Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
304.1-050,
304.2-290,
304.3-240,
304.6,
304.15-410
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
304.2-110 authorizes the commissioner to
promulgate reasonable administrative regulations necessary for or as an aid to
the effectuation of the Kentucky Insurance Code as defined in
KRS
304.1-010.
KRS 304.6-140
authorizes the commissioner to promulgate administrative regulations approving
any mortality table "adopted by the National Association of Insurance
Commissioners after 1980" for use in determining the minimum standard for
valuation of policies. This administrative regulation establishes the framework
for valuation standards acceptable to the department, and establishes the
conditions under which the department actuary will verify the valuation of a
company's reserves without cost to the insurer.
Section 1. Definitions.
(1) "1983 GAM Table" means that mortality
table developed by the Society of Actuaries Committee on Annuities and adopted
as a recognized mortality table for annuities in December, 1983 by the National
Association of Insurance Commissioners.
(2) "1983 Table 'a'" means that mortality
table developed by the Society of Actuaries Committee to Recommend a New
Mortality Basis for Individual Annuity Valuation and adopted as a recognized
mortality table for annuities in June, 1982 by the National Association of
Insurance Commissioners.
(3) "1994
GAR Table" means that mortality table developed by the Society of Actuaries
Group Annuity Valuation Table Task Force.
(4) "2012 Individual Annuity Mortality Period
(2012 IAM Period) Table" means the period table, developed by the Society of
Actuaries Committee on Life Insurance Research, containing loaded mortality
rates for calendar year 2012 and containing rates,
qx2012.
(5) "2012 Individual Annuity Reserve Table
(2012 IAR Table)" means the generational mortality table developed by the
Society of Actuaries Committee on Life Insurance Research and containing rates,
qx2012-n, derived from a combination of the 2012
Individual Annuity Mortality Period (2012 IAM Period) Table and Projection
Scale G2 (Scale G2), using the methodology established in Section 4(3)(i) of
this administrative regulation.
(6)
"Actuarial guidelines" mean a series of interpretive guidelines approved by the
National Association of Insurance Commissioners for inclusion in its Handbook
for Financial Examiners.
(7)
"Annual statement" means the annual statement required by
KRS
304.3-240.
(8) "Annuity 2000 Mortality Table" means that
mortality table developed by the Society of Actuaries Committee on Life
Insurance Research. The Annuity 2000 Mortality Table is included in the report
on pages 211-249 of Volume XLVII of the Transactions of the Society of
Actuaries (1995).
(9)
"Commissioner" is defined by
KRS
304.1-050(1).
(10) "Department" is defined by
KRS
304.1-050(2).
(11) "Department actuary" means the actuary
employed by or contracted with the department for the purpose of making or
verifying a valuation.
(12)
"Generational mortality table" means a mortality table containing a set of
mortality rates that decrease for a given age from one (1) year to the next
based on a combination of a period table and a projection scale containing
rates of mortality improvement.
(13) "Life insurances policies, annuities,
and pure endowment contracts":
(a) Means any
contracts, together with all riders or endorsements and all additional benefits
related thereto, whether these additional benefits are provided by policy
provision or supplementary contract; and
(b) Does not mean a provision through which
the insurer accepts deposits to provide future insurance, annuity, or pure
endowment benefits.
(14)
"Period table" means a table of mortality rates applicable to a given calendar
year.
(15) "Projection Scale AA
(Scale AA)" means a table developed by the Society of Actuaries Group Annuity
Valuation Table Task Force of annual rates, AAx, of mortality improvement by
age for projecting future mortality rates beyond calendar year 1994.
(16) "Projection Scale G2 (Scale G2)" means a
table developed by the Society of Actuaries Committee on Life Insurance
Research, of annual rates, G2x, of mortality improvement by age for projecting
future mortality rates beyond calendar year 2012.
(17) "Qualified actuary" means a member in
good standing of the American Academy of Actuaries who meets the requirements
of Section 6 of this administrative regulation.
(18) "Reserve comparison" means a
calculation:
(a) Setting out three (3) year
tabulations of extracts from a company's valuation; and
(b) Which is completed by plan, with
subtotals by mortality table, interest assumption, and valuation method which
correspond to the line entries in Exhibit 5 of the current annual
statement.
Section
2. Filing Requirements for Domestic Insurers.
(1) To facilitate the commissioner's
evaluation of the valuation of reserves for life insurance policies, annuities,
and pure endowment contracts made by a domestic insurer's actuary or consulting
actuary, each insurer shall furnish the department actuary an affidavit, signed
by the qualified actuary responsible for the valuation and setting out
insurance amounts and reserves on all contracts by basis of valuation and a
reserve comparison.
(2) Each
domestic insurer shall maintain 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 its home office.
Section
3. Valuation Principles.
(1)
Extraterritoriality. The commissioner may question or reject any valuation made
by the insurance supervisory official of another state which does not comply
with the minimum standards as provided in KRS Chapter 304.6.
(2) Nature of liabilities. The liabilities
covered by reserves for life insurance policies, annuities, and pure endowment
contracts shall be generated by recognition of obligations to provide future
sums of money, which are guaranteed in these contracts, and the standards of
valuation set out in
KRS 304.6-140
through
304.6-180,
are set out in prospective terms. If these methods are not possible to apply
directly, retrospective methods, using accumulations at appropriate rates of
interest shall be acceptable; however, a company using these methods shall be
prepared to demonstrate that these methods actually result in sufficient
amounts to fund any obligations set out in its contracts as guarantees of
future performance. Obligations which arise from known past events shall be
valued retrospectively.
Section
4. Specific Requirements.
(1)
Interest assumptions. The Moody's Corporate Bond Yield Averages referenced in
KRS
304.6-145(4) are those for
the period ending July 1 for each calendar year.
(2) The actuarial guidelines shall be used as
published unless specifically prohibited by statute.
(3) Mortality tables.
(a) Except as provided in paragraph (b) of
this subsection, the 1983 Table "a" shall be recognized and approved as an
individual annuity mortality table for valuation and, at the option of the
company, may be used for purposes of determining the minimum standard of
valuation for any individual annuity or pure endowment contract issued on or
after July 1, 1976.
(b) Except as
provided in paragraph (c) of this subsection, either the 1983 Table "a" or the
Annuity 2000 Mortality Table shall be used for determining the minimum standard
of valuation for any individual annuity or pure endowment contract issued on or
after January 1, 1985.
(c) Except
as provided in paragraph (d) of this subsection, the Annuity 2000 Mortality
Table shall be used for determining the minimum standard of valuation for any
individual annuity or pure endowment contract issued on or after January 1,
2005.
(d) Except as provided in
paragraph (e) of this subsection, the 2012 Individual Annuity Reserve Table
(2012 IAR Table) shall be used for determining the minimum standard of
valuation for any individual annuity or pure endowment contract issued on or
after January 1, 2015.
(e) The 1983
Table "a" without projection shall be used for determining the minimum
standards of valuation for an individual annuity or pure endowment contract
issued on or after January 1, 2005, solely when the contract is based on life
contingencies and is issued to fund periodic benefits arising from:
1. Settlements of various forms of claims
pertaining to court settlements or out of court settlements from tort
actions;
2. Settlements involving
similar actions; or
3. Settlements
of long-term disability claims where a temporary or life annuity has been used
in lieu of continuing disability payments.
(f) Except as provided in paragraph (g) of
this subsection, the 1983 GAM Table and the 1983 Table "a" shall be recognized
and approved as group annuity mortality tables for valuation and, at the option
of the company, any one of these tables may be used for purposes of valuation
for any annuity or pure endowment purchased on or after July 1, 1976, under a
group annuity or pure endowment contract.
(g) Except as provided in paragraph (h) of
this subsection, the 1983 GAM Table shall be used for determining the minimum
standard of valuation for any annuity or pure endowment purchased on or after
January 1, 1985, under a group annuity or pure endowment contract. The
commissioner shall give consideration to the approval of other tables of
mortality which produce lower reserves in any special case, if the request for
approval is accompanied by an actuarial report, signed by the qualified
actuary, of the reasons for the request. If applicable, the report shall
include an estimate of the degree of protection against insolvency provided as
margin in the proposed table.
(h)
The 1994 GAR Table shall be used for determining the minimum standard of
valuation for any annuity or pure endowment purchased on or after January 1,
2015 under a group annuity or pure endowment contract. The commissioner shall
give consideration to the approval of other tables of mortality which produce
lower reserves in any special case, if the request for approval is accompanied
by an actuarial report, signed by the qualified actuary, of the reasons for the
request. If applicable, the report shall include an estimate of the degree of
protection against insolvency provided as margin in the proposed
table.
(i)
1. In using the 2012 Individual Annuity
Reserve Table (2012 IAR Table), the mortality rate for a person age x in year
(2012 + n) shall be calculated as follows:
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to view Image
2.
The resulting qx2012+n shall be rounded to three (3)
decimal places per 1,000.
3. The
rounding shall occur according to the formula in subparagraph 1. of this
paragraph, starting at the 2012 period table rate.
4. An Example: Rounding Calculations for
Mortality Table Construction for 2012 IAR Table page for use of this mortality
table is incorporated by reference in this administrative regulation.
(j) In using the 1994
GAR Table, the mortality rate for a person age x in year (1994 + n) shall be
calculated as follows where the qx1994 and AAx are
as specified in the 1994 GAR Table:
Click here
to view Image
(4) Changes of method (domestic insurers).
The effects of changes in the methods of valuing life contracts shall be
reported in Exhibit 5A of the annual statement in the year in which the change
first takes place. Exhibit 5A shall show the old and the new method of
valuation and the increase or decrease in the actuarial reserve due to the
change. If adopting a method that produces an increase in the reserve, the
company shall notify the department. However, if a change will produce a
reserve that will be less than the amount under the old method, the company
shall have the prior approval of the commissioner.
Section 5. Cost of Noncompliance.
(1) If the material is not available as
outlined above, the additional burden of cost for additional time required by
the staff of the Department of Insurance, or its department actuary, shall be
borne by the life insurance company as provided for in
KRS
304.2-290. A special examination may be
ordered by the commissioner, providing for a written report to him or her
together with a time and expense billing to the company so 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 may order the withdrawal of
certification and reissuance of certificates and copies, and require a refiled
annual statement on a significant error, or request the company to file a
corrective action plan prior to the next filed annual statement when the
resultant error is not significant.
Section 6. Qualified Actuary Requirements.
(1) In order to be considered a qualified
actuary, a person shall be familiar with the valuation requirements applicable
to life and health insurance companies.
(2)
(a) The
actuary shall not meet the requirements of a qualified actuary if that person
has:
1. Violated any provision of, or any
obligation imposed by, any law in the course of his or her dealings as
qualified actuary;
2. Been found
guilty of fraudulent or dishonest practices;
3. Demonstrated incompetence, lack of
cooperation, or untrustworthiness to act as a qualified actuary;
4. Submitted an actuarial opinion or
memorandum that was rejected because it did not comply with the Kentucky
Insurance Code, KRS Chapter 304, or standards established by the Actuarial
Standards Board during the past five (5) years; or
5. Resigned or been removed as an actuary
within the past five (5) years as a result of an act or omission indicated in
any adverse report on examination or as a result of the failure to adhere to
generally acceptable actuarial standards; and
(b) Failed to notify the commissioner of any
adverse action taken against the actuary pursuant to paragraph (a)1. through 5.
of this subsection by any insurance regulatory official of any other
state.
Section
7. Incorporation by Reference.
(1) The following material is incorporated by
reference:
(a) "1983 Table 'a'",
1983;
(b) "1983 GAM Table",
1983;
(c) "1994 GAR Table",
9/2014;
(d) "2012 Individual
Annuity Mortality Period (2012 IAM Period) Table", 9/2014;
(e) "2012 Individual Annuity Reserve Table
(2012 IAR Table)", 9/2014;
(f)
"Annuity 2000 Mortality Table", 2000;
(g) "Projection Scale AA (Scale AA)",
9/2014;
(h) "Projection Scale G2
(Scale G2)", 9/2014; and
(i)
"Example: Rounding Calculations for Mortality Table Construction for 2012 IAR
Table", 9/2014.
(2) This
material may be inspected, copied, or obtained, subject to applicable copyright
law, at the Kentucky Department of Insurance, The Mayo Underwood Building, 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://insurance.ky.gov/ppc/CHAPTER.aspx.
STATUTORY AUTHORITY:
KRS
304.2-110,
304.6-140