BEFORE THE COMMISSIONER OF SECURITIES AND INSURANCE

MONTANA STATE AUDITOR

 

In the matter of  the amendment of ARM  6.6.6705, 6.6.6707, 6.6.6709, 6.6.6711, and 6.6.6713 pertaining to Valuation of Life Insurance Policies

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NOTICE OF PUBLIC HEARING ON PROPOSED AMENDMENT

 

TO:  All Concerned Persons

 

1.  On January 4, 2012, at 10:30 a.m., the Office of the Commissioner of Securities and Insurance, Montana State Auditor, Monica J. Lindeen, will hold a public hearing in the 2nd floor conference room, at the Office of the Commissioner of Insurance, Montana State Auditor, 840 Helena Ave., Helena, Montana, to consider the proposed amendment of the above-stated rules.

 

2.  The Office of the Commissioner of Securities and Insurance, Montana State Auditor, will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing, or need an alternative accessible format of this notice.  If you require an accommodation, contact the department no later than 5:00 p.m., December 28, 2011, to advise us of the nature of the accommodation that you need.  Please contact Darla Sautter, Office of the Commissioner of Securities and Insurance, Montana State Auditor, 840 Helena Avenue, Helena, Montana, 59601; telephone (406) 444-2726; TDD (406) 444-3246; fax (406) 444-3499; or e-mail [email protected].

 

3.  The rules as proposed to be amended provide as follows, stricken matter interlined, new matter underlined:

 

            6.6.6705  Definitions  For purposes of these rules:

            (1) and (2) remain the same.

            (a)  The length of a particular contract segment shall be set equal to the minimum of the value t for which G_t is greater than R_t (if G_t never exceeds R_t the segment length is deemed to be the number of years from the beginning of the segment to the mandatory expiration date of the policy), where G_t and R_t are defined as follows:

 

                        GP_x+k+t

            G_t =    __________

                        GP_x+k+t-1

 

                        where:

 

                        x =       original issue age;

 

            k =       the number of years from the date of issue to the beginning of the segment;

 

                        t =        1, 2, ...; t is reset to 1 at the beginning of each segment;

 

            GP_x+k+t-1 =       Guaranteed gross premium per thousand of face amount for year t of the segment, ignoring policy fees only if level for the premium paying period of the policy.

 

                        q_x+k+t

            R_t =     __________             However, R_t may be increased or

                        q_x+k+t-1                         decreased by one percent in any

                                                            policy year, at the company's insurer's

                                                            option, but R_t shall not be less

                                                            than one;

            where:

 

                        x, k and t are as defined above, and

 

                        q_x+k+t-1 =          valuation mortality rate for deficiency reserves in policy year k+t but using the mortality of ARM 6.6.6707(2)(b) if ARM 6.6.6707(3) is elected for deficiency reserves.

 

            However, if GP_x+k+t is greater than 0 and GP_x+k+t-1 is equal to 0, G_t shall be deemed to be 1000.  If GP_x+k+t and GP_x+k+t-1 are both equal to 0, G_t shall be deemed to be 0.

 

            (3) and (4) remain the same.

            (5)  "Maximum valuation interest rates" means the interest rates defined in 33-2-527, MCA, (Computation of Minimum Standard by Calendar Year of Issue) that are to be used in determining the minimum standard for the valuation of life insurance policies.

            (6) remains the same.

            (7)  "Scheduled gross premium" means the smallest illustrated gross premium at issue for other than universal life insurance policies.  For universal life insurance policies, scheduled gross premium means the smallest specified premium described in ARM 6.6.6711(3), if any, or else the minimum premium described in ARM 6.6.6711(4).

            (8) through (12) remain the same.

 

           AUTH:  33-1-313, MCA

           IMP:  33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527,

33-2-528, 33-2-529, 33-2-531, 33-2-537, MCA

 

           6.6.6707  General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves  (1)  At the election of the company insurer for any one or more specified plans of life insurance, the minimum mortality standard for basic reserves may be calculated using the 1980 CSO valuation tables with select mortality factors (or any other valuation mortality table adopted by the NAIC after January 1, 2000, and promulgated by rule by the commissioner for this purpose).  If select mortality factors are elected, they may be:

           (a) remains the same.

           (b)  the select mortality factors in ARM 6.6.6713; or.

           (2)  dDeficiency reserves, if any, are calculated for each policy as the excess, if greater than 0, of the quantity A over the basic reserve.  The quantity A is obtained by recalculating the basic reserve for the policy using guaranteed gross premiums instead of net premiums when the guaranteed gross premiums are less than the corresponding net premiums.  At the election of the company insurer for any one or more specified plans of insurance, the quantity A and the corresponding net premiums used in the determination of quantity A may be based upon the 1980 CSO valuation tables with select mortality.  If select mortality factors are elected, they may be:

           (a) through (c)(i) remain the same.

           (ii)  X shall not be less than 20%;

           (iii)  X shall not decrease in any successive policy years;

           (iv)(ii)   X is such that, when using the valuation interest rate used for basic reserves, (2)(c)(iv)(A) (2)(c)(ii)(A) is greater than or equal to (2)(c)(iv)(B) (2)(c)(ii)(B) as follows:

           (A) and (B) remain the same.

           (v) and (vi) remain the same, but are renumbered (iii) and (iv).

           (vii)(v)  the appointed actuary may decrease X at any valuation date as long as X does not decrease in any successive policy years and as long as it continues to meet all the requirements of (2)(c); and

           (viii) and (ix) remain the same, but are renumbered (vi) and (vii).

           (A)  the appointed actuary shall annually prepare an actuarial opinion and memorandum for the company insurer in conformance with the requirements of ARM 6.6.6504(4) 6.6.6505; and

           (B)  the appointed actuary shall disclose, in the regulatory asset adequacy issues summary as required in ARM 6.6.6509, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods; and

           (B) remains the same but is renumbered (C).

           (d) through (5)(c) remain the same.

           (6)  The commissioner may require that the company insurer document the extent of the adequacy of reserves for specified blocks, including but not limited to policies issued prior to January 1, 2000.  This documentation may include a demonstration of the extent to which aggregation with other nonspecified blocks of business is relied upon in the formation of the appointed actuary opinion pursuant to and consistent with the requirements of ARM 6.6.6505.

 

           AUTH:  33-1-313, MCA

           IMP:  33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-537, MCA

 

           6.6.6709  Calculation of Minimum Valuation Standard for Policies with Guaranteed Nonlevel Gross Premiums or Guaranteed Nonlevel Benefits (Other than Universal Life Policies)  (1) through (7) remain the same.

           (8)  If the assuming company insurer chooses this optional exemption, the ceding company's insurer's reinsurance reserve credit shall be limited to the amount of reserve held by the assuming company for the affected policies.

           (9)  Optional exemption for attained-age-based yearly renewable term (YRT) life insurance policies.  At the option of the company insurer, the following approach for reserves for attained-age-based yearly renewable term (YRT) life insurance policies may be used:

           (a) through (15)(c) remain the same.

 

           AUTH:  33-1-313, MCA

           IMP:  33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-537, MCA

 

           6.6.6711  Calculation of Minimum Valuation Standard for Flexible Premium and Fixed Premium Universal Life Insurance Policies That Contain Provisions Resulting in the Ability of a Policyowner to Keep a Policy in Force Over a Secondary Guarantee Period  (1) through (6) remain the same.

           (7)  Basic reserves for the secondary guarantees shall be the segmented reserves for the secondary guarantee period.  In calculating the segments and the segmented reserves, the gross premiums shall be set equal to the specified premiums, if any, or otherwise to the minimum premiums, that keep the policy in force, and the segments will be determined according to the contract segmentation method as defined in ARM 6.6.6705(3)(2).

           (8) through (9)(b) remain the same.

 

           AUTH:  33-1-313, MCA

           IMP:  33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-537, MCA

 

           6.6.6713  Select Mortality Factors  (1) remains the same.

           (2)  The 6 six tables of select mortality factors contained herein include:

           (a) through (e) remain the same.

           (f)  female, smoker.

           (3)  These tables apply to both age last birthday and age nearest birthday mortality tables.

           (3) and (4) remain the same, but are renumbered (4) and (5).

 

           AUTH:  33-1-313, MCA

           IMP:  33-2-521, 33-2-522, 33-2-523, 33-2-524, 33-2-525, 33-2-526, 33-2-527, 33-2-528, 33-2-529, 33-2-531, 33-2-537, MCA

 

            4.  REASONABLE NECESSITY STATEMENT:  The Commissioner of Securities and Insurance, Montana State Auditor, Monica J. Lindeen (commissioner), is the statewide elected official responsible for administering the Montana Insurance Code and regulating insurers.  The commissioner is a member of the National Association of Insurance Commissioners (NAIC).  The NAIC is an organization of insurance regulators from the 50 states, the District of Columbia, and the U.S. territories.  The NAIC provides a forum for the development of uniform policy and regulation when uniformity is appropriate.

 

Insurer solvency is a principal area in which uniformity is efficient and effective for insurers and regulators.  Through development of model laws and rules, the NAIC promotes the standard valuation of life insurance policies issued by life insurers.  Valuing the in-force life insurance policies is necessary in determining the liability reserves (reserves) to be held by life insurers.

 

In this regard, the NAIC has promulgated model rules about valuation of in-force life insurance policies.  Valuation of the in-force life insurance policies is necessary to determine reserves to be held by life insurers to maintain solvency.  Life insurers are required to report annually to the commissioner regarding the adequacy of their reserves.

 

The existing rules at ARM 6.6.6701 through 6.6.6713 are based on the NAIC's Valuation of Life Insurance Policies Model Regulation.  The commissioner is proposing to amend the existing rules for consistency with the current NAIC model (2009).  Additionally, the commissioner is proposing amendments to make corrections to the existing rules.

 

The commissioner is proposing to amend the existing rules to replace "company" with "insurer."  The Montana Insurance Code does not define company, but does define insurer at 33-1-201(6), MCA.  Additionally, these rules implement the standard valuation law of life insurance laws at 33-2-521 through 33-2-529, MCA, which use the term "insurer."  This change is necessary to clarify that the rules apply to insurers.

 

With regard to ARM 6.6.6705(5), the commissioner is proposing to remove "(Computation of Minimum Standard by Calendar Year of Issue)" because this is not the correct caption or catchline for the statute referenced.  The change is necessary to correct an error.

 

In ARM 6.6.6705(7), the commissioner is proposing to add references to the specific sections of ARM 6.6.6711.  The change is necessary to make the rule clearer.

 

In ARM 6.6.6707(2)(c), the commissioner is proposing to remove (ii) and (iii), which impose certain restrictions on X in regard to durations in the first segment when select mortality factors are used in calculating deficiency reserves.  Removing (ii) and (iii) would allow X to be less than 20% and to decrease in any successive policy years, thereby allowing actuarial judgment to be used in selecting an appropriate percentage to apply to the select mortality factors in ARM 6.6.6713.  To assure that the percentage selected through actuarial judgment is reasonable, the appointed actuary is required under ARM 6.6.6505 to opine whether the mortality rates resulting from the application of that percentage meet the requirements for deficiency reserves.  Further, the actuarial opinion must be supported by an actuarial report subject to the appropriate Actuarial Standards of Practice promulgated by the Actuarial Standards Board of the American Academy of Actuaries.  The changes to ARM 6.6.6707(2)(c) are necessary for consistency with the NAIC model.

 

In ARM 6.6.6707(2)(c)(iv), renumbered as ARM 6.6.6707(2)(c)(ii), the proposed change would revise the ARM citations referenced in the rule.  This change is necessary to correct the citations to reflect new numbering resulting from other changes to the rule and is consistent with the NAIC model.

 

In ARM 6.6.6707(2)(c)(vii), renumbered as ARM 6.6.6707(2)(c)(v), the proposed change would remove the language about X not decreasing in any successive policy year.  This change is necessary for consistency with other proposed amendments to ARM 6.6.6707(2)(c) and is consistent with the NAIC model.

 

The proposed change to ARM 6.6.6707(2)(c)(ix)(A), renumbered as ARM 6.6.6707(2)(c)(vii)(A), would revise the ARM citation referenced in the rule.  This change is necessary to correct the citation and is consistent with the NAIC model.

 

The commissioner is proposing to add new (B) to ARM 6.6.6707(2)(c)(vii) which provides that the appointed actuary disclose in the regulatory asset adequacy issues summary the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods.  This change is necessary for consistency with proposed changes to the ARM 6.6.6509(3)(d) regarding Actuarial Opinions and published in MAR Notice No. 6-197 on October 27, 2011.  This change is also consistent with the NAIC model.

 

The proposed changes to ARM 6.6.6709(9) would remove the phrase, "Optional exemption for attained-age-based yearly renewable term (YRT) life insurance policies" and would add "yearly renewable term" subsequently to clarify the YRT acronym.  The phrase is not a sentence and seems to serve as a caption or catchline for (9).  Removing the phrase does not change the substance of the rule and is necessary for consistency with the rule writing requirements of the Secretary of State's Office.

 

In ARM 6.6.6711(7), the commissioner is proposing to revise the ARM citation referenced in the rule.  The change is necessary to correct the citation and is consistent with the NAIC model.

 

In ARM 6.6.6713, the commissioner is proposing to write out the number six and to revise (2) to make the last sentence a new (3).  These changes are necessary to make the rule more clear and are consistent with the NAIC model.

 

            5.  Concerned persons may submit their data, views, or arguments concerning the proposed actions either in writing or orally at the hearing.  Written data, views, or arguments may also be submitted to Jennifer Massman, Staff Attorney, Office of the Commissioner of Securities and Insurance, Montana State Auditor, 840 Helena Ave., Helena, Montana, 59601; telephone (406) 444-2040; fax (406) 444-3499; or e-mail [email protected], and must be received no later than 5:00 p.m., January 12, 2012.

 

            6.  Jennifer L. Massman, Staff Attorney, has been designated to preside over and conduct this hearing.

 

            7.  The Office of the Commissioner of Securities and Insurance, Montana State Auditor maintains a list of concerned persons who wish to receive notices of rulemaking actions proposed by this agency.  Persons who wish to have their name added to the list shall make a written request that includes the name and mailing address of the person to receive notices and specifies for which program the person wishes to receive notices.  Such written request may be mailed or delivered to Darla Sautter, at the Office of the Commissioner of Securities and Insurance, Montana State Auditor, 840 Helena Ave., Helena, Montana, 59601; telephone (406) 444-2726; fax (406) 444-3499; or e-mail [email protected] or may be made by completing a request form at any rules hearing held by the department.

 

            8.  An electronic copy of this Proposal Notice is available through the Secretary of State's web site at http://sos.mt.gov/ARM/Register.  The Secretary of State strives to make the electronic copy of the notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered.  In addition, although the Secretary of State works to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

 

            9.  Pursuant to 2-4-302, MCA, the bill sponsor contact requirements do not apply.

 

            /s/Brett O'Neil_____                         /s/Jesse Laslovich_____

            Brett O'Neil                                        Jesse Laslovich

            Rule Reviewer                                 Chief Legal Counsel

 

            Certified to the Secretary of State November 28, 2011.