Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
304.2-290, 304.6-130-304.6-180
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
304.2-110(1) authorizes the
commissioner of insurance to promulgate administrative regulations necessary
for or as an aid to the effectuation of any provision of the Kentucky Insurance
Code as established in
KRS
304.1-010.
KRS
304.6-130 through
304.6-180
requires the commissioner to annually value the liability item of the NAIC
Annual Statement form as itemized in Exhibit 5 of that statement. This
administrative regulation establishes the framework for acceptable valuation
standards and establishes mortality tables for the determination of adequate
reserves.
Section 1. Definitions.
(1) "1958 Commissioners Extended Term Table
of Mortality" means the mortality table that:
(a) Is based on underwriting requirements
that do not include evidence of medical insurability; and
(b) Incorporates mortality rates adequate to
take into account the increase in mortality rate to which the class of persons
whose lives are insured with credit life insurance are subject.
(2) "1958 Commissioners Standard
Ordinary Table of Mortality" means the mortality table that is:
(a) Based on underwriting requirements that
include evidence of medical insurability; and
(b) A recognized table of mortality that will
produce substantially the same result as the "1958 Commissioners Extended Term
Table of Mortality" if thirty (30) percent is added, the additional thirty (30)
percent being the amount necessary to result in mortality rates adequate to
take into account the increase in mortality to which the class or persons whose
lives are insured by credit life insurance are subject.
(3) "2001 Commissioners Standard Ordinary
Male Composite Ultimate Mortality Table" means a mortality table that:
(a) Consists of rates for male lives in the
ultimate form with smokers and nonsmokers combined;
(b) Was 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 NAIC in December 2002; and
(c) Includes both the age-nearest-birthday
and age-last-birthday bases of the mortality tables.
(4) "Credit Life Insurance" is defined in
KRS
304.19-020(1).
(5) "Life actuary" means a person who
computes premium rates, dividends, and risks according to probabilities based
on statistical records for life insurance and annuities.
(6) "Single Premium Credit Life Insurance"
means credit life insurance for which a charge often is passed on to the debtor
for the term of the coverage of the term of the debt and that is often included
in the total sum of the obligation.
Section 2. Valuation. In conjunction with the
valuation required by
KRS
304.6-130, each domestic life insurer shall,
in the form of an affidavit by its actuary or consulting actuary, submit to the
life actuary, totals and summaries in connection with valuation as the life
actuary may deem necessary. In addition, each domestic life insurer shall
supply and submit to the life actuary, in corresponding order, with the
necessary documentation, lists, tabulations and working papers for policy
contract obligations to be valued, which shall be in readily accessible and
auditable form at the home office of the insurer.
Section 3. Certificate of Valuation. The
commissioner shall accept for purposes of issuing a certificate of valuation,
the Request for Certification of Reserves by a domestic life insurance company,
which shall be certified by an actuary. The commissioner shall annually cause
the records of domestic life insurance companies to be audited, using
appropriate methods to assure that life insurance companies are properly
valuing their reserve liabilities as established by KRS Chapter 304.
Section 4. Components of life insurance
policies, annuities, and pure endowment contracts shall include contracts and
any riders or additional benefits related to the contract.
Section 5. Credit Life Insurance.
(1) Pursuant to the authority established in
KRS
304.6-140(2)(a), the
reserves for all policies of single premium group credit life insurance and all
single premium individual credit life insurance issued to be effective prior to
January 1, 2006 shall be computed on the basis of:
(a) 100 percent of the 1958 Commissioners
Extended Term Table of Mortality;
(b) 130 percent of the 1958 Commissioners
Standard Ordinary Table of Mortality; or
(c) In accordance with subsection (2) of this
section.
(2) Pursuant to
KRS
304.6-140(2)(a) the minimum
standard for reserves for all policies of group credit life insurance and
individual credit life insurance issued to be effective prior to January 1,
2006, may be determined as established in paragraphs (a) through (d) of this
subsection.
(a) The interest rates used in
determining the minimum standard for valuation shall be the calendar year
statutory valuation interest rates as established in
KRS
304.6-145.
(b) The method used in determining the
minimum standard for valuation shall be the commissioners reserve valuation
method as established in
KRS
304.6-150.
(c) The minimum mortality standard for both
male and female insureds shall be the 2001 Commissioners Standard Ordinary Male
Composite Ultimate Mortality Table.
(d) Where the credit life insurance policy or
certificate insures two (2) lives, the minimum mortality standard shall be
twice the mortality in the 2001 Commissioners Standard Ordinary Male Composite
Ultimate Mortality Table based on the age of the older insured.
(3) Pursuant to the authority
contained in
KRS
304.6-140(2)(a) the minimum
standard for reserves for all policies of group credit life insurance and
individual credit life insurance issued to be effective on or after January 1,
2006, shall be determined according to the following:
(a) The interest rates used in determining
the minimum standard for valuation shall be the calendar year statutory
valuation interest rates as defined in
KRS
304.6-145;
(b) The method used in determining the
minimum standard for valuation shall be the commissioners reserve valuation
method as defined in
KRS
304.6-150;
(c) The minimum mortality standard for both
male and female insureds shall be the 2001 Commissioners Standard Ordinary Male
Composite Ultimate Mortality Table; and
(d) If the credit life insurance policy or
certificate insures two (2) lives, the minimum mortality standard shall be
twice the mortality in the 2001 Commissioners Standard Ordinary Male Composite
Ultimate Mortality Table based on the age of the older insured.
(4) Department of Insurance
examiners, in examining company affairs, shall deem reserves maintained in
accordance with this administrative regulation to be in compliance with the
Kentucky Insurance Code, KRS Chapter 304, for all years under
examination.
Section 6.
Special Policies.
(1) "Coupon," "pure
endowment," "founders," "charter," "special," and similar type policies, shall
use all of the policy benefits afforded in the computation of the mean reserve
formula.
(a) Mean reserve factors shall be
printed for use in the computation of policy reserves.
(b) The timing; frequency of contingency, if
any; and the method of pure endowment payment shall be clearly shown in the
formula used to compute the mean reserve.
(c) Mean reserve computation shall not
deviate from the formula and factor developed.
(2) Discriminatory and arbitrary action by
the life insurance company to pay some benefits prior to contract date shall
not create an asset or create a reduction of aggregate reserve liability unless
an enforceable negotiable instrument is evidenced.
(3) A separate file of the special type
policies established in subsection (1) of this section, shall be initiated by
the Life Actuary of the Department of Insurance and shall be maintained by that
department in addition to policies filed with the Policy Analyst in the Life
Division. For each domestic life insurance company, a folder for each special
type policy in force shall include a specimen policy, actuarial formula used to
arrive at the mean reserve, and a factor table of the various factors by age at
issue distributed for the in-force durations considered.
(4) For domestic life insurance companies
with less than $500,000,000 of individual life in force and who do not use a
standardized program package with unit programming, the following benefit
breakdown shall be necessary.
(a) In force
volume used in the mean reserve valuation run shall be segregated to allow for
auditing of the various benefits.
(b) These benefits shall be enumerated as
provided for in the filed specimen policy and shall include basic policy,
return of premium, unmatured endowments, and termination benefit.
(5) Domestic life insurers
excluded by subsection (4) of this section shall have reporting procedures and
requirements compatible with the program package without sacrificing any audit
trail of factors and their application. The requirements may vary from company
to company based on the procedure but shall be in a pattern consistent with
that approved for that company, based on the annual audit in accordance with
KRS
304.6-130 through
304.6-180,
and shall closely follow the requirements for other domestic life insurance
companies.
Section 7.
Cost of Noncompliance.
(1) If material is not
available as established in this administrative regulation, the additional
burden of cost for additional time required by the staff of the department of
Insurance, or its actuary, shall be borne by the life insurance company as
established for in
KRS
304.2-290. A special examination may be
ordered by the commissioner, providing for a written report to the
commissioner, together with a time and expense billing to the company
examined.
(2) If a detail audit of
reserves reveals that an error was made in the filed annual statement and in
the certificate issued by the department, the commissioner shall order the
withdrawal of certification and reissuance of certificates and copies, and
require a refiled NAIC annual statement on a significant error, or require
corrective internal procedures in the company prior to the next filed NAIC
statement for when the resultant error is not significant.
Section 8. Incorporation by Reference.
(1) The following material is incorporated by
reference:
(a) "1958 Commissioners Extended
Term Table of Mortality", 1958;
(b)
"1958 Commissioners Standard Ordinary Table of Mortality", 1958; and
(c) "2001 Commissioner Standard Ordinary Male
Composite Ultimate Mortality Table", 2001.
(2) This material may be inspected, copied,
or obtained, subject to applicable copyright law, at the Kentucky Department of
Insurance, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8
a.m. to 4:30 p.m. This material is also available on the Web site at:
http://doi.ppr.ky.gov/kentucky/.
STATUTORY AUTHORITY:
KRS
304.2-110