WSR 11-12-069

PROPOSED RULES

OFFICE OF

INSURANCE COMMISSIONER

[ Insurance Commissioner Matter No. R 2011-03 -- Filed May 31, 2011, 7:52 a.m. ]

     Original Notice.

     Preproposal statement of inquiry was filed as WSR 11-04-090.

     Title of Rule and Other Identifying Information: Amendment to the mortality rules as set forth in chapter 284-74 WAC.

     Hearing Location(s): Insurance Commissioner's Office, Room TR 120, 5000 Capitol Boulevard, Tumwater, WA 98504-0255, http://www.insurance.wa.gov/about/directions.shtml, on July 13, 2011, at 10:00 a.m.

     Date of Intended Adoption: July 18, 2011.

     Submit Written Comments to: Donna Dorris, P.O. Box 40258, Olympia, WA 98504-0258, e-mail donnad@oic.wa.gov, fax (360) 586-3109, by July 12, 2011.

     Assistance for Persons with Disabilities: Contact Lori [Lorie] Villaflores by July 12, 2011, TTY (360) 586-0241 or (360) 725-7087.

     Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: This proposal adopts the NAIC model regulation number 815, permitting the recognition of preferred mortality tables for use in determining minimum reserve liabilities.

     Reasons Supporting Proposal: Adopting this model provides uniformity with many other states who have already adopted the NAIC preferred mortality tables.

     Statutory Authority for Adoption: RCW 48.02.060.

     Statute Being Implemented: RCW 48.74.030 (1)(b) and 48.02.160(1).

     Rule is not necessitated by federal law, federal or state court decision.

     Name of Proponent: Mike Kreidler, insurance commissioner, governmental.

     Name of Agency Personnel Responsible for Drafting: Donna Dorris, P.O. Box 40258, Olympia, WA 98504-0258, (360) 725-7040; Implementation: Beth Berendt, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7117; and Enforcement: Carol Sureau, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7050.

     No small business economic impact statement has been prepared under chapter 19.85 RCW. This regulation is essentially permissive in nature; that is, it allows but does not require an insurer to utilize the CSO preferred tables as the minimum valuation standard for their life policies. Because this proposed regulation does not require insurers to use these tables it does not impose an unavoidable cost on insurers. Therefore no small business economic impact statement study is needed.

     A cost-benefit analysis is not required under RCW 34.05.328. This regulation adopts NAIC model language and tables without any substantive change; allowance for such adoption is already provided in RCW 48.74.030. In addition, this proposed rule change is essentially permissive in nature in that it allows, but does not require, an insurer to utilize the CSO preferred tables as the minimum valuation standard for their life policies. Because this proposed regulation does not require insurers to use these tables it does not impose an unavoidable cost on insurers. Therefore no cost-benefit analysis is needed.

May 31, 2011

Mike Kreidler

Insurance Commissioner

OTS-3961.2


NEW SECTION
WAC 284-74-470   Purpose.   The purpose of these rules, WAC 284-74-470 through 284-74-510, is to recognize, permit and prescribe the use of mortality tables that reflect differences in mortality between preferred and standard lives in determining minimum reserve liabilities in accordance with RCW 48.74.030 (1)(a)(iii), and WAC 284-74-340 (1) and (2).

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NEW SECTION
WAC 284-74-480   Definitions.   (1) "2001 CSO mortality table" means that mortality table, consisting of separate rates of mortality for male and female lives, developed by the American Academy of Actuaries CSO task force from the Valuation Basic Mortality Table developed by the society of actuaries individual life insurance valuation mortality task force, and adopted by the National Association of Insurance Commissioners (NAIC) in December of 2002. The 2001 CSO mortality table is included in the Proceedings of the NAIC (2nd Quarter 2002) and supplemented by the 2001 CSO preferred class structure mortality table defined in subsection (2) of this section. Unless the context indicates otherwise, the 2001 CSO mortality table includes both the ultimate form and the select and ultimate form of that table and includes both the smoker and nonsmoker mortality tables and the composite mortality tables. It also includes both the age-nearest-birthday and age-last-birthday bases of the mortality tables. Mortality tables in the 2001 CSO mortality table include the following:

     (a) "2001 CSO mortality table (F)" means that mortality table consisting of the rates of mortality for female lives from the 2001 CSO mortality table.

     (b) "2001 CSO mortality table (M)" means that mortality table consisting of the rates of mortality for male lives from the 2001 CSO mortality table.

     (c) "Composite mortality tables" means mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers.

     (d) "Smoker and nonsmoker mortality tables" means mortality tables with separate rates of mortality for smokers and nonsmokers.

     (2) "2001 CSO preferred class structure mortality table" means mortality tables with separate rates of mortality for super preferred nonsmokers, preferred nonsmokers, residual standard nonsmokers, preferred smokers, and residual standard smoker splits of the 2001 CSO nonsmoker and smoker tables, as adopted by the NAIC at the September, 2006 national meeting and published in the NAIC Proceedings (3rd Quarter 2006). Unless the context indicates otherwise, the 2001 CSO preferred class structure mortality table includes both the ultimate form of that table and the select and ultimate form of that table. It includes both the smoker and nonsmoker mortality tables. It includes both the male and female mortality tables and the gender composite mortality tables. It also includes both the age-nearest-birthday and age-last-birthday bases of the mortality table.

     (3) "Statistical agent" means an entity with proven systems for protecting the confidentiality of individual insured and insurer information; demonstrated resources for and history of ongoing electronic communications and data transfer ensuring data integrity with insurers, which are its members or subscribers; and a history of and means for aggregation of data and accurate promulgation of the experience modifications in a timely manner.

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NEW SECTION
WAC 284-74-490   2001 CSO preferred class structure table.   (1) At the election of the company, for each calendar year of issue, for any one or more specific plans of insurance and subject to satisfying the conditions stated in this regulation, the 2001 CSO preferred class structure mortality table may be substituted in place of the 2001 CSO smoker or nonsmoker mortality table as the minimum valuation standard for policies issued on or after January 1, 2007.

     (2) For policies issued on or after January 1, 2004, and prior to January 1, 2007, these tables may be substituted with the consent of the commissioner and subject to the conditions of WAC 284-74-500. In determining such consent, the commissioner may rely on the consent of the commissioner of the company's state of domicile. No such election shall be made until the company demonstrates at least twenty percent of the business to be valued on this table is in one or more of the preferred classes.

     (3) A table from the 2001 CSO preferred class structure mortality table used in place of a 2001 CSO mortality table, pursuant to the requirements of this rule, will be treated as part of the 2001 CSO mortality table only for purposes of reserve valuation pursuant to the requirements of these rules, WAC 284-74-400 through 284-74-460.

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NEW SECTION
WAC 284-74-500   Conditions.   (1) For each plan of insurance with separate rates for preferred and standard nonsmoker lives, an insurer may use the super preferred nonsmoker, preferred nonsmoker, and residual standard nonsmoker tables to substitute for the nonsmoker mortality table found in the 2001 CSO mortality table to determine minimum reserves. At the time of election and annually thereafter, except for business valued under the residual standard nonsmoker table, the appointed actuary shall certify that:

     (a) The present value of death benefits over the next ten years after the valuation date, using the anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the valuation basic table corresponding to the valuation table being used for that class.

     (b) The present value of death benefits over the future life of the contracts, using anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the valuation basic table corresponding to the valuation table being used for that class.

     (2) For each plan of insurance with separate rates for preferred and standard smoker lives, an insurer may use the preferred smoker and residual standard smoker tables to substitute for the smoker mortality table found in the 2001 CSO mortality table to determine minimum reserves. At the time of election and annually thereafter, for business valued under the preferred smoker table, the appointed actuary shall certify that:

     (a) The present value of death benefits over the next ten years after the valuation date, using the anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the preferred smoker valuation basic table corresponding to the valuation table being used for that class.

     (b) The present value of death benefits over the future life of the contracts, using anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the preferred smoker valuation basic table.

     (3) Unless exempted by the commissioner, every authorized insurer using the 2001 CSO preferred class structure table must annually file with the commissioner, with the NAIC, or with a statistical agent designated by the NAIC and acceptable to the commissioner, statistical reports showing mortality and such other information as the commissioner may deem necessary or expedient for the administration of the provisions of this regulation. The form of the reports must be established by the commissioner or the commissioner may require the use of a form established by the NAIC or by a statistical agent designated by the NAIC and acceptable to the commissioner.

     (4) The use of the 2001 CSO preferred class structure table for the valuation of policies issued prior to January 1, 2007, must not be permitted in any statutory financial statement in which a company reports, with respect to any policy or portion of a policy coinsured, either of the following:

     (a) In cases where the mode of payment of the reinsurance premium is less frequent than the mode of payment of the policy premium, a reserve credit that exceeds, by more than the amount specified in this subsection as Y, the gross reserve calculated before reinsurance. Y is the amount of the gross reinsurance premium that:

     (i) Provides coverage for the period from the next policy premium due date to the earlier of the end of the policy year and the next reinsurance premium due date; and

     (ii) Would be refunded to the ceding entity upon the termination of the policy.

     (b) In cases where the mode of payment of the reinsurance premium is more frequent than the mode of payment of the policy premium, a reserve credit that is less than the gross reserve, calculated before reinsurance, by an amount that is less than the amount specified in this subsection as Z. Z is the amount of the gross reinsurance premium that the ceding entity would need to pay the assuming company to provide reinsurance coverage from the period of the next reinsurance premium due date to the next policy premium due date minus any liability established for the proportionate amount not remitted to the reinsurer.

     (c) For purposes of this condition, the reserve:

     (i) For the mean reserve method must be defined as the mean reserve minus the deferred premium asset; and

     (ii) For the midterminal reserve method must include the unearned premium reserve. A company may estimate and adjust its accounting on an aggregate basis in order to meet the conditions to use the 2001 CSO preferred class structure table.

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NEW SECTION
WAC 284-74-510   Effective date.   The effective date of this regulation is September 1, 2011.

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