• Increase Text Icon
  • Decrease Text Icon
  • Email Icon
  • Print this page
You are here: Home . rules . 2008 . 1209-059

SUBCHAPTER JJ. 2001 CSO MORTALITY TABLE 28 TAC §3.9103 SUBCHAPTER OO. PRENEED LIFE INSURANCE MINIMUM MORTALITY STANDARDS FOR DETERMINING RESERVE LIABILITIES AND NONFORFEITURE VALUES 28 TAC §§3.9601 - 3.9606

1. INTRODUCTION. The Commissioner of Insurance adopts an amendment to §3.9103(b) and new Subchapter OO, §§3.9601 - 3.9606, concerning the use of the Ultimate 1980 CSO by insurance companies that issue preneed life insurance policies. The amendment and new sections are adopted without changes to the proposed text published in the October 31, 2008 issue of the Texas Register (33 TexReg 8885).

2. REASONED JUSTIFICATION. The adopted amendment to §3.9103(b) and new §§3.9601 - 3.9606 are necessary to permit life insurance companies to continue to use the Ultimate 1980 CSO for calculating minimum reserves and nonforfeiture values for preneed life insurance policies and certificates. The Ultimate CSO refers to the Commissioners 1980 Standard Ordinary Mortality Table without 10-year selection factors. It was incorporated into the National Association of Insurance Commissioners' Standard Valuation Law approved in December 1983. The amendment and new sections allow the Ultimate 1980 CSO to be used in determining the minimum standard of valuation of reserves and the minimum standard nonforfeiture values for preneed life insurance policies and certificates issued on or after January 1, 2009. Under existing §3.9103(b), life insurance companies are required to convert from using the Ultimate 1980 CSO to using only the 2001 CSO Mortality Table for life insurance policies, including preneed life insurance policies, issued on or after January 1, 2009. In 2004, the Society of Actuaries (SOA) commissioned a study of preneed mortality to examine preneed life insurance mortality based upon mortality experience data collected for the years 2000 - 2004. At that time, the 2001 CSO Mortality Table was recognized as the prevailing table for the purposes of calculating minimum reserves and nonforfeiture values for preneed life insurance policies, both on a statutory basis and on a tax basis. As a part of the SOA study, the research completed in 2008 by the Deloitte University of Connecticut Actuarial Center (Deloitte) determined that the 2001 CSO Mortality Table produced inadequate reserves for preneed life insurance policies. Based upon the Deloitte research, the National Association of Insurance Commissioners (NAIC) in March 2008 adopted the Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values Model Regulation (Preneed Mortality Model Regulation). This model regulation prescribes the Ultimate 1980 CSO as the appropriate mortality table to use in determining the minimum standard valuation of reserves and the minimum standard nonforfeiture values for preneed life insurance policies issued on or after January 1, 2009. The new sections and amendment are substantially similar to the Preneed Mortality Model Regulation.

The amendment to §3.9103(b) and new sections have two primary purposes. First, the amendment and new sections allow life insurance companies that issue preneed life insurance policies to continue to use the Ultimate 1980 CSO on and after January 1, 2009, to determine levels of reserve liabilities and nonforfeiture values relative to the expected mortality for these policies. This replaces the requirement in existing §3.9103(b) that insurers must use the 2001 CSO Mortality Table in determining minimum standards for these policies. Second, the amendment and new sections allow, but do not require, insurance companies to use the 2001 CSO Mortality Table as the minimum standard for reserves and minimum standard for nonforfeiture benefits for preneed life insurance policies or certificates issued on or after January 1, 2009, and before January 1, 2012. The amendment and new sections require insurers that opt to use the 2001 CSO Mortality Table for the January 1, 2009 - January 1, 2012 period to use the Ultimate 1980 CSO for all preneed life insurance policies issued on or after January 1, 2012. As demonstrated by the Deloitte study, the use of the Ultimate 1980 CSO by life insurance companies will produce more conservative reserves for preneed life insurance policies as opposed to the inadequate reserves produced using the 2001 CSO Mortality Table. Additionally, the amendment and new sections enable insurance companies currently using the Ultimate 1980 CSO to opt to continue to use that table as the minimum standard of mortality for reserves and nonforfeiture values for preneed life insurance policies issued on or after January 1, 2009. Existing §3.9103(b) requires life insurers to convert to the 2001 CSO Mortality Table by January 1, 2009. The amendment and new sections will result in a cost savings to these insurance companies in the amount they would have incurred to convert to the 2001 CSO Mortality Table.

3. HOW THE SECTIONS WILL FUNCTION. The adopted amendment to §3.9103(b) provides that the requirement that insurance companies use the 2001 CSO Mortality Table in determining minimum standards for policies issued on and after January 1, 2009, is subject to the requirements specified in adopted §§3.9601 - 3.9606. The adopted amendment to §3.9103(b) also updates Insurance Code references to be consistent with the nonsubstantive Insurance Code revision enacted by the Legislature. Adopted §3.9601 specifies the purpose and applicability of the subchapter. Adopted §3.9602 sets forth definitions used in the subchapter. Adopted §3.9603 requires an insurance company to use the Ultimate 1980 CSO as the minimum mortality standard for determining reserve liabilities and nonforfeiture values for both male and female insureds for preneed life insurance policies issued on or after January 1, 2009, except as provided under adopted §3.9606. Adopted §3.9604 specifies the interest rates to be used in determining the minimum standard for valuation of reserves and the minimum standard nonforfeiture values for preneed life insurance. Adopted §3.9605 specifies the method used in determining the standard for the minimum valuation of reserves and minimum nonforfeiture values for preneed life insurance. Adopted §3.9606 provides insurance companies, if certain specified conditions are met, with the option to use the 2001 CSO Mortality Table in lieu of the Ultimate 1980 CSO as the minimum standard for determining reserve liabilities and nonforfeiture values for preneed life insurance policies issued on or after January 1, 2009, and before January 1, 2012. Adopted §3.9606 also requires insurance companies to use the Ultimate 1980 CSO in the calculation of minimum forfeiture values and minimum reserves for preneed life insurance policies issued on or after January 1, 2012.

4. SUMMARY OF COMMENTS AND AGENCY RESPONSE.

Comment: The single commenter expressed support for the adoption of the proposal. The commenter stated that both insurance companies and consumers will benefit from the adoption of the amendment and new sections.

Agency Response. The Department appreciates the comment.

5. NAMES OF THOSE COMMENTING FOR AND AGAINST THE SECTIONS.

For: Funeral Directors Life Insurance Company.

Against: None.

6. STATUTORY AUTHORITY. The new sections and amendment are adopted under the Insurance Code §§425.058(c), 1105.055(h), and 36.001. Section 425.058(c) provides that for an ordinary life insurance policy issued on the standard basis, excluding any disability or accidental death benefits in the policy and to which Subchapter B, Chapter 1105, applies, the applicable mortality table is the Commissioners 1980 Standard Ordinary Mortality Table; at the insurer's option for one or more specified life insurance plans, the Commissioners 1980 Standard Ordinary Mortality Table with Ten-Year Select Mortality Factors; or any ordinary mortality table adopted after 1980 by the National Association of Insurance Commissioners that is approved by commissioner rule for use in determining the minimum standard valuation for a policy to which this subdivision applies. Section 1105.055(h) provides that any ordinary mortality table adopted after 1980 by the National Association of Insurance Commissioners that is approved by rules adopted by the Commissioner for use in determining the minimum nonforfeiture standard may be substituted for the Commissioners 1980 Standard Ordinary Mortality Table with or without Ten-Year Select Mortality Factors. Section 36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

7. TEXT.

SUBCHAPTER JJ. 2001 CSO MORTALITY TABLE

§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 §425.058(c) and §1055.055(h) and §3.4505 of this chapter (relating to General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves) are applicable, except as provided in §§3.9601 - 3.9606 of this chapter (relating to Preneed Life Insurance Minimum Mortality Standards for Determining Reserve Liabilities and Nonforfeiture Values) for preneed life insurance policies and certificates.

(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 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.

SUBCHAPTER OO. PRENEED LIFE INSURANCE MINIMUM MORTALITY STANDARDS FOR DETERMINING RESERVE LIABILITIES AND NONFORFEITURE VALUES

§3.9601. Purpose and Applicability.

(a) The purpose of this subchapter is to establish the minimum mortality standards for reserves and nonforfeiture values for preneed life insurance policies or certificates, and to recognize, permit, and prescribe the use of the Ultimate 1980 CSO in determining the minimum standard of valuation of reserves and the minimum standard nonforfeiture values for preneed life insurance policies or certificates in accordance with §425.058(c) and §1105.055 of the Insurance Code and §3.4505(a) of this chapter (relating to General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves).

(b) This subchapter applies to all preneed life insurance policies and certificates issued on or after January 1, 2009.

§3.9602. 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 NAIC in December 2002. The 2001 CSO Mortality Table is included in the 2nd Quarter 2002 Proceedings of the NAIC. 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) Department--The Texas Department of Insurance.

(3) NAIC--National Association of Insurance Commissioners.

(4) Prepaid funeral benefits--As defined in the Finance Code §154.002(9).

(5) Prepaid funeral benefits contract--A contract or agreement for prepaid funeral benefits subject to the requirements of the Finance Code Chapter 154.

(6) Preneed life insurance--A life insurance policy or certificate that is approved by the department, issued by an insurance company licensed by the department, issued in conjunction with an insurance-funded prepaid funeral benefits contract, and which, whether by assignment or otherwise, has the purpose of funding prepaid funeral benefits to be provided at the time of or immediately following the death of the insured. For purposes of this subchapter, the definition of preneed life insurance does not include an annuity contract or policy.

(7) Ultimate 1980 CSO--The Commissioners 1980 Standard Ordinary Mortality Table without 10-year selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law approved in December 1983.

3.9603. Minimum Valuation Mortality Standards. Except as provided by §3.9606 of this subchapter (relating to Transitional Use of the 2001 CSO Mortality Table), the Ultimate 1980 CSO shall be the minimum mortality standard for determining reserve liabilities and nonforfeiture values for both male and female insureds for preneed life insurance policies issued on or after January 1, 2009.

§3.9604. Minimum Valuation Interest Rate Standards.

(a) The interest rates used in determining the minimum standard for valuation of preneed life insurance shall be the calendar year statutory valuation rates as defined in the Insurance Code Chapter 425 Subchapter B (Standard Valuation Law).

(b) The interest rates used in determining the minimum standard for nonforfeiture values for preneed life insurance shall be the calendar year statutory nonforfeiture interest rates as defined in the Insurance Code Chapter 1105 (Standard Nonforfeiture Law for Life Insurance).

§3.9605. Minimum Valuation Method Standards.

(a) The method used in determining the standard for the minimum valuation of reserves for preneed life insurance shall be the method defined in the Insurance Code Chapter 425 Subchapter B (Standard Valuation Law).

(b) The method used in determining the standard for the minimum nonforfeiture values for preneed life insurance shall be the method defined in the Insurance Code Chapter 1105 (Standard Nonforfeiture Law for Life Insurance).

§3.9606. Transitional Use of the 2001 CSO Mortality Table.

(a) For preneed life insurance policies or certificates issued on or after January 1, 2009, and before January 1, 2012, the 2001 CSO Mortality Table may be used as the minimum standard for reserves and minimum standard for nonforfeiture benefits for both male and female insureds in accordance with the requirements of §§3.9101 - 3.9106 of this chapter (relating to 2001 CSO Mortality Table).

(b) If a company elects to use the 2001 CSO Mortality Table as a minimum standard for any preneed life insurance policy or certificate issued on or after the effective date of this subsection and before January 1, 2012, the company shall provide, as a part of the actuarial opinion memorandum submitted in support of the company's asset adequacy analysis, an annual written notification to the domiciliary commissioner. The notification shall include:

(1) a complete list of all preneed life insurance policy and certificate 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 company in determining reserves for the preneed life insurance policies or certificates issued after the effective date of this subchapter and using the 2001 CSO Mortality Table as a minimum standard, develops adequate reserves (for the purposes of this certification, the preneed life insurance policies or certificates using the 2001 CSO Mortality Table as a minimum standard cannot be aggregated with any other policies); and

(3) supporting information regarding the adequacy of reserves for preneed life insurance policies or certificates issued after the effective date of this subchapter and using the 2001 CSO Mortality Table as a minimum standard for reserves.

(c) Preneed life insurance policies or certificates issued on or after January 1, 2012, must use the Ultimate 1980 CSO in the calculation of minimum nonforfeiture values and minimum reserves.



For more information, contact:

Contact Information and Other Helpful Links