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You are here: Home . rules . 2003 . 0210b-059
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SUBCHAPTER N. NONFORFEITURE STANDARDS FOR INDIVIDUAL LIFE INSURANCE IN EMPLOYER PENSION PLANS

§3.1307

SUBCHAPTER O. SMOKER-NONSMOKER COMPOSITE MORTALITY TABLES

§3.1406

SUBCHAPTER EE. VALUATION OF LIFE INSURANCE POLICIES

§3.4509

SUBCHAPTER JJ. 2001 CSO MORTALITY TABLES

§§ 3.9101 - 3.9106

The Texas Department of Insurance proposes new §§3.1307, 3.1406, 3.4509 and 3.9101-3.9106 concerning the adoption by reference of the 2001 Commissioners Standard Ordinary (CSO) Mortality Table. These new sections are necessary to prescribe the use of the 2001 CSO Mortality Table in determining minimum reserve liabilities and nonforfeiture benefits and recognize the use of the 2001 CSO Mortality Table. Insurers may use the table only for new policies issued after May 1, 2003. Beginning January 1, 2009, insurers will be required to use the 2001 CSO Mortality Table for their insurance products issued after that date. Insurance Code Articles 3.28 and 3.44a authorize the commissioner to adopt any mortality table adopted by the National Association of Insurance Commissioners. The table was adopted by the National Association of Insurance Commissioners in December 2002. The table reflects increases in life expectancy since the adoption of the 1980 CSO Mortality Table. The new table is expected to lower reserve levels for a number of products which use the new table versus reserve levels produced by the 1980 CSO Mortality Table which insurers are currently required to use. Term insurance reserves are estimated to be 30% lower in the aggregate. Whole life insurance reserves are estimated to be 10% to 15% lower in the aggregate. Universal life and variable life products are estimated to experience a reduction in reserves of 5.0% or less. The 2001 CSO Mortality Table is available from the Actuarial Division, Texas Department of Insurance, 333 Guadalupe, Austin, Texas or on the internet by accessing the department's website at www.tdi.state.tx.us/company/ficso.html.

The department will consider the adoption of the proposed sections in a public hearing under Docket Number 2546, scheduled for 9:30 a.m. March 12, 2003 in Room 100 of the William P. Hobby, Jr. State Office Building, 333 Guadalupe Street in Austin, Texas.

Betty Patterson, Senior Associate Commissioner, Financial Program has determined that for each year of the first five years the proposed sections 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 rule. There will be no measurable effect on local employment or the local economy as a result of the proposal.

Ms. Patterson has determined that for each year of the first five years the sections are in effect, the public benefits anticipated as a result of the use of the 2001 CSO Mortality Table proposed for adoption in these sections will be more appropriate levels of reserve liabilities relative to the expected mortality and lower premiums for a number of life insurance products. Costs for insurers to implement the use of the 2001 CSO Mortality Table involve the costs of changing their currently marketed products to use the 2001 CSO Mortality Table. Such costs largely involve compliance, actuarial, legal, and programming personnel. Based on discussion with insurance industry representatives, hourly rates for such personnel range as follows: Compliance ($20 to $100), Actuarial ($30 to $100), Legal ($30 to $100), and Programming ($30 to $70). The range of these hourly rates is dependent on whether internal or consulting resources are used. The average number of hours to revise an existing policy form is dependent on many factors, including the complexity of the policy form, the level of automation of the insurer, and number of similar existing policy forms over which these costs can be spread. Other costs include departmental filing fees of $100 for a non-exempt form or $50 for an exempt form. Since the use of the 2001 CSO Mortality Table is not required until January 1, 2009, companies will not incur any costs if they do not use the table. For small or micro businesses which choose to use the 2001 CSO Mortality Table, the costs are expected to be the same as those for other companies, although fewer hours of staff or consultant services are likely since they typically offer fewer and less complicated products than larger companies. The department finds it neither legal or feasible to reduce the effect of the proposal on small or micro businesses since mortality tables are used to establish minimum reserves and nonforfeiture values to assure an insurer's ability to perform its obligations and protect policyholders.

To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on March 24, 2003, to Gene C. Jarmon, 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 Betty Patterson, Senior Associate Commissioner, Financial Program, Mail Code 305-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104.

The new sections are proposed under the Insurance Code Articles 3.28 and 3.44a, and §36.001. Article 3.28 provides for the use of any ordinary mortality table adopted after 1980 by the National Association of Insurance Commissioners that is approved by regulation adopted by the commissioner for use in determining the minimum standard valuation for such policies. Article 3.44a provides that any ordinary mortality tables, adopted after 1980 by the National Association of Insurance Commissioners, that are approved by regulation adopted by the commissioner for use in determining the minimum nonforfeiture standard may be substituted for the 1980 CSO Mortality Table with or without Ten-Year Select Mortality Factors. Section 36.001 provides the commissioner may adopt rules to execute the duties and functions of the department as authorized by statute.

Insurance Code Articles 3.28 and 3.44a are affected by this proposal.

SUBCHAPTER N. NONFORFEITURE STANDARDS FOR INDIVIDUAL LIFE INSURANCE IN EMPLOYER PENSION PLANS

§3.1307. 2001 CSO MORTALITY TABLE. The 2001 CSO Mortality Table shall be used for purposes of this subchapter pursuant to the requirements of §§3.9101 - 3.9106 of this title (relating to 2001 CSO Mortality Table).

SUBCHAPTER O. SMOKER-NONSMOKER COMPOSITE MORTALITY TABLE

§3.1406. 2001 CSO MORTALITY TABLE. The 2001 CSO Mortality Table shall be used for purposes of this subchapter pursuant to the requirements of §§3.9101 - 3.9106 of this title (relating to 2001 CSO Mortality Table).

SUBCHAPTER EE. VALUATION OF LIFE INSURANCE POLICIES

§3.4509. 2001 CSO MORTALITY TABLE. The 2001 CSO Mortality Table shall be used for purposes of this subchapter pursuant to the requirements of §§3.9101 - 3.9106 of this title (relating to 2001 CSO Mortality Table).

SUBCHAPTER JJ. 2001 CSO MORTALITY TABLE

§3.9101.Purpose. The purpose of this subchapter is to recognize, permit and prescribe the use of the 2001 Commissioners Standard Ordinary (CSO) Mortality Table in accordance with Insurance Code Articles 3.28 §3(a)(iii) and 3.44a §(8)(e)(6) and §3.4505 of this title (relating to General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves).

§3.9102. Definitions. The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) 2001 CSO Mortality Table -- mortality tables, 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 National Association of Insurance Commissioners in December 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) -- mortality table consisting of the rates of mortality for female lives from the 2001 CSO Mortality Table.

(3) 2001 CSO Mortality Table (M) -- mortality table consisting of the rates of mortality for male lives from the 2001 CSO Mortality Table.

(4) Composite mortality tables -- mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers.

(5) Smoker and nonsmoker mortality tables -- mortality tables with separate rates of mortality for smokers and nonsmokers.

§3.9103. 2001 CSO Mortality Table.

(a) At the election of the company for any one or more specified plans of insurance and subject to the conditions stated in this subchapter, the 2001 CSO Mortality Table may be used as the minimum standard for policies issued on or after May 1, 2003 and before the date specified in subsection (b) of this section to which Insurance Code Article 3.28 §3(a)(iii) and Article 3.44a §(8)(e)(6) and §3.4505 of this title (relating to General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves) 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 subchapter, the 2001 CSO Mortality Table shall be used in determining minimum standards for policies issued on and after January 1, 2009, to which Insurance Code Articles 3.28 §3(a)(iii) and 3.44a §(8)(e)(6) and §3.4505 of this title (relating to General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves) are applicable.

(c) The minimum basis for computation of values related to extended term benefits will be the 2001 CSO Mortality Table pursuant to the requirements of this subchapter.

(d) The Commissioner of Insurance adopts by reference the 2001 CSO Mortality Table. The tables is available from the Actuarial Division, Texas Department of Insurance, 333 Guadalupe, Austin, Texas or on the internet by accessing the department's website at www.tdi.state.tex.us/2001 CSO.

§3.9104. Conditions.

(a) For each plan of insurance with separate rates for smokers and nonsmokers an insurer may use:

(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 Insurance Code Article 3.28 §10 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 tables 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) For the purpose of determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits, the 2001 CSO Mortality Table 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 §3.9105 of this title (relating to Applicability of the 2001 CSO Mortality Table to Chapter 3, Subchapter EE of this Title) relative to use of the select and ultimate form.

§3.9105. Applicability of the 2001 CSO Mortality Table to Chapter 3, Subchapter EE of this Title.

(a) The 2001 CSO Mortality Table may be used in applying Chapter 3, Subchapter EE of this title (relating to Valuation of Life Insurance Policies) in the following manner, subject to the transition dates for use of the 2001 CSO Mortality Table in §3.9103 of this title (relating to 2001 CSO Mortality Table):

(1) Section 3.4503(1)(B)(ii) of this title (relating to Applicability): The net level reserve premium is based on the ultimate mortality rates in the 2001 CSO Mortality Table.

(2) Section 3.4504(2) of this title (relating to Definitions). All calculations are made using the 2001 CSO Mortality Rate, and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in paragraph (4) of this subsection. 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) Section 3.4505(a) of this title (relating to General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves). The 2001 CSO Mortality Table is the minimum standard for basic reserves.

(4) Section 3.4505(b) of this title. The 2001 CSO Mortality Table is 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 §3.4505(b)(3)(A) to (I) of this title. 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 regulation or necessary to be in compliance with relevant Actuarial Standards of Practice.

(5) Section 3.4506(c) of this title (relating to Calculation of Minimum Valuation Standard for Policies with Guaranteed Nonlevel Gross Premiums or Guaranteed Nonlevel Benefits (Other than Universal Life Policies)). 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) Section 3.4506(e)(4) of this title. The calculations specified in §3.4506(e) of this title shall use the ultimate mortality rates in the 2001 CSO Mortality Table.

(7) Section 3.4506(f)(4) of this title. The calculations specified in §3.4506(f) of this title shall use the ultimate mortality rates in the 2001 CSO Mortality Table.

(8) Section 3.4506(g)(2) of this title. The calculations specified in §3.4506(g) of this title shall use the ultimate mortality rates in the 2001 CSO Mortality Table.

(9) Section 3.4507(a)(1)(B) of this title (relating to Calculation of Minimum Valuation Standard for Flexible Premium and Fixed Premium Universal Life Insurance Policies That Contain Provisions Resulting in the Ability of a Policyowner to Keep a Policy in Force Over a Second Guarantee Period). The one-year valuation premium shall be calculated using the ultimate mortality rates in the 2001 CSO Mortality Table.

(b) Nothing in this section shall be construed to expand the applicability of Chapter 3, Subchapter EE to include life insurance policies exempted under §3.4503(1) of this title.

§3.9106. Gender-Blended Tables.

(a) For any ordinary life insurance policy delivered or issued for delivery in this state on and after May 1, 2003, 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. No change in minimum valuation standards is implied by this subsection.

(b) The company may choose from among the blended tables developed by the American Academy of Actuaries CSO Task Force and adopted by the National Association of Insurance Commissioners in December 2002. These blended tables are available from the Actuarial Division, Texas Department of Insurance, 333 Guadalupe, Austin, Texas or on the internet by accessing the department's website at www.tdi.state.tx.us/2001 CSO.

(c) It shall not, in and of itself, be a violation of Insurance Code Article 21.21 for an insurer to issue the same kind of policy of life insurance on both a sex-distinct and sex-neutral basis.



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