SUBCHAPTER 11F ‑ ACTUARIAL
SECTION .0100 ‑ GENERAL PROVISIONS
11 NCAC 11F .0101 GENERAL NATURE
History Note: Authority G.S. 58‑9;
Eff. February 1, 1976;
Readopted Eff. February 28, 1978;
Repealed Eff. July 1, 1988.
11 NCAC 11F .0102 RESERVES ON
CREDIT LIFE INSURANCE
11 NCAC 11F .0103 RESERVES ON CREDIT ACCIDENT AND
HEALTH INSURANCE
11 NCAC 11F .0104 AUDIT TRAILS ON RESERVES REQUIRED
History Note: Authority G.S. 58‑9(1); 58‑143;
Eff. February 1, 1976;
Readopted Eff. February 28, 1978;
Repealed Eff. April 1, 1993.
11 NCAC 11F .0105 RESERVES FOR ANNUITIES
History Note: Authority G.S. 58‑9(1); 58‑201.1;
Eff. February 1, 1976;
Readopted Eff. February 28, 1978;
Repealed Eff. December 1, 1985.
11 NCAC 11F .0106 RESERVES FOR PRESENT VALUE OF FUTURE
BENEFITS REQUIRED
History Note: Authority G.S. 58‑9;
Eff. February 1, 1976;
Readopted Eff. February 28, 1978;
Repealed Eff. April 1, 1993.
11 NCAC 11F .0107 PURPOSE
11 NCAC 11F .0108 DEFINITIONS
11 NCAC 11F .0109 INDIVIDUAL ANNUITY OR PURE ENDOWMENT
CONTRACTS
11 NCAC 11F .0110 GROUP ANNUITY OR PURE ENDOWMENT
CONTRACTS
History Note: Authority G.S. 58‑9; 58‑201.1;
Eff. December 1, 1985;
Repealed Eff. April 1, 1993.
SECTION .0200 ‑ HEALTH INSURANCE MINIMUM RESERVE
STANDARDS
11 NCAC 11F .0201 DEFINITIONS
As used in this section and in the Statement of Actuarial
Opinion required by the NAIC Annual Statement Instructions pursuant to G.S. 58‑2‑165:
(1) "Annual claim cost" means the net annual
cost per unit of benefit before the addition of expenses, including claim
settlement expenses, and a margin for profit or contingencies. For example,
the annual claim cost for a one hundred dollar ($100.00) monthly disability benefit,
for a maximum disability benefit period of one year, with an elimination period
of one week, with respect to a male at age 35, in a certain occupation might be
twelve dollars ($12.00), while the gross premium for this benefit might be
eighteen dollars ($18.00). The additional six dollars ($6.00) would cover
expenses and profit or contingencies.
(2) "Claims accrued" means that portion of
claims incurred on or before the valuation date that result in liability of the
insurer for the payment of benefits for medical services that have been
rendered on or before the valuation date, and for the payment of benefits for
days of hospitalization and days of disability that have occurred on or before
the valuation date, that the insurer has not paid as of the valuation date, but
for which it is liable, and will have to pay after the valuation date. This
liability is sometimes referred to as a liability for "accrued"
benefits. A claim reserve, which represents an estimate of this accrued claim
liability, must be established.
(3) "Claims reported" means when an insurer
has been informed that a claim has been incurred, if the date reported is on or
before the valuation date, the claim is considered as a reported claim for
annual statement purposes.
(4) "Claims unaccrued" means that portion of
claims incurred on or before the valuation date that result in liability of the
insurer for the payment of benefits for medical services expected to be
rendered after the valuation date, and for benefits expected to be payable for
days of hospitalization and days of disability occurring after the valuation
date. This liability is sometimes referred to as a liability for
"unaccrued" benefits. A claim reserve, which represents an estimate
of the unaccrued claim payments expected to be made (that may or may not be
discounted with interest), must be established.
(5) "Claims unreported" means when an insurer
has not been informed, on or before the valuation date, concerning a claim that
has been incurred on or before the valuation date, the claim is considered as
an unreported claim for annual statement purposes.
(6) "Date of disablement" means the earliest
date the insured is considered as being disabled under the definition of
disability in the contract, based on a doctor's evaluation or other evidence.
Normally this date will coincide with the start of any elimination period.
(7) "Elimination period" means a specified
number of days, weeks, or months starting at the beginning of each period of
loss, during which no benefits are payable.
(8) "Gross premium" means the amount of
premium charged by the insurer. It includes the net premium (based on claim‑cost)
for the risk, together with any loading for expenses, profit or contingencies.
(9) "Group insurance" means blanket insurance
and franchise insurance and any other forms of group insurance.
(10) "Level premium" means a premium calculated
to remain unchanged throughout either the lifetime of the policy, or for some
shorter projected period of years. The premium need not be guaranteed; in
which case, although it is calculated to remain level, it may be changed if any
of the assumptions on which it was based are revised at a later time.
Generally, the annual claim costs are expected to increase each year and the
insurer, instead of charging premiums that correspondingly increase each year,
charges a premium calculated to remain level for a period of years or for the
lifetime of the contract. In this case the benefit portion of the premium is
more than needed to provide for the cost of benefits during the earlier years
of the policy and less than the actual cost in the later years. The building
of a prospective contract reserve is a natural result of level premiums.
(11) "Long‑term care insurance" has the
same meaning as in G.S. 58‑55‑20(4); and also means a policy or
certificate that provides for payment of benefits based upon cognitive
impairment or the loss of functional capacity.
(12) "Modal premium" means the premium paid on
a contract based on a premium term that could be annual, semi‑annual,
quarterly, monthly, or weekly. Thus if the annual premium is one hundred
dollars ($100.00) and if, instead, monthly premiums of nine dollars ($9.00) are
paid then the modal premium is nine dollars ($9.00).
(13) "Negative reserve" means a terminal
reserve that has a value of less than zero resulting from benefits that
decrease with advancing age or duration.
(14) "Preliminary term reserve method" means
the method of valuation under which the valuation net premium for each year
falling within the preliminary term period is exactly sufficient to cover the
expected incurred claims of that year, so that the terminal reserves will be
zero at the end of the year. As of the end of the preliminary term period, a
new constant valuation net premium (or stream of changing valuation premiums)
becomes applicable such that the present value of all such premiums is equal to
the present value of all claims expected to be incurred following the end of
the preliminary term period.
(15) "Qualified Actuary" means an individual
who:
(a) is a member in good standing of the American Academy of Actuaries; and
(b) is qualified to sign statements of actuarial
opinion for life and health insurance company annual statements in accordance
with the American Academy of Actuaries qualification standards for actuaries
signing such statements; and
(c) is familiar with the valuation requirements
applicable to life and health insurance companies; and
(d) has not been found by the Commissioner (or
if so found has subsequently been reinstated as a qualified actuary), following
appropriate notice and hearing to have:
(i) violated any provision of, or any
obligation imposed by, the insurance law or other law in the course of his or
her dealings as a qualified actuary; or
(ii) been found guilty of fraudulent or
dishonest practices; or
(iii) demonstrated his or her incompetency, lack
of cooperation, or untrustworthiness to act as a qualified actuary; or
(iv) submitted to the Commissioner during the
past five years, pursuant to this rule, an actuarial opinion or memorandum that
the Commissioner rejected because it did not meet the provisions of this rule
including standards set by the Actuarial Standards Board; or
(v) resigned or been removed as an actuary
within the past five years as a result of acts or omissions indicated in any
adverse report on examination or as a result of failure to adhere to generally
acceptable actuarial standards; and
(e) has not failed to notify the Commissioner of
any action taken by any commissioner of any other state similar to that under Sub-item
(15)(d) of this Paragraph.
(16) "Rating block" means a grouping of
contracts determined by the valuation actuary based on common characteristics
filed with the Commissioner, such as a policy form or forms having similar
designs.
(17) "Reserve" means all items of benefit
liability, whether in the nature of incurred claim liability or in the nature
of contract liability relating to future periods of coverage, and whether the
liability is accrued or unaccrued. An insurer under its contracts promises
benefits that result in:
(a) Claims that have been incurred, that is, for
which the insurer has become obligated to make payment, on or before the
valuation date. On these claims, payments expected to be made after the valuation
date for accrued and unaccrued benefits are liabilities of the insurer that
should be provided for by establishing claim reserves; or
(b) Claims that are expected to be incurred
after the valuation date. Any present liability of the insurer for these
future claims should be provided for by the establishment of contract reserves
and unearned premium reserves.
(18) "Terminal reserve" means the reserve at
the end of a contract year, and is defined as the present value of benefits
expected to be incurred after that contract year minus the present value of
future valuation net premiums.
(19) "Unearned premium reserve" means the value
of that portion of the premium paid or due to the insurer that is applicable to
the period of coverage extending beyond the valuation date. Thus if an annual
premium of one hundred twenty dollars ($120.00) was paid on November 1, twenty
dollars ($20.00) would be earned as of December 31 and the remaining one
hundred dollars ($100.00) would be unearned. The unearned premium reserve
could be on a gross basis as in this example, or on a valuation net premium
basis.
(20) "Valuation net modal premium" means the
modal fraction of the valuation net annual premium that corresponds to the
gross modal premium in effect on any contract to which contract reserves
apply. Thus if the mode of payment in effect is quarterly, the valuation net
modal premium is the quarterly equivalent of the valuation net annual premium.
History Note: Authority G.S. 58-2-40; 58-58-50(k);
Temporary Adoption Eff. January 21, 1994 for a period of
180 days or until the Permanent Rule becomes effective, whichever is sooner;
Eff. April 1, 1994;
Amended Eff. August 1, 2004.
11 NCAC 11F .0202 GENERAL
(a) This Section applies to all accident and health
insurance coverages under G.S. 58, Articles 50 through 55.
(b) When an insurer determines that adequacy of its
insurance reserves requires reserves in excess of the minimum standards
specified in this Section, such increased reserves shall be held and shall be
considered the minimum reserves for that insurer.
(c) With respect to any block of contracts, or with respect
to an insurer's accident and health business as a whole, a prospective gross
premium valuation is the ultimate test of reserve adequacy as of a given
valuation date. Such a gross premium valuation shall take into account, for
contracts in force, in a claims status, or in a continuation of benefits status
on the valuation date, the present value as of the valuation date of: all
expected benefits unpaid, all expected expenses unpaid, and all unearned or
expected premiums, adjusted for future premium increases reasonably expected to
be put into effect. Such a gross premium valuation shall be performed whenever
a significant doubt exists as to reserve adequacy with respect to any major
block of contracts or with respect to the insurer's accident and health
business as a whole. If inadequacy is found to exist, immediate loss
recognition shall be made and the reserves restored to adequacy. Adequate
reserves (inclusive of claim, premium, and contract reserves, if any) shall be
held with respect to all contracts, regardless of whether contract reserves are
required for such contracts under this Section.
(d) Whenever minimum reserves, as specified in this
Section, exceed reserve requirements as determined by a prospective gross
premium valuation, such minimum reserves remain the minimum requirement under
this Section.
(e) Adequacy of an insurer's accident and health insurance
reserves shall be determined on the basis of claim reserves, premium reserves,
and contract reserves, as required in 11 NCAC 11F .0203 through 11 NCAC 11F
.0205, combined.
History Note: Filed as a Temporary Adoption Eff.
January 21, 1994 For a Period of 180 Days or Until the
Permanent Rule Becomes Effective, Whichever is Sooner;
Statutory Authority G.S. 58‑2‑40; 58‑58‑50(k);
Eff. April 1, 1994.
11 NCAC 11F .0203 CLAIM RESERVES
(a) General:
(1) Claim reserves are required for all
incurred but unpaid claims on all accident and health insurance contracts.
(2) Appropriate claim expense reserves are
required with respect to the estimated expense of settlement of all incurred
but unpaid claims.
(3) All such reserves for prior valuation years
shall be tested for adequacy and reasonableness along the lines of claim runoff
schedules in accordance with the statutory financial statement including
consideration of any residual unpaid liability.
(b) Minimum Standards for Claim Reserves:
(1) Disability Income:
(A) The maximum interest rate for claim reserves is
specified in 11 NCAC 11F .0207.
(B) Minimum standards with respect to morbidity are
those specified in 11 NCAC 11F .0207; except that, at the option of the
insurer:
(i) For claims with a duration from date of
disablement of less than two years, reserves may be based on the insurer's
experience, if such experience is considered credible, or upon other assumptions
designed to place a sound value on the liabilities.
(ii) For group disability income claims with a
duration from date of disablement of more than two years but less than five
years, reserves may, with the approval of the Commissioner, be based on the
insurer's experience for which the insurer maintains underwriting and claim
administration control. The request for such approval of a plan of
modification to the reserve basis must include:
(I) An analysis of the credibility of the
experience;
(II) A description of how all the insurer's
experience is proposed to be used in setting reserves;
(III) A description and quantification of the
margins to be included;
(IV) A summary of the financial impact that the
proposed plan of modification would have had on the insurer's last filed annual
statement; and
(V) A copy of the approval of the proposed plan of
modification by the Commissioner of the state of domicile.
(C) For contracts with an elimination period, the
duration of disablement shall be measured as dating from the time that benefits
would have begun to accrue had there been no elimination period.
(2) All Other Benefits:
(A) The maximum interest rate for claim reserves is
specified in 11 NCAC 11F .0207.
(B) The reserve, with respect to morbidity or other
contingency, shall be based on the insurer's experience, if such experience is
considered credible, or upon other assumptions designed to place a sound value
on the liabilities.
(c) Any generally accepted or reasonable actuarial method
or combination of methods may be used to estimate all claim liabilities. The
methods used for estimating liabilities may be aggregate methods; or various
reserve items may be separately valued. Approximations based on groupings and
averages may also be employed. Adequacy of the claim reserves, however, shall
be determined in the aggregate.
History Note: Filed as a Temporary Adoption Eff.
January 21, 1994 For a Period of 180 Days or Until the
Permanent Rule Becomes Effective, Whichever is Sooner;
Statutory Authority G.S. 58‑2‑40; 58‑58‑50(k);
Eff. April 1, 1994.
11 NCAC 11F .0204 PREMIUM RESERVES
(a) General:
(1) Unearned premium reserves are required for
all contracts with respect to the period of coverage for which premiums, other
than premiums paid in advance, have been paid beyond the date of valuation.
(2) If premiums due and unpaid are carried as
an asset, such premiums must be treated as premiums in force, subject to
unearned premium reserve determination. The value of unpaid commissions,
premium taxes, and the cost of collection associated with due and unpaid
premiums must be carried as an offsetting liability.
(3) The gross premiums paid in advance for a
period of coverage commencing after the next premium due date that follows the
date of valuation may be appropriately discounted to the valuation date and
shall be held either as a separate liability or as an addition to the unearned
premium reserve that would otherwise be required as a minimum.
(b) Minimum Standards for Unearned Premium Reserves:
(1) The minimum unearned premium reserve with
respect to any contract is the pro rata unearned modal premium that applies to
the premium period beyond the valuation date, with such premium determined on
the basis of:
(A) The valuation net modal premium on the contract
reserve basis applying to the contract; or
(B) The gross modal premium for the contract if no
contract reserve applies.
(2) However, in no event may the sum of the
unearned premium and contract reserves for all contracts of the insurer subject
to contract reserve requirements be less than the gross modal unearned premium
reserve on all such contracts, as of the date of valuation. Such reserve shall
never be less than the expected claims for the period beyond the valuation date
represented by such unearned premium reserve, to the extent not provided for
elsewhere.
(c) The insurer may employ suitable approximations and
estimates, including groupings, averages, and aggregate estimation, in
computing premium reserves. Such approximations or estimates shall be tested
periodically to determine their continuing adequacy and reliability.
History Note: Filed as a Temporary Adoption Eff.
January 21, 1994 For a Period of 180 Days or Until the
Permanent Rule Becomes Effective, Whichever is Sooner;
Statutory Authority G.S. 58‑2‑40; 58‑58‑50(k)
Eff. April 1, 1994.
11 NCAC 11F.0205 CONTRACT RESERVES
(a) General:
(1) Contract reserves are required, unless
otherwise specified in this Rule for:
(A) All individual and group contracts with which level
premiums are used; or
(B) All individual and group contracts with respect to
which, due to the gross premium pricing structure at issue, the value of the
future benefits at any time exceeds the value of any appropriate future
valuation net premiums at that time. This evaluation may be applied on a rating
block basis if the total premiums for the block were developed to support the
total risk assumed and expected expenses for the block each year, and a
qualified actuary certifies the premium development. The actuary shall state in
the certification that premiums for the rating block were developed such that
each year's premium was intended to cover that year's costs without any
prefunding. If the premium is also intended to recover costs for any prior
years, the actuary shall also disclose the reasons for and magnitude of such
recovery. The values specified in this Subparagraph shall be determined on the
basis specified in 11 NCAC 11F .0205(b).
(2) Contracts not requiring a contract reserve
are:
(A) Contracts that cannot be continued after one year
from issue; or
(B) Contracts already in force on the effective date of
these standards for which no contract reserve was required under the
immediately preceding standards.
(3) The contract reserve is in addition to
claim reserves and premium reserves.
(4) The methods and procedures for contract
reserves shall be consistent with those for claim reserves for any contract, or
else appropriate adjustment must be made when necessary to assure provision for
the aggregate liability. The definition of the date of incurral must be the
same in both determinations.
(b) Minimum Standards for Contract Reserves:
(1) Basis:
(A) Minimum standards with respect to morbidity are
those set forth in 11 NCAC 11F .0207. Valuation net premiums used under each
contract must have a structure consistent with the gross premium structure at
issue of the contract as this relates to advancing age of insured, contract
duration and period for which gross premiums have been calculated. Contracts
for which tabular morbidity standards are not specified in 11 NCAC 11F .0207
shall be valued using tables established for reserve purposes by a qualified
actuary and acceptable to the Commissioner.
(B) The maximum interest rate is specified in 11 NCAC
11F .0207.
(C) Termination rates used in the computation of
reserves shall be on the basis of a mortality table as specified in 11 NCAC 11F
.0207 except as noted in Subparagraphs (b)(1)(C)(i) and (ii) of this Rule.
(i) Under contracts for which premium rates are not
guaranteed, and where the effects of insurer underwriting are specifically used
by contract duration in the valuation morbidity standard, or for return of
premium or other deferred cash benefits, total termination rates may be used at
ages and durations where these exceed specified mortality table rates, but not
in excess of the lesser of:
(I) 80 percent of the total termination rate
used in the calculation of the gross premiums; or
(II) Eight percent.
(ii) For long-term care individual policies or group
certificates issued after August 1, 2004, the contract reserve may be
established on a basis of separate mortality and other terminations, where the
other terminations are not to exceed:
(I) For policy years one through four, the
lesser of 80 percent of the voluntary lapse rate used in the calculation of
gross premiums and eight percent;
(II) For policy years five and later, the lesser
of 100 percent of the voluntary lapse rate used in the calculation of gross
premiums and four percent.
Where a morbidity standard
specified in 11 NCAC 11F .0207 is on an aggregate basis, such morbidity
standard may be adjusted to reflect the effect of insurer underwriting by
contract duration. The adjustments must be appropriate to the underwriting.
(2) Reserve Method:
(A) For insurance except long-term care and return of
premium or other deferred cash benefits, the minimum reserve is the reserve
calculated on the two-year full preliminary term method; that is, under which
the terminal reserve is zero at the first and also the second contract anniversary.
(B) For long-term care insurance, the minimum reserve is
the reserve calculated on the one-year full preliminary term method.
(C) For return of premium or other deferred cash
benefits, the minimum reserve is the reserve calculated as follows:
(i) On the one-year preliminary term method if such
benefits are provided at any time before the 20th anniversary;
(ii) On the two-year preliminary term method if such
benefits are only provided on or after the 20th anniversary.
(D) The preliminary term method may be applied only in
relation to the date of issue of a contract. Reserve adjustments introduced
later, as a result of rate increases, revisions in assumptions (e.g., projected
inflation rates) or for other reasons, are to be applied immediately as of the effective
date of adoption of the adjusted basis.
(3) Negative reserves on any benefit may be
offset against positive reserves for other benefits in the same contract, but
the total contract reserve with respect to all benefits combined may not be
less than zero.
(4) For long-term care insurance with
nonforfeiture benefits, the contract reserve on a policy basis shall not be
less than the net single premium for the nonforfeiture benefits at the
appropriate policy duration, where the net single premium is computed according
to the standards specified in this Rule.
(c) Provided the contract reserve on all contracts to which
an alternative method or basis is applied is not less in the aggregate than the
amount determined according to the applicable standards specified in this Rule,
an insurer may use any reasonable assumptions as to interest rates, termination
or mortality rates, and rates of morbidity or other contingency. Also, subject
to the preceding condition, the insurer may employ methods other than the methods
stated in this rule in determining a sound value of its liabilities under such
contracts, including, but not limited to the following:
(1) the net level premium method;
(2) the one-year full preliminary term method;
(3) prospective valuation on the basis of
actual gross premiums with reasonable allowance for future expenses;
(4) the use of approximations such as those
involving age groupings, groupings of several years of issue, average amounts
of indemnity, grouping of similar contract forms;
(5) the computation of the reserve for one
contract benefit as a percentage of, or by other relation to, the aggregated
contract reserves exclusive of the benefit or benefits so valued; and
(6) the use of a composite annual claim cost
for all or any combination of the benefits included in the contracts valued.
(d) Annually, a review shall be made of the insurer's
prospective contract liabilities on contracts valued by tabular reserves, to
determine the continuing adequacy and reasonableness of the tabular reserves
giving consideration to future gross premiums. The insurer shall make
appropriate increments to such tabular reserves if such tests indicated that
the basis of such reserves is no longer adequate; subject, however, to the
minimum standards of 11 NCAC 11F .0205(b). If an insurer has a contract or a
group of related similar contracts, for which future gross premiums will be
restricted by contract, insurance department rules, or for other reasons, such
that the future gross premiums reduced by expenses for administration,
commissions and taxes will be insufficient to cover future claims, the insurer
shall establish contract reserves for such shortfall in the aggregate.
History Note: Authority G.S. 58-2-40; 58-58-50(k);
Temporary Adoption Eff. January 21, 1994 for a period of 180 days or until the Permanent Rule becomes effective, whichever is sooner;
Eff. April 1, 1994;
Amended Eff. August 1, 2004.
11 NCAC 11F .0206 REINSURANCE
Increases to, or credits against reserves carried, arising
because of reinsurance assumed or reinsurance ceded, must be determined in a
manner consistent with the minimum reserve standards set out in 11 NCAC 11F
.0200 and with all applicable provisions of the reinsurance contracts that
affect the insurer's liabilities.
History Note: Filed as a Temporary Adoption Eff.
January 21, 1994 For a Period of 180 Days or Until the
Permanent Rule Becomes Effective, Whichever is Sooner;
Statutory Authority G.S. 58‑2‑40; 58‑58‑50(k);
Eff. April 1, 1994.
11 NCAC 11F .0207 SPECIFIC STANDARDS FOR MORBIDITY,
INTEREST AND MORTALITY
(a) Minimum standard morbidity tables for valuation of
specified individual contract accident and health insurance benefits are as
follows:
(1) Disability Income Benefits Due to Accident
or Sickness.
(A) Contract Reserves:
(i) Contracts issued on or after January 1, 1965 and before January 1, 1986: The 1964 Commissioners Disability Table (64 CDT).
(ii) Contracts issued on or after January 1, 1994: The 1985 Commissioners Individual Disability Tables A (85CIDA); or The 1985
Commissioners Individual Disability Tables B (85CIDB).
(iii) Contracts issued during the years 1986 through
1993:
Optional use of either the 1964 or
the 1985 Tables.
(iv) Each insurer shall elect, with respect to all
individual contracts issued in any one statement year, whether it will use
Tables A or Tables B as the minimum standard. The insurer may, however, elect
to use the other tables with respect to any subsequent statement year.
(B) Claim Reserves:
(i) For claims incurred on or after August 1, 2004:
The 1985 Commissioners Individual
Disability Tables A (85CIDA) with claim termination rates multiplied by the
following adjustment factors:
Duration Adjustment Factor Adjusted
Termination Rates*
Week 1 0.366 0.04831
Week 2 0.366 0.04172
Week 3 0.366 0.04063
Week4 0.366 0.04355
Week 5 0.365 0.04088
Week 6 0.365 0.04271
Week 7 0.365 0.04380
Week 8 0.365 0.04344
Week 9 0.370 0.04292
Week 10 0.370 0.04107
Week 11 0.370 0.03848
Week 12 0.370 0.03478
Week 13 0.370 0.03034
Month 4 0.391 0.08758
Month 5 0.371 0.07346
Month 6 0.435 0.07531
Month 7 0.500 0.07245
Month 8 0.564 0.06655
Month 9 0.613 0.05520
Month 10 0.663 0.04705
Month 11 0.712 0.04486
Month 12 0.756 0.04309
Month 13 0.800 0.04080
Month 14 0.844 0.03882
Month 15 0.888 0.03730
Month 16 0.932 0.03448
Month 17 0.976 0.03026
Month 18 1.020 0.02856
Month 19 1.049 0.02518
Month 20 1.078 0.02264
Month 21 1.107 0.02104
Month 22 1.136 0.01932
Month 23 1.165 0.01865
Month 24 1.195 0.01792
Year 3 1.369 0.16839
Year 4 1.204 0.10114
Year 5 1.199 0.07434
Year 6 & later 1.000
**
* The adjusted
termination rates derived from the application of the adjustment factors to the
DTS Valuation Table termination rates shown in Exhibits 3a, 3b, 3c, 4, and 5 of
Transactions of the Society of Actuaries (TSA) XXXVII, pp. 457-463) are
displayed. The adjustment factors for age, elimination period, class, sex, and
cause displayed in Exhibits 3a, 3b, 3c, and 4 shall be applied to the adjusted
termination rates shown in this table.
**Applicable DTS
Valuation Table duration rate from exhibits 3c and 4 (TSA XXXVII, pp. 462-463).
The 85 CIDA table so
adjusted for the computation of claim reserves shall be known as 85 CIDC (The
1985 Commissioners individual disability Table C).
(ii) For
claims incurred prior to August 1, 2004:
Each insurer may elect which of the following
to use as the minimum standard for claims incurred prior to August 1, 2004:
(I) The minimum morbidity standard in effect for
contract reserves on currently issued contracts, as of the date the claim is
incurred, or
(II) The standard as defined in Subparagraph
(a)(1)(B)(i) of this Rule, applied to all open claims.
(III) Once an insurer elects to calculate reserves
for all open claims on the standard defined in Subparagraph (a)(1)(B)(i) of
this Rule, all future valuations must be on that basis.
(2) Hospital Benefits, Surgical Benefits and
Maternity Benefits (Scheduled benefits or fixed time period benefits only).
(A) Contract Reserves:
(i) Contracts issued on or after January 1, 1955, and before January 1, 1982: The 1956 Intercompany Hospital‑Surgical Tables.
(ii) Contracts issued on or after January 1, 1982: The 1974 Medical Expense Tables, Table A.
(B) Claim Reserves: See 11 NCAC 11F .0207(a)(5).
(3) Cancer Expense Benefits (Scheduled benefits
or fixed time period benefits only).
(A) Contract Reserves: Contracts issued on or after January 1, 1986: The 1985 NAIC Cancer Claim Cost Tables.
(B) Claim Reserves: See 11 NCAC 11F .0207(a)(5).
(4) Accidental Death Benefits.
(A) Contract Reserves: Contracts issued on or after January 1, 1965: The 1959 Accident Death Benefits Table.
(B) Claim Reserves: Actual amount incurred.
(5) Single Premium Credit Disability
(A) Contract Reserves:
(i) For contracts issued on or after August 1, 2004:
(I) For plans having less than a 30 day
elimination period, the 1985 Commissioners Individual Disability Table A (85
CIDA) with claim incidence rates increased by 12 percent.
(II) For plans having a 30 day and greater
elimination period, the 85 CIDA for a 14 day elimination period with the
adjustment in Subparagraph (a)(5)(A)(i)(I) of this Rule.
(ii) For contracts issued prior to August 1, 2004, each insurer may elect either Subparagraph (a)(5)(A)(ii)(I) or Subparagraph
(a)(5)(A)(ii)(II) of this Rule to use as the minimum standard. Once an insurer
elects to calculate reserves for all contracts on the standard defined in Subparagraph
(a)(5)(A)(i) of this Rule, all future valuations must be on that basis.
(I) The minimum morbidity standard in effect for
contract reserves on currently issued contracts, as of the date the contract
was issued, or
(II) The standard as defined in Subparagraph
(a)(5)(A)(i) of this Rule, applied to all contracts.
(B) Claim Reserves: Claim reserves are to be determined
as provided in 11 NCAC 11F .0203.
(6) Other Individual Contract Benefits.
(A) Contract Reserves: For all other individual
contract benefits, morbidity assumptions are to be determined which will
produce contract reserves that place a sound value on the liabilities of each
such benefit.
(B) Claim Reserves: For all benefits other than
disability, claim reserves are to be determined as provided in the standards as
set out in this rule.
(b) Minimum standard morbidity tables for valuation of
specified group contract accident and health insurance benefits are as follows:
(1) Disability Income Benefits Due to Accident
or Sickness.
(A) Contract Reserves:
(i) Contracts issued before January 1, 1994: The same basis, if any, as that employed by the insurer as of December 31, 1993.
(ii) Contracts issued on or after January 1, 1994: The 1987 Commissioners Group Disability Income Table (87CGDT).
(B) Claim Reserves:
(i) For claims incurred on or after January 1, 1994: The 1987 Commissioners Group Disability Income Table (87CGDT);
(ii) For claims incurred before January 1, 1994: See 11 NCAC 11F .0207(b)(2).
(2) Single Premium Credit Disability
(A) Contract Reserves:
(i) For contracts issued on or after August 1,
2004:
(I) For plans having less than a 30 day
elimination period, the 1985 Commissioners Individual Disability Table A (85
CIDA) with claim incidence rates increased by 12 percent.
(II) For plans having a thirty-day and greater
elimination period, the 85 CIDA for a 14 day elimination period with the
adjustment in Subparagraph (b)(2)(A)(i)(I) of this Rule.
(ii) For contracts issued prior to August 1, 2004,
each insurer may elect either Subparagraph (b)(2)(A)(ii)(I) or Subparagraph
(b)(2)(A)(ii)(II) of this Rule to use as the minimum standard. Once an insurer
elects to calculate reserves for all contracts on the standard defined in Subparagraph
(b)(2)(A)(i) of this Rule, all future valuations must be on that basis.
(I) The minimum morbidity standard in effect for
contract reserves on currently issued contracts, as of the date the contract
was issued, or
(II) The standard as defined in Subparagraph (b)(2)(A)(i)
of this Rule, applied to all contracts.
(B) Claim Reserves: Claim reserves are to be determined
as provided in 11 NCAC 11F .0203.
(3) Other Group Contract Benefits.
(A) Contract Reserves: For all other group contract
benefits, morbidity assumptions are to be determined which will produce
contract reserves that place a sound actuarial value on the liabilities of each
such benefit.
(B) Claim Reserves: For all benefits other than
disability, claim reserves are to be determined as provided in the standards as
set out in this Rule.
(c) Maximum interest rate standards for valuation of
accident and health insurance benefits are as follows:
(1) For contract reserves the maximum interest
rate is the maximum rate permitted by law in the valuation of whole life
insurance issued on the same date as the accident and health insurance
contract.
(2) For claim reserves on contracts that
require contract reserves, the maximum interest rate is the maximum rate
permitted by law in the valuation of whole life insurance issued on the same
date as the claim incurral date.
(3) For claim reserves on contracts not
requiring contract reserves, the maximum interest rate is the maximum rate
permitted by law in the valuation of single premium immediate annuities issued
on the same date as the claim incurral date, reduced by one hundred basis
points.
(d) Minimum standard mortality tables for valuation of
accident and health insurance benefits are as follows:
(1) Except as provided for in 11 NCAC 11F
.0207(d)(2) or (3), the mortality basis used for all policies except long-term
care individual policies and group certificates issued after August 1, 2004, shall
be according to a table (but without use of selection factors) permitted by law
for the valuation of whole life insurance issued on the same date as the
accident and health insurance contract. For long-term care insurance individual
policies or group certificates issued on or after August 1, 2004, the mortality basis used shall be the 1983 Group Annuity Mortality Table without projection.
(2) Other mortality tables adopted by the NAIC
and promulgated by the Commissioner in accordance with G.S. 150B may be used in
the calculation of the minimum reserves if appropriate for the type of benefits
and if requested by a qualified actuary. The request must include the proposed
mortality table and the reason that the standard specified in 11 NCAC 11F
.0207(d)(1) is inappropriate.
(3) For single premium credit insurance using
the 85 CIDA table, no separate mortality shall be assumed.
(e) The tables referenced in 11 NCAC 11F .0207 may be found
as follows:
(1) The 1964 Commissioners Disability Table,
1965 Proceedings of the National Association of Insurance Commissioners, Vol.
I, pgs. 78-80;
(2) The 1985 Commissioners Individual
Disability Tables A, 1986 Proceedings of the National Association of Insurance
Commissioners, Vol. I, pgs. 574-589;
(3) The 1985 Commissioners Individual
Disability Tables B, 1985 Proceedings of the National Association of Insurance
Commissioners, Vol. I, pgs. 486-540;
(4) The 1956 Intercompany Hospital-Surgical
Tables, 1957 Proceedings of the National Association of Insurance
Commissioners, Vol. I, pgs. 83-85;
(5) The 1974 Medical Expense Tables, Table A,
Transactions of the Society of Actuaries, Vol. XXX, pg. 63. Refer to the paper
(in the same volume, page 9), to which this table is appended, including its
discussions for methods of adjustment for benefits not directly valued in Table
A: "Development of the 1974 Medical Expense Benefits", Houghton and
Wolf;
(6) The 1985 NAIC Cancer Claim Cost Tables,
1986 Proceedings of the National Association of Insurance Commissioners, Vol.
I, pgs. 609-623;
(7) The 1959 Accident Death Benefit Tables,
Transactions of the Society of Actuaries, Vol. XI, pg. 754; and
(8) The 1987 Commissioners Group Disability
Income Table, 1987 Proceedings of the National Association of Insurance
Commissioners, Vol. II, pgs. 557-619.
(9) The 1983 Group Annuity Mortality Table,
Transactions of the Society of Actuaries, Vol. XXXV, pgs. 880-881.
Copies of the above-referenced tables can be obtained at a
cost prescribed in G.S. 58-6-5(3) from the Actuarial Service Division of the
North Carolina Department of Insurance, P.O. Box 26387, Raleigh, N.C. 27611.
The above-referenced tables are hereby incorporated by reference and do not
incorporate any amendments or editions.
History Note: Authority G.S. 58‑2‑40; 58‑58‑50(k);
Temporary Adoption Eff. January 21, 1994 for a period of 180 days or until the Permanent Rule becomes effective, whichever is sooner;
Eff. April 1, 1994;
Amended Eff. August 1, 2004.
11 NCAC 11F .0208 RESERVES FOR WAIVER OF PREMIUM
(a) Tabular reserves using the 1964 CDT, 1985 CIDA or 1985
CIDB tables, i.e. disability valuation tables based on exposures that include
contracts on premium waiver as in‑force contracts, shall value reserves
on the following basis:
(1) Claim reserves shall include reserves for
premiums expected to be waived, valuing as a minimum the valuation net premium
being waived.
(2) Premium reserves shall include contracts on
premium waiver as in‑force contracts, valuing as a minimum the unearned
modal valuation net premium being waived.
(3) Contract reserves shall include recognition
of the waiver of premium benefit in addition to other contract benefits
provided for, valuing as a minimum the valuation net premium to be waived.
(b) If an insurer is valuing reserves on what is truly an
active life table, or if a specific valuation table is not being used but the
insurer's gross premiums are calculated on a basis that includes in the
projected exposure only those contracts for which premiums are being paid, then
it shall still be necessary to provide specifically for waiver of premium
reserves.
History Note: Filed as a Temporary Adoption Eff.
January 21, 1994, For a Period of 180 Days or Until
the Permanent Rule Becomes Effective, Whichever is
Sooner;
Statutory Authority G.S. 58‑2‑40; 58‑58‑50(k);
Eff. April 1, 1994.
SECTION .0300 ‑ ACTUARIAL OPINION AND MEMORANDUM
11 NCAC 11F .0301 APPLICABILITY AND SCOPE
(a) This Section applies to all life insurance companies
and fraternal benefit societies doing business in this State and to all life
insurance companies and fraternal benefit societies that are authorized to
reinsure life insurance, annuities, or accident and health insurance business
in this State. This Section shall be applied in a manner that allows the
appointed actuary to utilize his or her professional judgment in performing the
asset analysis and developing the actuarial opinion and supporting memoranda,
consistent with relevant Actuarial Standards of Practice. However, the
Commissioner may require specific methods of actuarial analysis and actuarial
assumptions when these specifications are necessary for an acceptable opinion
to be rendered relative to the adequacy of reserves and related items. All
cross references to rule numbers are to rules within this Section.
(b) This Section applies to all annual statements filed
with the Commissioner after December 31, 2004. A statement of opinion on the adequacy
of the reserves and related actuarial items based on an asset adequacy analysis
in accordance with Rule .0306 of this Section and a supporting memorandum in
accordance with Rule .0307 of this Section are required each year.
History Note: Authority G.S. 58‑2‑40; 58‑24‑120;
58‑58‑50(i); 58‑58‑50(j);
Eff. December 1, 1994;
Amended Eff. August 1, 2004.
11 NCAC 11F .0302 DEFINITIONS
(a) "Annual statement" means that statement
required to be filed each year under G.S. 58‑2‑165.
(b) "Appointed actuary" means any individual who
is appointed or retained in accordance with Rule .0303(c) of this Section to provide
the actuarial opinion and supporting memorandum as required by G.S. 58‑58‑50(i)
and this Section.
(c) "Asset adequacy analysis" means an analysis
that meets the standards and other requirements referred to in Rule .0303(d) of
this Section.
(d) "Board" means the Actuarial Standards Board
established by the American Academy of Actuaries to develop and promulgate
standards of actuarial practice, and its successors.
(e) "Company" means a life insurance company,
fraternal benefit society, or reinsurer subject to this Section.
(f) "Opinion" means the statement of actuarial
opinion of an appointed actuary regarding the adequacy of the reserves and
related actuarial items based on an asset adequacy analysis in accordance with
Rule .0306 of this Section and with applicable actuarial standards of practice.
(g) "Qualified actuary" means any individual who
meets the requirements set forth in Rule .0303(b) of this Section.
History Note: Authority G.S. 58‑2‑40; 58‑24‑120;
58‑58‑50(i); 58‑58‑50(j);
Eff. December 1, 1994;
Amended Eff. August 1, 2004.
11 NCAC 11F .0303 GENERAL REQUIREMENTS
(a) Submission of Opinion:
(1) There shall be included on or attached to
page 1 of the annual statement for each year beginning with calendar year 2004,
the statement of an appointed actuary, entitled "Statement of Actuarial
Opinion," setting forth an opinion relating to reserves and related
actuarial items held in support of policies and contracts, in accordance with
Rule .0306 of this Section.
(2) Upon written request by the company the
Commissioner shall grant a 45-day extension of the date for submission of the
opinion. In the written request, the company shall state the reason that such
extension is needed.
(b) A "qualified actuary" is an individual who:
(1) Is a member in good standing of the
American Academy of Actuaries;
(2) Is qualified to sign opinions for life and
health insurance company annual statements in accordance with the American
Academy of Actuaries qualification standards for actuaries signing such
opinions;
(3) Is familiar with the valuation requirements
applicable to life and health insurance companies;
(4) Has not been found by the Commissioner (or
if so found has subsequently been reinstated as a qualified actuary), to have:
(A) Violated any provision of, or any obligation imposed
by, any law or rule in the course of his or her dealings as a qualified
actuary;
(B) Been found by a court of competent jurisdiction to
be guilty of a fraudulent or dishonest practice;
(C) Failed to comply with the Code of Professional
Conduct as published by the Board;
(D) Submitted to the Commissioner during the past five
years, under this Section, an opinion or memorandum that the Commissioner
rejected because it did not meet the provisions of this Section, including
standards set by the Board; or
(E) Resigned or been removed as an actuary within the
past five years as a result of acts or omissions indicated in any adverse
report on an examination or as a result of failure to adhere to generally
acceptable actuarial standards; and
(5) Has not failed to notify the Commissioner
of any action taken by any insurance regulator of any other state similar to
that under Subparagraph (b)(4) of this Rule.
(c) An "appointed actuary" is a qualified actuary
who is appointed or retained to prepare the opinion required by this Section,
either directly by or by the authority of the board of directors through an
executive officer of the company. The company shall, within 45 days after the
date of the appointment, give the Commissioner written notice of the name,
title (and, in the case of a consulting actuary, the name of the firm), and
manner of appointment or retention of each person appointed or retained by the
company as an appointed actuary and shall state in such notice that the person
meets the requirements of Paragraph (b) of this Rule. Once notice is
furnished, no further notice is required for the actuary, provided that the
company gives the Commissioner written notice if the actuary ceases to be
appointed or retained as an appointed actuary or no longer meets the
requirements of Paragraph (b) of this Rule. If any person appointed or retained
as an appointed actuary replaces a previously appointed actuary, the notice
shall so state and give the reasons for replacement.
(d) The asset adequacy analysis required by this Section:
(1) Shall conform to the standards of practice
as promulgated from time to time by the Board and on any additional standards
under this Section, which standards are to form the basis of the opinion in
accordance with Rule .0306 of this Section; and
(2) Shall be based on methods of analysis that
are consistent with Actuarial Standards of Practice adopted by the Board.
(e) Liabilities to be Covered:
(1) The opinion shall apply to all in force
business on the annual statement date regardless of when or where issued, e.g.,
aggregate reserves for life insurance and annuity policies and contracts,
aggregate reserves for accident and health contracts, aggregate reserves for
deposit-type contracts, and policy and contract claims liabilities for life and
accident and health policies and contracts, and equivalent items in the separate
account statement or statements.
(2) If the appointed actuary determines as the
result of asset adequacy analysis that a reserve should be held in addition to
the aggregate reserve held by the company and calculated in accordance with
methods set forth in G.S. 58‑58‑50(d), 58‑58‑50(d‑1),
58‑58‑50(g), 58‑58‑50(h), and 58‑58‑50(k),
the company shall establish such additional reserve.
(3) Additional reserves established under
Subparagraph (e)(2) of this Rule and deemed by a qualified actuary to be
unnecessary in later years may be released. Any amounts released must be
disclosed in the opinion for the applicable year. The release of such reserves
is not an adoption of a lower standard of valuation.
History Note: Authority G.S. 58‑2‑40; 58‑58‑50(i);
58‑58‑50(j);
Eff. December 1, 1994;
Amended Eff. August 1, 2004.
11 NCAC 11F .0304 REQUIRED OPINIONS
11 NCAC 11F .0305 OPINION WITHOUT ASSET ADEQUACY
ANALYSIS
History Note: Authority G.S. 58‑2‑40; 58‑58‑50(i);
58‑58‑50(j);
Eff. December 1, 1994;
Repealed Eff. August 1, 2004.
11 NCAC 11F .0306 OPINION BASED ON ASSET ADEQUACY
ANALYSIS
(a) The opinion submitted in accordance with this Rule
shall consist of:
(1) A paragraph identifying the appointed
actuary and his or her qualifications as prescribed by Subparagraph (b)(1) of this
Rule;
(2) A scope paragraph identifying the subjects
on which an opinion is to be expressed and describing the scope of the
appointed actuary's work, including a tabulation delineating the reserves and
related actuarial items that have been analyzed for asset adequacy and the
method of analysis, as prescribed by Subparagraph (b)(2) of this Rule and
identifying the reserves and related actuarial items covered by the opinion
that have not been so analyzed;
(3) A reliance paragraph describing those
areas, if any, where the appointed actuary has deferred to other experts in
developing data, procedures or assumptions, (for example, anticipated cash
flows from currently owned assets, including variation in cash flows according
to economic scenarios as prescribed by Subparagraph (b)(3) of this Rule),
supported by a statement of each such expert in the form prescribed by
Paragraph (e) of this Rule; and
(4) An opinion paragraph expressing the
appointed actuary's opinion with respect to the adequacy of the supporting
assets to mature the liabilities as prescribed by Subparagraph (b)(6) of this
Rule;
(5) One or more additional paragraphs shall be
needed in individual company cases if the appointed actuary:
(A) Considers it necessary to state a qualification of
his or her opinion;
(B) Must disclose an inconsistency in the method of
analysis or basis of asset allocation used at the prior opinion date with that
used for this opinion.
(C) Must disclose whether additional reserves of the
prior opinion date are released as of this opinion date, and the extent of the
release.
(D) Chooses to add a paragraph briefly describing the
assumptions that form the basis for the actuarial opinion.
(b) The following paragraphs are to be included in the
opinion in accordance with this Rule. The appointed actuary shall use language
that expresses his or her own professional judgement. The opinion shall retain
all pertinent aspects of the language provided in this Section.
(1) The opening paragraph shall indicate the
appointed actuary's relationship to the company and his or her qualifications
to sign the opinion.
(A) For a company actuary, the opening paragraph of the
actuarial opinion shall read as follows:
"I [name], am [title] of [insurance
company name] and a member of the American Academy of Actuaries. I was
appointed by, or by the authority of, the Board of Directors of the insurer to
render this opinion as stated in the letter to the Commissioner dated [insert
date]. I meet the Academy qualification standards for rendering the opinion
and am familiar with the valuation requirements applicable to life and health
insurance companies."
(B) For a consulting actuary, the opening paragraph
shall contain a sentence similar to the following:
"I, [name], a member of the American
Academy of Actuaries, am associated with the firm of [name of consulting
firm]. I have been appointed by, or by the authority of, the Board of
Directors of [name of company] to render this opinion as stated in the letter
to the Commissioner dated [insert date]. I meet the Academy qualification
standards for rendering the opinion and am familiar with the valuation
requirements applicable to life and health insurance companies."
(2) The scope paragraph shall include a statement
similar to the following:
"I have examined the
actuarial assumptions and actuarial methods used in determining reserves and
related actuarial items listed below, as shown in the annual statement of the
company, as prepared for filing with state regulatory officials, as of December
31, [year]. Tabulated below are those reserves and related actuarial items
that have been subjected to asset adequacy analysis.
(Include reserves and related actuarial
items that correspond to the Asset Adequacy Tested Amounts Reserves and
Liabilities Table listed in the NAIC Model Regulation titled, "Actuarial
Opinion and Memorandum Regulation," and any subsequent amendments and
editions. A copy of the Table may be obtained from the North Carolina
Department of Insurance at a cost prescribed in G.S. 58‑6‑5(3)).
(3) If the appointed actuary has relied on
other experts to develop certain portions of the analysis, the reliance
paragraph shall include a statement similar to one of the following:
(A) "I have relied on [name], [title] for [e.g.,
anticipated cash flows from currently owned assets, including variations in
cash flows according to economic scenarios] as certified in the attached
statement. I have reviewed the information relied upon for
reasonableness....", or
(B) "I have relied on personnel as cited in the supporting
memorandum for certain critical aspects of the analysis in reference to the
accompanying statement. I have reviewed the information relied upon for
reasonableness."
Such a statement of reliance on
other experts shall be accompanied by a statement by each of such experts of
the form prescribed by Paragraph (e) of this Rule.
(4) If the appointed actuary has examined the
underlying asset and liability records, the reliance paragraph shall also
include the following:
"My examination included
such review of the actuarial assumptions and actuarial methods and of the
underlying basic asset and liability records and such tests of the actuarial
calculations as I considered necessary. I also reconciled the underlying basic
asset and liability records to [exhibits and schedules listed as applicable] of
the company’s current annual statement. "
(5) If the appointed actuary has not examined
the underlying records, but has relied upon data (e.g., listings and summaries
of policies in force or asset records) prepared by the company or a third
party, the reliance paragraph shall include a statement similar to the
following:
"In forming my opinion on [specify types of
reserves] I relied upon data prepared by [name and title of company officer
certifying in‑force records or other data] as certified in the attached
statement. I evaluated that data for reasonableness and consistency. I also
reconciled that data to [exhibits and schedules to be listed as applicable] of
the company's current annual statement. In other respects my examination
included such review of the actuarial assumptions and actuarial methods used and
such tests of the actuarial calculations as I considered necessary.”
Such a sentence must be
accompanied by a statement by each person relied upon of the form prescribed by
Paragraph (e) of this Rule.
(6) The opinion paragraph of an unqualified
opinion shall include the following:
(A) "In my opinion the reserves and related
actuarial values concerning the statement items identified above:
1. Are computed in accordance
with presently accepted actuarial standards consistently applied and are fairly
stated, in accordance with sound actuarial principles;
2. Are based on actuarial
assumptions that produce reserves at least as great as those called for in any
contract provision as to reserve basis and method, and are in accordance with
all other contract provisions;
3. Meet the requirements of the
insurance laws and rules of the state of [state of domicile] and are at least
as great as the minimum aggregate amounts required by the state in which this
statement is filed;
4. Are computed on the basis of
assumptions consistent with those used in computing the corresponding items in
the annual statement of the preceding year‑end (with any exceptions noted
below); and
5. Include provision for all
actuarial reserves and related statement items that ought to be established.
The reserves and related items, when
considered in light of the assets held by the company with respect to such
reserves and related actuarial items including, but not limited to, the
investment earnings on such assets, and the considerations anticipated to be
received and retained under such policies and contracts, make adequate
provision, according to presently accepted actuarial standards of practice, for
the anticipated cash flows required by the contractual obligations and related
expenses of the company.
The actuarial methods, considerations and
analyses used in forming my opinion conform to the appropriate Standards of
Practice as promulgated by the Actuarial Standards Board, which standards form
the basis of this statement of opinion."
(B) Select one of the following two paragraphs:
(i) "This opinion is updated annually as
required by law. To the best of my knowledge, there have been no material
changes from the applicable date of the annual statement to the date of the
rendering of this opinion that should be considered in reviewing this
opinion;" or
(ii) "The following material change(s) that
occurred between the date of the statement for which this opinion is applicable
and the date of this opinion should be considered in reviewing this
opinion." (Describe the change or changes.)
(C) "The effect of unanticipated events after the
date of this opinion is beyond the scope of this opinion. The analysis of
asset adequacy portion of this opinion should be viewed recognizing that the
company's future experience may not follow all the assumptions used in the
analysis.
___________________________________
Signature of
Appointed Actuary
___________________________________
Address of
Appointed Actuary
___________________________________
Telephone Number
of Appointed
Actuary
___________________________________
Date"
(c) The adoption for new issues or new claims or other new
liabilities of an actuarial assumption that differs from a corresponding
assumption used for prior new issues or new claims or other new liabilities is
not a change in actuarial assumptions within the meaning of this Rule.
(d) If the appointed actuary is unable to form an opinion,
then he or she shall refuse to issue an opinion. If the appointed actuary's
opinion is adverse or qualified, then he or she shall issue an adverse or
qualified opinion explicitly stating the reason or reasons for such opinion.
This statement shall follow the scope paragraph and precede the opinion
paragraph. If the appointed actuary's opinion is adverse or qualified, the
appointed actuary shall modify the language prescribed in Rule .0306(b)(6) of
this Section as made necessary by the reason or reasons for the qualified
opinion, and shall label the opinion paragraph with the words "Qualified
Opinion."
(e) If the appointed actuary relies on the certification of
others on matters concerning the accuracy or completeness of any data
underlying the opinion, or the appropriateness of any other information used by
the appointed actuary in forming the opinion, the opinion shall so indicate the
persons the actuary is relying upon and a precise identification of the items
subject to reliance. In addition, the persons on whom the appointed actuary
relies shall provide a certification that precisely identifies the items on
which the person is providing information and a statement as to the accuracy,
completeness or reasonableness, as applicable, of the items. This certification
shall include the signature, title, company, address, and telephone number of
the person rendering the certification, as well as the date on which it is
signed.
History Note: Authority G.S. 58‑2‑40; 58‑58‑50(i);
58‑58‑50(j);
Eff. December 1, 1994;
Amended Eff. August 1, 2004.
11 NCAC 11F .0307 ACTUARIAL MEMORANDUM WITH ASSET
ADEQUACY ANALYSIS
(a) General:
(1) In accordance with G.S. 58-58-50(i) and
(j), the appointed actuary shall prepare a memorandum to the company describing
the analysis done in support of his or her opinion regarding the reserves under
an opinion prescribed by Rule .0306 of this Section. The memorandum shall be
made available for examination by the Commissioner upon request and shall be
returned to the company after the examination and shall not be subject to
automatic filing with the Commissioner.
(2) In preparing the memorandum, the appointed
actuary may rely on, and include as a part of his or her own memorandum,
memoranda prepared and signed by other actuaries who are qualified within the
meaning of Rule .0303(b) of this Section, with respect to the areas covered in
such memoranda, and so state in their memoranda.
(3) If the Commissioner requests a memorandum
and no such memorandum exists or if the Commissioner finds that the analysis
described in the memorandum fails to meet the standards of the Board or the
standards and requirements of this Section, the Commissioner shall designate a
qualified actuary to review the opinion and prepare such supporting memorandum
as is required for review. The reasonable and necessary expense of the
independent review shall be paid by the company but shall be directed and
controlled by the Commissioner.
(4) The reviewing actuary shall have the same
status as an examiner for purposes of obtaining data from the company and the
work papers and documentation of the reviewing actuary shall be retained by the
Commissioner; provided, however, that any information provided by the company
to the reviewing actuary and included in the work papers shall be considered as
material provided by the company to the Commissioner and shall be kept
confidential to the same extent as is prescribed by law with respect to other
material provided by the company to the Commissioner under G.S. 58-58-50(j).
The reviewing actuary shall not be an employee of a consulting firm involved
with the preparation of any prior memorandum or opinion for the company under
this Section for any one of the current year or the preceding three years.
(5) In accordance with G.S. 58-58-50(j), the
appointed actuary shall prepare a regulatory asset adequacy issues summary, the
contents of which are specified in Paragraph (c) of this Rule. The regulatory
asset adequacy issues summary shall be submitted no later than March 15 of the
year following the year for which a statement of actuarial opinion based on
asset adequacy is required. The regulatory asset adequacy issues summary shall
be kept confidential to the same extent and under the same conditions as the
actuarial memorandum.
(b) When an actuarial opinion under Rule .0306 of this
Section is provided, the memorandum shall demonstrate that the analysis has
been done in accordance with the standards for asset adequacy referred to in
Rule .0303(d) of this Section and any additional standards under this Section.
It shall specify:
(1) For reserves:
(A) Product descriptions, including market description,
underwriting, and other aspects of a risk profile, and the specific risks the
appointed actuary deems to be significant;
(B) Source of liability in force;
(C) Reserve method and basis;
(D) Investment reserves;
(E) Reinsurance arrangements;
(F) Identification of any explicit or implied
guarantees made by the general account in support of benefits provided through
a separate account or under a separate account policy or contract and the
methods used by the appointed actuary to provide for the guarantees in the
asset adequacy analysis;
(G) Documentation of assumptions to test reserves for
the following:
(i) Lapse rates (both base and excess);
(ii) Interest crediting rate strategy;
(iii) Mortality;
(iv) Policyholder dividend strategy;
(v) Competitor or market interest rate;
(vi) Annuitization rates;
(vii) Commissions and expenses; and
(viii) Morbidity.
The documentation of
assumptions shall be such that an actuary reviewing the actuarial memorandum
could form a conclusion as to the reasonableness of the assumptions.
(2) For assets:
(A) Portfolio descriptions, including a risk profile
disclosing the quality, distribution, and types of assets;
(B) Investment and disinvestment assumptions;
(C) Source of asset data;
(D) Asset valuation bases; and
(E) Documentation of assumptions made for:
(i) Default costs;
(ii) Bond call function;
(iii) Mortgage prepayment function;
(iv) Determining market value for assets sold due to
disinvestment strategy; and
(v) Determining yield on assets acquired through the
investment strategy.
The documentation of
the assumptions shall be such that an actuary reviewing the actuarial
memorandum could form a conclusion as to the reasonableness of the assumptions.
(3) For the analysis basis:
(A) Methodology;
(B) Rationale for inclusion or exclusion of different
blocks of business and how pertinent risks were analyzed;
(C) Rationale for degree of rigor in analyzing different
blocks of business (including in the rationale the level of
"materiality" that was used in determining how rigorously to analyze
different blocks of business);
(D) Criteria for determining asset adequacy (including
in the criteria the precise basis for determining if assets are adequate to cover
reserves under "moderately adverse conditions" or other conditions as
specified in relevant actuarial standards of practice); and
(E) Effect of federal income taxes, reinsurance, and
other actuarially or financially relevant factors.
(4) Summary of any changes in methods,
procedures, or assumptions from the prior year's asset adequacy analysis which
the appointed actuary considers to be material.
(5) Summary of results.
(6) Conclusions.
(c) The regulatory asset adequacy issues summary shall
include:
(1) Descriptions of the scenarios tested
(including whether those scenarios are stochastic or deterministic) and the
sensitivity testing done relative to those scenarios. If negative ending
surplus results under any tests in the aggregate, the actuary shall describe
those tests and the amount of additional reserve as of the valuation date that,
if held, would eliminate the negative aggregate surplus values. Ending surplus
values shall be determined by either extending the projection period until the
in force and associated assets and liabilities at the end of the projection
period are considered by the appointed actuary to be immaterial or by adjusting
the surplus amount at the end of the projection period by an amount that
appropriately estimates the value that can reasonably be expected to arise from
the assets and liabilities remaining in force;
(2) The extent to which the appointed actuary
uses assumptions in the asset adequacy analysis that are considered by the
appointed actuary to be materially different than the assumptions used in the
previous asset adequacy analysis;
(3) The amount of reserves and the identity of
the product lines that had been subjected to asset adequacy analysis in the
prior opinion but were not subject to analysis for the current opinion;
(4) Comments on any interim results that may be
of concern to the appointed actuary, such as the effect of the insufficiency of
assets to support the payment of benefits and expenses and the establishment of
statutory reserves during one or more interim periods;
(5) The methods used by the actuary to
recognize the impact of reinsurance on the company's cash flows, including both
assets and liabilities, under each of the scenarios tested; and
(6) Whether the actuary has been satisfied that
all options whether explicit or embedded, in any asset or liability (including
those affecting cash flows embedded in fixed income securities) and equity-like
features in any investments have been appropriately considered in the asset
adequacy analysis.
(d) The regulatory asset adequacy issues summary shall
contain the name of the company for which the regulatory asset adequacy issues
summary is being supplied, and shall be signed and dated by the appointed
actuary rendering the actuarial opinion.
(e) The memorandum shall include a statement:
"Actuarial
methods, considerations and analyses used in the preparation of this memorandum
conform to the appropriate Standards of Practice as promulgated by the
Actuarial Standards Board, which standards form the basis for this
memorandum."
(f) An appropriate allocation of assets in the amount of
the interest maintenance reserve (IMR), whether positive or negative, shall be
used in any asset adequacy analysis. Analysis of risks regarding asset default
may include an appropriate allocation of assets supporting the asset valuation
reserve (AVR); these AVR assets may not be applied for any other risks with
respect to reserve adequacy. Analysis of these and other risks may include
assets supporting other mandatory or voluntary reserves available to the extent
not used for risk analysis and reserve support. The amount of the assets used
for the AVR shall be disclosed in the table of reserves and liabilities of the
opinion and in the memorandum. The method used for selecting particular assets
or allocated portions of assets shall be disclosed in the memorandum.
(g) The appointed actuary shall retain on file, for at
least seven years, all documentation necessary to determine the procedures
followed, the analyses performed, the bases for the assumptions, and the
results obtained.
History Note: Authority G.S. 58-2-40; 58-58-50(i);
58-58-50(j);
Eff. December 1, 1994;
Amended Eff. March 1, 2010; August 1, 2004.
11 NCAC 11F .0308 ADDITIONAL CONSIDERATIONS FOR
ANALYSIS
History Note: Authority G.S. 58‑2‑40; 58‑58‑50(i);
58‑58‑50(j);
Eff. December 1, 1994;
Repealed Eff. August 1, 2004.
section .0400 – commissioner's reserve valuation method
11 NCAC 11F .0401 APPLICABILITY
(a) This Section does not apply to:
(1) Any individual life insurance policy issued
on or after January 1, 2000, if the policy is issued in accordance with and as
a result of the exercise of a reentry provision contained in the original life
insurance policy of the same or greater face amount, issued before January 1,
2000, that guarantees the premium rates of the new policy; nor to subsequent
policies issued as a result of the exercise of such a provision, or a
derivation of the provision, in the new policy;
(2) Any universal life policy that meets all
the following requirements:
(A) The secondary guarantee period, if any, is five
years or less.
(B) The specified premium for the secondary guarantee
period is not less than the net level reserve premium for the secondary
guarantee period based on the CSO valuation tables as defined in 11 NCAC 11F
.0402(6) and the applicable valuation interest rate.
(C) The initial surrender charge is not less than 100%
of the first year annualized specified premium for the secondary guarantee
period.
(3) Any variable life insurance policy that
provides for life insurance, the amount or duration of which varies according
to the investment experience of any separate account or accounts;
(4) Any variable universal life insurance
policy that provides for life insurance, the amount or duration of which varies
according to the investment experience of any separate account or accounts; and
(5) A group life insurance certificate unless
the certificate provides for a stated or implied schedule of maximum gross
premiums required in order to continue coverage in force for a period in excess
of one year.
(b) Calculation of the minimum valuation standard for
policies with guaranteed nonlevel gross premiums or guaranteed nonlevel
benefits (other than universal life policies), or both, shall be in accordance
with 11 NCAC 11F .0404.
(c) Calculation of the minimum valuation standard for
flexible premium and fixed premium universal life insurance policies that
contain provisions resulting in the ability of a policyholder to keep a policy
in force over a secondary guarantee period shall be in accordance with 11 NCAC
11F .0405.
History Note: Authority G.S. 58-2-40; 58-58-50(d);
58-58-50(k);
Eff. January 1, 1998;
Temporary Amendment Eff. January 1, 2000;
Amended Eff. July 1, 2000.
11 NCAC 11F .0402 DEFINITIONS
As used in this Section:
(1) "Basic reserves" means reserves
calculated in accordance with G.S. 58-58-50(d).
(2) "Contract segmentation method"
means the method of dividing the period from issue to mandatory expiration of a
policy into successive segments, with the length of each segment being defined
as the period from the end of the prior segment (from policy inception, for the
first segment) to the end of the latest policy year as determined below. All
calculations are made using the 1980 CSO valuation tables, as defined in 11
NCAC 11F .0402(6) (or any other valuation mortality table adopted by the NAIC
after January 1, 2000, and adopted as a rule by the Commissioner for this
purpose), and, if elected, the optional minimum mortality standard for
deficiency reserves stipulated in 11 NCAC 11F .0403(b).
The length of a particular
contract segment shall be set equal to the minimum of the value t for which Gt
is greater than Rt (if Gt never exceeds Rt the segment length is deemed to be
the number of years from the beginning of the segment to the mandatory
expiration date of the policy), where Gt and Rt are defined as follows:
Gt = GPx+k+t
_______
GPx+k+t-1
where:
x = original issue
age;
k = the number of
years from the date of issue to the beginning of the segment;
t = 1, 2, . . .;
t is reset to 1 at the beginning of each segment;
GPx+k+t-1 = Guaranteed gross
premium per thousand of face amount, for year t of the segment, ignoring
policy fees only if level for the premium paying period of the policy.
Rt = qx+k+t
________
qx+k+t-1
However, Rt may be increased or
decreased by one percent in any policy year, at the company's option, but Rt
shall not be less than one;
where:
x, k and t are as
defined above, and
qx+k+t-1 = valuation mortality
rate for deficiency reserves in policy year k+t, but using the mortality of 11
NCAC 11F .0403(b)(2) if 11 NCAC 11F .0403(b)(3) is elected for deficiency
reserves.
However, if GPx+k+t is greater
than zero (0) and GPx+k+t-1 is equal to zero (0), Gt shall be deemed to be one
thousand (1,000). If GPx+k+t and GPx+k+t-1 are both equal to zero (0), Gt
shall be deemed to be zero (0).
(3) "Deficiency reserves" means the
excess, if greater than zero, of minimum reserves calculated in accordance with
G.S. 58-58-50(g) over basic reserves.
(4) "Guaranteed gross
premiums" means the premiums under a policy of life insurance that are
guaranteed and determined at issue.
(5) "Maximum valuation interest
rates" means the interest rates specified in G.S. 58-58-50(c)(4) that are
to be used in determining the minimum standard for the valuation of life
insurance policies.
(6) "1980 CSO valuation tables" means
the Commissioners' 1980 Standard Ordinary Mortality Table (1980 CSO Table)
without ten-year selection factors, incorporated into the 1980 amendments to
the NAIC Standard Valuation Law, and variations of the 1980 CSO Table
approved by the NAIC, such as the smoker and nonsmoker versions approved in
December 1983.
(7) "Scheduled gross premium" means
the smallest illustrated gross premium at issue for other than universal life
insurance policies. For universal life insurance policies, scheduled gross
premium means the smallest specified premium described in 11 NCAC 11F
.0405(a)(3), if any, or else the minimum premium described in 11 NCAC 11F
.0405(a)(4).
(8) "Segmented reserves" means
reserves, calculated using segments produced by the contract segmentation
method, equal to the present value of all future guaranteed benefits less the
present value of all future net premiums to the mandatory expiration of a
policy, where the net premiums within each segment are a uniform percentage of
the respective guaranteed gross premiums within the segment.
(a) The uniform percentage for each segment is
such that, at the beginning of the segment, the present value of the net
premiums within the segment equals:
(i) The present value of the death benefits
within the segment, plus;
(ii) The present value of any unusual guaranteed
cash value (see 11 NCAC 11F .0404(d)) occurring at the end of the segment,
less;
(iii) Any unusual guaranteed cash value occurring
at the start of the segment, plus; and
(iv) For the first segment only, the excess of
the Item (A) over Item (B), as follows:
(A) A net level annual premium equal to the
present value, at the date of issue, of the benefits provided for in the first
segment after the first policy year, divided by the present value, at the date
of issue, of an annuity of one per year payable on the first and each
subsequent anniversary within the first segment on which a premium falls due.
However, the net level annual premium shall not exceed the net level annual
premium on the nineteen-year premium whole life plan of insurance of the same
renewal year equivalent level amount at an age one year higher than the age at
issue of the policy; and
(B) A net one-year term premium for the benefits
provided for in the first policy year.
(b) The length of each segment is determined by
the contract segmentation method.
(c) The interest rates used in the present value
calculations for any policy may not exceed the maximum valuation interest rate,
determined with a guarantee duration equal to the sum of the lengths of all
segments of the policy.
(d) For both basic reserves and deficiency
reserves computed by the segmented method, present values shall include future
benefits and net premiums in the current segment and in all subsequent
segments.
(9) "Tabular cost of insurance" means
the net single premium at the beginning of a policy year for one-year term
insurance in the amount of the guaranteed death benefit in that policy year.
(10) "Ten-year select factors" means
the select factors adopted with the 1980 amendments to the NAIC Standard
Valuation Law.
(11) "Unitary reserves" means the
present value of all future guaranteed benefits less the present value of all
future modified net premiums, where:
(a) Guaranteed benefits and modified net
premiums are considered to the mandatory expiration of the policy;
(b) Modified net premiums are a uniform
percentage of the respective guaranteed gross premiums, where the uniform
percentage is such that, at issue, the present value of the net premiums equals
the present value of all death benefits and pure endowments, plus the excess of
Item (i) over Item (ii):
(i) A net level annual premium equal to the
present value, at the date of issue, of the benefits provided for after the
first policy year, divided by the present value, at the date of issue, of an
annuity of one per year payable on the first and each subsequent anniversary of
the policy on which a premium falls due. However, the net level annual premium
shall not exceed the net level annual premium on the nineteen-year premium
whole life plan of insurance of the same renewal year equivalent level amount
at an age one year higher than the age at issue of the policy.
(ii) A net one-year term premium for the
benefits provided for in the first policy year; and
(c) The interest rates used in the present value
calculations for any policy may not exceed the maximum valuation interest rate,
determined with a guarantee duration equal to the length from issue to the
mandatory expiration of the policy.
(12) "Universal life insurance policy"
means any individual life insurance policy under the provisions of which
separately identified interest credits (other than in connection with dividend
accumulations, premium deposit funds, or other supplementary accounts) and
mortality or expense charges are made to the policy.
History Note: Authority G.S. 58-2-40; 58-58-50(d);
58-58-50(k);
Eff. January 1, 1998;
Temporary Amendment Eff. January 1, 2000;
Amended Eff. July 1, 2000.
11 NCAC 11F .0403 BASIC AND PREMIUM DEFICIENCY RESERVES
(a) At the election of the company for any one or more
specified plans of life insurance, the minimum mortality standard for basic
reserves may be calculated using the 1980 CSO valuation tables with select
mortality factors (or any other valuation mortality table adopted by the NAIC
after January 1, 2000, and adopted as a rule by the Commissioner for this
purpose). If select mortality factors are elected, they may be:
(1) The ten-year select mortality factors
incorporated into the 1980 amendments to the NAIC Standard Valuation Law;
(2) The select mortality factors in the NAIC
Model Regulation entitled "Valuation of Life Insurance Policies Model
Regulation"; or
(3) Any other table of select mortality factors
adopted by the NAIC after January 1, 2000, and adopted as a rule by the
Commissioner for the purpose of calculating basic reserves.
(b) Deficiency reserves, if any, are calculated for each
policy as the excess, if greater than zero, of the quantity A over the basic
reserve. The quantity A is obtained by recalculating the basic reserve for the
policy using guaranteed gross premiums instead of net premiums when the
guaranteed gross premiums are less than the corresponding net premiums. At the election
of the company for any one or more specified plans of insurance, the quantity A
and the corresponding net premiums used in the determination of quantity A may
be based upon the 1980 CSO valuation tables with select mortality factors (or
any other valuation mortality table adopted by the NAIC after January 1, 2000,
and adopted as a rule by the Commissioner). If select mortality factors are
elected, they may be any of the following:
(1) The ten-year select mortality factors
incorporated into the 1980 amendments to the NAIC Standard Valuation Law;
(2) The select mortality factors in the NAIC
Model Regulation entitled "Valuation of Life Insurance Policies Model
Regulation";
(3) For durations in the first segment, X
percent of the select mortality factors in the NAIC Model Regulation entitled
"Valuation of Life Insurance Policies Model Regulation," subject to
the following:
(A) X may vary by policy year, policy form, underwriting
classification, issue age, or any other policy factor expected to affect mortality
experience;
(B) X is such that, when using the valuation interest
rate used for basic reserves, Item (i) is greater than or equal to Item (ii):
(i) The actuarial present value of future death
benefits calculated using the mortality rates resulting from the application of
X;
(ii) The actuarial present value of future death
benefits calculated using anticipated mortality experience without recognition
of mortality improvement beyond the valuation date;
(C) X is such that the mortality rates resulting from
the application of X are at least as great as the anticipated mortality
experience, without recognition of mortality improvement beyond the valuation
date, in each of the first five years after the valuation date;
(D) The appointed actuary shall increase X at any
valuation date where it is necessary to continue to meet all requirements of
this Rule;
(E) The appointed actuary may decrease X at any
valuation date as long as X continues to meet all the requirements of this
Rule;
(F) The appointed actuary shall take into account the
adverse effect on expected mortality and lapsation of any anticipated or actual
increase in gross premiums; and
(G) If X is less than 100 percent at any duration for
any policy, the following requirements shall be met:
(i) The appointed actuary shall annually prepare an
actuarial opinion and memorandum for the company in conformance with the
requirements of 11 NCAC 11F .0300;
(ii) The appointed actuary shall disclose, in the
Regulatory Asset Adequacy Issues Summary, the effect of the insufficiency of
assets to support the payment of benefits and expenses and the establishment of
statutory reserves during one or more interim periods; and
(iii) The appointed actuary shall annually opine for
all policies subject to this Section as to whether the mortality rates
resulting from the application of X meet the requirements of this Rule. This
opinion shall be supported by an actuarial report, subject to appropriate
Actuarial Standards of Practice promulgated by the Actuarial Standards Board of
the American Academy of Actuaries. The X factors shall reflect anticipated
future mortality, without recognition of mortality improvement beyond the
valuation date, taking into account relevant emerging experience;
(4) Any other table of select mortality factors
adopted by the NAIC after January 1, 2000, and adopted as a rule by the
Commissioner for the purpose of calculating deficiency reserves.
(c) This Rule applies to both basic reserves and deficiency
reserves. Any set of select mortality factors may be used only for the first
segment. However, if the first segment is less than 10 years, the appropriate
10-year select mortality factors, incorporated into the 1980 amendments to the
NAIC Standard Valuation Law, may be used thereafter through the tenth policy
year from the date of issue.
(d) In determining basic reserves or deficiency reserves,
guaranteed gross premiums without policy fees may be used where the calculation
involves the guaranteed gross premium, but only if the policy fee is a level
dollar amount after the first policy year. In determining deficiency reserves,
policy fees may be included in guaranteed gross premiums even if they are not
included in the actual calculation of basic reserves.
(e) Reserves for policies that have changes to guaranteed
gross premiums, guaranteed benefits, guaranteed charges, or guaranteed credits
that are unilaterally made by the insurer after issue and that are effective
for more than one year after the date of the change shall be the greatest of
the following:
(1) Reserves calculated ignoring the guarantee;
(2) Reserves assuming the guarantee was made at
issue; or
(3) Reserves assuming that the policy was
issued on the date of the guarantee.
History Note: Authority G.S. 58-2-40; 58-58-50(d); 58-58-50(k);
Eff. January 1, 1998;
Temporary Amended Eff. January 1, 2000;
Amended Eff. March 1, 2010; July 1, 2000.
11 NCAC 11F .0404 CALCULATION OF 11 NCAC 11f .0401(b)
(a) Basic reserves shall be calculated as the greater of
the segmented reserves and the unitary reserves. Both the segmented reserves
and the unitary reserves for any policy shall use the same valuation
mortality table and selection factors. At the option of the insurer, in
calculating segmented reserves and net premiums, either of the following
adjustments may be made:
(1) Treat the unitary reserve, if greater than
zero, applicable at the end of each segment as a pure endowment; and subtract
the unitary reserve, if greater than zero, applicable at the beginning of each
segment from the present value of guaranteed life insurance and endowment
benefits for each segment; or
(2) Treat the guaranteed cash surrender value,
if greater than zero, applicable at the end of each segment as a pure
endowment; and subtract the guaranteed cash surrender value, if greater than
zero, applicable at the beginning of each segment from the present value of
guaranteed life insurance and endowment benefits for each segment.
(b) Deficiency Reserves:
(1) The deficiency reserve at any duration
shall be calculated:
(A) On a unitary basis if the corresponding basic
reserve determined by 11 NCAC 11F .0404(a) is unitary;
(B) On a segmented basis if the corresponding basic
reserve determined by 11 NCAC 11F .0404(a) is segmented; or
(C) On the segmented basis if the corresponding basic
reserve determined by 11 NCAC 11F .0404(a) is equal to both the segmented
reserve and the unitary reserve.
(2) 11 NCAC 11F .0404(b) shall apply to
any policy for which the guaranteed gross premium at any duration is less than
the corresponding modified net premium calculated by the method used in
determining the basic reserves, but using the minimum valuation standards of
mortality (specified in 11 NCAC 11F .0403 (b)) and rate of interest.
(3) Deficiency reserves, if any, shall be
calculated for each policy as the excess if greater than zero, for the current
and all remaining periods, of the quantity A over the basic reserve, where A is
obtained as indicated in 11 NCAC 11F .0403(b).
(4) For deficiency reserves determined on a
segmented basis, the quantity A is determined using segment lengths equal to
those determined for segmented basic reserves.
(c) Minimum Value - Basic reserves may not be less than the
tabular cost of insurance for the balance of the policy year, if mean reserves
are used. Basic reserves may not be less than the tabular cost of insurance for
the balance of the current modal period or to the paid-to-date, if later, but
not beyond the next policy anniversary, if mid-terminal reserves are used. The
tabular cost of insurance shall use the same valuation mortality table and
interest rates as those that are used for the calculation of the segmented
reserves. However, if select mortality factors are used, they shall be the
10-year select factors incorporated into the 1980 amendments of the NAIC
Standard Valuation Model Law. In no case may total reserves (including basic
reserves, deficiency reserves and any reserves held for supplemental benefits
that would expire upon contract termination) be less than the amount that the
policyowner would receive (including the cash surrender value of the
supplemental benefits, if any, referred to above), exclusive of any deduction
for policy loans, upon termination of the policy.
(d) Unusual Pattern of Guaranteed Cash Surrender Values:
(1) For any policy with an unusual pattern of
guaranteed cash surrender values, the reserves actually held prior to the first
unusual guaranteed cash surrender value shall not be less than the
reserves calculated by treating the first unusual guaranteed cash surrender
value as a pure endowment and treating the policy as an n-year policy providing
term insurance plus a pure endowment equal to the unusual cash surrender value,
where n is the number of years from the date of issue to the date the unusual
cash surrender value is scheduled.
(2) The reserves actually held subsequent to
any unusual guaranteed cash surrender value shall not be less than the reserves
calculated by treating the policy as an n-year policy providing term insurance
plus a pure endowment equal to the next unusual guaranteed cash surrender
value, and treating any unusual guaranteed cash surrender value at the end of
the prior segment as a net single premium, where:
(A) n is the number of years from the date of the last
unusual guaranteed cash surrender value prior to the valuation date to the
earlier of:
(i) The date of the next unusual guaranteed cash
surrender value, if any, that is scheduled after the valuation date; or
(ii) The mandatory expiration date of the policy;
(B) The net premium for a given year during the n-year
period is equal to the product of the net to gross ratio and the respective gross
premium; and
(C) The net to gross ratio is equal to Item (i) divided
by Item (ii):
(i) The present value, at the beginning of the
n-year period, of death benefits payable during the n-year period plus the
present value, at the beginning of the n-year period, of the next unusual
guaranteed cash surrender value, if any, minus the amount of the last unusual
guaranteed cash surrender value, if any, scheduled at the beginning of the
n-year period.
(ii) The present value, at the beginning of the
n-year period, of the scheduled gross premiums payable during the n-year
period.
(3) For the purposes of 11 NCAC 11F .0404(d) a
policy is considered to have an unusual pattern of guaranteed cash surrender
values if any future guaranteed cash surrender value exceeds the prior year's
guaranteed cash surrender value by more than the sum of:
(A) One hundred ten percent (110%) of the scheduled
gross premium for that year;
(B) One hundred ten percent (110%) of one year's accrued
interest on the sum of the prior year's guaranteed cash surrender value and the
scheduled gross premium using the nonforfeiture interest rate used for
calculating policy guaranteed cash surrender values; and
(C) Five percent (5%) of the first policy year surrender
charge, if any.
(e) Optional Exemption for Yearly Renewable Term
Reinsurance - At the option of the company, the following approach for reserves
on YRT reinsurance may be used:
(1) Calculate the valuation net premium for
each future policy year as the tabular cost of insurance for that future year;
(2) Basic reserves shall never be less than the
tabular cost of insurance for the appropriate period, as defined in 11 NCAC 11F
.0404(c);
(3) Deficiency reserves:
(A) For each policy year, calculate the excess, if
greater than zero, of the valuation net premium over the respective maximum
guaranteed gross premium.
(B) Deficiency reserves shall never be less than the sum
of the present values, at the date of valuation, of the excesses determined in
accordance with Part (A) of this Subparagraph.
(4) For purposes of 11 NCAC 11F .0404(e), the
calculations use the maximum valuation interest rate and the 1980 CSO mortality
tables with or without ten-year select mortality factors, or any other table
adopted after January 1, 2000, by the NAIC and adopted as a rule by the
Commissioner for this purpose;
(5) A reinsurance agreement shall be considered
YRT reinsurance for purposes of this Rule if only the mortality risk is
reinsured.
(6) If the assuming company chooses this
optional exemption, the ceding company's reinsurance reserve credit shall be
limited to the amount of reserve held by the assuming company for the affected
policies.
(f) Optional Exemption for Attained-Age-Based Yearly
Renewable Term Life Insurance Policies - At the option of the company, the
following approach for reserves for attained-age-based YRT life insurance
policies may be used:
(1) Calculate the valuation net premium for
each future policy year as the tabular cost of insurance for that future year;
(2) Basic reserves shall never be less than the
tabular cost of insurance for the appropriate period, as defined in 11 NCAC
11F.0404(c);
(3) Deficiency reserves:
(A) For each policy year, calculate the excess, if
greater than zero, of the valuation net premium over the respective maximum
guaranteed gross premium.
(B) Deficiency reserves shall never be less than the sum
of the present values, at the date of valuation, of the excesses determined in
accordance with Part (A) of this Subparagraph;
(4) For purposes of 11 NCAC 11F .0404(f), the
calculations use the maximum valuation interest rate and the 1980 CSO valuation
tables with or without 10-year select mortality factors, or any other table
adopted after January 1, 2000, by the NAIC and adopted as a rule by the
Commissioner for this purpose;
(5) A policy shall be considered an
attained-age-based YRT life insurance policy for purposes of this Rule if:
(A) The premium rates (on both the initial current
premium scale and the guaranteed maximum premium scale) are based upon the
attained age of the insured such that the rate for any given policy at a given
attained age of the insured is independent of the year the policy was issued;
and
(B) The premium rates (on both the initial current
premium scale and the guaranteed maximum premium scale) are the same as the
premium rates for policies covering all insureds of the same sex, risk class,
plan of insurance and attained age;
(6) For policies that become attained-age-based
YRT policies after an initial period of coverage, the approach of this Rule may
be used after the initial period if:
(A) The initial period is constant for all insureds of
the same sex, risk class and plan of insurance; or
(B) The initial period runs to a common attained age for
all insureds of the same sex, risk class and plan of insurance; and
(C) After the initial period of coverage, the policy
meets the conditions of Subparagraph (f)(5) of this Rule;
(7) If this election is made, this approach
shall be applied in determining reserves for all attained-age-based YRT life
insurance policies issued on or after January 1, 2000.
(g) Exemption from Unitary Reserves for Certain n-Year
Renewable Term Life Insurance Policies - Unitary basic reserves and unitary
deficiency reserves need not be calculated for a policy if the following conditions
are met:
(1) The policy consists of a series of n-year
periods, including the first period and all renewal periods, where n is the
same for each period, except that for the final renewal period, n may be
truncated or extended to reach the expiry age, provided that this final renewal
period is less than 10 years and less than twice the size of the earlier n-year
periods, and for each period, the premium rates on both the initial current
premium scale and the guaranteed maximum premium scale are level;
(2) The guaranteed gross premiums in all n-year
periods are not less than the corresponding net premiums based upon the 1980
CSO Table with or without the 10-year select mortality factors; and
(3) There are no cash surrender values in any
policy year.
(h) Exemption from Unitary Reserves for Certain Juvenile
Policies - Unitary basic reserves and unitary deficiency reserves need not be
calculated for a policy if the following conditions are met, based upon the
initial current premium scale at issue:
(1) At issue, the insured is age 24 or younger;
(2) Until the insured reaches the end of the
juvenile period, which shall occur at or before age 25, the gross
premiums and death benefits are level, and there are no cash surrender values;
and
(3) After the end of the juvenile period, gross
premiums are level for the remainder of the premium paying period, and death
benefits are level for the remainder of the life of the policy.
History Note: Authority G.S. 58-2-40; 58-58-50(d);
58-58-50(k);
Eff. January 1, 1998;
Temporary Amendment Eff. January 1, 2000;
Amended Eff. July 1, 2000.
11 NCAC 11F .0405 CALCULATION OF 11 NCAC 11F .0401(c)
(a) General
(1) Policies with a secondary guarantee
include:
(A) A policy with a guarantee that the policy will
remain in force at the original schedule of benefits, subject only to the
payment of specified premiums;
(B) A policy in which the minimum premium at any
duration is less than the corresponding one- year valuation premium, calculated
using the maximum valuation interest rate and the 1980 CSO valuation tables
with or without ten-year select mortality factors, or any other table adopted
after January 1, 2000, by the NAIC and adopted as a rule by the
Commissioner for this purpose; or
(C) A policy with any combination of Parts (A) and (B).
(2) A secondary guarantee period is the period
for which the policy is guaranteed to remain in force subject only to a
secondary guarantee. When a policy contains more than one secondary guarantee,
the minimum reserve shall be the greatest of the respective minimum reserves at
that valuation date of each unexpired secondary guarantee, ignoring all other
secondary guarantees. Secondary guarantees that are unilaterally
changed by the insurer after issue shall be considered to have been made
at issue. Reserves described in Paragraphs (b) and (c) of this Rule shall be
recalculated from issue to reflect these changes.
(3) Specified premiums mean the premiums
specified in the policy, the payment of which guarantees that the policy will
remain in force at the original schedule of benefits, but which otherwise would
be insufficient to keep the policy in force in the absence of the guarantee if
maximum mortality and expense charges and minimum interest credits were made
and any applicable surrender charges were assessed.
(4) For purposes of this Rule, the minimum
premium for any policy year is the premium that, when paid into a policy with a
zero account value at the beginning of the policy year, produces a zero account
value at the end of the policy year. The minimum premium calculation shall use
the policy cost factors (including mortality charges, loads and expense
charges) and the interest crediting rate, which are all guaranteed at issue.
(5) The one-year valuation premium means the
net one-year premium based upon the original schedule of benefits for a given
policy year. The one-year valuation premiums for all policy years are
calculated at issue. The select mortality factors defined in 11 NCAC 11F
.0403(b)(2), .0403(b)(3), and .0403(b)(4) may not be used to calculate the
one-year valuation premiums.
(6) The one-year valuation premium shall
reflect the frequency of fund processing, as well as the distribution of deaths
assumption employed in the calculation of the monthly mortality charges to the
fund.
(b) Basic reserves for the secondary guarantees shall be
the segmented reserves for the secondary guarantee period. In calculating the
segments and the segmented reserves, the gross premiums shall be set equal to
the specified premiums, if any, or otherwise to the minimum premiums, that keep
the policy in force and the segments will be determined according to the
contract segmentation method as defined in 11 NCAC 11F .0402(2).
(c) Deficiency reserves, if any, for the secondary
guarantees shall be calculated for the secondary guarantee period in the same
manner as described in 11 NCAC 11F .0404(b) with gross premiums set equal to
the specified premiums, if any, or otherwise to the minimum premiums that keep
the policy in force.
(d) The minimum reserves during the secondary guarantee
period are the greater of:
(1) The basic reserves for the secondary
guarantee plus the deficiency reserve, if any, for the secondary guarantees; or
(2) The minimum reserves required by other
rules or regulations governing universal life plans.
History Note: Authority G.S. 58-2-40; 58-58-50(d);
58-58-50(k);
Eff. January 1, 1998;
Temporary Amendment Eff. January 1, 2000;
Amended Eff. July 1, 2000.
11 NCAC 11F .0406 LIMITED USE OF ANTICIPATED WITHDRAWAL
RATES
(a) This Rule applies to universal life insurance policies
and certificates issued after December 31, 2006, and before January 1, 2014,
that contain a secondary guarantee that the death benefits will remain in
effect as long as the accumulation of premiums paid satisfies the secondary
guarantee requirement stated in the policy or certificate.
(b) For purposes of applying 11 NCAC 11F .0405(b) and 11
NCAC 11F .0405(c), a withdrawal rate of no more than two percent per year for
the first five policy years, followed by no more than one percent per year to
the policy anniversary specified in the following table, and zero percent
thereafter shall be used. If the duration determined by reference to the table
is less than five policy years, a withdrawal rate of no more than two percent
per year shall be used through that duration, with zero percent per year used
thereafter.
Issue Age Duration
0-50 Policy
Duration 30 years.
51-60 Duration
at which policyholder reaches attained age 80.
61-70 Policy
Duration 20 years.
71-89 Duration
at which policyholder reaches attained age 90.
90 and over No
withdrawal rate assumption allowed.
History Note: Authority G.S. 58-2-40; 58-58-50(b);
58-58-50(l);
Eff. December 1, 2007;
Amended Eff. March 1, 2011.
section .0500 – new annuity valuation mortality tables
11 NCAC 11F .0501 DEFINITIONS
11 NCAC 11F .0502 INDIVIDUAL ANNUITY OR PURE ENDOWMENT
CONTRACTS
11 NCAC 11F .0503 GROUP ANNUITY OR PURE ENDOWMENT
CONTRACTS
11 NCAC 11F .0504 APPLICATION OF THE 1994 GAR TABLE
History Note: Authority G.S. 58-2-40; 58-58-50(k);
Temporary Adoption Eff. December 1, 1999;
Eff. July 1, 2000;
Repealed Eff. January 1, 2015.
11 NCAC 11F .0505 MODEL
RULE FOR RECOGNIZING A NEW ANNUITY MORTALITY TABLE FOR USE IN DETERMINING
RESERVE LIABILITIES FOR ANNUITIES
(a) The North Carolina Department of Insurance incorporates
by reference, including subsequent amendments and editions, the National
Association of Insurance Commissioners Model No. 821, NAIC Model Rule
(Regulation) for Recognizing a New Annuity Mortality Table for Use in
Determining Reserve Liabilities for Annuities. Copies of Model No. 821 may be
obtained from: The National Association of Insurance Commissioners, 1100
Walnut Street, Suite 1500, Kansas City, MO 64106-2197; the North Carolina
Department of Insurance, Actuarial Services Division, 1201 Mail Service Center,
Raleigh, NC 27699-1201; and from the Department of Insurance web page at http://www.ncdoi.com/.
(b) For purposes of this Rule, Subsection A of Section 4 of
Model No. 821 shall read as follows:
Except as
provided in Subsections B and C of this section, the 1983 Table "a"
is 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 April 19, 1979.
(c) For purposes of this Rule, Subsection B of Section 4 of
Model No. 821 shall read as follows:
Except as provided
in Subsection C of this section, 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, 1987.
(d) For purposes of this Rule, Subsection C of Section 4 of
Model No. 821 shall read as follows:
Except as
provided in Subsection D of this section, 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, 2000.
(e) For purposes of this Rule, Subsection D of Section 4 of
Model No. 821 shall read as follows:
Except as
provided in Subsection E of this section, the 2012 IAR 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, 2015.
(f) For purposes of this Rule, Subsection E of Section 4 of
Model No. 821 shall read as follows:
The 1983 Table "a"
without projection is to be used for determining the minimum standards of
valuation for an individual annuity or pure endowment contract issued on or
after January 1, 2000, 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 such
as worker's compensation claims; or
(3) Settlements of long term disability claims
where a temporary or life annuity has been used in lieu of continuing
disability payments.
(g) For purposes of this Rule, Subsection A of Section 6 of
Model No. 821 shall read as follows:
Except as
provided in Subsections B and C of this section, the 1983 GAM Table, the 1983
Table "a" and the 1994 GAR Table are 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 an annuity or
pure endowment purchased on or after April 19, 1979, under a group annuity or
pure endowment contract.
(h) For purposes of this Rule, Subsection B of Section 6 of
Model No. 821 shall read as follows:
Except as
provided in Subsection C of this section, either the 1983 GAM Table or 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, 1987, under a
group annuity or pure endowment contract.
(i) For purposes of this Rule, Subsection C of Section 6 of
Model No. 821 shall read as follows:
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, 2000, under a group
annuity or pure endowment contract.
(j) For purposes of this Rule, Section 1, Section 8, and
Section 9 of Model No. 821 are not applicable.
History Note: Authority G.S. 58-2-40; 58-58-50(k);
Eff. January 1, 2015.
SECTION .0100 ‑ GENERAL PROVISIONS
11 NCAC 11F .0601 DEFINITIONS
As used in this Section:
(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
NAIC in December 2002. The 2001 CSO Mortality Table is included in the Proceedings
of the NAIC (2nd Quarter 2002). Unless the context indicates
otherwise, the "2001 CSO Mortality Table" includes both the ultimate
form of that table 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.
(2) "2001 CSO Mortality Table (F)" means that
mortality table consisting of the rates of mortality for female lives from the
2001 CSO Mortality Table.
(3) "2001 CSO Mortality Table (M)" means that
mortality table consisting of the rates of mortality for male lives from the
2001 CSO Mortality Table.
(4) "Composite mortality tables" means
mortality tables with rates of mortality that do not distinguish between
smokers and nonsmokers.
(5) "Preneed life insurance" means a life
insurance policy which, whether by assignment or otherwise, has for a purpose
the funding of a preneed funeral contract or an insurance-funded funeral or
burial prearrangement, the insured being the person for whose service the funds
were paid.
(6) "Smoker and nonsmoker mortality tables"
means mortality tables with separate rates of mortality for smokers and
nonsmokers.
History Note: Authority G.S. 58-2-40; 58-58-50(k);
58-58-50(l); 58-58-55(e);
Eff. March 1, 2004;
Amended Eff. December 1, 2008.
11 NCAC 11F .0602 2001 CSO MORTALITY TABLE AS MINIMUM
STANDARD
(a) At the election of the company for any one or more
specified plans of insurance and subject to the conditions stated in this Section,
the 2001 CSO Mortality Table may be used as the minimum standard for policies
issued on or after January 1, 2005, and before the date specified in Paragraph
(b) of this Rule to which G.S. 58-58-50(c)(2)(a), G.S. 58-58-55(e)(4)h.6, 11
NCAC 11F .0403(a) or 11 NCAC 11F .0403(b) are applicable. If the company elects
to use the 2001 CSO Mortality Table, it shall do so for both valuation and
nonforfeiture purposes.
(b) Subject to the conditions stated in this rule, the 2001
CSO Mortality Table shall be used in determining minimum standards for policies
issued on or after January 1, 2009, to which G.S. 58-58-50(c)(2)(a), G.S.
58-58-55(e)(4)h.6, 11 NCAC 11F.0403(a) or 11 NCAC 11F.0403(b) are applicable,
except for preneed life insurance as specified in 11 NCAC 11F .0606.
(c) The 2001 CSO Mortality Table shall be the basis for
computation of minimum values related to extended term benefits for policies
for which the 2001 CSO Mortality Table is the minimum standard for valuation
and nonforfeiture purposes.
History Note: Authority G.S. 58-2-40; 58-58-50(k);
58-58-50(l); 58-58-55(e);
Eff. March 1, 2004;
Amended Eff. December 1, 2008.
11 NCAC 11F .0603 CONDITIONS
(a) For each plan of insurance with separate rates for
smokers and nonsmokers an insurer shall use one of the following:
(1) Composite mortality tables to determine
minimum reserve liabilities and minimum cash surrender values and amounts of
paid-up nonforfeiture benefits;
(2) Smoker and nonsmoker mortality tables to
determine the valuation net premiums and additional minimum reserves, if any,
required by G.S. 58-58-50(g) and use composite mortality tables to determine the
basic minimum reserves, minimum cash surrender values and amounts of paid-up
nonforfeiture benefits; or
(3) Smoker and nonsmoker mortality to determine
minimum reserve liabilities and minimum cash surrender values and amounts of
paid-up nonforfeiture benefits.
(b) For plans of insurance without separate rates for
smokers and nonsmokers the composite mortality tables shall be used.
(c) When the 2001 CSO Mortality Table is used for the
purpose of determining minimum reserve liabilities and minimum cash surrender
values and amounts of paid-up nonforfeiture benefits, it may, at the option of
the company for each plan of insurance, be used in its ultimate or select and
ultimate form, subject to the restrictions of 11 NCAC 11F .0604 and 11 NCAC 11F
.0400, relative to use of the select and ultimate form.
(d) When the 2001 CSO Mortality Table is the minimum
reserve standard for any plan for a company, the actuarial opinion in the
annual statement filed with the Commissioner shall be based on an asset
adequacy analysis as specified in 11 NCAC 11F .0303.
History Note: Authority G.S. 58-2-40; 58-58-50(k);
58-58-50(l); 58-58-55(e);
Eff. March 1, 2004;
Amended Eff. December 1, 2008.
11 NCAC 11F .0604 APPLICABILITY OF THE 2001 CSO
MORTALITY TABLE TO 11 NCAC 11F .0400
(a) For policies for which the 2001 CSO Mortality Table is
the minimum standard for valuation and nonforfeiture purposes, 11F .0400 shall
be applied in the following manner:
(1) To comply with 11 NCAC 11F .0401(a)(2)(B),
the net level reserve premium shall be based on the ultimate mortality rates in
the 2001 CSO Mortality Table;
(2) To comply with 11 NCAC 11F .0402(2), all
calculations shall be made using the 2001 CSO Mortality Rate, and, if elected,
the optional minimum mortality standard for deficiency reserves stipulated in
Subparagraph (a)(4) of this Rule; The value of "qx+k+t-1"
is the valuation mortality rate for deficiency reserves in policy year k+t, but
using the unmodified select mortality rates if modified select mortality rates
are used in the computation of deficiency reserves.
(3) To comply with 11 NCAC 11F .0403(a), the
2001 CSO Mortality Table shall be the minimum standard for basic reserves;
(4) To comply with 11 NCAC 11F .0403(b), the
2001 CSO Mortality Table shall be the minimum standard for deficiency reserves.
If select mortality rates are used, they may be multiplied by X percent for
durations in the first segment, subject to the conditions specified in 11 NCAC
11F .0403(b)(3). In demonstrating compliance with those conditions, the
demonstrations may not combine the results of tests that utilize the 1980 CSO
Mortality Table with those tests that utilize the 2001 CSO Mortality Table,
unless the combination is explicitly required by rule or necessary to be in
compliance with relevant Actuarial Standards of Practice;
(5) To comply with 11 NCAC 11F .0404(c), the
valuation mortality table used in determining the tabular cost of insurance
shall be the ultimate mortality rates in the 2001 CSO Mortality Table;
(6) To comply with 11 NCAC 11F .0404(e)(4), the
calculations specified in 11 NCAC 11F .0404(e) shall use the ultimate mortality
rates in the 2001 CSO Mortality Table;
(7) To comply with 11 NCAC 11F .0404(f)(4), the
calculations specified in 11 NCAC 11F .0404(f) shall use the ultimate rates in
the 2001 CSO Mortality Table;
(8) To comply with 11 NCAC 11F .0404(g)(2), the
calculations specified in 11 NCAC 11F .0404(g) shall use the ultimate mortality
rates in the 2001 CSO Mortality Table; and
(9) To comply with 11 NCAC 11F .0405(a)(1)(B),
the one-year valuation premium shall be calculated using the ultimate mortality
rates in the 2001 CSO Mortality Table.
(b) Nothing in this Rule shall be construed to expand the
applicability of 11 NCAC 11F .0400 to include life insurance policies exempted
under 11 NCAC 11F .0401(a).
History Note Authority G.S. 58-2-40; 58-58-50(k);
58-58-50(l); 58-58-55(e);
Eff. March 1, 2004.
11 NCAC 11F .0605 GENDER-BLENDED TABLES
(a) For any ordinary life insurance policy delivered or
issued for delivery in this state on or after January 1, 2005 that utilizes the
same premium rates and charges for male and female lives or is issued in
circumstances where applicable law does not permit distinctions on the basis of
gender, a mortality table that is a blend of the 2001 CSO Mortality Table (M)
and the 2001 CSO Mortality Table (F) may, at the option of the company for each
plan of insurance, be substituted for the 2001 CSO Mortality Table for use in
determining minimum cash surrender values and amounts of paid-up nonforfeiture benefits,
except for preneed life insurance policies issued after December 31, 2008, as
provided in 11 NCAC 11F .0606. Notwithstanding this rule, the 2001 CSO
Mortality Table, consisting of separate rates of mortality for male and female
lives, shall be the minimum valuation standard even if blended tables are used
in determining minimum cash surrender values and nonforfeiture benefits.
(b) When using a gender-blended table based on the 2001 CSO
Mortality Table for determining minimum cash surrender values and amounts of
paid-up nonforfeiture benefits, the company shall choose from among the blended
tables developed by the American Academy of Actuaries CSO Task Force and
adopted by the NAIC in December 2002.
(c) An insurer's issuance of the same kind of policy of
life insurance on both a sex-distinct and a sex-neutral basis shall not solely
constitute a violation of Article 63 of Chapter 58 of the North Carolina
General Statutes.
History Note: Authority G.S. 58-2-40; 58-58-50(k);
58-58-50(l); 58-58-55(e);
Eff. March 1, 2004;
Amended Eff. December 1, 2008.
11 NCAC 11F .0606 MINIMUM STANDARDS FOR PRENEED LIFE
INSURANCE
(a) For preneed life insurance, the minimum mortality
standard for determining reserve liabilities and nonforfeiture values for
policies issued after December 31, 2008, shall be the Commissioners' 1980
Standard Ordinary Life Valuation Mortality Tables (1980 CSO), without ten-year
selection factors, incorporated into the 1980 amendments to the NAIC Standard
Valuation Law approved in December 1983. If the policy utilizes the same premium
rates and charges for male and female lives or is issued in circumstances where
applicable law does not permit distinctions on the basis of gender, a table
that is a blend of the 1980 CSO Table (M) and the 1980 CSO Table (F), without
ten-year selection factors may, at the option of the insurer, be substituted
for the 1980 CSO Table to determine minimum cash surrender values and
nonforfeiture benefits. For the Commissioners' 1980 Extended Term Insurance
Table (1980 CET), a mortality table which is the same blend of the 1980 CET
Table (M) and 1980 CET Table (F) may be substituted. The blended tables must be selected from those published in the
1984 Proceedings of the NAIC, Vol. I., or in the 1987 Proceedings of the NAIC,
Volume I.
(b) Notwithstanding 11 NCAC 11F .0606(a), for preneed life
insurance policies issued after December 31, 2008 and before January 1, 2012,
the 2001 CSO Mortality Table may be used as the minimum standard for reserves
and nonforfeiture values. If an insurer elects to use the 2001 CSO Mortality
Table as a minimum standard for any preneed life insurance policy issued after
December 31, 2008 and before January 1, 2012, the insurer shall provide, as a
part of the actuarial memorandum submitted in support of the insurer's asset
adequacy testing, an annual written notification to the domiciliary
commissioner. The notification shall include:
(1) A complete list of all preneed policy forms
that use the 2001 CSO Mortality Table as a minimum standard;
(2) A certification signed by the appointed
actuary stating that the reserve methodology employed by the insurer in
determining reserves for the preneed life insurance policies issued after
December 31, 2008 and using the 2001 CSO Mortality Table as a minimum standard,
develops adequate reserves for these policies without being aggregated with any
other policies; and
(3) Supporting information regarding the
adequacy of reserves for preneed life insurance policies issued after December
31, 2008 and using the 2001 CSO Mortality Table as a minimum standard for
reserves. The supporting information shall include documentation of the
actuarial assumptions and methods used in testing these reserves for adequacy.
History Note: Authority G.S. 58-2-40; 58-58-50(k);
58-58-50(l); 58-58-55(e);
Eff. December 1, 2008.
SECTION .0700 – DETERMINING MINIMUM RESERVE LIABILITIES FOR
CREDIT LIFE INSURANCE
11 NCAC 11F .0701 DETERMINING RESERVE LIABILITIES FOR
CREDIT LIFE INSURANCE MODEL REGULATION
(a) The North Carolina Department of Insurance incorporates
by reference, including subsequent amendments and editions, the National
Association of Insurance Commissioners Model No. 818, Determining Reserve
Liabilities for Credit Life Insurance Model Regulation. Copies of Model No. 818
may be obtained from: The National Association of Insurance Commissioners,
2301 McGee Street, Kansas City, MO 64108-1662; the North Carolina Department of
Insurance, Actuarial Services Division, 1201 Mail Service Center, Raleigh, NC
27699-1201; and from the Department of Insurance web page at http://www.ncdoi.com/.
(b) For purposes of this Rule, Section 4.C. of Model No.
818 shall read as follows:
"Credit life insurance"
means insurance on the life of a debtor pursuant to or in connection with a
specific loan or other credit transaction as defined in G.S. 58-58-10.
(c) For purposes of this Rule, Section 6.A. of Model No.
818 shall read as follows:
11 NCAC 11F .0400 shall not apply
to credit life insurance.
(d) For purposes of this Rule, Section 6.B. of Model No.
818 shall read as follows:
The interest rates used in
determining the minimum standard for valuation shall be the calendar year
statutory valuation interest rates as defined in G.S. 58-58-50(c)(4).
(e) For purposes of this Rule, Section 6.C. of Model No.
818 shall read as follows:
The method used in determining
the minimum standard for valuation shall be the Commissioner's Reserve
Valuation Method as defined in G.S. 58-58-50(d).
(f) This Rule applies to credit life insurance policies and
certificates issued on or after January 1, 2006. For credit life insurance
policies and certificates issued prior to January 1, 2006, the minimum standard
mortality tables and interest rates shall be those provided by the statutes and
rules in effect as of the issue date of those policies and certificates.
History Note: Authority G.S. 58-2-40; 58-58-50(k);
Eff. September 1, 2005.
SECTION .0800 - preferred class structure mortality table
11 NCAC 11F .0801 MODEL
REGULATION PERMITTING THE RECOGNITION OF PREFERRED MORTALITY TABLES FOR USE IN
DETERMINING MINIMUM RESERVE LIABILITIES
(a) The North Carolina Department of Insurance incorporates
by reference, including subsequent amendments and editions, the National
Association of Insurance Commissioners Model No. 815, Model Regulation
Permitting the Recognition of Preferred Mortality Tables for Use in Determining
Minimum Reserve Liabilities. Copies of Model No. 815 may be obtained from:
The National Association of Insurance Commissioners, 2301 McGee Street, Kansas
City, MO 64108-1662; the North Carolina Department of Insurance, Actuarial
Services Division, 1201 Mail Service Center, Raleigh, NC 27699-1201; and from
the Department of Insurance web page at http://www.ncdoi.com/.
(b) For purposes of this Rule, Section 2 of Model No. 815
shall read as follows:
The purpose of
this regulation 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 G.S.
58-58-50 (c)(2)(a), 11 NCAC 11F .0403(a), and 11 NCAC 11F .0403(b).
(c) For purposes of this Rule, Section 4 of Model No. 815
shall read as follows:
At the election
of the company, for each calendar year of issue, for any one or more specified
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. For
policies issued on or after January 1, 2005 and before January 1, 2007, these
tables may be substituted with the consent of the Commissioner and subject to
the conditions of Section 5. In determining such consent, the Commissioner
shall consider the consent of the insurance regulator of the company's state of
domicile. No such election shall be made until the company demonstrates that
at least 20% of the business to be valued on this table is in one or more of
the preferred classes. 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 regulation, shall be treated as part of the 2001 CSO
Mortality Table only for purposes of reserve valuation pursuant to the
requirements of 11 NCAC 11F .0601, 11 NCAC 11F .0602, 11 NCAC 11F .0603, and 11
NCAC 11F .0604.
(d) For purposes of this Rule, Paragraph C of Section 3,
and Paragraph C of Section 5 of Model No. 815 are not applicable.
(e) For purposes of this Rule, Sections 1 and 7 of Model
No. 815 are not applicable.
History Note: Authority G.S. 58-2-40; 58-58-50(k);
Eff. April 1, 2007;
Amended Eff. March 1, 2010.