56-1-403 - Standard valuation law.
56-1-403. Standard valuation law.
(a) (1) This subsection (a) applies only to those policies and contracts issued prior to the operative date of § 56-7-401, the Standard Nonforfeiture Law for Life Insurance.
(2) Except as otherwise provided in subdivision (b)(2) for group annuity and pure endowment contracts, the minimum standard for the valuation of the policies and contracts shall be the combined Experience (Actuaries') Table or the American Experience Table rate of mortality, with the interest at four percent (4%) per annum.
(3) Reserves for the policies and contracts may be calculated, at the option of the company, according to any standards that produce greater aggregate reserves for the policies and contracts than the minimum reserves required by this subsection (a).
(b) This subsection (b) applies only to those policies and contracts issued on or after the operative date of § 56-7-401, the Standard Nonforfeiture Law for Life Insurance, except as otherwise provided in subdivision (b)(2) for group annuity and pure endowment contracts issued prior to the operative dates.
(1) Except as otherwise provided in subdivision (b)(2) and subsection (c), the minimum standard for the valuation of the policies and contracts shall be the commissioner's reserve valuation methods defined in subdivisions (d)(1), (d)(2), and (d)(5), three and one half percent (3.5%) interest, or in the case of policies and contracts, other than annuity and pure endowment contracts, issued on or after May 6, 1973, four percent (4%) interest for policies issued prior to March 13, 1978, and four and one half percent (4.5%) interest for policies issued on and after March 13, 1978, and the following tables:
(A) For all ordinary policies of life insurance issued on the standard basis, excluding any disability and accidental death benefits in the policies the Commissioners 1941 Standard Ordinary Mortality Table for policies issued prior to the operative date of § 56-7-401(f), the Commissioners 1958 Standard Ordinary Mortality Table for policies issued on or after the operative date of § 56-7-401(f) and prior to the operative date of § 56-7-401(h); provided, that for any category of policies issued on female risks, all modified net premiums and present values referred to in this section may be calculated according to an age not more than six (6) years younger than the actual age of the insured; and for policies issued on or after the operative date of § 56-7-401(h):
(i) The Commissioners 1980 Standard Ordinary Mortality Table;
(ii) At the election of the company for any one (1) or more specified plans of life insurance, the Commissioners 1980 Standard Ordinary Mortality Table with Ten-Year Select Mortality Factors; or
(iii) Any ordinary mortality table, adopted after 1980 by the National Association of Insurance Commissioners, that is approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for the policies;
(B) For all industrial life insurance policies issued on the standard basis, excluding any disability and accidental death benefits in the policies the 1941 Standard Industrial Mortality Table for policies issued prior to the operative date of § 56-7-401(g), and for policies issued on or after the operative date the Commissioners 1961 Standard Industrial Mortality Table or any industrial mortality table, adopted after 1980 by the National Association of Insurance Commissioners, that is approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for the policies;
(C) For individual annuity and pure endowment contracts, excluding any disability and accidental death benefits in the policies, the 1937 Standard Annuity Mortality Table or, at the option of the company, the Annuity Mortality Table for 1949, Ultimate, or any modification of either of these tables approved by the commissioner;
(D) For group annuity and pure endowment contracts, excluding any disability and accidental death benefits in the policies, the Group Annuity Mortality Table for 1951, any modification of the table approved by the commissioner or at the option of the company, any of the tables or modifications of tables specified for individual annuity and pure endowment contracts;
(E) For total and permanent disability benefits in or supplementary to ordinary policies or contracts for policies or contracts issued on or after January 1, 1966, the tables of Period 2 disablement rates and the 1930 to 1950 termination rates of the 1952 Disability Study of the Society of Actuaries, with due regard to the type of benefit or any tables of disablement rates and termination rates, adopted after 1980 by the National Association of Insurance Commissioners, that are approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for the policies; for policies or contracts issued on or after January 1, 1961, and prior to January 1, 1966, either such tables or, at the option of the company, the Class (3) Disability Table (1926); and for policies issued prior to January 1, 1961, the Class (3) Disability Table (1926). Any such table shall, for active lives, be combined with a mortality table permitted for calculating the reserves for life insurance policies;
(F) For accidental death benefits in or supplementary to policies for policies issued on or after January 1, 1966, the 1959 Accidental Death Benefits Table or any accidental death benefits table, adopted after 1980 by the National Association of Insurance Commissioners, that is approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for the policies; for policies issued on or after January 1, 1961 and prior to January 1, 1966, either such table or, at the option of the company, the Inter-Company Double Indemnity Mortality Table; and for policies issued prior to January 1, 1961, the Inter-Company Double Indemnity Mortality Table. Either table shall be combined with a mortality table permitted for calculating the reserves for life insurance policies; and
(G) For group life insurance, life insurance issued on the substandard basis and other special benefits, tables approved by the commissioner.
(2) Except as provided in subsection (c), the minimum standard for the valuation of all individual annuity and pure endowment contracts issued on or after the operative date of this subdivision (b)(2), as defined in this subdivision (b)(2), and for all annuities and pure endowments purchased on or after such operative date under group annuity and pure endowment contracts, shall be the commissioner's reserve valuation methods defined in subdivisions (d)(1) and (2) and the following tables and interest rates:
(A) For individual annuity and pure endowment contracts issued prior to March 13, 1978, excluding any disability and accidental death benefits in the contracts the 1971 Individual Annuity Mortality Table, or any modification of the table approved by the commissioner, and six percent (6%) interest for single premium individual annuity and pure endowment contracts with commencement of benefits deferred not more than ten (10) years from date of issue, and four percent (4%) interest for all other individual annuity and pure endowment contracts;
(B) For individual single premium immediate annuity contracts issued on or after March 13, 1978, excluding any disability and accidental death benefits in the contracts the 1971 Individual Annuity Mortality Table or any individual annuity mortality table, adopted after 1980 by the National Association of Insurance Commissioners, that is approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for the contracts, or any modification of these tables approved by the commissioner, and seven and one half percent (7.5%) interest;
(C) For individual annuity and pure endowment contracts issued on or after March 13, 1978, other than single premium immediate annuity contracts, excluding any disability and accidental death benefits in the contracts the 1971 Individual Annuity Mortality Table or any individual annuity mortality table, adopted after 1980 by the National Association of Insurance Commissioners, that is approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for the contracts, or any modification of these tables approved by the commissioner, and six and one half percent (6.5%) interest for the single premium individual annuity and pure endowment contracts with commencement of benefits deferred not more than ten (10) years from the date of issue and four and one half percent (4.5%) interest for all other individual annuity and pure endowment contracts;
(D) For all annuities and pure endowments purchased prior to March 13, 1978, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under the contracts the 1971 Group Annuity Mortality Table, or any modification of this table approved by the commissioner, and six percent (6%) interest; and
(E) For all annuities and pure endowments purchased on or after March 13, 1978, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under the contracts the 1971 Group Annuity Mortality Table or any group annuity mortality table, adopted after 1980 by the National Association of Insurance Commissioners, that is approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for the annuities and pure endowments, or any modification of these tables approved by the commissioner, and seven and one half percent (7.5%) interest.
After May 6, 1973, any company may file with the commissioner a written notice of its election to comply with this subdivision (b)(2) after a specified date before January 1, 1979, which shall be the operative date of this subdivision (b)(2) for the company; provided, that a company may elect a different operative date for individual annuity and pure endowment contracts from that elected for group annuity and pure endowment contracts. If a company makes no election, the operative date of this section for the company shall be January 1, 1979.
(c) (1) The interest rates used in determining the minimum standard for the valuation of the following shall be the calendar year statutory valuation interest rates as defined in this subsection (c):
(A) All life insurance policies issued in a particular calendar year, on or after the operative date of § 56-7-401(h);
(B) All individual annuity and pure endowment contracts issued in a particular calendar year on or after January 1, 1983;
(C) All annuities and pure endowments purchased in a particular calendar year on or after January 1, 1983, under group annuity and pure endowment contracts; and
(D) The net increase, if any, in a particular calendar year after January 1, 1983, in amounts held under guaranteed interest contracts.
(2) The calendar year statutory valuation interest rates, I, shall be determined as follows and the results rounded to the nearer one quarter of one percent (.25%), where R1 is the lesser of R and .09, R2 is the greater of R and .09, and R is the reference interest rate defined in this subsection (c), and W is the weighting factor defined in this subsection (c):
(A) For life insurance:
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(B) For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and from guaranteed interest contracts with cash settlement options:
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(C) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on an issue year basis, except as stated in subdivision (c)(2)(B), the formula for life insurance stated in subdivision (c)(2)(A) shall apply to annuities and guaranteed interest contracts with guarantee durations in excess of ten (10) years, and the formula for single premiums immediate annuities stated in subdivision (c)(2)(B) shall apply to annuities and guaranteed interest contracts with guarantee duration of ten (10) years or less;
(D) For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the formula for single premium immediate annuities stated in subdivision (c)(2)(B) shall apply; and
(E) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, values on a change in fund basis, the formula for single premium immediate annuities stated in subdivision (c)(2)(B) shall apply;
(F) (i) However, if the calendar year statutory valuation interest rate for any life insurance policies issued in any calendar year determined without reference to this subdivision (c)(2)(F)(i) differs from the corresponding actual rate for similar policies issued in the immediately preceding calendar year by less than one half of one percent (0.5%), the calendar year statutory valuation interest rate for the life insurance policies shall be equal to the corresponding actual rate for the immediately preceding calendar year;
(ii) For purposes of applying subdivision (c)(2)(F)(i), the calendar year statutory valuation interest rate for life insurance policies issued in a calendar year shall be determined for 1980, using the reference interest rate defined for 1979, and shall be determined for each subsequent calendar year regardless of when § 56-7-401(h) becomes operative.
(3) The weighting factors referred to in the formulas stated in subdivision (c)(2) are:
(A) (i) Weighting Factors for Life Insurance:
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(ii) For life insurance, the guarantee duration is the maximum number of years the life insurance can remain in force on a basis guaranteed in the policy or under options to convert to plans of life insurance with premium rates or nonforfeiture values, or both, which are guaranteed in the original policy;
(B) For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options: .80;
(C) For other annuities and for guaranteed interest contracts, except as stated in subdivision (c)(3)(B), shall be as specified in subdivisions (c)(3)(C)(i)-(iii), according to the rules and definitions in subdivisions (c)(3)(C)(iv)-(vi):
(i) For annuities and guaranteed interest contracts valued on an issue year basis:
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(ii)
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(iii)
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(iv) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the guarantee duration is the number of years for which the contract guarantees interest rates in excess of the calendar year statutory valuation interest rates for life insurance policies with guarantee duration in excess of twenty (20) years. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the guarantee duration is the number of years from the date of issue or date of purchase to the date annuity benefits are scheduled to commence;
(v) Plan type as used in the tables in subdivisions (c)(3)(C)(i)-(iii) is defined as follows:
(a) Plan Type A: At any time policyholder may withdraw funds only:
(1) With an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company;
(2) Without the adjustment but in installments over five (5) years or more;
(3) As an immediate life annuity; or
(4) No withdrawal permitted;
(b) Plan Type B: Before expiration of the interest rate guarantee, policyholder may withdraw funds only:
(1) With an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company;
(2) Without such adjustment but in installments over five (5) years or more;
(3) No withdrawal permitted; or
(4) At the end of interest rate guarantee, funds may be withdrawn without the adjustment in a single sum or installments over less than five (5) years; and
(c) Plan Type C: Policyholder may withdraw funds before expiration of interest rate guarantee in a single sum or installments over less than five (5) years either:
(1) Without adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company; or
(2) Subject only to a fixed surrender charge stipulated in the contract as a percentage of the fund; and
(vi) A company may elect to value guaranteed interest contracts with cash settlement options and annuities with cash settlement options on either an issue year basis or on a change in fund basis. Guaranteed interest contracts with no cash settlement options and other annuities with no cash settlement options must be valued on an issue year basis. As used in this subsection (c), an issue year basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard for the entire duration of the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of issue or year of purchase of the annuity or guaranteed interest contract, and the change in fund basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard applicable to each change in the fund held under the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of the change in the fund.
(4) The Reference Interest Rate referred to in subdivision (c)(2) means:
(A) For all life insurance, the lesser of the average over a period of thirty-six (36) months and the average over a period of twelve (12) months, ending on June 30 of the calendar year next preceding the year of issue, of Moody's Corporate Bond Yield Average Monthly Average Corporates, as published by Moody's Investors Service, Inc.;
(B) For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the average over a period of twelve (12) months, ending on June 30 of the calendar year of issue or year of purchase, of Moody's Corporate Bond Yield Average Monthly Average Corporates, as published by Moody's Investors Service, Inc.;
(C) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year of issue basis, except as stated in (c)(4)(B), with guarantee duration in excess of ten (10) years, the lesser of the average over a period of thirty-six (36) months and the average over a period of twelve (12) months, ending on June 30 of the calendar year of issue or purchase, of Moody's Corporate Bond Yield Average Monthly Average Corporates, as published by Moody's Investors Service, Inc.;
(D) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year of issue basis, except as stated in subdivision (c)(4)(B), with guarantee duration of ten (10) years or less, the average over a period of twelve (12) months, ending on June 30 of the calendar year of issue or purchase, of Moody's Corporate Bond Yield Average Monthly Average Corporates, as published by Moody's Investors Service, Inc.;
(E) For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the average over a period of twelve (12) months, ending on June 30 of the calendar year of issue or purchase, of Moody's Corporate Bond Yield Average Monthly Average Corporates, as published by Moody's Investors Service, Inc.; or
(F) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, except as stated in (c)(4)(B), the average over a period of twelve (12) months, ending on June 30 of the calendar year of the change in the fund, of Moody's Corporate Bond Yield Average Monthly Average Corporates, as published by Moody's Investors Service, Inc.
(5) In the event that Moody's Corporate Bond Yield Average Monthly Average Corporates is no longer published by Moody's Investors Service, Inc., or in the event that the National Association of Insurance Commissioners determines that Moody's Corporate Bond Yield Average Monthly Average Corporates as published by Moody's Investors Service, Inc. is no longer appropriate for the determination of the reference interest rate, then an alternative method for determination of the reference interest rate that is adopted by the National Association of Insurance Commissioners and approved by regulation promulgated by the commissioner may be substituted.
(d) (1) (A) Except as otherwise provided in subdivisions (d)(2) and (5), reserves according to the commissioner's reserve valuation method, for the life insurance and endowment benefits of policies providing for a uniform amount of insurance and requiring the payment of uniform premiums, shall be the excess, if any, of the present value, at the date of valuation, of the future guaranteed benefits provided for by the policies, over the then present value of any future modified net premiums for those policies. The modified net premiums for the policy shall be the uniform percentage of the respective contract premiums for the benefits that the present value, at the date of issue of the policy, of all modified net premiums shall be equal to the sum of the then present value of the benefits provided for by the policy and the excess of subdivision (d)(1)(A)(i) over subdivision (d)(1)(A)(ii), as follows:
(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 any annuity of one (1) per annum payable on the first and each subsequent anniversary of the policy on which a premium falls due; provided, that the net level annual premium shall not exceed the net level annual premium on the nineteen (19) year premium whole life plan for insurance of the same amount at an age one (1) year higher than the age at issue of the policy;
(ii) A net one (1) year term premium for the benefits provided for in the first policy year.
(B) For any life insurance policy issued on or after January 1, 1986, for which the contract premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for the excess and that provides an endowment benefit or a cash surrender value, or a combination thereof, in an amount greater than the excess premium, the reserve according to the commissioner's reserve valuation method as of any policy anniversary occurring on or before the assumed ending date defined in this section as the first policy anniversary on which the sum of any endowment benefit and any cash surrender value then available is greater than the excess premium shall, except as otherwise provided in subdivision (d)(5), be the greater of the reserve as of the policy anniversary calculated as described in subdivision (d)(1) and the reserve as of the policy anniversary calculated as described in subdivision (d)(1), but with:
(i) The value defined in subdivision (d)(1)(A)(i) being reduced by fifteen percent (15%) of the amount of the excess first year premium;
(ii) All present values of benefits and premiums being determined without reference to premiums or benefits provided for by the policy after the assumed ending date;
(iii) The policy being assumed to mature on that date as an endowment; and
(iv) The cash surrender value provided on that date being considered as an endowment benefit.
(C) In making the comparison, the mortality and interest bases stated in subsections (b) and (c) shall be used.
(D) Reserves according to the commissioner's reserve valuation method shall be calculated by a method consistent with the principles of subdivisions (d)(1)(A)-(C), except that any extra premiums charged because of impairments or special hazards shall be disregarded in the determination of modified net premiums for:
(i) Life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums;
(ii) Group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under § 408 of the Internal Revenue Code, codified in 26 U.S.C. § 408;
(iii) Disability and accidental death benefits in all policies and contracts; and
(iv) All other benefits, except life insurance and endowment benefits in life insurance policies and benefits provided by all other annuity and pure endowment contracts;
(2) (A) This section shall apply to all annuity and pure endowment contracts other than group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under § 408 of the Internal Revenue Code, codified in 26 U.S.C. § 408.
(B) Reserves according to the commissioner's annuity reserve method for benefits under annuity or pure endowment contracts, excluding any disability and accidental death benefits in such contracts shall be the greatest of the respective excesses of the present values, at the date of valuation, of the future guaranteed benefits, including guaranteed nonforfeiture benefits, provided for by the contracts at the end of each respective contract year, over the present value, at the date of valuation, of any future valuation considerations derived from future gross considerations, required by the terms of the contract, that become payable prior to the end of the respective contract year. The future guaranteed benefits shall be determined by using the mortality table, if any, and the interest rate, or rates, specified in the contracts for determining guaranteed benefits. The valuation considerations are the portions of the respective gross considerations applied under the terms of the contracts to determine nonforfeiture values.
(3) In no event shall a company's aggregate reserves for all life insurance policies, excluding disability and accidental death benefits, issued on or after March 13, 1978, be less than the aggregate reserves calculated in accordance with the methods set forth in subsections (d) and (e) and the mortality table or tables and rate or rates of interest used in calculating nonforfeiture benefits for the policies.
(4) (A) Reserves for all policies and contracts issued prior to March 13, 1978, may be calculated, at the option of the company, according to any standards which produce greater aggregate reserves for the policies and contracts than the minimum reserves required by the laws in effect immediately prior to March 13, 1978.
(B) Reserves for any category of policies, contracts or benefits as established by the commissioner, issued on or after March 13, 1978, may be calculated, at the option of the company, according to any standards that produce greater aggregate reserves for the category than those calculated according to the minimum standard provided in this section, but the rate or rates of interest used for policies and contracts, other than annuity and pure endowment contracts, shall not be higher than the corresponding rate or rates of interest used in calculating any nonforfeiture benefits provided in this section.
(5) (A) If in any contract year the gross premium charged by any life insurance company on any policy or contract is less than the valuation net premium for the policy or contract calculated by the method used in calculating the reserve thereon but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for the policy or contract shall be the greater of either the reserve calculated according to the mortality table, rate of interest, and method actually used for the policy or contract, or the reserve calculated by the method actually used for the policy or contract but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the actual gross premium in each contract year for which the valuation net premium exceeds the actual gross premium. The minimum valuation standards of mortality and rate of interest referred to in this subdivision (d)(5) are those standards stated in subdivision (b)(1) and subsection (c).
(B) For any life insurance policy issued on or after January 1, 1986, for which the gross premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for the excess and which provides an endowment benefit or a cash surrender value, or a combination of endowment benefit or cash surrender value, in an amount greater than the excess premium, subdivision (d)(5)(A) shall be applied as if the method actually used in calculating the reserve for the policy were the method described in subdivision (d)(1), ignoring subdivision (d)(1)(B). The minimum reserve at each policy anniversary of such a policy shall be the greater of the minimum reserve calculated in accordance with subdivision (d)(1), including subdivision (d)(1)(B), and the minimum reserve calculated in accordance with this subdivision (d)(5).
(e) In the case of any plan of life insurance that provides for future premium determination, the amounts of which are to be determined by the insurance company based on then estimates of future experience, or in the case of any plan of life insurance or annuity which is of such a nature that the minimum reserves cannot be determined by the methods described in subdivisions (d)(1), (2), and (5), the reserves that are held under the plan must, as determined by regulations promulgated by the commissioner:
(1) Be appropriate in relation to the benefits and the pattern of premiums for that plan; and
(2) Be computed by a method that is consistent with the principles of this section.
[Acts 1895, ch. 160, § 8; Shan., § 3289; Code 1932, § 6104; Acts 1945, ch. 56, § 2; C. Supp. 1950, § 6104; Acts 1961, ch. 37, § 1; 1963, ch. 140, § 3; 1973, ch. 203, §§ 1-3; 1976, ch. 430, § 2; 1978, ch. 591, § 1; T.C.A. (orig. ed.), § 56-115; Acts 1982, ch. 660, § 2.]