Regular Session 2015-2016 House Bill 1766 P.N. 2862

PRINTER'S NO. 2862

THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

No.

1766

Session of

2015

INTRODUCED BY PICKETT AND DeLUCA, FEBRUARY 17, 2016

REFERRED TO COMMITTEE ON INSURANCE, FEBRUARY 17, 2016

AN ACT

Amending Title 40 (Insurance) of the Pennsylvania Consolidated

Statutes, providing for standard valuation; and making

related repeals regarding Act 284 of 1921 and Act 285 of

1921.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1. Title 40 of the Pennsylvania Consolidated

Statutes is amended by adding a part to read:

PART IV

STANDARD VALUATION

Chapter

71. Reserve Liabilities

CHAPTER 71

RESERVE LIABILITIES

Subchapter

A. General Provisions

B. Valuation of Reserves for Contracts and Policies

C. Confidentiality

D. Exemptions

E. Miscellaneous Provisions

SUBCHAPTER A

GENERAL PROVISIONS

Sec.

7101. Scope.

7102. Definitions.

7103. Special applicability provisions.

7104. Notice regarding operative date of valuation manual.

7105. Regulations.

§ 7101. Scope.

This chapter relates to standards for the valuation of

reserve liabilities for life insurance, accident and health

insurance and deposit-type contracts depending on their date of

issuance.

§ 7102. Definitions.

The following words and phrases when used in this chapter

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Accident and health insurance." A contract that

incorporates morbidity risk and provides protection against

economic loss resulting from accident, sickness or medical

conditions and as may be specified in the valuation manual.

"Appointed actuary." A qualified actuary who is appointed in

accordance with the valuation manual to prepare the actuarial

opinion required by section 7114 (relating to actuarial opinion

of reserves on or after operative date of valuation manual).

"Commissioner." The Insurance Commissioner of the

Commonwealth.

"Company." An entity, including a fraternal benefit society,

that:

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(1) has written, issued or reinsured life insurance

contracts, accident and health insurance contracts or

deposit-type contracts in this Commonwealth and has at least

one policy in force or on claim; or

(2) is required to hold a certificate of authority to

write life insurance contracts, accident and health insurance

contracts or deposit-type contracts in this Commonwealth.

"Department." The Insurance Department of the Commonwealth.

"Deposit-type contract." A contract that does not

incorporate mortality or morbidity risks and as may be specified

in the valuation manual.

"Experience data." Documents, materials, data and other

information submitted by a company under section 7127 (relating

to experience reporting for policies in force on or after

operative date of valuation manual).

"Experience materials." Documents, materials, data and other

information, including all working papers and copies of all

these items created or produced in connection with experience

data, which include any potentially company-identifying or

personally identifiable information provided to or obtained by

the commissioner.

"Fraternal benefit society." As provided for under Article

XXIV of The Insurance Company Law of 1921.

"Group-wide supervisor." The chief insurance regulatory

official who is:

(1) Authorized to engage in conducting and coordinating

group-wide supervision activities.

(2) From the jurisdiction determined or acknowledged by

the department under section 1406.2(c) of The Insurance

Company Law of 1921 to have sufficient, significant contacts

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with the international insurance group.

"IAIS." The International Association of Insurance

Supervisors or its successor organization.

"Life insurance." A contract that incorporates mortality

risk, including an annuity or pure endowment contract, and as

may be specified in the valuation manual.

"NAIC." The National Association of Insurance Commissioners,

its subsidiaries or affiliates or its successor organization.

"Operative date of the valuation manual." The January 1 of

the first calendar year following the first July 1 when all of

the following have occurred:

(1) The valuation manual has been adopted by NAIC by an

affirmative vote of at least 42 members or 75% of the members

voting, whichever is greater.

(2) The Standard Valuation Law, as amended by NAIC in

2009, or legislation including substantially similar terms

and provisions, has been enacted by both of the following:

(i) States representing more than 75% of the direct

premiums written as reported for life, accident and

health annual statements, health annual statements or

fraternal annual statements submitted in 2008.

(ii) At least 42 of the 55 NAIC member

jurisdictions, including the 50 states, American Samoa,

the United States Virgin Islands, the District of

Columbia, Guam and Puerto Rico.

"Policyholder behavior." An action taken by a policyholder,

certificate holder, contract holder or any other person having

the right to elect options as to a policy or contract subject to

this chapter. The options shall:

(1) Include lapse, withdrawal, transfer, deposit,

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premium payment, loan, annuitization or benefit elections

prescribed by the policy or contract.

(2) Exclude events of mortality or morbidity that result

in benefits prescribed in their essential aspects by the

terms of the policy or contract.

"Principle-based valuation." A reserve valuation that:

(1) Uses one or more methods or one or more assumptions

determined by the insurer.

(2) Is required to comply with section 7126 (relating to

requirements of principle-based valuation) as specified in

the valuation manual.

"Qualified actuary." An individual who:

(1) Is qualified to sign the applicable statement of

actuarial opinion in accordance with the American Academy of

Actuaries qualification standards for actuaries signing these

statements of actuarial opinion.

(2) Meets the requirements specified in the valuation

manual.

"Reserve liabilities," "reserves" or "net value." An amount

recorded in financial statements to reflect potential

obligations.

"Tail risk." A risk that occurs where:

(1) the frequency of low probability events is higher

than expected under a normal probability distribution; or

(2) there are observed events of very significant size

or magnitude.

"The Insurance Company Law of 1921." The act of May 17, 1921

(P.L.682, No.284), known as The Insurance Company Law of 1921.

"Valuation manual." The manual of valuation instructions

adopted by NAIC or as subsequently amended and adopted by NAIC.

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Unless a change in the valuation manual specifies a later

effective date, a change to the valuation manual is effective on

January 1 following the date when the change to the valuation

manual has been adopted by NAIC by an affirmative vote

representing both of the following:

(1) At least 75% of the members of NAIC voting, but not

less than a majority of the total membership.

(2) Members of NAIC representing jurisdictions totaling

more than 75% of the direct premiums written as reported in

the most recently available life, accident and health annual

statements, health annual statements or fraternal annual

statements.

§ 7103. Special applicability provisions.

The standards for the valuation of reserve liabilities for

life insurance, accident and health insurance and deposit-type

contracts shall be subject to the following applicability

provisions:

(1) The following shall apply to policies or contracts

subject to this chapter that were issued on or after May 17,

1921, and prior to the operative date of the valuation

manual:

(i) Section 7115 (relating to computation of minimum

standard).

(ii) Section 7116 (relating to computation of

minimum standard for annuities).

(iii) Section 7117 (relating to computation of

minimum standard by calendar year of issue).

(iv) Section 7118 (relating to reserve valuation

method for life insurance and endowment benefits).

(v) Section 7119 (relating to reserve valuation

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method for annuity and pure endowment benefits).

(vi) Section 7120 (relating to minimum reserves).

(vii) Section 7121 (relating to optional reserve

calculation).

(viii) Section 7122 (relating to reserve calculation

for valuation net premium exceeding gross premium

charged).

(ix) Section 7123 (relating to reserve calculation

for indeterminate premium plans).

(2) Except as otherwise provided in this chapter,

section 7124 (relating to minimum standard for accident and

health insurance contracts) shall apply to policies issued

before, on or after the operative date of the valuation

manual.

(3) The following shall not apply to policies or

contracts subject to this chapter that were issued on or

after May 17, 1921, and prior to the operative date of the

valuation manual:

(i) Section 7125 (relating to v aluation manual for

policies issued on or after operative date of valuation

manual).

(ii) Section 7126 (relating to requirements of

principle-based valuation).

(4) Sections 7125 and 7126 shall apply to policies

issued on or after the operative date of the valuation

manual.

§ 7104. Notice regarding operative date of valuation manual.

Upon the occurrence of the last occurring event under the

definition of "operative date of the valuation manual" in

section 7102 (relating to definitions), the commissioner shall

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issue a notice regarding the operative date of the valuation

manual to be published in the Pennsylvania Bulletin and on the

department's publicly accessible Internet website.

§ 7105. Regulations.

The department may promulgate regulations, as necessary, to

implement, administer and enforce this chapter.

SUBCHAPTER B

VALUATION OF RESERVES FOR CONTRACTS AND POLICIES

Sec.

7111. Reserve valuation for policies and contracts issued prior

to operative date of valuation manual.

7112. Reserve valuation for policies and contracts issued on or

after operative date of valuation manual.

7113. Actuarial opinion of reserves prior to operative date of

valuation manual.

7114. Actuarial opinion of reserves on or after operative date

of valuation manual.

7115. Computation of minimum standard.

7116. Computation of minimum standard for annuities.

7117. Computation of minimum standard by calendar year of

issue.

7118. Reserve valuation method for life insurance and endowment

benefits.

7119. Reserve valuation method for annuity and pure endowment

benefits.

7120. Minimum reserves.

7121. Optional reserve calculation.

7122. Reserve calculation for valuation net premium exceeding

gross premium charged.

7123. Reserve calculation for indeterminate premium plans.

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7124. Minimum standard for accident and health insurance

contracts.

7125. Valuation manual for policies issued on or after the

operative date of valuation manual.

7126. Requirements of principle-based valuation.

7127. Experience reporting for policies in force on or after

operative date of valuation manual.

§ 7111. Reserve valuation for policies and contracts issued

prior to operative date of valuation manual.

(a) Applicability.--This section shall apply to each policy

or contract issued prior to the operative date of the valuation

manual.

(b) Annual valuation.--The commissioner shall annually

value, or cause to be valued, the reserve liabilities for all

outstanding life insurance policies and annuity and pure

endowment contracts of each company doing business in this

Commonwealth. The commissioner may certify the amount of

reserves.

may use group methods and approximate averages for fractions of

a year or otherwise.

(d) Other jurisdictions.--In lieu of the valuation of the

reserves required of a foreign or alien company, the

commissioner may accept a valuation made, or caused to be made,

by the insurance supervisory official of any state or other

jurisdiction when the valuation complies with the minimum

standard provided in this chapter.

(e) Minimum standard.--The minimum standard for the

valuation of policies and contracts issued prior to the

operative date of section 410A of The Insurance Company Law of

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1921 shall be as follows:

(1) The net value of all outstanding policies of life

insurance, issued by the company prior to January 1, 1890,

shall be computed upon the basis of the American experience

table of mortality, with interest at not less than 4.5% and

not more than 6% per year.

(2) The net value of all outstanding policies, issued

between January 1, 1890, and January 1, 1903, shall be

computed on the combined experience or actuaries' table of

mortality, with interest at 4% per year.

(3) The net value of all outstanding policies of life

insurance, issued on and after January 1, 1903, shall be

computed on the American experience table of mortality, with

interest at 3.5% per year, but a company may value its group

term insurance policies, under which premium rates are not

guaranteed for a period in excess of five years, according to

the American men ultimate table of mortality, with interest

at 3.5% per year.

(4) The net value of all policies of life insurance,

issued on and after January 1, 1921, where the premiums are

payable monthly or more frequently, shall be computed

according to the American experience table of mortality, with

interest at 3.5% per year, but a company may voluntarily

value its industrial policies according to the standard

industrial mortality table, with interest at 3.5% per year.

(5) The net value of a policy at any time shall be taken

to be the single net premium which will, at that time, affect

the insurance, less the value at that time of the future net

premiums called for by the table of mortality and rate of

interest designated.

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(6) Except as otherwise provided in sections 7116(a)

(relating to computation of minimum standard for annuities)

and 7117(a) (relating to computation of minimum standard by

calendar year of issue) for group annuity and pure endowment

contracts, the legal minimum standard for valuation of

annuities issued after January 1, 1912, shall be computed

according to McClintock's table of mortality among

annuitants, with interest at 3.5% per year, but the following

shall apply:

(i) For annuities and pure endowments purchased

under group annuity and pure endowment contracts, the

legal minimum standard may, at the option of the company,

be computed according to the 1971 Group Annuity Mortality

Table or any modification of this table approved by the

commissioner, with interest at 5% per year.

(ii) Annuities deferred 10 or more years, and

written in connection with life or term insurance, shall

be valued upon the same mortality table from which the

consideration or premiums were computed, with interest at

not more than 3.5% per year.

(7) At any time and under any of its policies of life

insurance, a company may elect to reserve on the following,

with its obligations under these policies to be valued

accordingly:

(i) the American experience table of mortality with

a lower rate of interest, but at a rate not less than 2%

per year; or

(ii) the American men ultimate table of mortality,

with any modification and extension below 20 years of age

as may be approved by the commissioner, with interest at

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a rate not less than 2% nor more than 3.5% per year.

(8) On or after the operative date of section 410A of

The Insurance Company Law of 1921, reserves for any policies

or contracts may be calculated, at the option of the company,

according to any standard which produces greater aggregate

reserves for all these policies or contracts than the

standard in use by the company immediately prior to the

exercise of the option.

(9) With the approval of the commissioner, a company

that adopts a standard under paragraph (8) may adopt a lower

standard of valuation for any policies or contracts if that

lower standard is not lower than:

(i) the minimum reserves provided under this

section;

(ii) the standard specified in the policies or

contracts; or

(iii) the standard used by the company for the

determination of the nonforfeiture values of the policies

or contracts.

§ 7112. Reserve valuation for policies and contracts issued on

or after operative date of valuation manual.

(a) Applicability.--This section shall apply to each policy

or contract issued on or after the operative date of the

valuation manual.

(b) Annual valuation.--The commissioner shall annually

value, or cause to be valued, the reserve liabilities for all

outstanding life insurance contracts, annuity and pure endowment

contracts, accident and health contracts and deposit-type

contracts of each company doing business in this Commonwealth.

The commissioner may certify the amount of reserves.

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reserves required of a foreign or alien company, the

commissioner may accept a valuation made, or caused to be made,

by the insurance supervisory official of any State or other

jurisdiction when the valuation complies with the minimum

standard provided in this chapter.

(d) Applicable standards.--The following provisions shall

govern a policy or contract under this section:

(1) Section 7124(a), (b), (d) and (e) (relating to

minimum standard for accident and health insurance

contracts).

(2) Section 7125 (relating to valuation manual for

policies issued on or after operative date of valuation

manual).

(3) Section 7126 (relating to requirements of principle-

based valuation).

§ 7113. Actuarial opinion of reserves prior to operative date

of valuation manual.

(a) Applicability.--This section shall apply to an actuarial

opinion prepared prior to the operative date of the valuation

manual.

(b) Regulations regarding actuarial opinion.--Through

regulations, the commissioner:

(1) Shall define the specifics of the actuarial opinion

under this section and add any other items deemed to be

necessary to fulfill the purpose of this section.

(2) May provide for a transition period for establishing

any higher reserves that the qualified actuary may deem

necessary in order to render the opinion required by this

section.

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business in this Commonwealth shall annually submit the opinion

of a qualified actuary as to whether the reserves and related

actuarial items held in support of the company's policies and

contracts specified by the commissioner by regulation:

(1) are computed appropriately;

(2) are based on assumptions that satisfy contractual

provisions;

(3) are consistent with prior reported amounts; and

(4) comply with the applicable laws of this

Commonwealth.

(d) Opinion regarding company obligations.--The following

shall apply regarding the opinion of the qualified actuary and

the company's obligations:

(1) Except as exempted by regulation, each company shall

include in the actuarial opinion required under this section

an opinion by the same qualified actuary as to whether the

reserves and related actuarial items held in support of the

company's policies and contracts specified by the

commissioner by regulation, when considered in light of the

assets held by the company with respect to the reserves and

related actuarial items, including, but not limited to, the

investment earnings on the assets and the considerations

anticipated to be received and retained under the policies

and contracts, make adequate provision for the company's

obligations under the policies and contracts, including, but

not limited to, the benefits under and expenses associated

with the policies and contracts.

(2) A memorandum, in form and substance acceptable to

the commissioner as specified by regulation, shall be

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prepared to support each actuarial opinion.

(3) If a company fails to provide a supporting

memorandum at the request of the commissioner within a period

specified by regulation or if the commissioner determines

that the supporting memorandum provided by the company fails

to meet the standards prescribed by regulation or is

otherwise unacceptable to the commissioner, the commissioner

may engage a qualified actuary at the expense of the company

to review the opinion and the basis for the opinion and

prepare the supporting memorandum required by the

commissioner.

(e) Requirements.--Each actuarial opinion under this section

shall be governed by the following:

(1) The opinion shall be submitted with the annual

statement reflecting the valuation of the reserve liabilities

for each year ending on or after December 31, 1993.

(2) The opinion shall apply to all business in force,

including individual and group accident and health insurance

plans, in form and substance acceptable to the commissioner

as specified by regulation.

(3) The opinion shall be based on standards adopted from

time to time by the Actuarial Standards Board, or its

successor, and on any additional standards as specified by

regulation.

(4) In the case of an opinion required to be submitted

by a foreign or alien company, the commissioner may accept

the opinion filed by that company with the insurance

supervisory official of another state if the commissioner

determines that the opinion reasonably meets the requirements

applicable to a company domiciled in this Commonwealth.

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(5) Except in cases of fraud or willful misconduct, a

qualified actuary shall not be liable for damages to any

person, other than the insurance company or fraternal benefit

society and the commissioner, for any act, error, omission,

decision or conduct with respect to the actuarial opinion.

(6) Disciplinary action by the commissioner against the

company, fraternal benefit society or the qualified actuary

shall be prescribed by regulation.

(7) The confidentiality provisions under Subchapter C

(relating to confidentiality) shall apply.

(f) Definitions.--As used in this section, the following

words and phrases shall have the meanings given to them in this

subsection unless the context clearly indicates otherwise:

"Qualified actuary." A member in good standing of the

American Academy of Actuaries who meets the requirements under

31 Pa. Code Ch. 84b (relating to actuarial opinion and

memorandum).

§ 7114. Actuarial opinion of reserves on or after operative

date of valuation manual.

(a) Applicability.--This section shall apply to an actuarial

opinion prepared on or after the operative date of the valuation

manual.

(b) Compliance with valuation manual.--The actuarial opinion

under this section must comply with the requirements set forth

in the valuation manual.

outstanding life insurance contracts, accident and health

insurance contracts or deposit-type contracts in this

Commonwealth shall annually submit the opinion of the appointed

actuary as to whether the reserves and related actuarial items

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held in support of the company's policies and contracts:

(1) are computed appropriately;

(2) are based on assumptions that satisfy contractual

provisions;

(3) are consistent with prior reported amounts; and

(4) comply with the applicable laws of this

Commonwealth.

(d) Opinion regarding company obligations.--The following

shall apply regarding the opinion of the appointed actuary and

the company's obligations:

(1) Except as exempted in the valuation manual, each

company with outstanding life insurance contracts, accident

and health insurance contracts or deposit-type contracts in

this Commonwealth shall include in the actuarial opinion

required under this section an opinion by the same appointed

actuary as to whether the reserves and related actuarial

items held in support of the company's policies and contracts

specified in the valuation manual, when considered in light

of the assets held by the company with respect to the

reserves and related actuarial items, including, but not

limited to, the investment earnings on the assets and the

considerations anticipated to be received and retained under

the policies and contracts, make adequate provision for the

company's obligations under the policies and contracts,

including, but not limited to, the benefits under and

expenses associated with the policies and contracts.

(2) A memorandum, in form and substance as specified in

the valuation manual and as acceptable to the commissioner,

shall be prepared to support each actuarial opinion.

(3) If a company fails to provide a supporting

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memorandum at the request of the commissioner within a period

specified in the valuation manual or if the commissioner

determines that the supporting memorandum provided by the

company fails to meet the standards prescribed by the

valuation manual or is otherwise unacceptable to the

commissioner, the commissioner may engage a qualified actuary

at the expense of the company to review the opinion and the

basis for the opinion and prepare the supporting memorandum

required by the commissioner.

(e) Requirements.--Each actuarial opinion under this section

shall be governed by the following:

(1) The opinion shall be in form and substance as

specified in the valuation manual and acceptable to the

commissioner.

(2) The opinion shall be submitted with the annual

statement reflecting the valuation of the reserve liabilities

for each year ending on or after the operative date of the

valuation manual.

(3) The opinion shall apply to all policies and

contracts subject to subsection (d), plus other actuarial

liabilities as may be specified in the valuation manual.

(4) The opinion shall be based on standards adopted from

time to time by the Actuarial Standards Board, or its

successor, and on any additional standards as prescribed in

the valuation manual.

(5) In the case of an opinion required to be submitted

by a foreign or alien company, the commissioner may accept

the opinion filed by that company with the insurance

supervisory official of another state if the commissioner

determines that the opinion reasonably meets the requirements

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applicable to a company domiciled in this Commonwealth.

(6) Except in cases of fraud or willful misconduct, an

appointed actuary shall not be liable for damages to any

person, other than the company and the commissioner, for any

act, error, omission, decision or conduct with respect to the

actuarial opinion.

(7) Disciplinary action by the commissioner against the

company or the appointed actuary shall be prescribed by

regulation.

(8) The confidentiality provisions under Subchapter C

(relating to confidentiality) shall apply.

§ 7115. Computation of minimum standard.

(a) Applicability.--This section shall govern the minimum

standard for the valuation of a company's policies and contracts

except as provided in the following sections:

(1) Section 7116 (relating to computation of minimum

standard for annuities).

(2) Section 7117 (relating to computation of minimum

standard by calendar year of issue).

(3) Section 7124 (relating to minimum standard for

accident and health insurance contracts).

(b) Policies and contracts issued prior to May 17, 1921.--

The minimum standard for the valuation of policies and contracts

issued prior to May 17, 1921, shall be as provided by the laws

in effect immediately prior to May 17, 1921.

1921.--The minimum standard for the valuation of policies and

contracts issued on or after May 17, 1921, shall be, together

with the tables referenced under subsection (d), the

commissioners reserve valuation methods established under

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sections 7118 (relating to reserve valuation method for life

insurance and endowment benefits), 7119 (relating to reserve

valuation method for annuity and pure endowment benefits), 7122

(relating to reserve calculation for valuation net premium

exceeding gross premium charged) and 7124:

(1) Three and one-half percent interest.

(2) Four percent interest for life insurance policies

and contracts, other than annuity and pure endowment

contracts, issued on or after June 23, 1976, and prior to

January 1, 1979.

(3) Four and one-half percent interest for policies

issued on or after January 1, 1979.

(d) Applicable tables.--Together with the requirements under

subsection (c), the tables and other provisions of this section

shall govern:

(1) For ordinary policies of life insurance issued on

the standard basis, excluding disability and accidental death

benefits in these policies, the following tables shall apply:

(i) The Commissioners 1941 Standard Ordinary

Mortality Table for policies issued prior to the

operative date of section 410A(d)(2) of The Insurance

Company Law of 1921.

(ii) The Commissioners 1958 Standard Ordinary

Mortality Table for policies issued on or after the

operative date of section 410A(d)(2) of The Insurance

Company Law of 1921 and prior to the operative date of

section 410A(e) of The Insurance Company Law of 1921. For

policies issued on female risks, all modified net

premiums and present values referred to in this

subparagraph may be calculated according to any age not

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more than six years younger than the actual age of the

insured.

(iii) For policies issued on or after the operative

date of section 410A(e) of The Insurance Company Law of

1921, the calculation shall be in accordance with the

following tables as specified by regulation:

(A) The Commissioners 1980 Standard Ordinary

Mortality Table.

(B) At the election of the company for any one

or more specified plans of life insurance, the

Commissioners 1980 Standard Ordinary Mortality Table

with Ten-Year Select Mortality Factors.

after 1980 by NAIC and approved by regulation for use

in determining the minimum standard of valuation for

the policies.

(2) For industrial life insurance policies issued on the

standard basis, excluding disability and accidental death

benefits in these policies, the following tables shall apply:

(i) The 1941 Standard Industrial Mortality Table for

policies issued prior to the operative date of section

410A(d)(3) of The Insurance Company Law of 1921.

(ii) For policies issued on or after the operative

date of section 410A(d)(3) of The Insurance Company Law

of 1921, the Commissioners 1961 Standard Industrial

Mortality Table or any industrial mortality table that is

adopted after 1980 by NAIC and approved by regulation for

use in determining the minimum standard of valuation for

the policies.

(3) For individual annuity and pure endowment contracts,

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excluding disability and accidental death benefits in these

policies, any of the following shall apply:

(i) The 1937 Standard Annuity Mortality Table.

(ii) At the option of the company, the Annuity

Mortality Table for 1949, Ultimate.

(iii) Any modification of either of the tables under

subparagraphs (i) and (ii) as approved by the

commissioner.

(4) For group annuity and pure endowment contracts,

excluding disability and accidental death benefits in the

contracts, any of the following shall apply:

(i) The Group Annuity Mortality Table for 1951 or

any modification of the table approved by the

commissioner, with interest at 3.5%.

(ii) At the option of the company, the 1971 Group

Annuity Mortality Table or any modification of the table

approved by the commissioner, in which event 5% interest

shall be used in determining the minimum standard for the

valuation of the contracts.

(iii) At the option of the company, any of the

tables or modifications of tables specified for

individual annuity and pure endowment contracts.

(5) For total and permanent disability benefits in or

supplementary to ordinary policies or contracts, the

following shall apply:

(i) For policies or contracts issued on or after

January 1, 1966:

(A) the tables of Period 2 disablement rates and

the 1930 to 1950 termination rates of the 1952

Disability Study of the Society of Actuaries, with

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due regard to the type of benefit; or

(B) any tables of disablement rates and

termination rates that are adopted after 1980 by NAIC

and approved by regulation for use in determining the

minimum standard of valuation for the policies or

contracts.

(ii) For policies or contracts issued on or after

January 1, 1961, and prior to January 1, 1966:

(A) any of the tables under subparagraph (i); or

(B) at the option of the company, the Class (3)

Disability Table (1926).

(iii) For policies issued prior to January 1, 1961,

the Class (3) Disability Table (1926).

A table under this paragraph shall, for active lives, be

combined with a mortality table permitted for calculating the

reserves for life insurance policies.

(6) For accidental death benefits in or supplementary to

policies, the following shall apply:

(i) For policies issued on or after January 1, 1966:

(A) the 1959 Accidental Death Benefits Table; or

(B) any accidental death benefits table that is

adopted after 1980 by NAIC and approved by regulation

for use in determining the minimum standard of

valuation for the policies.

(ii) For policies issued on or after January 1,

1961, and prior to January 1, 1966:

(A) any of the tables under subparagraph (i); or

(B) at the option of the company, the Inter-

Company Double Indemnity Mortality Table.

(iii) For policies issued prior to January 1, 1961,

20160HB1766PN2862 - 23 -

the Inter-Company Double Indemnity Mortality Table.

A table under this paragraph shall be combined with a

mortality table permitted for calculating the reserves for

life insurance policies.

(7) For group life insurance, life insurance issued on

the substandard basis and other special benefits, those

tables approved by the commissioner shall apply.

§ 7116. Computation of minimum standard for annuities.

(a) Computation generally.--Except as provided in section

7117 (relating to computation of minimum standard by calendar

year of issue), the minimum standard of valuation for individual

annuity and pure endowment contracts issued on or after the

operative date of section 301(c)(1)(B) of the act of May 17,

1921 (P.L.789, No.285), known as The Insurance Department Act of

1921, and for annuities and pure endowments purchased on or

after that operative date under group annuity and pure endowment

contracts shall be the commissioner's reserve valuation methods

established under sections 7118 (relating to reserve valuation

method for life insurance and endowment benefits) and 7119

(relating to reserve valuation method for annuity and pure

endowment benefits) and the following:

(1) For individual annuity and pure endowment contracts

issued prior to January 1, 1979, excluding disability and

accidental death benefits in the contracts, the 1971

Individual Annuity Mortality Table or any modification of the

table approved by the commissioner, and 6% interest for

single premium immediate annuity contracts and 4% interest

for all other individual annuity and pure endowment

contracts.

(2) For individual single premium immediate annuity

20160HB1766PN2862 - 24 -

contracts issued on or after January 1, 1979, excluding

disability and accidental death benefits in the contracts,

the 1971 Individual Annuity Mortality Table or any individual

annuity mortality table that is adopted after 1980 by NAIC

and approved by regulation for use in determining the minimum

standard of valuation for the contracts, or any modification

of the tables approved by the commissioner, and 7.5% interest

or a higher rate of interest as may be approved by the

commissioner.

(3) For individual annuity and pure endowment contracts

issued on or after January 1, 1979, other than single premium

immediate annuity contracts and excluding disability and

accidental death benefits in the contracts, the 1971

Individual Annuity Mortality Table or any individual annuity

mortality table that is adopted after 1980 by NAIC and

approved by regulation for use in determining the minimum

standard of valuation for the contracts, or any modification

of the tables approved by the commissioner, and 5.5% interest

for single premium deferred annuity and pure endowment

contracts and 4.5% interest for all other individual annuity

and pure endowment contracts or a higher rate of interest as

may be approved by the commissioner.

(4) For annuities and pure endowments purchased prior to

January 1, 1979, under group annuity and pure endowment

contracts and excluding disability and accidental death

benefits purchased under the contracts, the 1971 Group

Annuity Mortality Table or any modification of the table

approved by the commissioner, and 6% interest.

(5) For annuities and pure endowments purchased on or

after January 1, 1979, under group annuity and pure endowment

20160HB1766PN2862 - 25 -

contracts and excluding disability and accidental death

benefits purchased under the contracts, the 1971 Group

Annuity Mortality Table or any group annuity mortality table

that is adopted after 1980 by NAIC and approved by regulation

for use in determining the minimum standard of valuation for

annuities and pure endowments, or any modification of the

tables approved by the commissioner, and 7.5% interest or a

higher rate of interest as may be approved by the

commissioner.

(b) Operative date.--After June 23, 1976, a company may file

with the commissioner a written notice of its election to comply

with the provisions of this section after a specified date

before January 1, 1979, which shall be the operative date of

this section for that company. A company may elect a different

operative date for individual annuity and pure endowment

contracts from that elected for group annuity and pure endowment

contracts. If a company makes no election, the operative date of

this section for that company shall be January 1, 1979.

§ 7117. Computation of minimum standard by calendar year of

issue.

(a) Applicability.--The interest rates used in determining

the minimum standard for the valuation of the following shall be

the calendar year statutory valuation interest rates as defined

in this section:

(1) Life insurance policies issued in a particular

calendar year on or after the operative date of section

410A(e) of The Insurance Company Law of 1921.

(2) Individual annuity and pure endowment contracts

issued in a particular calendar year on or after January 1,

1981.

20160HB1766PN2862 - 26 -

(3) Annuities and pure endowments purchased in a

particular calendar year on or after January 1, 1981, under

group annuity and pure endowment contracts.

(4) The net increase, if any, in a particular calendar

year after January 1, 1981, in amounts held under guaranteed

interest contracts.

(b) Calendar year statutory valuation interest rates.--The

following shall apply:

(1) Subject to paragraph (2), the calendar year

statutory valuation interest rates, I, shall be determined as

follows and the results rounded to the nearest 0.25%:

(i) For life insurance:

I = .03 + W(R

- .03) + W/2(R

- .09).

Where R

is the lesser of R and .09, R

is the greater of

R and .09, R is the reference interest rate defined in

this section and W is the weighting factor defined in

this section.

(ii) For single premium immediate annuities and for

annuity benefits involving life contingencies arising

from other annuities with cash settlement options and

from guaranteed interest contracts with cash settlement

options:

I = .03 + W(R

- .03)

Where R

is the lesser of R and .09, R

is the greater of

R and .09, R is the reference interest rate defined in

this section and W is the weighting factor defined in

this section.

(iii) For other annuities with cash settlement

options and guaranteed interest contracts with cash

settlement options, valued on an issue year basis, except

20160HB1766PN2862 - 27 -

as stated in subparagraph (ii):

(A) The formula for life insurance stated in

subparagraph (i) shall apply to annuities and

guaranteed interest contracts with guarantee

durations in excess of 10 years.

(B) The formula for single premium immediate

annuities stated in subparagraph (ii) shall apply to

annuities and guaranteed interest contracts with

guarantee duration of 10 years or less.

(iv) For other annuities with no cash settlement

options and for guaranteed interest contracts with no

cash settlement options, the formula for single premium

immediate annuities stated in subparagraph (ii) shall

apply.

(v) For other annuities with cash settlement options

and guaranteed interest contracts with cash settlement

options, valued on a change in fund basis, the formula

for single premium immediate annuities stated in

subparagraph (ii) shall apply.

(2) The following shall apply:

(i) If the calendar year statutory valuation

interest rate for a life insurance policy issued in any

calendar year determined without reference to this

subparagraph differs from the corresponding actual rate

for similar policies issued in the immediately preceding

calendar year by less than 0.5%, the calendar year

statutory valuation interest rate for the life insurance

policies shall be equal to the corresponding actual rate

for the immediately preceding calendar year.

(ii) For purposes of applying subparagraph (i), the

20160HB1766PN2862 - 28 -

calendar year statutory valuation interest rate for life

insurance policies issued in a calendar year shall be

determined for 1980, using the reference interest rate

defined in 1979, and shall be determined for each

subsequent calendar year regardless of the operative date

of section 410A(e) of The Insurance Company Law of 1921.

subsection (b) shall be as follows:

(1) For life insurance, the guarantee duration shall be

the maximum number of years the life insurance can remain in

force on a basis guaranteed in the policy or under options to

convert to plans of life insurance with premium rates or

nonforfeiture values, or both, which are guaranteed in the

original policy. Weighting factors for life insurance shall

be as provided in the following table:

Guarantee Duration

(Years)

Weighting

Factors

10 or less .50

More than 10, but not more than 20 .45

More than 20 .35

(2) Weighting factors for single premium immediate

annuities and for annuity benefits involving life

contingencies arising from other annuities with cash

settlement options and guaranteed interest contracts with

cash settlement options shall be .80.

(3) Weighting factors for other annuities and for

guaranteed interest contracts, except as stated in paragraph

(2), shall be as specified in subparagraphs (i), (ii) and

(iii), according to the rules and definitions in

20160HB1766PN2862 - 29 -

subparagraphs (iv), (v) and (vi):

(i) For annuities and guaranteed interest contracts

valued on an issue year basis, the following table shall

apply:

Guarantee Duration

Weighting Factor

for Plan Type

(Years) A B C

5 or less .80 .60 .50

More than 5, but not more than 10: .75 .60 .50

More than 10, but not more than 20: .65 .50 .45

More than 20: .45 .35 .35

(ii) For annuities and guaranteed interest contracts

valued on a change in fund basis, the factors shown in

subparagraph (i) shall be increased by .15 for plan type

A, .25 for plan type B and .05 for plan type C.

(iii) For annuities and guaranteed interest

contracts valued on an issue year basis, other than those

with no cash settlement options, that do not guarantee

interest on considerations received more than one year

after issue or purchase and for annuities and guaranteed

interest contracts valued on a change in fund basis that

do not guarantee interest rates on considerations

received more than 12 months beyond the valuation date,

the factors shown in subparagraph (i) or derived in

subparagraph (ii) shall be increased by .05 for plan

types A, B and C.

(iv) For other annuities with cash settlement

options and guaranteed interest contracts with cash

settlement options, the guarantee duration is the number

of years for which the contract guarantees interest rates

20160HB1766PN2862 - 30 -

in excess of the calendar year statutory valuation

interest rate for life insurance policies with guarantee

duration in excess of 20 years. For other annuities with

no cash settlement options and for guaranteed interest

contracts with no cash settlement options, the guarantee

duration is the number of years from the date of issue or

date of purchase to the date annuity benefits are

scheduled to commence.

(v) Each plan type referenced in this paragraph

shall be defined as follows:

(A) "Plan type A." A plan in which at any time

the policyholder may withdraw funds only:

(I) with an adjustment to reflect changes in

interest rates or asset values since receipt of

the funds by the insurance company;

(II) without an adjustment but in

installments over five years or more;

(III) as an immediate life annuity; or

(IV) no withdrawal permitted.

(B) "Plan type B." A plan in which, before

expiration of the interest rate guarantee, the

policyholder may withdraw funds only:

(I) with an adjustment to reflect changes in

interest rates or asset values since receipt of

the funds by the insurance company;

(II) without an adjustment but in

installments over five years or more; or

(III) no withdrawal permitted.

At the end of interest rate guarantee, funds may be

withdrawn without an adjustment in a single sum or

20160HB1766PN2862 - 31 -

installments over less than five years.

policyholder may withdraw funds before expiration of

interest rate guarantee in a single sum or

installments over less than five years either:

(I) without adjustment to reflect changes in

interest rates or asset values since receipt of

the funds by the insurance company; or

(II) subject only to a fixed surrender

charge stipulated in the contract as a percentage

of the fund.

(vi) The following shall apply:

(A) A company may elect to value guaranteed

interest contracts with cash settlement options and

annuities with cash settlement options on either an

issue year basis or on a change in fund basis.

(B) Guaranteed interest contracts with no cash

settlement options and other annuities with no cash

settlement options shall be valued on an issue year

basis.

(I) An issue year basis of valuation shall

refer to a valuation basis under which the

interest rate used to determine the minimum

valuation standard for the entire duration of the

annuity or guaranteed interest contract is the

calendar year valuation interest rate for the

year of issue or year of purchase of the annuity

or guaranteed interest contract.

(II) A change in fund basis of valuation

20160HB1766PN2862 - 32 -

shall refer to a valuation basis under which the

interest rate used to determine the minimum

valuation standard applicable to each change in

the fund held under the annuity or guaranteed

interest contract is the calendar year valuation

interest rate for the year of the change in the

fund.

(d) Reference interest rate.--The reference interest rate

referred to in subsection (b) shall be defined as follows:

(1) For life insurance, the lesser of the average over a

period of 36 months and the average over a period of 12

months, ending on June 30 of the calendar year preceding the

year of issue, of the monthly average of the composite yield

on seasoned corporate bonds, as published by Moody's

Investors Service, Inc.

(2) For single premium immediate annuities and for

annuity benefits involving life contingencies arising from

other annuities with cash settlement options and guaranteed

interest contracts with cash settlement options, the average

over a period of 12 months, ending on June 30 of the calendar

year of issue or year of purchase, of the monthly average of

the composite yield on seasoned corporate bonds, as published

by Moody's Investors Service, Inc.

(3) For other annuities with cash settlement options and

guaranteed interest contracts with cash settlement options,

valued on a year of issue basis, except as stated in

paragraph (2), with guarantee duration in excess of 10 years,

the lesser of the average over a period of 36 months and the

average over a period of 12 months, ending on June 30 of the

calendar year of issue or purchase, of the monthly average of

20160HB1766PN2862 - 33 -

the composite yield on seasoned corporate bonds, as published

by Moody's Investors Service, Inc.

(4) For other annuities with cash settlement options and

guaranteed interest contracts with cash settlement options,

valued on a year of issue basis, except as stated in

paragraph (2), with guarantee duration of 10 years or less,

the average over a period of 12 months, ending on June 30 of

the calendar year of issue or purchase, of the monthly

average of the composite yield on seasoned corporate bonds,

as published by Moody's Investors Service, Inc.

(5) For other annuities with no cash settlement options

and for guaranteed interest contracts with no cash settlement

options, the average over a period of 12 months, ending on

June 30 of the calendar year of issue or purchase, of the

monthly average of the composite yield on seasoned corporate

bonds, as published by Moody's Investors Service, Inc.

(6) For other annuities with cash settlement options and

guaranteed interest contracts with cash settlement options,

valued on a change in fund basis, except as stated in

paragraph (2), the average over a period of 12 months, ending

on June 30 of the calendar year of the change in the fund, of

the monthly average of the composite yield on seasoned

corporate bonds, as published by Moody's Investors Service,

Inc.

(e) Alternative method to determine reference interest

rate.--If the monthly average of the composite yield on seasoned

corporate bonds is no longer published by Moody's Investors

Service, Inc. or if NAIC determines that the monthly average of

the composite yield on seasoned corporate bonds as published by

Moody's Investors Service, Inc. is no longer appropriate for the

20160HB1766PN2862 - 34 -

determination of the reference interest rate, then an

alternative method for determination of the reference interest

rate adopted by NAIC and approved by regulation may be

substituted.

§ 7118. Reserve valuation method for life insurance and

endowment benefits.

(a) Uniform insurance amount and premiums.--Except as

otherwise provided in sections 7119 (relating to reserve

valuation method for annuity and pure endowment benefits), 7122

(relating to reserve calculation for valuation net premium

exceeding gross premium charged) and 7124 (relating to minimum

standard for accident and health insurance contracts), for the

life insurance and endowment benefits of policies providing for

a uniform amount of insurance and requiring the payment of

uniform premiums, reserves according to the commissioners

reserve valuation method shall be the excess, if any, of the

present value, at the date of valuation, of the future

guaranteed benefits provided for by those policies, over the

then present value of any future modified net premiums therefor.

The modified net premiums for a policy shall be the uniform

percentage of the respective gross premiums for the benefits so

that the present value, at the date of issue of the policy, of

all modified net premiums shall be equal to the sum of the then

present value of the benefits provided for by the policy and the

excess of paragraph (1) over paragraph (2), as follows:

(1) 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

20160HB1766PN2862 - 35 -

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 for insurance of the same

amount at an age one year greater than the age at issue of

the policy.

(2) A net one-year term premium for the benefits

provided for in the first policy year.

(b) First-year excess.--For a life insurance policy issued

on or after January 1, 1985, for which the gross premium in the

first policy year exceeds that of the second year and for which

no comparable additional benefit is provided in the first year

for the excess and which provides an endowment benefit or a cash

surrender value or a combination in an amount greater than the

excess premium, reserves according to the commissioners reserve

valuation method as of any policy anniversary occurring on or

before the assumed ending date defined under this subsection as

the first policy anniversary on which the sum of any endowment

benefit and any cash surrender value then available is greater

than the excess premium shall, except as otherwise provided in

section 7122, be the greater of the reserve as of the policy

anniversary calculated as described in subsection (a) and the

reserve as of the policy anniversary calculated as described in

subsection (a), but with:

(1) The value defined in subsection (a) being reduced by

15% of the amount of this excess first year premium.

(2) All present values of benefits and premiums being

determined without reference to premiums or benefits provided

for by the policy after the assumed ending date.

(3) The policy being assumed to mature on that date as

an endowment.

20160HB1766PN2862 - 36 -

(4) The cash surrender value provided on that date being

considered as an endowment benefit.

In making the comparison under this subsection, the mortality

and interest bases stated in sections 7115 (relating to

computation of minimum standard) and 7117 (relating to

computation of minimum standard by calendar year of issue) shall

be used.

commissioners reserve valuation method shall be calculated by a

method consistent with the principles of this section, except

that any extra premiums charged because of impairments or

special hazards shall be disregarded in the determination of

modified net premiums, for:

(1) Life insurance policies providing for a varying

amount of insurance or requiring the payment of varying

premiums.

(2) Group annuity and pure endowment contracts purchased

under a retirement plan or plan of deferred compensation,

established or maintained by an employer, including a

partnership or sole proprietorship, or by an employee

organization, or by both, other than a plan providing

individual retirement accounts or individual retirement

annuities under section 408 of the Internal Revenue Code of

1986 (Public Law 99-514, 26 U.S.C. § 408).

(3) Disability and accidental death benefits in all

policies and contracts.

(4) All other benefits, except life insurance and

endowment benefits in life insurance policies and benefits

provided by all other annuity and pure endowment contracts.

§ 7119. Reserve valuation method for annuity and pure endowment

20160HB1766PN2862 - 37 -

benefits.

(a) Applicability.--This section shall apply to all annuity

and pure endowment contracts other than group annuity and pure

endowment contracts purchased under a retirement plan or plan of

deferred compensation, established or maintained by an employer,

including a partnership or sole proprietorship, or by an

employee organization, or by both, other than a plan providing

individual retirement accounts or individual retirement

annuities under section 408 of the Internal Revenue Code of 1986

(Public Law 99-514, 26 U.S.C. § 408).

(b) Calculation.--The following shall apply:

(1) Reserves according to the commissioners annuity

reserve method for benefits under annuity or pure endowment

contracts, excluding any disability and accidental death

benefits in the contracts, shall be the greatest of the

respective excesses of the present values, at the date of

valuation, of the future guaranteed benefits, including

guaranteed nonforfeiture benefits, provided for by the

contracts at the end of each respective contract year, over

the present value, at the date of valuation, of any future

valuation considerations derived from future gross

considerations, required by the terms of the contract, that

become payable prior to the end of the respective contract

year.

(2) The future guaranteed benefits shall be determined

by using the mortality table, if any, and the interest rate

or rates specified in the contracts for determining

guaranteed benefits.

(3) The valuation considerations shall be the portions

of the respective gross considerations applied under the

20160HB1766PN2862 - 38 -

terms of the contracts to determine nonforfeiture values.

§ 7120. Minimum reserves.

(a) Amount calculated.--A company's aggregate reserves for

all life insurance policies, excluding disability and accidental

death benefits, issued on or after May 17, 1921, shall not be

less than the aggregate reserves calculated by using the

mortality table or tables and rate or rates of interest used in

calculating nonforfeiture benefits for the policies and in

accordance with the methods set forth in:

(1) Section 7118 (relating to reserve valuation method

for life insurance and endowment benefits).

(2) Section 7119 (relating to reserve valuation method

for annuity and pure endowment benefits).

(3) Section 7122 (relating to reserve calculation for

valuation net premium exceeding gross premium charged).

(4) Section 7123 (relating to reserve calculation for

indeterminate premium plans).

(b) Amount necessary to render actuarial opinion.--The

aggregate reserves for all policies, contracts and benefits

shall not be less than the aggregate reserves determined by the

appointed actuary to be necessary to render the opinion required

by section 7113 (relating to actuarial opinion of reserves prior

to operative date of valuation manual) or 7114 (relating to

actuarial opinion of reserves on or after operative date of

valuation manual).

§ 7121. Optional reserve calculation.

(a) Issuance prior to May 17, 1921.--Reserves for policies

and contracts issued prior to May 17, 1921, may be calculated,

at the option of the company, according to any standards that

produce greater aggregate reserves for all these policies and

20160HB1766PN2862 - 39 -

contracts than the minimum reserves required by law.

(b) Issuance on or after May 17, 1921.--Reserves for any

category of policies, contracts or benefits established by the

commissioner, issued on or after May 17, 1921, may be

calculated, at the option of the company, according to any

standards that produce greater aggregate reserves for the

category than those calculated according to the minimum standard

provided under this chapter, but the rate or rates of interest

used for policies and contracts, other than annuity and pure

endowment contracts, shall not be greater than the corresponding

rate or rates of interest used in calculating any nonforfeiture

benefits provided in the policies or contracts.

apply:

(1) Subject to paragraph (2), a company that adopts at

any time a standard of valuation producing greater aggregate

reserves than those calculated according to the minimum

standard provided under this chapter may adopt a lower

standard of valuation with the approval of the commissioner,

but not lower than the minimum provided in this chapter.

(2) For the purposes of this section, the holding of

additional reserves previously determined by the appointed

actuary to be necessary to render the opinion required by

section 7113 (relating to actuarial opinion of reserves prior

to operative date of valuation manual) or 7114 (relating to

actuarial opinion of reserves on or after operative date of

valuation manual) shall not be deemed to be the adoption of a

higher standard of valuation.

§ 7122. Reserve calculation for valuation net premium exceeding

gross premium charged.

20160HB1766PN2862 - 40 -

(a) Calculation of minimum reserve.--The following shall

apply:

(1) If in any contract year the gross premium charged by

a company on a policy or contract is less than the valuation

net premium for the policy or contract calculated by the

method used in calculating the reserve but using the minimum

valuation standards of mortality and rate of interest, the

minimum reserve required for the policy or contract shall be

the greater of:

(i) The reserve calculated according to the

mortality table, rate of interest and method actually

used for the policy or contract.

(ii) The reserve calculated by the method actually

used for the policy or contract but using the minimum

valuation standards of mortality and rate of interest and

replacing the valuation net premium by the actual gross

premium in each contract year for which the valuation net

premium exceeds the actual gross premium.

(2) The minimum valuation standards of mortality and

rate of interest referred to in this subsection are those

standards stated in sections 7115 (relating to computation of

minimum standard) and 7117 (relating to computation of

minimum standard by calendar year of issue).

(b) How to apply this section for certain policies.--The

following shall apply:

(1) For a life insurance policy issued on or after

January 1, 1985, for which the gross premium in the first

policy year exceeds that of the second year and for which no

comparable additional benefit is provided in the first year

for the excess and which provides an endowment benefit or a

20160HB1766PN2862 - 41 -

cash surrender value or a combination in an amount greater

than the excess premium, the provisions of this section shall

be applied as if the method actually used in calculating the

reserve for the policy were the method described in section

7118 (relating to reserve valuation method for life insurance

and endowment benefits), ignoring section 7118(b).

(2) The minimum reserve at each policy anniversary of

the policy under paragraph (1) shall be the greater of the

minimum reserve calculated in accordance with section 7118,

including section 7118(b), and the minimum reserve calculated

in accordance with this section.

§ 7123. Reserve calculation for indeterminate premium plans.

(a) Applicability.--This section shall apply to either of

the following:

(1) A plan of life insurance that provides for future

premium determination, the amounts of which are to be

determined by the insurance company based on then estimates

of future experience.

(2) A plan of life insurance or annuity that is of a

nature that the minimum reserves cannot be determined by the

methods described in any of the following:

(i) Section 7118 (relating to reserve valuation

method for life insurance and endowment benefits).

(ii) Section 7119 (relating to reserve valuation

method for annuity and pure endowment benefits).

(iii) Section 7122 (relating to reserve calculation

for valuation net premium exceeding gross premium

charged).

(b) Nature and calculation of reserves.--The reserves that

are held under a plan under this section shall be:

20160HB1766PN2862 - 42 -

(1) Appropriate in relation to the benefits and the

pattern of premiums for the plan.

(2) Computed by a method that is consistent with the

principles of this chapter, as determined by regulation.

§ 7124. Minimum standard for accident and health insurance

contracts.

(a) Annual valuation of reserve liabilities.--On an annual

basis as of the December 31 of the preceding year, the

commissioner shall value, or cause to be valued, or require the

insurer to value, or cause to be valued, the reserve liabilities

of each company doing business in this Commonwealth, with

respect to all the accident and health insurance contracts of

the company.

(b) Issuances after operative date of valuation manual.--For

accident and health insurance contracts issued on or after the

operative date of the valuation manual, the standard prescribed

in the valuation manual shall be the minimum standard of

valuation required under section 7112 (relating to reserve

valuation for policies and contracts issued on or after

operative date of valuation manual).

For accident and health insurance contracts issued on or after

May 17, 1921, and prior to the operative date of the valuation

manual, the following shall apply:

(1) The minimum standard of valuation shall be the

standard adopted by the commissioner by regulation.

(2) The company shall maintain a claim reserve for

incurred but unpaid claims and an active life reserve that

shall:

(i) place a sound value on its liabilities under

20160HB1766PN2862 - 43 -

these contracts; and

(ii) be not less than the reserve according to

appropriate standards as prescribed by regulation.

(3) The active life reserve shall not be less in the

aggregate than the pro rata gross unearned premiums for the

contracts.

(d) Foreign or alien insurers.--For a foreign or alien

insurer, the commissioner may accept a like valuation of the

insurance supervising official of the state, province or foreign

country in which that insurer is domiciled, if that valuation is

made upon a basis and according to standards producing an

aggregate reserve not less than contained in this chapter.

(e) Applicability.--This section shall not apply to total

and permanent disability benefits supplementary to life

insurance or annuity policies or contracts.

§ 7125. Valuation manual for policies issued on or after

operative date of valuation manual.

(a) Standard in valuation manual.--Except as provided in

subsection (c) or (e), for policies issued on or after the

operative date of the valuation manual, the standard prescribed

in the valuation manual shall be the minimum standard of

valuation required under 7112 (relating to reserve valuation for

policies and contracts issued on or after operative date of

valuation manual).

(b) Specific information in valuation manual.--The valuation

manual shall specify:

(1) Minimum valuation standards for and definitions of

the policies or contracts subject to section 7112, which

shall be:

(i) The commissioners reserve valuation method for

20160HB1766PN2862 - 44 -

life insurance contracts other than annuity contracts.

(ii) The commissioners annuity reserve valuation

method for annuity contracts.

(iii) Minimum reserves for all other policies or

contracts.

(2) Which policies or contracts or types of policies or

contracts are subject to the requirements of a principle-

based valuation in section 7126(a) (relating to requirements

of principle-based valuation) and the minimum valuation

standards consistent with those requirements.

(3) For policies and contracts subject to a principle-

based valuation under section 7126:

(i) Requirements for the format of reports to the

commissioner under section 7126(b)(3), including

information necessary to determine if the valuation is

appropriate and in compliance with this chapter.

(ii) Assumptions prescribed for risks over which the

company does not have significant control or influence.

(iii) Procedures for corporate governance and

oversight of the actuarial function and a process for

appropriate waiver or modification of those procedures.

(4) For policies not subject to a principle-based

valuation under section 7126, the minimum valuation standard,

which shall:

(i) be consistent with the minimum standard of

valuation prior to the operative date of the valuation

manual; or

(ii) develop reserves that quantify the benefits,

guarantees and the funding associated with the contracts

and their risks at a level of conservatism that reflects

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conditions that include unfavorable events having a

reasonable probability of occurring.

(5) Other requirements, including those relating to

reserve methods, models for measuring risk, generation of

economic scenarios, assumptions, margins, use of company

experience, risk measurement, disclosure, certifications,

reports, actuarial opinions and memorandums, transition rules

and internal controls.

(6) The data and form of the data required under section

7127 (relating to experience reporting for policies in force

on or after operative date of valuation manual) and with whom

the data must be submitted. The valuation manual may specify

other requirements, including data analyses and reporting of

analyses.

absence of a specific valuation requirement or if a specific

valuation requirement in the valuation manual is not, in the

opinion of the commissioner, in compliance with this chapter,

the company shall, with respect to those requirements, comply

with minimum valuation standards prescribed by the commissioner

by regulation.

(d) Actuarial examination and review.--The following shall

apply:

(1) The commissioner may engage a qualified actuary, at

the expense of a company, to:

(i) perform an actuarial examination of the company

and opine on the appropriateness of any reserve

assumption or method used by the company; or

(ii) review and opine on the company's compliance

with any requirement under this chapter.

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(2) The commissioner may rely on the opinion regarding

provisions contained in this chapter of a qualified actuary

engaged by the commissioner of another state, district or

territory of the United States.

(3) As used in this subsection, the term "engage" shall

include employment and contracting.

(e) Change, adjustment and disciplinary action.--The

commissioner may require a company to change any assumption or

method or adjust company reserves if, in the opinion of the

commissioner, the change or adjustment is necessary to comply

with the requirements of the valuation manual or this chapter.

The commissioner may take disciplinary action as permitted by

law.

§ 7126. Requirements of principle-based valuation.

(a) Characteristics of valuation.--For policies or contracts

specified in the valuation manual, a company shall establish

reserves using a principle-based valuation that:

(1) Quantifies benefits and guarantees and the funding

associated with contracts and their risks at a level of

conservatism that reflects conditions that include

unfavorable events having a reasonable probability of

occurring during the lifetime of the contracts. For polices

or contracts with significant tail risk, the valuation must

reflect conditions appropriately adverse to quantify the tail

risk.

(2) Incorporates assumptions, risk analysis methods and

financial models and management techniques that are

consistent with, but not necessarily identical to, those

utilized within the company's overall risk assessment

process, while recognizing potential differences in financial

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reporting structures and any prescribed assumptions or

methods.

(3) Incorporates assumptions that are:

(i) Prescribed in the valuation manual.

(ii) If not prescribed in the valuation manual,

established by utilizing either of the following:

(A) The company's available experience, to the

extent it is relevant and statistically credible.

(B) Other relevant and statistically credible

experience, to the extent that company data is not

available, relevant or statistically credible.

(4) Provides margins for uncertainty, including adverse

deviation and estimation error, so that the greater the

uncertainty, the larger the margin and resulting reserve.

(b) Company requirements.--A company using a principle-based

valuation for one or more policies or contracts subject to this

section as specified in the valuation manual shall:

(1) Establish procedures for corporate governance and

oversight of the actuarial valuation function consistent with

those described in the valuation manual.

(2) Provide to the commissioner and the board of

directors an annual certification of the effectiveness of the

internal controls with respect to the principle-based

valuation. These controls shall be designed to assure that

all material risks inherent in the liabilities and associated

assets subject to this valuation are included in the

valuation and that valuations are made in accordance with the

valuation manual. The certification shall be based on the

controls in place as of the end of the preceding calendar

year.

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(3) Develop and file with the commissioner upon request

a principle-based valuation report that complies with

standards prescribed in the valuation manual.

valuation may include a prescribed formulaic reserve component.

§ 7127. Experience reporting for policies in force on or after

operative date of valuation manual.

A company shall submit to the commissioner, or the

commissioner's designee or agent, mortality, morbidity,

policyholder behavior or expense experience and other data as

prescribed in the valuation manual.

SUBCHAPTER C

CONFIDENTIALITY

Sec.

7131. Confidential information defined.

7132. General rule for confidential information.

7133. Private civil actions.

7134. Use of confidential information by department.

7135. Agreements.

7136. No waiver of privilege or confidentiality.

7137. Limited exceptions.

§ 7131. Confidential information defined.

As used in this subchapter, the following words and phrases

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Confidential information." Any of the following:

(1) A memorandum in support of an opinion submitted

under section 7113 (relating to actuarial opinion of reserves

prior to operative date of valuation manual) or 7114

(relating to actuarial opinion of reserves on or after

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operative date of valuation manual) and any other documents,

materials and other information, including all working papers

and copies thereof, created, produced or obtained by or

disclosed to the commissioner or any other person in

connection with the memorandum.

(2) All documents, materials and other information,

including all working papers and copies thereof, created,

produced or obtained by or disclosed to the commissioner or

any other person in the course of an examination made under

section 7125(d) (relating to valuation manual for policies

issued on or after operative date of valuation manual),

except that confidential information shall not include an

examination report or other material prepared in connection

with an examination made under Article IX of the act of May

17, 1921 (P.L.789, No.285), known as The Insurance Department

Act of 1921, to the extent not held to be private and

confidential information under section 905 of The Insurance

Department Act of 1921.

(3) Reports, documents, materials and other information

developed by a company in support of or in connection with an

annual certification by the company under section 7126(b)(2)

(relating to requirements of principle-based valuation),

which evaluates the effectiveness of the company's internal

controls regarding a principle-based valuation, and any other

documents, materials and other information, including all

working papers and copies thereof, created, produced or

obtained by or disclosed to the commissioner or any other

person in connection with the reports, documents, materials

and other information.

(4) A principle-based valuation report developed under

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section 7126(b)(3) and any other documents, materials and

other information, including all working papers and copies

thereof, created, produced or obtained by or disclosed to the

commissioner or any other person in connection with the

report.

(5) Experience data, experience materials and any other

documents, materials, data and other information, including

all working papers and copies thereof, created, produced or

obtained by or disclosed to the commissioner or any other

person in connection with experience data or experience

materials.

§ 7132. General rule for confidential information.

Except as otherwise provided in this subchapter, confidential

information shall be privileged and given confidential treatment

and shall not be:

(1) Subject to discovery or admissible as evidence in a

private civil action.

(2) Subject to subpoena.

(3) Subject to the act of February 14, 2008 (P.L.6,

No.3), known as the Right-to-Know Law.

§ 7133. Private civil actions.

The commissioner, department or any person who receives

documents, materials or other information while acting under the

authority of the commissioner or department or with whom the

documents, materials or other information are shared under this

chapter may not be permitted or required to testify in any

private civil action concerning any confidential information

covered under this subchapter.

§ 7134. Use of confidential information by department.

To assist in the performance of its duties, the department

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may:

(1) Use confidential information in the furtherance of

any regulatory or legal action brought against a company as a

part of the department's official duties.

(2) Share confidential information with regulatory or

law enforcement officials of this Commonwealth or other

jurisdictions, IAIS, NAIC and its affiliates and

subsidiaries, group-wide supervisors and members of a

supervisory college under section 1406.1 of The Insurance

Company Law of 1921, if prior to receiving the confidential

information the recipient agrees, and has the legal authority

to agree, to maintain the confidential and privileged status

of the confidential information in the same manner and to the

same extent as required for the commissioner.

(3) Receive, and shall maintain as confidential, any

confidential information from the Actuarial Board for

Counseling and Discipline or its successor, from NAIC and its

affiliates and subsidiaries and from regulatory and law

enforcement officials of this Commonwealth or other

jurisdictions with the understanding that the documents,

materials or other information received are confidential by

law in those jurisdictions and shall be given the same

confidential treatment provided by this subchapter.

§ 7135. Agreements.

The department may enter into agreements governing sharing

and use of confidential information consistent with this

subchapter.

§ 7136. No waiver of privilege or confidentiality.

(a) Sharing of information by department.--The sharing of

confidential information to or by the department as authorized

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by section 7134 (relating to use of confidential information by

department) shall not constitute a waiver of any applicable

privilege or claim of confidentiality in the documents,

materials or information.

(b) Privilege established in other jurisdictions.--A

privilege established under the law of any state or jurisdiction

that is substantially similar to the privilege established under

this subchapter shall be available and enforced in any

proceeding in, and in any court of, this Commonwealth.

§ 7137. Limited exceptions.

Notwithstanding section 7132 (relating to general rule for

confidential information), confidential information as defined

in section 7131(1) and (4) (relating to confidential information

defined):

(1) May be shared with the Actuarial Board for

Counseling and Discipline if the information is required for

the purpose of professional disciplinary proceedings and the

Actuarial Board for Counseling and Discipline recipient

agrees, and has the legal authority to agree, to maintain the

confidentiality and privileged status of the documents,

materials, data and other information in the same manner and

to the same extent as required for the commissioner.

(2) May be subject to subpoena for the purpose of

defending an action seeking damages from the actuary

submitting the related memorandum in support of an opinion

submitted under section 7113 (relating to actuarial opinion

of reserves prior to operative date of valuation manual) or

7114 (relating to actuarial opinion of reserves on or after

operative date of valuation manual) or a principle-based

valuation report developed under section 7126(b)(3) (relating

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to requirements of principle-based valuation) by reason of an

action required by this chapter or regulations promulgated

under this chapter.

(3) May be released by the commissioner with the written

consent of the company.

(4) Is no longer confidential once any portion of a

memorandum in support of an opinion submitted under section

7113 or 7114 or a principle-based valuation report developed

under section 7126(b)(3) is:

(i) cited by the company in its marketing materials;

(ii) publicly released to a governmental agency

other than a State insurance department; or

(iii) released by the company to the news media.

SUBCHAPTER D

EXEMPTIONS

Sec.

7141. Single-state company exemption.

7142. Small company exemption.

§ 7141. Single-state company exemption.

(a) Requirements.--A company may file a written request with

the commissioner to exempt specific product forms or product

lines issued by a domestic company from the requirements of

sections 7125 (relating to valuation manual for policies issued

on or after operative date of valuation manual) and 7126

(relating to requirements of principle-based valuation) if the

company:

(1) Is licensed and doing business only in this

Commonwealth.

(2) Computes reserves using assumptions and methods used

prior to the operative date of the valuation manual in

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addition to any requirements established by the commissioner

and promulgated by regulation.

(b) Written exemption.--An exemption under subsection (a)

that is granted by the commissioner shall be in writing.

under subsection (a) if the conditions under subsection (a)(1)

and (2) are no longer met after 180 days' written notice to the

company regarding the conditions.

(d) Additional effects of exemption.--A company granted an

exemption under subsection (a) shall also be exempt from any

requirement under this chapter that is created by a reference to

section 7125 or 7126 for the product forms or product lines

exempted.

§ 7142. Small company exemption.

(a) Requirements.--A company seeking an exemption for any of

its ordinary life policies may file a statement of exemption for

the current calendar year with its domestic commissioner prior

to July 1 of that year if the following conditions are met:

(1) The company has less than $100,000,000 of ordinary

life premiums.

(2) Any universal life secondary guarantee policies

issued or assumed by the company with an issue date on or

after the operative date of the valuation manual meet the

definition of a nonmaterial secondary guarantee universal

life product.

(b) Certification.--The statement of exemption under

subsection (a) must certify that:

(1) The conditions under subsection (a) are met based on

premiums and other values from the prior calendar year's

financial statements.

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(2) Any universal life secondary guarantee business

issued since the operative date of the valuation manual meets

the definition of a nonmaterial secondary guarantee universal

life product.

under subsection (a) shall also be included with the NAIC filing

for the second quarter of that year.

(d) Rejection.--If the commissioner finds that the

conditions in subsection (a) are not met, the commissioner may

reject the statement of exemption prior to September 1 and

require the company to follow the requirements of the valuation

manual minimum standard entitled VM-20 for the ordinary life

policies.

(e) Approval.--If the statement of exemption under

subsection (a) is granted, the minimum reserve requirements for

the exempt company's ordinary life policies shall be as set

forth in the valuation manual.

(f) Definitions.--As used in this section, the following

words and phrases shall have the meanings given to them in this

subsection unless the context clearly indicates otherwise:

"Nonmaterial secondary guarantee universal life product." A

universal life product where the secondary guarantee meets the

following parameters at the time of issue:

(1) The policy has only one secondary guarantee, which

is in the form of a required premium consisting of either a

specified annual or cumulative premium.

(2) The duration of the secondary guarantee for each

policy is no longer than 20 years from issue through issue

age 60, grading down by two-thirds year for each higher issue

age to age 82, and thereafter five years.

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(3) The present value of the required premium under the

secondary guarantee must be at least as great as the present

value of net premiums resulting from the appropriate

valuation basic table over the course of the maximum

secondary guarantee duration allowable under the contract in

aggregate and subject to the duration limit under paragraph

(2). The following shall apply:

(i) The present value shall use minimum allowable

valuation basic table rates, where preferred tables are

subject to existing qualification requirements, and the

maximum valuation interest rate as defined in VM-20

section 3(C)(2).

(ii) The minimum premiums shall be the annual

required premiums over the course of the maximum

secondary guarantee duration.

"Ordinary life premiums." Direct premiums plus reinsurance

assumed premiums from an unaffiliated company from the ordinary

life line of business reported in Exhibit 1-Part 1, entitled

Premiums and Annuity Considerations for Life and Accident and

Health Contracts, of the prior calendar year's life, accident

and health annual statement or the fraternal annual statement.

SUBCHAPTER E

MISCELLANEOUS PROVISIONS

Sec.

7151. Effect on The Insurance Company Law of 1921.

§ 7151. Effect on The Insurance Company Law of 1921.

(a) Fraternal benefit organizations.--The following shall

apply:

(1) Section 2451(b) of The Insurance Company Law of 1921

shall apply to the minimum reserves for certificates issued

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after February 11, 1994 and prior to the effective date of

this chapter.

(2) The minimum reserves for certificates issued on or

after the effective date of this chapter shall be governed by

this chapter.

(b) Standard nonforfeiture law for life insurance.--

Notwithstanding any provision of The Insurance Company Law of

1921:

(1) For policies issued prior to the operative date of

the valuation manual, any commissioners standard ordinary

mortality table that was adopted after 1980 by NAIC and is

approved by regulation for use in determining the minimum

nonforfeiture standard may be substituted for the

Commissioners 1980 Standard Ordinary Mortality Table with or

without Ten-Year Select Mortality Factors or for the

Commissioners 1980 Extended Term Insurance Table.

(2) For policies issued on or after the operative date

of the valuation manual, the valuation manual shall provide

the commissioners standard mortality table for use in

determining the minimum nonforfeiture standard that may be

substituted for the Commissioners 1980 Standard Ordinary

Mortality Table with or without Ten-Year Select Mortality

Factors or for the Commissioners 1980 Extended Term Insurance

Table. If the commissioner approves by regulation any

commissioners standard ordinary mortality table adopted by

NAIC for use in determining the minimum nonforfeiture

standard for policies issued on or after the operative date

of the valuation manual, that minimum nonforfeiture standard

shall supersede the minimum nonforfeiture standard provided

by the valuation manual.

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(3) For policies issued prior to the operative date of

the valuation manual, any commissioners standard industrial

mortality table that was adopted after 1980 by NAIC and that

is approved by regulation for use in determining the minimum

nonforfeiture standard may be substituted for the

Commissioners 1961 Standard Industrial Mortality Table or the

Commissioners 1961 Industrial Extended Term Insurance Table.

(4) For policies issued on or after the operative date

of the valuation manual, the valuation manual shall provide

the commissioners standard mortality table for use in

determining the minimum nonforfeiture standard that may be

substituted for the Commissioners 1961 Standard Industrial

Mortality Table or the Commissioners 1961 Industrial Extended

Term Insurance Table. If the commissioner approves by

regulation any commissioners standard industrial mortality

table adopted by the NAIC for use in determining the minimum

nonforfeiture standard for policies issued on or after the

operative date of the valuation manual, that minimum

nonforfeiture standard shall supersede the minimum

nonforfeiture standard provided by the valuation manual.

provision of The Insurance Company Law of 1921, the

nonforfeiture rate shall be as follows:

(1) For policies issued prior to the operative date of

the valuation manual, the nonforfeiture interest rate per

year for any policy issued in a particular calendar year

shall be equal to 125% of the calendar year statutory

valuation interest rate for the policy as defined in section

7117 (relating to computation of minimum standard by calendar

year of issue) rounded to the nearest 0.25%, but the

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nonforfeiture interest rate shall not be less than 4%.

(2) For policies issued on and after the operative date

of the valuation manual, the nonforfeiture interest rate per

year for any policy issued in a particular calendar year

shall be provided by the valuation manual.

Section 2. Repeals are as follows:

(1) The General Assembly declares that the repeals under

paragraphs (2) and (3) are necessary to effectuate the

addition of 40 Pa.C.S. Pt. IV.

(2) Sections 301, 301.1, 303 and 311.1 of the act of May

17, 1921 (P.L.789, No.285), known as The Insurance Department

Act of 1921, are repealed.

(3) Section 410A(e)(8)(F) and (G) and (9) of the act of

May 17, 1921 (P.L.682, No.284), known as The Insurance

Company Law of 1921, are repealed.

(4) All other acts and parts of acts are repealed

insofar as they are inconsistent with this act.

Section 3. This act shall take effect in 30 days.

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