Section .0100 ‑ General Provisions

Link to law: http://reports.oah.state.nc.us/ncac/title 11 - insurance/chapter 11 - financial evaluation division/subchapter f/subchapter f rules.html
Published: 2015

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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Repealed Eff.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Repealed Eff.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Repealed Eff.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Repealed Eff.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Repealed Eff.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.