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SUBCHAPTER FF. CREDIT LIFE AND ACCIDENT AND HEALTH INSURANCE

28 TAC §3.6101 Division 11 Policy and Claim Reservers

The Texas Department of Insurance proposes an amendment to §3.6101 concerning policy reserves. The proposed amendment is necessary to implement Texas Insurance Code Art. 3.28, §3(h). Subsection (h) was added to Art. 3.28, §3 by Acts 20010, 77th Legislature in House Bill (HB) 2159. That subsection addresses minimum reserve requirements applicable to credit life policies and certificates issued under Insurance Code Art. 3.53 and provides that reserve requirements for payment of benefits are met if, in aggregate, the reserves are maintained at 100% of the 1980 Commissioner's Standard Ordinary (CSO) Mortality Table, with interest not to exceed 5.5%.

Prior to the enactment of HB 2159, §3.6101 provided minimum reserves applicable to credit life insurance policies and certificates for premium refunds and payment of benefits to be at 130% of the reserves computed on the 1958 CSO Mortality Table with interest not to exceed 5.5%; or at 100% of the reserves computed on the 1941 CSO Mortality Table, with interest not to exceed 5.5%; or at 100% of the reserves computed on the 1958 Commissioner's Extended Term (CET) Mortality Table, with interest not to exceed 5.5%; or at 150% of the reserves computed on the 1980 CSO Mortality Table, with interest not to exceed 5.5%.

The proposed amendment continues to allow the use of any of those minimum credit life reserve levels. However, the proposed amendment also includes the proviso that notwithstanding other law, the minimum reserve requirements applicable to credit life policies and certificates are met if, in aggregate, the reserves are maintained at 100% of the 1980 CSO Mortality Table, with interest not to exceed 5.5%. The proposed amendment makes clear that the policy reserves must not, in aggregate, be less than the premium refund liability, which may include consideration of commission, premium tax and other expenses recoverable.

Betty Patterson, Senior Associate Commissioner, Financial Program, has determined that for each year of the first five years the proposed amendment will be in effect, there will be no fiscal impact to state and local governments as a result of the enforcement or administration of the amendment. There will be no measurable effect on local employment or the local economy as a result of the proposal.

Ms. Patterson has also determined that for each of the first five years the proposed amendment will be in effect, the public benefits anticipated as a result of the amendment will be greater consistency in reserve requirements for credit life insurance and greater flexibility for insurers to establish reserves appropriate for their business. Use of this proposed amendment is also anticipated to result in less surplus strain for insurers in sales of single premium credit life business.

Any costs to insurers complying with the amended section each year of the first five years the proposed amendment will be in effect are the result of the legislative enactment of Subsection (h), Art. 3.28 of the Insurance Code, and not a result of the adoption and implementation of this proposal. The proposal allows insurers to reduce the premium refund liability with commissions, premium tax and other expenses recoverable, and the work undertaken to calculate the amount by which the premium refund liability could be reduced in this manner would be a cost. However, that calculation is not required by the proposal.

It is the department's position that adoption of the proposed amendment will have no adverse effect on small or micro businesses. The proposal makes additional options available to credit life insurers in meeting minimum reserves for credit life insurance, thus increasing flexibility but requiring no change. Waiver or modification of the amendment for small or micro businesses is therefore not appropriate.

To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on Monday, November 18, 2002, to Gene C. Jarmon, Acting General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P. O. Box 149104, Austin, Texas 78714-9104. An additional copy of the comment must be simultaneously submitted to Mike Boerner, Managing Actuary, Actuarial Division, Financial Program, Mail Code 302-3A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. A request for a public hearing should be submitted separately to the Office of the Chief Clerk.

The amendment is proposed under the Insurance Code Article 3.28 and §36.001. Article 3.28(h) provides that, notwithstanding any other law, the minimum reserve requirements for payment of benefits applicable to credit life policies and certificates issued under Article 3.53 are met if, in aggregate, the reserves are maintained at 100% of the 1980 CSO Mortality Table, with interest not to exceed 5.5%. Section 36.001 provides that the Commissioner of Insurance may adopt rules to execute the duties and functions of the Texas Department of Insurance as authorized by statute.

The following article is affected by this proposal: Insurance Code Art. 3.28

§3.6101. Policy Reserves.

(a) Except as provided in §3.6102 of this title (relating to Claims Reserves), the minimum reserves for premium refunds required by these rules and the payment of benefits under outstanding credit life insurance policies and certificates may not be less in the aggregate than 130% of the reserves computed on the 1958 CSO Mortality Table with interest not to exceed 5.5%; or, at the option of the company, such reserves may be maintained at 100% of the reserves computed on the 1941 CSO Mortality Table or the 1958 CET Mortality Table with interest not to exceed 5.5%; or 150% of the 1980 CSO Mortality Table with interest not to exceed 5.5% ; provided, however, notwithstanding any other law or rule, the minimum reserve requirements for policy reserves applicable to credit life policies and certificates issued under Article 3.53 of the Insurance Code or these rules are met if, in aggregate, the reserves are maintained at 100% of the 1980 CSO Mortality Table, with interest not to exceed 5.5%. Such policy reserves, in aggregate, must not be less than the premium refund liability, which may include consideration of commission, premium tax, and other expenses recoverable.

(b) (No change.)



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