his employee or agent shall attempt through any means whatsoever to identify or otherwise determine whether any unsold ticket creates a winning play. This includes, but is not limited to, trying to determine the numbers or symbols appearing under the removable latex or electronically produced coverings or otherwise attempting to identify unsold winning tickets. However, this shall not prevent the removal of the covering over the validation code or validation number after the ticket is sold.
C. No retailer or his employee or agent shall impose a fee or additional charge for selling a lottery game ticket or for cashing a winning lottery game ticket.
D. No retailer or his employee or agent shall purchase a winning lottery game ticket from a player at a discounted price.
11VAC5-31-140. Deposit of lottery receipts; interest and penalty for late payment; dishonored EFT transactions or checks.
A. Payments shall be due from retailers as specified by the director in accordance with department agency policies.
B. Any retailer who fails to make payment when payment is due will be contacted by the department agency and instructed to make immediate deposit of the funds due. If the retailer is not able to deposit the necessary funds or if the item is returned to the department unpaid for a second time, the retailer's license may be inactivated. If inactivated, the license will not be reactivated until payment is made by cashier's check, certified check or EFT transaction, and if the retailer is deemed a continuing credit risk by the department agency, not until an informal conference is held to determine if the licensee is able and willing to meet the terms of his retailer contract. Additionally, interest may be charged on the moneys due plus a $25 penalty. The interest charge will be equal to the "Underpayment Rate" established pursuant to § 58.1-15 of the Code of Virginia. The interest charge will be calculated beginning the date following the retailer's due date for payment through the day preceding receipt of the late payment by the department agency for deposit.
C. In addition to the penalty authorized by subsection B of this section, the director may assess a $25 service charge against any retailer whose payment through EFT transaction or by check is dishonored.
D. The service charge, interest, and penalty charges may be waived if it is determined by the department agency that the event that otherwise would result in the assessment of a service charge, interest, or penalty is not in any way the fault of the lottery retailer.
11VAC5-31-160. Denial, suspension, revocation or noncontinuation of license.
A. The director may refuse to issue a license to a person if the person does not meet the eligibility criteria and standards for licensing as set out in § 58.1-4009 of the Code of Virginia, these regulations, and in the department's agency's licensing procedures, or if:
1. The person's place of business caters to or is frequented predominantly by persons under 18 years of age, but excluding family-oriented businesses;
2. The nature of the person's business constitutes a threat to the health or safety of prospective lottery patrons;
3. The nature of the person's business is not consonant with the probity of the Commonwealth;
4. The person has committed any act of fraud, deceit, misrepresentation, moral turpitude, or illegal gambling or engaged in conduct prejudicial to public confidence in the state lottery;
5. The person falsifies or misrepresents a material fact on any application, form, document, or data submitted during the licensure process;
6. The person has an unsatisfactory prior history, record, or performance with the lottery;
7. The person's place of business represents a substantial risk for the collection, deposit, preservation, accounting, or safeguarding of Commonwealth of Virginia Trust Funds, irrespective of the bond or surety provided by the person;
8. The person has been suspended permanently from a federal or state licensing or authorization program and that person has exhausted all administrative remedies pursuant to the respective agency's regulations or procedures; or
9. The proposed retailer's licensed location or locations does not comply with the requirements of the department's Retailer Accessibility Guidelines effective January 1, 2011, as applicable.
B. The director may suspend, revoke, or refuse to continue a license for any of the reasons enumerated in § 58.1-4012 of the Code of Virginia, in subsection A of this section, in the department's agency's procedures, or for any of the following reasons:
1. Failure to maintain the required lottery trust account;
2. Failure to comply with lottery game rules;
3. Failure to properly care for, or prevent the abuse of, the department's agency's equipment, or failure to properly position and display the vacuum fluorescent display or LED device;
4. Failure to meet minimum point-of-sale standards;
5. Failure to continue to meet the eligibility criteria and standards for licensing; or
6. Failure to comply with (i) any applicable law or statute, rule, policy, or procedure of the department agency; (ii) license terms and conditions; (iii) specific rules for all applicable department agency games; (iv) directives and instructions that may be issued by the director; and (v) licensing and equipment agreements and contracts signed by the retailer.
C. Any person refused a license under subsections A or B of this section may appeal the director's decision in the manner provided by 11VAC5-20-150.
D. Before taking action under subsection A or B of this section, the director will notify the retailer in writing of his intent to suspend, revoke or deny continuation of the license. The notification will include the reason or reasons for the proposed action and will provide the retailer with the procedures for requesting a conference. Such notice shall be given to the retailer in accordance with the provisions of the department's agency's regulations.
E. If the director deems it necessary in order to serve the public interest and maintain public trust in the lottery, he may temporarily suspend a license without first notifying the retailer. Such suspension will be in effect until any prosecution, hearing, or investigation into alleged violations is concluded.
F. A retailer shall surrender his license to the director by the date specified in the notice of revocation or suspension. The retailer shall also surrender the lottery property in his possession and give a final lottery accounting of his lottery activities by the date specified by the director.
11VAC5-31-170. License termination by retailer.
The licensed retailer may voluntarily terminate his license with the department agency by first notifying the department agency in writing at least 15 calendar days before the proposed termination date. The department agency will then notify the retailer of the date by which settlement of the retailer's account will take place. The retailer shall maintain his bond and the required accounts and records until settlement is completed and all lottery property has been surrendered.
11VAC5-31-180. Inspection of premises.
Each lottery retailer shall provide access during normal business hours or at such other times as may be required by the director or department agency representatives to enter the premises of the licensed retailer. The premises include the licensed location where lottery tickets are sold or any other location under the control of the licensed retailer where the director may have good cause to believe lottery materials, equipment, or tickets are stored or kept in order to inspect the licensed premises and inspect, or if necessary remove lottery materials, equipment, or tickets.
11VAC5-31-190. Examination of records and equipment; seizure of records and equipment.
A. Each lottery retailer shall make all books and records pertaining to his lottery activities available for inspection, auditing and copying, and make all equipment related to his lottery activities available for inspection, as required by the director or department agency representatives during normal business hours of the licensed retailer.
B. All books, records and equipment pertaining to the licensed retailer's lottery activities may be seized with good cause by the director or department agency representatives without prior notice.
11VAC5-31-200. Audit of records.
The director may require a lottery retailer to submit to the department agency an audit report conducted by an independent certified public accountant on the licensed retailer's lottery activities. The retailer shall be responsible for the cost of only the first such audit in any one license term.
NOTICE: The following forms used in administering the regulation were filed by the agency. The forms are not being published; however, online users of this issue of the Virginia Register of Regulations may click on the name of a form with a hyperlink to access it. The forms are also available from the agency contact or may be viewed at the Office of the Registrar of Regulations, General Assembly Building, 2nd Floor, Richmond, Virginia 23219.
FORMS (11VAC5-31)
Retailer License Application, SLD-0062 (rev. 10/07).
Retailer Contract (rev. 5/10).
Retailer License Application, VAL-0062 (rev. 9/14)
Retailer Contract (rev. 1/14)
11VAC5-41-10. Definitions for lottery games.
The following words and terms when used in any of the department's agency's regulations shall have the same meanings as defined in this chapter unless the context clearly indicates otherwise:
"Agency" means the Virginia Lottery created by Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Altered ticket" means a lottery ticket that has been forged, counterfeited, or tampered with in any manner.
"Board" means the State Virginia Lottery Board established by the State Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Breakage" means the money accumulated from the rounding down of the pari-mutuel prize levels to the next lowest whole dollar amount.
"Cashing retailer" means a department an agency licensed retailer that sells lottery products and is authorized to pay prizes.
"Computer gaming system" means any computer system owned, operated, or contracted by the department agency that supports the sale, redemption, or validation of lottery tickets or wagers.
"Coupon" is a device (electronic or paper or otherwise) that is approved by the department agency for redemption.
"Department" means the State Lottery Department created by State Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Director" means the Executive Director of the State Virginia Lottery Department or his designee.
"Drawing" means a formal process of randomly selecting numbers, names, or items in accordance with the specific game or promotion rules for games or promotions requiring the random selection of numbers, names, or items.
"Game" means any individual or particular type of lottery authorized by the board.
"Instant game" means a game that, when played, reveals or informs the player immediately whether he has won a prize, entry into a prize drawing, prize points, or any or all of the aforementioned as specified in game rules.
"Misprinted ticket" means a lottery ticket or play that contains a manufacturing, programming, or printing defect that causes the game to no longer play as defined in game rules or does not properly validate against the game's validation files.
"Natural person" means a human being, and not a corporation, company, partnership, association, trust or other entity.
"Prize" means any cash or noncash award to a holder of a winning entry or play.
"Prize structure" means the number, value, and odds of winning prizes for a game and the prize tiers within a game and the chances of winning a prize in each tier in an individual game as determined by the department agency and as specified in the game rules.
"Probability game" means a game in which all of the tickets sold are potentially winning tickets and the outcome of the game depends entirely upon the player's choice or choices during game play.
"Promotion" is defined as means an "added value" offer to consumers or licensed retailers sanctioned by the director or approved by the board when required.
"Roll stock" or "ticket stock" means the paper roll issued or approved for use by the department agency from which a unique lottery ticket is generated displaying the selected items or numbers.
"Scratch ticket" means a printed instant win ticket with a covering over the play area that when scratched reveals a specific result.
"Share" means a percentage of ownership in a winning ticket, play, or subscription plan.
"Terminal" means a device that is authorized by the department agency to function in an interactive mode with the department's agency's computer gaming system or systems for the purpose of issuing tickets, plays, or an electronic facsimile thereof, and entering, receiving, and processing game-related transactions.
"Terminal ticket" means a computer-generated or electronically-produced ticket issued through the computer gaming system by a retailer to a player as a receipt for the number, numbers, or items or combination of numbers or items the player has selected.
"Ticket number" means the preassigned unique number or combination of letters and numbers or barcode that identifies that particular ticket as one within a particular game or drawing.
"Validation" means the process of reviewing and certifying a lottery ticket to determine whether it is a winning ticket.
"Validation barcode" means the unique number or number-and-letter code or barcode used to determine whether a lottery ticket is a winning ticket.
"Winning ticket," "winning wager," or "winning play" means the ticket, wager, or play that meets the criteria and specific rules for winning prizes as published for each game by the director.
11VAC5-41-60. Drawing and selling times.
A. Drawings shall be conducted at times and places designated by the director and publicly announced by the department agency.
B. Retailers may sell tickets from new instant games upon receipt of the tickets from the department agency, but shall not sell tickets for an instant game after the announced end of that game.
C. Retailers may sell terminal tickets up to a designated time prior to the drawing as specified in the terminal game rules. That time will be designated by the director.
11VAC5-41-80. Scratch ticket returns.
A. Ticket sales to retailers are final. The department agency will not accept returned, unsold tickets for credit except as specifically authorized by and provided for in the department's agency's procedures.
B. Once tickets are accepted by a retailer, the department agency:
1. May hold the retailer financially responsible for the replacement of mutilated, damaged, or otherwise unaccounted for tickets.
2. Will not be responsible for lost, stolen, destroyed, or otherwise unaccounted for tickets, unless specifically authorized and provided for in the department's agency's procedures.
11VAC5-41-100. Validation requirements.
To receive payment for a prize, a Virginia lottery game ticket or play shall be validated by the retailer or the department agency as set out in this chapter and in any other manner that the director may prescribe in the specific rules for the lottery game, which shall include but not be limited to the following:
1. If the game's rules specify that the physical ticket must be presented for validation then:
a. The original ticket must be presented for validation;
b. The ticket shall not be mutilated, altered, or tampered with in any manner. If a ticket is partially mutilated or if the ticket is not intact and cannot be validated through normal procedures but can still be validated by other validation tests, the director may pay the prize for that ticket;
c. The ticket may not be misregistered or defectively printed to an extent that it cannot be processed by the department;
d. The ticket shall pass all other confidential security checks of the department agency;
e. The ticket validation number shall be present in its entirety; and
f. The ticket shall not be counterfeited, forged, fraudulently made, or a duplicate of another winning ticket.
2. Where a winning ticket or play has been issued by a terminal:
a. The ticket or play shall have been issued by the department agency or by a licensed lottery retailer in an authorized manner;
b. The terminal ticket or play shall not have been cancelled canceled or previously paid;
c. The terminal ticket or play shall be validated in accordance with procedures for claiming and paying prizes as set out in the game rules; and
d. The terminal ticket or play data shall have been recorded in the computer gaming system before the drawing or the instant game ticket sale, and the ticket data shall match this computer record in every respect.
3. If the games rules specify that a physical ticket, play, or record of play is not required for validation there may be other lottery requirements, as defined by the director, for winners to collect prizes.
11VAC5-41-110. Use of playslips.
A. A playslip issued by the department agency may be used to select a player's choice or choices to be played in a department-authorized an agency-authorized computer gaming system. If a playslip is used to select the player's choice or choices for use in a computer gaming system, the playslip selections shall be manually or electronically marked as authorized by the department's agency's game rules and not marked by any electro-mechanical, electronic printing, or other automated device, except for play utilizing materials or systems developed by the department agency.
B. Any playslip marked by methods other than those authorized by this chapter is invalid and subject to seizure by the department if presented for play at any lottery terminal. Any tickets produced from the use of invalid playslips are also invalid and subject to seizure by the department agency.
C. Nothing in this chapter shall be deemed to prevent a person with a physical handicap who is unable to mark a playslip manually from using any device intended to permit such person to make such a mark for his sole personal use or benefit.
11VAC5-41-120. Replacement of ticket.
If a misprinted or otherwise defective ticket is purchased, the department's agency's only liability or responsibility shall be to replace the misprinted ticket with an unplayed ticket of equal price from the same or another current game or to refund the purchase price of the defective ticket.
11VAC5-41-130. Terminal-generated winning tickets.
A. When more than one ticket containing the winning numbers is issued for the same drawing of the same game, the holder of each ticket is entitled only to his share of the prize, regardless of whether the other holders of tickets with the winning numbers actually claim their share of the prize.
B. The department agency shall not redeem prizes for tickets that would have been winning tickets but for the fact that they have been cancelled canceled by the retailer unless specifically authorized by the director.
C. When the department's agency's internal controls indicate that a winning ticket was issued but no claim is made for the prize, there shall be a rebuttable presumption that such ticket was in fact issued and the prize shall be paid in accordance with the provisions of § 58.1-4020 of the Code of Virginia and regulations of the department agency.
11VAC5-41-140. Where prizes claimed.
Winners may claim game prizes as specified in this chapter or in the game rules, including:
1. At department agency headquarters;
2. At a department an agency customer service center;
3. From a cashing retailer;
4. By mail; or
5. At any other location specifically authorized by the department agency.
11VAC5-41-150. Retailers' prize payment procedures.
Procedures for prize payments by retailers are as follows:
1. Retailers may pay cash prizes in cash, by certified check, cashier's check, business check, money order, other cash equivalent or by any combination of these methods.
2. If a check for payment of a prize by a retailer to a claimant is denied for any reason, the retailer is subject to the same service charge, interest and penalty payments for referring a debt to the department agency for collection that would apply if the check were made payable to the department agency. A claimant whose prize check is denied shall notify the department agency to obtain the prize.
3. During normal business hours of the lottery retailer with operational validation equipment by which the ticket claim can be validated, a lottery retailer shall pay any lottery prize of $600 or less, unless otherwise determined by the director, regardless of the location from which the winning ticket was purchased.
4. A prize claim shall be paid only at the location specified on the retailer's license or at a lottery office.
5. The department agency will reimburse a retailer for all valid prizes paid by the retailer within the specified prize redemption period for the game from which the prize resulted.
6. In no case shall a retailer impose a fee, additional charge or discount for cashing a winning lottery game ticket.
7. Retailers who pay claims without validating the tickets do so at their own financial risk.
11VAC5-41-160. No reimbursement for retailer errors.
Unless otherwise determined by the director, the department agency shall not reimburse retailers for prize claims a retailer has paid in error or for which a retailer failed to properly and completely validate the lottery game tickets in accordance with department agency procedures.
11VAC5-41-170. When prize shall be claimed from the department agency.
A. The department agency will pay prizes in any of the following circumstances:
1. If a retailer cannot validate a claim which that the retailer otherwise would pay, the ticket holder shall present the original signed ticket to any department agency office including the department's agency's headquarters or mail the signed ticket to the department's agency's headquarters;
2. If a ticket holder is unable to return to any retailer to claim a prize that the retailer otherwise would pay, the ticket holder may present the original signed ticket at any department agency office or mail the signed ticket to the department's agency's headquarters;
3. If the prize amount is more than $600, the ticket holder may present the original signed ticket at any department agency office or mail the signed ticket to the department agency headquarters; or
4. Where an electronic entry or an electronic record of a ticket is permitted, a presentation of a physical ticket may not be required to claim a prize.
B. The department agency may require a claim form.
C. A player shall bear all risk of loss or damage by sending the ticket through the mail.
11VAC5-41-180. Department Agency action on claims for prizes submitted to department agency.
A. The department agency shall validate the winning ticket claim according to procedures contained in this chapter.
B. If the claim cannot be validated, the department agency will promptly notify the ticket holder.
C. If the claim is mailed to the department agency and the department agency validates the claim, a check for the prize amount, merchandise, or experiential prizes will be presented or mailed to the winner.
D. If an individual presents a claim to the department agency in person and the department agency validates the claim, a check for the prize amount, merchandise, or experiential prizes will be presented to the winner.
11VAC5-41-190. Withholding, notification of prize payments.
A. When paying any prize in excess of $600, the department agency shall:
1. File the appropriate income reporting forms with the Virginia Department of Taxation and the federal Internal Revenue Service; and
2. Withhold federal and state taxes from any winning ticket in accordance with the tax regulation in effect at the time.
B. Additionally, when paying any cash prize of $100 or more, the department agency shall withhold any moneys due for delinquent debts as provided by the Commonwealth's Setoff Debt Collection Act, Article 21 (§ 58.1-520 et seq.) of Chapter 3 of Title 58.1 of the Code of Virginia.
11VAC5-41-220. How prize claim entered.
A prize claim shall be entered in the name of a natural person as prescribed by § 58.1-4019 B of the Code of Virginia. In all cases, the identity and social security number of all natural persons who receive a prize or share of a prize greater than $100 from a winning ticket redeemed at any department agency office shall be provided.
1. A nonresident alien shall furnish his Immigration and Naturalization Service (INS) Number.
2. Two or more natural persons claiming a single prize may file IRS Form 5754, "Statement by Person(s) Receiving Gambling Winnings," with the department agency. This form designates to whom winnings are to be paid and the person or persons to whom winnings are taxable.
3. Two or more natural persons wishing to divide a jackpot prize shall complete an "Agreement to Share Ownership and Proceeds of Lottery Ticket" form. The filing of this form is an irrevocable election that may only be changed by an appropriate judicial order.
11VAC5-41-230. Delay of payment allowed.
A. Subject to the provisions in § 58.1-4013 D of the Code of Virginia, the director may refrain from making payment of a prize pending a final determination by the director under any of the following circumstances:
1. If a dispute arises, or it appears that a dispute may arise, relative to any ownership of a winning ticket or any prize;
2. If there is any question regarding the identity of the claimant;
3. If there is any question regarding the validity of any ticket presented for payment;
4. If there is any question whether a claimant has made a valid cash option election; or
5. If the claim is subject to any set off for delinquent debts owed to any agency eligible to participate in the Setoff Debt Collection Act (Article 21 (§ 58.1-520 et seq.) of Chapter 3 of Title 58.1 of the Code of Virginia) if the agency has registered such debt with the Virginia Department of Taxation and timely notice of the debt has been furnished by the Virginia Department of Taxation to the department.
B. The director may, at any time, delay any periodic or installment payment in order to review a change in circumstance relative to the prize awarded, the payee, the claim, or any other matter that has been brought to the department's agency's attention. All delayed installments shall be brought up to date immediately upon the director's confirmation. Delayed installments shall continue to be paid according to the original payment schedule after the director's decision is given.
C. No liability for interest for any delay of any prize payment in accordance with subsections A and B of this section, or any delay beyond the department's agency's control, shall accrue to the benefit of the claimant pending payment of the claim. The department agency is neither liable for nor has it any responsibility to resolve disputes between or among competing claimants.
11VAC5-41-250. Using winners' names and information.
The department agency can use a winner's name and the city, town, or county in which a winner lives, as well as the prizes won, for public information purposes and to foster the integrity of the games. The department agency may require prize winners to participate in news conferences. The department agency can use the winner's information described in this section and winner's photographs for public information or promotional purposes in mediums such as, but not limited to, the department's agency's website (www.valottery.com), social media, in-store, television, Internet, and radio. No consideration shall be paid by the department agency for these purposes.
11VAC5-41-290. Liability ends with prize payment.
All liability of the Commonwealth, its officials, officers and employees, and of the department agency, the board, the director and employees of the department agency, terminates upon final payment of a lottery prize, or sooner if so provided in the game rules or these regulations.
11VAC5-41-300. Marking tickets prohibited; exceptions.
Marking of tickets in any way is prohibited except by a player to play a game according to the rules of that specific game or to claim a prize or by the department agency or a retailer to identify or to void the ticket.
11VAC5-41-310. Lost, stolen, or destroyed tickets.
The department agency is not liable for lost, stolen, or destroyed tickets. The director may honor a prize claim of an apparent winner who does not possess the original ticket if the claimant is in possession of information that demonstrates that the original ticket meets the following criteria and can be validated through other means. Such information may include, but is not limited to, the following:
1. The claim form, if required, and a photocopy of the ticket, or photocopy of the original claim form, if required, and ticket, are timely filed with the department agency;
2. The prize for which the claim is filed is a winning prize that has not been claimed, as verified in the department's agency's records.
3. The claim is filed within the redemption period, as established by the game rules; and
4. Except in extenuating circumstances or for just cause as the director may deem appropriate, the redemption period for claims has expired.
11VAC5-41-320. Unclaimed prizes.
A. Except for a free ticket prize, a claim for a lottery game winning ticket must be mailed in an envelope bearing a postmark of the United States Postal Service or another sovereign nation or received for payment as prescribed in this chapter within either 180 days after the date of the drawing for which the ticket was purchased, or of the event which that caused the ticket to be a winning entry, or, in the case of an instant game ticket, within 180 days after the announced end of the game. In the event that the 180th day falls on a Saturday, Sunday, or legal holiday, the winning ticket will be accepted for validation on the next business day only at a lottery office.
B. Any lottery cash prize that remains unclaimed after either 180 days following the drawing that determined the prize or 180 days after the announced end of the instant game shall revert to the State Literary Fund. Cash prizes do not include free ticket prizes or other noncash prizes such as merchandise, vacations, admission to events and the like.
C. All claims for terminal game winning tickets for which the prize is a free ticket must be mailed in an envelope bearing a postmark of the United States Postal Service or another sovereign nation or received for redemption as prescribed in this chapter within 180 days after the date of the drawing for which the ticket was purchased. In the event the 180th day falls on a Saturday, Sunday, or legal holiday, a claimant may only redeem his winning ticket for a free ticket at a cashing retailer on or before the 180th day.
Except for claims for free ticket prizes mailed to lottery headquarters and postmarked on or before the 180th day, claims for such prizes will not be accepted at any lottery office after the sixtieth 60th day. This section does not apply to the redemption of free tickets awarded through the subscription program.
D. Any instant game winning ticket of $25 or less that has been purchased, but that is not claimed within 180 days after the announced end of the instant game, shall revert to the State Virginia Lottery Fund.
E. In case of a prize payable over time, if such prize is shared by two or more winning tickets, one or more of which is not presented to the department agency for payment within the prize redemption period as established by the game rules, the department agency will transfer that portion of the prize to the State Literary Fund in accordance with procedures approved by the State Treasurer.
F. In accordance with the provisions of the Servicemembers Civil Relief Act of 1940 (50 USC App § 526), any person while in active military service may claim exemption from the 180-day ticket redemption requirement. Such person, however, must claim his winning ticket or share as soon as practicable, and in no event later than 180 days after discharge from active military service.
VA.R. Doc. No. R15-4146; Filed September 4, 2014, 2:41 p.m.
TITLE 11. GAMING
VIRGINIA LOTTERY BOARD
Final Regulation
REGISTRAR'S NOTICE: The Virginia Lottery Board is claiming an exclusion from Article 2 of the Administrative Process Act in accordance with § 2.2-4006 A 4 a of the Code of Virginia, which excludes regulations that are necessary to conform to changes in Virginia statutory law where no agency discretion is involved. The Virginia Lottery Board will receive, consider, and respond to petitions by any interested person at any time with respect to reconsideration or revision.
Titles of Regulations: 11VAC5-11. Public Participation Guidelines (amending 11VAC5-11-10, 11VAC5-11-20).
11VAC5-20. Administration Regulations (amending 11VAC5-20-10, 11VAC5-20-60, 11VAC5-20-80, 11VAC5-20-160 through 11VAC5-20-200).
11VAC5-31. Licensing Regulations (amending 11VAC5-31-10 through 11VAC5-31-80, 11VAC5-31-130, 11VAC5-31-140, 11VAC5-31-160 through 11VAC5-31-200).
11VAC5-41. Lottery Game Regulations (amending 11VAC5-41-10, 11VAC5-41-60, 11VAC5-41-80, 11VAC5-41-100 through 11VAC5-41-190, 11VAC5-41-220, 11VAC5-41-230, 11VAC5-41-250, 11VAC5-41-290 through 11VAC5-41-320).
Statutory Authority: §§ 2.2-4007.02 and 58.1-4007 of the Code of Virginia (11VAC5-11-10, 11VAC5-11-20).
§ 58.1-4007 of the Code of Virginia (all other sections).
Effective Date: November 5, 2014.
Agency Contact: Amy Roper, Regulatory Coordinator, Virginia Lottery, 900 East Main Street, 9th Floor, Richmond, VA 23219, telephone (804) 692-7133, FAX (804) 692-7325, or email aroper@valottery.com.
Summary:
The amendments conform regulations to changes to the Code of Virginia pursuant to (i) Chapter 225 of the 2014 Acts of Assembly, which changes the name of the "State Lottery Department" to the "Virginia Lottery," and (ii) Chapter 224 of the 2014 Acts of Assembly, which establishes a new waiting period for relicensing of retailers under § 58.1-4009 D of the Code of Virginia.
Part I
Purpose and Definitions
11VAC5-11-10. Purpose.
The purpose of this chapter is to promote public involvement in the development, amendment, or repeal of the regulations of the State Virginia Lottery Department. This chapter does not apply to regulations, guidelines, or other documents exempted or excluded from the provisions of the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia).
11VAC5-11-20. Definitions.
The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:
"Administrative Process Act" means Chapter 40 (§ 2.2-4000 et seq.) of Title 2.2 of the Code of Virginia.
"Agency" means the State Virginia Lottery Department, which is the unit of state government empowered by the agency's basic law to make regulations or decide cases. Actions specified in this chapter may be fulfilled by state employees as delegated by the agency.
"Basic law" means provisions in the Code of Virginia that delineate the basic authority and responsibilities of an agency.
"Commonwealth Calendar" means the electronic calendar for official government meetings open to the public as required by § 2.2-3707 C of the Freedom of Information Act.
''Negotiated rulemaking panel'' or ''NRP'' means an ad hoc advisory panel of interested parties established by an agency to consider issues that are controversial with the assistance of a facilitator or mediator, for the purpose of reaching a consensus in the development of a proposed regulatory action.
"Notification list" means a list used to notify persons pursuant to this chapter. Such a list may include an electronic list maintained through the Virginia Regulatory Town Hall or other list maintained by the agency.
"Open meeting" means any scheduled gathering of a unit of state government empowered by an agency's basic law to make regulations or decide cases, which is related to promulgating, amending or repealing a regulation.
"Person" means any individual, corporation, partnership, association, cooperative, limited liability company, trust, joint venture, government, political subdivision, or any other legal or commercial entity and any successor, representative, agent, agency, or instrumentality thereof.
"Public hearing" means a scheduled time at which members or staff of the agency will meet for the purpose of receiving public comment on a regulatory action.
"Regulation" means any statement of general application having the force of law, affecting the rights or conduct of any person, adopted by the agency in accordance with the authority conferred on it by applicable laws.
"Regulatory action" means the promulgation, amendment, or repeal of a regulation by the agency.
"Regulatory advisory panel" or "RAP" means a standing or ad hoc advisory panel of interested parties established by the agency for the purpose of assisting in regulatory actions.
"Town Hall" means the Virginia Regulatory Town Hall, the website operated by the Virginia Department of Planning and Budget at www.townhall.virginia.gov, which has online public comment forums and displays information about regulatory meetings and regulatory actions under consideration in Virginia and sends this information to registered public users.
"Virginia Register" means the Virginia Register of Regulations, the publication that provides official legal notice of new, amended, and repealed regulations of state agencies, which is published under the provisions of Article 6 (§ 2.2-4031 et seq.) of the Administrative Process Act.
Part I
General Parameters
11VAC5-20-10. Definitions.
The following words and terms when used in any of the department's agency's regulations shall have the following meanings unless the context clearly indicates otherwise:
"Administrative Process Act" or "APA" means Chapter 40 (§ 2.2-4000 et seq.) of Title 2.2 of the Code of Virginia.
"Agency" means the Virginia Lottery created by the Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Appeal" means a proceeding initiated by a retailer, bidder, or offeror (for a contract negotiated on a sole source basis), contractor or individual for an informal conference or formal hearing contesting the director's decision (i) to refuse to issue or renew, to suspend or to revoke a lottery license; or (ii) regarding a procurement action.
"Bank" means any commercial bank, savings bank, savings and loan association, credit union, trust company, and any other type or form of banking institution organized under the authority of the Commonwealth of Virginia or of the United States of America which that is designated by the State Treasurer to perform functions, activities or services in connection with the operations of the lottery for the deposit, handling and safekeeping of lottery funds, accounting for those funds and the safekeeping of records.
"Board" means the State Virginia Lottery Board established by the State Virginia Lottery Law.
"Conference" or "consultation" means a type of appeal in the nature of an informational or factual proceeding of an informal nature provided for in § 2.2-4019 of the Administrative Process Act.
"Conference officer" means the director, or a person appointed by the director, who is empowered to preside at informal conferences or consultations and to provide a recommendation, conclusion or decision in such matter.
"Consideration" means something of value given for a promise to make the promise binding. It is one of the essentials of a legal contract.
"Contract" means a binding agreement, enforceable by law, between two or more parties for the supply of goods or services.
"Department" means the State Lottery Department created by the State Lottery Law.
"Depository" means any person, including a bonded courier service, armored car service, bank, central or regional offices of the department agency, or any state agency that performs any or all of the following activities or services for the lottery:
1. The safekeeping and distribution of tickets to retailers;
2. The handling of lottery funds;
3. The deposit of lottery funds; or
4. The accounting for lottery funds.
"Director" means the Executive Director of the State Virginia Lottery Department or his designee.
"Electronic funds transfer (EFT)" or "EFT" means a computerized transaction that withdraws or deposits money from or to a bank account.
"Goods" means all material, equipment, supplies, printing, and automated data processing hardware and software.
"Hearing" means agency processes other than those informational or factual inquiries of an informal nature provided in §§ 2.2-4007 and 2.2-4019 of the Code of Virginia and includes only (i) opportunity for private parties to submit factual proofs in formal proceedings as provided in § 2.2-4009 of the Code of Virginia in connection with the making of regulations or (ii) a similar right of private parties or requirement of public agencies as provided in § 2.2-4020 of the Code of Virginia in connection with case decisions.
"Household" means members of a group who reside at the same address.
"Immediate family" means (i) a spouse and (ii) any other person residing in the same household as the officer or employee, who is a dependent of the officer or employee or of whom the officer or employee is a dependent.
"Inspection" means the close and critical examination of goods and services delivered to determine compliance with applicable contract requirements or specifications. It is the basis for acceptance or rejection.
"Legal entity" means an entity, other than a natural person, which has sufficient existence in legal contemplation that it can function legally, sue or be sued and make decisions through agents, as in the case of a corporation.
"Lottery" or "state lottery" means the lottery or lotteries established and operated pursuant to Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
"Person" means a natural person and may extend and be applied to groups of persons, as well as a corporation, company, partnership, association, club, trust, estate, society, joint stock company, receiver, trustee, assignee, referee, or any other person acting in a fiduciary or representative capacity, whether appointed by a court or otherwise, and any combination of individuals, as well as all departments, commissions, agencies, and instrumentalities of the Commonwealth, including counties, cities, municipalities, political subdivisions, agencies and instrumentalities thereof.
"Procurement" means the process for obtaining goods or services, including all activities from planning and preparation to processing of a request through the processing of a final invoice for payment.
"Retailer and sales agent" means a person or business licensed by the department agency as an agent to sell lottery tickets or shares.
"Sales," "gross sales," "annual sales" and similar terms mean total ticket sales including any discount allowed to a retailer for his compensation.
"Services" means any work performed by an independent contractor where the service rendered does not consist primarily of acquisition of equipment or materials, or the rental of equipment, materials and supplies.
"Sole source" means that only one source is practicably available to furnish a product or service.
"State Lottery Law" means Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
"Surety bond" means an insurance agreement in which a third party agrees to be liable to pay a specified amount of money to the department agency in the event the retailer fails to meet his obligations to the department agency.
"Transaction" means any matter considered by any governmental or advisory agency, whether in a committee, subcommittee, or other entity of that agency or before the agency itself, on which official action is taken or contemplated.
"Vendor" means one who provides goods or services to the department agency.
"Virginia Lottery Law" means Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
11VAC5-20-60. Advertising.
A. Advertising may include, but is not limited to, print advertisements; radio and television advertisements; digital, electronic, and video advertisements; billboards; point of purchase materials; point-of-sale display materials; and Internet and social media.
B. Any lottery retailer may use his own advertising materials unless the department agency objects thereto. The department agency shall develop written guidelines for such materials.
C. The department agency may provide information displays or other material to the retailer, who shall position the material so it can be seen easily by the general public.
D. The department agency may produce special posters, brochures or flyers describing various aspects of the lottery and provide these to lottery retailers to post or distribute.
Part II
Banks and Depositories
11VAC5-20-80. Approval of banks.
A. The State Treasurer, with the concurrence of the director, and in accordance with applicable Treasury directives, shall approve a bank or banks to provide services to the department agency.
B. A bank or banks shall serve as agent or agents for electronic funds transfers between the department agency and lottery retailers as required by Chapters 20 (11VAC5-20), 31 (11VAC5-31), and 41 (11VAC5-41) and by contracts between the department agency, the State Treasury, retailers, and the banks.
11VAC5-20-160. Procedure for appealing a licensing decision.
A. Upon receiving a notice that (i) an application for a license or the renewal of a license has been denied by the director, or (ii) the director intends to or has already taken action to suspend or revoke a current license, the applicant or licensed retailer may appeal by filing a written notice of appeal requesting a conference on the licensing action. The notice of appeal shall be submitted within 30 days of receipt of the notice of the licensing action.
1. Receipt of a notice of the licensing action that is mailed in an envelope bearing a United States Postal Service postmark is presumed to have taken place not later than the third day following the day of mailing to the last known address of the applicant or licensed retailer. If the third day falls upon a day on which mail is not delivered by the United States Postal Service, the notice is presumed to have been received on the next business day. The "last known address" means the address shown on the application of an applicant or licensed retailer unless a more current address has been provided to the department agency by the applicant or licensed retailer.
2. The notice of appeal will be timely if it bears a United States Postal Service postmark showing mailing on or before the 30th day prescribed in subdivision 1 of this subsection.
B. A notice of appeal may be mailed or hand delivered to the director at the State Virginia Lottery Department headquarters office.
1. A notice of appeal delivered by hand will be timely only if received at the headquarters of the State Virginia Lottery Department within the time allowed by subsection A of this section.
2. Delivery to any other State Virginia Lottery Department office or to lottery sales personnel by hand or by mail is not sufficient.
3. The appellant assumes full responsibility for the method chosen to file the notice of appeal.
C. The notice of appeal shall state:
1. The decision of the director that is being appealed;
2. The legal and factual basis for the appeal;
3. The retailer's license number; and
4. Any additional information the appellant may wish to include concerning the appeal.
11VAC5-20-170. Procedures for conducting informal fact-finding licensing conferences.
A. The conference officer will conduct an informal fact-finding conference with the appellant for the purpose of resolving the licensing action at issue.
B. The conference officer will hold the conference as soon as possible but not later than 30 days after the notice of appeal is filed, unless an alternate date is designated by the conference officer or his designee and accepted by the appellant. A notice setting out the conference date, time, and location will be sent to the appellant, by certified mail, return receipt requested, at least 10 days before the day set for the conference, unless a shorter time is agreed to by the appellant.
C. A conference may be conducted by telephone, at the option of the appellant.
D. The conferences shall be informal.
1. The conferences will be electronically recorded. The recordings will be kept until the time limit for any subsequent appeal has expired.
2. A court reporter may be used. The court reporter shall be paid by the person who requested him. If the appellant elects to have a court reporter, a transcript shall be provided to the department agency. The transcript shall become part of the department's agency's records.
3. The appellant may appear in person or may be represented by counsel to present his facts, argument, or proof in the matter to be heard and may request other parties to appear to present testimony.
4. The department agency will present its facts in the case and may request other parties to appear to present testimony.
5. Questions may be asked by any of the parties at any time during the presentation of information subject to the conference officer's prerogative to regulate the order of presentation in a manner which that, in his sole discretion, best serves the interest of fairly developing the facts.
6. The conference officer may exclude information at any time that he believes, in his sole discretion, is not germane or that repeats information already received.
7. The conference officer shall declare the conference completed when the time established by the conference officer has expired.
E. Normally, the conference officer shall issue his decision within 15 days after the conclusion of an informal conference. However, for a conference with a court reporter, the conference officer shall issue his decision within 15 days after receipt of the transcript of the conference. In all cases the agency shall comply with the APA. The decision will be in the form of a letter to the appellant summarizing the case and setting out his decision on the matter. The decision will be sent to the appellant by certified mail, return receipt requested.
F. After receiving the conference officer's decision on the informal conference, the appellant may elect to appeal to the board for a formal hearing on the licensing action. The request for appeal shall:
1. Be submitted in writing within 15 days of receipt of the conference officer's decision on the informal conference.
2. Be mailed or hand delivered to the chairman of the board at the headquarters of the State Virginia Lottery Department.
3. Be governed by the same procedures in 11VAC5-20-160 B for filing the original notice of appeal.
4. State:
a. The decision of the conference officer that is being appealed;
b. The legal and factual basis for the appeal;
c. The retailer's license number; and
d. Any additional information the appellant may wish to include concerning the appeal.
11VAC5-20-180. Procedures for conducting formal licensing hearings.
A. The board will conduct a formal hearing at its next regularly scheduled meeting following the receipt of a notice of appeal on a licensing action if the date of the scheduled meeting permits the required 10 days notice to the appellant or at a date to be determined by the chairman of the board and accepted by the appellant.
B. A majority of members of the board is required to hear an appeal. If the chairman and vice chairman of the board are not present, the members present shall choose one from among them to preside over the hearing.
C. The board chairman, at his discretion, may designate a committee of the board to hear licensing appeals and act on its behalf. Such committee shall have at least three members who will hear the appeal on behalf of the board. If the chairman of the board is not present, the members of the committee shall choose one from among them to preside over the hearing.
D. A notice setting the hearing date, time, and location will be sent to the appellant by certified mail, return receipt requested, at least 10 days before the day set for the hearing, unless a shorter time is agreed to by the appellant.
E. The hearing shall be conducted in accordance with the provisions of Article 3 (§ 2.2-4018 et seq.) of the APA and shall be open to the public.
1. The hearing will be electronically recorded and the recording will be kept until any time limits for any subsequent court appeals have expired.
2. A court reporter may be used. The court reporter shall be paid by the person who requested him. If the appellant elects to have a court reporter, a transcript shall be provided to the department agency. The transcript shall become part of the department's agency's records.
3. The provisions of §§ 2.2-4020 through 2.2-4023 of the APA shall apply with respect to the rights and responsibilities of the appellant and of the department agency.
F. Normally, the board will issue its written decision within 21 days of the conclusion of the hearing. However, for a hearing with a court reporter, the board will issue its written decision within 21 days of receipt of the transcript of the hearing. In all cases the agency shall comply with the APA.
1. A copy of the board's written decision will be sent to the appellant by certified mail, return receipt requested. The original written decision shall be retained by the department agency and become a part of the case file.
2. The written decision will contain:
a. A statement of the facts to be called "Findings of Facts";
b. A statement of conclusions to be called "Conclusions" and to include as much detail as the board feels is necessary to set out the reasons and basis for its decision; and
c. A statement, to be called "Decision and Order," which sets out the board's decision and order in the case.
G. After receiving the board's decision on the case, the appellant may elect to pursue court review as provided for in the APA.
Part IV
Procurement
11VAC5-20-200. Procurement in general.
The State Virginia Lottery Department will purchase goods or services in accordance with procedures established by the board, after consultation with the director, pursuant to Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia.
11VAC5-31-10. Definitions.
The following words and terms when used in any of the department's agency's regulations shall have the same meanings as defined in this chapter unless the context clearly indicates otherwise:
"Agency" means the Virginia Lottery created by the Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Board" means the State Virginia Lottery Board established by the State Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Department" means the State Lottery Department created by the State Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Director" means the Executive Director of the State Virginia Lottery Department or his designee.
"License" means the certificate issued by the department agency to a retailer who has met the requirements established by the department agency to sell lottery products.
"Lottery retailer," "lottery sales agent" or "retailer" means a person licensed by the director to sell and dispense lottery tickets or products and act as the department's agency's representative to collect, preserve, and account for Commonwealth of Virginia trust funds.
"Person," for purposes of licensing, means an individual, association, partnership, corporation, club, trust, estate, society, company, joint stock company, receiver, trustee, assignee, referee, or any other person acting in a fiduciary or representative capacity, whether appointed by a court or otherwise, and any combination of individuals, as well as all departments, commissions, agencies and instrumentalities of the Commonwealth, including its counties, cities, municipalities, political subdivisions, agencies and instrumentalities thereof.
"Vacuum fluorescent display" means a player display unit that, when connected to the lottery terminal, presents messages to the customer, such as customer transaction totals, validation and cancellation amounts, and jackpot drawing messages.
11VAC5-31-20. Eligibility.
Any person who is 18 years of age or older may submit an application for licensure as a lottery retailer in accordance with the provisions and requirements of the department's agency's licensing procedures, except no person may submit an application for licensure:
1. Who will be engaged primarily in the business of selling lottery tickets;
2. Who is a board member, officer, or employee of the State Virginia Lottery Department or who resides in the same household as a board member, officer, or employee of the department agency; or
3. Who is a board member, officer, or employee of any vendor to the department agency of lottery ticket goods or services, working directly on a contract with the department agency, or whose business owns, is owned by or controlled by, or affiliated with that vendor.
11VAC5-31-30. Application procedure.
A. Any eligible person shall first file an application with the department agency by completing all information requested on forms supplied for that purpose, along with submitting any required fees.
B. The submission of application forms or data for licensure does not in any way entitle any person to receive a license to act as a lottery retailer.
C. In the event an applicant is a former lottery sales agent whose license was suspended, revoked, or refused renewal pursuant to § 58.1-4009 or 58.1-4012 of the Code of Virginia, no application for a new license to sell lottery tickets or shares shall be considered for a minimum period of 90 days following the suspension, revocation, or refusal to renew.
D. The person shall submit all required forms and information to the department agency to be considered for licensing. Failure to submit required forms within the department's agency's licensing procedures may result in the loss of opportunity to become or remain a licensed retailer.
11VAC5-31-40. General standards for licensing.
A. The director or his designee may license those persons who, in his opinion, will best serve the public interest and convenience and public trust in the lottery and promote the sale of lottery tickets. Before issuing or renewing a license, the director may consider factors including, but not limited to, the following:
1. Those factors set out in § 58.1-4009 of the Code of Virginia, these regulations, and the department's agency's licensing procedures;
2. The ability to offer a high level of customer service to lottery players;
3. The person's prior history, record, and performance with the department agency;
4. Whether the place of business caters to or is frequented predominately by persons under 18 years of age;
5. Whether the nature of the business constitutes a threat to the health or safety of prospective patrons;
6. Whether the nature of the business is consonant with the probity of the Commonwealth; and
7. Whether the person or retailer has (i) committed any act of fraud, deceit, misrepresentation, moral turpitude, or illegal gambling or (ii) engaged in conduct prejudicial to public confidence in the state lottery.
B. Special retailer licensing.
1. The director may license special lottery retailers subject to such conditions or limitations as the director may deem prudent and if the director finds there is a need to develop alternative business models to engage in partnerships with certain retailers that are consistent with the laws of the Commonwealth of Virginia and these regulations. These limitations or conditions may include, but are not limited to:
a. Length of license period;
b. Hours or day of sale;
c. Selling of only limited products;
d. Specific persons who are allowed to sell lottery tickets;
e. Specific sporting, charitable, social, or other special events where lottery tickets may be sold if in conformity with law; or
f. Different commission and payment structures and bonding requirements.
2. Special licensed agents will be subject to these regulations.
11VAC5-31-50. Bonding of lottery retailers.
A. A lottery retailer shall have and maintain a surety bond from a surety company entitled to do business in this Commonwealth. The surety bond shall be in an amount as deemed necessary to secure the interests of the Commonwealth and the department agency, in the sole discretion of the director, and shall be payable to the department agency and conditioned upon the faithful performance of the lottery retailer's duties.
B. The department agency may establish a sliding scale for surety bonding requirements based on the average volume of lottery ticket sales by a retailer to ensure that the Commonwealth's interest in tickets to be sold by a licensed lottery retailer is adequately safeguarded.
C. Prior to issuance of a license, every lottery sales agent shall either (i) be bonded by a surety company entitled to do business in this Commonwealth in such amount and penalty as may be prescribed by the regulations of the department or (ii) provide such other surety as may be satisfactory to the director, payable to the department agency, and conditioned upon the faithful performance of his duties. Such alternate surety instruments or arrangements may include, but not be limited to, a combination of surety instruments, including cash.
11VAC5-31-60. Lottery bank accounts and electronic funds transfer (EFT) authorization.
A. A lottery retailer shall have and maintain a separate bank account in a bank participating in the Automatic Clearing House (ACH) system. This account shall be styled in the name of the retailer followed by "Virginia Lottery Trust" and shall be used exclusively for lottery business.
B. The lottery account shall be used by the retailer to make funds available to permit withdrawals and deposits initiated by the department agency through the EFT process to settle a retailer's account for funds owed by or due to the retailer from the sale of tickets and the payment of prizes. All retailers shall make payments to the department agency through the EFT process in accordance with the department's agency's licensing procedures, unless the director designates another form of payment and settlement under terms and conditions he deems appropriate.
C. The retailer shall be responsible for payment of any fees or service charges assessed by the bank for maintaining the required account.
D. The director will establish a schedule for processing the EFT transactions against retailers' lottery trust accounts and issue instructions regarding the settlement of accounts.
11VAC5-31-70. License term and periodic review.
A. A general license for an approved lottery sales agent shall be issued for a specific term and is thereafter subject to a periodic determination of continued retailer eligibility and the payment of any fees fixed by the board.
B. The director may issue special licenses to persons for specific events and activities in accordance with the requirements of the department's agency's licensing procedures.
11VAC5-31-80. License fees.
An initial licensing fee up to $100 and an annual license fee up to $70 shall be collected from each lottery sales agent and shall be paid in accordance with the department's agency's licensing procedures. These fees are nonrefundable, unless otherwise determined by the director in his sole discretion or specified in the department's agency's procedures. The license fees shall be paid for each location.
11VAC5-31-130. Retailers' conduct.
A. Each retailer shall comply with all applicable state and federal laws and regulations, as well as all rules, policies and procedures of the department agency, license terms and conditions, specific rules for all applicable lottery games, directives and instructions that may be issued by the director, and licensing and equipment agreements and contracts signed by the retailer.
B. No retailer or his employee or agent shall attempt through any means whatsoever to identify or otherwise determine whether any unsold ticket creates a winning play. This includes, but is not limited to, trying to determine the numbers or symbols appearing under the removable latex or electronically produced coverings or otherwise attempting to identify unsold winning tickets. However, this shall not prevent the removal of the covering over the validation code or validation number after the ticket is sold.
C. No retailer or his employee or agent shall impose a fee or additional charge for selling a lottery game ticket or for cashing a winning lottery game ticket.
D. No retailer or his employee or agent shall purchase a winning lottery game ticket from a player at a discounted price.
11VAC5-31-140. Deposit of lottery receipts; interest and penalty for late payment; dishonored EFT transactions or checks.
A. Payments shall be due from retailers as specified by the director in accordance with department agency policies.
B. Any retailer who fails to make payment when payment is due will be contacted by the department agency and instructed to make immediate deposit of the funds due. If the retailer is not able to deposit the necessary funds or if the item is returned to the department unpaid for a second time, the retailer's license may be inactivated. If inactivated, the license will not be reactivated until payment is made by cashier's check, certified check or EFT transaction, and if the retailer is deemed a continuing credit risk by the department agency, not until an informal conference is held to determine if the licensee is able and willing to meet the terms of his retailer contract. Additionally, interest may be charged on the moneys due plus a $25 penalty. The interest charge will be equal to the "Underpayment Rate" established pursuant to § 58.1-15 of the Code of Virginia. The interest charge will be calculated beginning the date following the retailer's due date for payment through the day preceding receipt of the late payment by the department agency for deposit.
C. In addition to the penalty authorized by subsection B of this section, the director may assess a $25 service charge against any retailer whose payment through EFT transaction or by check is dishonored.
D. The service charge, interest, and penalty charges may be waived if it is determined by the department agency that the event that otherwise would result in the assessment of a service charge, interest, or penalty is not in any way the fault of the lottery retailer.
11VAC5-31-160. Denial, suspension, revocation or noncontinuation of license.
A. The director may refuse to issue a license to a person if the person does not meet the eligibility criteria and standards for licensing as set out in § 58.1-4009 of the Code of Virginia, these regulations, and in the department's agency's licensing procedures, or if:
1. The person's place of business caters to or is frequented predominantly by persons under 18 years of age, but excluding family-oriented businesses;
2. The nature of the person's business constitutes a threat to the health or safety of prospective lottery patrons;
3. The nature of the person's business is not consonant with the probity of the Commonwealth;
4. The person has committed any act of fraud, deceit, misrepresentation, moral turpitude, or illegal gambling or engaged in conduct prejudicial to public confidence in the state lottery;
5. The person falsifies or misrepresents a material fact on any application, form, document, or data submitted during the licensure process;
6. The person has an unsatisfactory prior history, record, or performance with the lottery;
7. The person's place of business represents a substantial risk for the collection, deposit, preservation, accounting, or safeguarding of Commonwealth of Virginia Trust Funds, irrespective of the bond or surety provided by the person;
8. The person has been suspended permanently from a federal or state licensing or authorization program and that person has exhausted all administrative remedies pursuant to the respective agency's regulations or procedures; or
9. The proposed retailer's licensed location or locations does not comply with the requirements of the department's Retailer Accessibility Guidelines effective January 1, 2011, as applicable.
B. The director may suspend, revoke, or refuse to continue a license for any of the reasons enumerated in § 58.1-4012 of the Code of Virginia, in subsection A of this section, in the department's agency's procedures, or for any of the following reasons:
1. Failure to maintain the required lottery trust account;
2. Failure to comply with lottery game rules;
3. Failure to properly care for, or prevent the abuse of, the department's agency's equipment, or failure to properly position and display the vacuum fluorescent display or LED device;
4. Failure to meet minimum point-of-sale standards;
5. Failure to continue to meet the eligibility criteria and standards for licensing; or
6. Failure to comply with (i) any applicable law or statute, rule, policy, or procedure of the department agency; (ii) license terms and conditions; (iii) specific rules for all applicable department agency games; (iv) directives and instructions that may be issued by the director; and (v) licensing and equipment agreements and contracts signed by the retailer.
C. Any person refused a license under subsections A or B of this section may appeal the director's decision in the manner provided by 11VAC5-20-150.
D. Before taking action under subsection A or B of this section, the director will notify the retailer in writing of his intent to suspend, revoke or deny continuation of the license. The notification will include the reason or reasons for the proposed action and will provide the retailer with the procedures for requesting a conference. Such notice shall be given to the retailer in accordance with the provisions of the department's agency's regulations.
E. If the director deems it necessary in order to serve the public interest and maintain public trust in the lottery, he may temporarily suspend a license without first notifying the retailer. Such suspension will be in effect until any prosecution, hearing, or investigation into alleged violations is concluded.
F. A retailer shall surrender his license to the director by the date specified in the notice of revocation or suspension. The retailer shall also surrender the lottery property in his possession and give a final lottery accounting of his lottery activities by the date specified by the director.
11VAC5-31-170. License termination by retailer.
The licensed retailer may voluntarily terminate his license with the department agency by first notifying the department agency in writing at least 15 calendar days before the proposed termination date. The department agency will then notify the retailer of the date by which settlement of the retailer's account will take place. The retailer shall maintain his bond and the required accounts and records until settlement is completed and all lottery property has been surrendered.
11VAC5-31-180. Inspection of premises.
Each lottery retailer shall provide access during normal business hours or at such other times as may be required by the director or department agency representatives to enter the premises of the licensed retailer. The premises include the licensed location where lottery tickets are sold or any other location under the control of the licensed retailer where the director may have good cause to believe lottery materials, equipment, or tickets are stored or kept in order to inspect the licensed premises and inspect, or if necessary remove lottery materials, equipment, or tickets.
11VAC5-31-190. Examination of records and equipment; seizure of records and equipment.
A. Each lottery retailer shall make all books and records pertaining to his lottery activities available for inspection, auditing and copying, and make all equipment related to his lottery activities available for inspection, as required by the director or department agency representatives during normal business hours of the licensed retailer.
B. All books, records and equipment pertaining to the licensed retailer's lottery activities may be seized with good cause by the director or department agency representatives without prior notice.
11VAC5-31-200. Audit of records.
The director may require a lottery retailer to submit to the department agency an audit report conducted by an independent certified public accountant on the licensed retailer's lottery activities. The retailer shall be responsible for the cost of only the first such audit in any one license term.
NOTICE: The following forms used in administering the regulation were filed by the agency. The forms are not being published; however, online users of this issue of the Virginia Register of Regulations may click on the name of a form with a hyperlink to access it. The forms are also available from the agency contact or may be viewed at the Office of the Registrar of Regulations, General Assembly Building, 2nd Floor, Richmond, Virginia 23219.
FORMS (11VAC5-31)
Retailer License Application, SLD-0062 (rev. 10/07).
Retailer Contract (rev. 5/10).
Retailer License Application, VAL-0062 (rev. 9/14)
Retailer Contract (rev. 1/14)
11VAC5-41-10. Definitions for lottery games.
The following words and terms when used in any of the department's agency's regulations shall have the same meanings as defined in this chapter unless the context clearly indicates otherwise:
"Agency" means the Virginia Lottery created by Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Altered ticket" means a lottery ticket that has been forged, counterfeited, or tampered with in any manner.
"Board" means the State Virginia Lottery Board established by the State Virginia Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Breakage" means the money accumulated from the rounding down of the pari-mutuel prize levels to the next lowest whole dollar amount.
"Cashing retailer" means a department an agency licensed retailer that sells lottery products and is authorized to pay prizes.
"Computer gaming system" means any computer system owned, operated, or contracted by the department agency that supports the sale, redemption, or validation of lottery tickets or wagers.
"Coupon" is a device (electronic or paper or otherwise) that is approved by the department agency for redemption.
"Department" means the State Lottery Department created by State Lottery Law (Chapter 40 (§ 58.1-4000 et seq.) of Title 58.1 of the Code of Virginia).
"Director" means the Executive Director of the State Virginia Lottery Department or his designee.
"Drawing" means a formal process of randomly selecting numbers, names, or items in accordance with the specific game or promotion rules for games or promotions requiring the random selection of numbers, names, or items.
"Game" means any individual or particular type of lottery authorized by the board.
"Instant game" means a game that, when played, reveals or informs the player immediately whether he has won a prize, entry into a prize drawing, prize points, or any or all of the aforementioned as specified in game rules.
"Misprinted ticket" means a lottery ticket or play that contains a manufacturing, programming, or printing defect that causes the game to no longer play as defined in game rules or does not properly validate against the game's validation files.
"Natural person" means a human being, and not a corporation, company, partnership, association, trust or other entity.
"Prize" means any cash or noncash award to a holder of a winning entry or play.
"Prize structure" means the number, value, and odds of winning prizes for a game and the prize tiers within a game and the chances of winning a prize in each tier in an individual game as determined by the department agency and as specified in the game rules.
"Probability game" means a game in which all of the tickets sold are potentially winning tickets and the outcome of the game depends entirely upon the player's choice or choices during game play.
"Promotion" is defined as means an "added value" offer to consumers or licensed retailers sanctioned by the director or approved by the board when required.
"Roll stock" or "ticket stock" means the paper roll issued or approved for use by the department agency from which a unique lottery ticket is generated displaying the selected items or numbers.
"Scratch ticket" means a printed instant win ticket with a covering over the play area that when scratched reveals a specific result.
"Share" means a percentage of ownership in a winning ticket, play, or subscription plan.
"Terminal" means a device that is authorized by the department agency to function in an interactive mode with the department's agency's computer gaming system or systems for the purpose of issuing tickets, plays, or an electronic facsimile thereof, and entering, receiving, and processing game-related transactions.
"Terminal ticket" means a computer-generated or electronically-produced ticket issued through the computer gaming system by a retailer to a player as a receipt for the number, numbers, or items or combination of numbers or items the player has selected.
"Ticket number" means the preassigned unique number or combination of letters and numbers or barcode that identifies that particular ticket as one within a particular game or drawing.
"Validation" means the process of reviewing and certifying a lottery ticket to determine whether it is a winning ticket.
"Validation barcode" means the unique number or number-and-letter code or barcode used to determine whether a lottery ticket is a winning ticket.
"Winning ticket," "winning wager," or "winning play" means the ticket, wager, or play that meets the criteria and specific rules for winning prizes as published for each game by the director.
11VAC5-41-60. Drawing and selling times.
A. Drawings shall be conducted at times and places designated by the director and publicly announced by the department agency.
B. Retailers may sell tickets from new instant games upon receipt of the tickets from the department agency, but shall not sell tickets for an instant game after the announced end of that game.
C. Retailers may sell terminal tickets up to a designated time prior to the drawing as specified in the terminal game rules. That time will be designated by the director.
11VAC5-41-80. Scratch ticket returns.
A. Ticket sales to retailers are final. The department agency will not accept returned, unsold tickets for credit except as specifically authorized by and provided for in the department's agency's procedures.
B. Once tickets are accepted by a retailer, the department agency:
1. May hold the retailer financially responsible for the replacement of mutilated, damaged, or otherwise unaccounted for tickets.
2. Will not be responsible for lost, stolen, destroyed, or otherwise unaccounted for tickets, unless specifically authorized and provided for in the department's agency's procedures.
11VAC5-41-100. Validation requirements.
To receive payment for a prize, a Virginia lottery game ticket or play shall be validated by the retailer or the department agency as set out in this chapter and in any other manner that the director may prescribe in the specific rules for the lottery game, which shall include but not be limited to the following:
1. If the game's rules specify that the physical ticket must be presented for validation then:
a. The original ticket must be presented for validation;
b. The ticket shall not be mutilated, altered, or tampered with in any manner. If a ticket is partially mutilated or if the ticket is not intact and cannot be validated through normal procedures but can still be validated by other validation tests, the director may pay the prize for that ticket;
c. The ticket may not be misregistered or defectively printed to an extent that it cannot be processed by the department;
d. The ticket shall pass all other confidential security checks of the department agency;
e. The ticket validation number shall be present in its entirety; and
f. The ticket shall not be counterfeited, forged, fraudulently made, or a duplicate of another winning ticket.
2. Where a winning ticket or play has been issued by a terminal:
a. The ticket or play shall have been issued by the department agency or by a licensed lottery retailer in an authorized manner;
b. The terminal ticket or play shall not have been cancelled canceled or previously paid;
c. The terminal ticket or play shall be validated in accordance with procedures for claiming and paying prizes as set out in the game rules; and
d. The terminal ticket or play data shall have been recorded in the computer gaming system before the drawing or the instant game ticket sale, and the ticket data shall match this computer record in every respect.
3. If the games rules specify that a physical ticket, play, or record of play is not required for validation there may be other lottery requirements, as defined by the director, for winners to collect prizes.
11VAC5-41-110. Use of playslips.
A. A playslip issued by the department agency may be used to select a player's choice or choices to be played in a department-authorized an agency-authorized computer gaming system. If a playslip is used to select the player's choice or choices for use in a computer gaming system, the playslip selections shall be manually or electronically marked as authorized by the department's agency's game rules and not marked by any electro-mechanical, electronic printing, or other automated device, except for play utilizing materials or systems developed by the department agency.
B. Any playslip marked by methods other than those authorized by this chapter is invalid and subject to seizure by the department if presented for play at any lottery terminal. Any tickets produced from the use of invalid playslips are also invalid and subject to seizure by the department agency.
C. Nothing in this chapter shall be deemed to prevent a person with a physical handicap who is unable to mark a playslip manually from using any device intended to permit such person to make such a mark for his sole personal use or benefit.
11VAC5-41-120. Replacement of ticket.
If a misprinted or otherwise defective ticket is purchased, the department's agency's only liability or responsibility shall be to replace the misprinted ticket with an unplayed ticket of equal price from the same or another current game or to refund the purchase price of the defective ticket.
11VAC5-41-130. Terminal-generated winning tickets.
A. When more than one ticket containing the winning numbers is issued for the same drawing of the same game, the holder of each ticket is entitled only to his share of the prize, regardless of whether the other holders of tickets with the winning numbers actually claim their share of the prize.
B. The department agency shall not redeem prizes for tickets that would have been winning tickets but for the fact that they have been cancelled canceled by the retailer unless specifically authorized by the director.
C. When the department's agency's internal controls indicate that a winning ticket was issued but no claim is made for the prize, there shall be a rebuttable presumption that such ticket was in fact issued and the prize shall be paid in accordance with the provisions of § 58.1-4020 of the Code of Virginia and regulations of the department agency.
11VAC5-41-140. Where prizes claimed.
Winners may claim game prizes as specified in this chapter or in the game rules, including:
1. At department agency headquarters;
2. At a department an agency customer service center;
3. From a cashing retailer;
4. By mail; or
5. At any other location specifically authorized by the department agency.
11VAC5-41-150. Retailers' prize payment procedures.
Procedures for prize payments by retailers are as follows:
1. Retailers may pay cash prizes in cash, by certified check, cashier's check, business check, money order, other cash equivalent or by any combination of these methods.
2. If a check for payment of a prize by a retailer to a claimant is denied for any reason, the retailer is subject to the same service charge, interest and penalty payments for referring a debt to the department agency for collection that would apply if the check were made payable to the department agency. A claimant whose prize check is denied shall notify the department agency to obtain the prize.
3. During normal business hours of the lottery retailer with operational validation equipment by which the ticket claim can be validated, a lottery retailer shall pay any lottery prize of $600 or less, unless otherwise determined by the director, regardless of the location from which the winning ticket was purchased.
4. A prize claim shall be paid only at the location specified on the retailer's license or at a lottery office.
5. The department agency will reimburse a retailer for all valid prizes paid by the retailer within the specified prize redemption period for the game from which the prize resulted.
6. In no case shall a retailer impose a fee, additional charge or discount for cashing a winning lottery game ticket.
7. Retailers who pay claims without validating the tickets do so at their own financial risk.
11VAC5-41-160. No reimbursement for retailer errors.
Unless otherwise determined by the director, the department agency shall not reimburse retailers for prize claims a retailer has paid in error or for which a retailer failed to properly and completely validate the lottery game tickets in accordance with department agency procedures.
11VAC5-41-170. When prize shall be claimed from the department agency.
A. The department agency will pay prizes in any of the following circumstances:
1. If a retailer cannot validate a claim which that the retailer otherwise would pay, the ticket holder shall present the original signed ticket to any department agency office including the department's agency's headquarters or mail the signed ticket to the department's agency's headquarters;
2. If a ticket holder is unable to return to any retailer to claim a prize that the retailer otherwise would pay, the ticket holder may present the original signed ticket at any department agency office or mail the signed ticket to the department's agency's headquarters;
3. If the prize amount is more than $600, the ticket holder may present the original signed ticket at any department agency office or mail the signed ticket to the department agency headquarters; or
4. Where an electronic entry or an electronic record of a ticket is permitted, a presentation of a physical ticket may not be required to claim a prize.
B. The department agency may require a claim form.
C. A player shall bear all risk of loss or damage by sending the ticket through the mail.
11VAC5-41-180. Department Agency action on claims for prizes submitted to department agency.
A. The department agency shall validate the winning ticket claim according to procedures contained in this chapter.
B. If the claim cannot be validated, the department agency will promptly notify the ticket holder.
C. If the claim is mailed to the department agency and the department agency validates the claim, a check for the prize amount, merchandise, or experiential prizes will be presented or mailed to the winner.
D. If an individual presents a claim to the department agency in person and the department agency validates the claim, a check for the prize amount, merchandise, or experiential prizes will be presented to the winner.
11VAC5-41-190. Withholding, notification of prize payments.
A. When paying any prize in excess of $600, the department agency shall:
1. File the appropriate income reporting forms with the Virginia Department of Taxation and the federal Internal Revenue Service; and
2. Withhold federal and state taxes from any winning ticket in accordance with the tax regulation in effect at the time.
B. Additionally, when paying any cash prize of $100 or more, the department agency shall withhold any moneys due for delinquent debts as provided by the Commonwealth's Setoff Debt Collection Act, Article 21 (§ 58.1-520 et seq.) of Chapter 3 of Title 58.1 of the Code of Virginia.
11VAC5-41-220. How prize claim entered.
A prize claim shall be entered in the name of a natural person as prescribed by § 58.1-4019 B of the Code of Virginia. In all cases, the identity and social security number of all natural persons who receive a prize or share of a prize greater than $100 from a winning ticket redeemed at any department agency office shall be provided.
1. A nonresident alien shall furnish his Immigration and Naturalization Service (INS) Number.
2. Two or more natural persons claiming a single prize may file IRS Form 5754, "Statement by Person(s) Receiving Gambling Winnings," with the department agency. This form designates to whom winnings are to be paid and the person or persons to whom winnings are taxable.
3. Two or more natural persons wishing to divide a jackpot prize shall complete an "Agreement to Share Ownership and Proceeds of Lottery Ticket" form. The filing of this form is an irrevocable election that may only be changed by an appropriate judicial order.
11VAC5-41-230. Delay of payment allowed.
A. Subject to the provisions in § 58.1-4013 D of the Code of Virginia, the director may refrain from making payment of a prize pending a final determination by the director under any of the following circumstances:
1. If a dispute arises, or it appears that a dispute may arise, relative to any ownership of a winning ticket or any prize;
2. If there is any question regarding the identity of the claimant;
3. If there is any question regarding the validity of any ticket presented for payment;
4. If there is any question whether a claimant has made a valid cash option election; or
5. If the claim is subject to any set off for delinquent debts owed to any agency eligible to participate in the Setoff Debt Collection Act (Article 21 (§ 58.1-520 et seq.) of Chapter 3 of Title 58.1 of the Code of Virginia) if the agency has registered such debt with the Virginia Department of Taxation and timely notice of the debt has been furnished by the Virginia Department of Taxation to the department.
B. The director may, at any time, delay any periodic or installment payment in order to review a change in circumstance relative to the prize awarded, the payee, the claim, or any other matter that has been brought to the department's agency's attention. All delayed installments shall be brought up to date immediately upon the director's confirmation. Delayed installments shall continue to be paid according to the original payment schedule after the director's decision is given.
C. No liability for interest for any delay of any prize payment in accordance with subsections A and B of this section, or any delay beyond the department's agency's control, shall accrue to the benefit of the claimant pending payment of the claim. The department agency is neither liable for nor has it any responsibility to resolve disputes between or among competing claimants.
11VAC5-41-250. Using winners' names and information.
The department agency can use a winner's name and the city, town, or county in which a winner lives, as well as the prizes won, for public information purposes and to foster the integrity of the games. The department agency may require prize winners to participate in news conferences. The department agency can use the winner's information described in this section and winner's photographs for public information or promotional purposes in mediums such as, but not limited to, the department's agency's website (www.valottery.com), social media, in-store, television, Internet, and radio. No consideration shall be paid by the department agency for these purposes.
11VAC5-41-290. Liability ends with prize payment.
All liability of the Commonwealth, its officials, officers and employees, and of the department agency, the board, the director and employees of the department agency, terminates upon final payment of a lottery prize, or sooner if so provided in the game rules or these regulations.
11VAC5-41-300. Marking tickets prohibited; exceptions.
Marking of tickets in any way is prohibited except by a player to play a game according to the rules of that specific game or to claim a prize or by the department agency or a retailer to identify or to void the ticket.
11VAC5-41-310. Lost, stolen, or destroyed tickets.
The department agency is not liable for lost, stolen, or destroyed tickets. The director may honor a prize claim of an apparent winner who does not possess the original ticket if the claimant is in possession of information that demonstrates that the original ticket meets the following criteria and can be validated through other means. Such information may include, but is not limited to, the following:
1. The claim form, if required, and a photocopy of the ticket, or photocopy of the original claim form, if required, and ticket, are timely filed with the department agency;
2. The prize for which the claim is filed is a winning prize that has not been claimed, as verified in the department's agency's records.
3. The claim is filed within the redemption period, as established by the game rules; and
4. Except in extenuating circumstances or for just cause as the director may deem appropriate, the redemption period for claims has expired.
11VAC5-41-320. Unclaimed prizes.
A. Except for a free ticket prize, a claim for a lottery game winning ticket must be mailed in an envelope bearing a postmark of the United States Postal Service or another sovereign nation or received for payment as prescribed in this chapter within either 180 days after the date of the drawing for which the ticket was purchased, or of the event which that caused the ticket to be a winning entry, or, in the case of an instant game ticket, within 180 days after the announced end of the game. In the event that the 180th day falls on a Saturday, Sunday, or legal holiday, the winning ticket will be accepted for validation on the next business day only at a lottery office.
B. Any lottery cash prize that remains unclaimed after either 180 days following the drawing that determined the prize or 180 days after the announced end of the instant game shall revert to the State Literary Fund. Cash prizes do not include free ticket prizes or other noncash prizes such as merchandise, vacations, admission to events and the like.
C. All claims for terminal game winning tickets for which the prize is a free ticket must be mailed in an envelope bearing a postmark of the United States Postal Service or another sovereign nation or received for redemption as prescribed in this chapter within 180 days after the date of the drawing for which the ticket was purchased. In the event the 180th day falls on a Saturday, Sunday, or legal holiday, a claimant may only redeem his winning ticket for a free ticket at a cashing retailer on or before the 180th day.
Except for claims for free ticket prizes mailed to lottery headquarters and postmarked on or before the 180th day, claims for such prizes will not be accepted at any lottery office after the sixtieth 60th day. This section does not apply to the redemption of free tickets awarded through the subscription program.
D. Any instant game winning ticket of $25 or less that has been purchased, but that is not claimed within 180 days after the announced end of the instant game, shall revert to the State Virginia Lottery Fund.
E. In case of a prize payable over time, if such prize is shared by two or more winning tickets, one or more of which is not presented to the department agency for payment within the prize redemption period as established by the game rules, the department agency will transfer that portion of the prize to the State Literary Fund in accordance with procedures approved by the State Treasurer.
F. In accordance with the provisions of the Servicemembers Civil Relief Act of 1940 (50 USC App § 526), any person while in active military service may claim exemption from the 180-day ticket redemption requirement. Such person, however, must claim his winning ticket or share as soon as practicable, and in no event later than 180 days after discharge from active military service.
VA.R. Doc. No. R15-4146; Filed September 4, 2014, 2:41 p.m.
TITLE 12. HEALTH
STATE BOARD OF HEALTH
Fast-Track Regulation
Title of Regulation: 12VAC5-31. Virginia Emergency Medical Services Regulations (amending 12VAC5-31-1140).
Statutory Authority: §§ 32.1-12 and 32.1-111.4 of the Code of Virginia.
Public Hearing Information: No public hearings are scheduled.
Public Comment Deadline: November 5, 2014.
Effective Date: November 24, 2014.
Agency Contact: Michael Berg, Regulatory and Compliance Manager, Department of Health, 1041 Technology Park Drive, Glen Allen, VA 23059-4500, telephone (804) 888-9131, or email michael.berg@vdh.virginia.gov.
Basis: Chapters 191 and 328 of the 2013 Acts of Assembly amended § 54.1-3408 of the Code of Virginia permitting certified emergency medical services (EMS) personnel acting within their scope of practice to administer drugs and devices pursuant to an oral or written order or standing protocol. Before the Office of EMS (OEMS) could remove language in the Virginia Emergency Services Regulations (12VAC5-31) that requires EMS personnel to obtain the signature of the medical practitioner who assumes responsibility for the patient, the Board of Pharmacy had to first remove language pertaining to medical practitioner signature in its existing regulations in 12VAC110-20-500. The Board of Pharmacy met on June 18, 2013, and adopted changes in regulation that became effective September 25, 2013. Section 32.1-111.4 of the Code of Virginia provides the statutory authority for the State Board of Health to promulgate these regulations.
Purpose: Each licensed EMS agency is required to have an operational medical director (OMD) who meets specific criteria outlined in the EMS Regulations. Certified EMS providers work under the direction and authorization of the OMD to include performing medical procedures and drug administration. Requiring a medical practitioner to sign patient care reports (electronic or otherwise) documenting drug administration or procedures with which they may not be familiar is onerous to the emergency department practitioner and unnecessary. Approved patient care guidelines (protocols) already exist authorizing the EMS provider to perform the drug administration or medical procedure under the authorization of the OMD. There is documentation (medication administration record) that is part of the patient care report showing what is administered or performed and signed by the EMS provider. This action removes extra, unwanted demands on an already burdened medical practitioner in an emergency department, while maintaining a process that can be documented and establishes accountability and protects the health, safety, and welfare of patients.
Rationale for Using Fast-Track Process: This action eliminates unnecessary requirements and additional burdensome documentation for the medical practitioner. Key stakeholder groups and members of the EMS system support this change and no opposition is anticipated or has been voiced for this regulatory change.
Substance: The amendment removes subsection B of 12VAC5-31-1140, which requires the signature of the prescriber.
Emergency medical services providers are certified and authorized to administer drugs pursuant to the regulations of the State Board of Health and an oral or written order or standing protocol of their operational medical director. This amendment allows the EMS provider to document the administration of a drug or procedure as part of the "protocols" as established by their contracted OEMS-approved operational medical director. The drug administration documentation is supported by the Board of Pharmacy regulations (18VAC110-20-500). This amendment will reduce the amount of time an agency needs to be out of service to gain signatures prior to the exchanging of drug kits within facilities and returning the units back to service.
Issues: An advantage to the EMS unit and the public is that amending the identified regulation will permit a quicker "in-service" time for the unit to prepare for the next request for service. The time spent seeking a medical practitioner's signature for medication administration or a specific procedure only delays the in-service time for a response unit. Delays in returning EMS units to service can be particularly troubling in high volume systems or in a rural agency with limited resources trying to meet EMS call demands. There are no disadvantages to the public or the Commonwealth.
Department of Planning and Budget's Economic Impact Analysis:
Summary of the Proposed Amendments to Regulation. The State Board of Health (Board) proposes to eliminate the requirement to have a medical practitioner sign a patient care report (electronic or otherwise) attesting to the delivery of a drug or the performance of an invasive procedure when Emergency Medical Services (EMS) personnel administer drugs, perform invasive procedures or assist patients with their medications.
Result of Analysis. The benefits likely exceed the costs for all proposed changes.
Estimated Economic Impact. Each licensed EMS agency is required to have an Operational Medical Director (OMD) who meets criteria specified in the EMS Regulations. Certified EMS providers work under the direction and authorization of the OMD performing medical procedures and drug administration.
If an EMS provider caring for a patient determines that an invasive procedure is required and that a drug needs to be administered, they can do so under the authorization of the OMD. In most cases, the supplies needed for this action are from a drug kit supplied by the hospital, stocked by and sealed by the pharmacist-in-charge. Once this box is opened, there is documentation by the EMS provider noting the procedures and the drugs administered.
Under the current regulation, the EMS provider needs to track down the practitioner at the receiving facility to have them also sign the documentation. In the event the practitioner refuses to sign the document, the OMD would have 7 days to sign the documentation. Until the documentation is signed by the practitioner, the EMS agency cannot exchange the used kit for a new kit. Finding the practitioner to sign the form, then going to the pharmacy (which may not be on the same floor) can often add significant time before an ambulance at the facility is ready for service for the next call. This has led to ambulances waiting significant times at hospitals for staff to get signatures in order to exchange their drug kit, keeping the ambulances from potentially answering waiting calls for service.
The Board's proposal to eliminate the requirement to have a medical practitioner sign a patient care report attesting to the delivery of a drug or the performance of an invasive procedure when EMS personnel administer drugs, perform invasive procedures or assist patients with their medications would effectively reduce the amount of time an EMS agency at a hospital needs to be out of service to gain signatures prior to the exchanging of drug kits within facilities and returning the units back to service. Effectively this would eliminate unnecessary administrative time spent by the medical practitioner and unnecessary delays in ambulance availability without compromising patient care since the certified EMS providers do work under the direction of the OMD. Thus the proposal, if implemented, should create a net benefit.
Businesses and Entities Affected. The proposed amendment affects the 680 licensed Emergency Medical Services agencies in Virginia.1
Localities Particularly Affected. The proposed amendment does not disproportionately affect particular localities.
Projected Impact on Employment. The proposed amendment is unlikely to significantly affect employment.
Effects on the Use and Value of Private Property. According to data provided by the Virginia Department of Health, 78 of the 680 licensed Emergency Medical Services agencies are commercial entities. The proposed amendment will enable these firms to reduce delays in providing their services.
Small Businesses: Costs and Other Effects. Most of the 78 commercial licensed Emergency Medical Services agencies are likely small businesses. The proposed amendment will enable these firms to reduce delays in providing their services.
Small Businesses: Alternative Method that Minimizes Adverse Impact. The proposed amendment does not adversely affect small businesses.
Real Estate Development Costs. The proposed amendment does not significantly affect real estate development costs.
Legal Mandate. General: The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Code of Virginia and Executive Order Number 14 (2010). Section 2.2-4007.04 requires that such economic impact analyses determine the public benefits and costs of the proposed amendments. Further the report should include but not be limited to:
• the projected number of businesses or other entities to whom the proposed regulatory action would apply,
• the identity of any localities and types of businesses or other entities particularly affected,
• the projected number of persons and employment positions to be affected,
• the projected costs to affected businesses or entities to implement or comply with the regulation, and
• the impact on the use and value of private property.
Small Businesses: If the proposed regulatory action will have an adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include:
• an identification and estimate of the number of small businesses subject to the proposed regulation,
• the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the proposed regulation, including the type of professional skills necessary for preparing required reports and other documents,
• a statement of the probable effect of the proposed regulation on affected small businesses, and
• a description of any less intrusive or less costly alternative methods of achieving the purpose of the proposed regulation.
Additionally, pursuant to § 2.2-4007.1, if there is a finding that a proposed regulation may have an adverse impact on small business, the Joint Commission on Administrative Rules (JCAR) is notified at the time the proposed regulation is submitted to the Virginia Register of Regulations for publication. This analysis shall represent DPB's best estimate for the purposes of public review and comment on the proposed regulation.
___________________________________________
1 Data source: Virginia Department of Health (as of March 27, 2014)
Agency's Response to Economic Impact Analysis: The Virginia Department of Health concurs with the economic impact analysis prepared by the Department of Planning and Budget.
Summary:
The amendments eliminate the requirement to have a medical practitioner sign a patient care report (electronic or otherwise) attesting to the delivery of a drug or the performance of an invasive procedure by an emergency medical services provider.
12VAC5-31-1140. Provision of patient care documentation.
A. EMS personnel and EMS agencies shall provide the receiving medical facility or transporting EMS agency with a copy of the prehospital patient care report for each patient treated at the time of patient transfer. Should EMS personnel be unable to provide the full prehospital patient care report at the time of patient transfer, EMS personnel shall provide an abbreviated documented report with the critical EMS findings and actions at the time of patient transfer and the full prehospital patient care report shall be provided to the accepting facility within 12 hours.
B. The signature of the prescriber, as defined in § 54.1-3401 of the Code of Virginia, who assumes responsibility for the patient shall be included on the prehospital patient care report for an incident when a drug is administered, or self-administration is assisted (excluding oxygen), or an invasive procedure is performed. EMS personnel shall not infer that the prescriber's signature denotes approval, authorization or verification of compliance with protocol, standing orders or medical control orders.
The receiving prescriber signature requirement above does not apply to drugs that are maintained by EMS personnel during transport of patients between healthcare facilities, provided adequate documentation of ongoing drugs are transferred with the patient by the sending facility.
If a patient is not transported to the hospital or if the attending prescriber at the hospital refuses to sign the prehospital patient care report, the PPCR shall be signed by the agency's operational medical director within seven days of the administration and a signed copy delivered to the hospital pharmacy that was responsible for any drug kit exchange.
VA.R. Doc. No. R15-3900; Filed September 8, 2014, 3:46 p.m.
TITLE 12. HEALTH
DEPARTMENT OF MEDICAL ASSISTANCE SERVICES
Final Regulation
Title of Regulation: 12VAC30-20. Administration of Medical Assistance Services (amending 12VAC30-20-180).
Statutory Authority: § 32.1-325 of the Code of Virginia; Title XIX, 42 USC § 1396 et seq.
Effective Date: November 6, 2014.
Agency Contact: Bonnie Winn, Manager, Program Operations Division, Department of Medical Assistance Services, 600 East Broad Street, Richmond, VA 23219, telephone (804) 786-2621, FAX (804) 786-1680, or email bonnie.winn@dmas.virginia.gov.
Summary:
Pursuant to Item 300 H of Chapter 890 of the 2011 Acts of Assembly, the amendments require (i) fee-for-service Medicaid providers to electronically submit claims for services rendered to Medicaid and FAMIS individuals and (ii) providers' payments to be provided by electronic funds transfers. Amendments allow for exceptions to these electronic filing/payment requirements when certain specified standards are met and do not affect the eight Medicaid managed care organizations because they do not file individual claims for services but already file electronic encounter data.
Summary of Public Comments and Agency's Response: No public comments were received by the promulgating agency.
12VAC30-20-180. Definition of a claim by service.
A. Claims.
SERVICE | CLAIM |
A) Inpatient Hospital | A Bill for Service |
B) Outpatient Hospital | A Bill for Service |
C) Rural Health Clinic | A Line Item for Service |
D) Laboratory and X-Ray | A Line Item of Service |
E) Skilled Nursing | A Bill for Service |
F) EPSDT | A Bill for Service |
G) Family Planning | A Bill for Service or Line Item depending on provider type |
H) Physician | A Line Item of Service |
I) Other Medical | A Bill for Service or Line Item depending on provider type |
J) Home Health | A Bill for Service |
K) Clinic | A Line for Service Item |
L) Dental | A Line Item of Service |
M) Pharmacy | A Line Item of Service |
N) Intermediate Care | A Bill for Service |
O) Transportation | A Line Item of Service |
P) Physical Therapy | A Bill for Service or Line Item depending on provider type |
Q) Nurse Midwife | A Line Item of Service |
R) Eyeglasses | A Line Item of Service |
B. All providers that enroll with Medicaid on or after October 1, 2011, shall submit electronically all claims for covered services they render in the fee-for-service program under the State Plans for Title XIX and XXI of the Social Security Act, and any waivers thereof, and enroll to receive electronic funds transfer (EFT) for payment of those services. All other providers shall comply with this electronic submission requirement by July 1, 2012.
1. Any provider who cannot comply with this electronic claims submission or EFT requirement may request an exception from DMAS for good cause shown.
2. Good cause may include, but is not limited to, (i) the unavailability of the infrastructure necessary to support electronic claims submission in the provider's geographic region; (ii) the absence of a mechanism for electronic submission for the particular claim type, such as in the case of a temporary detention order; (iii) the provider's inability to transact business through a banking institution capable of EFT; or (iv) financial hardship.
VA.R. Doc. No. R13-2789; Filed September 8, 2014, 2:02 p.m.
TITLE 14. INSURANCE
STATE CORPORATION COMMISSION
Proposed Regulation
REGISTRAR'S NOTICE: The State Corporation Commission is claiming an exemption 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.
Titles of Regulations: 14VAC5-70. Rules Governing Accelerated Benefits Provisions (amending 14VAC5-70-130).
14VAC5-200. Rules Governing Long-Term Care Insurance (amending 14VAC5-200-140, 14VAC5-200-153).
14VAC5-310. Rules Governing Actuarial Opinions and Memoranda (amending 14VAC5-310-10 through 14VAC5-310-50, 14VAC5-310-90).
14VAC5-319. Life Insurance Reserves (amending 14VAC5-319-10).
14VAC5-321. Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits (amending 14VAC5-321-10, 14VAC5-321-30, 14VAC5-321-40).
14VAC5-322. Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities (amending 14VAC5-322-10).
14VAC5-323. Rules Governing Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values (amending 14VAC5-323-10, 14VAC5-323-40, 14VAC5-323-50).
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 Comment Deadline: October 31, 2014.
Agency Contact: Raquel C. 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 update the Code of Virginia citations that will be effective January 1, 2015, to reflect changes enacted by Chapter 571 of the 2014 Acts of Assembly. Chapter 571 is based on revisions to the National Association of Insurance Commissioners' (NAIC) Standard Valuation Law model, which was adopted by the NAIC in 2009. The revised model authorizes a principle-based reserve (PBR) basis for life, annuity, and accident and health contracts, and requires the use of a Valuation Manual, which contains both PBR and non-PBR requirements, as well as actuarial opinion and corporate governance requirements.
AT RICHMOND, SEPTEMBER 16, 2014
COMMONWEALTH OF VIRGINIA, ex rel.
STATE CORPORATION COMMISSION
CASE NO. INS-2014-00202
Ex Parte: In the matter of Amending the
Rules Governing Accelerated Benefits Provisions;
the Rules Governing Long-Term Care Insurance;
the Rules Governing Actuarial Opinions and Memoranda;
Life Insurance Reserves; Use of the 2001 CSO
Mortality Table in Determining Reserve Liabilities
and Nonforfeiture Benefits; Use of the 2001 CSO
Preferred Class Structure Mortality Table in
Determining Reserve Liabilities; and
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 ("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 Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, entitled Rules Governing Accelerated Benefits Provisions, 14 VAC 5-70-10 et seq.; Rules Governing Long-Term Care Insurance, 14 VAC 5-200-10 et seq.; Rules Governing Actuarial Opinions and Memoranda, 14 VAC 5-310-10 et seq.; Life Insurance Reserves, 14 VAC 5-319-10 et seq.; Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, 14 VAC 5-321-10 et seq.; Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, 14 VAC 5-322-10 et seq.; and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, 14 VAC 5-323-10 et seq. (collectively, "Rules"), respectively, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5‑310‑10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5‑323-40; and 14 VAC 5-323-50.
The proposed amendments to the Rules are necessary to implement the provisions of House Bill 631 passed by the 2014 General Assembly, which amends the Code by adding in Chapter 13 of Title 38.2 an Article numbered 10, consisting of sections numbered 38.2-1365 through 38.2-1385. The revised rules replace the current citations to Title 38.2 of the Code with citations that will be effective on January 1, 2015.
NOW THE COMMISSION is of the opinion that the proposed amendments submitted by the Bureau to amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5‑321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 should be considered for adoption.
Accordingly, IT IS ORDERED THAT:
(1) The proposed amendments to Rules Governing Accelerated Benefits Provisions, Rules Governing Long-Term Care Insurance, Rules Governing Actuarial Opinions and Memoranda, Life Insurance Reserves, Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 are attached hereto and made a part hereof.
(2) All interested persons who desire to comment in support or in opposition to, or request a hearing to oppose amending Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, shall file such comments or hearing request on or before October 31, 2014, 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/case. All comments shall refer to Case No. INS-2014-00202.
(3) If no written request for a hearing on the proposal to amend Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code is received on or before October 31, 2014, the Commission, upon consideration of any comments submitted in support 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 every entity that is licensed, approved, registered, or accredited in Virginia under the provisions of Tile 38.2 of the Code and also subject to solvency regulation in this Commonwealth pursuant to the provisions of Title 38.2 of the Code, 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.
14VAC5-70-130. Actuarial disclosure and reserves.
A. A qualified actuary shall be required to describe the accelerated benefits, the risks, the expected costs and the calculation of statutory reserves in an actuarial memorandum accompanying each filing. The insurer shall maintain in its files descriptions of the bases and procedures used to calculate benefits payable under these provisions. These descriptions shall be made available for examination by the commission upon request.
B. 1. When benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves shall be determined in accordance with §§ 38.2-3126 38.2-1365 through 38.2-3144 38.2-1385 of the Code of Virginia. All valuation assumptions used in constructing the reserves shall be determined as appropriate for statutory valuation purposes by a member in good standing of the American Academy of Actuaries. Mortality tables and interest currently recognized for life insurance reserves by the National Association of Insurance Commissioners may be used as well as appropriate assumptions for the other provisions incorporated in the policy form. The actuary must follow both actuarial standards and certification for good and sufficient reserves. Reserves in the aggregate should be sufficient to cover:
a. Policies upon which no claim has yet arisen.
b. Policies upon which an accelerated claim has arisen.
2. For policies and certificates which provide actuarially equivalent benefits, no additional reserves need to be established.
3. Policy liens and policy loans, including accrued interest, represent assets of the company for statutory reporting purposes. For any policy on which the policy lien exceeds the policy's statutory reserve liability such excess must be held as a nonadmitted asset.
14VAC5-200-140. Reserve standards.
A. When long-term care benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves for such benefits shall be determined in accordance with subdivision 7 of § 38.2-3130 38.2-1369 of the Code of Virginia. Claim reserves must also be established in the case when such policy or rider is in claim status. Reserves for policies and riders subject to this subsection should be based on the multiple decrement model utilizing all relevant decrements except for voluntary termination rates. Single decrement approximations are acceptable if the calculation produces essentially similar reserves, if the reserve is clearly more conservative, or if the reserve is immaterial. The calculations may take into account the reduction in life insurance benefits due to the payment of long-term care benefits. However, in no event shall the reserves for the long-term care benefit and the life insurance benefit be less than the reserves for the life insurance benefit assuming no long-term care benefit. In the development and calculation of reserves for policies and riders subject to this subsection, due regard shall be given to the applicable policy provisions, marketing methods, administrative procedures and all other considerations which have an impact on projected claim costs, including, but not limited to, the following:
1. Definition of insured events;
2. Covered long-term care facilities;
3. Existence of home convalescence care coverage;
4. Definition of facilities;
5. Existence or absence of barriers to eligibility;
6. Premium waiver provision;
7. Renewability;
8. Ability to raise premiums;
9. Marketing method;
10. Underwriting procedures;
11. Claims adjustment procedures;
12. Waiting period;
13. Maximum benefit;
14. Availability of eligible facilities;
15. Margins in claim costs;
16. Optional nature of benefit;
17. Delay in eligibility for benefit;
18. Inflation protection provisions; and
19. Guaranteed insurability option.
Any applicable valuation morbidity table shall be certified as appropriate as a statutory valuation table by a member of the American Academy of Actuaries.
B. When long-term care benefits are provided other than as in Subsection subsection A above of this section, reserves shall be determined in accordance with subdivision 7 of § 38.2-3130 of the Code of Virginia 14VAC5-320.
14VAC5-200-153. Premium rate schedule increases.
A. This section applies to any long-term care policy or certificate issued in this Commonwealth on or after October 1, 2003.
B. An insurer shall request the commission's approval of a pending premium rate schedule increase, including an exceptional increase, prior to the notice to the policyholders and shall include:
1. Information required by 14VAC5-200-75;
2. Certification by a qualified actuary that:
a. If the requested premium rate schedule increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized, no further premium rate schedule increases are anticipated;
b. The premium rate filing is in compliance with the provisions of this section;
3. An actuarial memorandum justifying the rate schedule change request that includes:
a. Lifetime projections of earned premiums and incurred claims based on the filed premium rate schedule increase; and the method and assumptions used in determining the projected values, including reflection of any assumptions that deviate from those used for pricing other forms currently available for sale;
(1) Annual values for the five years preceding and the three years following the valuation date shall be provided separately;
(2) The projections shall include the development of the lifetime loss ratio, unless the rate increase is an exceptional increase;
(3) The projections shall demonstrate compliance with subsection C of this section; and
(4) For exceptional increases,
(a) The projected experience should be limited to the increases in claims expenses attributable to the approved reasons for the exceptional increase; and
(b) In the event the commission determines as provided in the definition of exceptional increase in 14VAC5-200-40 that offsets may exist, the insurer shall use appropriate net projected experience;
b. Disclosure of how reserves have been incorporated in this rate increase whenever the rate increase will trigger contingent benefit upon lapse;
c. Disclosure of the analysis performed to determine why a rate adjustment is necessary, which pricing assumptions were not realized and why, and what other actions taken by the company have been relied on by the actuary;
d. A statement that policy design, underwriting and claims adjudication practices have been taken into consideration; and
e. In the event that it is necessary to maintain consistent premium rates for new policies and policies receiving a rate increase, the insurer will need to file composite rates reflecting projections of new policies;
4. A statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the commission; and
5. Sufficient information for review and approval of the premium rate schedule increase by the commission.
C. All premium rate schedule increases shall be determined in accordance with the following requirements:
1. Exceptional increases shall provide that 70% of the present value of projected additional premiums from the exceptional increase will be returned to policyholders in benefits;
2. Premium rate schedule increases shall be calculated such that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:
a. The accumulated value of the initial earned premium times 58%;
b. Eighty-five percent of the accumulated value of prior premium rate schedule increases on an earned basis;
c. The present value of future projected initial earned premiums times 58%; and
d. Eighty-five percent of the present value of future projected premiums not in subdivision 2 c of this subsection on an earned basis;
3. In the event that a policy form has both exceptional and other increases, the values in subdivisions 2 b and d of this subsection will also include 70% for exceptional rate increase amounts; and
4. All present and accumulated values used to determine rate increases shall use the maximum valuation interest rate for contract reserves as specified in § 38.2-3132 of the Code of Virginia 14VAC5-320. The actuary shall disclose as part of the actuarial memorandum the use of any appropriate averages.
D. For each rate increase that is implemented, the insurer shall file for approval by the commission updated projections, as defined in subdivision B 3 a of this section, annually for the next three years and include a comparison of actual results to projected values. The commission may extend the period to greater than three years if actual results are not consistent with projected values from prior projections. For group insurance policies that meet the conditions in subsection K of this section, the projections required by subdivision B 3 a of this section shall be provided to the policyholder in lieu of filing with the commission.
E. If any increased premium rate in the revised premium rate schedule is greater than 200% of the comparable rate in the initial premium schedule, the premiums exceeding 200% shall be clearly identified and lifetime projections, as defined in subdivision B 3 a of this section, shall be filed for approval by the commission every five years following the end of the required period in subsection D of this section. For group insurance policies that meet the conditions in subsection K of this section, the projections required by this subsection shall be provided to the policyholder in lieu of filing with the commission.
F. 1. If the commission has determined that the actual experience following a rate increase does not adequately match the projected experience and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in subsection C of this section, the commission may require the insurer to implement any of the following:
a. Premium rate schedule adjustments; or
b. Other measures to reduce the difference between the projected and actual experience.
It is to be expected that the actual experience will not exactly match the insurer's projections. During the period that projections are monitored as described in subsections D and E of this section, the commission should determine that there is not an adequate match if the differences in earned premiums and incurred claims are not in the same direction (both actual values higher or lower than projections) or the difference as a percentage of the projected is not of the same order.
2. In determining whether the actual experience adequately matches the projected experience, consideration should be given to subdivision B 3 e of this section, if applicable.
G. If the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse, the insurer shall file:
1. A plan, subject to commission approval, for improved administration or claims processing designed to eliminate the potential for further deterioration of the policy form requiring further premium rate schedule increases or to demonstrate that appropriate administration and claims processing have been implemented or are in effect; otherwise the commission may impose the condition in subsection H of this section; and
2. The original anticipated lifetime loss ratio, and the premium rate schedule increase that would have been calculated according to subsection C of this section had the greater of the original anticipated lifetime loss ratio or 58% been used in the calculations described in subdivisions C 2 a and c of this section.
H. 1. For a rate increase filing that meets the following criteria, the commission shall review, for all policies included in the filing, the projected lapse rates and past lapse rates during the 12 months following each increase to determine if significant adverse lapsation has occurred or is anticipated:
a. The rate increase is not the first rate increase requested for the specific policy form or forms;
b. The rate increase is not an exceptional increase; and
c. The majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse.
2. In the event significant adverse lapsation has occurred, is anticipated in the filing or is evidenced in the actual results as presented in the updated projections provided by the insurer following the requested rate increase, the commission may determine that a rate spiral exists. Following the determination that a rate spiral exists, the commission may require the insurer to offer, without underwriting, to all in force insureds subject to the rate increase the option to replace existing coverage with any other long-term care insurance product being offered by the insurer or its affiliates.
a. The offer shall:
(1) Be subject to the approval of the commission;
(2) Be based on actuarially sound principles, but not be based on attained age; and
(3) Provide that maximum benefits under any new policy accepted by an insured shall be reduced by comparable benefits already paid under the existing policy.
b. The insurer shall maintain the experience of all the replacement insureds separate from the experience of insureds originally issued the policy forms. In the event of a request for a rate increase on the policy form, the rate increase shall be limited to the lesser of:
(1) The maximum rate increase determined based on the combined experience; or
(2) The maximum rate increase determined based only on the experience of the insureds originally issued the form plus 10%.
I. If the commission determines that the insurer has exhibited a persistent practice of filing inadequate initial premium rates for long-term care insurance, the commission may, in addition to the provisions of subsection H of this section, prohibit the insurer from either of the following:
1. Filing and marketing comparable coverage for a period of up to five years; or
2. Offering all other similar coverages and limiting marketing of new applications to the products subject to recent premium rate schedule increases.
J. Subsections A through I of this section shall not apply to policies for which the long-term care benefits provided by the policy are incidental, as defined in 14VAC5-200-40, if the policy complies with all of the following provisions:
1. The interest credited internally to determine cash value accumulations, including long-term care, if any, are guaranteed not to be less than the minimum guaranteed interest rate for cash value accumulations without long-term care set forth in the policy;
2. The portion of the policy that provides insurance benefits other than long-term care coverage meets the nonforfeiture requirements as applicable in any of the following:
a. Sections 38.2-3200 through 38.2-3218 of the Code of Virginia, and
b. Sections 38.2-3219 through 38.2-3229 of the Code of Virginia;
3. The policy meets the disclosure requirements of §§ 38.2-5207.1 and 38.2-5207.2 of the Code of Virginia;
4. The portion of the policy that provides insurance benefits other than long-term care coverage meets the requirements as applicable in the following:
a. Policy illustrations as required by 14VAC5-40 14VAC5-41; and
b. Disclosure requirements in 14VAC5-40 14VAC5-41;
5. An actuarial memorandum is filed with the commission that includes:
a. A description of the basis on which the long-term care rates were determined;
b. A description of the basis for the reserves;
c. A summary of the type of policy, benefits, renewability, general marketing method, and limits on ages of issuance;
d. A description and a table of each actuarial assumption used. For expenses, an insurer shall include percent of premium dollars per policy and dollars per unit of benefits, if any;
e. A description and a table of the anticipated policy reserves and additional reserves to be held in each future year for active lives;
f. The estimated average annual premium per policy and the average issue age;
g. A statement as to whether underwriting is performed at the time of application. The statement shall indicate whether underwriting is used and, if used, the statement shall include a description of the type or types of underwriting used, such as medical underwriting or functional assessment underwriting. Concerning a group policy, the statement shall indicate whether the enrollee or any dependent will be underwritten and when underwriting occurs; and
h. A description of the effect of the long-term care policy provision on the required premiums, nonforfeiture values and reserves on the underlying insurance policy, both for active lives and those in long-term care claim status.
K. Subsections F and H of this section shall not apply to group insurance policies as defined in subsections A and C of § 38.2-3521.1 of the Code of Virginia where:
1. The policies insure 250 or more persons and the policyholder has 5,000 or more eligible employees of a single employer; or
2. The policyholder, and not the certificateholders, pays a material portion of the premium, which shall not be less than 20% of the total premium for the group in the calendar year prior to the year a rate increase is filed.
14VAC5-310-10. Purpose.
The purpose of this chapter (14VAC5-310) is to prescribe:
1. Requirements for statements of actuarial opinion that are to be submitted in accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, and for memoranda in support thereof;
2. Rules applicable to the appointment of an appointed actuary; and
3. Guidance as to the meaning of "adequacy of reserves."
14VAC5-310-20. Authority; effective date.
This chapter (14VAC5-310) is adopted and promulgated by the commission pursuant to §§ 12.1-13, 38.2-223, and 38.2-3127.1 38.2-1367 of the Code of Virginia. This chapter will take effect for annual statements for the year-ending December 31, 1992. Except as otherwise specifically provided, revisions to this chapter shall be effective upon adoption by the commission and applicable as to annual statements and actuarial opinions, memoranda, and statements of reserves filed with the commission for periods ending on or after December 31 of the year in which the revision is adopted.
14VAC5-310-30. Scope.
A. This chapter (14VAC5-310) shall apply to all companies subject to the provisions of § 38.2-3127.1 38.2-1367 of the Code of Virginia, including fraternal benefit societies licensed under Chapter 41 (§ 38.2-4100 et seq.) of Title 38.2 and all other companies licensed under Title 38.2 of the Code of Virginia to write and reinsure policies or agreements providing any form of life, life insurance, or annuity benefits as those terms are defined in §§ 38.2-102 through 38.2-107.1 of the Code of Virginia and also to any life insurer authorized to write or reinsure accident and sickness insurance as defined in § 38.2-109 of the Code of Virginia.
B. This chapter shall be applied in a manner that allows the appointed actuary to utilize professional judgment in performing the asset analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards of practice unless the commission determines particular specifications are necessary for an acceptable opinion to be rendered relative to the adequacy of reserves and related items. Particular specifications, including specific methods of actuarial analysis and actuarial assumptions, may be promulgated by rule or order of the commission or by an administrative letter issued by the Commissioner of Insurance.
C. This chapter, as reflected in rules adopted by the commission by order entered November 5, 1992, in Case No. INS920377, shall be applicable to all annual statements filed with the commission on or after December 15, 1992, and before December 31, 2003. On and after December 31, 2003, a statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80, and a memorandum in support thereof in accordance with 14VAC5-310-90, shall be required each year in accordance with rules as revised and adopted by order of the commission entered in Case No. INS-2003-00165.
14VAC5-310-40. Definitions.
As used in this chapter unless the context clearly indicates otherwise:
"Actuarial opinion" means the opinion of an appointed actuary regarding the adequacy of reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80 and with applicable Actuarial Standards of Practice.
"Actuarial Standards Board" means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.
"Annual statement" means that statement required by § 38.2-1300 of the Code of Virginia to be filed by the company with the commission annually.
"Appointed actuary" means any individual who is appointed or retained in accordance with the requirements set forth in 14VAC5-310-50 C to provide the actuarial opinion and supporting memorandum as required by § 38.2-3127.1 38.2-1367 of the Code of Virginia.
"Asset adequacy analysis" means an analysis that meets the standards and other requirements referred to in 14VAC5-310-50 D.
"Commission" means the Virginia State Corporation Commission.
"Commissioner" means the Commissioner of Insurance in Virginia unless specific reference is made to another state, in which case "commissioner" means the Insurance Commissioner, Director, Superintendent or other supervising regulatory official of a given state who is responsible for administering the insurance laws of that state.
"Company" means a life insurer, company or fraternal benefit society subject to the provisions of this chapter.
"NAIC" means the National Association of Insurance Commissioners.
"Qualified actuary" means any individual who meets the requirements set forth in 14VAC5-310-50 B.
14VAC5-310-50. General requirements for actuarial opinions.
A. The following requirements apply to all companies submitting a statement of actuarial opinion in compliance with § 38.2-3127.1 38.2-1367 of the Code of Virginia.
1. There is to be included on or attached to page 1 of the annual statement for each year ending on or after December 31, 1992, the statement of an appointed actuary, entitled "Statement of Actuarial Opinion," setting forth an opinion relating to reserves and related actuarial items held in support of policies and contracts, in accordance with 14VAC5-310-80.
2. Upon written request by the company, the commission may grant an extension of the date for submission of the statement of actuarial opinion.
B. A "qualified actuary" is an individual who:
1. Is a member in good standing of the American Academy of Actuaries;
2. Is qualified to sign statements of actuarial opinion for life and health insurance company annual statements in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements;
3. Is familiar with the valuation requirements applicable to life and health insurance companies;
4. Has not been found by the commission (or if so found has subsequently been reinstated as a qualified actuary), following appropriate notice and hearing, to have:
a. Violated any provision of, or any obligation imposed by Title 38.2 of the Code of Virginia or other law in the course of his dealings as a qualified actuary;
b. Been found guilty of fraudulent or dishonest practices;
c. Demonstrated his incompetency, lack of cooperation, or untrustworthiness to act as a qualified actuary;
d. Submitted to the commission during the past five years, pursuant to this chapter, an actuarial opinion or memorandum that the commission rejected because it did not meet the provisions of this chapter, including standards set by the Actuarial Standards Board; or
e. Resigned or been removed as an actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of failure to adhere to generally acceptable actuarial standards; and
5. Has not failed to notify the commission of any action taken by the commissioner of any other state similar to that under subdivision 4 of this subsection.
C. An "appointed actuary" is a qualified actuary who is appointed or retained to prepare the statement of actuarial opinion required by this chapter, either directly by or by the authority of the board of directors through an executive officer of the company other than the qualified actuary. The company shall give the commission timely written notice of the name, title (and, in the case of a consulting actuary, the name of the firm) and manner of appointment or retention of each person appointed or retained by the company as an appointed actuary and shall state in such notice that the person meets the requirements set forth in 14VAC5-310-50 B. Once notice is furnished, no further notice is required with respect to this person, provided that the company shall give the commission timely written notice in the event the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements set forth in 14VAC5-310-50 B. If any person appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice shall so state and give the reasons for replacement.
D. The asset adequacy analysis required by this chapter shall:
1. Conform to the Actuarial Standards of Practice as promulgated from time to time by the Actuarial Standards Board and on any additional standards under this chapter, which standards are to form the basis of the statement of actuarial opinion in accordance with 5 this chapter; and
2. Be based on methods of analysis as are deemed appropriate for such purposes by the Actuarial Standards Board.
E. Liabilities shall be covered in conformity with the following:
1. Under authority of § 38.2-3127.1 38.2-1367 of the Code of Virginia, the statement of actuarial opinion shall apply to all in-force business on the statement date, whether directly issued or assumed, regardless of when or where issued, (e.g., reserves reportable for 2002 in Exhibits 5, 5A, 6, and 7 of the NAIC annual statement for life insurers; claim liabilities reported in Exhibit 8 (2002) in Part I of the life insurer's annual statement, and equivalent items in any separate account statement, or other annual financial statements filed pursuant to § 38.2-1300, 38.2-1301 or 38.2-4126 of the Code of Virginia).
2. If the appointed actuary determines as the result of asset adequacy analysis that a reserve should be held in addition to the aggregate reserve held by the company and calculated in accordance with methods set forth in § 38.2-1311, 38.2-3923, 38.2-4010, 38.2-4011, or § 38.2-4125 of the Code of Virginia; Article 3 (§ 38.2-3136 et seq.) 10 (§ 38.2-1365 et seq.) of Chapter 31 13 of Title 38.2 of the Code of Virginia; a rule or regulation of the commission applicable to the company; or any additional or further guidance provided by the NAIC Accounting Practices and Procedures Manual, whether in a Statement of Statutory Accounting Principle or in an actuarial guideline or other appendix, the company shall establish the additional reserve.
3. Additional reserves established under subdivision 2 of this subsection and deemed not necessary in subsequent years may be released. Any amounts released shall be disclosed in the actuarial opinion for the applicable year. The release of such reserves would not be deemed an adoption of a lower standard of valuation.
14VAC5-310-90. Description of actuarial memorandum issued for an asset adequacy analysis and regulatory asset adequacy issues summary.
A. The following general provisions shall apply with respect to the preparation and submission of the asset adequacy memorandum required by § 38.2-3127.1 38.2-1367 of the Code of Virginia.
1. In accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of his opinion regarding the reserves. The memorandum shall be made available for examination by the commission upon its request but shall be returned to the company after such examination and shall not be considered a record of the Bureau of Insurance or subject to automatic filing with the commission.
2. In preparing the memorandum, the appointed actuary may rely on, and include as a part of his memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of 14VAC5-310-50 B, with respect to the areas covered in such memoranda, and so state in their memoranda.
3. If the commission requests a memorandum and no such memorandum exists or if the commission finds that the analysis described in the memorandum fails to meet the standards of the Actuarial Standards Board or the standards and requirements of this chapter, the commission may designate a qualified actuary to review the opinion and prepare such supporting memorandum as is required for review. The reasonable and necessary expense of the independent review shall be paid by the company but shall be directed and controlled by the commission.
4. The reviewing actuary shall have the same status as an examiner for purposes of obtaining data from the company and the work papers and documentation of the reviewing actuary shall be retained by the commission; however, any information provided by the company to the reviewing actuary and included in the work papers shall be considered as material provided by the company to the commission and shall be kept confidential to the same extent as is prescribed by law with respect to other material provided by the company to the commission pursuant to the statute governing this chapter. The reviewing actuary shall not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer pursuant to this chapter for any one of the current year or the preceding three years.
5. In accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a regulatory asset adequacy issues summary, the contents of which are specified in subsection C of this section. The regulatory asset adequacy issues summary shall be submitted no later than March 15 of the year following the year for which a statement of actuarial opinion based on asset adequacy is required. The regulatory asset adequacy issues summary is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.
B. A section of the memorandum shall document asset adequacy testing by demonstrating that the analysis has been done in accordance with the standards for asset adequacy referred to in 14VAC5-310-50 D and any additional standards under this chapter. It shall specify:
1. For reserves:
a. Product descriptions including market description, underwriting and other aspects of a risk profile, and the specific risks the appointed actuary deems significant;
b. Source of liability in force;
c. Reserve method and basis;
d. Investment reserves;
e. Reinsurance arrangements;
f. Identification of any explicit or implied guarantees made by the general account in support of benefits provided through a separate account policy or contract and the methods used by the appointed actuary to provide for the guarantees in the asset adequacy analysis; and
g. Documentation of assumptions to test reserves for (i) lapse rates, whether base or excess, (ii) interest crediting rate strategy, (iii) mortality, (iv) policyholder dividend strategy, (v) competitor or market interest rate, (vi) annuitization rates, (vii) commission and expenses, and (viii) morbidity.
The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumption.
2. For assets:
a. Portfolio descriptions, including a risk profile disclosing the quality, distribution and types of assets;
b. Investment and disinvestment assumptions;
c. Source of asset data;
d. Asset valuation bases; and
e. Documentation of assumptions made for (i) default costs, (ii) bond call function, (iii) mortgage prepayment function, (iv) determining market value for assets sold due to disinvestment strategy, and (v) determining yield on assets acquired through the investment strategy.
The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumption.
3. For the analysis basis:
a. Methodology;
b. Rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;
c. Rationale for degree of rigor in analyzing different blocks of business, including the rationale for the level of "materiality" that was used in determining how rigorously to analyze different blocks of business;
d. Criteria for determining asset adequacy, including in the criteria the precise basis for determining if assets are adequate to cover reserves under "moderately adverse conditions" or other conditions as specified in relevant actuarial standards of practice; and
e. Whether the impact of federal income taxes was considered and the method of treating reinsurance in the asset adequacy analysis.
4. Summary of material changes in methods, procedures, or assumptions from prior year's asset adequacy analysis;
5. Summary of results; and
6. Conclusion.
C. The regulatory asset adequacy issues summary shall contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and shall be signed and dated by the appointed actuary rendering the actuarial opinion. The regulatory asset adequacy issues summary also shall include each of the following:
1. Descriptions of the scenarios tested, including whether those scenarios are stochastic or deterministic, and the sensitivity testing done relative to those scenarios. If negative ending surplus results under certain tests in the aggregate, the actuary should describe those tests and the amount of additional reserve as of the valuation date which, if held, would eliminate the negative aggregate surplus values. Ending surplus values shall be determined by either extending the projection period until the in-force and associated assets and liabilities at the end of the projection period are immaterial or by adjusting the surplus amount at the end of the projection period by an amount that appropriately estimates the value that reasonably can be expected to arise from the assets and liabilities remaining in force;
2. The extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different from the assumptions used in the previous asset adequacy analysis;
3. The amount of reserves and the identity of the product lines that had been subjected to asset adequacy analysis in the prior opinion but were not subject to analysis for the current opinion;
4. Comments on any interim results that may be of significant concern to the appointed actuary. For example, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods;
5. The methods used by the actuary to recognize the impact of reinsurance on the company's cash flows, including both assets and liabilities, under each of the scenarios tested; and
6. Whether the actuary has been satisfied that all options whether explicit or embedded, in any asset or liability, including but not limited to those affecting cash flows embedded in fixed income securities, and equity-like features in any investments have been appropriately considered in the asset adequacy analysis.
D. The actuarial methods, considerations, and analyses shall conform to appropriate standards of practice and the memorandum shall include the following statement:
"Actuarial methods, considerations and analyses used in the preparation of this memorandum conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis for this memorandum."
E. An appropriate allocation of assets in the amount of Interest Maintenance Reserve (IMR), whether positive or negative, shall be used in any asset adequacy analysis. Analysis of risks regarding asset default shall include an appropriate allocation of assets supporting the Asset Valuation Reserve (AVR); these AVR assets shall not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks shall include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support. The amount of the assets used for the AVR shall be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.
14VAC5-319-10. Definitions.
The following words and terms when used in this regulation shall have the following meanings, unless the context clearly indicates otherwise:
"1980 CSO valuation tables" means the Commissioners' 1980 Standard Ordinary Mortality Table (1980 CSO Table) without 10-year selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law, and variations of the 1980 CSO Table approved by the NAIC, such as the smoker and nonsmoker versions approved in December 1983.
"Basic reserves" means reserves calculated in accordance with § 38.2-3137 38.2-1372 of the Code of Virginia.
"Commission" means the State Corporation Commission when acting pursuant to or in accordance with Title 38.2 of the Code of Virginia.
"Contract segmentation method" means the method of dividing the period from issue to mandatory expiration of a policy into successive segments, with the length of each segment being defined as the period from the end of the prior segment (from policy inception, for the first segment) to the end of the latest policy year as determined below. All calculations are made using the 1980 CSO valuation tables, as defined in this section, (or any other valuation mortality table adopted by the NAIC after January 1, 2000, and promulgated by regulation by the commission for this purpose) and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in 14VAC5-319-40 B.
The length of a particular contract segment shall be set equal to the minimum of the value t for which Gt is greater than Rt (if Gt never exceeds Rt, the segment length is deemed to be the number of years from the beginning of the segment to the mandatory expiration date of the policy), where Gt and Rt are defined as follows:
where:
x = original issue age;
k = the number of years from the date of issue to the beginning of the segment;
t = 1, 2,...; t is reset to 1 at the beginning of each segment; and
GPx+k+t-1 = Guaranteed gross premium per $1,000 of face amount for year t of the segment, ignoring policy fees only if level for the premium paying period of the policy.
where:
Rt may be increased or decreased by 1.0% in any policy year, at the company's option, but Rt shall not be less than one; and
x, k and t are as defined above; and
qx+k+t-1 = valuation mortality rate for deficiency reserves in policy year k+t but using the mortality of 14VAC5-319-40 B 2 if 14VAC5-319-40 B 3 is elected for deficiency reserves. However, if GPx+k+t is greater than 0 and GPx+k+t-1 is equal to 0, Gt shall be deemed to be 1,000. If GPx+k+t and GPx+k+t-1 are both equal to 0, Gt shall be deemed to be 0.
"Deficiency reserves" means the excess, if greater than 0, of (i) minimum reserves calculated in accordance with § 38.2-3141 38.2-1376 of the Code of Virginia over (ii) basic reserves.
"Guaranteed gross premiums" means the premiums under a policy of life insurance that are guaranteed and determined at issue.
"Maximum valuation interest rates" means the interest rates defined in § 38.2-3130 38.2-1371 of the Code of Virginia that are to be used in determining the minimum standard for the valuation of life insurance policies.
"NAIC" means the National Association of Insurance Commissioners.
"Scheduled gross premium" means the smallest illustrated gross premium at issue for other than universal life insurance policies. For universal life insurance policies, scheduled gross premium means the smallest specified premium described in 14VAC5-319-60 A 3 or, if none is so described, the minimum premium described in 14VAC5-319-60 A 4.
"Segmented reserves" means reserves, calculated using segments produced by the contract segmentation method, equal to the present value of all future guaranteed benefits less the present value of all future net premiums to the mandatory expiration of a policy, where the net premiums within each segment are a uniform percentage of the respective guaranteed gross premiums within the segment. The uniform percentage for each segment is such that, at the beginning of the segment, the present value of the net premiums within the segment equals:
1. The present value of the death benefits within the segment, plus
2. The present value of any unusual guaranteed cash value (see 14VAC5-319-50 D) occurring at the end of the segment, less
3. Any unusual guaranteed cash value occurring at the start of the segment, plus
4. For the first segment only, the excess of subdivision 4 a over subdivision 4 b of this definition, as follows:
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for in the first segment after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary within the first segment on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
b. A net one-year term premium for the benefits provided for in the first policy year.
The length of each segment is determined by the "contract segmentation method," as defined in this section.
The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the sum of the lengths of all segments of the policy.
For both basic reserves and deficiency reserves computed by the segmented method, present values shall include future benefits and net premiums in the current segment and in all subsequent segments.
"Tabular cost of insurance" means the net single premium at the beginning of a policy year for one-year term insurance in the amount of the guaranteed death benefit in that policy year.
"Ten-year select mortality factors" means the select factors adopted by the NAIC with the 1980 amendments to the NAIC Standard Valuation Law.
"This regulation" means Chapter 319 of Title 14 of the Virginia Administrative Code (14VAC5-319-10 et seq.), which also shall be known as the commission's Rules Establishing Minimum Valuation and Reserve Standards for Life Insurance Policies.
"Twenty-year select mortality factors" means the select factors adopted by the NAIC as part of the Valuation of Life Insurance Policies Model Regulation and shown in the tables in 14VAC5-319-70.
"Unitary reserves" means the present value of all future guaranteed benefits less the present value of all future modified net premiums, where:
1. Guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy; and
2. Modified net premiums are a uniform percentage of the respective guaranteed gross premiums, where the uniform percentage is such that, at issue, the present value of the net premiums equals the present value of all death benefits and pure endowments, plus the excess of subdivision 2 a over subdivision 2 b of this definition, as follows:
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
b. A net one-year term premium for the benefits provided for in the first policy year.
The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the length from issue to the mandatory expiration of the policy.
"Universal life insurance policy" means any individual life insurance policy under the provisions of which separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds or other supplementary accounts) and mortality or expense charges are made to the policy.
"YRT" means yearly renewable term.
14VAC5-321-10. 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 38.2-1369, 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 2001 Commissioners Standard Ordinary (CSO) Mortality Table by and for insurers transacting the business of insurance in this Commonwealth.
14VAC5-321-30. 2001 CSO Mortality Table.
A. At the election of the insurer for any one or more specified plans of insurance and subject to the conditions stated in this chapter, the 2001 CSO Mortality Table may be used as the minimum standard for policies issued on or after January 1, 2004, and before the date specified in subsection B of this section to which subdivision 1 of § 38.2-3130 38.2-1369 and § 38.2-3209 of the Code of Virginia are applicable. If the insurer elects to use the 2001 CSO Mortality Table, it shall do so for both valuation and nonforfeiture purposes.
B. Subject to the conditions stated in this chapter, the 2001 CSO Mortality Table shall be used in determining minimum standards for policies issued on and after January 1, 2009, to which subdivision 1 of § 38.2-3130 38.2-1369 and § 38.2-3209 of the Code of Virginia are applicable.
C. A table from the 2001 CSO Preferred Class Structure Mortality Table used in place of a 2001 CSO Mortality Table, pursuant to the requirements of 14VAC5-322, will be treated as part of the 2001 CSO Mortality Table only for purposes of reserve valuation pursuant to the requirements of this chapter.
14VAC5-321-40. Conditions.
A. For policies issued on or after July 1, 2004, with each plan of insurance with separate rates for smokers and nonsmokers an insurer may use:
1. Composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits;
2. Smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by § 38.2-3141 38.2-1376 of the Code of Virginia and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values, and amounts of paid-up nonforfeiture benefits; or
3. Smoker and nonsmoker mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits.
B. For policies issued on or after July 1, 2004, with plans of insurance without separate rates for smokers and nonsmokers the composite mortality tables shall be used.
C. For the purpose of determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits, the 2001 CSO Mortality Table may, at the option of the insurer for each such plan of insurance, be used in its ultimate or select and ultimate form, subject to the restrictions of 14VAC5-321-50 and 14VAC5-319 relative to use of the select and ultimate form.
D. When the 2001 CSO Mortality Table is the minimum reserve standard for any plan for an insurer, any actuarial opinion in the annual statement filed with the commission shall be based on an asset adequacy analysis that meets the standards and satisfies requirements for an asset adequacy analysis performed pursuant to subdivision A 2 of § 38.2-3127.1 B 38.2-1367 of the Code of Virginia and rules governing actuarial opinions and memoranda at 14VAC5-310.
14VAC5-322-10. 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 38.2-1369 of the Code of Virginia and 14VAC5-319-40, to approve, recognize, permit, and prescribe the use of the 2001 Commissioners Standard Ordinary (CSO) Preferred Class Structure Mortality Table by and for insurers transacting the business of insurance in this Commonwealth.
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 38.2-1369, 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.
14VAC5-323-40. 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 § 38.2-1371 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 38.2-1368 and 38.2-3130 38.2-1369 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.
VA.R. Doc. No. R15-4085; Filed September 16, 2014, 2:10 p.m.
TITLE 14. INSURANCE
STATE CORPORATION COMMISSION
Proposed Regulation
REGISTRAR'S NOTICE: The State Corporation Commission is claiming an exemption 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.
Titles of Regulations: 14VAC5-70. Rules Governing Accelerated Benefits Provisions (amending 14VAC5-70-130).
14VAC5-200. Rules Governing Long-Term Care Insurance (amending 14VAC5-200-140, 14VAC5-200-153).
14VAC5-310. Rules Governing Actuarial Opinions and Memoranda (amending 14VAC5-310-10 through 14VAC5-310-50, 14VAC5-310-90).
14VAC5-319. Life Insurance Reserves (amending 14VAC5-319-10).
14VAC5-321. Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits (amending 14VAC5-321-10, 14VAC5-321-30, 14VAC5-321-40).
14VAC5-322. Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities (amending 14VAC5-322-10).
14VAC5-323. Rules Governing Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values (amending 14VAC5-323-10, 14VAC5-323-40, 14VAC5-323-50).
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 Comment Deadline: October 31, 2014.
Agency Contact: Raquel C. 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 update the Code of Virginia citations that will be effective January 1, 2015, to reflect changes enacted by Chapter 571 of the 2014 Acts of Assembly. Chapter 571 is based on revisions to the National Association of Insurance Commissioners' (NAIC) Standard Valuation Law model, which was adopted by the NAIC in 2009. The revised model authorizes a principle-based reserve (PBR) basis for life, annuity, and accident and health contracts, and requires the use of a Valuation Manual, which contains both PBR and non-PBR requirements, as well as actuarial opinion and corporate governance requirements.
AT RICHMOND, SEPTEMBER 16, 2014
COMMONWEALTH OF VIRGINIA, ex rel.
STATE CORPORATION COMMISSION
CASE NO. INS-2014-00202
Ex Parte: In the matter of Amending the
Rules Governing Accelerated Benefits Provisions;
the Rules Governing Long-Term Care Insurance;
the Rules Governing Actuarial Opinions and Memoranda;
Life Insurance Reserves; Use of the 2001 CSO
Mortality Table in Determining Reserve Liabilities
and Nonforfeiture Benefits; Use of the 2001 CSO
Preferred Class Structure Mortality Table in
Determining Reserve Liabilities; and
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 ("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 Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, entitled Rules Governing Accelerated Benefits Provisions, 14 VAC 5-70-10 et seq.; Rules Governing Long-Term Care Insurance, 14 VAC 5-200-10 et seq.; Rules Governing Actuarial Opinions and Memoranda, 14 VAC 5-310-10 et seq.; Life Insurance Reserves, 14 VAC 5-319-10 et seq.; Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, 14 VAC 5-321-10 et seq.; Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, 14 VAC 5-322-10 et seq.; and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, 14 VAC 5-323-10 et seq. (collectively, "Rules"), respectively, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5‑310‑10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5‑323-40; and 14 VAC 5-323-50.
The proposed amendments to the Rules are necessary to implement the provisions of House Bill 631 passed by the 2014 General Assembly, which amends the Code by adding in Chapter 13 of Title 38.2 an Article numbered 10, consisting of sections numbered 38.2-1365 through 38.2-1385. The revised rules replace the current citations to Title 38.2 of the Code with citations that will be effective on January 1, 2015.
NOW THE COMMISSION is of the opinion that the proposed amendments submitted by the Bureau to amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5‑321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 should be considered for adoption.
Accordingly, IT IS ORDERED THAT:
(1) The proposed amendments to Rules Governing Accelerated Benefits Provisions, Rules Governing Long-Term Care Insurance, Rules Governing Actuarial Opinions and Memoranda, Life Insurance Reserves, Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 are attached hereto and made a part hereof.
(2) All interested persons who desire to comment in support or in opposition to, or request a hearing to oppose amending Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, shall file such comments or hearing request on or before October 31, 2014, 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/case. All comments shall refer to Case No. INS-2014-00202.
(3) If no written request for a hearing on the proposal to amend Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code is received on or before October 31, 2014, the Commission, upon consideration of any comments submitted in support 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 every entity that is licensed, approved, registered, or accredited in Virginia under the provisions of Tile 38.2 of the Code and also subject to solvency regulation in this Commonwealth pursuant to the provisions of Title 38.2 of the Code, 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.
14VAC5-70-130. Actuarial disclosure and reserves.
A. A qualified actuary shall be required to describe the accelerated benefits, the risks, the expected costs and the calculation of statutory reserves in an actuarial memorandum accompanying each filing. The insurer shall maintain in its files descriptions of the bases and procedures used to calculate benefits payable under these provisions. These descriptions shall be made available for examination by the commission upon request.
B. 1. When benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves shall be determined in accordance with §§ 38.2-3126 38.2-1365 through 38.2-3144 38.2-1385 of the Code of Virginia. All valuation assumptions used in constructing the reserves shall be determined as appropriate for statutory valuation purposes by a member in good standing of the American Academy of Actuaries. Mortality tables and interest currently recognized for life insurance reserves by the National Association of Insurance Commissioners may be used as well as appropriate assumptions for the other provisions incorporated in the policy form. The actuary must follow both actuarial standards and certification for good and sufficient reserves. Reserves in the aggregate should be sufficient to cover:
a. Policies upon which no claim has yet arisen.
b. Policies upon which an accelerated claim has arisen.
2. For policies and certificates which provide actuarially equivalent benefits, no additional reserves need to be established.
3. Policy liens and policy loans, including accrued interest, represent assets of the company for statutory reporting purposes. For any policy on which the policy lien exceeds the policy's statutory reserve liability such excess must be held as a nonadmitted asset.
14VAC5-200-140. Reserve standards.
A. When long-term care benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves for such benefits shall be determined in accordance with subdivision 7 of § 38.2-3130 38.2-1369 of the Code of Virginia. Claim reserves must also be established in the case when such policy or rider is in claim status. Reserves for policies and riders subject to this subsection should be based on the multiple decrement model utilizing all relevant decrements except for voluntary termination rates. Single decrement approximations are acceptable if the calculation produces essentially similar reserves, if the reserve is clearly more conservative, or if the reserve is immaterial. The calculations may take into account the reduction in life insurance benefits due to the payment of long-term care benefits. However, in no event shall the reserves for the long-term care benefit and the life insurance benefit be less than the reserves for the life insurance benefit assuming no long-term care benefit. In the development and calculation of reserves for policies and riders subject to this subsection, due regard shall be given to the applicable policy provisions, marketing methods, administrative procedures and all other considerations which have an impact on projected claim costs, including, but not limited to, the following:
1. Definition of insured events;
2. Covered long-term care facilities;
3. Existence of home convalescence care coverage;
4. Definition of facilities;
5. Existence or absence of barriers to eligibility;
6. Premium waiver provision;
7. Renewability;
8. Ability to raise premiums;
9. Marketing method;
10. Underwriting procedures;
11. Claims adjustment procedures;
12. Waiting period;
13. Maximum benefit;
14. Availability of eligible facilities;
15. Margins in claim costs;
16. Optional nature of benefit;
17. Delay in eligibility for benefit;
18. Inflation protection provisions; and
19. Guaranteed insurability option.
Any applicable valuation morbidity table shall be certified as appropriate as a statutory valuation table by a member of the American Academy of Actuaries.
B. When long-term care benefits are provided other than as in Subsection subsection A above of this section, reserves shall be determined in accordance with subdivision 7 of § 38.2-3130 of the Code of Virginia 14VAC5-320.
14VAC5-200-153. Premium rate schedule increases.
A. This section applies to any long-term care policy or certificate issued in this Commonwealth on or after October 1, 2003.
B. An insurer shall request the commission's approval of a pending premium rate schedule increase, including an exceptional increase, prior to the notice to the policyholders and shall include:
1. Information required by 14VAC5-200-75;
2. Certification by a qualified actuary that:
a. If the requested premium rate schedule increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized, no further premium rate schedule increases are anticipated;
b. The premium rate filing is in compliance with the provisions of this section;
3. An actuarial memorandum justifying the rate schedule change request that includes:
a. Lifetime projections of earned premiums and incurred claims based on the filed premium rate schedule increase; and the method and assumptions used in determining the projected values, including reflection of any assumptions that deviate from those used for pricing other forms currently available for sale;
(1) Annual values for the five years preceding and the three years following the valuation date shall be provided separately;
(2) The projections shall include the development of the lifetime loss ratio, unless the rate increase is an exceptional increase;
(3) The projections shall demonstrate compliance with subsection C of this section; and
(4) For exceptional increases,
(a) The projected experience should be limited to the increases in claims expenses attributable to the approved reasons for the exceptional increase; and
(b) In the event the commission determines as provided in the definition of exceptional increase in 14VAC5-200-40 that offsets may exist, the insurer shall use appropriate net projected experience;
b. Disclosure of how reserves have been incorporated in this rate increase whenever the rate increase will trigger contingent benefit upon lapse;
c. Disclosure of the analysis performed to determine why a rate adjustment is necessary, which pricing assumptions were not realized and why, and what other actions taken by the company have been relied on by the actuary;
d. A statement that policy design, underwriting and claims adjudication practices have been taken into consideration; and
e. In the event that it is necessary to maintain consistent premium rates for new policies and policies receiving a rate increase, the insurer will need to file composite rates reflecting projections of new policies;
4. A statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the commission; and
5. Sufficient information for review and approval of the premium rate schedule increase by the commission.
C. All premium rate schedule increases shall be determined in accordance with the following requirements:
1. Exceptional increases shall provide that 70% of the present value of projected additional premiums from the exceptional increase will be returned to policyholders in benefits;
2. Premium rate schedule increases shall be calculated such that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:
a. The accumulated value of the initial earned premium times 58%;
b. Eighty-five percent of the accumulated value of prior premium rate schedule increases on an earned basis;
c. The present value of future projected initial earned premiums times 58%; and
d. Eighty-five percent of the present value of future projected premiums not in subdivision 2 c of this subsection on an earned basis;
3. In the event that a policy form has both exceptional and other increases, the values in subdivisions 2 b and d of this subsection will also include 70% for exceptional rate increase amounts; and
4. All present and accumulated values used to determine rate increases shall use the maximum valuation interest rate for contract reserves as specified in § 38.2-3132 of the Code of Virginia 14VAC5-320. The actuary shall disclose as part of the actuarial memorandum the use of any appropriate averages.
D. For each rate increase that is implemented, the insurer shall file for approval by the commission updated projections, as defined in subdivision B 3 a of this section, annually for the next three years and include a comparison of actual results to projected values. The commission may extend the period to greater than three years if actual results are not consistent with projected values from prior projections. For group insurance policies that meet the conditions in subsection K of this section, the projections required by subdivision B 3 a of this section shall be provided to the policyholder in lieu of filing with the commission.
E. If any increased premium rate in the revised premium rate schedule is greater than 200% of the comparable rate in the initial premium schedule, the premiums exceeding 200% shall be clearly identified and lifetime projections, as defined in subdivision B 3 a of this section, shall be filed for approval by the commission every five years following the end of the required period in subsection D of this section. For group insurance policies that meet the conditions in subsection K of this section, the projections required by this subsection shall be provided to the policyholder in lieu of filing with the commission.
F. 1. If the commission has determined that the actual experience following a rate increase does not adequately match the projected experience and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in subsection C of this section, the commission may require the insurer to implement any of the following:
a. Premium rate schedule adjustments; or
b. Other measures to reduce the difference between the projected and actual experience.
It is to be expected that the actual experience will not exactly match the insurer's projections. During the period that projections are monitored as described in subsections D and E of this section, the commission should determine that there is not an adequate match if the differences in earned premiums and incurred claims are not in the same direction (both actual values higher or lower than projections) or the difference as a percentage of the projected is not of the same order.
2. In determining whether the actual experience adequately matches the projected experience, consideration should be given to subdivision B 3 e of this section, if applicable.
G. If the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse, the insurer shall file:
1. A plan, subject to commission approval, for improved administration or claims processing designed to eliminate the potential for further deterioration of the policy form requiring further premium rate schedule increases or to demonstrate that appropriate administration and claims processing have been implemented or are in effect; otherwise the commission may impose the condition in subsection H of this section; and
2. The original anticipated lifetime loss ratio, and the premium rate schedule increase that would have been calculated according to subsection C of this section had the greater of the original anticipated lifetime loss ratio or 58% been used in the calculations described in subdivisions C 2 a and c of this section.
H. 1. For a rate increase filing that meets the following criteria, the commission shall review, for all policies included in the filing, the projected lapse rates and past lapse rates during the 12 months following each increase to determine if significant adverse lapsation has occurred or is anticipated:
a. The rate increase is not the first rate increase requested for the specific policy form or forms;
b. The rate increase is not an exceptional increase; and
c. The majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse.
2. In the event significant adverse lapsation has occurred, is anticipated in the filing or is evidenced in the actual results as presented in the updated projections provided by the insurer following the requested rate increase, the commission may determine that a rate spiral exists. Following the determination that a rate spiral exists, the commission may require the insurer to offer, without underwriting, to all in force insureds subject to the rate increase the option to replace existing coverage with any other long-term care insurance product being offered by the insurer or its affiliates.
a. The offer shall:
(1) Be subject to the approval of the commission;
(2) Be based on actuarially sound principles, but not be based on attained age; and
(3) Provide that maximum benefits under any new policy accepted by an insured shall be reduced by comparable benefits already paid under the existing policy.
b. The insurer shall maintain the experience of all the replacement insureds separate from the experience of insureds originally issued the policy forms. In the event of a request for a rate increase on the policy form, the rate increase shall be limited to the lesser of:
(1) The maximum rate increase determined based on the combined experience; or
(2) The maximum rate increase determined based only on the experience of the insureds originally issued the form plus 10%.
I. If the commission determines that the insurer has exhibited a persistent practice of filing inadequate initial premium rates for long-term care insurance, the commission may, in addition to the provisions of subsection H of this section, prohibit the insurer from either of the following:
1. Filing and marketing comparable coverage for a period of up to five years; or
2. Offering all other similar coverages and limiting marketing of new applications to the products subject to recent premium rate schedule increases.
J. Subsections A through I of this section shall not apply to policies for which the long-term care benefits provided by the policy are incidental, as defined in 14VAC5-200-40, if the policy complies with all of the following provisions:
1. The interest credited internally to determine cash value accumulations, including long-term care, if any, are guaranteed not to be less than the minimum guaranteed interest rate for cash value accumulations without long-term care set forth in the policy;
2. The portion of the policy that provides insurance benefits other than long-term care coverage meets the nonforfeiture requirements as applicable in any of the following:
a. Sections 38.2-3200 through 38.2-3218 of the Code of Virginia, and
b. Sections 38.2-3219 through 38.2-3229 of the Code of Virginia;
3. The policy meets the disclosure requirements of §§ 38.2-5207.1 and 38.2-5207.2 of the Code of Virginia;
4. The portion of the policy that provides insurance benefits other than long-term care coverage meets the requirements as applicable in the following:
a. Policy illustrations as required by 14VAC5-40 14VAC5-41; and
b. Disclosure requirements in 14VAC5-40 14VAC5-41;
5. An actuarial memorandum is filed with the commission that includes:
a. A description of the basis on which the long-term care rates were determined;
b. A description of the basis for the reserves;
c. A summary of the type of policy, benefits, renewability, general marketing method, and limits on ages of issuance;
d. A description and a table of each actuarial assumption used. For expenses, an insurer shall include percent of premium dollars per policy and dollars per unit of benefits, if any;
e. A description and a table of the anticipated policy reserves and additional reserves to be held in each future year for active lives;
f. The estimated average annual premium per policy and the average issue age;
g. A statement as to whether underwriting is performed at the time of application. The statement shall indicate whether underwriting is used and, if used, the statement shall include a description of the type or types of underwriting used, such as medical underwriting or functional assessment underwriting. Concerning a group policy, the statement shall indicate whether the enrollee or any dependent will be underwritten and when underwriting occurs; and
h. A description of the effect of the long-term care policy provision on the required premiums, nonforfeiture values and reserves on the underlying insurance policy, both for active lives and those in long-term care claim status.
K. Subsections F and H of this section shall not apply to group insurance policies as defined in subsections A and C of § 38.2-3521.1 of the Code of Virginia where:
1. The policies insure 250 or more persons and the policyholder has 5,000 or more eligible employees of a single employer; or
2. The policyholder, and not the certificateholders, pays a material portion of the premium, which shall not be less than 20% of the total premium for the group in the calendar year prior to the year a rate increase is filed.
14VAC5-310-10. Purpose.
The purpose of this chapter (14VAC5-310) is to prescribe:
1. Requirements for statements of actuarial opinion that are to be submitted in accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, and for memoranda in support thereof;
2. Rules applicable to the appointment of an appointed actuary; and
3. Guidance as to the meaning of "adequacy of reserves."
14VAC5-310-20. Authority; effective date.
This chapter (14VAC5-310) is adopted and promulgated by the commission pursuant to §§ 12.1-13, 38.2-223, and 38.2-3127.1 38.2-1367 of the Code of Virginia. This chapter will take effect for annual statements for the year-ending December 31, 1992. Except as otherwise specifically provided, revisions to this chapter shall be effective upon adoption by the commission and applicable as to annual statements and actuarial opinions, memoranda, and statements of reserves filed with the commission for periods ending on or after December 31 of the year in which the revision is adopted.
14VAC5-310-30. Scope.
A. This chapter (14VAC5-310) shall apply to all companies subject to the provisions of § 38.2-3127.1 38.2-1367 of the Code of Virginia, including fraternal benefit societies licensed under Chapter 41 (§ 38.2-4100 et seq.) of Title 38.2 and all other companies licensed under Title 38.2 of the Code of Virginia to write and reinsure policies or agreements providing any form of life, life insurance, or annuity benefits as those terms are defined in §§ 38.2-102 through 38.2-107.1 of the Code of Virginia and also to any life insurer authorized to write or reinsure accident and sickness insurance as defined in § 38.2-109 of the Code of Virginia.
B. This chapter shall be applied in a manner that allows the appointed actuary to utilize professional judgment in performing the asset analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards of practice unless the commission determines particular specifications are necessary for an acceptable opinion to be rendered relative to the adequacy of reserves and related items. Particular specifications, including specific methods of actuarial analysis and actuarial assumptions, may be promulgated by rule or order of the commission or by an administrative letter issued by the Commissioner of Insurance.
C. This chapter, as reflected in rules adopted by the commission by order entered November 5, 1992, in Case No. INS920377, shall be applicable to all annual statements filed with the commission on or after December 15, 1992, and before December 31, 2003. On and after December 31, 2003, a statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80, and a memorandum in support thereof in accordance with 14VAC5-310-90, shall be required each year in accordance with rules as revised and adopted by order of the commission entered in Case No. INS-2003-00165.
14VAC5-310-40. Definitions.
As used in this chapter unless the context clearly indicates otherwise:
"Actuarial opinion" means the opinion of an appointed actuary regarding the adequacy of reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80 and with applicable Actuarial Standards of Practice.
"Actuarial Standards Board" means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.
"Annual statement" means that statement required by § 38.2-1300 of the Code of Virginia to be filed by the company with the commission annually.
"Appointed actuary" means any individual who is appointed or retained in accordance with the requirements set forth in 14VAC5-310-50 C to provide the actuarial opinion and supporting memorandum as required by § 38.2-3127.1 38.2-1367 of the Code of Virginia.
"Asset adequacy analysis" means an analysis that meets the standards and other requirements referred to in 14VAC5-310-50 D.
"Commission" means the Virginia State Corporation Commission.
"Commissioner" means the Commissioner of Insurance in Virginia unless specific reference is made to another state, in which case "commissioner" means the Insurance Commissioner, Director, Superintendent or other supervising regulatory official of a given state who is responsible for administering the insurance laws of that state.
"Company" means a life insurer, company or fraternal benefit society subject to the provisions of this chapter.
"NAIC" means the National Association of Insurance Commissioners.
"Qualified actuary" means any individual who meets the requirements set forth in 14VAC5-310-50 B.
14VAC5-310-50. General requirements for actuarial opinions.
A. The following requirements apply to all companies submitting a statement of actuarial opinion in compliance with § 38.2-3127.1 38.2-1367 of the Code of Virginia.
1. There is to be included on or attached to page 1 of the annual statement for each year ending on or after December 31, 1992, the statement of an appointed actuary, entitled "Statement of Actuarial Opinion," setting forth an opinion relating to reserves and related actuarial items held in support of policies and contracts, in accordance with 14VAC5-310-80.
2. Upon written request by the company, the commission may grant an extension of the date for submission of the statement of actuarial opinion.
B. A "qualified actuary" is an individual who:
1. Is a member in good standing of the American Academy of Actuaries;
2. Is qualified to sign statements of actuarial opinion for life and health insurance company annual statements in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements;
3. Is familiar with the valuation requirements applicable to life and health insurance companies;
4. Has not been found by the commission (or if so found has subsequently been reinstated as a qualified actuary), following appropriate notice and hearing, to have:
a. Violated any provision of, or any obligation imposed by Title 38.2 of the Code of Virginia or other law in the course of his dealings as a qualified actuary;
b. Been found guilty of fraudulent or dishonest practices;
c. Demonstrated his incompetency, lack of cooperation, or untrustworthiness to act as a qualified actuary;
d. Submitted to the commission during the past five years, pursuant to this chapter, an actuarial opinion or memorandum that the commission rejected because it did not meet the provisions of this chapter, including standards set by the Actuarial Standards Board; or
e. Resigned or been removed as an actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of failure to adhere to generally acceptable actuarial standards; and
5. Has not failed to notify the commission of any action taken by the commissioner of any other state similar to that under subdivision 4 of this subsection.
C. An "appointed actuary" is a qualified actuary who is appointed or retained to prepare the statement of actuarial opinion required by this chapter, either directly by or by the authority of the board of directors through an executive officer of the company other than the qualified actuary. The company shall give the commission timely written notice of the name, title (and, in the case of a consulting actuary, the name of the firm) and manner of appointment or retention of each person appointed or retained by the company as an appointed actuary and shall state in such notice that the person meets the requirements set forth in 14VAC5-310-50 B. Once notice is furnished, no further notice is required with respect to this person, provided that the company shall give the commission timely written notice in the event the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements set forth in 14VAC5-310-50 B. If any person appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice shall so state and give the reasons for replacement.
D. The asset adequacy analysis required by this chapter shall:
1. Conform to the Actuarial Standards of Practice as promulgated from time to time by the Actuarial Standards Board and on any additional standards under this chapter, which standards are to form the basis of the statement of actuarial opinion in accordance with 5 this chapter; and
2. Be based on methods of analysis as are deemed appropriate for such purposes by the Actuarial Standards Board.
E. Liabilities shall be covered in conformity with the following:
1. Under authority of § 38.2-3127.1 38.2-1367 of the Code of Virginia, the statement of actuarial opinion shall apply to all in-force business on the statement date, whether directly issued or assumed, regardless of when or where issued, (e.g., reserves reportable for 2002 in Exhibits 5, 5A, 6, and 7 of the NAIC annual statement for life insurers; claim liabilities reported in Exhibit 8 (2002) in Part I of the life insurer's annual statement, and equivalent items in any separate account statement, or other annual financial statements filed pursuant to § 38.2-1300, 38.2-1301 or 38.2-4126 of the Code of Virginia).
2. If the appointed actuary determines as the result of asset adequacy analysis that a reserve should be held in addition to the aggregate reserve held by the company and calculated in accordance with methods set forth in § 38.2-1311, 38.2-3923, 38.2-4010, 38.2-4011, or § 38.2-4125 of the Code of Virginia; Article 3 (§ 38.2-3136 et seq.) 10 (§ 38.2-1365 et seq.) of Chapter 31 13 of Title 38.2 of the Code of Virginia; a rule or regulation of the commission applicable to the company; or any additional or further guidance provided by the NAIC Accounting Practices and Procedures Manual, whether in a Statement of Statutory Accounting Principle or in an actuarial guideline or other appendix, the company shall establish the additional reserve.
3. Additional reserves established under subdivision 2 of this subsection and deemed not necessary in subsequent years may be released. Any amounts released shall be disclosed in the actuarial opinion for the applicable year. The release of such reserves would not be deemed an adoption of a lower standard of valuation.
14VAC5-310-90. Description of actuarial memorandum issued for an asset adequacy analysis and regulatory asset adequacy issues summary.
A. The following general provisions shall apply with respect to the preparation and submission of the asset adequacy memorandum required by § 38.2-3127.1 38.2-1367 of the Code of Virginia.
1. In accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of his opinion regarding the reserves. The memorandum shall be made available for examination by the commission upon its request but shall be returned to the company after such examination and shall not be considered a record of the Bureau of Insurance or subject to automatic filing with the commission.
2. In preparing the memorandum, the appointed actuary may rely on, and include as a part of his memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of 14VAC5-310-50 B, with respect to the areas covered in such memoranda, and so state in their memoranda.
3. If the commission requests a memorandum and no such memorandum exists or if the commission finds that the analysis described in the memorandum fails to meet the standards of the Actuarial Standards Board or the standards and requirements of this chapter, the commission may designate a qualified actuary to review the opinion and prepare such supporting memorandum as is required for review. The reasonable and necessary expense of the independent review shall be paid by the company but shall be directed and controlled by the commission.
4. The reviewing actuary shall have the same status as an examiner for purposes of obtaining data from the company and the work papers and documentation of the reviewing actuary shall be retained by the commission; however, any information provided by the company to the reviewing actuary and included in the work papers shall be considered as material provided by the company to the commission and shall be kept confidential to the same extent as is prescribed by law with respect to other material provided by the company to the commission pursuant to the statute governing this chapter. The reviewing actuary shall not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer pursuant to this chapter for any one of the current year or the preceding three years.
5. In accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a regulatory asset adequacy issues summary, the contents of which are specified in subsection C of this section. The regulatory asset adequacy issues summary shall be submitted no later than March 15 of the year following the year for which a statement of actuarial opinion based on asset adequacy is required. The regulatory asset adequacy issues summary is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.
B. A section of the memorandum shall document asset adequacy testing by demonstrating that the analysis has been done in accordance with the standards for asset adequacy referred to in 14VAC5-310-50 D and any additional standards under this chapter. It shall specify:
1. For reserves:
a. Product descriptions including market description, underwriting and other aspects of a risk profile, and the specific risks the appointed actuary deems significant;
b. Source of liability in force;
c. Reserve method and basis;
d. Investment reserves;
e. Reinsurance arrangements;
f. Identification of any explicit or implied guarantees made by the general account in support of benefits provided through a separate account policy or contract and the methods used by the appointed actuary to provide for the guarantees in the asset adequacy analysis; and
g. Documentation of assumptions to test reserves for (i) lapse rates, whether base or excess, (ii) interest crediting rate strategy, (iii) mortality, (iv) policyholder dividend strategy, (v) competitor or market interest rate, (vi) annuitization rates, (vii) commission and expenses, and (viii) morbidity.
The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumption.
2. For assets:
a. Portfolio descriptions, including a risk profile disclosing the quality, distribution and types of assets;
b. Investment and disinvestment assumptions;
c. Source of asset data;
d. Asset valuation bases; and
e. Documentation of assumptions made for (i) default costs, (ii) bond call function, (iii) mortgage prepayment function, (iv) determining market value for assets sold due to disinvestment strategy, and (v) determining yield on assets acquired through the investment strategy.
The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumption.
3. For the analysis basis:
a. Methodology;
b. Rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;
c. Rationale for degree of rigor in analyzing different blocks of business, including the rationale for the level of "materiality" that was used in determining how rigorously to analyze different blocks of business;
d. Criteria for determining asset adequacy, including in the criteria the precise basis for determining if assets are adequate to cover reserves under "moderately adverse conditions" or other conditions as specified in relevant actuarial standards of practice; and
e. Whether the impact of federal income taxes was considered and the method of treating reinsurance in the asset adequacy analysis.
4. Summary of material changes in methods, procedures, or assumptions from prior year's asset adequacy analysis;
5. Summary of results; and
6. Conclusion.
C. The regulatory asset adequacy issues summary shall contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and shall be signed and dated by the appointed actuary rendering the actuarial opinion. The regulatory asset adequacy issues summary also shall include each of the following:
1. Descriptions of the scenarios tested, including whether those scenarios are stochastic or deterministic, and the sensitivity testing done relative to those scenarios. If negative ending surplus results under certain tests in the aggregate, the actuary should describe those tests and the amount of additional reserve as of the valuation date which, if held, would eliminate the negative aggregate surplus values. Ending surplus values shall be determined by either extending the projection period until the in-force and associated assets and liabilities at the end of the projection period are immaterial or by adjusting the surplus amount at the end of the projection period by an amount that appropriately estimates the value that reasonably can be expected to arise from the assets and liabilities remaining in force;
2. The extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different from the assumptions used in the previous asset adequacy analysis;
3. The amount of reserves and the identity of the product lines that had been subjected to asset adequacy analysis in the prior opinion but were not subject to analysis for the current opinion;
4. Comments on any interim results that may be of significant concern to the appointed actuary. For example, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods;
5. The methods used by the actuary to recognize the impact of reinsurance on the company's cash flows, including both assets and liabilities, under each of the scenarios tested; and
6. Whether the actuary has been satisfied that all options whether explicit or embedded, in any asset or liability, including but not limited to those affecting cash flows embedded in fixed income securities, and equity-like features in any investments have been appropriately considered in the asset adequacy analysis.
D. The actuarial methods, considerations, and analyses shall conform to appropriate standards of practice and the memorandum shall include the following statement:
"Actuarial methods, considerations and analyses used in the preparation of this memorandum conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis for this memorandum."
E. An appropriate allocation of assets in the amount of Interest Maintenance Reserve (IMR), whether positive or negative, shall be used in any asset adequacy analysis. Analysis of risks regarding asset default shall include an appropriate allocation of assets supporting the Asset Valuation Reserve (AVR); these AVR assets shall not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks shall include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support. The amount of the assets used for the AVR shall be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.
14VAC5-319-10. Definitions.
The following words and terms when used in this regulation shall have the following meanings, unless the context clearly indicates otherwise:
"1980 CSO valuation tables" means the Commissioners' 1980 Standard Ordinary Mortality Table (1980 CSO Table) without 10-year selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law, and variations of the 1980 CSO Table approved by the NAIC, such as the smoker and nonsmoker versions approved in December 1983.
"Basic reserves" means reserves calculated in accordance with § 38.2-3137 38.2-1372 of the Code of Virginia.
"Commission" means the State Corporation Commission when acting pursuant to or in accordance with Title 38.2 of the Code of Virginia.
"Contract segmentation method" means the method of dividing the period from issue to mandatory expiration of a policy into successive segments, with the length of each segment being defined as the period from the end of the prior segment (from policy inception, for the first segment) to the end of the latest policy year as determined below. All calculations are made using the 1980 CSO valuation tables, as defined in this section, (or any other valuation mortality table adopted by the NAIC after January 1, 2000, and promulgated by regulation by the commission for this purpose) and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in 14VAC5-319-40 B.
The length of a particular contract segment shall be set equal to the minimum of the value t for which Gt is greater than Rt (if Gt never exceeds Rt, the segment length is deemed to be the number of years from the beginning of the segment to the mandatory expiration date of the policy), where Gt and Rt are defined as follows:
where:
x = original issue age;
k = the number of years from the date of issue to the beginning of the segment;
t = 1, 2,...; t is reset to 1 at the beginning of each segment; and
GPx+k+t-1 = Guaranteed gross premium per $1,000 of face amount for year t of the segment, ignoring policy fees only if level for the premium paying period of the policy.
where:
Rt may be increased or decreased by 1.0% in any policy year, at the company's option, but Rt shall not be less than one; and
x, k and t are as defined above; and
qx+k+t-1 = valuation mortality rate for deficiency reserves in policy year k+t but using the mortality of 14VAC5-319-40 B 2 if 14VAC5-319-40 B 3 is elected for deficiency reserves. However, if GPx+k+t is greater than 0 and GPx+k+t-1 is equal to 0, Gt shall be deemed to be 1,000. If GPx+k+t and GPx+k+t-1 are both equal to 0, Gt shall be deemed to be 0.
"Deficiency reserves" means the excess, if greater than 0, of (i) minimum reserves calculated in accordance with § 38.2-3141 38.2-1376 of the Code of Virginia over (ii) basic reserves.
"Guaranteed gross premiums" means the premiums under a policy of life insurance that are guaranteed and determined at issue.
"Maximum valuation interest rates" means the interest rates defined in § 38.2-3130 38.2-1371 of the Code of Virginia that are to be used in determining the minimum standard for the valuation of life insurance policies.
"NAIC" means the National Association of Insurance Commissioners.
"Scheduled gross premium" means the smallest illustrated gross premium at issue for other than universal life insurance policies. For universal life insurance policies, scheduled gross premium means the smallest specified premium described in 14VAC5-319-60 A 3 or, if none is so described, the minimum premium described in 14VAC5-319-60 A 4.
"Segmented reserves" means reserves, calculated using segments produced by the contract segmentation method, equal to the present value of all future guaranteed benefits less the present value of all future net premiums to the mandatory expiration of a policy, where the net premiums within each segment are a uniform percentage of the respective guaranteed gross premiums within the segment. The uniform percentage for each segment is such that, at the beginning of the segment, the present value of the net premiums within the segment equals:
1. The present value of the death benefits within the segment, plus
2. The present value of any unusual guaranteed cash value (see 14VAC5-319-50 D) occurring at the end of the segment, less
3. Any unusual guaranteed cash value occurring at the start of the segment, plus
4. For the first segment only, the excess of subdivision 4 a over subdivision 4 b of this definition, as follows:
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for in the first segment after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary within the first segment on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
b. A net one-year term premium for the benefits provided for in the first policy year.
The length of each segment is determined by the "contract segmentation method," as defined in this section.
The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the sum of the lengths of all segments of the policy.
For both basic reserves and deficiency reserves computed by the segmented method, present values shall include future benefits and net premiums in the current segment and in all subsequent segments.
"Tabular cost of insurance" means the net single premium at the beginning of a policy year for one-year term insurance in the amount of the guaranteed death benefit in that policy year.
"Ten-year select mortality factors" means the select factors adopted by the NAIC with the 1980 amendments to the NAIC Standard Valuation Law.
"This regulation" means Chapter 319 of Title 14 of the Virginia Administrative Code (14VAC5-319-10 et seq.), which also shall be known as the commission's Rules Establishing Minimum Valuation and Reserve Standards for Life Insurance Policies.
"Twenty-year select mortality factors" means the select factors adopted by the NAIC as part of the Valuation of Life Insurance Policies Model Regulation and shown in the tables in 14VAC5-319-70.
"Unitary reserves" means the present value of all future guaranteed benefits less the present value of all future modified net premiums, where:
1. Guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy; and
2. Modified net premiums are a uniform percentage of the respective guaranteed gross premiums, where the uniform percentage is such that, at issue, the present value of the net premiums equals the present value of all death benefits and pure endowments, plus the excess of subdivision 2 a over subdivision 2 b of this definition, as follows:
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
b. A net one-year term premium for the benefits provided for in the first policy year.
The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the length from issue to the mandatory expiration of the policy.
"Universal life insurance policy" means any individual life insurance policy under the provisions of which separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds or other supplementary accounts) and mortality or expense charges are made to the policy.
"YRT" means yearly renewable term.
14VAC5-321-10. 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 38.2-1369, 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 2001 Commissioners Standard Ordinary (CSO) Mortality Table by and for insurers transacting the business of insurance in this Commonwealth.
14VAC5-321-30. 2001 CSO Mortality Table.
A. At the election of the insurer for any one or more specified plans of insurance and subject to the conditions stated in this chapter, the 2001 CSO Mortality Table may be used as the minimum standard for policies issued on or after January 1, 2004, and before the date specified in subsection B of this section to which subdivision 1 of § 38.2-3130 38.2-1369 and § 38.2-3209 of the Code of Virginia are applicable. If the insurer elects to use the 2001 CSO Mortality Table, it shall do so for both valuation and nonforfeiture purposes.
B. Subject to the conditions stated in this chapter, the 2001 CSO Mortality Table shall be used in determining minimum standards for policies issued on and after January 1, 2009, to which subdivision 1 of § 38.2-3130 38.2-1369 and § 38.2-3209 of the Code of Virginia are applicable.
C. A table from the 2001 CSO Preferred Class Structure Mortality Table used in place of a 2001 CSO Mortality Table, pursuant to the requirements of 14VAC5-322, will be treated as part of the 2001 CSO Mortality Table only for purposes of reserve valuation pursuant to the requirements of this chapter.
14VAC5-321-40. Conditions.
A. For policies issued on or after July 1, 2004, with each plan of insurance with separate rates for smokers and nonsmokers an insurer may use:
1. Composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits;
2. Smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by § 38.2-3141 38.2-1376 of the Code of Virginia and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values, and amounts of paid-up nonforfeiture benefits; or
3. Smoker and nonsmoker mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits.
B. For policies issued on or after July 1, 2004, with plans of insurance without separate rates for smokers and nonsmokers the composite mortality tables shall be used.
C. For the purpose of determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits, the 2001 CSO Mortality Table may, at the option of the insurer for each such plan of insurance, be used in its ultimate or select and ultimate form, subject to the restrictions of 14VAC5-321-50 and 14VAC5-319 relative to use of the select and ultimate form.
D. When the 2001 CSO Mortality Table is the minimum reserve standard for any plan for an insurer, any actuarial opinion in the annual statement filed with the commission shall be based on an asset adequacy analysis that meets the standards and satisfies requirements for an asset adequacy analysis performed pursuant to subdivision A 2 of § 38.2-3127.1 B 38.2-1367 of the Code of Virginia and rules governing actuarial opinions and memoranda at 14VAC5-310.
14VAC5-322-10. 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 38.2-1369 of the Code of Virginia and 14VAC5-319-40, to approve, recognize, permit, and prescribe the use of the 2001 Commissioners Standard Ordinary (CSO) Preferred Class Structure Mortality Table by and for insurers transacting the business of insurance in this Commonwealth.
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 38.2-1369, 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.
14VAC5-323-40. 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 § 38.2-1371 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 38.2-1368 and 38.2-3130 38.2-1369 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.
VA.R. Doc. No. R15-4085; Filed September 16, 2014, 2:10 p.m.
TITLE 14. INSURANCE
STATE CORPORATION COMMISSION
Final Regulation
REGISTRAR'S NOTICE: The State Corporation Commission is claiming an exemption 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: 14VAC5-211. Rules Governing Health Maintenance Organizations (amending 14VAC5-211-20, 14VAC5-211-70, 14VAC5-211-80, 14VAC5-211-90, 14VAC5-211-130, 14VAC5-211-160, 14VAC5-211-170, 14VAC5-211-180, 14VAC5-211-190, 14VAC5-211-210, 14VAC5-211-220, 14VAC5-211-230, 14VAC5-211-240; adding 14VAC5-211-165; repealing 14VAC5-211-60, 14VAC5-211-100, 14VAC5-211-110, 14VAC5-211-120, 14VAC5-211-200, 14VAC5-211-260).
Statutory Authority: §§ 12.1-13 and 38.2-223 of the Code of Virginia.
Effective Date: January 1, 2015.
Agency Contact: Robert Grissom, Chief Insurance Market Examiner, Life and Health Division, Bureau of Insurance, State Corporation Commission, P.O. Box 1157, Richmond, VA 23218, telephone (804) 371-9152, FAX (804) 371-9944, or email bob.grissom@scc.virginia.gov
Summary:
The amendments remove conversion requirements, modify point-of-service benefits, and establish "reasonable assurance" criteria to conform to new provisions of the Code of Virginia enacted by the 2014 General Assembly. In addition, the amendments incorporate various new state statutory requirements, including those that appear in §§ 38.2-3444, 38.2-3451, and 38.2-3452 of the Code of Virginia and safeguard against potential conflicts between the rules and the provisions of the Affordable Care Act. Changes since publication of the proposed rule include (i) revising the definitions section by adding a reference to the definition of "excepted benefits" that appears in § 38.2-3431 of the Code of Virginia and revising the definition of "out-of-pocket maximum"; (iii) clarifying the continuation of coverage provisions in subdivisions A 1, 2, and 3 and subsection C of 14VAC5-211-70; (iii) in 14VAC5-211-90, clarifying that a grandfathered plan that excludes a deductible from the out-of-pocket maximum may continue to do so as long as the plan remains grandfathered in; (iv) adding the words "enrollment and" prior to "eligibility requirements" in subdivision B 14 of 14VAC5-211-210; and (v) minor wording changes to clarify several other sections.
AT RICHMOND, SEPTEMBER 9, 2014
COMMONWEALTH OF VIRGINIA, ex rel.
STATE CORPORATION COMMISSION
CASE NO. INS-2014-00118
Ex Parte: In the matter of
Amending the Rules Governing
Health Maintenance Organizations
ORDER ADOPTING RULES
By Order to Take Notice ("Order") entered June 4, 2014, all interested persons were ordered to take notice that subsequent to August 1, 2014, the State Corporation Commission ("Commission") would consider the entry of an order to adopt amendments to the Rules Governing Health Maintenance Organizations at Chapter 211 of Title 14 of the Virginia Administrative Code ("Rules"), which amend the Rules at 14 VAC 5-211-20, 14 VAC 5-211-70 through 14 VAC 5-211-90, 14 VAC 5-211-130, 14 VAC 5-211-160 through 14 VAC 5-211-190, 14 VAC 5‑211‑210 through 14 VAC 5-211-240; add new Rules at 14 VAC 5-211-165; and repeal the Rules at 14 VAC 5-211-60, 14 VAC 5-211-100 through 14 VAC 5-211-120, 14 VAC 5-211-200, and 14 VAC 5-211-260. These amendments were proposed by the Bureau of Insurance ("Bureau").
The amendments to the Rules were proposed to conform the Rules to new provisions of the Code of Virginia ("Code") passed by the 2014 General Assembly that remove conversion requirements, modify point-of-service benefits, and establish "reasonable assurance" criteria. In addition, the amendments to the Rules incorporate various new state statutory requirements, including those that appear in §§ 38.2-3444, 38.2-3451, and 38.2-3452 of the Code, and safeguard against potential conflicts between the Rules and the provisions of the federal Affordable Care Act (P.L. 111-148, as amended).
The Order required that on or before August 1, 2014, any person requesting a hearing on the amendments to the Rules shall have filed such request for hearing with the Clerk of the Commission ("Clerk"). No request for a hearing was filed with the Clerk.
The 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 1, 2014. The Bureau received one comment, which was timely filed with the Clerk, from Kaiser Foundation Health Plan of Mid-Atlantic States, Inc. The Bureau provided a response to these comments, which it filed with the Clerk on August 18, 2014 ("Response").
As a result of the comments received, the Bureau recommended in its Response that the Rules be further revised to include: (i) the addition of a reference to the definition of "excepted benefits" that appears in § 38.2-3431 of the Code into the definition of "individual health insurance coverage" in 14 VAC 5-211-20; (ii) the revision of the definition of "out-of-pocket maximum" in 14 VAC 5-211-20; (iii) the revision of subdivisions A 1, 2, and 3 and subsection C of 14 VAC 5-211-70 to clarify the continuation of coverage provisions; (iv) the addition of subsection C to 14 VAC 5-211-90 to clarify that a grandfathered plan that excludes a deductible from the out-of-pocket maximum may continue to do so as long as the plan remains grandfathered; (v) the revision of subdivision B 14 of 14 VAC 5-211-210 to add in the words "enrollment and" prior to "eligibility requirements"; and (vi) additional minor wording revisions for clarification in several other sections.
The Bureau has submitted the Rules, as amended, to the Commission, and the Bureau recommends that the Rules be adopted as revised.
NOW THE COMMISSION, having considered this matter, the filed comments, the Bureau's Response to the comments, and the Bureau's recommendation to further 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 and revisions to the Rules Governing Health Maintenance Organizations at Chapter 211 of Title 14 of the Virginia Administrative Code, which amend the Rules at 14 VAC 5-211-20, 14 VAC 5-211-70 through 14 VAC 5-211-90, 14 VAC 5-211-130, 14 VAC 5-211-160 through 14 VAC 5-211-190, 14 VAC 5-211-210 through 14 VAC 5-211-240; add new Rules at 14 VAC 5-211-165; and repeal the Rules at 14 VAC 5‑211-60, 14 VAC 5-211-100 through 14 VAC 5-211-120, 14 VAC 5-211-200, and 14 VAC 5-211-260, and are attached hereto and made a part hereof, are hereby ADOPTED to be effective January 1, 2015.
(2) AN ATTESTED COPY hereof, together with a copy of the adopted Rules, shall be sent by the Clerk to the Bureau in care of Deputy Commissioner Althelia P. Battle, who forthwith shall give further notice of the adopted Rules by mailing a copy of this Order, together with a clean copy of the adopted Rules, to all health maintenance organizations licensed by the Commission, and to all interested persons.
(3) The Commission's Division of Information Resources forthwith shall cause a copy of this Order, together with the adopted 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 attached adopted 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.
14VAC5-211-20. Definitions.
The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:
"ACA" means the Patient Protection and Affordable Care Act (P.L. 111-148), as amended by the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152) and any federal regulations issued pursuant thereto.
"Allowable charge" means the amount from which the health maintenance organization's payment to a provider for any covered item or service is determined before taking into account the enrollee's cost sharing.
"Basic health care services" means in-area and out-of-area emergency services, inpatient hospital and physician care, outpatient medical services, laboratory and radiologic services, and preventive health services as further described in 14VAC5-211-160 and mental health and substance use disorder services, or all essential health benefits required under § 38.2-3451 of the Code of Virginia. "Basic health care services" also means limited treatment of mental illness and substance abuse in accordance with the minimum standards as may be prescribed by the commission, which shall not exceed the level of services mandated for insurance carriers pursuant to Chapter 34 (§ 38.2-3400 et seq.) of Title 38.2 of the Code of Virginia. In the case of a health maintenance organization that has contracted with this Commonwealth to furnish basic health care services to recipients of medical assistance under Title XIX of the Social Security Act (42 USC § 1396 et seq.) pursuant to § 38.2-4320 of the Code of Virginia, the basic health care services to be provided by the health maintenance organization to program recipients may differ from the basic health care services required by this chapter to the extent necessary to meet the benefit standards prescribed by the state plan for medical assistance services authorized pursuant to § 32.1-325 of the Code of Virginia.
"Coinsurance" means a copayment, expressed as a percentage of the allowable charge for a specific health care service.
"Commission" means the State Corporation Commission.
"Conversion contract" means an individual contract that the health maintenance organization issues after a conversion option has been exercised.
"Copayment" means an amount an enrollee is required to pay in order to receive a specific health care service.
"Cost sharing" means any coinsurance, copayment, or deductible.
"Deductible" means an a dollar amount an enrollee is required to pay out of pocket before the health care plan begins to pay pays the costs associated with certain health care services.
"Dependent" means the spouse, child, or other class of persons of a subscriber or eligible employee, subject to the applicable terms of the policy, contract, or plan.
"Emergency services" shall have the same meaning as § 38.2-3438 of the Code of Virginia and means those health care services that are rendered by affiliated or nonaffiliated providers after the sudden onset of a medical condition that manifests itself by symptoms of sufficient severity, including severe pain, that the absence of immediate medical attention could reasonably be expected by a prudent layperson who possesses an average knowledge of health and medicine to result in (i) serious jeopardy to the mental or physical health of the individual, (ii) danger of serious impairment of the individual's bodily functions, (iii) serious dysfunction of any of the individual's bodily organs, or (iv) in the case of a pregnant woman, serious jeopardy to the health of the fetus. Emergency services provided within the plan's service area shall include covered health care services from nonaffiliated providers only when delay in receiving care from a provider affiliated with the health maintenance organization could reasonably be expected to cause the enrollee's condition to worsen if left unattended.
"Enrollee" or "member" means an individual who is enrolled in a health care plan a policyholder, subscriber, participant, member, or other individual covered by a health benefit plan.
"Essential health benefits" includes the following general categories and items and services covered within the categories in accordance with regulations issued pursuant to the ACA: (i) ambulatory patient services; (ii) emergency services; (iii) hospitalization; (iv) laboratory services; (v) maternity and newborn care; (vi) mental health and substance use disorder services; (vii) pediatric services, including oral and vision care; (viii) prescription drugs; (ix) preventive and wellness services and chronic disease management; and (x) rehabilitative and habilitative services and devices.
"Evidence of coverage" means a certificate, individual or group agreement or contract, or identification card issued in conjunction with the certificate, agreement or contract, issued to a subscriber setting out the coverage and other rights to which an enrollee is entitled.
"Excess insurance" or "stop loss insurance" means insurance issued to a health maintenance organization by an insurer licensed in this Commonwealth, on a form approved by the commission, or a risk assumption transaction acceptable to the commission, providing indemnity or reimbursement against the cost of health care services provided by the health maintenance organization.
"Exchange certified stand-alone dental plan" means a limited dental care services plan that has been approved to meet the criteria for certification pursuant to the ACA.
"Grandfathered plan" means coverage provided by a health carrier to (i) a small employer on March 23, 2010; (ii) an individual who was enrolled on March 23, 2010, including any extension of coverage to an individual who becomes a dependent of a grandfathered enrollee after March 23, 2010; or (iii) an employee who enrolls in the employer's grandfathered plan after March 23, 2010, for as long as such plan maintains that status in accordance with the ACA.
"Group contract" means a contract for health care services issued by a health maintenance organization, which by its terms limits the eligibility of subscribers and enrollees to a specified group.
"Group health plan" means an employee welfare benefit plan as defined in § 3(1) of the Employee Retirement Income Security Act of 1974 (ERISA) (29 USC § 1002(1)) to the extent that the plan provides medical care within the meaning of § 733(a) of ERISA (29 USC § 1191b(a)) to employees, including both current and former employees, or their dependents as defined under the terms of the plan directly or through insurance, reimbursement, or otherwise.
"Health benefit plan" or "health care plan" means an arrangement in which a person undertakes to provide, arrange for, pay for, or reimburse a part of the cost of health care services. A significant part of the arrangement shall consist of arranging for or providing health care services, including emergency services and services rendered by nonparticipating referral providers, as distinguished from mere indemnification against the cost of the services, on a prepaid basis. For purposes of this chapter, a significant part shall mean at least 90% of total costs of health care services.
"Health care professional" means a physician or other health care practitioner licensed, accredited, or certified to perform specified health care services consistent with state law.
"Health care services" means the furnishing of services to an individual for the purpose of preventing, alleviating, curing, or healing human illness, injury or physical disability.
"Health insurance exchange" means a health benefit exchange established or operated in the Commonwealth pursuant to § 1311(b) of the ACA, including the Federally Facilitated Marketplace established pursuant to § 1321 of the ACA.
"Health maintenance organization" means a person who undertakes to provide or arrange for one or more health care plans. A health maintenance organization is deemed to be offering one or more managed care health insurance plans and is subject to Chapter 58 (§ 38.2-5800 et seq.) of Title 38.2 of the Code of Virginia.
"Individual health insurance coverage" means health insurance coverage offered to individuals in the individual market, but does not include [ coverage defined as ] excepted benefits [ as defined in § 38.2-3431 of the Code of Virginia ]. Individual health insurance coverage does not include short-term limited duration coverage.
"Individual market" means the market for health insurance coverage offered to individuals other than in connection with a group health plan.
"Large employer" means, in connection with a group health plan or health insurance coverage with respect to a calendar year and a plan year, an employer who employed an average of at least 51 employees on business days during the preceding calendar year and who employs at least one employee on the first day of the plan year. Effective January 1, 2016, "large employer" means, in connection with a group health plan or health insurance coverage with respect to a calendar year and a plan year, an employer who employed an average of at least 101 employees on business days during the preceding calendar year and who employs at least one employee on the first day of the plan year.
"Large group market" means the health insurance market under which individuals obtain health insurance coverage (directly or through any arrangement) on behalf of themselves (and their dependents) through a group health plan maintained by a large employer.
"Limited health care services" means dental care services, or vision care services, mental health services, substance abuse services, pharmaceutical services, and other services as may be determined by the commission to be limited health care services. Limited health care services shall not include hospital, medical, surgical or emergency services unless the services are provided incidental to the limited health care services set forth in the preceding sentence.
"Medical necessity" or "medically necessary" means appropriate and necessary health care services that are rendered for a condition which, according to generally accepted principles of good medical practice, requires the diagnosis or direct care and treatment of an illness, injury, or pregnancy-related condition, and are not provided only as a convenience.
"NAIC" means the National Association of Insurance Commissioners.
"Net worth" or "capital and surplus" means the excess of total admitted assets over the total liabilities of the health maintenance organization, provided that surplus notes shall be reported and accounted for in accordance with § 38.2-4300 of the Code of Virginia.
"Nonparticipating referral provider" means a provider who is not a participating provider but with whom a health maintenance organization has arranged, through referral by its participating providers, to provide health care services to enrollees. Payment or reimbursement by a health maintenance organization for health care services provided by nonparticipating referral providers may exceed 5.0% of total costs of health care services, only to the extent that any excess payment or reimbursement over 5.0% shall be combined with the costs for services that represent mere indemnification, with the combined amount subject to the combination of limitations set forth in this definition and in this section's definition of health care plan.
"Out-of-area services" means the health care services that the health maintenance organization covers may cover when its members enrollees are outside the geographical limits of the health maintenance organization's service area.
"Out-of-pocket maximum" means the maximum dollar amount that an enrollee is required to pay during a plan or policy year before the health benefit plan [ begins to pay pays ] 100% of [ the allowable charges for ] covered basic health care services [ for the balance of the plan or policy year ]. This amount shall include deductibles, coinsurance or copayments, and any other expenditure required of an enrollee for any covered medical expense. This limit may or may not include premiums, balance billed amounts for out-of-network services, or payments for services that are not basic health care services.
"Participating provider" or "affiliated provider" means a provider who has agreed to provide health care services to enrollees and to hold those enrollees harmless from payment with an expectation of receiving payment, other than copayments or deductibles, directly or indirectly from the health maintenance organization.
"Point-of-service benefit" means a health maintenance organization's delivery system or covered benefits, or the delivery system or covered benefits of another carrier under contract or arrangement with the health maintenance organization, that permit an enrollee to receive covered items and services outside of the provider panel of the health maintenance organization under the terms and conditions of the group contract holder's group health benefit plan with the health maintenance organization or with another carrier arranged by or under contract with the health maintenance organization and that otherwise complies with § 38.2-3407.12 of the Code of Virginia.
"Preexisting condition exclusion" means a limitation or exclusion of benefits, including a denial of coverage, based on the fact that the condition was present before the effective date of coverage, or if the coverage is denied, the date of denial, whether or not any medical advice, diagnosis, care, or treatment was recommended or received before the effective date of coverage. "Preexisting condition exclusion" also includes a condition identified as a result of a pre-enrollment questionnaire or physical examination given to an individual, or review of medical records relating to the pre-enrollment period.
"Premium" means all moneys paid by an employer, eligible employee, or covered person as a condition of coverage from a health carrier, including fees and other contributions associated with the health benefit plan.
"Primary care health care professional" means a health care professional who provides initial and primary care to enrollees; who supervises, coordinates, and maintains continuity of patient care; and who may initiate referrals for specialist care, if referrals are a requirement of the enrollee's health care coverage.
"Provider" or "health care provider" means a physician, hospital, or other person that is licensed or otherwise authorized to furnish health care services.
"Rescission" means a cancellation or discontinuance of coverage under a health care plan that has a retroactive effect. "Rescission" does not include: (i) a cancellation or discontinuance of coverage under a health care plan if the cancellation or discontinuance of coverage has only a prospective effect, or the cancellation or discontinuance of coverage is effective retroactively to the extent it is attributable to a failure to timely pay required premiums or contributions towards the cost of coverage; or (ii) a cancellation or discontinuance of coverage when the health care plan covers active employees and, if applicable, dependents and those covered under continuation coverage provisions, if the employee pays no premiums for coverage after termination of employment and the cancellation or discontinuance of coverage is effective retroactively back to the date of termination of employment due to a delay in administrative recordkeeping.
"Service area" means a clearly defined geographic area in which the health maintenance organization has directly or indirectly arranged for the provision of health care services to be generally available and readily accessible to enrollees.
"Small employer" means in connection with a group health plan or health insurance coverage with respect to a calendar year and a plan year, an employer who employed an average of at least one but not more than 50 employees on business days during the preceding calendar year and who employs at least one employee on the first day of the plan year. Effective January 1, 2016, "small employer" means in connection with a group health plan or health insurance coverage with respect to a calendar year and a plan year, an employer who employed an average of at least one but not more than 100 employees on business days during the preceding calendar year and who employs at least one employee on the first day of the plan year.
"Small group market" means the health insurance market under which individuals obtain health insurance coverage (directly or through any arrangement) on behalf of themselves (and their dependents) through a group health plan maintained by a small employer.
"Specialist" means a licensed health care provider to whom an enrollee may be referred by his primary care health care professional and who is certified or eligible for certification by the appropriate specialty board, where applicable, to provide health care services in a specialized area of health care.
"Subscriber" means a contract holder, an individual enrollee, or the enrollee in an enrolled family or enrollee who is responsible for payment to the health maintenance organization or on whose behalf the payment is made.
"Supplemental health care services" means health care services that may be offered by a health maintenance organization in addition to the required basic health care services.
"Surplus notes" means those instruments that meet the requirements of 14VAC5-211-40.
Part III
Contract Requirements
14VAC5-211-60. Filing requirements. (Repealed.)
A. A contract, evidence of coverage, or amendment shall not be delivered or issued for delivery in this Commonwealth until a copy of the form or amendment has been filed with and approved by the commission pursuant to § 38.2-4306 of the Code of Virginia. The contract, evidence of coverage, or amendment shall be identified by a form number in the lower left-hand corner of the first page. If the commission does not disapprove a form within 30 days of its filing, it shall be deemed approved unless the filer is notified in writing that this period is extended by the commission for an additional 30 days.
B. A schedule of charges or amendment shall not be put into effect in conjunction with a health care plan until a copy of the schedule or amendment has been filed with the commission pursuant to § 38.2-4306 of the Code of Virginia.
14VAC5-211-70. Conversion Continuation of coverage.
A. A health care plan shall offer to its group contract holders, for an An enrollee whose eligibility for coverage terminates under the group contract, the options to convert to an individual policy or continue coverage as set forth in this section. The group contract holder shall select one of the following options: 1. Conversion of coverage within 31 days after issuance of the written notice required in subsection C of this section, but in no event beyond the 60-day period following the date of termination of the enrollee's coverage under the group contract, to an individual contract that provides benefits which, at a minimum, meet the requirements of basic or limited health care services as applicable, in accordance with this chapter. Coverage shall not be refused on the basis that the enrollee no longer resides or is employed in the health maintenance organization's service area. The conversion contract shall cover the enrollee covered under the group contract as of the date of termination of the enrollee's coverage under the group contract. Coverage shall be provided without additional evidence of insurability, and no preexisting condition limitations or exclusions may be imposed other than those remaining unexpired under the contract from which conversion is exercised. A probationary or waiting period set forth in the conversion contract shall be deemed to commence on the effective date of coverage under the original contract. 2. Continuation of shall have the opportunity to continue coverage under the existing group contract for a period of at least 12 months immediately following the date of termination of the enrollee's eligibility for coverage under the group contract. Continuation coverage shall not be applicable if the group contract holder is required by federal law to provide for continuation of coverage under its group health plan pursuant to the Consolidated Omnibus Budget Reconciliation Act (COBRA) (P.L. 99-272). Coverage shall be provided without additional evidence of insurability subject to the following requirements:
a. 1. The application and payment for the [ extended continued ] coverage is made to the group contract holder within 31 days after issuance of the written notice required in subsection C of this section, but in no event beyond the 60-day period following the date of the termination of the person's eligibility;
b. 2. Each premium for the [ extended continued ] coverage is timely paid to the group contract holder on a monthly basis during the 12-month period; and
c. 3. The premium for continuing the group coverage shall be at the health care plan's current rate applicable to [ similarly situated individuals under ] the group contract plus any applicable administrative fee not to exceed 2.0% of the current rate.
B. A conversion contract or continuation of coverage shall not be required to be made available when:
1. The enrollee is covered by or is eligible for benefits under Title XVIII of the Social Security Act (42 USC § 1395 et seq.) known as Medicare;
2. The enrollee is covered by or is eligible for substantially the same level of hospital, medical, and surgical benefits under state or federal law;
3. 2. The enrollee is covered by substantially the same level of benefits under any policy, contract, or plan for individuals in a group;
4. 3. The enrollee has not been continuously covered during the three-month period immediately preceding the enrollee's termination of coverage;
5. 4. The enrollee was terminated by the health care plan for any of the reasons stated in 14VAC5-211-230 A 1, 2, or 5 2, or coverage was rescinded; or
6. 5. The enrollee was terminated from a plan administered by the Department of Medical Assistance Services that provided benefits pursuant to Title XIX or XXI of the Social Security Act (42 USC § 1396 et seq. or § 1397aa et seq.).
C. The group contract holder shall provide each enrollee or other person covered under the group contract written notice of the availability of the option chosen and the procedures and timeframes for obtaining continuation or conversion of [ coverage under ] the group contract. The notice shall be provided within 14 days of the group contract holder's knowledge of the enrollee's or other covered person's loss of eligibility under the group contract.
14VAC5-211-80. Coordination of benefits.
A. A health care plan may include in its group or individual contract a provision that the value of any benefit or service provided by the health maintenance organization may be coordinated with other health insurance or health care benefits or services that are provided by other individual or group policies, group contracts, or group health care plans, including coverage provided under governmental programs, so that no more than 100% of the eligible incurred expenses is paid.
B. A health care plan shall not be relieved of its duty to provide a covered health care service to an enrollee because the enrollee is entitled to coverage under other policies, contracts, or health care plans. In the event that benefits are provided by a health care plan and another policy, contract, or health care plan, the determination of the order of benefits shall in no way restrict or impede the rendering of services required to be provided by the health care plan. The health maintenance organization shall be required to provide or arrange for the service first and then, at its option, seek coordination of benefits with any other health insurance or health care benefits or services that are provided by other group policies, group contracts, or group plans. Until a coordination of benefits determination is made, the enrollee shall not be held liable for the cost of covered services provided.
14VAC5-211-90. Copayments Cost sharing.
A. Except for preventive services required by § 38.2-3442 of the Code of Virginia, a health maintenance organization may require a copayment of enrollees as a condition for the receipt of a specific health care service. A copayment shall be shown in the evidence of coverage as either a specified dollar amount or as coinsurance.
B. If the health maintenance organization has an established copayment maximum out-of-pocket maximum for cost sharing, it shall keep accurate records of each enrollee's copayment expenses cost sharing and notify the enrollee when his copayment out-of-pocket maximum is reached. The notification shall be given no later than 30 days after the health maintenance organization has processed sufficient claims to determine that the copayment out-of-pocket maximum is reached. The health maintenance organization shall not charge additional copayments cost sharing for the remainder of the contract or calendar year, as appropriate. The health maintenance organization shall also promptly refund to the enrollee all copayments cost sharing payments charged after the copayment out-of-pocket maximum is reached. Any maximum copayment out-of-pocket amount shall be shown in the evidence of coverage as a specified dollar amount, and the evidence of coverage shall clearly state the health maintenance organization's procedure for meeting the requirements of this subsection.
C. [ A grandfathered plan that excludes a deductible from the out-of-pocket maximum may continue to do so as long as the plan remains grandfathered.
D. ] The provisions of this subsection shall not apply to any Family Access to Medical Insurance Security (FAMIS) Plan (i) authorized by the United States Centers for Medicare and Medicaid Services pursuant to Title XXI of the Social Security Act (42 USC § 1397aa et seq.) and the state plan established pursuant to Chapter 13 (§ 32.1-351 et seq.) of Title 32.1 of the Code of Virginia and (ii) underwritten by a health maintenance organization.
14VAC5-211-100. Deductibles. (Repealed.)
Except for preventive services required by § 38.2-3442 of the Code of Virginia, a health maintenance organization may require an enrollee to pay an annual deductible in accordance with § 38.2-4303 A 8 of the Code of Virginia.
14VAC5-211-110. Description of providers. (Repealed.)
A list of the names and locations of all participating providers shall be provided in accordance with § 38.2-3407.10 G of the Code of Virginia.
14VAC5-211-120. Description of service area. (Repealed.)
A description of the service area in which the health maintenance organization shall provide health care services shall be provided to subscribers by the health maintenance organization at the time of enrollment or at the time the contract or evidence of coverage is issued and shall be made available upon request or at least annually.
14VAC5-211-130. Extension of benefits for total disability.
A. A group contract issued by a health maintenance organization in the large group market shall contain a reasonable extension of benefits upon discontinuance of the group contract with respect to members enrollees who become totally disabled while enrolled under the contract and who continue to be totally disabled at the date of discontinuance of the contract.
B. Upon payment of premium, coverage shall remain in full force and effect for a reasonable period of time not less than 180 days, or until the member enrollee is no longer totally disabled, or a succeeding carrier elects to provide replacement coverage to that member enrollee without limitation as to the disabling condition.
C. Upon termination of the extension of benefits, the enrollee shall have the right to convert or continue coverage as provided for in 14VAC5-211-70.
D. C. The provisions of this section shall not apply to contracts entered into by any health maintenance organization that has contracted with the Virginia Department of Medical Assistance Services to provide health care services to recipients of medical assistance services pursuant to Title XIX of the Social Security Act, as amended, or to individuals covered by the Family Access to Medical Insurance Security Insurance (FAMIS) plan developed pursuant to Title XXI of the Social Security Act, as amended.
Part IV
Services
14VAC5-211-160. Basic health care services.
A. A health maintenance organization that offers coverage in the large group market shall provide, or arrange for the provision of, as a minimum, basic health care services. These services shall include the following:
1. Inpatient hospital and physician services. Medically necessary hospital and physician services affording inpatient treatment to enrollees in a licensed hospital for a minimum of 90 days per contract or calendar year. Hospital services include room and board; general nursing care; special diets when medically necessary; use of operating room and related facilities; use of intensive care unit and services; x-ray, laboratory, and other diagnostic tests; drugs, medications, biologicals, anesthesia, and oxygen services; special duty nursing when medically necessary; short-term physical therapy, radiation therapy, and inhalation therapy; administration of whole blood and blood plasma; and short-term rehabilitation services. Physician services include medically necessary health care services performed, prescribed, or supervised by physicians within a hospital for registered bed patients.
2. Outpatient medical services. Medically necessary health care services performed, prescribed or supervised by physicians for enrollees, which may be provided in a nonhospital based health care facility, at a hospital, in a physician's office, or in the enrollee's home, and shall include consultation and referral services. Outpatient medical services shall also include diagnostic services, treatment services, short-term physical therapy and rehabilitation services the provision of which the health maintenance organization determines can be expected to result in the significant improvement of a member's an enrollee's condition within a period of 90 days, laboratory services, x-ray services, and outpatient surgery.
3. Diagnostic laboratory and diagnostic and therapeutic radiologic services.
4. Preventive health services. Services provided with the goal of early detection and minimization of the ill effects and causes of disease or disability, including well-child care from birth, eye and ear examinations for children age 17 and under to determine the need for vision and hearing correction, periodic health evaluations, and immunizations shall be provided in accordance with the provisions of § 38.2-3442 of the Code of Virginia.
5. In-area and out-of-area emergency services, including medically necessary ambulance services, available on an inpatient or an outpatient basis 24 hours per day, seven days per week.
6. Mental health and substance use disorder services as follows:
a. Medically necessary services for the treatment of biologically based mental illnesses as defined in § 38.2-3412.1:01 of the Code of Virginia; and
b. Except for a group contract issued to a large employer as defined in § 38.2-3431 of the Code of Virginia, services for the treatment of all other mental health and substance use disorders shall at a minimum include:
(1) Inpatient services or partial hospitalization for an adult for a minimum period of 20 days per enrollee per contract year;
(2) Inpatient services or partial hospitalization for a child or adolescent for a minimum period of 25 days per enrollee per contract year; and
(3) Twenty outpatient visits per enrollee per contract year. A medication management visit shall be covered in the same manner as a medication management visit for the treatment of a physical illness and shall not be counted as an outpatient treatment visit in the calculation of the benefit set forth in this subdivision.
The limits of the benefits set forth in this subdivision shall not be more restrictive than for any other illness, however, the coinsurance applicable to any outpatient visit beyond the first five visits covered per contract year shall not exceed 50%. If all covered expenses for outpatient services apply toward any deductible required by a policy or contract, the visit shall not count toward the outpatient visit benefit maximum set forth in the policy or contract. Definitions set forth in § 38.2-3412.1 of the Code of Virginia shall be applicable to terms used in this subsection.
Group contracts issued to a large employer as defined in § 38.2-3431 of the Code of Virginia shall provide mental health and substance use disorder benefits shall be provided on parity with the medical and surgical benefits contained in the plan in accordance with the Mental Health Parity and Addiction Equity Act of 2008 (P.L. 110-343).
7. Medically necessary dental services as a result of accidental injury, regardless of the date of such injury. Contracts may require that treatment be sought within 60 days of the accident for injuries occurring on or after the effective date of coverage.
B. A health maintenance organization that offers coverage in the individual or small group market shall provide, or arrange for the provision of, as a minimum, the essential health benefits required under § 38.2-3451 of the Code of Virginia.
14VAC5-211-165. Point-of-service benefits.
A. A health maintenance organization shall offer point-of-service benefits to its enrollees in the large group market in accordance with the provisions of § 38.2-3407.12 of the Code of Virginia.
B. If point-of-service benefits are chosen, a description of the procedure for obtaining point-of-service benefits and notification requirements before obtaining these benefits shall be included in the evidence of coverage as well as a description of the restrictions or limitations on such benefits.
14VAC5-211-170. Supplemental health care services.
In addition to the basic health care services required to be provided in 14VAC5-211-160, a health maintenance organization may offer to its enrollees any supplemental health care services it chooses to provide, as allowed by applicable law. These services may be limited as to time and cost and are not subject to copayment and deductible limitations [ or may ] not be subject to cost sharing limitations or out-of-pocket or deductible maximums that are applicable to basic health care services.
14VAC5-211-180. Out-of-area services.
In addition to out-of-area emergency services required to be provided as basic health care services, a health maintenance organization may offer to its enrollees indemnity benefits covering out-of-area services to its enrollees. A description of the procedure for obtaining out-of-area services and notification requirements before obtaining these services shall be included in the evidence of coverage as well as a description of restrictions or limitations on out-of-area services. Except for out-of-area emergency services, a health care plan that requires the enrollee to contact the health maintenance organization before obtaining out-of-area services shall provide for telephone consultation on a 24-hour per day, seven-day per week basis.
14VAC5-211-190. Limited health care services.
A. A health maintenance organization offering only may offer limited health care services shall provide, or arrange for the provision of, at least one of the following services: in either dental care or vision care services.
1. Dental care services;
2. Vision care services;
3. Mental health services;
4. Substance abuse services;
5. Pharmaceutical services;
6. Other services as may be determined by the commission.
B. A health maintenance organization shall be reasonably assured that the enrollee has obtained pediatric oral essential health benefits from an exchange-certified stand-alone dental plan for coverage purchased in the individual or small group markets outside the health insurance exchange. A health maintenance organization shall be deemed to have obtained reasonable assurance that such pediatric oral health benefits are provided to the enrollee if:
1. At least one qualified dental plan, as defined in § 38.2-3455 of the Code of Virginia, (i) offers the minimum essential pediatric oral health benefits that are required under the ACA and (ii) is available for purchase by a subscriber or enrollee; and
2. The health maintenance organization prominently discloses, in a form approved by the commission, at the time that it offers the health benefit plan that the plan does not provide ACA-required minimum essential pediatric oral health benefits.
14VAC5-211-200. Essential and standard benefit plans. (Repealed.)
Health maintenance organizations offering the essential or standard health benefit plans shall offer the benefits specified in 14VAC5-234-50 and 14VAC5-234-60 for these plans.
Part V
Disclosure and Prohibitions
14VAC5-211-210. Disclosure Evidence of coverage requirements.
A. A subscriber An enrollee shall be entitled to receive an evidence of coverage under a health care plan provided by a health maintenance organization established or operating in this Commonwealth, including any amendments to it. The evidence of coverage excluding the identification card shall be delivered or issued for delivery within a reasonable period of time after enrollment, but not more than 60 days from the later of the effective date of coverage or the date on which the health maintenance organization is notified of enrollment. The An identification card shall be delivered or issued for delivery within 15 days from the later of the effective date of coverage or the date on which the health maintenance organization is notified of enrollment.
B. An evidence of coverage delivered or issued for delivery shall contain the following:
1. The name, address, and telephone number of the health maintenance organization;
2. The health care services and other benefits to which the enrollee is entitled under the health care plan;
3. Exclusions or limitations on the services, kind of services, benefits, or kind of benefits to be provided, including any deductible or copayment cost sharing features;
4. Where and in what manner information is available as to how services may be obtained;
5. The effective date and the term of coverage;
6. The total amount of payment for health care services and any indemnity or service benefits that the enrollee is obligated to pay with respect to individual contracts, or an indication whether the plan is contributory or noncontributory for group certificates;
7. A description of the health maintenance organization's method of resolving enrollee complaints, including a description of any arbitration procedure if complaints may be resolved through a specified arbitration agreement;
8. A list of providers and a description of the service area that shall be provided with the evidence of coverage if the information is not given at the time of enrollment;
9. The right of an enrollee to convert to an individual contract issued by the health maintenance organization or to continue group coverage, as applicable, including the terms and conditions under which coverage may be converted or continued;
10. The terms and conditions under which coverage may be terminated or rescinded;
11. Coordination of benefits provisions, if applicable;
12. Assignment of benefits restrictions in the contract;
13. The health maintenance organization's procedure for filing claims, including any requirements for notifying the health maintenance organization of a claim and requirements for filing proof of loss;
14. The health maintenance organization's [ enrollment and ] eligibility requirements, including the conditions under which dependents may be added and the any limiting age for dependents and subscribers covered under an individual or group contract;
15. An incontestability clause that states that all statements made by a subscriber shall be considered representations and not warranties and that no statement shall be the basis for terminating coverage or denying a claim after the contract has been in force for two years from its effective date, unless the contract can be rescinded under § 38.2-3441 of the Code of Virginia;
16. 15. A provision that the contract or evidence of coverage and any amendments to it constitutes the entire contractual agreement between the parties involved and that no portion of the charter, bylaws, or other document of the health maintenance organization shall constitute part of the contract unless it is set forth in full in the contract;
17. 16. Except for an evidence of coverage that does not provide for the periodic payment of premium or for the payment of any premium, a provision that the contract holder is entitled to a grace period of not less than 31 days for the payment of any premium due except the first premium. The provision shall also state that during the grace period the coverage shall continue in force unless the contract holder has given the health maintenance organization written notice of discontinuance in accordance with the terms of the contract and in advance of the date of discontinuance. The contract may provide that the contract holder shall be liable to the health maintenance organization for the payment of a pro rata premium for the time the contract was in force during the grace period; and
18. 17. Terms and conditions related to the designation of a primary care health care professional.
C. A copy of the evidence of coverage shall be delivered to each enrollee and may be delivered electronically in accordance with the Uniform Electronic Transactions Act (§ 59.1-479 et seq. of the Code of Virginia).
14VAC5-211-220. Exclusions for preexisting Preexisting conditions and waiting periods.
In addition to the limitations on preexisting conditions exclusions set forth in §§ 38.2-3432.3, 38.2-3444, and 38.2-3514.1 of the Code of Virginia, a health maintenance organization shall not exclude or limit health care services for a preexisting condition when the enrollee transfers coverage from one health care plan to another during open enrollment or when the enrollee converts coverage under his conversion option, except to the extent that a preexisting condition limitation or exclusion remains unexpired under the original contract. Any required probationary or A. In accordance with § 38.2-3444 of the Code of Virginia, a health maintenance organization shall not limit or exclude coverage for an enrollee by imposing a preexisting condition exclusion. This section shall apply to any health maintenance organization providing a health benefit plan in the individual or group markets, including a grandfathered group health plan, but not including a grandfathered plan for individual health insurance coverage.
B. A waiting period not to exceed 90 days may be allowed for a group health plan or excepted benefits policies [ or contracts ] that do not provide for essential health benefits. Any waiting period is deemed to commence on the effective date for individual coverage, and on the enrollment date of the contract for group coverage or the effective date of the policy, as applicable.
14VAC5-211-230. Reasons for termination or rescission.
A. A health maintenance organization shall not terminate an enrollee's coverage for services provided under a health maintenance organization contract except for one or more of the following reasons:
1. Failure to pay the amounts due under the contract, including failure to pay a premium required by the contract as shown in the contract or evidence of coverage;
2. Material violation of the terms of the contract The policyholder [ or contract holder ] has performed an act or practice that constitutes fraud or made an intentional misrepresentation of material fact in connection with the coverage;
3. Failure to meet the eligibility requirements under a group contract, provided that a conversion or continuation option is offered The group contract holder has failed to comply with a material plan provision relating to employer contribution or group participation rules; or
4. Termination Discontinuance of the group contract under which the enrollee was covered; or.
5. Other good cause as agreed upon in the contract between the health care plan and the group or the subscriber. Coverage shall not be terminated on the basis of the status of the enrollee's health or because the enrollee has exercised his rights under the plan's complaint or appeals system by registering a complaint against the health maintenance organization. Failure of the enrollee and the primary care health care professional to establish a satisfactory relationship shall not be deemed good cause unless the health maintenance organization has in good faith made an effort to provide the opportunity for the enrollee to establish a satisfactory patient-physician relationship, including assigning the enrollee to other primary care health care professionals from among the organization's participating providers.
B. A health maintenance organization shall not terminate coverage for services provided under a [ policy or ] contract without giving the subscriber written notice of termination, effective at least 31 days from the date of mailing or, if not mailed, from the date of delivery, except that:
1. For termination due to nonpayment of premium, the grace period as required in 14VAC5-211-210 B 17 16 shall apply;
2. For termination due to nonpayment of premium by an employer, the notice provisions required in § 38.2-3542 C of the Code of Virginia shall apply; or
3. For termination due to activities that endanger the safety and welfare of the health maintenance organization or its employees or providers, immediate notice of termination may be given; or
4. 3. For termination due to change of eligibility status, immediate notice of termination may be given.
C. A health maintenance organization shall not rescind coverage for services provided under a contract unless the enrollee or a person seeking coverage on behalf of an enrollee performs an act, practice, or omission that constitutes fraud, or the person makes an intentional misrepresentation of material fact, as prohibited by the terms of the plan. Notice of any rescission shall comply with the requirements of § 38.2-3441 of the Code of Virginia. Upon rescission, a health maintenance organization shall promptly refund all premiums less any claims paid.
14VAC5-211-240. Unfair discrimination.
A. A health maintenance organization shall not unfairly discriminate against an enrollee on the basis of the age, sex, health status, race, color, creed, national origin, ancestry, religion, marital status, or lawful occupation of the enrollee, or because of the frequency of utilization of services by the enrollee. However, nothing shall prohibit a health maintenance organization from setting rates or establishing a schedule of charges in accordance with relevant actuarial data.
B. A health maintenance organization shall not unreasonably discriminate against physicians as a class or any class of providers listed in § 38.2-4221 of the Code of Virginia when contracting for specialty or referral practitioners, provided the plan covers services that the class of providers are licensed to render. Nothing in this section shall prevent a health maintenance organization from selecting, in the judgment of the health maintenance organization, the number of providers necessary to render the services offered by the health maintenance organization, or from limiting certain specialty services to particular types of practitioners, provided these services are within the scope of their license.
14VAC5-211-260. Penalties. (Repealed.)
Any violation of this chapter shall be punished pursuant to § 38.2-218 of the Code of Virginia and any other applicable law of this Commonwealth.
VA.R. Doc. No. R14-3888; Filed September 10, 2014, 12:07 p.m.
TITLE 14. INSURANCE
STATE CORPORATION COMMISSION
Proposed Regulation
REGISTRAR'S NOTICE: The State Corporation Commission is claiming an exemption 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.
Titles of Regulations: 14VAC5-70. Rules Governing Accelerated Benefits Provisions (amending 14VAC5-70-130).
14VAC5-200. Rules Governing Long-Term Care Insurance (amending 14VAC5-200-140, 14VAC5-200-153).
14VAC5-310. Rules Governing Actuarial Opinions and Memoranda (amending 14VAC5-310-10 through 14VAC5-310-50, 14VAC5-310-90).
14VAC5-319. Life Insurance Reserves (amending 14VAC5-319-10).
14VAC5-321. Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits (amending 14VAC5-321-10, 14VAC5-321-30, 14VAC5-321-40).
14VAC5-322. Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities (amending 14VAC5-322-10).
14VAC5-323. Rules Governing Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values (amending 14VAC5-323-10, 14VAC5-323-40, 14VAC5-323-50).
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 Comment Deadline: October 31, 2014.
Agency Contact: Raquel C. 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 update the Code of Virginia citations that will be effective January 1, 2015, to reflect changes enacted by Chapter 571 of the 2014 Acts of Assembly. Chapter 571 is based on revisions to the National Association of Insurance Commissioners' (NAIC) Standard Valuation Law model, which was adopted by the NAIC in 2009. The revised model authorizes a principle-based reserve (PBR) basis for life, annuity, and accident and health contracts, and requires the use of a Valuation Manual, which contains both PBR and non-PBR requirements, as well as actuarial opinion and corporate governance requirements.
AT RICHMOND, SEPTEMBER 16, 2014
COMMONWEALTH OF VIRGINIA, ex rel.
STATE CORPORATION COMMISSION
CASE NO. INS-2014-00202
Ex Parte: In the matter of Amending the
Rules Governing Accelerated Benefits Provisions;
the Rules Governing Long-Term Care Insurance;
the Rules Governing Actuarial Opinions and Memoranda;
Life Insurance Reserves; Use of the 2001 CSO
Mortality Table in Determining Reserve Liabilities
and Nonforfeiture Benefits; Use of the 2001 CSO
Preferred Class Structure Mortality Table in
Determining Reserve Liabilities; and
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 ("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 Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, entitled Rules Governing Accelerated Benefits Provisions, 14 VAC 5-70-10 et seq.; Rules Governing Long-Term Care Insurance, 14 VAC 5-200-10 et seq.; Rules Governing Actuarial Opinions and Memoranda, 14 VAC 5-310-10 et seq.; Life Insurance Reserves, 14 VAC 5-319-10 et seq.; Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, 14 VAC 5-321-10 et seq.; Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, 14 VAC 5-322-10 et seq.; and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, 14 VAC 5-323-10 et seq. (collectively, "Rules"), respectively, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5‑310‑10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5‑323-40; and 14 VAC 5-323-50.
The proposed amendments to the Rules are necessary to implement the provisions of House Bill 631 passed by the 2014 General Assembly, which amends the Code by adding in Chapter 13 of Title 38.2 an Article numbered 10, consisting of sections numbered 38.2-1365 through 38.2-1385. The revised rules replace the current citations to Title 38.2 of the Code with citations that will be effective on January 1, 2015.
NOW THE COMMISSION is of the opinion that the proposed amendments submitted by the Bureau to amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5‑321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 should be considered for adoption.
Accordingly, IT IS ORDERED THAT:
(1) The proposed amendments to Rules Governing Accelerated Benefits Provisions, Rules Governing Long-Term Care Insurance, Rules Governing Actuarial Opinions and Memoranda, Life Insurance Reserves, Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 are attached hereto and made a part hereof.
(2) All interested persons who desire to comment in support or in opposition to, or request a hearing to oppose amending Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, shall file such comments or hearing request on or before October 31, 2014, 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/case. All comments shall refer to Case No. INS-2014-00202.
(3) If no written request for a hearing on the proposal to amend Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code is received on or before October 31, 2014, the Commission, upon consideration of any comments submitted in support 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 every entity that is licensed, approved, registered, or accredited in Virginia under the provisions of Tile 38.2 of the Code and also subject to solvency regulation in this Commonwealth pursuant to the provisions of Title 38.2 of the Code, 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.
14VAC5-70-130. Actuarial disclosure and reserves.
A. A qualified actuary shall be required to describe the accelerated benefits, the risks, the expected costs and the calculation of statutory reserves in an actuarial memorandum accompanying each filing. The insurer shall maintain in its files descriptions of the bases and procedures used to calculate benefits payable under these provisions. These descriptions shall be made available for examination by the commission upon request.
B. 1. When benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves shall be determined in accordance with §§ 38.2-3126 38.2-1365 through 38.2-3144 38.2-1385 of the Code of Virginia. All valuation assumptions used in constructing the reserves shall be determined as appropriate for statutory valuation purposes by a member in good standing of the American Academy of Actuaries. Mortality tables and interest currently recognized for life insurance reserves by the National Association of Insurance Commissioners may be used as well as appropriate assumptions for the other provisions incorporated in the policy form. The actuary must follow both actuarial standards and certification for good and sufficient reserves. Reserves in the aggregate should be sufficient to cover:
a. Policies upon which no claim has yet arisen.
b. Policies upon which an accelerated claim has arisen.
2. For policies and certificates which provide actuarially equivalent benefits, no additional reserves need to be established.
3. Policy liens and policy loans, including accrued interest, represent assets of the company for statutory reporting purposes. For any policy on which the policy lien exceeds the policy's statutory reserve liability such excess must be held as a nonadmitted asset.
14VAC5-200-140. Reserve standards.
A. When long-term care benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves for such benefits shall be determined in accordance with subdivision 7 of § 38.2-3130 38.2-1369 of the Code of Virginia. Claim reserves must also be established in the case when such policy or rider is in claim status. Reserves for policies and riders subject to this subsection should be based on the multiple decrement model utilizing all relevant decrements except for voluntary termination rates. Single decrement approximations are acceptable if the calculation produces essentially similar reserves, if the reserve is clearly more conservative, or if the reserve is immaterial. The calculations may take into account the reduction in life insurance benefits due to the payment of long-term care benefits. However, in no event shall the reserves for the long-term care benefit and the life insurance benefit be less than the reserves for the life insurance benefit assuming no long-term care benefit. In the development and calculation of reserves for policies and riders subject to this subsection, due regard shall be given to the applicable policy provisions, marketing methods, administrative procedures and all other considerations which have an impact on projected claim costs, including, but not limited to, the following:
1. Definition of insured events;
2. Covered long-term care facilities;
3. Existence of home convalescence care coverage;
4. Definition of facilities;
5. Existence or absence of barriers to eligibility;
6. Premium waiver provision;
7. Renewability;
8. Ability to raise premiums;
9. Marketing method;
10. Underwriting procedures;
11. Claims adjustment procedures;
12. Waiting period;
13. Maximum benefit;
14. Availability of eligible facilities;
15. Margins in claim costs;
16. Optional nature of benefit;
17. Delay in eligibility for benefit;
18. Inflation protection provisions; and
19. Guaranteed insurability option.
Any applicable valuation morbidity table shall be certified as appropriate as a statutory valuation table by a member of the American Academy of Actuaries.
B. When long-term care benefits are provided other than as in Subsection subsection A above of this section, reserves shall be determined in accordance with subdivision 7 of § 38.2-3130 of the Code of Virginia 14VAC5-320.
14VAC5-200-153. Premium rate schedule increases.
A. This section applies to any long-term care policy or certificate issued in this Commonwealth on or after October 1, 2003.
B. An insurer shall request the commission's approval of a pending premium rate schedule increase, including an exceptional increase, prior to the notice to the policyholders and shall include:
1. Information required by 14VAC5-200-75;
2. Certification by a qualified actuary that:
a. If the requested premium rate schedule increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized, no further premium rate schedule increases are anticipated;
b. The premium rate filing is in compliance with the provisions of this section;
3. An actuarial memorandum justifying the rate schedule change request that includes:
a. Lifetime projections of earned premiums and incurred claims based on the filed premium rate schedule increase; and the method and assumptions used in determining the projected values, including reflection of any assumptions that deviate from those used for pricing other forms currently available for sale;
(1) Annual values for the five years preceding and the three years following the valuation date shall be provided separately;
(2) The projections shall include the development of the lifetime loss ratio, unless the rate increase is an exceptional increase;
(3) The projections shall demonstrate compliance with subsection C of this section; and
(4) For exceptional increases,
(a) The projected experience should be limited to the increases in claims expenses attributable to the approved reasons for the exceptional increase; and
(b) In the event the commission determines as provided in the definition of exceptional increase in 14VAC5-200-40 that offsets may exist, the insurer shall use appropriate net projected experience;
b. Disclosure of how reserves have been incorporated in this rate increase whenever the rate increase will trigger contingent benefit upon lapse;
c. Disclosure of the analysis performed to determine why a rate adjustment is necessary, which pricing assumptions were not realized and why, and what other actions taken by the company have been relied on by the actuary;
d. A statement that policy design, underwriting and claims adjudication practices have been taken into consideration; and
e. In the event that it is necessary to maintain consistent premium rates for new policies and policies receiving a rate increase, the insurer will need to file composite rates reflecting projections of new policies;
4. A statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the commission; and
5. Sufficient information for review and approval of the premium rate schedule increase by the commission.
C. All premium rate schedule increases shall be determined in accordance with the following requirements:
1. Exceptional increases shall provide that 70% of the present value of projected additional premiums from the exceptional increase will be returned to policyholders in benefits;
2. Premium rate schedule increases shall be calculated such that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:
a. The accumulated value of the initial earned premium times 58%;
b. Eighty-five percent of the accumulated value of prior premium rate schedule increases on an earned basis;
c. The present value of future projected initial earned premiums times 58%; and
d. Eighty-five percent of the present value of future projected premiums not in subdivision 2 c of this subsection on an earned basis;
3. In the event that a policy form has both exceptional and other increases, the values in subdivisions 2 b and d of this subsection will also include 70% for exceptional rate increase amounts; and
4. All present and accumulated values used to determine rate increases shall use the maximum valuation interest rate for contract reserves as specified in § 38.2-3132 of the Code of Virginia 14VAC5-320. The actuary shall disclose as part of the actuarial memorandum the use of any appropriate averages.
D. For each rate increase that is implemented, the insurer shall file for approval by the commission updated projections, as defined in subdivision B 3 a of this section, annually for the next three years and include a comparison of actual results to projected values. The commission may extend the period to greater than three years if actual results are not consistent with projected values from prior projections. For group insurance policies that meet the conditions in subsection K of this section, the projections required by subdivision B 3 a of this section shall be provided to the policyholder in lieu of filing with the commission.
E. If any increased premium rate in the revised premium rate schedule is greater than 200% of the comparable rate in the initial premium schedule, the premiums exceeding 200% shall be clearly identified and lifetime projections, as defined in subdivision B 3 a of this section, shall be filed for approval by the commission every five years following the end of the required period in subsection D of this section. For group insurance policies that meet the conditions in subsection K of this section, the projections required by this subsection shall be provided to the policyholder in lieu of filing with the commission.
F. 1. If the commission has determined that the actual experience following a rate increase does not adequately match the projected experience and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in subsection C of this section, the commission may require the insurer to implement any of the following:
a. Premium rate schedule adjustments; or
b. Other measures to reduce the difference between the projected and actual experience.
It is to be expected that the actual experience will not exactly match the insurer's projections. During the period that projections are monitored as described in subsections D and E of this section, the commission should determine that there is not an adequate match if the differences in earned premiums and incurred claims are not in the same direction (both actual values higher or lower than projections) or the difference as a percentage of the projected is not of the same order.
2. In determining whether the actual experience adequately matches the projected experience, consideration should be given to subdivision B 3 e of this section, if applicable.
G. If the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse, the insurer shall file:
1. A plan, subject to commission approval, for improved administration or claims processing designed to eliminate the potential for further deterioration of the policy form requiring further premium rate schedule increases or to demonstrate that appropriate administration and claims processing have been implemented or are in effect; otherwise the commission may impose the condition in subsection H of this section; and
2. The original anticipated lifetime loss ratio, and the premium rate schedule increase that would have been calculated according to subsection C of this section had the greater of the original anticipated lifetime loss ratio or 58% been used in the calculations described in subdivisions C 2 a and c of this section.
H. 1. For a rate increase filing that meets the following criteria, the commission shall review, for all policies included in the filing, the projected lapse rates and past lapse rates during the 12 months following each increase to determine if significant adverse lapsation has occurred or is anticipated:
a. The rate increase is not the first rate increase requested for the specific policy form or forms;
b. The rate increase is not an exceptional increase; and
c. The majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse.
2. In the event significant adverse lapsation has occurred, is anticipated in the filing or is evidenced in the actual results as presented in the updated projections provided by the insurer following the requested rate increase, the commission may determine that a rate spiral exists. Following the determination that a rate spiral exists, the commission may require the insurer to offer, without underwriting, to all in force insureds subject to the rate increase the option to replace existing coverage with any other long-term care insurance product being offered by the insurer or its affiliates.
a. The offer shall:
(1) Be subject to the approval of the commission;
(2) Be based on actuarially sound principles, but not be based on attained age; and
(3) Provide that maximum benefits under any new policy accepted by an insured shall be reduced by comparable benefits already paid under the existing policy.
b. The insurer shall maintain the experience of all the replacement insureds separate from the experience of insureds originally issued the policy forms. In the event of a request for a rate increase on the policy form, the rate increase shall be limited to the lesser of:
(1) The maximum rate increase determined based on the combined experience; or
(2) The maximum rate increase determined based only on the experience of the insureds originally issued the form plus 10%.
I. If the commission determines that the insurer has exhibited a persistent practice of filing inadequate initial premium rates for long-term care insurance, the commission may, in addition to the provisions of subsection H of this section, prohibit the insurer from either of the following:
1. Filing and marketing comparable coverage for a period of up to five years; or
2. Offering all other similar coverages and limiting marketing of new applications to the products subject to recent premium rate schedule increases.
J. Subsections A through I of this section shall not apply to policies for which the long-term care benefits provided by the policy are incidental, as defined in 14VAC5-200-40, if the policy complies with all of the following provisions:
1. The interest credited internally to determine cash value accumulations, including long-term care, if any, are guaranteed not to be less than the minimum guaranteed interest rate for cash value accumulations without long-term care set forth in the policy;
2. The portion of the policy that provides insurance benefits other than long-term care coverage meets the nonforfeiture requirements as applicable in any of the following:
a. Sections 38.2-3200 through 38.2-3218 of the Code of Virginia, and
b. Sections 38.2-3219 through 38.2-3229 of the Code of Virginia;
3. The policy meets the disclosure requirements of §§ 38.2-5207.1 and 38.2-5207.2 of the Code of Virginia;
4. The portion of the policy that provides insurance benefits other than long-term care coverage meets the requirements as applicable in the following:
a. Policy illustrations as required by 14VAC5-40 14VAC5-41; and
b. Disclosure requirements in 14VAC5-40 14VAC5-41;
5. An actuarial memorandum is filed with the commission that includes:
a. A description of the basis on which the long-term care rates were determined;
b. A description of the basis for the reserves;
c. A summary of the type of policy, benefits, renewability, general marketing method, and limits on ages of issuance;
d. A description and a table of each actuarial assumption used. For expenses, an insurer shall include percent of premium dollars per policy and dollars per unit of benefits, if any;
e. A description and a table of the anticipated policy reserves and additional reserves to be held in each future year for active lives;
f. The estimated average annual premium per policy and the average issue age;
g. A statement as to whether underwriting is performed at the time of application. The statement shall indicate whether underwriting is used and, if used, the statement shall include a description of the type or types of underwriting used, such as medical underwriting or functional assessment underwriting. Concerning a group policy, the statement shall indicate whether the enrollee or any dependent will be underwritten and when underwriting occurs; and
h. A description of the effect of the long-term care policy provision on the required premiums, nonforfeiture values and reserves on the underlying insurance policy, both for active lives and those in long-term care claim status.
K. Subsections F and H of this section shall not apply to group insurance policies as defined in subsections A and C of § 38.2-3521.1 of the Code of Virginia where:
1. The policies insure 250 or more persons and the policyholder has 5,000 or more eligible employees of a single employer; or
2. The policyholder, and not the certificateholders, pays a material portion of the premium, which shall not be less than 20% of the total premium for the group in the calendar year prior to the year a rate increase is filed.
14VAC5-310-10. Purpose.
The purpose of this chapter (14VAC5-310) is to prescribe:
1. Requirements for statements of actuarial opinion that are to be submitted in accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, and for memoranda in support thereof;
2. Rules applicable to the appointment of an appointed actuary; and
3. Guidance as to the meaning of "adequacy of reserves."
14VAC5-310-20. Authority; effective date.
This chapter (14VAC5-310) is adopted and promulgated by the commission pursuant to §§ 12.1-13, 38.2-223, and 38.2-3127.1 38.2-1367 of the Code of Virginia. This chapter will take effect for annual statements for the year-ending December 31, 1992. Except as otherwise specifically provided, revisions to this chapter shall be effective upon adoption by the commission and applicable as to annual statements and actuarial opinions, memoranda, and statements of reserves filed with the commission for periods ending on or after December 31 of the year in which the revision is adopted.
14VAC5-310-30. Scope.
A. This chapter (14VAC5-310) shall apply to all companies subject to the provisions of § 38.2-3127.1 38.2-1367 of the Code of Virginia, including fraternal benefit societies licensed under Chapter 41 (§ 38.2-4100 et seq.) of Title 38.2 and all other companies licensed under Title 38.2 of the Code of Virginia to write and reinsure policies or agreements providing any form of life, life insurance, or annuity benefits as those terms are defined in §§ 38.2-102 through 38.2-107.1 of the Code of Virginia and also to any life insurer authorized to write or reinsure accident and sickness insurance as defined in § 38.2-109 of the Code of Virginia.
B. This chapter shall be applied in a manner that allows the appointed actuary to utilize professional judgment in performing the asset analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards of practice unless the commission determines particular specifications are necessary for an acceptable opinion to be rendered relative to the adequacy of reserves and related items. Particular specifications, including specific methods of actuarial analysis and actuarial assumptions, may be promulgated by rule or order of the commission or by an administrative letter issued by the Commissioner of Insurance.
C. This chapter, as reflected in rules adopted by the commission by order entered November 5, 1992, in Case No. INS920377, shall be applicable to all annual statements filed with the commission on or after December 15, 1992, and before December 31, 2003. On and after December 31, 2003, a statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80, and a memorandum in support thereof in accordance with 14VAC5-310-90, shall be required each year in accordance with rules as revised and adopted by order of the commission entered in Case No. INS-2003-00165.
14VAC5-310-40. Definitions.
As used in this chapter unless the context clearly indicates otherwise:
"Actuarial opinion" means the opinion of an appointed actuary regarding the adequacy of reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80 and with applicable Actuarial Standards of Practice.
"Actuarial Standards Board" means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.
"Annual statement" means that statement required by § 38.2-1300 of the Code of Virginia to be filed by the company with the commission annually.
"Appointed actuary" means any individual who is appointed or retained in accordance with the requirements set forth in 14VAC5-310-50 C to provide the actuarial opinion and supporting memorandum as required by § 38.2-3127.1 38.2-1367 of the Code of Virginia.
"Asset adequacy analysis" means an analysis that meets the standards and other requirements referred to in 14VAC5-310-50 D.
"Commission" means the Virginia State Corporation Commission.
"Commissioner" means the Commissioner of Insurance in Virginia unless specific reference is made to another state, in which case "commissioner" means the Insurance Commissioner, Director, Superintendent or other supervising regulatory official of a given state who is responsible for administering the insurance laws of that state.
"Company" means a life insurer, company or fraternal benefit society subject to the provisions of this chapter.
"NAIC" means the National Association of Insurance Commissioners.
"Qualified actuary" means any individual who meets the requirements set forth in 14VAC5-310-50 B.
14VAC5-310-50. General requirements for actuarial opinions.
A. The following requirements apply to all companies submitting a statement of actuarial opinion in compliance with § 38.2-3127.1 38.2-1367 of the Code of Virginia.
1. There is to be included on or attached to page 1 of the annual statement for each year ending on or after December 31, 1992, the statement of an appointed actuary, entitled "Statement of Actuarial Opinion," setting forth an opinion relating to reserves and related actuarial items held in support of policies and contracts, in accordance with 14VAC5-310-80.
2. Upon written request by the company, the commission may grant an extension of the date for submission of the statement of actuarial opinion.
B. A "qualified actuary" is an individual who:
1. Is a member in good standing of the American Academy of Actuaries;
2. Is qualified to sign statements of actuarial opinion for life and health insurance company annual statements in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements;
3. Is familiar with the valuation requirements applicable to life and health insurance companies;
4. Has not been found by the commission (or if so found has subsequently been reinstated as a qualified actuary), following appropriate notice and hearing, to have:
a. Violated any provision of, or any obligation imposed by Title 38.2 of the Code of Virginia or other law in the course of his dealings as a qualified actuary;
b. Been found guilty of fraudulent or dishonest practices;
c. Demonstrated his incompetency, lack of cooperation, or untrustworthiness to act as a qualified actuary;
d. Submitted to the commission during the past five years, pursuant to this chapter, an actuarial opinion or memorandum that the commission rejected because it did not meet the provisions of this chapter, including standards set by the Actuarial Standards Board; or
e. Resigned or been removed as an actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of failure to adhere to generally acceptable actuarial standards; and
5. Has not failed to notify the commission of any action taken by the commissioner of any other state similar to that under subdivision 4 of this subsection.
C. An "appointed actuary" is a qualified actuary who is appointed or retained to prepare the statement of actuarial opinion required by this chapter, either directly by or by the authority of the board of directors through an executive officer of the company other than the qualified actuary. The company shall give the commission timely written notice of the name, title (and, in the case of a consulting actuary, the name of the firm) and manner of appointment or retention of each person appointed or retained by the company as an appointed actuary and shall state in such notice that the person meets the requirements set forth in 14VAC5-310-50 B. Once notice is furnished, no further notice is required with respect to this person, provided that the company shall give the commission timely written notice in the event the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements set forth in 14VAC5-310-50 B. If any person appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice shall so state and give the reasons for replacement.
D. The asset adequacy analysis required by this chapter shall:
1. Conform to the Actuarial Standards of Practice as promulgated from time to time by the Actuarial Standards Board and on any additional standards under this chapter, which standards are to form the basis of the statement of actuarial opinion in accordance with 5 this chapter; and
2. Be based on methods of analysis as are deemed appropriate for such purposes by the Actuarial Standards Board.
E. Liabilities shall be covered in conformity with the following:
1. Under authority of § 38.2-3127.1 38.2-1367 of the Code of Virginia, the statement of actuarial opinion shall apply to all in-force business on the statement date, whether directly issued or assumed, regardless of when or where issued, (e.g., reserves reportable for 2002 in Exhibits 5, 5A, 6, and 7 of the NAIC annual statement for life insurers; claim liabilities reported in Exhibit 8 (2002) in Part I of the life insurer's annual statement, and equivalent items in any separate account statement, or other annual financial statements filed pursuant to § 38.2-1300, 38.2-1301 or 38.2-4126 of the Code of Virginia).
2. If the appointed actuary determines as the result of asset adequacy analysis that a reserve should be held in addition to the aggregate reserve held by the company and calculated in accordance with methods set forth in § 38.2-1311, 38.2-3923, 38.2-4010, 38.2-4011, or § 38.2-4125 of the Code of Virginia; Article 3 (§ 38.2-3136 et seq.) 10 (§ 38.2-1365 et seq.) of Chapter 31 13 of Title 38.2 of the Code of Virginia; a rule or regulation of the commission applicable to the company; or any additional or further guidance provided by the NAIC Accounting Practices and Procedures Manual, whether in a Statement of Statutory Accounting Principle or in an actuarial guideline or other appendix, the company shall establish the additional reserve.
3. Additional reserves established under subdivision 2 of this subsection and deemed not necessary in subsequent years may be released. Any amounts released shall be disclosed in the actuarial opinion for the applicable year. The release of such reserves would not be deemed an adoption of a lower standard of valuation.
14VAC5-310-90. Description of actuarial memorandum issued for an asset adequacy analysis and regulatory asset adequacy issues summary.
A. The following general provisions shall apply with respect to the preparation and submission of the asset adequacy memorandum required by § 38.2-3127.1 38.2-1367 of the Code of Virginia.
1. In accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of his opinion regarding the reserves. The memorandum shall be made available for examination by the commission upon its request but shall be returned to the company after such examination and shall not be considered a record of the Bureau of Insurance or subject to automatic filing with the commission.
2. In preparing the memorandum, the appointed actuary may rely on, and include as a part of his memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of 14VAC5-310-50 B, with respect to the areas covered in such memoranda, and so state in their memoranda.
3. If the commission requests a memorandum and no such memorandum exists or if the commission finds that the analysis described in the memorandum fails to meet the standards of the Actuarial Standards Board or the standards and requirements of this chapter, the commission may designate a qualified actuary to review the opinion and prepare such supporting memorandum as is required for review. The reasonable and necessary expense of the independent review shall be paid by the company but shall be directed and controlled by the commission.
4. The reviewing actuary shall have the same status as an examiner for purposes of obtaining data from the company and the work papers and documentation of the reviewing actuary shall be retained by the commission; however, any information provided by the company to the reviewing actuary and included in the work papers shall be considered as material provided by the company to the commission and shall be kept confidential to the same extent as is prescribed by law with respect to other material provided by the company to the commission pursuant to the statute governing this chapter. The reviewing actuary shall not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer pursuant to this chapter for any one of the current year or the preceding three years.
5. In accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a regulatory asset adequacy issues summary, the contents of which are specified in subsection C of this section. The regulatory asset adequacy issues summary shall be submitted no later than March 15 of the year following the year for which a statement of actuarial opinion based on asset adequacy is required. The regulatory asset adequacy issues summary is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.
B. A section of the memorandum shall document asset adequacy testing by demonstrating that the analysis has been done in accordance with the standards for asset adequacy referred to in 14VAC5-310-50 D and any additional standards under this chapter. It shall specify:
1. For reserves:
a. Product descriptions including market description, underwriting and other aspects of a risk profile, and the specific risks the appointed actuary deems significant;
b. Source of liability in force;
c. Reserve method and basis;
d. Investment reserves;
e. Reinsurance arrangements;
f. Identification of any explicit or implied guarantees made by the general account in support of benefits provided through a separate account policy or contract and the methods used by the appointed actuary to provide for the guarantees in the asset adequacy analysis; and
g. Documentation of assumptions to test reserves for (i) lapse rates, whether base or excess, (ii) interest crediting rate strategy, (iii) mortality, (iv) policyholder dividend strategy, (v) competitor or market interest rate, (vi) annuitization rates, (vii) commission and expenses, and (viii) morbidity.
The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumption.
2. For assets:
a. Portfolio descriptions, including a risk profile disclosing the quality, distribution and types of assets;
b. Investment and disinvestment assumptions;
c. Source of asset data;
d. Asset valuation bases; and
e. Documentation of assumptions made for (i) default costs, (ii) bond call function, (iii) mortgage prepayment function, (iv) determining market value for assets sold due to disinvestment strategy, and (v) determining yield on assets acquired through the investment strategy.
The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumption.
3. For the analysis basis:
a. Methodology;
b. Rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;
c. Rationale for degree of rigor in analyzing different blocks of business, including the rationale for the level of "materiality" that was used in determining how rigorously to analyze different blocks of business;
d. Criteria for determining asset adequacy, including in the criteria the precise basis for determining if assets are adequate to cover reserves under "moderately adverse conditions" or other conditions as specified in relevant actuarial standards of practice; and
e. Whether the impact of federal income taxes was considered and the method of treating reinsurance in the asset adequacy analysis.
4. Summary of material changes in methods, procedures, or assumptions from prior year's asset adequacy analysis;
5. Summary of results; and
6. Conclusion.
C. The regulatory asset adequacy issues summary shall contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and shall be signed and dated by the appointed actuary rendering the actuarial opinion. The regulatory asset adequacy issues summary also shall include each of the following:
1. Descriptions of the scenarios tested, including whether those scenarios are stochastic or deterministic, and the sensitivity testing done relative to those scenarios. If negative ending surplus results under certain tests in the aggregate, the actuary should describe those tests and the amount of additional reserve as of the valuation date which, if held, would eliminate the negative aggregate surplus values. Ending surplus values shall be determined by either extending the projection period until the in-force and associated assets and liabilities at the end of the projection period are immaterial or by adjusting the surplus amount at the end of the projection period by an amount that appropriately estimates the value that reasonably can be expected to arise from the assets and liabilities remaining in force;
2. The extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different from the assumptions used in the previous asset adequacy analysis;
3. The amount of reserves and the identity of the product lines that had been subjected to asset adequacy analysis in the prior opinion but were not subject to analysis for the current opinion;
4. Comments on any interim results that may be of significant concern to the appointed actuary. For example, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods;
5. The methods used by the actuary to recognize the impact of reinsurance on the company's cash flows, including both assets and liabilities, under each of the scenarios tested; and
6. Whether the actuary has been satisfied that all options whether explicit or embedded, in any asset or liability, including but not limited to those affecting cash flows embedded in fixed income securities, and equity-like features in any investments have been appropriately considered in the asset adequacy analysis.
D. The actuarial methods, considerations, and analyses shall conform to appropriate standards of practice and the memorandum shall include the following statement:
"Actuarial methods, considerations and analyses used in the preparation of this memorandum conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis for this memorandum."
E. An appropriate allocation of assets in the amount of Interest Maintenance Reserve (IMR), whether positive or negative, shall be used in any asset adequacy analysis. Analysis of risks regarding asset default shall include an appropriate allocation of assets supporting the Asset Valuation Reserve (AVR); these AVR assets shall not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks shall include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support. The amount of the assets used for the AVR shall be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.
14VAC5-319-10. Definitions.
The following words and terms when used in this regulation shall have the following meanings, unless the context clearly indicates otherwise:
"1980 CSO valuation tables" means the Commissioners' 1980 Standard Ordinary Mortality Table (1980 CSO Table) without 10-year selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law, and variations of the 1980 CSO Table approved by the NAIC, such as the smoker and nonsmoker versions approved in December 1983.
"Basic reserves" means reserves calculated in accordance with § 38.2-3137 38.2-1372 of the Code of Virginia.
"Commission" means the State Corporation Commission when acting pursuant to or in accordance with Title 38.2 of the Code of Virginia.
"Contract segmentation method" means the method of dividing the period from issue to mandatory expiration of a policy into successive segments, with the length of each segment being defined as the period from the end of the prior segment (from policy inception, for the first segment) to the end of the latest policy year as determined below. All calculations are made using the 1980 CSO valuation tables, as defined in this section, (or any other valuation mortality table adopted by the NAIC after January 1, 2000, and promulgated by regulation by the commission for this purpose) and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in 14VAC5-319-40 B.
The length of a particular contract segment shall be set equal to the minimum of the value t for which Gt is greater than Rt (if Gt never exceeds Rt, the segment length is deemed to be the number of years from the beginning of the segment to the mandatory expiration date of the policy), where Gt and Rt are defined as follows:
where:
x = original issue age;
k = the number of years from the date of issue to the beginning of the segment;
t = 1, 2,...; t is reset to 1 at the beginning of each segment; and
GPx+k+t-1 = Guaranteed gross premium per $1,000 of face amount for year t of the segment, ignoring policy fees only if level for the premium paying period of the policy.
where:
Rt may be increased or decreased by 1.0% in any policy year, at the company's option, but Rt shall not be less than one; and
x, k and t are as defined above; and
qx+k+t-1 = valuation mortality rate for deficiency reserves in policy year k+t but using the mortality of 14VAC5-319-40 B 2 if 14VAC5-319-40 B 3 is elected for deficiency reserves. However, if GPx+k+t is greater than 0 and GPx+k+t-1 is equal to 0, Gt shall be deemed to be 1,000. If GPx+k+t and GPx+k+t-1 are both equal to 0, Gt shall be deemed to be 0.
"Deficiency reserves" means the excess, if greater than 0, of (i) minimum reserves calculated in accordance with § 38.2-3141 38.2-1376 of the Code of Virginia over (ii) basic reserves.
"Guaranteed gross premiums" means the premiums under a policy of life insurance that are guaranteed and determined at issue.
"Maximum valuation interest rates" means the interest rates defined in § 38.2-3130 38.2-1371 of the Code of Virginia that are to be used in determining the minimum standard for the valuation of life insurance policies.
"NAIC" means the National Association of Insurance Commissioners.
"Scheduled gross premium" means the smallest illustrated gross premium at issue for other than universal life insurance policies. For universal life insurance policies, scheduled gross premium means the smallest specified premium described in 14VAC5-319-60 A 3 or, if none is so described, the minimum premium described in 14VAC5-319-60 A 4.
"Segmented reserves" means reserves, calculated using segments produced by the contract segmentation method, equal to the present value of all future guaranteed benefits less the present value of all future net premiums to the mandatory expiration of a policy, where the net premiums within each segment are a uniform percentage of the respective guaranteed gross premiums within the segment. The uniform percentage for each segment is such that, at the beginning of the segment, the present value of the net premiums within the segment equals:
1. The present value of the death benefits within the segment, plus
2. The present value of any unusual guaranteed cash value (see 14VAC5-319-50 D) occurring at the end of the segment, less
3. Any unusual guaranteed cash value occurring at the start of the segment, plus
4. For the first segment only, the excess of subdivision 4 a over subdivision 4 b of this definition, as follows:
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for in the first segment after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary within the first segment on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
b. A net one-year term premium for the benefits provided for in the first policy year.
The length of each segment is determined by the "contract segmentation method," as defined in this section.
The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the sum of the lengths of all segments of the policy.
For both basic reserves and deficiency reserves computed by the segmented method, present values shall include future benefits and net premiums in the current segment and in all subsequent segments.
"Tabular cost of insurance" means the net single premium at the beginning of a policy year for one-year term insurance in the amount of the guaranteed death benefit in that policy year.
"Ten-year select mortality factors" means the select factors adopted by the NAIC with the 1980 amendments to the NAIC Standard Valuation Law.
"This regulation" means Chapter 319 of Title 14 of the Virginia Administrative Code (14VAC5-319-10 et seq.), which also shall be known as the commission's Rules Establishing Minimum Valuation and Reserve Standards for Life Insurance Policies.
"Twenty-year select mortality factors" means the select factors adopted by the NAIC as part of the Valuation of Life Insurance Policies Model Regulation and shown in the tables in 14VAC5-319-70.
"Unitary reserves" means the present value of all future guaranteed benefits less the present value of all future modified net premiums, where:
1. Guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy; and
2. Modified net premiums are a uniform percentage of the respective guaranteed gross premiums, where the uniform percentage is such that, at issue, the present value of the net premiums equals the present value of all death benefits and pure endowments, plus the excess of subdivision 2 a over subdivision 2 b of this definition, as follows:
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
b. A net one-year term premium for the benefits provided for in the first policy year.
The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the length from issue to the mandatory expiration of the policy.
"Universal life insurance policy" means any individual life insurance policy under the provisions of which separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds or other supplementary accounts) and mortality or expense charges are made to the policy.
"YRT" means yearly renewable term.
14VAC5-321-10. 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 38.2-1369, 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 2001 Commissioners Standard Ordinary (CSO) Mortality Table by and for insurers transacting the business of insurance in this Commonwealth.
14VAC5-321-30. 2001 CSO Mortality Table.
A. At the election of the insurer for any one or more specified plans of insurance and subject to the conditions stated in this chapter, the 2001 CSO Mortality Table may be used as the minimum standard for policies issued on or after January 1, 2004, and before the date specified in subsection B of this section to which subdivision 1 of § 38.2-3130 38.2-1369 and § 38.2-3209 of the Code of Virginia are applicable. If the insurer elects to use the 2001 CSO Mortality Table, it shall do so for both valuation and nonforfeiture purposes.
B. Subject to the conditions stated in this chapter, the 2001 CSO Mortality Table shall be used in determining minimum standards for policies issued on and after January 1, 2009, to which subdivision 1 of § 38.2-3130 38.2-1369 and § 38.2-3209 of the Code of Virginia are applicable.
C. A table from the 2001 CSO Preferred Class Structure Mortality Table used in place of a 2001 CSO Mortality Table, pursuant to the requirements of 14VAC5-322, will be treated as part of the 2001 CSO Mortality Table only for purposes of reserve valuation pursuant to the requirements of this chapter.
14VAC5-321-40. Conditions.
A. For policies issued on or after July 1, 2004, with each plan of insurance with separate rates for smokers and nonsmokers an insurer may use:
1. Composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits;
2. Smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by § 38.2-3141 38.2-1376 of the Code of Virginia and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values, and amounts of paid-up nonforfeiture benefits; or
3. Smoker and nonsmoker mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits.
B. For policies issued on or after July 1, 2004, with plans of insurance without separate rates for smokers and nonsmokers the composite mortality tables shall be used.
C. For the purpose of determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits, the 2001 CSO Mortality Table may, at the option of the insurer for each such plan of insurance, be used in its ultimate or select and ultimate form, subject to the restrictions of 14VAC5-321-50 and 14VAC5-319 relative to use of the select and ultimate form.
D. When the 2001 CSO Mortality Table is the minimum reserve standard for any plan for an insurer, any actuarial opinion in the annual statement filed with the commission shall be based on an asset adequacy analysis that meets the standards and satisfies requirements for an asset adequacy analysis performed pursuant to subdivision A 2 of § 38.2-3127.1 B 38.2-1367 of the Code of Virginia and rules governing actuarial opinions and memoranda at 14VAC5-310.
14VAC5-322-10. 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 38.2-1369 of the Code of Virginia and 14VAC5-319-40, to approve, recognize, permit, and prescribe the use of the 2001 Commissioners Standard Ordinary (CSO) Preferred Class Structure Mortality Table by and for insurers transacting the business of insurance in this Commonwealth.
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 38.2-1369, 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.
14VAC5-323-40. 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 § 38.2-1371 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 38.2-1368 and 38.2-3130 38.2-1369 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.
VA.R. Doc. No. R15-4085; Filed September 16, 2014, 2:10 p.m.
TITLE 14. INSURANCE
STATE CORPORATION COMMISSION
Proposed Regulation
REGISTRAR'S NOTICE: The State Corporation Commission is claiming an exemption 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.
Titles of Regulations: 14VAC5-70. Rules Governing Accelerated Benefits Provisions (amending 14VAC5-70-130).
14VAC5-200. Rules Governing Long-Term Care Insurance (amending 14VAC5-200-140, 14VAC5-200-153).
14VAC5-310. Rules Governing Actuarial Opinions and Memoranda (amending 14VAC5-310-10 through 14VAC5-310-50, 14VAC5-310-90).
14VAC5-319. Life Insurance Reserves (amending 14VAC5-319-10).
14VAC5-321. Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits (amending 14VAC5-321-10, 14VAC5-321-30, 14VAC5-321-40).
14VAC5-322. Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities (amending 14VAC5-322-10).
14VAC5-323. Rules Governing Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values (amending 14VAC5-323-10, 14VAC5-323-40, 14VAC5-323-50).
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 Comment Deadline: October 31, 2014.
Agency Contact: Raquel C. 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 update the Code of Virginia citations that will be effective January 1, 2015, to reflect changes enacted by Chapter 571 of the 2014 Acts of Assembly. Chapter 571 is based on revisions to the National Association of Insurance Commissioners' (NAIC) Standard Valuation Law model, which was adopted by the NAIC in 2009. The revised model authorizes a principle-based reserve (PBR) basis for life, annuity, and accident and health contracts, and requires the use of a Valuation Manual, which contains both PBR and non-PBR requirements, as well as actuarial opinion and corporate governance requirements.
AT RICHMOND, SEPTEMBER 16, 2014
COMMONWEALTH OF VIRGINIA, ex rel.
STATE CORPORATION COMMISSION
CASE NO. INS-2014-00202
Ex Parte: In the matter of Amending the
Rules Governing Accelerated Benefits Provisions;
the Rules Governing Long-Term Care Insurance;
the Rules Governing Actuarial Opinions and Memoranda;
Life Insurance Reserves; Use of the 2001 CSO
Mortality Table in Determining Reserve Liabilities
and Nonforfeiture Benefits; Use of the 2001 CSO
Preferred Class Structure Mortality Table in
Determining Reserve Liabilities; and
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 ("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 Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, entitled Rules Governing Accelerated Benefits Provisions, 14 VAC 5-70-10 et seq.; Rules Governing Long-Term Care Insurance, 14 VAC 5-200-10 et seq.; Rules Governing Actuarial Opinions and Memoranda, 14 VAC 5-310-10 et seq.; Life Insurance Reserves, 14 VAC 5-319-10 et seq.; Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, 14 VAC 5-321-10 et seq.; Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, 14 VAC 5-322-10 et seq.; and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, 14 VAC 5-323-10 et seq. (collectively, "Rules"), respectively, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5‑310‑10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5‑323-40; and 14 VAC 5-323-50.
The proposed amendments to the Rules are necessary to implement the provisions of House Bill 631 passed by the 2014 General Assembly, which amends the Code by adding in Chapter 13 of Title 38.2 an Article numbered 10, consisting of sections numbered 38.2-1365 through 38.2-1385. The revised rules replace the current citations to Title 38.2 of the Code with citations that will be effective on January 1, 2015.
NOW THE COMMISSION is of the opinion that the proposed amendments submitted by the Bureau to amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5‑321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 should be considered for adoption.
Accordingly, IT IS ORDERED THAT:
(1) The proposed amendments to Rules Governing Accelerated Benefits Provisions, Rules Governing Long-Term Care Insurance, Rules Governing Actuarial Opinions and Memoranda, Life Insurance Reserves, Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 are attached hereto and made a part hereof.
(2) All interested persons who desire to comment in support or in opposition to, or request a hearing to oppose amending Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, shall file such comments or hearing request on or before October 31, 2014, 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/case. All comments shall refer to Case No. INS-2014-00202.
(3) If no written request for a hearing on the proposal to amend Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code is received on or before October 31, 2014, the Commission, upon consideration of any comments submitted in support 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 every entity that is licensed, approved, registered, or accredited in Virginia under the provisions of Tile 38.2 of the Code and also subject to solvency regulation in this Commonwealth pursuant to the provisions of Title 38.2 of the Code, 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.
14VAC5-70-130. Actuarial disclosure and reserves.
A. A qualified actuary shall be required to describe the accelerated benefits, the risks, the expected costs and the calculation of statutory reserves in an actuarial memorandum accompanying each filing. The insurer shall maintain in its files descriptions of the bases and procedures used to calculate benefits payable under these provisions. These descriptions shall be made available for examination by the commission upon request.
B. 1. When benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves shall be determined in accordance with §§ 38.2-3126 38.2-1365 through 38.2-3144 38.2-1385 of the Code of Virginia. All valuation assumptions used in constructing the reserves shall be determined as appropriate for statutory valuation purposes by a member in good standing of the American Academy of Actuaries. Mortality tables and interest currently recognized for life insurance reserves by the National Association of Insurance Commissioners may be used as well as appropriate assumptions for the other provisions incorporated in the policy form. The actuary must follow both actuarial standards and certification for good and sufficient reserves. Reserves in the aggregate should be sufficient to cover:
a. Policies upon which no claim has yet arisen.
b. Policies upon which an accelerated claim has arisen.
2. For policies and certificates which provide actuarially equivalent benefits, no additional reserves need to be established.
3. Policy liens and policy loans, including accrued interest, represent assets of the company for statutory reporting purposes. For any policy on which the policy lien exceeds the policy's statutory reserve liability such excess must be held as a nonadmitted asset.
14VAC5-200-140. Reserve standards.
A. When long-term care benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves for such benefits shall be determined in accordance with subdivision 7 of § 38.2-3130 38.2-1369 of the Code of Virginia. Claim reserves must also be established in the case when such policy or rider is in claim status. Reserves for policies and riders subject to this subsection should be based on the multiple decrement model utilizing all relevant decrements except for voluntary termination rates. Single decrement approximations are acceptable if the calculation produces essentially similar reserves, if the reserve is clearly more conservative, or if the reserve is immaterial. The calculations may take into account the reduction in life insurance benefits due to the payment of long-term care benefits. However, in no event shall the reserves for the long-term care benefit and the life insurance benefit be less than the reserves for the life insurance benefit assuming no long-term care benefit. In the development and calculation of reserves for policies and riders subject to this subsection, due regard shall be given to the applicable policy provisions, marketing methods, administrative procedures and all other considerations which have an impact on projected claim costs, including, but not limited to, the following:
1. Definition of insured events;
2. Covered long-term care facilities;
3. Existence of home convalescence care coverage;
4. Definition of facilities;
5. Existence or absence of barriers to eligibility;
6. Premium waiver provision;
7. Renewability;
8. Ability to raise premiums;
9. Marketing method;
10. Underwriting procedures;
11. Claims adjustment procedures;
12. Waiting period;
13. Maximum benefit;
14. Availability of eligible facilities;
15. Margins in claim costs;
16. Optional nature of benefit;
17. Delay in eligibility for benefit;
18. Inflation protection provisions; and
19. Guaranteed insurability option.
Any applicable valuation morbidity table shall be certified as appropriate as a statutory valuation table by a member of the American Academy of Actuaries.
B. When long-term care benefits are provided other than as in Subsection subsection A above of this section, reserves shall be determined in accordance with subdivision 7 of § 38.2-3130 of the Code of Virginia 14VAC5-320.
14VAC5-200-153. Premium rate schedule increases.
A. This section applies to any long-term care policy or certificate issued in this Commonwealth on or after October 1, 2003.
B. An insurer shall request the commission's approval of a pending premium rate schedule increase, including an exceptional increase, prior to the notice to the policyholders and shall include:
1. Information required by 14VAC5-200-75;
2. Certification by a qualified actuary that:
a. If the requested premium rate schedule increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized, no further premium rate schedule increases are anticipated;
b. The premium rate filing is in compliance with the provisions of this section;
3. An actuarial memorandum justifying the rate schedule change request that includes:
a. Lifetime projections of earned premiums and incurred claims based on the filed premium rate schedule increase; and the method and assumptions used in determining the projected values, including reflection of any assumptions that deviate from those used for pricing other forms currently available for sale;
(1) Annual values for the five years preceding and the three years following the valuation date shall be provided separately;
(2) The projections shall include the development of the lifetime loss ratio, unless the rate increase is an exceptional increase;
(3) The projections shall demonstrate compliance with subsection C of this section; and
(4) For exceptional increases,
(a) The projected experience should be limited to the increases in claims expenses attributable to the approved reasons for the exceptional increase; and
(b) In the event the commission determines as provided in the definition of exceptional increase in 14VAC5-200-40 that offsets may exist, the insurer shall use appropriate net projected experience;
b. Disclosure of how reserves have been incorporated in this rate increase whenever the rate increase will trigger contingent benefit upon lapse;
c. Disclosure of the analysis performed to determine why a rate adjustment is necessary, which pricing assumptions were not realized and why, and what other actions taken by the company have been relied on by the actuary;
d. A statement that policy design, underwriting and claims adjudication practices have been taken into consideration; and
e. In the event that it is necessary to maintain consistent premium rates for new policies and policies receiving a rate increase, the insurer will need to file composite rates reflecting projections of new policies;
4. A statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the commission; and
5. Sufficient information for review and approval of the premium rate schedule increase by the commission.
C. All premium rate schedule increases shall be determined in accordance with the following requirements:
1. Exceptional increases shall provide that 70% of the present value of projected additional premiums from the exceptional increase will be returned to policyholders in benefits;
2. Premium rate schedule increases shall be calculated such that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:
a. The accumulated value of the initial earned premium times 58%;
b. Eighty-five percent of the accumulated value of prior premium rate schedule increases on an earned basis;
c. The present value of future projected initial earned premiums times 58%; and
d. Eighty-five percent of the present value of future projected premiums not in subdivision 2 c of this subsection on an earned basis;
3. In the event that a policy form has both exceptional and other increases, the values in subdivisions 2 b and d of this subsection will also include 70% for exceptional rate increase amounts; and
4. All present and accumulated values used to determine rate increases shall use the maximum valuation interest rate for contract reserves as specified in § 38.2-3132 of the Code of Virginia 14VAC5-320. The actuary shall disclose as part of the actuarial memorandum the use of any appropriate averages.
D. For each rate increase that is implemented, the insurer shall file for approval by the commission updated projections, as defined in subdivision B 3 a of this section, annually for the next three years and include a comparison of actual results to projected values. The commission may extend the period to greater than three years if actual results are not consistent with projected values from prior projections. For group insurance policies that meet the conditions in subsection K of this section, the projections required by subdivision B 3 a of this section shall be provided to the policyholder in lieu of filing with the commission.
E. If any increased premium rate in the revised premium rate schedule is greater than 200% of the comparable rate in the initial premium schedule, the premiums exceeding 200% shall be clearly identified and lifetime projections, as defined in subdivision B 3 a of this section, shall be filed for approval by the commission every five years following the end of the required period in subsection D of this section. For group insurance policies that meet the conditions in subsection K of this section, the projections required by this subsection shall be provided to the policyholder in lieu of filing with the commission.
F. 1. If the commission has determined that the actual experience following a rate increase does not adequately match the projected experience and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in subsection C of this section, the commission may require the insurer to implement any of the following:
a. Premium rate schedule adjustments; or
b. Other measures to reduce the difference between the projected and actual experience.
It is to be expected that the actual experience will not exactly match the insurer's projections. During the period that projections are monitored as described in subsections D and E of this section, the commission should determine that there is not an adequate match if the differences in earned premiums and incurred claims are not in the same direction (both actual values higher or lower than projections) or the difference as a percentage of the projected is not of the same order.
2. In determining whether the actual experience adequately matches the projected experience, consideration should be given to subdivision B 3 e of this section, if applicable.
G. If the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse, the insurer shall file:
1. A plan, subject to commission approval, for improved administration or claims processing designed to eliminate the potential for further deterioration of the policy form requiring further premium rate schedule increases or to demonstrate that appropriate administration and claims processing have been implemented or are in effect; otherwise the commission may impose the condition in subsection H of this section; and
2. The original anticipated lifetime loss ratio, and the premium rate schedule increase that would have been calculated according to subsection C of this section had the greater of the original anticipated lifetime loss ratio or 58% been used in the calculations described in subdivisions C 2 a and c of this section.
H. 1. For a rate increase filing that meets the following criteria, the commission shall review, for all policies included in the filing, the projected lapse rates and past lapse rates during the 12 months following each increase to determine if significant adverse lapsation has occurred or is anticipated:
a. The rate increase is not the first rate increase requested for the specific policy form or forms;
b. The rate increase is not an exceptional increase; and
c. The majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse.
2. In the event significant adverse lapsation has occurred, is anticipated in the filing or is evidenced in the actual results as presented in the updated projections provided by the insurer following the requested rate increase, the commission may determine that a rate spiral exists. Following the determination that a rate spiral exists, the commission may require the insurer to offer, without underwriting, to all in force insureds subject to the rate increase the option to replace existing coverage with any other long-term care insurance product being offered by the insurer or its affiliates.
a. The offer shall:
(1) Be subject to the approval of the commission;
(2) Be based on actuarially sound principles, but not be based on attained age; and
(3) Provide that maximum benefits under any new policy accepted by an insured shall be reduced by comparable benefits already paid under the existing policy.
b. The insurer shall maintain the experience of all the replacement insureds separate from the experience of insureds originally issued the policy forms. In the event of a request for a rate increase on the policy form, the rate increase shall be limited to the lesser of:
(1) The maximum rate increase determined based on the combined experience; or
(2) The maximum rate increase determined based only on the experience of the insureds originally issued the form plus 10%.
I. If the commission determines that the insurer has exhibited a persistent practice of filing inadequate initial premium rates for long-term care insurance, the commission may, in addition to the provisions of subsection H of this section, prohibit the insurer from either of the following:
1. Filing and marketing comparable coverage for a period of up to five years; or
2. Offering all other similar coverages and limiting marketing of new applications to the products subject to recent premium rate schedule increases.
J. Subsections A through I of this section shall not apply to policies for which the long-term care benefits provided by the policy are incidental, as defined in 14VAC5-200-40, if the policy complies with all of the following provisions:
1. The interest credited internally to determine cash value accumulations, including long-term care, if any, are guaranteed not to be less than the minimum guaranteed interest rate for cash value accumulations without long-term care set forth in the policy;
2. The portion of the policy that provides insurance benefits other than long-term care coverage meets the nonforfeiture requirements as applicable in any of the following:
a. Sections 38.2-3200 through 38.2-3218 of the Code of Virginia, and
b. Sections 38.2-3219 through 38.2-3229 of the Code of Virginia;
3. The policy meets the disclosure requirements of §§ 38.2-5207.1 and 38.2-5207.2 of the Code of Virginia;
4. The portion of the policy that provides insurance benefits other than long-term care coverage meets the requirements as applicable in the following:
a. Policy illustrations as required by 14VAC5-40 14VAC5-41; and
b. Disclosure requirements in 14VAC5-40 14VAC5-41;
5. An actuarial memorandum is filed with the commission that includes:
a. A description of the basis on which the long-term care rates were determined;
b. A description of the basis for the reserves;
c. A summary of the type of policy, benefits, renewability, general marketing method, and limits on ages of issuance;
d. A description and a table of each actuarial assumption used. For expenses, an insurer shall include percent of premium dollars per policy and dollars per unit of benefits, if any;
e. A description and a table of the anticipated policy reserves and additional reserves to be held in each future year for active lives;
f. The estimated average annual premium per policy and the average issue age;
g. A statement as to whether underwriting is performed at the time of application. The statement shall indicate whether underwriting is used and, if used, the statement shall include a description of the type or types of underwriting used, such as medical underwriting or functional assessment underwriting. Concerning a group policy, the statement shall indicate whether the enrollee or any dependent will be underwritten and when underwriting occurs; and
h. A description of the effect of the long-term care policy provision on the required premiums, nonforfeiture values and reserves on the underlying insurance policy, both for active lives and those in long-term care claim status.
K. Subsections F and H of this section shall not apply to group insurance policies as defined in subsections A and C of § 38.2-3521.1 of the Code of Virginia where:
1. The policies insure 250 or more persons and the policyholder has 5,000 or more eligible employees of a single employer; or
2. The policyholder, and not the certificateholders, pays a material portion of the premium, which shall not be less than 20% of the total premium for the group in the calendar year prior to the year a rate increase is filed.
14VAC5-310-10. Purpose.
The purpose of this chapter (14VAC5-310) is to prescribe:
1. Requirements for statements of actuarial opinion that are to be submitted in accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, and for memoranda in support thereof;
2. Rules applicable to the appointment of an appointed actuary; and
3. Guidance as to the meaning of "adequacy of reserves."
14VAC5-310-20. Authority; effective date.
This chapter (14VAC5-310) is adopted and promulgated by the commission pursuant to §§ 12.1-13, 38.2-223, and 38.2-3127.1 38.2-1367 of the Code of Virginia. This chapter will take effect for annual statements for the year-ending December 31, 1992. Except as otherwise specifically provided, revisions to this chapter shall be effective upon adoption by the commission and applicable as to annual statements and actuarial opinions, memoranda, and statements of reserves filed with the commission for periods ending on or after December 31 of the year in which the revision is adopted.
14VAC5-310-30. Scope.
A. This chapter (14VAC5-310) shall apply to all companies subject to the provisions of § 38.2-3127.1 38.2-1367 of the Code of Virginia, including fraternal benefit societies licensed under Chapter 41 (§ 38.2-4100 et seq.) of Title 38.2 and all other companies licensed under Title 38.2 of the Code of Virginia to write and reinsure policies or agreements providing any form of life, life insurance, or annuity benefits as those terms are defined in §§ 38.2-102 through 38.2-107.1 of the Code of Virginia and also to any life insurer authorized to write or reinsure accident and sickness insurance as defined in § 38.2-109 of the Code of Virginia.
B. This chapter shall be applied in a manner that allows the appointed actuary to utilize professional judgment in performing the asset analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards of practice unless the commission determines particular specifications are necessary for an acceptable opinion to be rendered relative to the adequacy of reserves and related items. Particular specifications, including specific methods of actuarial analysis and actuarial assumptions, may be promulgated by rule or order of the commission or by an administrative letter issued by the Commissioner of Insurance.
C. This chapter, as reflected in rules adopted by the commission by order entered November 5, 1992, in Case No. INS920377, shall be applicable to all annual statements filed with the commission on or after December 15, 1992, and before December 31, 2003. On and after December 31, 2003, a statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80, and a memorandum in support thereof in accordance with 14VAC5-310-90, shall be required each year in accordance with rules as revised and adopted by order of the commission entered in Case No. INS-2003-00165.
14VAC5-310-40. Definitions.
As used in this chapter unless the context clearly indicates otherwise:
"Actuarial opinion" means the opinion of an appointed actuary regarding the adequacy of reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80 and with applicable Actuarial Standards of Practice.
"Actuarial Standards Board" means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.
"Annual statement" means that statement required by § 38.2-1300 of the Code of Virginia to be filed by the company with the commission annually.
"Appointed actuary" means any individual who is appointed or retained in accordance with the requirements set forth in 14VAC5-310-50 C to provide the actuarial opinion and supporting memorandum as required by § 38.2-3127.1 38.2-1367 of the Code of Virginia.
"Asset adequacy analysis" means an analysis that meets the standards and other requirements referred to in 14VAC5-310-50 D.
"Commission" means the Virginia State Corporation Commission.
"Commissioner" means the Commissioner of Insurance in Virginia unless specific reference is made to another state, in which case "commissioner" means the Insurance Commissioner, Director, Superintendent or other supervising regulatory official of a given state who is responsible for administering the insurance laws of that state.
"Company" means a life insurer, company or fraternal benefit society subject to the provisions of this chapter.
"NAIC" means the National Association of Insurance Commissioners.
"Qualified actuary" means any individual who meets the requirements set forth in 14VAC5-310-50 B.
14VAC5-310-50. General requirements for actuarial opinions.
A. The following requirements apply to all companies submitting a statement of actuarial opinion in compliance with § 38.2-3127.1 38.2-1367 of the Code of Virginia.
1. There is to be included on or attached to page 1 of the annual statement for each year ending on or after December 31, 1992, the statement of an appointed actuary, entitled "Statement of Actuarial Opinion," setting forth an opinion relating to reserves and related actuarial items held in support of policies and contracts, in accordance with 14VAC5-310-80.
2. Upon written request by the company, the commission may grant an extension of the date for submission of the statement of actuarial opinion.
B. A "qualified actuary" is an individual who:
1. Is a member in good standing of the American Academy of Actuaries;
2. Is qualified to sign statements of actuarial opinion for life and health insurance company annual statements in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements;
3. Is familiar with the valuation requirements applicable to life and health insurance companies;
4. Has not been found by the commission (or if so found has subsequently been reinstated as a qualified actuary), following appropriate notice and hearing, to have:
a. Violated any provision of, or any obligation imposed by Title 38.2 of the Code of Virginia or other law in the course of his dealings as a qualified actuary;
b. Been found guilty of fraudulent or dishonest practices;
c. Demonstrated his incompetency, lack of cooperation, or untrustworthiness to act as a qualified actuary;
d. Submitted to the commission during the past five years, pursuant to this chapter, an actuarial opinion or memorandum that the commission rejected because it did not meet the provisions of this chapter, including standards set by the Actuarial Standards Board; or
e. Resigned or been removed as an actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of failure to adhere to generally acceptable actuarial standards; and
5. Has not failed to notify the commission of any action taken by the commissioner of any other state similar to that under subdivision 4 of this subsection.
C. An "appointed actuary" is a qualified actuary who is appointed or retained to prepare the statement of actuarial opinion required by this chapter, either directly by or by the authority of the board of directors through an executive officer of the company other than the qualified actuary. The company shall give the commission timely written notice of the name, title (and, in the case of a consulting actuary, the name of the firm) and manner of appointment or retention of each person appointed or retained by the company as an appointed actuary and shall state in such notice that the person meets the requirements set forth in 14VAC5-310-50 B. Once notice is furnished, no further notice is required with respect to this person, provided that the company shall give the commission timely written notice in the event the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements set forth in 14VAC5-310-50 B. If any person appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice shall so state and give the reasons for replacement.
D. The asset adequacy analysis required by this chapter shall:
1. Conform to the Actuarial Standards of Practice as promulgated from time to time by the Actuarial Standards Board and on any additional standards under this chapter, which standards are to form the basis of the statement of actuarial opinion in accordance with 5 this chapter; and
2. Be based on methods of analysis as are deemed appropriate for such purposes by the Actuarial Standards Board.
E. Liabilities shall be covered in conformity with the following:
1. Under authority of § 38.2-3127.1 38.2-1367 of the Code of Virginia, the statement of actuarial opinion shall apply to all in-force business on the statement date, whether directly issued or assumed, regardless of when or where issued, (e.g., reserves reportable for 2002 in Exhibits 5, 5A, 6, and 7 of the NAIC annual statement for life insurers; claim liabilities reported in Exhibit 8 (2002) in Part I of the life insurer's annual statement, and equivalent items in any separate account statement, or other annual financial statements filed pursuant to § 38.2-1300, 38.2-1301 or 38.2-4126 of the Code of Virginia).
2. If the appointed actuary determines as the result of asset adequacy analysis that a reserve should be held in addition to the aggregate reserve held by the company and calculated in accordance with methods set forth in § 38.2-1311, 38.2-3923, 38.2-4010, 38.2-4011, or § 38.2-4125 of the Code of Virginia; Article 3 (§ 38.2-3136 et seq.) 10 (§ 38.2-1365 et seq.) of Chapter 31 13 of Title 38.2 of the Code of Virginia; a rule or regulation of the commission applicable to the company; or any additional or further guidance provided by the NAIC Accounting Practices and Procedures Manual, whether in a Statement of Statutory Accounting Principle or in an actuarial guideline or other appendix, the company shall establish the additional reserve.
3. Additional reserves established under subdivision 2 of this subsection and deemed not necessary in subsequent years may be released. Any amounts released shall be disclosed in the actuarial opinion for the applicable year. The release of such reserves would not be deemed an adoption of a lower standard of valuation.
14VAC5-310-90. Description of actuarial memorandum issued for an asset adequacy analysis and regulatory asset adequacy issues summary.
A. The following general provisions shall apply with respect to the preparation and submission of the asset adequacy memorandum required by § 38.2-3127.1 38.2-1367 of the Code of Virginia.
1. In accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of his opinion regarding the reserves. The memorandum shall be made available for examination by the commission upon its request but shall be returned to the company after such examination and shall not be considered a record of the Bureau of Insurance or subject to automatic filing with the commission.
2. In preparing the memorandum, the appointed actuary may rely on, and include as a part of his memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of 14VAC5-310-50 B, with respect to the areas covered in such memoranda, and so state in their memoranda.
3. If the commission requests a memorandum and no such memorandum exists or if the commission finds that the analysis described in the memorandum fails to meet the standards of the Actuarial Standards Board or the standards and requirements of this chapter, the commission may designate a qualified actuary to review the opinion and prepare such supporting memorandum as is required for review. The reasonable and necessary expense of the independent review shall be paid by the company but shall be directed and controlled by the commission.
4. The reviewing actuary shall have the same status as an examiner for purposes of obtaining data from the company and the work papers and documentation of the reviewing actuary shall be retained by the commission; however, any information provided by the company to the reviewing actuary and included in the work papers shall be considered as material provided by the company to the commission and shall be kept confidential to the same extent as is prescribed by law with respect to other material provided by the company to the commission pursuant to the statute governing this chapter. The reviewing actuary shall not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer pursuant to this chapter for any one of the current year or the preceding three years.
5. In accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a regulatory asset adequacy issues summary, the contents of which are specified in subsection C of this section. The regulatory asset adequacy issues summary shall be submitted no later than March 15 of the year following the year for which a statement of actuarial opinion based on asset adequacy is required. The regulatory asset adequacy issues summary is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.
B. A section of the memorandum shall document asset adequacy testing by demonstrating that the analysis has been done in accordance with the standards for asset adequacy referred to in 14VAC5-310-50 D and any additional standards under this chapter. It shall specify:
1. For reserves:
a. Product descriptions including market description, underwriting and other aspects of a risk profile, and the specific risks the appointed actuary deems significant;
b. Source of liability in force;
c. Reserve method and basis;
d. Investment reserves;
e. Reinsurance arrangements;
f. Identification of any explicit or implied guarantees made by the general account in support of benefits provided through a separate account policy or contract and the methods used by the appointed actuary to provide for the guarantees in the asset adequacy analysis; and
g. Documentation of assumptions to test reserves for (i) lapse rates, whether base or excess, (ii) interest crediting rate strategy, (iii) mortality, (iv) policyholder dividend strategy, (v) competitor or market interest rate, (vi) annuitization rates, (vii) commission and expenses, and (viii) morbidity.
The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumption.
2. For assets:
a. Portfolio descriptions, including a risk profile disclosing the quality, distribution and types of assets;
b. Investment and disinvestment assumptions;
c. Source of asset data;
d. Asset valuation bases; and
e. Documentation of assumptions made for (i) default costs, (ii) bond call function, (iii) mortgage prepayment function, (iv) determining market value for assets sold due to disinvestment strategy, and (v) determining yield on assets acquired through the investment strategy.
The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumption.
3. For the analysis basis:
a. Methodology;
b. Rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;
c. Rationale for degree of rigor in analyzing different blocks of business, including the rationale for the level of "materiality" that was used in determining how rigorously to analyze different blocks of business;
d. Criteria for determining asset adequacy, including in the criteria the precise basis for determining if assets are adequate to cover reserves under "moderately adverse conditions" or other conditions as specified in relevant actuarial standards of practice; and
e. Whether the impact of federal income taxes was considered and the method of treating reinsurance in the asset adequacy analysis.
4. Summary of material changes in methods, procedures, or assumptions from prior year's asset adequacy analysis;
5. Summary of results; and
6. Conclusion.
C. The regulatory asset adequacy issues summary shall contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and shall be signed and dated by the appointed actuary rendering the actuarial opinion. The regulatory asset adequacy issues summary also shall include each of the following:
1. Descriptions of the scenarios tested, including whether those scenarios are stochastic or deterministic, and the sensitivity testing done relative to those scenarios. If negative ending surplus results under certain tests in the aggregate, the actuary should describe those tests and the amount of additional reserve as of the valuation date which, if held, would eliminate the negative aggregate surplus values. Ending surplus values shall be determined by either extending the projection period until the in-force and associated assets and liabilities at the end of the projection period are immaterial or by adjusting the surplus amount at the end of the projection period by an amount that appropriately estimates the value that reasonably can be expected to arise from the assets and liabilities remaining in force;
2. The extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different from the assumptions used in the previous asset adequacy analysis;
3. The amount of reserves and the identity of the product lines that had been subjected to asset adequacy analysis in the prior opinion but were not subject to analysis for the current opinion;
4. Comments on any interim results that may be of significant concern to the appointed actuary. For example, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods;
5. The methods used by the actuary to recognize the impact of reinsurance on the company's cash flows, including both assets and liabilities, under each of the scenarios tested; and
6. Whether the actuary has been satisfied that all options whether explicit or embedded, in any asset or liability, including but not limited to those affecting cash flows embedded in fixed income securities, and equity-like features in any investments have been appropriately considered in the asset adequacy analysis.
D. The actuarial methods, considerations, and analyses shall conform to appropriate standards of practice and the memorandum shall include the following statement:
"Actuarial methods, considerations and analyses used in the preparation of this memorandum conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis for this memorandum."
E. An appropriate allocation of assets in the amount of Interest Maintenance Reserve (IMR), whether positive or negative, shall be used in any asset adequacy analysis. Analysis of risks regarding asset default shall include an appropriate allocation of assets supporting the Asset Valuation Reserve (AVR); these AVR assets shall not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks shall include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support. The amount of the assets used for the AVR shall be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.
14VAC5-319-10. Definitions.
The following words and terms when used in this regulation shall have the following meanings, unless the context clearly indicates otherwise:
"1980 CSO valuation tables" means the Commissioners' 1980 Standard Ordinary Mortality Table (1980 CSO Table) without 10-year selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law, and variations of the 1980 CSO Table approved by the NAIC, such as the smoker and nonsmoker versions approved in December 1983.
"Basic reserves" means reserves calculated in accordance with § 38.2-3137 38.2-1372 of the Code of Virginia.
"Commission" means the State Corporation Commission when acting pursuant to or in accordance with Title 38.2 of the Code of Virginia.
"Contract segmentation method" means the method of dividing the period from issue to mandatory expiration of a policy into successive segments, with the length of each segment being defined as the period from the end of the prior segment (from policy inception, for the first segment) to the end of the latest policy year as determined below. All calculations are made using the 1980 CSO valuation tables, as defined in this section, (or any other valuation mortality table adopted by the NAIC after January 1, 2000, and promulgated by regulation by the commission for this purpose) and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in 14VAC5-319-40 B.
The length of a particular contract segment shall be set equal to the minimum of the value t for which Gt is greater than Rt (if Gt never exceeds Rt, the segment length is deemed to be the number of years from the beginning of the segment to the mandatory expiration date of the policy), where Gt and Rt are defined as follows:
where:
x = original issue age;
k = the number of years from the date of issue to the beginning of the segment;
t = 1, 2,...; t is reset to 1 at the beginning of each segment; and
GPx+k+t-1 = Guaranteed gross premium per $1,000 of face amount for year t of the segment, ignoring policy fees only if level for the premium paying period of the policy.
where:
Rt may be increased or decreased by 1.0% in any policy year, at the company's option, but Rt shall not be less than one; and
x, k and t are as defined above; and
qx+k+t-1 = valuation mortality rate for deficiency reserves in policy year k+t but using the mortality of 14VAC5-319-40 B 2 if 14VAC5-319-40 B 3 is elected for deficiency reserves. However, if GPx+k+t is greater than 0 and GPx+k+t-1 is equal to 0, Gt shall be deemed to be 1,000. If GPx+k+t and GPx+k+t-1 are both equal to 0, Gt shall be deemed to be 0.
"Deficiency reserves" means the excess, if greater than 0, of (i) minimum reserves calculated in accordance with § 38.2-3141 38.2-1376 of the Code of Virginia over (ii) basic reserves.
"Guaranteed gross premiums" means the premiums under a policy of life insurance that are guaranteed and determined at issue.
"Maximum valuation interest rates" means the interest rates defined in § 38.2-3130 38.2-1371 of the Code of Virginia that are to be used in determining the minimum standard for the valuation of life insurance policies.
"NAIC" means the National Association of Insurance Commissioners.
"Scheduled gross premium" means the smallest illustrated gross premium at issue for other than universal life insurance policies. For universal life insurance policies, scheduled gross premium means the smallest specified premium described in 14VAC5-319-60 A 3 or, if none is so described, the minimum premium described in 14VAC5-319-60 A 4.
"Segmented reserves" means reserves, calculated using segments produced by the contract segmentation method, equal to the present value of all future guaranteed benefits less the present value of all future net premiums to the mandatory expiration of a policy, where the net premiums within each segment are a uniform percentage of the respective guaranteed gross premiums within the segment. The uniform percentage for each segment is such that, at the beginning of the segment, the present value of the net premiums within the segment equals:
1. The present value of the death benefits within the segment, plus
2. The present value of any unusual guaranteed cash value (see 14VAC5-319-50 D) occurring at the end of the segment, less
3. Any unusual guaranteed cash value occurring at the start of the segment, plus
4. For the first segment only, the excess of subdivision 4 a over subdivision 4 b of this definition, as follows:
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for in the first segment after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary within the first segment on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
b. A net one-year term premium for the benefits provided for in the first policy year.
The length of each segment is determined by the "contract segmentation method," as defined in this section.
The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the sum of the lengths of all segments of the policy.
For both basic reserves and deficiency reserves computed by the segmented method, present values shall include future benefits and net premiums in the current segment and in all subsequent segments.
"Tabular cost of insurance" means the net single premium at the beginning of a policy year for one-year term insurance in the amount of the guaranteed death benefit in that policy year.
"Ten-year select mortality factors" means the select factors adopted by the NAIC with the 1980 amendments to the NAIC Standard Valuation Law.
"This regulation" means Chapter 319 of Title 14 of the Virginia Administrative Code (14VAC5-319-10 et seq.), which also shall be known as the commission's Rules Establishing Minimum Valuation and Reserve Standards for Life Insurance Policies.
"Twenty-year select mortality factors" means the select factors adopted by the NAIC as part of the Valuation of Life Insurance Policies Model Regulation and shown in the tables in 14VAC5-319-70.
"Unitary reserves" means the present value of all future guaranteed benefits less the present value of all future modified net premiums, where:
1. Guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy; and
2. Modified net premiums are a uniform percentage of the respective guaranteed gross premiums, where the uniform percentage is such that, at issue, the present value of the net premiums equals the present value of all death benefits and pure endowments, plus the excess of subdivision 2 a over subdivision 2 b of this definition, as follows:
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
b. A net one-year term premium for the benefits provided for in the first policy year.
The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the length from issue to the mandatory expiration of the policy.
"Universal life insurance policy" means any individual life insurance policy under the provisions of which separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds or other supplementary accounts) and mortality or expense charges are made to the policy.
"YRT" means yearly renewable term.
14VAC5-321-10. 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 38.2-1369, 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 2001 Commissioners Standard Ordinary (CSO) Mortality Table by and for insurers transacting the business of insurance in this Commonwealth.
14VAC5-321-30. 2001 CSO Mortality Table.
A. At the election of the insurer for any one or more specified plans of insurance and subject to the conditions stated in this chapter, the 2001 CSO Mortality Table may be used as the minimum standard for policies issued on or after January 1, 2004, and before the date specified in subsection B of this section to which subdivision 1 of § 38.2-3130 38.2-1369 and § 38.2-3209 of the Code of Virginia are applicable. If the insurer elects to use the 2001 CSO Mortality Table, it shall do so for both valuation and nonforfeiture purposes.
B. Subject to the conditions stated in this chapter, the 2001 CSO Mortality Table shall be used in determining minimum standards for policies issued on and after January 1, 2009, to which subdivision 1 of § 38.2-3130 38.2-1369 and § 38.2-3209 of the Code of Virginia are applicable.
C. A table from the 2001 CSO Preferred Class Structure Mortality Table used in place of a 2001 CSO Mortality Table, pursuant to the requirements of 14VAC5-322, will be treated as part of the 2001 CSO Mortality Table only for purposes of reserve valuation pursuant to the requirements of this chapter.
14VAC5-321-40. Conditions.
A. For policies issued on or after July 1, 2004, with each plan of insurance with separate rates for smokers and nonsmokers an insurer may use:
1. Composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits;
2. Smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by § 38.2-3141 38.2-1376 of the Code of Virginia and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values, and amounts of paid-up nonforfeiture benefits; or
3. Smoker and nonsmoker mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits.
B. For policies issued on or after July 1, 2004, with plans of insurance without separate rates for smokers and nonsmokers the composite mortality tables shall be used.
C. For the purpose of determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits, the 2001 CSO Mortality Table may, at the option of the insurer for each such plan of insurance, be used in its ultimate or select and ultimate form, subject to the restrictions of 14VAC5-321-50 and 14VAC5-319 relative to use of the select and ultimate form.
D. When the 2001 CSO Mortality Table is the minimum reserve standard for any plan for an insurer, any actuarial opinion in the annual statement filed with the commission shall be based on an asset adequacy analysis that meets the standards and satisfies requirements for an asset adequacy analysis performed pursuant to subdivision A 2 of § 38.2-3127.1 B 38.2-1367 of the Code of Virginia and rules governing actuarial opinions and memoranda at 14VAC5-310.
14VAC5-322-10. 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 38.2-1369 of the Code of Virginia and 14VAC5-319-40, to approve, recognize, permit, and prescribe the use of the 2001 Commissioners Standard Ordinary (CSO) Preferred Class Structure Mortality Table by and for insurers transacting the business of insurance in this Commonwealth.
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 38.2-1369, 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.
14VAC5-323-40. 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 § 38.2-1371 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 38.2-1368 and 38.2-3130 38.2-1369 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.
VA.R. Doc. No. R15-4085; Filed September 16, 2014, 2:10 p.m.
TITLE 14. INSURANCE
STATE CORPORATION COMMISSION
Proposed Regulation
REGISTRAR'S NOTICE: The State Corporation Commission is claiming an exemption 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.
Titles of Regulations: 14VAC5-70. Rules Governing Accelerated Benefits Provisions (amending 14VAC5-70-130).
14VAC5-200. Rules Governing Long-Term Care Insurance (amending 14VAC5-200-140, 14VAC5-200-153).
14VAC5-310. Rules Governing Actuarial Opinions and Memoranda (amending 14VAC5-310-10 through 14VAC5-310-50, 14VAC5-310-90).
14VAC5-319. Life Insurance Reserves (amending 14VAC5-319-10).
14VAC5-321. Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits (amending 14VAC5-321-10, 14VAC5-321-30, 14VAC5-321-40).
14VAC5-322. Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities (amending 14VAC5-322-10).
14VAC5-323. Rules Governing Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values (amending 14VAC5-323-10, 14VAC5-323-40, 14VAC5-323-50).
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 Comment Deadline: October 31, 2014.
Agency Contact: Raquel C. 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 update the Code of Virginia citations that will be effective January 1, 2015, to reflect changes enacted by Chapter 571 of the 2014 Acts of Assembly. Chapter 571 is based on revisions to the National Association of Insurance Commissioners' (NAIC) Standard Valuation Law model, which was adopted by the NAIC in 2009. The revised model authorizes a principle-based reserve (PBR) basis for life, annuity, and accident and health contracts, and requires the use of a Valuation Manual, which contains both PBR and non-PBR requirements, as well as actuarial opinion and corporate governance requirements.
AT RICHMOND, SEPTEMBER 16, 2014
COMMONWEALTH OF VIRGINIA, ex rel.
STATE CORPORATION COMMISSION
CASE NO. INS-2014-00202
Ex Parte: In the matter of Amending the
Rules Governing Accelerated Benefits Provisions;
the Rules Governing Long-Term Care Insurance;
the Rules Governing Actuarial Opinions and Memoranda;
Life Insurance Reserves; Use of the 2001 CSO
Mortality Table in Determining Reserve Liabilities
and Nonforfeiture Benefits; Use of the 2001 CSO
Preferred Class Structure Mortality Table in
Determining Reserve Liabilities; and
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 ("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 Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, entitled Rules Governing Accelerated Benefits Provisions, 14 VAC 5-70-10 et seq.; Rules Governing Long-Term Care Insurance, 14 VAC 5-200-10 et seq.; Rules Governing Actuarial Opinions and Memoranda, 14 VAC 5-310-10 et seq.; Life Insurance Reserves, 14 VAC 5-319-10 et seq.; Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, 14 VAC 5-321-10 et seq.; Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, 14 VAC 5-322-10 et seq.; and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, 14 VAC 5-323-10 et seq. (collectively, "Rules"), respectively, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5‑310‑10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5‑323-40; and 14 VAC 5-323-50.
The proposed amendments to the Rules are necessary to implement the provisions of House Bill 631 passed by the 2014 General Assembly, which amends the Code by adding in Chapter 13 of Title 38.2 an Article numbered 10, consisting of sections numbered 38.2-1365 through 38.2-1385. The revised rules replace the current citations to Title 38.2 of the Code with citations that will be effective on January 1, 2015.
NOW THE COMMISSION is of the opinion that the proposed amendments submitted by the Bureau to amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5‑321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 should be considered for adoption.
Accordingly, IT IS ORDERED THAT:
(1) The proposed amendments to Rules Governing Accelerated Benefits Provisions, Rules Governing Long-Term Care Insurance, Rules Governing Actuarial Opinions and Memoranda, Life Insurance Reserves, Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 are attached hereto and made a part hereof.
(2) All interested persons who desire to comment in support or in opposition to, or request a hearing to oppose amending Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, shall file such comments or hearing request on or before October 31, 2014, 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/case. All comments shall refer to Case No. INS-2014-00202.
(3) If no written request for a hearing on the proposal to amend Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code is received on or before October 31, 2014, the Commission, upon consideration of any comments submitted in support 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 every entity that is licensed, approved, registered, or accredited in Virginia under the provisions of Tile 38.2 of the Code and also subject to solvency regulation in this Commonwealth pursuant to the provisions of Title 38.2 of the Code, 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.
14VAC5-70-130. Actuarial disclosure and reserves.
A. A qualified actuary shall be required to describe the accelerated benefits, the risks, the expected costs and the calculation of statutory reserves in an actuarial memorandum accompanying each filing. The insurer shall maintain in its files descriptions of the bases and procedures used to calculate benefits payable under these provisions. These descriptions shall be made available for examination by the commission upon request.
B. 1. When benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves shall be determined in accordance with §§ 38.2-3126 38.2-1365 through 38.2-3144 38.2-1385 of the Code of Virginia. All valuation assumptions used in constructing the reserves shall be determined as appropriate for statutory valuation purposes by a member in good standing of the American Academy of Actuaries. Mortality tables and interest currently recognized for life insurance reserves by the National Association of Insurance Commissioners may be used as well as appropriate assumptions for the other provisions incorporated in the policy form. The actuary must follow both actuarial standards and certification for good and sufficient reserves. Reserves in the aggregate should be sufficient to cover:
a. Policies upon which no claim has yet arisen.
b. Policies upon which an accelerated claim has arisen.
2. For policies and certificates which provide actuarially equivalent benefits, no additional reserves need to be established.
3. Policy liens and policy loans, including accrued interest, represent assets of the company for statutory reporting purposes. For any policy on which the policy lien exceeds the policy's statutory reserve liability such excess must be held as a nonadmitted asset.
14VAC5-200-140. Reserve standards.
A. When long-term care benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves for such benefits shall be determined in accordance with subdivision 7 of § 38.2-3130 38.2-1369 of the Code of Virginia. Claim reserves must also be established in the case when such policy or rider is in claim status. Reserves for policies and riders subject to this subsection should be based on the multiple decrement model utilizing all relevant decrements except for voluntary termination rates. Single decrement approximations are acceptable if the calculation produces essentially similar reserves, if the reserve is clearly more conservative, or if the reserve is immaterial. The calculations may take into account the reduction in life insurance benefits due to the payment of long-term care benefits. However, in no event shall the reserves for the long-term care benefit and the life insurance benefit be less than the reserves for the life insurance benefit assuming no long-term care benefit. In the development and calculation of reserves for policies and riders subject to this subsection, due regard shall be given to the applicable policy provisions, marketing methods, administrative procedures and all other considerations which have an impact on projected claim costs, including, but not limited to, the following:
1. Definition of insured events;
2. Covered long-term care facilities;
3. Existence of home convalescence care coverage;
4. Definition of facilities;
5. Existence or absence of barriers to eligibility;
6. Premium waiver provision;
7. Renewability;
8. Ability to raise premiums;
9. Marketing method;
10. Underwriting procedures;
11. Claims adjustment procedures;
12. Waiting period;
13. Maximum benefit;
14. Availability of eligible facilities;
15. Margins in claim costs;
16. Optional nature of benefit;
17. Delay in eligibility for benefit;
18. Inflation protection provisions; and
19. Guaranteed insurability option.
Any applicable valuation morbidity table shall be certified as appropriate as a statutory valuation table by a member of the American Academy of Actuaries.
B. When long-term care benefits are provided other than as in Subsection subsection A above of this section, reserves shall be determined in accordance with subdivision 7 of § 38.2-3130 of the Code of Virginia 14VAC5-320.
14VAC5-200-153. Premium rate schedule increases.
A. This section applies to any long-term care policy or certificate issued in this Commonwealth on or after October 1, 2003.
B. An insurer shall request the commission's approval of a pending premium rate schedule increase, including an exceptional increase, prior to the notice to the policyholders and shall include:
1. Information required by 14VAC5-200-75;
2. Certification by a qualified actuary that:
a. If the requested premium rate schedule increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized, no further premium rate schedule increases are anticipated;
b. The premium rate filing is in compliance with the provisions of this section;
3. An actuarial memorandum justifying the rate schedule change request that includes:
a. Lifetime projections of earned premiums and incurred claims based on the filed premium rate schedule increase; and the method and assumptions used in determining the projected values, including reflection of any assumptions that deviate from those used for pricing other forms currently available for sale;
(1) Annual values for the five years preceding and the three years following the valuation date shall be provided separately;
(2) The projections shall include the development of the lifetime loss ratio, unless the rate increase is an exceptional increase;
(3) The projections shall demonstrate compliance with subsection C of this section; and
(4) For exceptional increases,
(a) The projected experience should be limited to the increases in claims expenses attributable to the approved reasons for the exceptional increase; and
(b) In the event the commission determines as provided in the definition of exceptional increase in 14VAC5-200-40 that offsets may exist, the insurer shall use appropriate net projected experience;
b. Disclosure of how reserves have been incorporated in this rate increase whenever the rate increase will trigger contingent benefit upon lapse;
c. Disclosure of the analysis performed to determine why a rate adjustment is necessary, which pricing assumptions were not realized and why, and what other actions taken by the company have been relied on by the actuary;
d. A statement that policy design, underwriting and claims adjudication practices have been taken into consideration; and
e. In the event that it is necessary to maintain consistent premium rates for new policies and policies receiving a rate increase, the insurer will need to file composite rates reflecting projections of new policies;
4. A statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the commission; and
5. Sufficient information for review and approval of the premium rate schedule increase by the commission.
C. All premium rate schedule increases shall be determined in accordance with the following requirements:
1. Exceptional increases shall provide that 70% of the present value of projected additional premiums from the exceptional increase will be returned to policyholders in benefits;
2. Premium rate schedule increases shall be calculated such that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:
a. The accumulated value of the initial earned premium times 58%;
b. Eighty-five percent of the accumulated value of prior premium rate schedule increases on an earned basis;
c. The present value of future projected initial earned premiums times 58%; and
d. Eighty-five percent of the present value of future projected premiums not in subdivision 2 c of this subsection on an earned basis;
3. In the event that a policy form has both exceptional and other increases, the values in subdivisions 2 b and d of this subsection will also include 70% for exceptional rate increase amounts; and
4. All present and accumulated values used to determine rate increases shall use the maximum valuation interest rate for contract reserves as specified in § 38.2-3132 of the Code of Virginia 14VAC5-320. The actuary shall disclose as part of the actuarial memorandum the use of any appropriate averages.
D. For each rate increase that is implemented, the insurer shall file for approval by the commission updated projections, as defined in subdivision B 3 a of this section, annually for the next three years and include a comparison of actual results to projected values. The commission may extend the period to greater than three years if actual results are not consistent with projected values from prior projections. For group insurance policies that meet the conditions in subsection K of this section, the projections required by subdivision B 3 a of this section shall be provided to the policyholder in lieu of filing with the commission.
E. If any increased premium rate in the revised premium rate schedule is greater than 200% of the comparable rate in the initial premium schedule, the premiums exceeding 200% shall be clearly identified and lifetime projections, as defined in subdivision B 3 a of this section, shall be filed for approval by the commission every five years following the end of the required period in subsection D of this section. For group insurance policies that meet the conditions in subsection K of this section, the projections required by this subsection shall be provided to the policyholder in lieu of filing with the commission.
F. 1. If the commission has determined that the actual experience following a rate increase does not adequately match the projected experience and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in subsection C of this section, the commission may require the insurer to implement any of the following:
a. Premium rate schedule adjustments; or
b. Other measures to reduce the difference between the projected and actual experience.
It is to be expected that the actual experience will not exactly match the insurer's projections. During the period that projections are monitored as described in subsections D and E of this section, the commission should determine that there is not an adequate match if the differences in earned premiums and incurred claims are not in the same direction (both actual values higher or lower than projections) or the difference as a percentage of the projected is not of the same order.
2. In determining whether the actual experience adequately matches the projected experience, consideration should be given to subdivision B 3 e of this section, if applicable.
G. If the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse, the insurer shall file:
1. A plan, subject to commission approval, for improved administration or claims processing designed to eliminate the potential for further deterioration of the policy form requiring further premium rate schedule increases or to demonstrate that appropriate administration and claims processing have been implemented or are in effect; otherwise the commission may impose the condition in subsection H of this section; and
2. The original anticipated lifetime loss ratio, and the premium rate schedule increase that would have been calculated according to subsection C of this section had the greater of the original anticipated lifetime loss ratio or 58% been used in the calculations described in subdivisions C 2 a and c of this section.
H. 1. For a rate increase filing that meets the following criteria, the commission shall review, for all policies included in the filing, the projected lapse rates and past lapse rates during the 12 months following each increase to determine if significant adverse lapsation has occurred or is anticipated:
a. The rate increase is not the first rate increase requested for the specific policy form or forms;
b. The rate increase is not an exceptional increase; and
c. The majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse.
2. In the event significant adverse lapsation has occurred, is anticipated in the filing or is evidenced in the actual results as presented in the updated projections provided by the insurer following the requested rate increase, the commission may determine that a rate spiral exists. Following the determination that a rate spiral exists, the commission may require the insurer to offer, without underwriting, to all in force insureds subject to the rate increase the option to replace existing coverage with any other long-term care insurance product being offered by the insurer or its affiliates.
a. The offer shall:
(1) Be subject to the approval of the commission;
(2) Be based on actuarially sound principles, but not be based on attained age; and
(3) Provide that maximum benefits under any new policy accepted by an insured shall be reduced by comparable benefits already paid under the existing policy.
b. The insurer shall maintain the experience of all the replacement insureds separate from the experience of insureds originally issued the policy forms. In the event of a request for a rate increase on the policy form, the rate increase shall be limited to the lesser of:
(1) The maximum rate increase determined based on the combined experience; or
(2) The maximum rate increase determined based only on the experience of the insureds originally issued the form plus 10%.
I. If the commission determines that the insurer has exhibited a persistent practice of filing inadequate initial premium rates for long-term care insurance, the commission may, in addition to the provisions of subsection H of this section, prohibit the insurer from either of the following:
1. Filing and marketing comparable coverage for a period of up to five years; or
2. Offering all other similar coverages and limiting marketing of new applications to the products subject to recent premium rate schedule increases.
J. Subsections A through I of this section shall not apply to policies for which the long-term care benefits provided by the policy are incidental, as defined in 14VAC5-200-40, if the policy complies with all of the following provisions:
1. The interest credited internally to determine cash value accumulations, including long-term care, if any, are guaranteed not to be less than the minimum guaranteed interest rate for cash value accumulations without long-term care set forth in the policy;
2. The portion of the policy that provides insurance benefits other than long-term care coverage meets the nonforfeiture requirements as applicable in any of the following:
a. Sections 38.2-3200 through 38.2-3218 of the Code of Virginia, and
b. Sections 38.2-3219 through 38.2-3229 of the Code of Virginia;
3. The policy meets the disclosure requirements of §§ 38.2-5207.1 and 38.2-5207.2 of the Code of Virginia;
4. The portion of the policy that provides insurance benefits other than long-term care coverage meets the requirements as applicable in the following:
a. Policy illustrations as required by 14VAC5-40 14VAC5-41; and
b. Disclosure requirements in 14VAC5-40 14VAC5-41;
5. An actuarial memorandum is filed with the commission that includes:
a. A description of the basis on which the long-term care rates were determined;
b. A description of the basis for the reserves;
c. A summary of the type of policy, benefits, renewability, general marketing method, and limits on ages of issuance;
d. A description and a table of each actuarial assumption used. For expenses, an insurer shall include percent of premium dollars per policy and dollars per unit of benefits, if any;
e. A description and a table of the anticipated policy reserves and additional reserves to be held in each future year for active lives;
f. The estimated average annual premium per policy and the average issue age;
g. A statement as to whether underwriting is performed at the time of application. The statement shall indicate whether underwriting is used and, if used, the statement shall include a description of the type or types of underwriting used, such as medical underwriting or functional assessment underwriting. Concerning a group policy, the statement shall indicate whether the enrollee or any dependent will be underwritten and when underwriting occurs; and
h. A description of the effect of the long-term care policy provision on the required premiums, nonforfeiture values and reserves on the underlying insurance policy, both for active lives and those in long-term care claim status.
K. Subsections F and H of this section shall not apply to group insurance policies as defined in subsections A and C of § 38.2-3521.1 of the Code of Virginia where:
1. The policies insure 250 or more persons and the policyholder has 5,000 or more eligible employees of a single employer; or
2. The policyholder, and not the certificateholders, pays a material portion of the premium, which shall not be less than 20% of the total premium for the group in the calendar year prior to the year a rate increase is filed.
14VAC5-310-10. Purpose.
The purpose of this chapter (14VAC5-310) is to prescribe:
1. Requirements for statements of actuarial opinion that are to be submitted in accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, and for memoranda in support thereof;
2. Rules applicable to the appointment of an appointed actuary; and
3. Guidance as to the meaning of "adequacy of reserves."
14VAC5-310-20. Authority; effective date.
This chapter (14VAC5-310) is adopted and promulgated by the commission pursuant to §§ 12.1-13, 38.2-223, and 38.2-3127.1 38.2-1367 of the Code of Virginia. This chapter will take effect for annual statements for the year-ending December 31, 1992. Except as otherwise specifically provided, revisions to this chapter shall be effective upon adoption by the commission and applicable as to annual statements and actuarial opinions, memoranda, and statements of reserves filed with the commission for periods ending on or after December 31 of the year in which the revision is adopted.
14VAC5-310-30. Scope.
A. This chapter (14VAC5-310) shall apply to all companies subject to the provisions of § 38.2-3127.1 38.2-1367 of the Code of Virginia, including fraternal benefit societies licensed under Chapter 41 (§ 38.2-4100 et seq.) of Title 38.2 and all other companies licensed under Title 38.2 of the Code of Virginia to write and reinsure policies or agreements providing any form of life, life insurance, or annuity benefits as those terms are defined in §§ 38.2-102 through 38.2-107.1 of the Code of Virginia and also to any life insurer authorized to write or reinsure accident and sickness insurance as defined in § 38.2-109 of the Code of Virginia.
B. This chapter shall be applied in a manner that allows the appointed actuary to utilize professional judgment in performing the asset analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards of practice unless the commission determines particular specifications are necessary for an acceptable opinion to be rendered relative to the adequacy of reserves and related items. Particular specifications, including specific methods of actuarial analysis and actuarial assumptions, may be promulgated by rule or order of the commission or by an administrative letter issued by the Commissioner of Insurance.
C. This chapter, as reflected in rules adopted by the commission by order entered November 5, 1992, in Case No. INS920377, shall be applicable to all annual statements filed with the commission on or after December 15, 1992, and before December 31, 2003. On and after December 31, 2003, a statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80, and a memorandum in support thereof in accordance with 14VAC5-310-90, shall be required each year in accordance with rules as revised and adopted by order of the commission entered in Case No. INS-2003-00165.
14VAC5-310-40. Definitions.
As used in this chapter unless the context clearly indicates otherwise:
"Actuarial opinion" means the opinion of an appointed actuary regarding the adequacy of reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80 and with applicable Actuarial Standards of Practice.
"Actuarial Standards Board" means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.
"Annual statement" means that statement required by § 38.2-1300 of the Code of Virginia to be filed by the company with the commission annually.
"Appointed actuary" means any individual who is appointed or retained in accordance with the requirements set forth in 14VAC5-310-50 C to provide the actuarial opinion and supporting memorandum as required by § 38.2-3127.1 38.2-1367 of the Code of Virginia.
"Asset adequacy analysis" means an analysis that meets the standards and other requirements referred to in 14VAC5-310-50 D.
"Commission" means the Virginia State Corporation Commission.
"Commissioner" means the Commissioner of Insurance in Virginia unless specific reference is made to another state, in which case "commissioner" means the Insurance Commissioner, Director, Superintendent or other supervising regulatory official of a given state who is responsible for administering the insurance laws of that state.
"Company" means a life insurer, company or fraternal benefit society subject to the provisions of this chapter.
"NAIC" means the National Association of Insurance Commissioners.
"Qualified actuary" means any individual who meets the requirements set forth in 14VAC5-310-50 B.
14VAC5-310-50. General requirements for actuarial opinions.
A. The following requirements apply to all companies submitting a statement of actuarial opinion in compliance with § 38.2-3127.1 38.2-1367 of the Code of Virginia.
1. There is to be included on or attached to page 1 of the annual statement for each year ending on or after December 31, 1992, the statement of an appointed actuary, entitled "Statement of Actuarial Opinion," setting forth an opinion relating to reserves and related actuarial items held in support of policies and contracts, in accordance with 14VAC5-310-80.
2. Upon written request by the company, the commission may grant an extension of the date for submission of the statement of actuarial opinion.
B. A "qualified actuary" is an individual who:
1. Is a member in good standing of the American Academy of Actuaries;
2. Is qualified to sign statements of actuarial opinion for life and health insurance company annual statements in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements;
3. Is familiar with the valuation requirements applicable to life and health insurance companies;
4. Has not been found by the commission (or if so found has subsequently been reinstated as a qualified actuary), following appropriate notice and hearing, to have:
a. Violated any provision of, or any obligation imposed by Title 38.2 of the Code of Virginia or other law in the course of his dealings as a qualified actuary;
b. Been found guilty of fraudulent or dishonest practices;
c. Demonstrated his incompetency, lack of cooperation, or untrustworthiness to act as a qualified actuary;
d. Submitted to the commission during the past five years, pursuant to this chapter, an actuarial opinion or memorandum that the commission rejected because it did not meet the provisions of this chapter, including standards set by the Actuarial Standards Board; or
e. Resigned or been removed as an actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of failure to adhere to generally acceptable actuarial standards; and
5. Has not failed to notify the commission of any action taken by the commissioner of any other state similar to that under subdivision 4 of this subsection.
C. An "appointed actuary" is a qualified actuary who is appointed or retained to prepare the statement of actuarial opinion required by this chapter, either directly by or by the authority of the board of directors through an executive officer of the company other than the qualified actuary. The company shall give the commission timely written notice of the name, title (and, in the case of a consulting actuary, the name of the firm) and manner of appointment or retention of each person appointed or retained by the company as an appointed actuary and shall state in such notice that the person meets the requirements set forth in 14VAC5-310-50 B. Once notice is furnished, no further notice is required with respect to this person, provided that the company shall give the commission timely written notice in the event the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements set forth in 14VAC5-310-50 B. If any person appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice shall so state and give the reasons for replacement.
D. The asset adequacy analysis required by this chapter shall:
1. Conform to the Actuarial Standards of Practice as promulgated from time to time by the Actuarial Standards Board and on any additional standards under this chapter, which standards are to form the basis of the statement of actuarial opinion in accordance with 5 this chapter; and
2. Be based on methods of analysis as are deemed appropriate for such purposes by the Actuarial Standards Board.
E. Liabilities shall be covered in conformity with the following:
1. Under authority of § 38.2-3127.1 38.2-1367 of the Code of Virginia, the statement of actuarial opinion shall apply to all in-force business on the statement date, whether directly issued or assumed, regardless of when or where issued, (e.g., reserves reportable for 2002 in Exhibits 5, 5A, 6, and 7 of the NAIC annual statement for life insurers; claim liabilities reported in Exhibit 8 (2002) in Part I of the life insurer's annual statement, and equivalent items in any separate account statement, or other annual financial statements filed pursuant to § 38.2-1300, 38.2-1301 or 38.2-4126 of the Code of Virginia).
2. If the appointed actuary determines as the result of asset adequacy analysis that a reserve should be held in addition to the aggregate reserve held by the company and calculated in accordance with methods set forth in § 38.2-1311, 38.2-3923, 38.2-4010, 38.2-4011, or § 38.2-4125 of the Code of Virginia; Article 3 (§ 38.2-3136 et seq.) 10 (§ 38.2-1365 et seq.) of Chapter 31 13 of Title 38.2 of the Code of Virginia; a rule or regulation of the commission applicable to the company; or any additional or further guidance provided by the NAIC Accounting Practices and Procedures Manual, whether in a Statement of Statutory Accounting Principle or in an actuarial guideline or other appendix, the company shall establish the additional reserve.
3. Additional reserves established under subdivision 2 of this subsection and deemed not necessary in subsequent years may be released. Any amounts released shall be disclosed in the actuarial opinion for the applicable year. The release of such reserves would not be deemed an adoption of a lower standard of valuation.
14VAC5-310-90. Description of actuarial memorandum issued for an asset adequacy analysis and regulatory asset adequacy issues summary.
A. The following general provisions shall apply with respect to the preparation and submission of the asset adequacy memorandum required by § 38.2-3127.1 38.2-1367 of the Code of Virginia.
1. In accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of his opinion regarding the reserves. The memorandum shall be made available for examination by the commission upon its request but shall be returned to the company after such examination and shall not be considered a record of the Bureau of Insurance or subject to automatic filing with the commission.
2. In preparing the memorandum, the appointed actuary may rely on, and include as a part of his memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of 14VAC5-310-50 B, with respect to the areas covered in such memoranda, and so state in their memoranda.
3. If the commission requests a memorandum and no such memorandum exists or if the commission finds that the analysis described in the memorandum fails to meet the standards of the Actuarial Standards Board or the standards and requirements of this chapter, the commission may designate a qualified actuary to review the opinion and prepare such supporting memorandum as is required for review. The reasonable and necessary expense of the independent review shall be paid by the company but shall be directed and controlled by the commission.
4. The reviewing actuary shall have the same status as an examiner for purposes of obtaining data from the company and the work papers and documentation of the reviewing actuary shall be retained by the commission; however, any information provided by the company to the reviewing actuary and included in the work papers shall be considered as material provided by the company to the commission and shall be kept confidential to the same extent as is prescribed by law with respect to other material provided by the company to the commission pursuant to the statute governing this chapter. The reviewing actuary shall not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer pursuant to this chapter for any one of the current year or the preceding three years.
5. In accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a regulatory asset adequacy issues summary, the contents of which are specified in subsection C of this section. The regulatory asset adequacy issues summary shall be submitted no later than March 15 of the year following the year for which a statement of actuarial opinion based on asset adequacy is required. The regulatory asset adequacy issues summary is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.
B. A section of the memorandum shall document asset adequacy testing by demonstrating that the analysis has been done in accordance with the standards for asset adequacy referred to in 14VAC5-310-50 D and any additional standards under this chapter. It shall specify:
1. For reserves:
a. Product descriptions including market description, underwriting and other aspects of a risk profile, and the specific risks the appointed actuary deems significant;
b. Source of liability in force;
c. Reserve method and basis;
d. Investment reserves;
e. Reinsurance arrangements;
f. Identification of any explicit or implied guarantees made by the general account in support of benefits provided through a separate account policy or contract and the methods used by the appointed actuary to provide for the guarantees in the asset adequacy analysis; and
g. Documentation of assumptions to test reserves for (i) lapse rates, whether base or excess, (ii) interest crediting rate strategy, (iii) mortality, (iv) policyholder dividend strategy, (v) competitor or market interest rate, (vi) annuitization rates, (vii) commission and expenses, and (viii) morbidity.
The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumption.
2. For assets:
a. Portfolio descriptions, including a risk profile disclosing the quality, distribution and types of assets;
b. Investment and disinvestment assumptions;
c. Source of asset data;
d. Asset valuation bases; and
e. Documentation of assumptions made for (i) default costs, (ii) bond call function, (iii) mortgage prepayment function, (iv) determining market value for assets sold due to disinvestment strategy, and (v) determining yield on assets acquired through the investment strategy.
The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumption.
3. For the analysis basis:
a. Methodology;
b. Rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;
c. Rationale for degree of rigor in analyzing different blocks of business, including the rationale for the level of "materiality" that was used in determining how rigorously to analyze different blocks of business;
d. Criteria for determining asset adequacy, including in the criteria the precise basis for determining if assets are adequate to cover reserves under "moderately adverse conditions" or other conditions as specified in relevant actuarial standards of practice; and
e. Whether the impact of federal income taxes was considered and the method of treating reinsurance in the asset adequacy analysis.
4. Summary of material changes in methods, procedures, or assumptions from prior year's asset adequacy analysis;
5. Summary of results; and
6. Conclusion.
C. The regulatory asset adequacy issues summary shall contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and shall be signed and dated by the appointed actuary rendering the actuarial opinion. The regulatory asset adequacy issues summary also shall include each of the following:
1. Descriptions of the scenarios tested, including whether those scenarios are stochastic or deterministic, and the sensitivity testing done relative to those scenarios. If negative ending surplus results under certain tests in the aggregate, the actuary should describe those tests and the amount of additional reserve as of the valuation date which, if held, would eliminate the negative aggregate surplus values. Ending surplus values shall be determined by either extending the projection period until the in-force and associated assets and liabilities at the end of the projection period are immaterial or by adjusting the surplus amount at the end of the projection period by an amount that appropriately estimates the value that reasonably can be expected to arise from the assets and liabilities remaining in force;
2. The extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different from the assumptions used in the previous asset adequacy analysis;
3. The amount of reserves and the identity of the product lines that had been subjected to asset adequacy analysis in the prior opinion but were not subject to analysis for the current opinion;
4. Comments on any interim results that may be of significant concern to the appointed actuary. For example, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods;
5. The methods used by the actuary to recognize the impact of reinsurance on the company's cash flows, including both assets and liabilities, under each of the scenarios tested; and
6. Whether the actuary has been satisfied that all options whether explicit or embedded, in any asset or liability, including but not limited to those affecting cash flows embedded in fixed income securities, and equity-like features in any investments have been appropriately considered in the asset adequacy analysis.
D. The actuarial methods, considerations, and analyses shall conform to appropriate standards of practice and the memorandum shall include the following statement:
"Actuarial methods, considerations and analyses used in the preparation of this memorandum conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis for this memorandum."
E. An appropriate allocation of assets in the amount of Interest Maintenance Reserve (IMR), whether positive or negative, shall be used in any asset adequacy analysis. Analysis of risks regarding asset default shall include an appropriate allocation of assets supporting the Asset Valuation Reserve (AVR); these AVR assets shall not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks shall include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support. The amount of the assets used for the AVR shall be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.
14VAC5-319-10. Definitions.
The following words and terms when used in this regulation shall have the following meanings, unless the context clearly indicates otherwise:
"1980 CSO valuation tables" means the Commissioners' 1980 Standard Ordinary Mortality Table (1980 CSO Table) without 10-year selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law, and variations of the 1980 CSO Table approved by the NAIC, such as the smoker and nonsmoker versions approved in December 1983.
"Basic reserves" means reserves calculated in accordance with § 38.2-3137 38.2-1372 of the Code of Virginia.
"Commission" means the State Corporation Commission when acting pursuant to or in accordance with Title 38.2 of the Code of Virginia.
"Contract segmentation method" means the method of dividing the period from issue to mandatory expiration of a policy into successive segments, with the length of each segment being defined as the period from the end of the prior segment (from policy inception, for the first segment) to the end of the latest policy year as determined below. All calculations are made using the 1980 CSO valuation tables, as defined in this section, (or any other valuation mortality table adopted by the NAIC after January 1, 2000, and promulgated by regulation by the commission for this purpose) and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in 14VAC5-319-40 B.
The length of a particular contract segment shall be set equal to the minimum of the value t for which Gt is greater than Rt (if Gt never exceeds Rt, the segment length is deemed to be the number of years from the beginning of the segment to the mandatory expiration date of the policy), where Gt and Rt are defined as follows:
where:
x = original issue age;
k = the number of years from the date of issue to the beginning of the segment;
t = 1, 2,...; t is reset to 1 at the beginning of each segment; and
GPx+k+t-1 = Guaranteed gross premium per $1,000 of face amount for year t of the segment, ignoring policy fees only if level for the premium paying period of the policy.
where:
Rt may be increased or decreased by 1.0% in any policy year, at the company's option, but Rt shall not be less than one; and
x, k and t are as defined above; and
qx+k+t-1 = valuation mortality rate for deficiency reserves in policy year k+t but using the mortality of 14VAC5-319-40 B 2 if 14VAC5-319-40 B 3 is elected for deficiency reserves. However, if GPx+k+t is greater than 0 and GPx+k+t-1 is equal to 0, Gt shall be deemed to be 1,000. If GPx+k+t and GPx+k+t-1 are both equal to 0, Gt shall be deemed to be 0.
"Deficiency reserves" means the excess, if greater than 0, of (i) minimum reserves calculated in accordance with § 38.2-3141 38.2-1376 of the Code of Virginia over (ii) basic reserves.
"Guaranteed gross premiums" means the premiums under a policy of life insurance that are guaranteed and determined at issue.
"Maximum valuation interest rates" means the interest rates defined in § 38.2-3130 38.2-1371 of the Code of Virginia that are to be used in determining the minimum standard for the valuation of life insurance policies.
"NAIC" means the National Association of Insurance Commissioners.
"Scheduled gross premium" means the smallest illustrated gross premium at issue for other than universal life insurance policies. For universal life insurance policies, scheduled gross premium means the smallest specified premium described in 14VAC5-319-60 A 3 or, if none is so described, the minimum premium described in 14VAC5-319-60 A 4.
"Segmented reserves" means reserves, calculated using segments produced by the contract segmentation method, equal to the present value of all future guaranteed benefits less the present value of all future net premiums to the mandatory expiration of a policy, where the net premiums within each segment are a uniform percentage of the respective guaranteed gross premiums within the segment. The uniform percentage for each segment is such that, at the beginning of the segment, the present value of the net premiums within the segment equals:
1. The present value of the death benefits within the segment, plus
2. The present value of any unusual guaranteed cash value (see 14VAC5-319-50 D) occurring at the end of the segment, less
3. Any unusual guaranteed cash value occurring at the start of the segment, plus
4. For the first segment only, the excess of subdivision 4 a over subdivision 4 b of this definition, as follows:
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for in the first segment after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary within the first segment on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
b. A net one-year term premium for the benefits provided for in the first policy year.
The length of each segment is determined by the "contract segmentation method," as defined in this section.
The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the sum of the lengths of all segments of the policy.
For both basic reserves and deficiency reserves computed by the segmented method, present values shall include future benefits and net premiums in the current segment and in all subsequent segments.
"Tabular cost of insurance" means the net single premium at the beginning of a policy year for one-year term insurance in the amount of the guaranteed death benefit in that policy year.
"Ten-year select mortality factors" means the select factors adopted by the NAIC with the 1980 amendments to the NAIC Standard Valuation Law.
"This regulation" means Chapter 319 of Title 14 of the Virginia Administrative Code (14VAC5-319-10 et seq.), which also shall be known as the commission's Rules Establishing Minimum Valuation and Reserve Standards for Life Insurance Policies.
"Twenty-year select mortality factors" means the select factors adopted by the NAIC as part of the Valuation of Life Insurance Policies Model Regulation and shown in the tables in 14VAC5-319-70.
"Unitary reserves" means the present value of all future guaranteed benefits less the present value of all future modified net premiums, where:
1. Guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy; and
2. Modified net premiums are a uniform percentage of the respective guaranteed gross premiums, where the uniform percentage is such that, at issue, the present value of the net premiums equals the present value of all death benefits and pure endowments, plus the excess of subdivision 2 a over subdivision 2 b of this definition, as follows:
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
b. A net one-year term premium for the benefits provided for in the first policy year.
The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the length from issue to the mandatory expiration of the policy.
"Universal life insurance policy" means any individual life insurance policy under the provisions of which separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds or other supplementary accounts) and mortality or expense charges are made to the policy.
"YRT" means yearly renewable term.
14VAC5-321-10. 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 38.2-1369, 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 2001 Commissioners Standard Ordinary (CSO) Mortality Table by and for insurers transacting the business of insurance in this Commonwealth.
14VAC5-321-30. 2001 CSO Mortality Table.
A. At the election of the insurer for any one or more specified plans of insurance and subject to the conditions stated in this chapter, the 2001 CSO Mortality Table may be used as the minimum standard for policies issued on or after January 1, 2004, and before the date specified in subsection B of this section to which subdivision 1 of § 38.2-3130 38.2-1369 and § 38.2-3209 of the Code of Virginia are applicable. If the insurer elects to use the 2001 CSO Mortality Table, it shall do so for both valuation and nonforfeiture purposes.
B. Subject to the conditions stated in this chapter, the 2001 CSO Mortality Table shall be used in determining minimum standards for policies issued on and after January 1, 2009, to which subdivision 1 of § 38.2-3130 38.2-1369 and § 38.2-3209 of the Code of Virginia are applicable.
C. A table from the 2001 CSO Preferred Class Structure Mortality Table used in place of a 2001 CSO Mortality Table, pursuant to the requirements of 14VAC5-322, will be treated as part of the 2001 CSO Mortality Table only for purposes of reserve valuation pursuant to the requirements of this chapter.
14VAC5-321-40. Conditions.
A. For policies issued on or after July 1, 2004, with each plan of insurance with separate rates for smokers and nonsmokers an insurer may use:
1. Composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits;
2. Smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by § 38.2-3141 38.2-1376 of the Code of Virginia and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values, and amounts of paid-up nonforfeiture benefits; or
3. Smoker and nonsmoker mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits.
B. For policies issued on or after July 1, 2004, with plans of insurance without separate rates for smokers and nonsmokers the composite mortality tables shall be used.
C. For the purpose of determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits, the 2001 CSO Mortality Table may, at the option of the insurer for each such plan of insurance, be used in its ultimate or select and ultimate form, subject to the restrictions of 14VAC5-321-50 and 14VAC5-319 relative to use of the select and ultimate form.
D. When the 2001 CSO Mortality Table is the minimum reserve standard for any plan for an insurer, any actuarial opinion in the annual statement filed with the commission shall be based on an asset adequacy analysis that meets the standards and satisfies requirements for an asset adequacy analysis performed pursuant to subdivision A 2 of § 38.2-3127.1 B 38.2-1367 of the Code of Virginia and rules governing actuarial opinions and memoranda at 14VAC5-310.
14VAC5-322-10. 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 38.2-1369 of the Code of Virginia and 14VAC5-319-40, to approve, recognize, permit, and prescribe the use of the 2001 Commissioners Standard Ordinary (CSO) Preferred Class Structure Mortality Table by and for insurers transacting the business of insurance in this Commonwealth.
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 38.2-1369, 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.
14VAC5-323-40. 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 § 38.2-1371 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 38.2-1368 and 38.2-3130 38.2-1369 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.
VA.R. Doc. No. R15-4085; Filed September 16, 2014, 2:10 p.m.
TITLE 14. INSURANCE
STATE CORPORATION COMMISSION
Proposed Regulation
REGISTRAR'S NOTICE: The State Corporation Commission is claiming an exemption 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.
Titles of Regulations: 14VAC5-70. Rules Governing Accelerated Benefits Provisions (amending 14VAC5-70-130).
14VAC5-200. Rules Governing Long-Term Care Insurance (amending 14VAC5-200-140, 14VAC5-200-153).
14VAC5-310. Rules Governing Actuarial Opinions and Memoranda (amending 14VAC5-310-10 through 14VAC5-310-50, 14VAC5-310-90).
14VAC5-319. Life Insurance Reserves (amending 14VAC5-319-10).
14VAC5-321. Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits (amending 14VAC5-321-10, 14VAC5-321-30, 14VAC5-321-40).
14VAC5-322. Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities (amending 14VAC5-322-10).
14VAC5-323. Rules Governing Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values (amending 14VAC5-323-10, 14VAC5-323-40, 14VAC5-323-50).
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 Comment Deadline: October 31, 2014.
Agency Contact: Raquel C. 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 update the Code of Virginia citations that will be effective January 1, 2015, to reflect changes enacted by Chapter 571 of the 2014 Acts of Assembly. Chapter 571 is based on revisions to the National Association of Insurance Commissioners' (NAIC) Standard Valuation Law model, which was adopted by the NAIC in 2009. The revised model authorizes a principle-based reserve (PBR) basis for life, annuity, and accident and health contracts, and requires the use of a Valuation Manual, which contains both PBR and non-PBR requirements, as well as actuarial opinion and corporate governance requirements.
AT RICHMOND, SEPTEMBER 16, 2014
COMMONWEALTH OF VIRGINIA, ex rel.
STATE CORPORATION COMMISSION
CASE NO. INS-2014-00202
Ex Parte: In the matter of Amending the
Rules Governing Accelerated Benefits Provisions;
the Rules Governing Long-Term Care Insurance;
the Rules Governing Actuarial Opinions and Memoranda;
Life Insurance Reserves; Use of the 2001 CSO
Mortality Table in Determining Reserve Liabilities
and Nonforfeiture Benefits; Use of the 2001 CSO
Preferred Class Structure Mortality Table in
Determining Reserve Liabilities; and
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 ("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 Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, entitled Rules Governing Accelerated Benefits Provisions, 14 VAC 5-70-10 et seq.; Rules Governing Long-Term Care Insurance, 14 VAC 5-200-10 et seq.; Rules Governing Actuarial Opinions and Memoranda, 14 VAC 5-310-10 et seq.; Life Insurance Reserves, 14 VAC 5-319-10 et seq.; Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, 14 VAC 5-321-10 et seq.; Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, 14 VAC 5-322-10 et seq.; and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, 14 VAC 5-323-10 et seq. (collectively, "Rules"), respectively, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5‑310‑10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5‑323-40; and 14 VAC 5-323-50.
The proposed amendments to the Rules are necessary to implement the provisions of House Bill 631 passed by the 2014 General Assembly, which amends the Code by adding in Chapter 13 of Title 38.2 an Article numbered 10, consisting of sections numbered 38.2-1365 through 38.2-1385. The revised rules replace the current citations to Title 38.2 of the Code with citations that will be effective on January 1, 2015.
NOW THE COMMISSION is of the opinion that the proposed amendments submitted by the Bureau to amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5‑321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 should be considered for adoption.
Accordingly, IT IS ORDERED THAT:
(1) The proposed amendments to Rules Governing Accelerated Benefits Provisions, Rules Governing Long-Term Care Insurance, Rules Governing Actuarial Opinions and Memoranda, Life Insurance Reserves, Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 are attached hereto and made a part hereof.
(2) All interested persons who desire to comment in support or in opposition to, or request a hearing to oppose amending Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, shall file such comments or hearing request on or before October 31, 2014, 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/case. All comments shall refer to Case No. INS-2014-00202.
(3) If no written request for a hearing on the proposal to amend Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code is received on or before October 31, 2014, the Commission, upon consideration of any comments submitted in support 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 every entity that is licensed, approved, registered, or accredited in Virginia under the provisions of Tile 38.2 of the Code and also subject to solvency regulation in this Commonwealth pursuant to the provisions of Title 38.2 of the Code, 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.
14VAC5-70-130. Actuarial disclosure and reserves.
A. A qualified actuary shall be required to describe the accelerated benefits, the risks, the expected costs and the calculation of statutory reserves in an actuarial memorandum accompanying each filing. The insurer shall maintain in its files descriptions of the bases and procedures used to calculate benefits payable under these provisions. These descriptions shall be made available for examination by the commission upon request.
B. 1. When benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves shall be determined in accordance with §§ 38.2-3126 38.2-1365 through 38.2-3144 38.2-1385 of the Code of Virginia. All valuation assumptions used in constructing the reserves shall be determined as appropriate for statutory valuation purposes by a member in good standing of the American Academy of Actuaries. Mortality tables and interest currently recognized for life insurance reserves by the National Association of Insurance Commissioners may be used as well as appropriate assumptions for the other provisions incorporated in the policy form. The actuary must follow both actuarial standards and certification for good and sufficient reserves. Reserves in the aggregate should be sufficient to cover:
a. Policies upon which no claim has yet arisen.
b. Policies upon which an accelerated claim has arisen.
2. For policies and certificates which provide actuarially equivalent benefits, no additional reserves need to be established.
3. Policy liens and policy loans, including accrued interest, represent assets of the company for statutory reporting purposes. For any policy on which the policy lien exceeds the policy's statutory reserve liability such excess must be held as a nonadmitted asset.
14VAC5-200-140. Reserve standards.
A. When long-term care benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves for such benefits shall be determined in accordance with subdivision 7 of § 38.2-3130 38.2-1369 of the Code of Virginia. Claim reserves must also be established in the case when such policy or rider is in claim status. Reserves for policies and riders subject to this subsection should be based on the multiple decrement model utilizing all relevant decrements except for voluntary termination rates. Single decrement approximations are acceptable if the calculation produces essentially similar reserves, if the reserve is clearly more conservative, or if the reserve is immaterial. The calculations may take into account the reduction in life insurance benefits due to the payment of long-term care benefits. However, in no event shall the reserves for the long-term care benefit and the life insurance benefit be less than the reserves for the life insurance benefit assuming no long-term care benefit. In the development and calculation of reserves for policies and riders subject to this subsection, due regard shall be given to the applicable policy provisions, marketing methods, administrative procedures and all other considerations which have an impact on projected claim costs, including, but not limited to, the following:
1. Definition of insured events;
2. Covered long-term care facilities;
3. Existence of home convalescence care coverage;
4. Definition of facilities;
5. Existence or absence of barriers to eligibility;
6. Premium waiver provision;
7. Renewability;
8. Ability to raise premiums;
9. Marketing method;
10. Underwriting procedures;
11. Claims adjustment procedures;
12. Waiting period;
13. Maximum benefit;
14. Availability of eligible facilities;
15. Margins in claim costs;
16. Optional nature of benefit;
17. Delay in eligibility for benefit;
18. Inflation protection provisions; and
19. Guaranteed insurability option.
Any applicable valuation morbidity table shall be certified as appropriate as a statutory valuation table by a member of the American Academy of Actuaries.
B. When long-term care benefits are provided other than as in Subsection subsection A above of this section, reserves shall be determined in accordance with subdivision 7 of § 38.2-3130 of the Code of Virginia 14VAC5-320.
14VAC5-200-153. Premium rate schedule increases.
A. This section applies to any long-term care policy or certificate issued in this Commonwealth on or after October 1, 2003.
B. An insurer shall request the commission's approval of a pending premium rate schedule increase, including an exceptional increase, prior to the notice to the policyholders and shall include:
1. Information required by 14VAC5-200-75;
2. Certification by a qualified actuary that:
a. If the requested premium rate schedule increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized, no further premium rate schedule increases are anticipated;
b. The premium rate filing is in compliance with the provisions of this section;
3. An actuarial memorandum justifying the rate schedule change request that includes:
a. Lifetime projections of earned premiums and incurred claims based on the filed premium rate schedule increase; and the method and assumptions used in determining the projected values, including reflection of any assumptions that deviate from those used for pricing other forms currently available for sale;
(1) Annual values for the five years preceding and the three years following the valuation date shall be provided separately;
(2) The projections shall include the development of the lifetime loss ratio, unless the rate increase is an exceptional increase;
(3) The projections shall demonstrate compliance with subsection C of this section; and
(4) For exceptional increases,
(a) The projected experience should be limited to the increases in claims expenses attributable to the approved reasons for the exceptional increase; and
(b) In the event the commission determines as provided in the definition of exceptional increase in 14VAC5-200-40 that offsets may exist, the insurer shall use appropriate net projected experience;
b. Disclosure of how reserves have been incorporated in this rate increase whenever the rate increase will trigger contingent benefit upon lapse;
c. Disclosure of the analysis performed to determine why a rate adjustment is necessary, which pricing assumptions were not realized and why, and what other actions taken by the company have been relied on by the actuary;
d. A statement that policy design, underwriting and claims adjudication practices have been taken into consideration; and
e. In the event that it is necessary to maintain consistent premium rates for new policies and policies receiving a rate increase, the insurer will need to file composite rates reflecting projections of new policies;
4. A statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the commission; and
5. Sufficient information for review and approval of the premium rate schedule increase by the commission.
C. All premium rate schedule increases shall be determined in accordance with the following requirements:
1. Exceptional increases shall provide that 70% of the present value of projected additional premiums from the exceptional increase will be returned to policyholders in benefits;
2. Premium rate schedule increases shall be calculated such that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:
a. The accumulated value of the initial earned premium times 58%;
b. Eighty-five percent of the accumulated value of prior premium rate schedule increases on an earned basis;
c. The present value of future projected initial earned premiums times 58%; and
d. Eighty-five percent of the present value of future projected premiums not in subdivision 2 c of this subsection on an earned basis;
3. In the event that a policy form has both exceptional and other increases, the values in subdivisions 2 b and d of this subsection will also include 70% for exceptional rate increase amounts; and
4. All present and accumulated values used to determine rate increases shall use the maximum valuation interest rate for contract reserves as specified in § 38.2-3132 of the Code of Virginia 14VAC5-320. The actuary shall disclose as part of the actuarial memorandum the use of any appropriate averages.
D. For each rate increase that is implemented, the insurer shall file for approval by the commission updated projections, as defined in subdivision B 3 a of this section, annually for the next three years and include a comparison of actual results to projected values. The commission may extend the period to greater than three years if actual results are not consistent with projected values from prior projections. For group insurance policies that meet the conditions in subsection K of this section, the projections required by subdivision B 3 a of this section shall be provided to the policyholder in lieu of filing with the commission.
E. If any increased premium rate in the revised premium rate schedule is greater than 200% of the comparable rate in the initial premium schedule, the premiums exceeding 200% shall be clearly identified and lifetime projections, as defined in subdivision B 3 a of this section, shall be filed for approval by the commission every five years following the end of the required period in subsection D of this section. For group insurance policies that meet the conditions in subsection K of this section, the projections required by this subsection shall be provided to the policyholder in lieu of filing with the commission.
F. 1. If the commission has determined that the actual experience following a rate increase does not adequately match the projected experience and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in subsection C of this section, the commission may require the insurer to implement any of the following:
a. Premium rate schedule adjustments; or
b. Other measures to reduce the difference between the projected and actual experience.
It is to be expected that the actual experience will not exactly match the insurer's projections. During the period that projections are monitored as described in subsections D and E of this section, the commission should determine that there is not an adequate match if the differences in earned premiums and incurred claims are not in the same direction (both actual values higher or lower than projections) or the difference as a percentage of the projected is not of the same order.
2. In determining whether the actual experience adequately matches the projected experience, consideration should be given to subdivision B 3 e of this section, if applicable.
G. If the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse, the insurer shall file:
1. A plan, subject to commission approval, for improved administration or claims processing designed to eliminate the potential for further deterioration of the policy form requiring further premium rate schedule increases or to demonstrate that appropriate administration and claims processing have been implemented or are in effect; otherwise the commission may impose the condition in subsection H of this section; and
2. The original anticipated lifetime loss ratio, and the premium rate schedule increase that would have been calculated according to subsection C of this section had the greater of the original anticipated lifetime loss ratio or 58% been used in the calculations described in subdivisions C 2 a and c of this section.
H. 1. For a rate increase filing that meets the following criteria, the commission shall review, for all policies included in the filing, the projected lapse rates and past lapse rates during the 12 months following each increase to determine if significant adverse lapsation has occurred or is anticipated:
a. The rate increase is not the first rate increase requested for the specific policy form or forms;
b. The rate increase is not an exceptional increase; and
c. The majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse.
2. In the event significant adverse lapsation has occurred, is anticipated in the filing or is evidenced in the actual results as presented in the updated projections provided by the insurer following the requested rate increase, the commission may determine that a rate spiral exists. Following the determination that a rate spiral exists, the commission may require the insurer to offer, without underwriting, to all in force insureds subject to the rate increase the option to replace existing coverage with any other long-term care insurance product being offered by the insurer or its affiliates.
a. The offer shall:
(1) Be subject to the approval of the commission;
(2) Be based on actuarially sound principles, but not be based on attained age; and
(3) Provide that maximum benefits under any new policy accepted by an insured shall be reduced by comparable benefits already paid under the existing policy.
b. The insurer shall maintain the experience of all the replacement insureds separate from the experience of insureds originally issued the policy forms. In the event of a request for a rate increase on the policy form, the rate increase shall be limited to the lesser of:
(1) The maximum rate increase determined based on the combined experience; or
(2) The maximum rate increase determined based only on the experience of the insureds originally issued the form plus 10%.
I. If the commission determines that the insurer has exhibited a persistent practice of filing inadequate initial premium rates for long-term care insurance, the commission may, in addition to the provisions of subsection H of this section, prohibit the insurer from either of the following:
1. Filing and marketing comparable coverage for a period of up to five years; or
2. Offering all other similar coverages and limiting marketing of new applications to the products subject to recent premium rate schedule increases.
J. Subsections A through I of this section shall not apply to policies for which the long-term care benefits provided by the policy are incidental, as defined in 14VAC5-200-40, if the policy complies with all of the following provisions:
1. The interest credited internally to determine cash value accumulations, including long-term care, if any, are guaranteed not to be less than the minimum guaranteed interest rate for cash value accumulations without long-term care set forth in the policy;
2. The portion of the policy that provides insurance benefits other than long-term care coverage meets the nonforfeiture requirements as applicable in any of the following:
a. Sections 38.2-3200 through 38.2-3218 of the Code of Virginia, and
b. Sections 38.2-3219 through 38.2-3229 of the Code of Virginia;
3. The policy meets the disclosure requirements of §§ 38.2-5207.1 and 38.2-5207.2 of the Code of Virginia;
4. The portion of the policy that provides insurance benefits other than long-term care coverage meets the requirements as applicable in the following:
a. Policy illustrations as required by 14VAC5-40 14VAC5-41; and
b. Disclosure requirements in 14VAC5-40 14VAC5-41;
5. An actuarial memorandum is filed with the commission that includes:
a. A description of the basis on which the long-term care rates were determined;
b. A description of the basis for the reserves;
c. A summary of the type of policy, benefits, renewability, general marketing method, and limits on ages of issuance;
d. A description and a table of each actuarial assumption used. For expenses, an insurer shall include percent of premium dollars per policy and dollars per unit of benefits, if any;
e. A description and a table of the anticipated policy reserves and additional reserves to be held in each future year for active lives;
f. The estimated average annual premium per policy and the average issue age;
g. A statement as to whether underwriting is performed at the time of application. The statement shall indicate whether underwriting is used and, if used, the statement shall include a description of the type or types of underwriting used, such as medical underwriting or functional assessment underwriting. Concerning a group policy, the statement shall indicate whether the enrollee or any dependent will be underwritten and when underwriting occurs; and
h. A description of the effect of the long-term care policy provision on the required premiums, nonforfeiture values and reserves on the underlying insurance policy, both for active lives and those in long-term care claim status.
K. Subsections F and H of this section shall not apply to group insurance policies as defined in subsections A and C of § 38.2-3521.1 of the Code of Virginia where:
1. The policies insure 250 or more persons and the policyholder has 5,000 or more eligible employees of a single employer; or
2. The policyholder, and not the certificateholders, pays a material portion of the premium, which shall not be less than 20% of the total premium for the group in the calendar year prior to the year a rate increase is filed.
14VAC5-310-10. Purpose.
The purpose of this chapter (14VAC5-310) is to prescribe:
1. Requirements for statements of actuarial opinion that are to be submitted in accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, and for memoranda in support thereof;
2. Rules applicable to the appointment of an appointed actuary; and
3. Guidance as to the meaning of "adequacy of reserves."
14VAC5-310-20. Authority; effective date.
This chapter (14VAC5-310) is adopted and promulgated by the commission pursuant to §§ 12.1-13, 38.2-223, and 38.2-3127.1 38.2-1367 of the Code of Virginia. This chapter will take effect for annual statements for the year-ending December 31, 1992. Except as otherwise specifically provided, revisions to this chapter shall be effective upon adoption by the commission and applicable as to annual statements and actuarial opinions, memoranda, and statements of reserves filed with the commission for periods ending on or after December 31 of the year in which the revision is adopted.
14VAC5-310-30. Scope.
A. This chapter (14VAC5-310) shall apply to all companies subject to the provisions of § 38.2-3127.1 38.2-1367 of the Code of Virginia, including fraternal benefit societies licensed under Chapter 41 (§ 38.2-4100 et seq.) of Title 38.2 and all other companies licensed under Title 38.2 of the Code of Virginia to write and reinsure policies or agreements providing any form of life, life insurance, or annuity benefits as those terms are defined in §§ 38.2-102 through 38.2-107.1 of the Code of Virginia and also to any life insurer authorized to write or reinsure accident and sickness insurance as defined in § 38.2-109 of the Code of Virginia.
B. This chapter shall be applied in a manner that allows the appointed actuary to utilize professional judgment in performing the asset analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards of practice unless the commission determines particular specifications are necessary for an acceptable opinion to be rendered relative to the adequacy of reserves and related items. Particular specifications, including specific methods of actuarial analysis and actuarial assumptions, may be promulgated by rule or order of the commission or by an administrative letter issued by the Commissioner of Insurance.
C. This chapter, as reflected in rules adopted by the commission by order entered November 5, 1992, in Case No. INS920377, shall be applicable to all annual statements filed with the commission on or after December 15, 1992, and before December 31, 2003. On and after December 31, 2003, a statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80, and a memorandum in support thereof in accordance with 14VAC5-310-90, shall be required each year in accordance with rules as revised and adopted by order of the commission entered in Case No. INS-2003-00165.
14VAC5-310-40. Definitions.
As used in this chapter unless the context clearly indicates otherwise:
"Actuarial opinion" means the opinion of an appointed actuary regarding the adequacy of reserves and related actuarial items based on an asset adequacy analysis in accordance with 14VAC5-310-80 and with applicable Actuarial Standards of Practice.
"Actuarial Standards Board" means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.
"Annual statement" means that statement required by § 38.2-1300 of the Code of Virginia to be filed by the company with the commission annually.
"Appointed actuary" means any individual who is appointed or retained in accordance with the requirements set forth in 14VAC5-310-50 C to provide the actuarial opinion and supporting memorandum as required by § 38.2-3127.1 38.2-1367 of the Code of Virginia.
"Asset adequacy analysis" means an analysis that meets the standards and other requirements referred to in 14VAC5-310-50 D.
"Commission" means the Virginia State Corporation Commission.
"Commissioner" means the Commissioner of Insurance in Virginia unless specific reference is made to another state, in which case "commissioner" means the Insurance Commissioner, Director, Superintendent or other supervising regulatory official of a given state who is responsible for administering the insurance laws of that state.
"Company" means a life insurer, company or fraternal benefit society subject to the provisions of this chapter.
"NAIC" means the National Association of Insurance Commissioners.
"Qualified actuary" means any individual who meets the requirements set forth in 14VAC5-310-50 B.
14VAC5-310-50. General requirements for actuarial opinions.
A. The following requirements apply to all companies submitting a statement of actuarial opinion in compliance with § 38.2-3127.1 38.2-1367 of the Code of Virginia.
1. There is to be included on or attached to page 1 of the annual statement for each year ending on or after December 31, 1992, the statement of an appointed actuary, entitled "Statement of Actuarial Opinion," setting forth an opinion relating to reserves and related actuarial items held in support of policies and contracts, in accordance with 14VAC5-310-80.
2. Upon written request by the company, the commission may grant an extension of the date for submission of the statement of actuarial opinion.
B. A "qualified actuary" is an individual who:
1. Is a member in good standing of the American Academy of Actuaries;
2. Is qualified to sign statements of actuarial opinion for life and health insurance company annual statements in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements;
3. Is familiar with the valuation requirements applicable to life and health insurance companies;
4. Has not been found by the commission (or if so found has subsequently been reinstated as a qualified actuary), following appropriate notice and hearing, to have:
a. Violated any provision of, or any obligation imposed by Title 38.2 of the Code of Virginia or other law in the course of his dealings as a qualified actuary;
b. Been found guilty of fraudulent or dishonest practices;
c. Demonstrated his incompetency, lack of cooperation, or untrustworthiness to act as a qualified actuary;
d. Submitted to the commission during the past five years, pursuant to this chapter, an actuarial opinion or memorandum that the commission rejected because it did not meet the provisions of this chapter, including standards set by the Actuarial Standards Board; or
e. Resigned or been removed as an actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of failure to adhere to generally acceptable actuarial standards; and
5. Has not failed to notify the commission of any action taken by the commissioner of any other state similar to that under subdivision 4 of this subsection.
C. An "appointed actuary" is a qualified actuary who is appointed or retained to prepare the statement of actuarial opinion required by this chapter, either directly by or by the authority of the board of directors through an executive officer of the company other than the qualified actuary. The company shall give the commission timely written notice of the name, title (and, in the case of a consulting actuary, the name of the firm) and manner of appointment or retention of each person appointed or retained by the company as an appointed actuary and shall state in such notice that the person meets the requirements set forth in 14VAC5-310-50 B. Once notice is furnished, no further notice is required with respect to this person, provided that the company shall give the commission timely written notice in the event the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements set forth in 14VAC5-310-50 B. If any person appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice shall so state and give the reasons for replacement.
D. The asset adequacy analysis required by this chapter shall:
1. Conform to the Actuarial Standards of Practice as promulgated from time to time by the Actuarial Standards Board and on any additional standards under this chapter, which standards are to form the basis of the statement of actuarial opinion in accordance with 5 this chapter; and
2. Be based on methods of analysis as are deemed appropriate for such purposes by the Actuarial Standards Board.
E. Liabilities shall be covered in conformity with the following:
1. Under authority of § 38.2-3127.1 38.2-1367 of the Code of Virginia, the statement of actuarial opinion shall apply to all in-force business on the statement date, whether directly issued or assumed, regardless of when or where issued, (e.g., reserves reportable for 2002 in Exhibits 5, 5A, 6, and 7 of the NAIC annual statement for life insurers; claim liabilities reported in Exhibit 8 (2002) in Part I of the life insurer's annual statement, and equivalent items in any separate account statement, or other annual financial statements filed pursuant to § 38.2-1300, 38.2-1301 or 38.2-4126 of the Code of Virginia).
2. If the appointed actuary determines as the result of asset adequacy analysis that a reserve should be held in addition to the aggregate reserve held by the company and calculated in accordance with methods set forth in § 38.2-1311, 38.2-3923, 38.2-4010, 38.2-4011, or § 38.2-4125 of the Code of Virginia; Article 3 (§ 38.2-3136 et seq.) 10 (§ 38.2-1365 et seq.) of Chapter 31 13 of Title 38.2 of the Code of Virginia; a rule or regulation of the commission applicable to the company; or any additional or further guidance provided by the NAIC Accounting Practices and Procedures Manual, whether in a Statement of Statutory Accounting Principle or in an actuarial guideline or other appendix, the company shall establish the additional reserve.
3. Additional reserves established under subdivision 2 of this subsection and deemed not necessary in subsequent years may be released. Any amounts released shall be disclosed in the actuarial opinion for the applicable year. The release of such reserves would not be deemed an adoption of a lower standard of valuation.
14VAC5-310-90. Description of actuarial memorandum issued for an asset adequacy analysis and regulatory asset adequacy issues summary.
A. The following general provisions shall apply with respect to the preparation and submission of the asset adequacy memorandum required by § 38.2-3127.1 38.2-1367 of the Code of Virginia.
1. In accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of his opinion regarding the reserves. The memorandum shall be made available for examination by the commission upon its request but shall be returned to the company after such examination and shall not be considered a record of the Bureau of Insurance or subject to automatic filing with the commission.
2. In preparing the memorandum, the appointed actuary may rely on, and include as a part of his memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of 14VAC5-310-50 B, with respect to the areas covered in such memoranda, and so state in their memoranda.
3. If the commission requests a memorandum and no such memorandum exists or if the commission finds that the analysis described in the memorandum fails to meet the standards of the Actuarial Standards Board or the standards and requirements of this chapter, the commission may designate a qualified actuary to review the opinion and prepare such supporting memorandum as is required for review. The reasonable and necessary expense of the independent review shall be paid by the company but shall be directed and controlled by the commission.
4. The reviewing actuary shall have the same status as an examiner for purposes of obtaining data from the company and the work papers and documentation of the reviewing actuary shall be retained by the commission; however, any information provided by the company to the reviewing actuary and included in the work papers shall be considered as material provided by the company to the commission and shall be kept confidential to the same extent as is prescribed by law with respect to other material provided by the company to the commission pursuant to the statute governing this chapter. The reviewing actuary shall not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer pursuant to this chapter for any one of the current year or the preceding three years.
5. In accordance with § 38.2-3127.1 38.2-1367 of the Code of Virginia, the appointed actuary shall prepare a regulatory asset adequacy issues summary, the contents of which are specified in subsection C of this section. The regulatory asset adequacy issues summary shall be submitted no later than March 15 of the year following the year for which a statement of actuarial opinion based on asset adequacy is required. The regulatory asset adequacy issues summary is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.
B. A section of the memorandum shall document asset adequacy testing by demonstrating that the analysis has been done in accordance with the standards for asset adequacy referred to in 14VAC5-310-50 D and any additional standards under this chapter. It shall specify:
1. For reserves:
a. Product descriptions including market description, underwriting and other aspects of a risk profile, and the specific risks the appointed actuary deems significant;
b. Source of liability in force;
c. Reserve method and basis;
d. Investment reserves;
e. Reinsurance arrangements;
f. Identification of any explicit or implied guarantees made by the general account in support of benefits provided through a separate account policy or contract and the methods used by the appointed actuary to provide for the guarantees in the asset adequacy analysis; and
g. Documentation of assumptions to test reserves for (i) lapse rates, whether base or excess, (ii) interest crediting rate strategy, (iii) mortality, (iv) policyholder dividend strategy, (v) competitor or market interest rate, (vi) annuitization rates, (vii) commission and expenses, and (viii) morbidity.
The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumption.
2. For assets:
a. Portfolio descriptions, including a risk profile disclosing the quality, distribution and types of assets;
b. Investment and disinvestment assumptions;
c. Source of asset data;
d. Asset valuation bases; and
e. Documentation of assumptions made for (i) default costs, (ii) bond call function, (iii) mortgage prepayment function, (iv) determining market value for assets sold due to disinvestment strategy, and (v) determining yield on assets acquired through the investment strategy.
The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumption.
3. For the analysis basis:
a. Methodology;
b. Rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;
c. Rationale for degree of rigor in analyzing different blocks of business, including the rationale for the level of "materiality" that was used in determining how rigorously to analyze different blocks of business;
d. Criteria for determining asset adequacy, including in the criteria the precise basis for determining if assets are adequate to cover reserves under "moderately adverse conditions" or other conditions as specified in relevant actuarial standards of practice; and
e. Whether the impact of federal income taxes was considered and the method of treating reinsurance in the asset adequacy analysis.
4. Summary of material changes in methods, procedures, or assumptions from prior year's asset adequacy analysis;
5. Summary of results; and
6. Conclusion.
C. The regulatory asset adequacy issues summary shall contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and shall be signed and dated by the appointed actuary rendering the actuarial opinion. The regulatory asset adequacy issues summary also shall include each of the following:
1. Descriptions of the scenarios tested, including whether those scenarios are stochastic or deterministic, and the sensitivity testing done relative to those scenarios. If negative ending surplus results under certain tests in the aggregate, the actuary should describe those tests and the amount of additional reserve as of the valuation date which, if held, would eliminate the negative aggregate surplus values. Ending surplus values shall be determined by either extending the projection period until the in-force and associated assets and liabilities at the end of the projection period are immaterial or by adjusting the surplus amount at the end of the projection period by an amount that appropriately estimates the value that reasonably can be expected to arise from the assets and liabilities remaining in force;
2. The extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different from the assumptions used in the previous asset adequacy analysis;
3. The amount of reserves and the identity of the product lines that had been subjected to asset adequacy analysis in the prior opinion but were not subject to analysis for the current opinion;
4. Comments on any interim results that may be of significant concern to the appointed actuary. For example, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods;
5. The methods used by the actuary to recognize the impact of reinsurance on the company's cash flows, including both assets and liabilities, under each of the scenarios tested; and
6. Whether the actuary has been satisfied that all options whether explicit or embedded, in any asset or liability, including but not limited to those affecting cash flows embedded in fixed income securities, and equity-like features in any investments have been appropriately considered in the asset adequacy analysis.
D. The actuarial methods, considerations, and analyses shall conform to appropriate standards of practice and the memorandum shall include the following statement:
"Actuarial methods, considerations and analyses used in the preparation of this memorandum conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis for this memorandum."
E. An appropriate allocation of assets in the amount of Interest Maintenance Reserve (IMR), whether positive or negative, shall be used in any asset adequacy analysis. Analysis of risks regarding asset default shall include an appropriate allocation of assets supporting the Asset Valuation Reserve (AVR); these AVR assets shall not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks shall include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support. The amount of the assets used for the AVR shall be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.
14VAC5-319-10. Definitions.
The following words and terms when used in this regulation shall have the following meanings, unless the context clearly indicates otherwise:
"1980 CSO valuation tables" means the Commissioners' 1980 Standard Ordinary Mortality Table (1980 CSO Table) without 10-year selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law, and variations of the 1980 CSO Table approved by the NAIC, such as the smoker and nonsmoker versions approved in December 1983.
"Basic reserves" means reserves calculated in accordance with § 38.2-3137 38.2-1372 of the Code of Virginia.
"Commission" means the State Corporation Commission when acting pursuant to or in accordance with Title 38.2 of the Code of Virginia.
"Contract segmentation method" means the method of dividing the period from issue to mandatory expiration of a policy into successive segments, with the length of each segment being defined as the period from the end of the prior segment (from policy inception, for the first segment) to the end of the latest policy year as determined below. All calculations are made using the 1980 CSO valuation tables, as defined in this section, (or any other valuation mortality table adopted by the NAIC after January 1, 2000, and promulgated by regulation by the commission for this purpose) and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in 14VAC5-319-40 B.
The length of a particular contract segment shall be set equal to the minimum of the value t for which Gt is greater than Rt (if Gt never exceeds Rt, the segment length is deemed to be the number of years from the beginning of the segment to the mandatory expiration date of the policy), where Gt and Rt are defined as follows:
where:
x = original issue age;
k = the number of years from the date of issue to the beginning of the segment;
t = 1, 2,...; t is reset to 1 at the beginning of each segment; and
GPx+k+t-1 = Guaranteed gross premium per $1,000 of face amount for year t of the segment, ignoring policy fees only if level for the premium paying period of the policy.
where:
Rt may be increased or decreased by 1.0% in any policy year, at the company's option, but Rt shall not be less than one; and
x, k and t are as defined above; and
qx+k+t-1 = valuation mortality rate for deficiency reserves in policy year k+t but using the mortality of 14VAC5-319-40 B 2 if 14VAC5-319-40 B 3 is elected for deficiency reserves. However, if GPx+k+t is greater than 0 and GPx+k+t-1 is equal to 0, Gt shall be deemed to be 1,000. If GPx+k+t and GPx+k+t-1 are both equal to 0, Gt shall be deemed to be 0.
"Deficiency reserves" means the excess, if greater than 0, of (i) minimum reserves calculated in accordance with § 38.2-3141 38.2-1376 of the Code of Virginia over (ii) basic reserves.
"Guaranteed gross premiums" means the premiums under a policy of life insurance that are guaranteed and determined at issue.
"Maximum valuation interest rates" means the interest rates defined in § 38.2-3130 38.2-1371 of the Code of Virginia that are to be used in determining the minimum standard for the valuation of life insurance policies.
"NAIC" means the National Association of Insurance Commissioners.
"Scheduled gross premium" means the smallest illustrated gross premium at issue for other than universal life insurance policies. For universal life insurance policies, scheduled gross premium means the smallest specified premium described in 14VAC5-319-60 A 3 or, if none is so described, the minimum premium described in 14VAC5-319-60 A 4.
"Segmented reserves" means reserves, calculated using segments produced by the contract segmentation method, equal to the present value of all future guaranteed benefits less the present value of all future net premiums to the mandatory expiration of a policy, where the net premiums within each segment are a uniform percentage of the respective guaranteed gross premiums within the segment. The uniform percentage for each segment is such that, at the beginning of the segment, the present value of the net premiums within the segment equals:
1. The present value of the death benefits within the segment, plus
2. The present value of any unusual guaranteed cash value (see 14VAC5-319-50 D) occurring at the end of the segment, less
3. Any unusual guaranteed cash value occurring at the start of the segment, plus
4. For the first segment only, the excess of subdivision 4 a over subdivision 4 b of this definition, as follows:
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for in the first segment after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary within the first segment on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
b. A net one-year term premium for the benefits provided for in the first policy year.
The length of each segment is determined by the "contract segmentation method," as defined in this section.
The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the sum of the lengths of all segments of the policy.
For both basic reserves and deficiency reserves computed by the segmented method, present values shall include future benefits and net premiums in the current segment and in all subsequent segments.
"Tabular cost of insurance" means the net single premium at the beginning of a policy year for one-year term insurance in the amount of the guaranteed death benefit in that policy year.
"Ten-year select mortality factors" means the select factors adopted by the NAIC with the 1980 amendments to the NAIC Standard Valuation Law.
"This regulation" means Chapter 319 of Title 14 of the Virginia Administrative Code (14VAC5-319-10 et seq.), which also shall be known as the commission's Rules Establishing Minimum Valuation and Reserve Standards for Life Insurance Policies.
"Twenty-year select mortality factors" means the select factors adopted by the NAIC as part of the Valuation of Life Insurance Policies Model Regulation and shown in the tables in 14VAC5-319-70.
"Unitary reserves" means the present value of all future guaranteed benefits less the present value of all future modified net premiums, where:
1. Guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy; and
2. Modified net premiums are a uniform percentage of the respective guaranteed gross premiums, where the uniform percentage is such that, at issue, the present value of the net premiums equals the present value of all death benefits and pure endowments, plus the excess of subdivision 2 a over subdivision 2 b of this definition, as follows:
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
b. A net one-year term premium for the benefits provided for in the first policy year.
The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the length from issue to the mandatory expiration of the policy.
"Universal life insurance policy" means any individual life insurance policy under the provisions of which separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds or other supplementary accounts) and mortality or expense charges are made to the policy.
"YRT" means yearly renewable term.
14VAC5-321-10. 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 38.2-1369, 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 2001 Commissioners Standard Ordinary (CSO) Mortality Table by and for insurers transacting the business of insurance in this Commonwealth.
14VAC5-321-30. 2001 CSO Mortality Table.
A. At the election of the insurer for any one or more specified plans of insurance and subject to the conditions stated in this chapter, the 2001 CSO Mortality Table may be used as the minimum standard for policies issued on or after January 1, 2004, and before the date specified in subsection B of this section to which subdivision 1 of § 38.2-3130 38.2-1369 and § 38.2-3209 of the Code of Virginia are applicable. If the insurer elects to use the 2001 CSO Mortality Table, it shall do so for both valuation and nonforfeiture purposes.
B. Subject to the conditions stated in this chapter, the 2001 CSO Mortality Table shall be used in determining minimum standards for policies issued on and after January 1, 2009, to which subdivision 1 of § 38.2-3130 38.2-1369 and § 38.2-3209 of the Code of Virginia are applicable.
C. A table from the 2001 CSO Preferred Class Structure Mortality Table used in place of a 2001 CSO Mortality Table, pursuant to the requirements of 14VAC5-322, will be treated as part of the 2001 CSO Mortality Table only for purposes of reserve valuation pursuant to the requirements of this chapter.
14VAC5-321-40. Conditions.
A. For policies issued on or after July 1, 2004, with each plan of insurance with separate rates for smokers and nonsmokers an insurer may use:
1. Composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits;
2. Smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by § 38.2-3141 38.2-1376 of the Code of Virginia and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values, and amounts of paid-up nonforfeiture benefits; or
3. Smoker and nonsmoker mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits.
B. For policies issued on or after July 1, 2004, with plans of insurance without separate rates for smokers and nonsmokers the composite mortality tables shall be used.
C. For the purpose of determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits, the 2001 CSO Mortality Table may, at the option of the insurer for each such plan of insurance, be used in its ultimate or select and ultimate form, subject to the restrictions of 14VAC5-321-50 and 14VAC5-319 relative to use of the select and ultimate form.
D. When the 2001 CSO Mortality Table is the minimum reserve standard for any plan for an insurer, any actuarial opinion in the annual statement filed with the commission shall be based on an asset adequacy analysis that meets the standards and satisfies requirements for an asset adequacy analysis performed pursuant to subdivision A 2 of § 38.2-3127.1 B 38.2-1367 of the Code of Virginia and rules governing actuarial opinions and memoranda at 14VAC5-310.
14VAC5-322-10. 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 38.2-1369 of the Code of Virginia and 14VAC5-319-40, to approve, recognize, permit, and prescribe the use of the 2001 Commissioners Standard Ordinary (CSO) Preferred Class Structure Mortality Table by and for insurers transacting the business of insurance in this Commonwealth.
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 38.2-1369, 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.
14VAC5-323-40. 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 § 38.2-1371 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 38.2-1368 and 38.2-3130 38.2-1369 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.
VA.R. Doc. No. R15-4085; Filed September 16, 2014, 2:10 p.m.
TITLE 14. INSURANCE
STATE CORPORATION COMMISSION
Proposed Regulation
REGISTRAR'S NOTICE: The State Corporation Commission is claiming an exemption 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.
Titles of Regulations: 14VAC5-70. Rules Governing Accelerated Benefits Provisions (amending 14VAC5-70-130).
14VAC5-200. Rules Governing Long-Term Care Insurance (amending 14VAC5-200-140, 14VAC5-200-153).
14VAC5-310. Rules Governing Actuarial Opinions and Memoranda (amending 14VAC5-310-10 through 14VAC5-310-50, 14VAC5-310-90).
14VAC5-319. Life Insurance Reserves (amending 14VAC5-319-10).
14VAC5-321. Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits (amending 14VAC5-321-10, 14VAC5-321-30, 14VAC5-321-40).
14VAC5-322. Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities (amending 14VAC5-322-10).
14VAC5-323. Rules Governing Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values (amending 14VAC5-323-10, 14VAC5-323-40, 14VAC5-323-50).
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 Comment Deadline: October 31, 2014.
Agency Contact: Raquel C. 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 update the Code of Virginia citations that will be effective January 1, 2015, to reflect changes enacted by Chapter 571 of the 2014 Acts of Assembly. Chapter 571 is based on revisions to the National Association of Insurance Commissioners' (NAIC) Standard Valuation Law model, which was adopted by the NAIC in 2009. The revised model authorizes a principle-based reserve (PBR) basis for life, annuity, and accident and health contracts, and requires the use of a Valuation Manual, which contains both PBR and non-PBR requirements, as well as actuarial opinion and corporate governance requirements.
AT RICHMOND, SEPTEMBER 16, 2014
COMMONWEALTH OF VIRGINIA, ex rel.
STATE CORPORATION COMMISSION
CASE NO. INS-2014-00202
Ex Parte: In the matter of Amending the
Rules Governing Accelerated Benefits Provisions;
the Rules Governing Long-Term Care Insurance;
the Rules Governing Actuarial Opinions and Memoranda;
Life Insurance Reserves; Use of the 2001 CSO
Mortality Table in Determining Reserve Liabilities
and Nonforfeiture Benefits; Use of the 2001 CSO
Preferred Class Structure Mortality Table in
Determining Reserve Liabilities; and
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 ("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 Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, entitled Rules Governing Accelerated Benefits Provisions, 14 VAC 5-70-10 et seq.; Rules Governing Long-Term Care Insurance, 14 VAC 5-200-10 et seq.; Rules Governing Actuarial Opinions and Memoranda, 14 VAC 5-310-10 et seq.; Life Insurance Reserves, 14 VAC 5-319-10 et seq.; Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, 14 VAC 5-321-10 et seq.; Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, 14 VAC 5-322-10 et seq.; and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, 14 VAC 5-323-10 et seq. (collectively, "Rules"), respectively, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5‑310‑10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5‑323-40; and 14 VAC 5-323-50.
The proposed amendments to the Rules are necessary to implement the provisions of House Bill 631 passed by the 2014 General Assembly, which amends the Code by adding in Chapter 13 of Title 38.2 an Article numbered 10, consisting of sections numbered 38.2-1365 through 38.2-1385. The revised rules replace the current citations to Title 38.2 of the Code with citations that will be effective on January 1, 2015.
NOW THE COMMISSION is of the opinion that the proposed amendments submitted by the Bureau to amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5‑321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 should be considered for adoption.
Accordingly, IT IS ORDERED THAT:
(1) The proposed amendments to Rules Governing Accelerated Benefits Provisions, Rules Governing Long-Term Care Insurance, Rules Governing Actuarial Opinions and Memoranda, Life Insurance Reserves, Use of the 2001 CSO Mortality Table in Determining Reserve Liabilities and Nonforfeiture Benefits, Use of the 2001 CSO Preferred Class Structure Mortality Table in Determining Reserve Liabilities, and Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values, which amend the Rules at 14 VAC 5-70-130; 14 VAC 5-200-140; 14 VAC 5-200-153; 14 VAC 5-310-10 through 14 VAC 5-310-50; 14 VAC 5-310-90; 14 VAC 5-319-10; 14 VAC 5-321-10; 14 VAC 5-321-30; 14 VAC 5-321-40; 14 VAC 5-322-10; 14 VAC 5-323-10; 14 VAC 5-323-40; and 14 VAC 5-323-50 are attached hereto and made a part hereof.
(2) All interested persons who desire to comment in support or in opposition to, or request a hearing to oppose amending Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code, shall file such comments or hearing request on or before October 31, 2014, 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/case. All comments shall refer to Case No. INS-2014-00202.
(3) If no written request for a hearing on the proposal to amend Chapters 70, 200, 310, 319, 321, 322, and 323 of Title 14 of the Virginia Administrative Code is received on or before October 31, 2014, the Commission, upon consideration of any comments submitted in support 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 every entity that is licensed, approved, registered, or accredited in Virginia under the provisions of Tile 38.2 of the Code and also subject to solvency regulation in this Commonwealth pursuant to the provisions of Title 38.2 of the Code, 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.
14VAC5-70-130. Actuarial disclosure and reserves.
A. A qualified actuary shall be required to describe the accelerated benefits, the risks, the expected costs and the calculation of statutory reserves in an actuarial memorandum accompanying each filing. The insurer shall maintain in its files descriptions of the bases and procedures used to calculate benefits payable under these provisions. These descriptions shall be made available for examination by the commission upon request.
B. 1. When benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves shall be determined in accordance with §§ 38.2-3126 38.2-1365 through 38.2-3144 38.2-1385 of the Code of Virginia. All valuation assumptions used in constructing the reserves shall be determined as appropriate for statutory valuation purposes by a member in good standing of the American Academy of Actuaries. Mortality tables and interest currently recognized for life insurance reserves by the National Association of Insurance Commissioners may be used as well as appropriate assumptions for the other provisions incorporated in the policy form. The actuary must follow both actuarial standards and certification for good and sufficient reserves. Reserves in the aggregate should be sufficient to cover:
a. Policies upon which no claim has yet arisen.
b. Policies upon which an accelerated claim has arisen.
2. For policies and certificates which provide actuarially equivalent benefits, no additional reserves need to be established.
3. Policy liens and policy loans, including accrued interest, represent assets of the company for statutory reporting purposes. For any policy on which the policy lien exceeds the policy's statutory reserve liability such excess must be held as a nonadmitted asset.
14VAC5-200-140. Reserve standards.
A. When long-term care benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves for such benefits shall be determined in accordance with subdivision 7 of § 38.2-3130 38.2-1369 of the Code of Virginia. Claim reserves must also be established in the case when such policy or rider is in claim status. Reserves for policies and riders subject to this subsection should be based on the multiple decrement model utilizing all relevant decrements except for voluntary termination rates. Single decrement approximations are acceptable if the calculation produces essentially similar reserves, if the reserve is clearly more conservative, or if the reserve is immaterial. The calculations may take into account the reduction in life insurance benefits due to the payment of long-term care benefits. However, in no event shall the reserves for the long-term care benefit and the life insurance benefit be less than the reserves for the life insurance benefit assuming no long-term care benefit. In the development and calculation of reserves for policies and riders subject to this subsection, due regard shall be given to the applicable policy provisions, marketing methods, administrative procedures and all other considerations which have an impact on projected claim costs, including, but not limited to, the following:
1. Definition of insured events;
2. Covered long-term care facilities;
3. Existence of home convalescence care coverage;
4. Definition of facilities;
5. Existence or absence of barriers to eligibility;
6. Premium waiver provision;
7. Renewability;
8. Ability to raise premiums;
9. Marketing method;
10. Underwriting procedures;
11. Claims adjustment procedures;
12. Waiting period;
13. Maximum benefit;
14. Availability of eligible facilities;
15. Margins in claim costs;
16. Optional nature of benefit;
17. Delay in eligibility for benefit;
18. Inflation protection provisions; and
19. Guaranteed insurability option.
Any applicable valuation morbidity table shall be certified as appropriate as a statutory valuation table by a member of the American Academy of Actuaries.
B. When long-term care benefits are provided other than as in Subsection subsection A above of this section, reserves shall be determined in accordance with subdivision 7 of § 38.2-3130 of the Code of Virginia 14VAC5-320.
14VAC5-200-153. Premium rate schedule increases.
A. This section applies to any long-term care policy or certificate issued in this Commonwealth on or after October 1, 2003.
B. An insurer shall request the commission's approval of a pending premium rate schedule increase, including an exceptional increase, prior to the notice to the policyholders and shall include:
1. Information required by 14VAC5-200-75;
2. Certification by a qualified actuary that:
a. If the requested premium rate schedule increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized, no further premium rate schedule increases are anticipated;
b. The premium rate filing is in compliance with the provisions of this section;
3. An actuarial memorandum justifying the rate schedule change request that includes:
a. Lifetime projections of earned premiums and incurred claims based on the filed premium rate schedule increase; and the method and assumptions used in determining the projected values, including reflection of any assumptions that deviate from those used for pricing other forms currently available for sale;
(1) Annual values for the five years preceding and the three years following the valuation date shall be provided separately;
(2) The projections shall include the development of the lifetime loss ratio, unless the rate increase is an exceptional increase;
(3) The projections shall demonstrate compliance with subsection C of this section; and
(4) For exceptional increases,
(a) The projected experience should be limited to the increases in claims expenses attributable to the approved reasons for the exceptional increase; and
(b) In the event the commission determines as provided in the definition of exceptional increase in 14VAC5-200-40 that offsets may exist, the insurer shall use appropriate net projected experience;
b. Disclosure of how reserves have been incorporated in this rate increase whenever the rate increase will trigger contingent benefit upon lapse;
c. Disclosure of the analysis performed to determine why a rate adjustment is necessary, which pricing assumptions were not realized and why, and what other actions taken by the company have been relied on by the actuary;
d. A statement that policy design, underwriting and claims adjudication practices have been taken into consideration; and
e. In the event that it is necessary to maintain consistent premium rates for new policies and policies receiving a rate increase, the insurer will need to file composite rates reflecting projections of new policies;
4. A statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the commission; and
5. Sufficient information for review and approval of the premium rate schedule increase by the commission.
C. All premium rate schedule increases shall be determined in accordance with the following requirements:
1. Exceptional increases shall provide that 70% of the present value of projected additional premiums from the exceptional increase will be returned to policyholders in benefits;
2. Premium rate schedule increases shall be calculated such that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:
a. The accumulated value of the initial earned premium times 58%;
b. Eighty-five percent of the accumulated value of prior premium rate schedule increases on an earned basis;
c. The present value of future projected initial earned premiums times 58%; and
d. Eighty-five percent of the present value of future projected premiums not in subdivision 2 c of this subsection on an earned basis;
3. In the event that a policy form has both exceptional and other increases, the values in subdivisions 2 b and d of this subsection will also include 70% for exceptional rate increase amounts; and
4. All present and accumulated values used to determine rate increases shall use the maximum valuation interest rate for contract reserves as specified in § 38.2-3132 of the Code of Virginia 14VAC5-320. The actuary shall disclose as part of the actuarial memorandum the use of any appropriate averages.
D. For each rate increase that is implemented, the insurer shall file for approval by the commission updated projections, as defined in subdivision B 3 a of this section, annually for the next three years and include a comparison of actual results to projected values. The commission may extend the period to greater than three years if actual results are not consistent with projected values from prior projections. For group insurance policies that meet the conditions in subsection K of this section, the projections required by subdivision B 3 a of this section shall be provided to the policyholder in lieu of filing with the commission.
E. If any increased premium rate in the revised premium rate schedule is greater than 200% of the comparable rate in the initial premium schedule, the premiums exceeding 200% shall be clearly identified and lifetime projections, as defined in subdivision B 3 a of this section, shall be filed for approval by the commission every five years following the end of the required period in subsection D of this section. For group insurance policies that meet the conditions in subsection K of this section, the projections required by this subsection shall be provided to the policyholder in lieu of filing with the commission.
F. 1. If the commission has determined that the actual experience following a rate increase does not adequately match the projected experience and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in subsection C of this section, the commission may require the insurer to implement any of the following:
a. Premium rate schedule adjustments; or
b. Other measures to reduce the difference between the projected and actual experience.
It is to be expected that the actual experience will not exactly match the insurer's projections. During the period that projections are monitored as described in subsections D and E of this section, the commission should determine that there is not an adequate match if the differences in earned premiums and incurred claims are not in the same direction (both actual values higher or lower than projections) or the difference as a percentage of the projected is not of the same order.
2. In determining whether the actual experience adequately matches the projected experience, consideration should be given to subdivision B 3 e of this section, if applicable.
G. If the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse, the insurer shall file:
1. A plan, subject to commission approval, for improved administration or claims processing designed to eliminate the potential for further deterioration of the policy form requiring further premium rate schedule increases or to demonstrate that appropriate administration and claims processing have been implemented or are in effect; otherwise the commission may impose the condition in subsection H of this section; and
2. The original anticipated lifetime loss ratio, and the premium rate schedule increase that would have been calculated according to subsection C of this section had the greater of the original anticipated lifetime loss ratio or 58% been used in the calculations described in subdivisions C 2 a and c of this section.
H. 1. For a rate increase filing that meets the following criteria, the commission shall review, for all policies included in the filing, the projected lapse rates and past lapse rates during the 12 months following each increase to determine if significant adverse lapsation has occurred or is anticipated:
a. The rate increase is not the first rate increase requested for the specific policy form or forms;
b. The rate increase is not an exceptional increase; and
c. The majority of the policies or certificates to which the increase is applicable