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H0171...........................................................by BUSINESS
ANNUITY/ENDOWMENT INSURANCE - Amends existing law relating to standard
valuation of annuity and endowments insurance contracts to revise the
method of determining value.
02/04 House intro - 1st rdg - to printing
02/05 Rpt prt - to Bus
02/18 Rpt out - rec d/p - to 2nd rdg
02/19 2nd rdg - to 3rd rdg
02/22 3rd rdg - PASSED - 67-0-3
AYES -- Alltus, Barraclough, Barrett, Bell, Bieter, Black, Boe,
Bruneel, Callister, Campbell, Chase, Clark, Crow, Cuddy, Deal,
Denney, Ellsworth, Field(13), Field(20), Gagner, Geddes, Gould,
Hadley, Hammond, Hansen(23), Hansen(29), Henbest, Hornbeck, Jaquet,
Jones, Judd, Kellogg, Kempton, Kendell, Kunz, Lake, Limbaugh,
Loertscher, Mader, Marley, McKague, Meyer, Montgomery, Mortensen,
Moyle, Pischner, Pomeroy, Reynolds, Ridinger, Ringo, Robison, Sali,
Schaefer, Sellman, Smith, Smylie, Stevenson, Stoicheff, Stone,
Taylor(Taylor), Tilman, Tippets, Trail, Wheeler, Williams,
Zimmermann, Mr Speaker
NAYS -- None
Absent and excused -- Linford, Watson, Wood
Floor Sponsor - Deal
Title apvd - to Senate
02/23 Senate intro - 1st rdg - to Com/HuRes
03/05 Rpt out - rec d/p - to 2nd rdg
03/08 2nd rdg - to 3rd rdg
03/09 3rd rdg - PASSED - 33-0-2
AYES--Andreason, Boatright, Branch, Bunderson, Burtenshaw, Cameron,
Crow, Danielson, Darrington, Davis, Deide, Dunklin, Frasure, Geddes,
Hawkins, Ingram, Keough, King, Lee, McLaughlin, Noh, Richardson,
Riggs, Risch, Sandy, Schroeder, Sorensen, Stegner, Stennett, Thorne,
Twiggs, Wheeler, Whitworth
NAYS--None
Absent and excused--Ipsen, Parry
Floor Sponsor - Crow
Title apvd - to House
03/10 To enrol
03/11 Rpt enrol - Sp signed
03/12 Pres signed
03/17 Governor signed
Session Law Chapter 74
Effective: 07/01/99
H0171|||| LEGISLATURE OF THE STATE OF IDAHO |||| Fifty-fifth Legislature First Regular Session - 1999IN THE HOUSE OF REPRESENTATIVES HOUSE BILL NO. 171 BY BUSINESS COMMITTEE 1 AN ACT 2 RELATING TO THE STANDARD VALUATION OF ANNUITY AND ENDOWMENT INSURANCE CON- 3 TRACTS; AMENDING SECTION 41-612, IDAHO CODE, TO UPDATE THE MINIMUM STAN- 4 DARD FOR RESERVE VALUATION OF INDIVIDUAL ANNUITY AND PURE ENDOWMENT CON- 5 TRACTS AND TO MAKE TECHNICAL CORRECTIONS. 6 Be It Enacted by the Legislature of the State of Idaho: 7 SECTION 1. That Section 41-612, Idaho Code, be, and the same is hereby 8 amended to read as follows: 9 41-612. STANDARD VALUATION LAW -- LIFE INSURANCE. (1) This section shall 10 be known as the standard valuation law. 11 (2) Annual valuation. The director shall annually value, or cause to be 12 valued, the reserve liabilities (hereinafter called reserves) for all out- 13 standing life insurance policies and annuity and pure endowment contracts of 14 every life insurer doing business in this state, and may certify the amount of 15 any such reserves, specifying the mortality table or tables, rate or rates of 16 interest and methods (net level premium method or others) used in the calcula- 17 tion of such reserves. In the case of an alien insurer, such valuation shall 18 be limited to its insurance transactions in the United States. In calculating 19 such reserves, the director may use group methods and approximate averages for 20 fractions of a year or otherwise. He may accept in his discretion the 21 insurer's calculation of such reserves. In lieu of the valuation of the 22 reserves herein required of any foreign or alien insurer, he may accept any 23 valuation made or caused to be made by the insurance supervisory official of 24 any state or other jurisdiction when such valuation complies with the minimum 25 standard herein provided, and if the official of such state or jurisdiction 26 accepts as sufficient and valid for all legal purposes the certificate of val- 27 uation of the director when such certificate states the valuation to have been 28 made in a specified manner according to which the aggregate reserves would be 29 at least as large as if they had been computed in the manner prescribed by the 30 law of that state or jurisdiction. Where any such valuation is made by the 31 director, he may use the actuary of the department or employ an actuary for 32 the purpose, and the reasonable compensation and expenses of the actuary, at a 33 rate approved by the director, upon demand by the director supported by an 34 itemized statement of such compensation and expenses, shall be paid by the 35 insurer. When a domestic insurer furnishes the director with a valuation of 36 its outstanding policies as computed by its own actuary or by an actuary 37 deemed satisfactory for the purpose by the director, the valuation shall be 38 verified by the actuary of the department without costs to the insurer. 39 (3) Except as otherwise provided in subsections (4) and (4a) of this sec- 40 tion, the minimum standard for the valuation of all such policies and con- 41 tracts issued on and after January 1, 1914, and prior to the operative date of 42 section 41-1927, Idaho Code, (standard nonforfeiture law) shall be the Ameri- 43 can experience table of mortality and interest at three and one-halfper2 1centpercent (3 1/2%) per annum. Not more than one 2 (1) year shall be used as a preliminary term. Extra charges may be made 3 in particular cases of invalid lives and other extra hazards, policies may be 4 valued in groups, and approximate averages may be used for fractions of a 5 year. Policies other than ordinary and twenty (20) payment life may be valued 6 according to the modified preliminary term, with twenty (20) payment life pol- 7 icies as a basis for such valuation. This subsection applies only as to poli- 8 cies and contracts issued prior to the operative date of section 41-1927, 9 Idaho Code. 10 (4) Except as otherwise provided in subsections (4a) and (4b) of this 11 section, the minimum standard for the valuation of all such policies and con- 12 tracts issued on or after the operative date of section 41-1927, Idaho Code, 13 (standard nonforfeiture law) shall be the commissioners reserve valuation 14 methods defined in subsections (5), (6) and (10) of this section, three and 15 one-halfper centpercent (3 1/2%) interest for all 16 other such policies and contracts, except that the rate shall be four and one- 17 halfper centpercent (4 1/2%) for individual annu- 18 ity contracts, or in the case of policies and contracts, other than annuity 19 and pure endowment contracts, issued on or after July 1, 1973, fourper20centpercent (4%) interest for such policies issued prior 21 to July 1, 1977, five and one-halfper centpercent 22 (5 1/2%) interest for single premium life insurance policies and four and one- 23 halfper centpercent (4 1/2%) interest for all 24 other such policies issued on or after July 1, 1977, but prior to the opera- 25 tive date of section (9)(d) of the standard nonforfeiture law for life insur- 26 ance as amended, sevenper centpercent (7%) inter- 27 est for such policies issued on and after the operative date of section (9)(d) 28 of the standard nonforfeiture law for life insurance as amended, and the fol- 29 lowing tables: 30 (a) For all ordinary policies of life insurance issued on the standard 31 basis, excluding any disability and accidental death benefits in such pol- 32 icies, the commissioners 1941 standard ordinary mortality table for such 33 policies issued prior to the operative date of subsection (9)(b) of sec- 34 tion 41-1927, Idaho Code; the commissioners 1958 standard ordinary mortal- 35 ity table for such policies issued on or after the operative date of sub- 36 section (9)(b) of the standard nonforfeiture law for life insurance as 37 amended and prior to the operative date of subsection (9)(d) of the stan- 38 dard nonforfeiture law for life insurance as amended; except, that for any 39 category of such policies issued on female risks, all modified net pre- 40 miums and present values, referred to in subsections (5) and (10) of this 41 section, may be calculated according to an age not more than six (6) years 42 younger than the actual age of the insured; and for such policies issued 43 on or after the operative date of subsection (9)(d) of the standard non- 44 forfeiture law for life insurance as amended,: 45 (i)tT he commissioners 1980 standard 46 ordinary mortality table, or 47 (ii)aA t the election of the company for 48 any one (1) or more specified plans of life insurance, 49 the commissioners 1980 standard ordinary mortality table with ten- 50 year select mortality factors, or 51 (iii)aA ny ordinary mortality table, 52 adopted after 1980 by the national association of insurance commis- 53 sioners, that is approved by regulation promulgated by the director 54 for use in determining the minimum standard of valuation for such 55 policies. 3 1 (b) For all industrial life insurance policies issued on the standard 2 basis, excluding any disability and accidental death benefits in such pol- 3 icies, the 1941 standard industrial mortality table for such policies 4 issued prior to the operative date of subsection (9)(c) of section 5 41-1927, Idaho Code, and for such policies issued on or after such opera- 6 tive date the commissioners 1961 standard industrial mortality table or 7 any industrial mortality table, adopted after 1980 by the national associ- 8 ation of insurance commissioners, that is approved by regulation promul- 9 gated by the director for use in determining the minimum standard of valu- 10 ation for such policies. 11 (c) For individual annuity and pure endowment contracts, excluding any 12 disability and accidental death benefits in such policies, the 1937 stan- 13 dard annuity mortality table or, at the insurer's option, the annuity mor- 14 tality table for 1949, ultimate, or any modification of either of these 15 tables approved by the director. 16 (d) For group annuity and pure endowment contracts, excluding any dis- 17 ability and accidental death benefits in such policies, the group annuity 18 mortality table for 1951, any modification of such table approved by the 19 director, or, at the insurer's option, any of the tables or modifications 20 of tables specified for individual annuity and pure endowment contracts. 21 (e) For total and permanent disability benefits in or supplementary to 22 ordinary policies or contracts, for policies or contracts issued on or 23 after January 1, 1966, the tables of period 2 disablement rates and the 24 1930 to 1950 termination rates of the 1952 disability study of the Society 25 of Actuaries, with due regard to the type of benefit, or any tables of 26 disablement rates and termination rates, adopted after 1980 by the 27 national association of insurance commissioners, that are approved by reg- 28 ulation promulgated by the director for use in determining the minimum 29 standard of valuation for such policies; for policies or contracts issued 30 on or after the operative date of section 41-1927, Idaho Code, (standard 31 nonforfeiture law) and prior to January 1, 1966, either such tables or, at 32 the insurer's option, the class (3) disability table (1926). Any such 33 table shall, for active lives, be combined with a mortality table permit- 34 ted for calculating the reserves for life insurance policies. 35 (f) For accidental death benefits in or supplementary to policies, for 36 policies issued on or after January 1, 1966, the 1959 accidental death 37 benefits table or any accidental death benefits table, adopted after 1980 38 by the national association of insurance commissioners, that is approved 39 by regulation promulgated by the director for use in determining the mini- 40 mum standard of valuation for such policies; for policies issued on or 41 after the operative date of section 41-1927, Idaho Code, (standard nonfor- 42 feiture law) and prior to January 1, 1966, either such table or, at the 43 insurer's option, the intercompany double indemnity mortality table. 44 Either table shall be combined with a mortality table permitted for calcu- 45 lating the reserves for life insurance policies. 46 (g) For group life insurance, life insurance issued on the substandard 47 basis and other special benefits, such tables as may be approved by the 48 director as being sufficient with relation to the benefits provided by 49 such policies. 50 (4a) Except as provided in subsection (4b), the minimum standard for the 51 valuation of all individual annuity and pure endowment contracts issued on or 52 after the operative date of this subsection (4a), as defined herein, and for 53 all annuities and pure endowments purchased on or after such operative date 54 under group annuity and pure endowment contracts, shall be the commissioners 55 reserve valuation methods defined in subsections (5) and (6) of this section 4 1 and the following tables and interest rates: 2 (a) For individual annuity and pure endowment contracts issued prior to 3 July 1, 1977, excluding any disability and accidental death benefits in 4 such contracts, the 1971 individual annuity mortality table, or any modi- 5 fication of this table approved by the director, and sixper cent6percent (6%) interest for single premium immediate 7 annuity contracts, and four and one-halfper centper- 8 cent (4 1/2%) interest for all other individual annuity and pure 9 endowment contracts. 10 (b) For individual single premium immediate annuity contracts issued on 11 or after July 1, 1977, but prior to January 1, 1982, excluding any dis- 12 ability and accidental death benefits in such contracts, the 1971 individ- 13 ual annuity mortality table, or any modification of this table approved by 14 the director, and seven and one-halfper centpercent 15 (7 1/2%) interest. 16 (c) For individual single premium immediate annuity contracts issued on 17 or after January 1, 1982, excluding any disability and accidental death 18 benefits in such contracts, the 1971 individual annuity mortality table or 19 any individual annuity mortality table, adopted after 1980 by the national 20 association of insurance commissioners, that is approved by regulation 21 promulgated by the director for use in determining the minimum standard of 22 valuation for such contracts, or any modification of these tables approved 23 by the director, and elevenper centpercent 24 (11%) interest. 25 (d) For individual annuity and pure endowment contracts issued on or 26 after July 1, 1977, but prior to January 1, 1982, other than single pre- 27 mium immediate annuity contracts, excluding any disability and accidental 28 death benefits in such contracts, the 1971 individual annuity mortality 29 table, or any modification of this table approved by the director, and 30 five and one-halfper centpercent (5 1/2%) 31 interest for single premium deferred annuity and pure endowment contracts 32 and four and one-halfper centpercent (4 1/2%) 33 interest for all other such individual annuity and pure endowment con- 34 tracts. 35 (e) For individual annuity and pure endowment contracts issued on or 36 after January 1, 1982, other than single premium immediate annuity con- 37 tracts, excluding any disability and accidental death benefits in such 38 contracts, the 1971 individual annuity mortality table or any individual 39 annuity mortality table, adopted after 1980 by the national association of 40 insurance commissioners, that is approved by regulation promulgated by the 41 director for use in determining the minimum standard of valuation for such 42 contracts, or any modification of these tables approved by the director, 43 and eightper centpercent (8%) interest. 44 (f) For all annuities and pure endowments purchased prior to July 1, 45 1977, under group annuity and pure endowment contracts, excluding any dis- 46 ability and accidental death benefits purchased under such contracts, the 47 1971 group annuity mortality table, or any modification of this table 48 approved by the director, and sixper centpercent 49 (6%) interest. 50 (g) For all annuities and pure endowments purchased on or after July 1, 51 1977, but prior to January 1, 1982, under group annuity and pure endowment 52 contracts, excluding any disability and accidental death benefits pur- 53 chased under such contracts, the 1971 group annuity mortality table, or 54 any modification of this table approved by the director, and seven and 55 one-halfper centpercent (7 1/2%) interest. 5 1 (h) For all annuities and pure endowments purchased on or after January 2 1, 1982, under group annuity and pure endowment contracts, excluding any 3 disability and accidental death benefits purchased under such contracts, 4 the 1971 group annuity mortality table or any group annuity mortality 5 table, adopted after 1980 by the national association of insurance commis- 6 sioners, that is approved by regulation promulgated by the director for 7 use in determining the minimum standard of valuation for such annuities 8 and pure endowments, or any modification of these tables approved by the 9 director, and elevenper centpercent (11%) 10 interest. 11 After July 1, 1973, any insurer may file with the director a written notice of 12 its election to comply with the provisions of this subsection after a speci- 13 fied date before January 1, 1979, which shall be the operative date of this 14 subsection for such insurer, provided that an insurer may elect a different 15 operative date for individual annuity and pure endowment contracts from that 16 elected for group annuity and pure endowment contracts. If an insurer makes no 17 such election, the operative date of this subsection for such insurer shall be 18 January 1, 1979. 19 (4b) For any calendar year on or after the effective date of subsection 20 (9)(d) of the standard nonforfeiture law for life insurance in the case of 21 life insurance policies issued on or after such effective date, and for any 22 calendar year on or after January 1, 1982, in the case of: 23 (a) Individual annuity and pure endowment contracts issued on or after 24 January 1, 1982; 25 (b) Annuities and pure endowments purchased on or after January 1, 1982, 26 under group annuity and pure endowment contracts; and 27 (c) The net increase, if any, in any particular calendar year after Janu- 28 ary 1, 1982, in amounts held under guaranteed interest contracts, the com- 29 pany may elect, for the purpose of determining the minimum standard for 30 valuation, for any category of policy or contract, the calendar year stat- 31 utory valuation interest rate as defined in this subsection in lieu of the 32 interest rate specified in subsection (4) or (4a). 33 The provisions of this subsection shall be applicable to: 34 A. The interest rates used in determining the minimum standard for the 35 valuation of: 36 a. All life insurance policies issued in a particular calendar year, 37 on or after the operative date of subsection (9)(d) of the standard 38 nonforfeiture law for life insurance; 39 b. All individual annuity and pure endowment contracts issued in a 40 particular calendar year on or after January 1, 1982; 41 c. All annuities and pure endowments purchased in a particular cal- 42 endar year on or after January 1, 1982, under group annuity and pure 43 endowment contracts; and 44 d. The net increase, if any, in a particular calendar year after 45 January 1, 1982, in amounts held under guaranteed interest contracts 46 shall be the calendar year statutory valuation interest rates as defined 47 in this subsection. 48 B. Calendar year statutory valuation interest rates: 49 a. The calendar year statutory valuation interest rates, I, shall be 50 determined as follows and the results rounded to the nearer one-quar- 51 ter of oneper centpercent (1/4 of 1%). 52 1. For life insurance, 53 I = .03 + W ( - .03) + ( - .09); 54 2. For single premium immediate annuities and for annuity bene- 55 fits involving life contingencies arising from other annuities 6 1 with cash settlement options and from guaranteed interest con- 2 tracts with cash settlement options, 3 I = .03 + W (R - .03) 4 where is the lesser of R and .09; 5 is the greater of R and .09; 6 R is the reference interest rate defined in this subsection 7 and W is the weighting factor defined in this subsection, 8 3. For other annuities with cash settlement options and guaran- 9 teed interest contracts with cash settlement options, valued on 10 an issue year basis, except as stated in 2. above, the formula 11 for life insurance stated in 1. above shall apply to annuities 12 and guaranteed interest contracts with guarantee durations in 13 excess of ten (10) years and the formula for single premium 14 immediate annuities stated in 2. above shall apply to annuities 15 and guaranteed interest contracts with guarantee duration of ten 16 (10) years or less, 17 4. For other annuities with no cash settlement options and for 18 guaranteed interest contracts with no cash settlement options, 19 the formula for single premium immediate annuities stated in 2. 20 above shall apply, 21 5. For other annuities with cash settlement options and guaran- 22 teed interest contracts with cash settlement options, valued on 23 a change in fund basis, the formula for single premium immedi- 24 ate annuities stated in 2. above shall apply. 25 b. However, if the calendar year statutory valuation interest rate 26 for any life insurance policies issued in any calendar year deter- 27 mined without reference to this sentence differs from the correspond- 28 ing actual rate for similar policies issued in the immediately pre- 29 ceding calendar year by less than one-half of oneper cent30percent (1/2 of 1%), the calendar year statutory 31 valuation interest rate for such life insurance policies shall be 32 equal to the corresponding actual rate for the immediately preceding 33 calendar year. For purposes of applying the immediately preceding 34 sentence, the calendar year statutory valuation interest rate for 35 life insurance policies issued in a calendar year shall be determined 36 for 1980 (using the reference interest rate defined for 1979) and 37 shall be determined for each subsequent calendar year regardless of 38 when subsection (9)(d) of the standard nonforfeiture law for life 39 insurance becomes operative. 40 C. Weighting factors 41 a. The weighting factors referred to in the formulas stated above 42 are given in the following tables: 43 1. Weighting factors for life insurance: 44 Guarantee 45 Duration Weighting 46 (Years) Factors 47 10 or less .50 48 More than 10, but not more than 20 .45 49 More than 20 .35 50 For life insurance, the guarantee duration is the maximum number 51 of years the life insurance can remain in force on a basis guar- 52 anteed in the policy or under options to convert to plans of 53 life insurance with premium rates or nonforfeiture values, or 54 both, which are guaranteed in the original policy; 55 2. Weighting factor for single premium immediate annuities and 7 1 for annuity benefits involving life contingencies arising from 2 other annuities with cash settlement options and guaranteed 3 interest contracts with cash settlement options: 4 .80 5 3. Weighting factors for other annuities and for guaranteed 6 interest contracts, except as stated in 2. above, shall be as 7 specified in tables (i), (ii) and (iii) below, according to the 8 rules and definitions in (iv), (v) and (vi) below: 9 (i) For annuities and guaranteed interest contracts valued 10 on an issue year basis: 8 1 Guarantee Weighting Factor 2 Duration for Plan Type 3 (Years) A B C 4 5 or less .80 .60 .50 5 More than 5, but not more 6 than 10 .75 .60 .50 7 More than 10, but not more 8 than 20 .65 .50 .45 9 More than 20 .45 .35 .35 10 Plan Type 11 (ii) A B C 12 For annuities and guaranteed 13 interest contracts valued on 14 a change in fund basis, the 15 factors shown in (i) above 16 increased by: .15 .25 .05 17 (iii) 18 For annuities and guaranteed 19 interest contracts valued on 20 an issue year basis (other 21 than those with no cash 22 settlement options) which do 23 not guarantee interest on 24 considerations received more 25 than one (1) year after issue 26 or purchase and for annuities 27 and guaranteed interest 28 contracts valued on a change 29 in fund basis which do not 30 guarantee interest rates on 31 considerations received more 32 than twelve (12) months 33 beyond the valuation date, 34 the factors shown in (i) or 35 derived in (ii) increased by: .05 .05 .05 36 (iv) For other annuities with cash settlement options and 37 guaranteed interest contracts with cash settlement options, 38 the guarantee duration is the number of years for which the 39 contract guarantees interest rates in excess of the calen- 40 dar year statutory valuation interest rate for life insur- 41 ance policies with guarantee duration in excess of twenty 42 (20) years. For other annuities with no cash settlement 43 options and for guaranteed interest contracts with no cash 44 settlement options, the guarantee duration is the number of 45 years from the date of issue or date of purchase to the 46 date annuity benefits are scheduled to commence. 47 (v) Plan type as used in the above tables is defined as 48 follows: 49 Plan Type A: At any time policyholder may withdraw funds 50 only: 51 (1) with an adjustment to reflect changes in interest 52 rates or asset values since receipt of the funds by 53 the insurer; or 54 (2) without such adjustment but in installments over 55 five (5) years or more; or 9 1 (3) as an immediate life annuity; or 2 (4) no withdrawal permitted. 3 Plan Type B: Before expiration of the interest rate guar- 4 antee, policyholder may withdraw funds only: 5 (1) with an adjustment to reflect changes in interest 6 rates or asset values since receipt of the funds by 7 the insurer; or 8 (2) without such adjustment but in installments over 9 five (5) years or more; or 10 (3) no withdrawal permitted. 11 At the end of interest rate guarantee, funds may be with- 12 drawn without such adjustment in a single sum or 13 installments over less than five (5) years. 14 Plan Type C: Policyholder may withdraw funds before expi- 15 ration of interest rate guarantee in a single sum or 16 installments over less than five (5) years, either: 17 (1) without adjustment to reflect changes in interest 18 rates or asset values since receipt of the funds by 19 the insurer; or 20 (2) subject only to a fixed surrender charge stipu- 21 lated in the contract as a percentage of the fund. 22 (vi) An insurer may elect to value guaranteed interest 23 contracts with cash settlement options and annuities with 24 cash settlement options on either an issue year basis or on 25 a change in fund basis. Guaranteed interest contracts with 26 no cash settlement options and other annuities with no cash 27 settlement options must be valued on an issue year basis. 28 As used in this subsection, an issue year basis of valua- 29 tion refers to a valuation basis under which the interest 30 rate used to determine the minimum valuation standard for 31 the entire duration of the annuity or guaranteed interest 32 contract is the calendar year valuation interest rate for 33 the year of issue or year of purchase of the annuity or 34 guaranteed interest contract, and the change in fund basis 35 of valuation refers to a valuation basis under which the 36 interest rate used to determine the minimum valuation stan- 37 dard applicable to each change in the fund held under the 38 annuity or guaranteed interest contract is the calendar 39 year valuation interest rate for the year of the change in 40 the fund. 41 D. Reference interest rate 42 a. The reference interest rate referred to in paragraph B. of this 43 subsection shall be defined as follows: 44 1. For all life insurance, the lesser of the average over a 45 period of thirty-six (36) months and the average over a period 46 of twelve (12) months, ending on June 30 of the calendar year 47 next preceding the year of issue, of Moody's corporate bond 48 yield average -- monthly average corporates, as published by 49 Moody's Investors Service, Inc. 50 b. For single premium immediate annuities and for annuity benefits 51 involving life contingencies arising from other annuities with cash 52 settlement options and guaranteed interest contracts with cash set- 53 tlement options, the average over a period of twelve (12) months, 54 ending on June 30 of the calendar year of issue or year of purchase, 55 of Moody's corporate bond yield average -- monthly average 10 1 corporates, as published by Moody's Investors Service, Inc. 2 c. For other annuities with cash settlement options and guaranteed 3 interest contracts with cash settlement options valued on a year of 4 issue basis, except as stated in b. above, with guarantee duration in 5 excess of ten (10) years, the lesser of the average over a period of 6 thirty-six (36) months and the average over a period of twelve (12) 7 months, ending on June 30 of the calendar year of issue or purchase, 8 of Moody's corporate bond yield average -- monthly average 9 corporates, as published by Moody's Investors Service, Inc. 10 d. For other annuities with cash settlement options and guaranteed 11 interest contracts with cash settlement options, valued on a year of 12 issue basis, except as stated in b. above, with guarantee duration of 13 ten (10) years or less, the average over a period of twelve (12) 14 months, ending June 30 of the calendar year of issue or purchase, of 15 Moody's corporate bond yield average -- monthly average corporates, 16 as published by Moody's Investors Service, Inc. 17 e. For other annuities with no cash settlement options and for guar- 18 anteed interest contracts with no cash settlement options, the aver- 19 age over a period of twelve (12) months, ending on June 30 of the 20 calendar year of issue or purchase, of Moody's corporate bond yield 21 average -- monthly average corporates, as published by Moody's Inves- 22 tors Service, Inc. 23 f. For other annuities with cash settlement options and guaranteed 24 interest contracts with cash settlement options, valued on a change 25 in fund basis, except as stated in b. above, the average over a 26 period of twelve (12) months, ending on June 30 of the calendar year 27 of the change in the fund, of Moody's corporate bond yield average -- 28 monthly average corporates, as published by Moody's Investors Ser- 29 vice, Inc. 30 E. Alternative method for determining reference interest rates 31 a. In the event that Moody's corporate bond yield average -- monthly 32 average corporates is no longer published by Moody's Investors Ser- 33 vice, Inc., or in the event that the national association of insur- 34 ance commissioners determines that Moody's corporate bond yield aver- 35 age -- monthly average corporates, as published by Moody's Investors 36 Service, Inc., is no longer appropriate for the determination of the 37 reference interest rate, then an alternative method for determination 38 of the reference interest rate, which is adopted by the national 39 association of insurance commissioners and approved by regulation 40 promulgated by the director, may be substituted. 41 (5) Commissioners reserve valuation method. 42 (a) Except as otherwise provided in subsections (6) and (10) of this sec- 43 tion reserves according to the commissioners reserve valuation method, for 44 the life insurance and endowment benefits of policies providing for a uni- 45 form amount of insurance and requiring the payment of uniform premiums, 46 shall be the excess, if any, of the present value, at the date of valua- 47 tion, of such future guaranteed benefits provided for by such policies, 48 over the then present value of any future modified net premiums therefor. 49 The modified net premiums for any such policy shall be such uniform per- 50 centage of the respective contract premiums for such benefits that the 51 present value, at the date of issue of the policy, of all such modified 52 net premiums shall be equal to the sum of the then present value of such 53 benefits provided for by the policy and the excess of (i) over (ii) as 54 follows: 55 (i) A net level annual premium equal to the present value, at the 11 1 date of issue, of such benefits provided for after the first policy 2 year, divided by the present value, at the date of issue, of an annu- 3 ity of one (1) per annum payable on the first and each subsequent 4 anniversary of such policy on which a premium falls due; provided, 5 however, that such net level annual premium shall not exceed the net 6 level annual premium on the nineteen (19) year premium whole life 7 plan for insurance of the same amount at an age one (1) year higher 8 than the age at issue of such policy. 9 (ii) A net one (1) year term premium for such benefits provided for 10 in the first policy year. 11 Provided that for any life insurance policy issued on or after January 1, 12 1986, for which the contract premium in the first policy year exceeds that 13 of the second year and for which no comparable additional benefit is pro- 14 vided in the first year for such excess and which provides an endowment 15 benefit or a cash surrender value or a combination thereof in an amount 16 greater than such excess premium, the reserve according to the commission- 17 ers reserve valuation method as of any policy anniversary occurring on or 18 before the assumed ending date defined herein as the first policy anniver- 19 sary on which the sum of any endowment benefit and any cash surrender 20 value then available is greater than such excess premium shall, except as 21 otherwise provided in subsection (10), be the greater of the reserve as of 22 such policy anniversary calculated as described in the preceding paragraph 23 and the reserve as of such policy anniversary calculated as described in 24 that paragraph, but with (a) the value defined in subparagraph (i) of that 25 paragraph being reduced by fifteenper centpercent 26 (15%) of the amount of such excess first year premium, (b) all 27 present values of benefits and premiums being determined without reference 28 to premiums or benefits provided for by the policy after the assumed end- 29 ing date, (c) the policy being assumed to mature on such date as an endow- 30 ment, and (d) the cash surrender value provided on such date being consid- 31 ered as an endowment benefit. In making the above comparison the mortality 32 and interest basis stated in subsection (4) and (4b) shall be used. 33 (b) Reserves according to the commissioners reserve valuation method for: 34 (i) Life insurance policies providing for a varying amount of 35 insurance or requiring the payment of varying premiums, 36 (ii) Group annuity and pure endowment contracts purchased under a 37 retirement plan or plan of deferred compensation, established or 38 maintained by an employer (including a partnership or sole propri- 39 etorship) or by an employee organization, or by both, other than a 40 plan providing individual retirement accounts or individual retire- 41 ment annuities under section 408 of the Internal Revenue Code, as now 42 or hereafter amended, 43 (iii) Disability and accidental death benefits in all policies and 44 contracts, and 45 (iv) All other benefits, except life insurance and endowment bene- 46 fits in life insurance policies and benefits provided by all other 47 annuity and pure endowment contracts, 48 shall be calculated by a method consistent with the principles of subsec- 49 tion (5)(a) of this section, except that any extra premiums charged 50 because of impairments or special hazards shall be disregarded in the 51 determination of modified net premiums. 52 (6) Individual annuity and pure endowment reserves. 53 (a) This subsection (6) shall apply to all annuity and pure endowment 54 contracts other than group annuity and pure endowment contracts purchased 55 under a retirement plan or plan of deferred compensation, established or 12 1 maintained by an employer (including a partnership or sole proprietorship) 2 or by an employee organization, or by both, other than a plan providing 3 individual retirement accounts or individual retirement annuities under 4 section 408 of the Internal Revenue Code, as now or hereafter amended. 5 (b) Reserves according to the commissioners annuity reserve method for 6 benefits under annuity or pure endowment contracts, excluding any disabil- 7 ity and accidental death benefits in such contracts, shall beequal8to the accumulation up to the date of valuation at the accumulation inter-9est rate specified in the contract of the actual percentages of the actual10net considerations credited to the contract prior to the date of valuation11for benefits, other than disability and accidental death benefits,12decreased by the amount appropriate according to the terms of the contract13to reflect any prior withdrawals from or partial surrenders of the con-14tract and increased by any existing additional amounts credited by the15insurer to the contract. Additional amounts credited by the insurer to the16contract shall include any dividends declared on the contract17 the greatest of the respective excesses of the present values, at the date 18 of valuation, of the future guaranteed benefits, including guaranteed non- 19 forfeiture benefits, provided for by such contracts at the end of each 20 respective contract year, over the present value, at the date of valua- 21 tion, of any future valuation considerations derived from future gross 22 considerations, required by the terms of such contract, that become pay- 23 able prior to the end of such respective contract year. The future guaran- 24 teed benefits shall be determined by using the mortality table, if any, 25 and the interest rate, or rates, specified in such contracts for determin- 26 ing guaranteed benefits. The valuation considerations are the portions of 27 the respective gross considerations applied under the terms of such con- 28 tracts to determine nonforfeiture values . 29 (7) Minimum aggregate reserves. In no event shall an insurer's aggregate 30 reserves for all life insurance policies, excluding disability and accidental 31 death benefits, issued on or after the operative date of section 41-1927, 32 Idaho Code, be less than the aggregate reserves calculated in accordance with 33 the methods set forth in subsections (5), (6), (10) and (11) of this section 34 and the mortality table or tables and rate or rates of interest used in calcu- 35 lating nonforfeiture benefits for such policies. 36 (8) Optional reserve basis. 37 (a) Reserves for all policies and contracts issued prior to the operative 38 date of section 41-1927, Idaho Code, may be calculated, at the option of 39 the insurer, according to any standards which produce greater aggregate 40 reserves for all such policies and contracts than the minimum reserves 41 required by the laws in effect immediately prior to such date. 42 (b) For any category of policies, contracts or benefits specified in sub- 43 sections (4), (4a) and (4b) of this section, issued on or after the opera- 44 tive date of section 41-1927, Idaho Code, (the standard nonforfeiture 45 law), reserves may be calculated, at the option of the insurer, according 46 to any standard or standards which produce greater aggregate reserves for 47 such category than those calculated according to the minimum standard 48 herein provided, but the rate or rates of interest used for policies and 49 contracts, other than annuity and pure endowment contracts, shall not be 50 higher than the corresponding rate or rates of interest used in calculat- 51 ing any nonforfeiture benefits provided for therein. 52 (9) Lower valuations. An insurer which at any time had adopted any stan- 53 dard of valuation producing greater aggregate reserves than those calculated 54 according to the minimum standard herein provided may, with the approval of 55 the director, adopt any lower standard of valuation, but not lower than the 13 1 minimum herein provided. 2 (10) Minimum reserve. If in any contract year the gross premium charged by 3 any life insurer on any policy or contract is less than the valuation net pre- 4 mium for the policy or contract calculated by the method used in calculating 5 the reserve thereon but using the minimum valuation standards of mortality and 6 rate of interest the minimum reserve required for such policy or contract 7 shall be the greater of either the reserve calculated according to the mortal- 8 ity table, rate of interest, and method actually used for such policy or con- 9 tract, or the reserve calculated by the method actually used for such policy 10 or contract but using the minimum valuation standards of mortality and rate of 11 interest and replacing the valuation net premium by the actual gross premium 12 in each contract year for which the valuation net premium exceeds the actual 13 gross premium. The minimum valuation standards of mortality and rate of inter- 14 est referred to in this subsection are those standards stated in subsections 15 (4) and (4b). 16 Provided that for any life insurance policy issued on or after January 1, 17 1986, for which the gross premium in the first policy year exceeds that of the 18 second year and for which no comparable additional benefit is provided in the 19 first year for such excess and which provides an endowment benefit or a cash 20 surrender value or a combination thereof in an amount greater than such excess 21 premium, the foregoing provisions of this subsection (10) shall be applied as 22 if the method actually used in calculating the reserve for such policy were 23 the method described in subsection (5), ignoring the second paragraph of sub- 24 section (5). The minimum reserve at each policy anniversary of such a policy 25 shall be the greater of the minimum reserve calculated in accordance with sub- 26 section (5), including the second paragraph of that subsection, and the mini- 27 mum reserve calculated in accordance with this subsection (10). 28 (11) In the case of any plan of life insurance which provides for future 29 premium determination, the amounts of which are to be determined by the 30 insurer based on the then estimates of future experience, or in the case of 31 any plan of life insurance or annuity which is of such a nature that the min- 32 imum reserves cannot be determined by the methods described in subsections 33 (5), (6) and (10), the reserves which are held under any such plan must: 34 (a) Be appropriate in relation to the benefits and the pattern of pre- 35 miums for that plan, and 36 (b) Be computed by a method which is consistent with the principles of 37 this standard valuation law, 38 as determined by rules promulgated by the director. 39 (12) Actuarial opinion of reserves. 40 (a) Every life insurance company doing business in this state shall annu- 41 ally submit the opinion of a qualified actuary as to whether the reserves 42 and related actuarial items held in support of the policies and contracts 43 specified by the director by rule are computed appropriately, are based on 44 assumptions which satisfy contractual provisions, are consistent with 45 prior reported amounts and comply with applicable laws of this state. The 46 director by rule shall define the specifics of this opinion and add any 47 other items deemed to be necessary to its scope. 48 (b) Actuarial analysis of reserves and assets supporting such reserves. 49 (i) Every life insurance company, except as exempted by or pursuant 50 to rule, shall also annually include in the opinion required by para- 51 graph (a) of this subsection, an opinion of the same qualified actu- 52 ary as to whether the reserves and related actuarial items held in 53 support of the policies and contracts specified by the director by 54 rule, when considered in light of the assets held by the company with 55 respect to the reserves and related actuarial items, including, but 14 1 not limited to, the investment earnings on the assets and the consid- 2 erations anticipated to be received and retained under the policies 3 and contracts, make adequate provision for the company's obligations 4 under the policies and contracts including, but not limited to, the 5 benefits under and expenses associated with the policies and con- 6 tracts. 7 (ii) The director may provide by rule for a transition period for 8 establishing any higher reserves which the qualified actuary may deem 9 necessary in order to render the opinion required in this section. 10 (c) Requirements for opinion in paragraph (b) of this subsection. Each 11 opinion required in paragraph (b) of this subsection shall be governed by 12 the following provisions: 13 (i) A memorandum, in form and substance acceptable to the director 14 as specified by rule, shall be prepared to support each actuarial 15 opinion. 16 (ii) If the insurance company fails to provide a supporting memoran- 17 dum at the request of the director within a period specified by rule 18 or the director determines that the supporting memorandum provided by 19 the insurance company fails to meet the standards prescribed by the 20 rules or otherwise unacceptable to the director, the director may 21 engage a qualified actuary at the expense of the company to review 22 the opinion and prepare such supporting memorandum as is required by 23 the director. 24 (d) Requirements for all opinions. Every opinion shall be governed by 25 the following provisions: 26 (i) The opinion shall be submitted with the annual statement 27 reflecting the valuation of such reserve liabilities for each year 28 ending on or after December 31, 1995. 29 (ii) The opinion shall apply to all business in force including 30 individual and group health insurance plans, in form and substance 31 acceptable to the director as specified by rule. 32 (iii) The opinion shall be based on standards adopted from time to 33 time by the actuarial standards board and on such additional stan- 34 dards as the director may by rule prescribe. 35 (iv) In the case of an opinion required to be submitted by a for- 36 eign or alien company, the director may accept the opinion filed by 37 that company with the insurance supervisory official of another state 38 if the director determines that the opinion reasonably meets the 39 requirements applicable to a company domiciled in this state. 40 (v) For the purposes of this section, "qualified actuary" means a 41 member in good standing of the American academy of actuaries who 42 meets the requirements set forth in such regulations. 43 (vi) Except in cases of fraud or willful misconduct, the qualified 44 actuary shall not be liable for damages to any person (other than the 45 insurance company and the director) for any act, error, omission, 46 decision or conduct with respect to the actuary's opinion. 47 (vii) Disciplinary action by the director against the company or the 48 qualified actuary shall be defined by rule by the director. 49 (viii) Any memorandum in support of the opinion, and any other mate- 50 rial provided by the company to the director in connection therewith, 51 shall be kept confidential by the director and shall not be made pub- 52 lic and shall not be subject to subpoena, other than for the purpose 53 of defending an action seeking damages from any person by reason of 54 any action required in this section or by rule promulgated hereunder; 55 provided however, that the memorandum or other material may otherwise 15 1 be released by the director (A) with the written consent of the com- 2 pany or (B) to the American academy of actuaries upon request stating 3 that the memorandum or other material is required for the purpose of 4 professional disciplinary proceedings and setting forth procedures 5 satisfactory to the director for preserving the confidentiality of 6 the memorandum or other material. Once any portion of the confiden- 7 tial memorandum is cited by the company in its marketing or is cited 8 before any governmental agency other than a state insurance depart- 9 ment or is released by the company to the news media, all portions of 10 the confidential memorandum shall no longer be confidential.
STATEMENT OF PURPOSE
RS08866
The proposed amendment to Idaho Code 41-612 clarifies the intent
of the existing legislation that individual annuity and pure
endowment reserves be calculated according to CARVM (Commissioners
Annuity Reserve Valuation Method). The amendment revises the Idaho
Code to clearly define CARVM in accordance with the definition set
by the NAIC (National Association of Insurance Commissioners);
thereby eliminating any ambiguity regarding what method of
reserving is required.
FISCAL NOTE
None.
CQNTACT: M. Allyn Dingel, Jr.
P.O. Box 1539
Boise, Idaho 83701
(208) 343-5454
STATEMENT OF PURPOSE/ FISCAL NOTE Bill No. H 171
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