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 established 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, containing the projection scale AA,
using the methodology established in Section 4(3)(j) of this administrative
regulation.
(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) Completed by plan, with subtotals by
mortality table, interest assumption, and valuation method that 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 provide 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
numerical 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 domestic insurer's home
office.
Section 3.
Valuation Principles.
(1) Extraterritoriality.
The commissioner shall question and may reject any valuation made by the
insurance supervisory official of another state that does not comply with the
minimum standards as established in KRS Chapter 304.6.
(2) Nature of liabilities.
(a) 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 established
in KRS
304.6-140 through
304.6-180, shall be established
in prospective terms.
(b)
1. If the methods established in paragraph
(a) of this subsection are not possible to apply directly, retrospective
methods, using accumulations at appropriate rates of interest may be
used.
2. A company using these
methods shall be prepared to demonstrate that these methods result in
sufficient amounts to fund any obligations established in its contracts as
guarantees of future performance.
3. Obligations that 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) shall be for
the period ending June 30 for each calendar year.
(2) The actuarial guidelines shall be used,
except if statutorily prohibited.
(3) Mortality tables.
(a) Except as established 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
established 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 established 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 established 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 if 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, such as
life settlements agreed to outside of court and that do not constitute
disability settlements; or
3.
Settlements of long-term disability claims in which a temporary or life annuity
has been used in lieu of continuing disability payments.
(f) Except as established 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 established 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.
1. The commissioner shall give consideration
to the approval of other tables of mortality that 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.
2. 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 established in the 1994 GAR Table:
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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. 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, pursuant to subsection 3(g) of this section, of the
commissioner.
Section 5.
Cost of Noncompliance.
(1) If the material is
not available as established in Sections 2 and 4 of this administrative
regulation, 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 established 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 detailed 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 if the
resultant error is not significant.
Section 6. Qualified Actuary Requirements.
(1) In addition to Section 1(17) of this
administrative regulation, 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'",
1/2023;
(b) "1983 GAM Table",
1/2023;
(c) "1994 GAR Table",
1/2023;
(d) "2012 Individual
Annuity Mortality Period (2012 IAM Period) Table", 1/2023;
(e) "2012 Individual Annuity Reserve Table
(2012 IAR Table)", 1/2023;
(f)
"Annuity 2000 Mortality Table", 1/2023;
(g) "Projection Scale AA (Scale AA)",
1/2023;
(h) "Projection Scale G2
(Scale G2)", 1/2023; and
(i)
"Example: Rounding Calculations for Mortality Table Construction for 2012 IAR
Table", 1/2023.
(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