PRIOR PRINTER'S NO. 1424 PRINTER'S NO. 1661
No. 1162 Session of 1979
INTRODUCED BY COPPERSMITH, LYNCH AND HOLL, DECEMBER 5, 1979
SENATOR HANKINS, INSURANCE, AS AMENDED, MARCH 24, 1980
AN ACT
1 Amending the act of May 17, 1921 (P.L.789, No.285), entitled, as
2 amended, "An act relating to insurance; establishing an
3 insurance department; and amending, revising, and
4 consolidating the law relating to the licensing,
5 qualification, regulation, examination, suspension, and
6 dissolution of insurance companies, Lloyds associations,
7 reciprocal and inter-insurance exchanges, and certain
8 societies and orders, the examination and regulation of fire
9 insurance rating bureaus, and the licensing and regulation of
10 insurance agents and brokers; the service of legal process
11 upon foreign insurance companies, associations or exchanges;
12 providing penalties, and repealing existing laws," further
13 regulating the computation of the reserve liability of life
14 insurance policies and annuity contracts.
15 The General Assembly of the Commonwealth of Pennsylvania
16 hereby enacts as follows:
17 Section 1. Section 301, act of May 17, 1921 (P.L.789, No.
18 285), known as "The Insurance Department Act of one thousand
19 nine hundred and twenty-one," amended May 1, 1945 (P.L.346,
20 No.145), May 25, 1951 (P.L.406, No.94), August 14, 1959
21 (P.L.721, No.253), July 31, 1963 (P.L.429, No.224) and June 23,
22 1976 (P.L.403, No.90), is amended to read:
23 Section 301. Computation of Reserve Liability.--(a) The
1 Insurance Commissioner shall each year value, or cause to be
2 valued, the reserve liabilities (hereinafter called reserves or
3 net value), as of the thirty-first day of December of the
4 preceding year, for all outstanding life insurance policies and
5 annuity and pure endowment contracts of every life insurance
6 company doing business in this Commonwealth, except that in the
7 case of any company organized under the laws of any foreign
8 country, such valuation shall be limited to its United States
9 business in accordance with the terms of the policy, contract,
10 and rules following, and may certify the amount of any such
11 reserves, specifying the mortality table or tables, rate or
12 rates of interest and methods (net level premium method or
13 other) used in the calculation of such reserves. In calculating
14 such reserves, he may use group methods and approximate averages
15 for fractions of a year or otherwise.
16 (b) This subsection shall apply only to policies and
17 contracts issued prior to the operative date of section four
18 hundred and ten A (the Standard Non-forfeiture Law) of an act,
19 approved the seventeenth day of May, one thousand nine hundred
20 and twenty-one (Pamphlet Laws, six hundred eighty-two), as
21 amended.
22 (1) The net value of all outstanding policies of life
23 insurance, issued by the company prior to the first day of
24 January, one thousand eight hundred and ninety, shall be
25 computed upon the basis of the American experience table of
26 mortality, with interest at not less than four and one-half and
27 not more than six per centum per annum.
28 (2) The net value of all outstanding policies, issued
29 between the first day of January, one thousand eight hundred and
30 ninety, and the first day of January, one thousand nine hundred
19790S1162B1661 - 2 -
1 and three, on the combined experience or actuaries' table of
2 mortality, with interest at four per centum per annum.
3 (3) The net value of all outstanding policies of life
4 insurance, issued on and after the first day of January,
5 nineteen hundred and three, on the American experience table of
6 mortality, with interest at three and one-half per centum per
7 annum: Provided, however, That any company may value its group
8 term insurance policies, under which premium rates are not
9 guaranteed for a period in excess of five years, according to
10 the American men ultimate table of mortality, with interest at
11 three and one-half per centum per annum.
12 (4) The net value of all policies of life insurance, issued
13 on and after January first, one thousand nine hundred and
14 twenty-one, where the premiums are payable monthly or oftener,
15 shall be valued according to the American experience table of
16 mortality, with interest at three and one-half per centum per
17 annum. But any company may voluntarily value its industrial
18 policies according to the standard industrial mortality table,
19 with interest at three and one-half per centum per annum.
20 (5) The net value of a policy at any time shall be taken to
21 be the single net premium which will, at that time, affect the
22 insurance, less the value at that time of the future net
23 premiums called for by the table of mortality and rate of
24 interest designated.
25 (6) Except as otherwise provided in subparagraph (B) of
26 paragraph (1) of subsection (c) of this section for group
27 annuity and pure endowment contracts, the legal minimum standard
28 for valuation of annuities issued after January one, one
29 thousand nine hundred and twelve, shall be McClintock's table of
30 mortality among annuitants, with interest at three and one-half
19790S1162B1661 - 3 -
1 per centum per annum; [but] however, (i) for annuities and pure
2 endowments purchased under group annuity and pure endowment
3 contracts the legal minimum standard may, at the option of the
4 company, be the 1971 Group Annuity Mortality Table or any
5 modification of this table approved by the Insurance
6 Commissioner, with interest at five per centum per annum, and
7 (ii) annuities deferred ten or more years, and written in
8 connection with life or term insurance, shall be valued upon the
9 same mortality table from which the consideration or premiums
10 were computed, with interest not higher than three and one-half
11 per centum per annum.
12 (7) Any such company may, however, at any time elect under
13 any of its policies of life insurance to reserve on the American
14 experience table of mortality, with a lower rate of interest,
15 but at a rate not less than two per centum, or on the American
16 men ultimate table of mortality (with such modification and
17 extension below age twenty as may be approved by the Insurance
18 Commissioner), with interest at a rate not more than three and
19 one-half per centum and not less than two per centum and its
20 obligations under such policies shall be valued accordingly.
21 (8) On or after the operative date of section four hundred
22 and ten A (the Standard Non-forfeiture Law) of an act, approved
23 the seventeenth day of May, one thousand nine hundred and
24 twenty-one (Pamphlet Laws, six hundred eighty-two), as amended,
25 reserves for any policies or contracts may be calculated, at the
26 option of the company, according to any standard which produces
27 greater aggregate reserves for all such policies or contracts
28 than the standard in use by such company immediately prior to
29 the exercise of the option; and, with the approval of the
30 Insurance Commissioner, any company which at any time shall have
19790S1162B1661 - 4 -
1 adopted any standard of valuation producing greater aggregate
2 reserves than the minimum reserves above provided may adopt any
3 lower standard of valuation for any policies or contracts but
4 not lower than the minimum reserves above provided nor lower
5 than the standard specified in such policies or contracts or the
6 standard used by such company for the determination of the non-
7 forfeiture values thereof.
8 (c) This subsection shall apply only to policies and
9 contracts issued on or after the operative date of section four
10 hundred and ten A (the Standard Non-forfeiture Law) of an act,
11 approved the seventeenth day of May, one thousand nine hundred
12 and twenty-one (Pamphlet Laws, six hundred eighty-two), as
13 amended, except as otherwise provided in subparagraph (B) of
14 paragraph (1) of this subsection for group annuity and pure
15 endowment contracts issued prior to such operative date.
16 (1) (A) Except as otherwise provided in subparagraph (B) of
17 this paragraph (1), the minimum standard for the valuation of
18 all such policies and contracts shall be the Commissioners
19 reserve valuation [method] methods defined in [paragraph]
20 paragraphs (2) and (3) of this subsection (c), and in section
21 303, three and one-half per centum (3 1/2%) interest except as <--
22 otherwise provided in (iii) of this subparagraph (A) FOR <--
23 POLICIES AND CONTRACTS OTHER THAN GROUP ANNUITY AND PURE
24 ENDOWMENT CONTRACTS AND AS PROVIDED IN (III) OF THIS
25 SUBPARAGRAPH (A) FOR GROUP ANNUITY AND PURE ENDOWMENT CONTRACTS,
26 or in the case of policies and contracts, other than annuity and
27 pure endowment contracts, issued on or after [the effective date
28 of this amending act of 1976 and prior to January 1, 1986] June
29 23, 1976, four per centum (4%) interest for such policies issued
30 prior to the effective date of this amendatory act of 1979 and <--
19790S1162B1661 - 5 -
1 four and one-half per centum (4 1/2%) interest for such policies
2 issued on or after the effective date of this amendatory act of
3 1979, JANUARY 1, 1979 AND FOUR AND ONE-HALF PER CENTUM (4 1/2%) <--
4 INTEREST OR SUCH HIGHER RATE OF INTEREST AS MAY BE APPROVED FROM
5 TIME TO TIME BY THE INSURANCE COMMISSIONER FOR SUCH POLICIES
6 ISSUED ON OR AFTER JANUARY 1, 1979, and the following tables:
7 (i) For all Ordinary policies of life insurance issued on
8 the standard basis, excluding any disability and accidental
9 death benefits in such policies, the Commissioners 1941 Standard
10 Ordinary Mortality Table for such policies issued prior to the
11 operative date of clause (2) of subsection (d) of section 410 A
12 (the Standard Non-forfeiture Law) of "The Insurance Company Law
13 of 1921," and the Commissioners 1958 Standard Ordinary Mortality
14 Table for such policies issued on or after such operative date:
15 Provided, That for any category of such policies issued on
16 female risks, all modified net premiums and present values
17 referred to in this section may be calculated according to any
18 age not more than [three] six years younger than the actual age
19 of the insured.
20 (ii) For all Industrial life insurance policies issued on
21 the standard basis, excluding any disability and accidental
22 death benefits in such policies, the 1941 Standard Industrial
23 Mortality Table for such policies issued prior to the operative
24 date of paragraph (3) of subsection (d) of section 410-A (The
25 Standard Non-forfeiture Law) of "The Insurance Company Law of
26 1921," and the Commissioners 1961 Standard Industrial Mortality
27 Table for such policies issued on or after such operative date.
28 (iii) For Individual Annuity and Pure Endowment contracts,
29 excluding any disability and accidental death benefits in such
30 contracts, the 1937 Standard Annuity Mortality Table, or at the
19790S1162B1661 - 6 -
1 option of the company, the Annuity Mortality Table for 1949
2 Ultimate or any modification of either of these tables approved
3 by the Insurance Commissioner.
4 For ALL ANNUITIES AND PURE ENDOWMENTS PURCHASED UNDER Group <--
5 Annuity and Pure Endowment contracts, excluding any disability
6 and accidental death benefits in such contracts, either the
7 Group Annuity Mortality Table for 1951, or any modification of
8 such table approved by the Insurance Commissioner, WITH INTEREST <--
9 AT THREE AND ONE-HALF PER CENTUM (3 1/2%) or, at the option of
10 the company, the 1971 Group Annuity Mortality Table or any
11 modification of this table approved by the Insurance
12 Commissioner, in which event five per centum (5%) interest shall
13 be used in determining the minimum standard for the valuation of
14 such contracts; or at the option of the company, any of the
15 tables or modifications of tables specified for Individual
16 Annuity and Pure Endowment contracts.
17 (iv) For Total and Permanent Disability benefits in or
18 supplementary to Ordinary policies or contracts, for policies or
19 contracts issued on or after January 1, 1966, the tables of
20 Period 2 disablement rates and the 1930 and 1950 termination
21 rates of the 1952 Disability Study of the Society of Actuaries,
22 with due regard to the type of benefit; for policies or
23 contracts issued on or after January 1, 1961, and prior to
24 January 1, 1966, either such tables or, at the option of the
25 company, the Class (3) Disability Table (1926) and for policies
26 issued prior to January 1, 1961, the Class (3) Disability Table
27 (1926). Any such table shall, for active lives, be combined with
28 a mortality table permitted for calculating the reserves for
29 life insurance policies.
30 (v) For Accidental Death benefits in or supplementary to
19790S1162B1661 - 7 -
1 policies, for policies issued on or after January 1, 1966, the
2 1959 Accidental Death Benefits Table; for policies issued on or
3 after January 1, 1961, and prior to January 1, 1966, either such
4 table or, at the option of the company, the Inter-Company Double
5 Indemnity Mortality Table; and for policies issued prior to
6 January 1, 1961, the Inter-Company Double Indemnity Mortality
7 Table. Either table shall be combined with a mortality table
8 permitted for calculating the reserves for life insurance
9 policies.
10 (vi) For Group Life insurance, life insurance issued on the
11 substandard basis and other special benefits, such tables as may
12 be approved by the Insurance Commissioner.
13 (B) The minimum standard for valuation of all individual
14 annuity and pure endowment contracts issued on or after the
15 operative date of this subparagraph (B), as defined herein, and
16 for all annuities and pure endowments purchased on or after such
17 operative date under group annuity and pure endowment contracts,
18 shall be the Commissioner's reserve valuation [method] methods
19 defined in [paragraph] paragraphs (2) and (3) of this subsection
20 (c) and the following tables and interest rates:
21 (i) For individual annuity and pure endowment contracts
22 issued prior to [January 1, 1986] the effective date of this <--
23 amendatory act of 1979 JANUARY 1, 1979, excluding any disability <--
24 and accidental death benefits in such contracts, the 1971
25 Individual Annuity Mortality Table, or any modification of this
26 table approved by the Insurance Commissioner; and six per centum
27 (6%) interest for single premium immediate annuity contracts,
28 and four per centum (4%) interest for all other individual
29 annuity and pure endowment contracts.
30 [(ii) For individual annuity and pure endowment contracts
19790S1162B1661 - 8 -
1 issued on or after January 1, 1986, excluding any disability and
2 accidental death benefits in such contracts, the 1971 Individual
3 Annuity Mortality Table, or any modification of this table
4 approved by the Insurance Commissioner, and three and one-half
5 per centum (3 1/2%) interest.]
6 (ii) For individual single premium immediate annuity
7 contracts issued on or after the effective date of this <--
8 amendatory act of 1979 JANUARY 1, 1979, excluding any disability <--
9 and accidental death benefits in such contracts, the 1971
10 Individual Annuity Mortality Table, or any modification of this
11 table approved by the Insurance Commissioner, and seven and one-
12 half per centum (7 1/2%) interest OR SUCH HIGHER RATE OF <--
13 INTEREST AS MAY BE APPROVED FROM TIME TO TIME BY THE INSURANCE
14 COMMISSIONER.
15 (iii) For individual annuity and pure endowment contracts
16 issued on or after the effective date of this amendatory act of <--
17 1979 JANUARY 1, 1979, other than single premium immediate <--
18 annuity contracts, excluding any disability and accidental death
19 benefits in such contracts, the 1971 Individual Annuity
20 Mortality Table, or any modification of this table approved by
21 the Insurance Commissioner, and five and one-half per centum (5
22 1/2%) interest for single premium deferred annuity and pure
23 endowment contracts and four and one-half per centum (4 1/2%)
24 interest for all other such individual annuity and pure
25 endowment contracts OR SUCH HIGHER RATE OR RATES OF INTEREST AS <--
26 MAY BE APPROVED FROM TIME TO TIME BY THE INSURANCE COMMISSIONER.
27 [(iii)] (iv) For all annuities and pure endowments purchased
28 prior to [January 1, 1986] the effective date of this amendatory <--
29 act of 1979 JANUARY 1, 1979 under group annuity and pure <--
30 endowment contracts, excluding any disability and accidental
19790S1162B1661 - 9 -
1 death benefits purchased under such contracts, the 1971 Group
2 Annuity Mortality Table, or any modification of this table
3 approved by the Insurance Commissioner, and six per centum (6%)
4 interest.
5 [(iv) For all annuities and pure endowments purchased on or
6 after January 1, 1986 under group annuity and pure endowment
7 contracts, excluding any disability and accidental death
8 benefits purchased under such contracts, the 1971 Group Annuity
9 Mortality Table, or any modification of this table approved by
10 the Insurance Commissioner, and three and one-half per centum (3
11 1/2%) interest.]
12 (v) For all annuities and pure endowments purchased on or
13 after the effective date of this amendatory act of 1979 JANUARY <--
14 1, 1979 under group annuity and pure endowment contracts,
15 excluding any disability and accidental death benefits purchased
16 under such contracts, the 1971 Group Annuity Mortality Table, or
17 any modification of this table approved by the Insurance
18 Commissioner and seven and one-half per centum (7 1/2%) interest
19 OR SUCH HIGHER RATE OF INTEREST AS MAY BE APPROVED FROM TIME TO <--
20 TIME BY THE INSURANCE COMMISSIONER.
21 After [the effective date of this act] June 23, 1976, a
22 company may file with the Insurance Commissioner a written
23 notice of its election to comply with the provisions of this
24 subparagraph (B) after a specified date before January 1, 1979,
25 which shall be the operative date of this subparagraph (B) for
26 such company: Provided, That a company may elect a different
27 operative date for individual annuity and pure endowment
28 contracts from that elected for group annuity and pure endowment
29 contracts. Whenever a company makes no such election, the
30 operative date of this subparagraph (B) for such company shall
19790S1162B1661 - 10 -
1 be January 1, 1979.
2 (2) [Reserves] Except as otherwise provided in paragraph (3)
3 of this subsection (c), and in section 303, reserves according
4 to the Commissioners reserve valuation method, for the life
5 insurance and endowment benefits of policies providing for a
6 uniform amount of insurance and requiring the payment of uniform
7 premiums shall be the excess, if any, of the present value, at
8 the date of valuation, of such future guaranteed benefits
9 provided for by such policies, over the then present value of
10 any future modified net premiums therefor. The modified net
11 premiums for any such policy shall be such uniform percentage of
12 the respective contract premiums for such benefits that the
13 present value, at the date of issue of the policy, of all such
14 modified net premiums shall be equal to the sum of the then
15 present value of such benefits provided for by the policy and
16 the excess of (A) over (B), as follows:
17 (A) A net level annual premium equal to the present value,
18 at the date of issue, of such benefits provided for after the
19 first policy year, divided by the present value, at the date of
20 issue, of an annuity of one per annum payable on the first and
21 each subsequent anniversary of such policy on which a premium
22 falls due: Provided, however, That such net level annual premium
23 shall not exceed the net level annual premium on the nineteen
24 year premium whole life plan for insurance of the same amount at
25 an age one year higher than the age at issue of such policy.
26 (B) A net one year term premium for such benefits provided
27 for in the first policy year.
28 Reserves, according to the Commissioners reserve valuation
29 method for (i) life insurance policies providing for a varying
30 amount of insurance or requiring the payment of varying
19790S1162B1661 - 11 -
1 premiums, (ii) group annuity and pure endowment contracts
2 purchased under a retirement plan or plan of deferred
3 compensation, established or maintained by an employer
4 (including a partnership or sole proprietorship) or by an
5 employe organization, or by both, other than a plan providing
6 individual retirement, accounts or individual retirement
7 annuities under section 408 of the Internal Revenue Code, as now
8 or hereafter amended, (iii) disability and accidental death
9 benefits in all policies and contracts, and (iv) all other
10 benefits, except life insurance and endowment benefits in life
11 insurance policies, and benefits provided by all other annuity
12 and pure endowment contracts shall be calculated by a method
13 consistent with the principles of this paragraph (2) of this
14 subsection (c), except that any extra premiums charged because
15 of impairments or special hazards shall be disregarded in the
16 determination of modified net premiums.
17 (3) This section shall apply to all annuity and pure
18 endowment contracts other than group annuity and pure endowment
19 contracts purchased under a retirement plan or plan of deferred
20 compensation, established or maintained by an employer
21 (including a partnership or sole proprietorship) or be an
22 employe organization, or by both, other than a plan providing
23 individual retirement accounts or individual retirement
24 annuities under section 408 of the Internal Revenue Code, as now
25 or hereafter amended.
26 Reserves according to the commissioners annuity reserve
27 method for benefits under annuity or pure endowment contracts,
28 excluding any disability and accidental death benefits in such
29 contracts, shall be the greatest of the respective excesses of
30 the present values, at the date of valuation, of the future
19790S1162B1661 - 12 -
1 guaranteed benefits, including guaranteed non-forfeiture
2 benefits, provided for by such contracts at the end of each
3 respective contract year, over the present value, at the date of
4 valuation, of any future valuation considerations derived from
5 future gross considerations, required by the terms of such
6 contract, that become payable prior to the end of such
7 respective contract year. The future guaranteed benefits shall
8 be determined by using the mortality table, if any, and the
9 interest rate, or rates, specified in such contracts for
10 determining guaranteed benefits. The valuation considerations
11 are the portions of the respective gross considerations applied
12 under the terms of such contracts to determine nonforfeiture
13 values.
14 [(3)] (4) In no event shall a company's aggregate reserves
15 for all life insurance policies, excluding disability and
16 accidental death benefits, be less than the aggregate reserves
17 calculated in accordance with the [method] methods set forth in
18 [paragraph (2)] paragraphs (2) and (3) of this subsection (c),
19 and in section 303, and the mortality table or tables and rate
20 or rates of interest used in calculating non-forfeiture benefits
21 for such policies.
22 [(4)] (5) Reserves for any category of policies, contracts
23 or benefits as established by the Insurance Commissioner, may be
24 calculated, at the option of the company, according to any
25 standards which produce greater aggregate reserves for such
26 category than those calculated according to the minimum standard
27 herein provided, but the rate or rates of interest used for
28 policies and contracts other than annuity and pure endowment
29 contracts shall not be higher than the corresponding rate or
30 rates of interest used in calculating any non-forfeiture
19790S1162B1661 - 13 -
1 benefits provided for therein.[: Provided, however, That
2 reserves for participating life insurance policies may, with the
3 consent of the Insurance Commissioner, be calculated according
4 to a rate of interest lower than the rate of interest used in
5 calculating the non-forfeiture benefits in such policies, with
6 the further proviso that if such lower rate differs from the
7 rate used in the calculation of the non-forfeiture benefits by
8 more than one-half per centum (1/2%) the company issuing such
9 policies shall file with the Insurance Commissioner a plan
10 providing for such equitable increases, if any, in the cash
11 surrender values and non-forfeiture benefits in such policies as
12 the Insurance Commissioner shall approve.
13 (5)] (6) Any such company which at any time shall have
14 adopted any standard of valuation producing greater aggregate
15 reserves than those calculated according to the minimum standard
16 herein provided may, with the approval of the Insurance
17 Commissioner, adopt any lower standard of valuation, but not
18 lower than the minimum herein provided.
19 (d) The aggregate reserves or net value so ascertained of
20 the policies and contracts of any such life insurance company
21 shall be deemed its reserve liability, to provide for which it
22 shall hold funds in secure investments of an amount equal to
23 such net value above all its other liabilities. The Insurance
24 Commissioner shall, after having determined as above the net
25 value of all the policies and contracts in force, see that the
26 company has that amount in safe legal securities, after all its
27 other debts and claims against it have been provided for.
28 (e) The provisions of this section for the valuation of
29 policies and for premium rates shall not apply to companies or
30 associations transacting business on the mutual assessment plan.
19790S1162B1661 - 14 -
1 Section 2. Section 303 of the act, amended May 1, 1945
2 (P.L.346, No.145), is amended to read:
3 Section 303. [Deficiency] Minimum Reserve Requirements of
4 Companies Charging Less Than Net Premiums Computed on Mortality
5 Tables.--If in any contract year the gross premium charged by
6 any life insurance company on any policy or contract is less
7 than the valuation net premium for the policy or contract
8 [according to the mortality table, rate of interest and]
9 calculated by the method used in calculating the reserve
10 thereon[, there shall be maintained on such policy or contract a
11 deficiency reserve in addition to all other reserves required by
12 law. For each such policy or contract the deficiency reserve
13 shall be the present value, according to such standard, of an
14 annuity of the difference between such net premium and the
15 premium charged for such policy or contract, running for the
16 remainder of the premium-paying period. At the option of the
17 company the net premium for the purpose of this section for all
18 policies and contracts issued prior to the operative date of
19 section four hundred and ten A (The Standard Non-forfeiture Law)
20 of an act, approved the seventeenth day of May, one thousand
21 nine hundred and twenty-one (Pamphlet Laws, six hundred eighty-
22 two), as amended, shall be computed according to the table of
23 mortality and rate of interest prescribed for such insurance in
24 clauses (1), (2), (3) or (4) of subsection (b) of section three
25 hundred and one of this act, except that it shall be computed
26 according to the table of mortality and rate of interest
27 specified in the policy as the basis of the reserve for such
28 insurance, if the table so specified is the American men
29 ultimate table of mortality.] but using the minimum valuation
30 standards of mortality and rate of interest, The THE minimum <--
19790S1162B1661 - 15 -
1 reserve required for such policy or contract shall be the
2 greater of either the reserve calculated according to the
3 mortality table, rate of interest, and method actually used for
4 such policy or contract, or the reserve calculated by the method
5 actually used for such policy or contract but using the minimum
6 standards of mortality and rate of interest and replacing the
7 valuation net premium by the actual gross premium in each
8 contract year for which the valuation net premium exceeds the
9 actual gross premium.
10 Section 3. This act shall take effect immediately.
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