Bill Text: MI HB5514 | 2015-2016 | 98th Legislature | Engrossed
Bill Title: Insurance; life; mortality tables used in certain life insurance policies and annuities; provide for. Amends secs. 834, 835 & 836b of 1956 PA 218 (MCL 500.834 et seq.) & adds sec. 835a.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Passed) 2016-12-31 - Assigned Pa 558'16 With Immediate Effect [HB5514 Detail]
Download: Michigan-2015-HB5514-Engrossed.html
HB-5514, As Passed House, May 24, 2016
SUBSTITUTE FOR
HOUSE BILL NO. 5514
A bill to amend 1956 PA 218, entitled
"The insurance code of 1956,"
by amending sections 834, 835, and 836b (MCL 500.834, 500.835, and
500.836b), section 834 as amended and section 836b as added by 2014
PA 571 and section 835 as amended by 1982 PA 221, and by adding
section 835a.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 834. (1) Except as otherwise provided in sections 835,
835a, 836, and 837, the minimum standard for the valuation of
policies and contracts described in subsection (8) is the
commissioner's reserve valuation methods defined in subsections
(2), (3), and (6), 5% interest for group annuity and pure endowment
contracts if prior notice of any revaluation of reserves with
respect to group annuity and pure endowment contracts is given to
the director in the same manner as is required before a revaluation
of reserves under section 832(2), and 3-1/2% interest for all other
of those policies and contracts; or for policies and contracts,
other than annuity and pure endowment contracts, issued after
October 20, 1974, 4% interest for those policies issued before
October 1, 1980, and 4-1/2% interest for those policies issued
after September 30, 1980, or for life insurance contracts, other
than annuity and pure endowment contracts, issued after December
31, 1994, 5-1/2% interest for single premium life insurance
policies and 4-1/2% interest for all other policies, 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 those policies: the commissioner's Commissioner's 1941
standard
ordinary mortality table, Standard
Ordinary Mortality
Table, for policies issued before the operative date of paragraph 5
of
section 4060(5); and the commissioner's Commissioner's 1958
standard
ordinary mortality table Standard
Ordinary Mortality Table
for policies issued on or after that operative date and before the
operative date of paragraphs 9 to 18 of section 4060(5). For any
category of those 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 6 years younger than
the actual age of the insured; and, for those policies issued on or
after the operative date of paragraphs 9 to 18 of section 4060(5),
the
commissioner's Commissioner's
1980 standard ordinary mortality
table
Standard Ordinary Mortality
Table or, at the election of the
company for any 1 or more specified plans of life insurance, the
commissioner's
Commissioner's 1980 standard ordinary mortality
table
Standard Ordinary Mortality
Table with 10-year select
mortality factors or any ordinary mortality table adopted after
1980
by the national association National
Association of insurance
commissioners
Insurance Commissioners that is approved by a rule
promulgated by the director for use in determining the minimum
standard of valuation for those policies or the 2001 CSO mortality
table under section 838.
(b) For all industrial life insurance policies issued on the
standard basis, excluding any disability and accidental death
benefits
in those policies: the 1941 standard industrial mortality
table
Standard Industrial Mortality
Table for those policies issued
before the operative date of paragraph 7 of section 4060(5); and
for those policies issued on or after that operative date, the
commissioner's
Commissioner's 1961 standard industrial mortality
table
Standard Industrial Mortality
Table or any industrial
mortality
table adopted after 1980 by the national association
National
Association of insurance commissioners
Insurance
Commissioners that is approved by a rule promulgated by the
director for use in determining the minimum standard of valuation
for those policies.
(c) For individual annuity and pure endowment contracts,
excluding any disability and accidental death benefits in those
policies:
the 1937 standard annuity mortality table Standard
Annuity Mortality Table or, at the option of the company, the
annuity mortality table for 1949, ultimate, or any modification of
either of those tables approved by the director.
(d) For group annuity and pure endowment contracts, excluding
any disability and accidental death benefits in those policies: the
group
annuity mortality table Group
Annuity Mortality Table for
1951, any modification of that table approved by the director, 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 after December 31, 1965, the tables of period 2
disablement rates and the 1930 to 1950 termination rates of the
1952
disability study Disability
Study of the society Society of
actuaries,
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 National
Association of insurance
commissioners
Insurance Commissioners that are approved by a rule
promulgated by the director for use in determining the minimum
standard of valuation for those policies; for policies or contracts
issued after December 31, 1960, and before January 1, 1966, either
those tables or, at the option of the company, the class (3)
disability table, 1926; and for policies issued before January 1,
1961, the class (3) disability table, 1926. For active lives, a
table must 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 after December 31, 1965, the 1959
accidental
death benefits table Accidental
Death Benefits Table or
any accidental death benefits table adopted after 1980 by the
national
association National
Association of insurance
commissioners
Insurance Commissioners that is approved by a rule
promulgated by the director for use in determining the minimum
standard of valuation for those policies; for policies issued after
December 31, 1960, and before January 1, 1966, 1 of the above
tables or at the option of the insurer the intercompany double
indemnity mortality table. A table must be combined with a
mortality table permitted for calculating the reserves for life
insurance policies.
(g) For group life insurance, life insurance issued on the
substandard basis, and other special benefits: any table approved
by the director.
(2) Except as otherwise provided in subsections (3) and (6),
reserves
according to the commissioner's reserve valuation method,
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, is the
excess, if any, of the present value, at the date of valuation, of
the future guaranteed benefits provided for by those policies over
the then present value of any future modified net premiums for the
policies. The modified net premiums for the policy is a uniform
percentage of the respective contract premiums for the future
guaranteed benefits so that the present value of all modified net
premiums equals, at the date of issue of the policy, the sum of the
then present value of these benefits provided for by the policy and
the excess of subdivision (a) over subdivision (b), as follows:
(a) A net level annual premium equal to the present value, at
the date of issue, of the future guaranteed benefits provided for
after the first policy year divided by the present value, at the
date of issue, of an annuity of 1 per annum payable on the first
and each subsequent anniversary of the policy on which a premium
falls due. However, the net level annual premium must not exceed
the net level annual premium on the 19-year premium whole life plan
for insurance of the same amount at an age 1 year higher than the
age at issue of the policy.
(b) A net 1-year term premium for the future guaranteed
benefits provided for in the first policy year.
However, for any life insurance policy issued after December
31, 1985 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 that excess
and that provides an endowment benefit or a cash surrender value or
a combination of endowment benefit and cash surrender value in an
amount greater than the excess premium, the reserve according to
the
commissioner's reserve valuation method Commissioner's Reserve
Valuation Method as of any policy anniversary occurring on or
before the assumed ending date, defined 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,
is, except as otherwise provided in subsection (6), the greater of
the reserve as of that policy anniversary calculated as described
in paragraph 1 of this subsection and the reserve as of that policy
anniversary calculated as described in that paragraph, but with the
value defined in subdivision (a) being reduced by 15% of the amount
of the excess first year premium; 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;
the policy being assumed to mature on that date as an endowment;
and the cash surrender value provided on that date being considered
as an endowment benefit. In making the above comparison, the
mortality and interest bases stated in subsection (1) and section
836 must be used.
Reserves
according to the commissioner's reserve valuation
method
Commissioner's Reserve
Valuation Method for life insurance
policies providing for a varying amount of insurance or requiring
the payment of varying premiums; 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 section 408 of
the internal revenue code of 1986, 26 USC 408; disability and
accidental death benefits in all policies and contracts; and all
other benefits, except life insurance and endowment benefits in
life insurance policies and benefits provided by all other annuity
and pure endowment contracts, must be calculated by a method
consistent with the principles of this subsection.
(3) This subsection applies 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 section 408 of the internal
revenue code of 1986, 26 USC 408. Without action by the Michigan
Legislature
to adopt actuarial guideline Actuarial
Guideline 35,
reserves
according to the commissioner's annuity reserve method
Commissioner's Annuity Reserve Method for benefits under annuity or
pure endowment contracts, excluding any disability and accidental
death benefits in those contracts, must 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 those 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 before the end of that respective
contract year. The future guaranteed benefits must be determined by
using the mortality table, if any, and the interest rate specified
in those 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.
(4) An insurer's aggregate reserves for all life insurance
policies,
excluding disability and accidental death benefits, shall
must not be less than the aggregate reserves calculated in
accordance with the methods described in subsections (2), (3), (6),
and (7), and the mortality table or tables and rate or rates of
interest used in calculating nonforfeiture benefits for the
policies. The aggregate reserves for all policies, contracts, and
benefits
shall must not be less than the aggregate reserves
determined by the appointed actuary to be necessary to render the
opinion required by section 830a.
(5) Reserves for all policies and contracts issued before June
27, 1994 may be calculated, at the option of the insurer, according
to any standards that produce greater aggregate reserves for all
those policies and contracts than the minimum reserves required by
the laws in effect immediately before June 27, 1994. Reserves for a
category of policies, contracts, or benefits as established by the
director, issued after June 26, 1994, may be calculated at the
option of the insurer according to any standards that produce
greater aggregate reserves than those calculated according to the
minimum standard provided in this act. However, the rate or rates
of interest used for policies and contracts, other than annuity and
pure endowment contracts, must not be greater than the
corresponding rate or rates of interest used in calculating any
nonforfeiture benefits provided for in those policies and
contracts. An insurer that had previously adopted any standard of
valuation producing greater aggregate reserves than those
calculated according to the minimum standard provided in this
section
and section sections 835 and
835a may, with the director's
approval, adopt any lower standard of valuation, but not lower than
the
minimum standard provided by this section and section sections
835 and 835a. However, for the purposes of this section, the
holding of additional reserves previously determined by an
appointed actuary to be necessary to render the opinion required by
section 830a is not considered to be the adoption of a higher
standard of valuation.
(6) If in any contract year the gross premium charged by an
insurer on a policy or contract is less than the valuation net
premium for the policy or contract calculated by the method used in
calculating the reserve on the policy or contract, the insurer may
use the minimum valuation standards of mortality, either at the
time of issue or the time of valuation of the policy or contract
and the minimum valuation rate of interest at time of issue or the
time of valuation of the policy or contract, if the minimum reserve
required for the policy or contract is 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 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
subsection are those standards stated in subsection (1) and section
836. However, for any life insurance policy issued after December
31, 1985 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 that excess
and that provides an endowment benefit or a cash surrender value or
a combination of endowment benefit and cash surrender value in an
amount greater than the excess premium, this subsection applies as
if the method actually used in calculating the reserve for that
policy were the method described in subsection (2), ignoring
paragraph 2 of that subsection. The minimum reserve at each policy
anniversary of that policy must be the greater of the minimum
reserve calculated in accordance with subsection (2), including
paragraph 2 of that subsection, and the minimum reserve calculated
in accordance with this subsection.
(7) For 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, for any plan of life insurance or annuity that the minimum
reserves cannot be determined by the methods described in
subsections (2), (3), and (6), the reserves that are held under
those plans must be appropriate in relation to the benefits and the
pattern of premiums for that plan and computed by a method that is
consistent with the principles of this standard valuation law, as
determined by rules promulgated by the director.
(8) This section applies to only life insurance policies and
contracts issued on and after the operative date of section 4060,
the standard nonforfeiture law, except as otherwise provided in
sections 835 and 836 for group annuity and pure endowment contracts
issued on or after the operative date of section 4060 and except as
otherwise provided in section 837 for universal life contracts.
(9) As used in this section:
(a) "Appointed actuary" means a qualified actuary who is
appointed in accordance with the valuation manual to prepare the
actuarial opinion required in section 830a(9).
(b)
"NAIC" means the national association National Association
of
insurance commissioners.Insurance
Commissioners.
(c) "Qualified actuary" means an individual who is qualified
to sign the applicable statement of actuarial opinion in accordance
with
the American academy Academy
of actuaries Actuaries
qualification standards for actuaries signing statements of
actuarial opinions and who meets the requirements specified in the
valuation manual.
(d) "Valuation manual" means the manual of valuation
instructions adopted by the NAIC as specified in section 836b.
Sec.
835. (1) Except as provided in section sections 835a and
836, the minimum standard for the valuation of all individual
annuity and pure endowment contracts issued on or after the
operative
date of this section, as defined described in subsection
(2), and for all annuities and pure endowments purchased on or
after that operative date under group annuity and pure endowment
contracts,
shall must be the commissioners reserve valuation method
defined
Commissioners Reserve
Valuation Method described in section
834(2) and (3), and the following tables and interest rates:
(a) For individual annuity and pure endowment contracts issued
before October 1, 1980, excluding any disability and accidental
death
benefits in these contracts, the standard shall must be
the
1971
individual annuity mortality table, Individual Annuity
Mortality Table, or a modification of this table approved by the
commissioner,
director, and 6% interest for single premium
immediate annuity contracts, and 4% interest for all other
individual annuity and pure endowment contracts.
(b)
For Except as otherwise
provided in this subdivision, for
individual
single premium immediate annuity contracts issued on or
after
October 1, September 30, 1980, excluding any disability and
accidental
death benefits in these contracts, the standard shall
must
be the 1971 individual annuity
mortality table Individual
Annuity Mortality Table or any individual annuity mortality table
adopted
after 1980 by the national association of insurance
commissioners
National Association of
Insurance Commissioners that
is
approved by a rule promulgated by the commissioner director for
use
in determining the minimum standard of valuation for such the
contracts, or a modification of these tables approved by the
commissioner,
director, and 7-1/2% interest. At the election of the
insurer, the following tables may be used as the standard for
individual single premium immediate annuity contracts, as
applicable:
(i) For contracts issued after December 31, 1985, the 1983
Table a.
(ii) For contracts issued after December 31, 1998, the Annuity
2000 Table.
(iii) For contracts issued after December 31, 2014, the 2012
IAR Table.
(c)
For Except as otherwise
provided in this subdivision, for
individual
annuity and pure endowment contracts issued on or after
October
1, September 30, 1980
and before January 1, 2015, other
than single premium immediate annuity contracts, excluding any
disability and accidental death benefits in the contracts, the
standard
shall must be the 1971 individual annuity mortality table
Individual Annuity Mortality Table or any individual annuity
mortality
table adopted after 1980 by the national association
National
Association of insurance
commissioners Insurance
Commissioners that is approved by a rule promulgated by the
commissioner
director for use in determining the minimum standard
of valuation for such contracts, or a modification of these tables
approved
by the commissioner, director,
and 5-1/2% interest for
single premium deferred annuity and pure endowment contracts, and
4-1/2% interest for all other such individual annuity and pure
endowment contracts. At the election of the insurer, the following
tables may be used as the standard for individual annuity and pure
endowment contracts, other than single premium immediate annuities,
as applicable:
(i) For contracts issued after December 31, 1985, the 1983
Table a.
(ii) For contracts issued after December 31, 1998, the Annuity
2000 Table.
(iii) For contracts issued after December 31, 2014, the 2012
IAR Table.
(d) For all annuities and pure endowments purchased before
October 1, 1980, under group annuity and pure endowment contracts,
excluding any disability and accidental death benefits purchased
under
these contracts, the standard shall must be the 1971 group
annuity
mortality table, Group Annuity
Mortality Table, or a
modification
of these tables approved by the commissioner,
director, and 6% interest.
(e)
For Except as otherwise
provided in this subdivision, For
all
annuities and pure endowments purchased on or after October 1,
September 30, 1980 and before January 1, 2015, under group annuity
and pure endowment contracts, excluding any disability and
accidental death benefits purchased under these contracts, the
standard
shall must be the 1971 group annuity mortality table Group
Annuity Mortality Table or any group annuity mortality table
adopted
after 1980 by the national association National Association
of
insurance commissioners Insurance
Commissioners that is approved
by
a rule promulgated by the commissioner director for use in
determining the minimum standard of valuation for such annuities
and pure endowments, or a modification of these tables approved by
the
commissioner, director, and 7-1/2% interest. At the election of
the insurer, the following tables may be used as the standard for
all annuities and pure endowments under group annuity and pure
endowment contracts, as applicable:
(i) For annuities and pure endowments purchased after December
31, 1985, the 1983 GAM Table.
(ii) For annuities and pure endowments purchased after
December 31, 1998, the 1994 GAR Table.
(2) After October 21, 1974, a company may file with the
commissioner
director a written notice of its election to invoke
this section after a specified date before January 1, 1981, which
shall
must be the operative date of this section for that the
company. A company may elect a different operative date of this
section for individual annuity and pure endowment contracts from
that elected for group annuity and pure endowment contracts. If a
company does not make an election, the operative date of this
section
for that the company shall must be January 1, 1981.
(3) As used in this section:
(a) "Annuity 2000 Table" means that term as defined in section
835a.
(b) "1983 GAM Table" means that term as defined in section
835a.
(c) "1983 Table a" means that term as defined in section 835a.
(d) "1994 GAR Table" means that term as defined in section
835a.
(e) "2012 IAR Table" means that term as defined in section
835a.
Sec. 835a. (1) Except as otherwise provided in section 836,
the minimum standard for the valuation of all individual annuity
and pure endowment contracts issued after December 31, 2014 and for
all annuities and pure endowments purchased after December 31, 2014
under group annuity and pure endowment contracts must be the
Commissioner's Reserve Valuation Method described in section 834(2)
and (3), and the following tables and interest rates:
(a) For individual single premium immediate annuity contracts,
excluding any disability and accidental death benefits in these
contracts, the standard must be the 2012 IAR Table or any
individual annuity mortality table adopted after 2015 by the
National Association of Insurance Commissioners that is approved by
a rule promulgated by the director for use in determining the
minimum standard of valuation for such contracts, or a modification
of these tables approved by the director, and an interest rate as
determined by the methodology described in section 836.
(b) For individual annuity and pure endowment contracts, other
than single premium immediate annuity contracts, excluding any
disability and accidental death benefits in the contracts, the
standard must be the 2012 Individual Annuity Mortality Table or any
individual annuity mortality table adopted after 2017 by the
National Association of Insurance Commissioners that is approved by
a rule promulgated by the director for use in determining the
minimum standard of valuation for such contracts, or a modification
of these tables approved by the director, and an interest rate as
determined by the methodology described in section 836 for single
premium deferred annuity and pure endowment contracts, and an
interest rate as determined by the methodology described in section
836 for all other such individual annuity and pure endowment
contracts.
(c) For all annuities and pure endowments purchased under
group annuity and pure endowment contracts, excluding any
disability and accidental death benefits purchased under these
contracts, the standard must be the 1994 GAR Table, or any group
annuity mortality table adopted after 2017 by the National
Association of Insurance Commissioners that is approved by a rule
promulgated by the director for use in determining the minimum
standard of valuation for such annuities and pure endowments, or a
modification of these tables approved by the director, and an
interest rate as determined by the methodology described in section
836.
(2) As used in this section:
(a) "Annuity 2000 Table" means the mortality table developed
by the Society of Actuaries Committee on Life Insurance Research
and shown on page 240 of volume XLVII of the Transactions of the
Society of Actuaries.
(b) "Generational Mortality Table" means a mortality table
containing a set of mortality rates that decrease for a given age
from 1 year to the next based on a combination of a period table
and a projection scale containing rates of mortality improvement.
(c) "Period table" means a table of mortality rates applicable
to a given calendar year.
(d) "Projection Scale G2" means the table of annual rates,
G2x, of mortality improvement by age for projecting future
mortality rates beyond calendar year 2012 developed by the Society
of Actuaries Committee on Life Insurance Research.
(e) "1983 GAM Table" means that mortality table developed by
the Society of Actuaries committee on annuities and adopted as a
recognized mortality table for annuities in December 1983 by the
National Association of Insurance Commissioners.
(f) "1983 Table a" means the mortality table developed by the
Society of Actuaries committee to recommend a new mortality basis
for individual annuity valuation and adopted as a recognized
mortality table for annuities in June 1982 by the National
Association of Insurance Commissioners.
(g) "1994 GAR Table" means the mortality table developed by
the Society of Actuaries group annuity valuation table task force
and published on pages 866-867 of volume XLVII of the Transactions
of the Society of Actuaries, where the mortality rate for an
individual of age x in year 1994+n, QX1994+N, is determined as
follows:
QX1994+N = QX1994(1-AAX)N
where QX1994 is as specified in the 1994 GAR Table, n is the number
of years that have elapsed since 1994, and AAX is as specified in
the 1994 GAR Table.
(h) "2012 IAM Period Table" means the period table developed
by the Society of Actuaries Committee on Life Insurance Research
that contains loaded mortality rates for calendar year 2012.
(i) "2012 IAR Table" means the generational mortality table
developed by the Society of Actuaries Committee on Life Insurance
Research that contains rates derived from a combination of the 2012
IAM Period Table and Projection Scale G2, where mortality rates for
an individual of age x in year 2012+n, QX2012+N, are determined as
follows, and the results rounded to the nearest one-thousandth:
QX2012+N = QX2012(1-G2X)N
where QX2012 is as specified in the 2012 IAM Period Table, n is the
number of years that have elapsed since 2012, and G2X is as
specified in Projection Scale G2.
Sec. 836b. (1) All of the following apply to the valuation
manual:
(a) Except as otherwise provided under subdivision (e) or (g),
for policies issued on or after the operative date of the valuation
manual and, at a company's option for policies or individual blocks
of policies acquired by the company through a business acquisition
or
reinsurance transaction after the effective date of the
amendatory
act that added this section, March
31, 2015, regardless
of when the policies were issued, the standard prescribed in the
valuation manual is the minimum standard of valuation required
under section 830(2).
(b) The operative date of the valuation manual is January 1 of
the first calendar year following the first July 1 as of which all
of the following have occurred:
(i) The NAIC has adopted the valuation manual by a vote of at
least 42 members, or 3/4 of the members voting, whichever is
greater.
(ii) The standard valuation law, as amended by the NAIC in
2009, or legislation including substantially similar terms and
provisions, has been enacted by states representing greater than
75% of the direct premiums written as reported in the following
annual statements submitted for 2008: life, accident, and health
annual statements; health annual statements; or fraternal annual
statements.
(iii) The standard valuation law, as amended by the NAIC in
2009, or legislation including substantially similar terms and
provisions, has been enacted by at least 42 of the following 55
jurisdictions: the 50 states of the United States, American Samoa,
the American Virgin Islands, the District of Columbia, Guam, and
Puerto Rico.
(c) Unless a change in the valuation manual specifies a later
effective date, a change to the valuation manual is effective on
January 1 after the date the NAIC adopts the change to the
valuation manual by a vote representing both of the following:
(i) At least 3/4 of the members of the NAIC, but not less than
a majority of the total membership.
(ii) Members of the NAIC representing jurisdictions that
amount to greater than 75% of the direct premiums written as
reported in the following annual statements most recently available
before the vote in subparagraph (i): life, accident, and health
annual statements; health annual statements; or fraternal annual
statements.
(d) The valuation manual must specify all of the following:
(i) Minimum valuation standards for and definitions of the
policies or contracts subject to section 830(2). The minimum
valuation standards are all of the following:
(A) The director's reserve valuation method for life insurance
contracts, other than annuity contracts, subject to section 830(2).
(B) The director's annuity reserve valuation method for
annuity contracts subject to section 830(2).
(C) Minimum reserves for all other policies or contracts
subject to section 830(2).
(ii) The policies or contracts or types of policies or
contracts that are subject to the requirements of a principle-based
valuation
in under subsection (2) and the minimum valuation
standards consistent with those requirements.
(iii) For policies and contracts subject to a principle-based
valuation under subsection (2), all of the following apply:
(A) Requirements for the format of reports to the director
under subsection (3)(c) and that must include information necessary
to determine if the valuation is appropriate and in compliance with
this section.
(B) Assumptions must be prescribed for risks over which the
company does not have significant control or influence.
(C) Procedures for corporate governance and oversight of the
actuarial function, and a process for appropriate waiver or
modification of the procedures.
(iv) For policies that are not subject to a principle-based
valuation under subsections (2), (3), and (4), the minimum
valuation standard is 1 of the following:
(A) The standard is consistent with the minimum standard of
valuation before the operative date of the valuation manual.
(B) The standard develops reserves that quantify the benefits
and guarantees, and the funding, associated with the contracts and
their risks at a level of conservatism that reflects conditions
that include unfavorable events that have a reasonable probability
of occurring.
(v) Other requirements, including, but not limited to, those
relating to reserve methods, models for measuring risk, generation
of economic scenarios, assumptions, margins, use of company
experience, risk measurement, disclosure, certifications, reports,
actuarial opinions and memorandums, transition rules, and internal
controls.
(vi) The data and form of the data required under subsection
(5), to whom the data must be submitted, and may specify other
requirements including data analyses and reporting of analyses.
(e) If there is not a specific valuation requirement or if the
director determines that a specific valuation requirement in the
valuation manual does not comply with this section, the company
shall, with respect to the requirement, comply with minimum
valuation standards prescribed by the director by rule.
(f) The director may engage a qualified actuary, at the
expense of the company, to perform an actuarial examination of the
company and opine on the appropriateness of any reserve assumption
or method used by the company, or to review and opine on a
company's compliance with any requirement of this section. The
director
may rely upon on the opinion, regarding this section, of a
qualified actuary engaged by the commissioner of another state,
district, or territory of the United States. As used in this
subdivision, "engage" includes employment and contracting.
(g) The director may require a company to change any
assumption or method that the director considers necessary to
comply with the requirements of the valuation manual or this
section, and the company shall adjust the reserves as required by
the director.
(2) A company shall establish reserves using a principle-based
valuation that meets all of the following conditions for policies
or contracts as specified in the valuation manual:
(a) Quantify the benefits and guarantees, and the funding,
associated with the contracts and their risks at a level of
conservatism that reflects conditions that include unfavorable
events that have a reasonable probability of occurring during the
lifetime of the contracts. For polices or contracts with
significant tail risk, reflects conditions appropriately adverse to
quantify the tail risk.
(b) Incorporate assumptions, risk analysis methods, financial
models, and management techniques that are consistent with, but not
necessarily identical to, those used within the company's overall
risk assessment process, while recognizing potential differences in
financial reporting structures and any prescribed assumptions or
methods.
(c) Incorporate assumptions that are derived in 1 of the
following manners:
(i) The assumption is prescribed in the valuation manual.
(ii) For assumptions that are not prescribed in the valuation
manual, the assumptions must do the following, as applicable:
(A) Use the company's available experience, to the extent it
is relevant and statistically credible.
(B) To the extent that company data are not available,
relevant, or statistically credible, use other relevant and
statistically credible experience.
(d) Provide margins for uncertainty, including adverse
deviation and estimation error, such that the greater the
uncertainty, the larger the margin and resulting reserve.
(3) A company that uses principle-based valuation for 1 or
more policies or contracts subject to this section as specified in
the valuation manual shall do all of the following:
(a) Establish procedures for corporate governance and
oversight of the actuarial valuation function consistent with those
described in the valuation manual.
(b) Provide to the director and the board of directors an
annual certification of the effectiveness of the internal controls
with respect to the principle-based valuation. The internal
controls must be designed to assure that all material risks
inherent in the liabilities and associated assets subject to the
valuation are included in the valuation, and that valuations are
made in accordance with the valuation manual. The certification
must be based on the controls in place at the end of the preceding
calendar year.
(c) Develop, and file with the director on request, a
principle-based valuation report that complies with standards
prescribed in the valuation manual.
(4) A principle-based valuation may include a prescribed
formulaic reserve component.
(5) A company shall submit mortality, morbidity, policyholder
behavior, or expense experience and other data as prescribed in the
valuation manual.
(6) Except as otherwise provided in this section, confidential
information is confidential and privileged, is not subject to
disclosure under the freedom of information act, 1976 PA 442, MCL
15.231 to 15.246, is not subject to subpoena, and is not subject to
discovery or admissible in evidence in a private civil action.
However, the director may use the confidential information in the
furtherance of any regulatory or legal action brought as a part of
the director's official duties.
(7) The director or any person who received confidential
information while acting under the authority of the director shall
not testify in a private civil action concerning confidential
information.
(8) The director may do all of the following:
(a) Except as otherwise provided in this subdivision, share
confidential information with other state, federal, and
international regulatory agencies and with the NAIC and its
affiliates and subsidiaries. The director may also share
confidential information described in subsection (18)(c)(i) and
(iv) only with the actuarial board for counseling and discipline or
its successor on request for the purpose of professional
disciplinary proceedings and with state, federal, and international
law enforcement officials. The director shall not share
confidential information unless the recipient agrees in writing to
maintain the confidentiality and privileged status of the
confidential information and has verified in writing the legal
authority to maintain confidentiality.
(b) Subject to this subdivision, receive documents, materials,
data, or information from regulatory or law enforcement officials
of other foreign or domestic jurisdictions, the actuarial board for
counseling and discipline or its successor, and the NAIC and its
affiliates and subsidiaries. The director shall maintain as
confidential or privileged any documents, materials, or information
received with notice or the understanding that it is confidential
or privileged under the laws of the jurisdiction that is the source
of the document, material, or information.
(9) The director may enter into written agreements governing
sharing and use of information provided under this section.
(10) The disclosure or sharing of confidential information to
the director under this section is not a waiver of an applicable
privilege or claim of confidentiality.
(11) A privilege established under the law of any state or
jurisdiction that is substantially similar to the privilege
established under this section applies in any proceeding in, and in
any court of, this state.
(12) As used in subsections (6) to (10), "regulatory agency",
"law enforcement agency", and "NAIC" include, but are not limited
to, their employees, agents, consultants, and contractors.
(13) Notwithstanding anything in this section to the contrary,
any confidential information described in subsection (18)(c)(i) and
(iv) is subject to all of the following:
(a) The confidential information is subject to subpoena for
the purpose of defending an action seeking damages from the
appointed actuary submitting the related memorandum in support of
an opinion submitted under section 830a or principle-based
valuation report developed under subsection (3)(c) by reason of an
action required by section 830a or subsection (3)(c) or by rules
promulgated under this section.
(b) The director may release the confidential information with
the written consent of the company.
(c) If any portion of a memorandum in support of an opinion
submitted under section 830a or a principle-based valuation report
developed under subsection (3)(c) is cited by the company in its
marketing, is cited before a governmental agency other than a state
insurance department, or is released by the company to the news
media, the memorandum or report is not confidential.
(14) Except as provided in subsection (15), a domestic company
is exempt from the requirements under subsections (1) to (5) if the
domestic company meets both of the following requirements:
(a) The domestic company has less than $500,000,000.00 of
ordinary life premiums and, if the domestic company is a member of
a group of life insurers, the group has combined ordinary life
premiums of less than $1,000,000,000.00.
(b) The domestic company reported total adjusted capital of at
least 450% of the authorized control level risk-based capital in
the most recent risk-based capital report and the appointed actuary
has provided an unqualified opinion on the reserves.
(15) A domestic company that meets the requirements under
subsection (14)(a) and (b) may elect to be bound by the
requirements of subsections (1) to (5) for a calendar year. The
election must be in writing and filed with the director by February
1 of the year following the calendar year in which the company
makes the election.
(16) For purposes of subsection (14), ordinary life premiums
are measured as direct plus reinsurance assumed from an
unaffiliated company from the prior calendar year annual statement.
(17) Except for a domestic company that makes an election
under subsection (15), for a domestic company that is exempt from
the requirements of subsections (1) to (5) under subsection (14),
sections 830a, 832, 834, 835, 835a, 836, and 836a are applicable,
and a reference to this section in sections 830a, 834, and 836a is
not applicable.
(18) As used in this section:
(a) "Accident and health insurance" means contracts that
incorporate morbidity risk and provide protection against economic
loss resulting from accident, sickness, or medical conditions and
as may be specified in the valuation manual.
(b) "Company" means an entity that has written, issued, or
reinsured life insurance contracts, accident and health insurance
contracts, or deposit-type contracts in this state and has at least
1 policy in force or on claim or that has written, issued, or
reinsured life insurance contracts, accident and health insurance
contracts, or deposit-type contracts in any state and is required
to hold a certificate of authority to write life insurance,
accident and health insurance, or deposit-type contracts in this
state.
(c) "Confidential information" means all of the following:
(i) A memorandum in support of an opinion submitted under
section 830a and any other documents, materials, and other
information, including, but not limited to, all working papers, and
copies of working papers, created, produced, or obtained by or
disclosed to the director or any other person in connection with
the memorandum.
(ii) All documents, materials, and other information,
including, but not limited to, all working papers, and copies of
working papers, created, produced, or obtained by or disclosed to
the director or any other person in the course of an examination
made under subsection (1)(f) if an examination report or other
material prepared in connection with an examination made under
section 222 is not held as private and confidential information
under section 222, an examination report or other material prepared
in connection with an examination made under subsection (1)(f) is
not "confidential information" to the same extent as if the
examination report or other material had been prepared under
section 222.
(iii) Any reports, documents, materials, and other information
developed by a company in support of, or in connection with, an
annual certification by the company under subsection (3)(b)
evaluating the effectiveness of the company's internal controls
with respect to a principle-based valuation and any other
documents, materials, and other information, including, but not
limited to, all working papers, and copies of working papers,
created, produced, or obtained by or disclosed to the director or
any other person in connection with such reports, documents,
materials, and other information.
(iv) Any principle-based valuation report developed under
subsection (3)(c) and any other documents, materials, and other
information, including, but not limited to, all working papers, and
copies of working papers, created, produced, or obtained by or
disclosed to the director or any other person in connection with
the report.
(v) Any documents, materials, data, and other information
submitted by a company under subsection (5), collectively,
experience data, and any other documents, materials, data, and
other information, including, but not limited to, all working
papers, and copies of working papers, created or produced in
connection with the experience data, in each case that include any
potentially company-identifying or personally identifiable
information, that is provided to or obtained by the director,
together with any experience data, the experience materials and any
other documents, materials, data, and other information, including,
but not limited to, all working papers, and copies of working
papers, created, produced, or obtained by or disclosed to the
director or any other person in connection with the experience
materials.
(d) "Deposit-type contract" means contracts that do not
incorporate mortality or morbidity risks and as may be specified in
the valuation manual.
(e) "Life insurance" means contracts that incorporate
mortality risk, including annuity and pure endowment contracts, and
as may be specified in the valuation manual.
(f)
"NAIC" means the national association of insurance
commissioners.National Association of Insurance
Commissioners.
(g) "Policyholder behavior" means any action a policyholder,
contract holder, or any other person with the right to elect
options, such as a certificate holder, may take under a policy or
contract subject to this section, including, but not limited to,
lapse, withdrawal, transfer, deposit, premium payment, loan,
annuitization, or benefit elections prescribed by the policy or
contract but excluding events of mortality or morbidity that result
in benefits prescribed in their essential aspects by the terms of
the policy or contract.
(h) "Principle-based valuation" means a reserve valuation that
uses 1 or more methods or 1 or more assumptions determined by the
insurer and is required to comply with this section as specified in
the valuation manual.
(i) "Qualified actuary" means an individual who is qualified
to sign the applicable statement of actuarial opinion in accordance
with
the American academy of actuaries Academy of Actuaries
qualification standards for actuaries signing such statements and
who meets the requirements specified in the valuation manual.
(j) "Tail risk" means a risk that occurs either where the
frequency of low probability events is higher than expected under a
normal probability distribution or where there are observed events
of very significant size or magnitude.
(k) "Valuation manual" means the manual of valuation
instructions adopted by the NAIC as specified in this section.
Enacting section 1. This amendatory act takes effect 90 days
after the date it is enacted into law.
