§431:5-307 Standard valuation law; life. (a) This section shall be known as the standard valuation law.
(c) For an actuarial opinion prior to the operative date of the valuation manual:
(d) For actuarial opinions of reserves after the operative date of the valuation manual:
(e) Except as otherwise provided in subsections (f), (g), and (n), the minimum standard for the valuation of policies and contracts issued prior to January 1, 1956, shall be that provided by the laws in effect immediately prior to January 1, 1956.
Except as otherwise provided in subsections (f), (g), and (n), the minimum standard for the valuation of all policies and contracts issued on or after January 1, 1956, shall be the commissioner's reserve valuation methods defined in subsections (h), (i), (l), and (n), three and one-half per cent interest, or in the case of life insurance policies and contracts, other than annuity and pure endowment contracts, issued on or after June 1, 1976, four per cent interest for policies issued prior to June 1, 1979, five and one-half per cent interest for single premium life insurance policies, and four and one-half per cent interest for all other policies issued on or after June 1, 1979, and the following tables:
(f) Except as provided in subsection (g), the minimum standard of valuation for individual annuity and pure endowment contracts issued on or after the operative date of this subsection and for annuities and pure endowment contracts purchased on or after the operative date under group annuity and pure endowment contracts, shall be the commissioner's reserve valuation methods defined in subsections (h) and (i) and the following tables and interest rates:
After June 1, 1976, any company may file with the commissioner a written notice of its election to comply with this subsection after a specified date before January 1, 1979, which shall be the operative date of this subsection for that company. If a company makes no election, the operative date of this subsection for that company shall be January 1, 1979.
Guarantee
Duration Weighting
(Years) Factors
10 or (less) .50
More than 10, but
not more than 20 .45
More than 20 .35
For life insurance, the guarantee duration is 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;
Table I:
For annuities and guaranteed interest contracts valued on an issue year basis:
Guarantee Weighting Factor
Duration 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
Plan Type
Table II: A B C
For annuities and guaranteed interest contracts valued on a change in fund basis, the factors shown in
Table I increased by: .15 .25 .05
Plan Type
Table III: A B C
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 twelve months beyond the valuation date, the factors shown in Table I or derived in
Table II increased by: .05 .05 .05
(i) This subsection 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, as now or hereafter amended.
Reserves according to the commissioner's annuity reserve method for benefits under annuity or pure endowment contracts, excluding any disability income 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. 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. The valuation considerations are the portions of the respective gross considerations applied under the terms of the contracts to determine nonforfeiture values.
(j) In no event shall a company's aggregate reserves for all life insurance policies, excluding disability income and accidental death benefits, issued on or after January 1, 1956, be less than the aggregate reserves calculated in accordance with the methods set forth in subsections (h), (i), (l), and (m), and the mortality table or tables and rate or rates of interest used in calculating nonforfeiture benefits for those policies. In no event shall the aggregate reserves for all policies, contracts, and benefits be less than the aggregate reserves determined by the appointed actuary to be necessary to render the opinion required by subsections (c) and (d).
(k) With regard to optional reserve calculation:
(l) 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 either the reserve calculated according to the mortality table, rate of interest, and method actually used for the policy or contract, or 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. The minimum valuation standards of mortality and rate of interest referred to in this subsection are those standards stated in subsections (e) and (g). For a life insurance policy issued on or after January 1, 1986, 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 that provides an endowment benefit or a cash surrender value, or a combination thereof, in an amount greater than the excess premium, this subsection shall be applied as if the method actually used in calculating the reserve for the policy were the method described in subsection (h), ignoring subsection (h)(2). The minimum reserve at each policy anniversary of such a policy shall be the greater of the minimum reserve calculated in accordance with subsection (h), including subsection (h)(2) and the minimum reserve calculated in accordance with this subsection.
(m) In the case of any 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, or in the case of any plan of life insurance or annuity that is of such a nature that the minimum reserves cannot be determined by the methods described in subsections (h), (i), and (l), the reserves that are held under the plan shall:
(n) For accident and health insurance contracts issued on or after the operative date of the valuation manual, the standard prescribed in the valuation manual is the minimum standard of valuation required under subsection (b)(2). For accident and health insurance contracts issued on or after January 1, 1956, and prior to the operative date of the valuation manual, the minimum standard of valuation is the standard adopted by the commissioner by rule.
(q) On or after the operative date of the valuation manual, a company shall submit mortality, morbidity, policyholder behavior, or expense experience and other data as prescribed in the valuation manual.
(s) The commissioner may exempt specific product forms or product lines of a domestic company that is licensed and doing business only in this State from the requirements of subsection (o); provided that:
For any company granted an exemption under this subsection, subsections (c) to (n) shall be applicable. With respect to any company applying this exemption, any reference to subsection (o) found in subsections (c) to (n) shall not be applicable.
(t) As used in this section, the following definitions shall apply on or after the operative date of the valuation manual:
"Accident and health insurance" means 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" means a qualified actuary who is appointed in accordance with the valuation manual to prepare the actuarial opinion required in subsection (d).
"Company" means an entity that:
"Deposit-type contract" means a contract that does not incorporate mortality or morbidity risks and as may be specified in the valuation manual.
"Life insurance" means a contract that incorporates mortality risk, including an annuity and a pure endowment contract, and as may be specified in the valuation manual.
"Policyholder behavior" means any action that a policyholder, contract holder, or any other person with the right to elect options, such as a certificate holder, may take under a policy or contract subject to this section including but not limited to lapse, withdrawal, transfer, deposit, premium payment, loan, annuitization, or benefit elections prescribed by the policy or contract, but excluding 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" means a reserve valuation that uses one or more methods or one or more assumptions determined by the insurer and is required to comply with subsection (p) as specified in the valuation manual.
"Qualified actuary" means an individual who is qualified to sign the applicable statement of actuarial opinion in accordance with the American Academy of Actuaries qualification standards for actuaries signing the statement and who meets the requirements specified in the valuation manual.
"Tail risk" means a risk that occurs either where the frequency of low probability events is higher than expected under a normal probability distribution or where there are observed events of very significant size or magnitude.
"Valuation manual" means the manual of valuation instructions adopted by the National Association of Insurance Commissioners as specified in this section or as subsequently amended. [L 1987, c 347, pt of §2; am L 1994, c 190, §§3, 10; am L 1995, c 61, §2 as superseded by c 232, §4; am L 1999, c 302, §9 as superseded by c 128, §2; am L 2003, c 212, §40; am L 2014, c 234, §4; am L 2015, c 63, §5; am L 2019, c 70, §6]