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INSURANCE
(215 ILCS 5/) Illinois Insurance Code.

215 ILCS 5/223

    (215 ILCS 5/223) (from Ch. 73, par. 835)
    Sec. 223. Director to value policies - Legal standard of valuation.
    (1) For policies and contracts issued prior to the operative date of the Valuation Manual, the Director shall annually value, or cause to be valued, the reserve liabilities (hereinafter called reserves) for all outstanding life insurance policies and annuity and pure endowment contracts of every life insurance company doing business in this State, except that in the case of an alien company, such valuation shall be limited to its United States business. In calculating such reserves, he may use group methods and approximate averages for fractions of a year or otherwise. In lieu of the valuation of the reserves herein required of any foreign or alien company, he may accept any valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when such valuation complies with the minimum standard provided in this Section.
    The provisions set forth in this subsection (1) and in subsections (2), (3), (4), (5), (6), and (7) of this Section shall apply to all policies and contracts, as appropriate, subject to this Section issued prior to the operative date of the Valuation Manual. The provisions set forth in subsections (8) and (9) of this Section shall not apply to any such policies and contracts.
    For policies and contracts issued on or after the operative date of the Valuation Manual, the Director shall annually value, or cause to be valued, the reserve liabilities (reserves) for all outstanding life insurance contracts, annuity and pure endowment contracts, accident and health contracts, and deposit-type contracts of every company issued on or after the operative date of the Valuation Manual. In lieu of the valuation of the reserves required of a foreign or alien company, the Director may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when the valuation complies with the minimum standard provided in this Section.
    The provisions set forth in subsections (8) and (9) of this Section shall apply to all policies and contracts issued on or after the operative date of the Valuation Manual.
    Any such company which adopts at any time a standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard provided under this Section may adopt a lower standard of valuation, with the approval of the Director, but not lower than the minimum herein provided, however, that, for the purposes of this subsection, the holding of additional reserves previously determined by the appointed actuary to be necessary to render the opinion required by subsection (1a) shall not be deemed to be the adoption of a higher standard of valuation. In the valuation of policies the Director shall give no consideration to, nor make any deduction because of, the existence or the possession by the company of
        (a) policy liens created by any agreement given or
    
assented to by any assured subsequent to July 1, 1937, for which liens such assured has not received cash or other consideration equal in value to the amount of such liens, or
        (b) policy liens created by any agreement entered
    
into in violation of Section 232 unless the agreement imposing or creating such liens has been approved by a Court in a proceeding under Article XIII, or in the case of a foreign or alien company has been approved by a court in a rehabilitation or liquidation proceeding or by the insurance official of its domiciliary state or country, in accordance with the laws thereof.
    (1a) This subsection shall become operative at the end of the first full calendar year following the effective date of this amendatory Act of 1991.
        (A) General.
            (1) Prior to the operative date of the Valuation
        
Manual, every life insurance company doing business in this State shall annually submit the opinion of a qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified by the Director by regulation are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts and comply with applicable laws of this State. The Director by regulation shall define the specifics of this opinion and add any other items deemed to be necessary to its scope.
            (2) The opinion shall be submitted with the
        
annual statement reflecting the valuation of reserve liabilities for each year ending on or after December 31, 1992.
            (3) The opinion shall apply to all business in
        
force including individual and group health insurance plans, in form and substance acceptable to the Director as specified by regulation.
            (4) The opinion shall be based on standards
        
adopted from time to time by the Actuarial Standards Board and on additional standards as the Director may by regulation prescribe.
            (5) In the case of an opinion required to be
        
submitted by a foreign or alien company, the Director may accept the opinion filed by that company with the insurance supervisory official of another state if the Director determines that the opinion reasonably meets the requirements applicable to a company domiciled in this State.
            (6) For the purpose of this Section, "qualified
        
actuary" means a member in good standing of the American Academy of Actuaries who meets the requirements set forth in its regulations.
            (7) Except in cases of fraud or willful
        
misconduct, the qualified actuary shall not be liable for damages to any person (other than the insurance company and the Director) for any act, error, omission, decision or conduct with respect to the actuary's opinion.
            (8) Disciplinary action by the Director against
        
the company or the qualified actuary shall be defined in regulations by the Director.
            (9) A memorandum, in form and substance
        
acceptable to the Director as specified by regulation, shall be prepared to support each actuarial opinion.
            (10) If the insurance company fails to provide a
        
supporting memorandum at the request of the Director within a period specified by regulation or the Director determines that the supporting memorandum provided by the insurance company fails to meet the standards prescribed by the regulations or is otherwise unacceptable to the Director, the Director may engage a qualified actuary at the expense of the company to review the opinion and the basis for the opinion and prepare the supporting memorandum as is required by the Director.
            (11) Any memorandum in support of the opinion,
        
and any other material provided by the company to the Director in connection therewith, shall be kept confidential by the Director and shall not be made public and shall not be subject to subpoena, other than for the purpose of defending an action seeking damages from any person by reason of any action required by this Section or by regulations promulgated hereunder; provided, however, that the memorandum or other material may otherwise be released by the Director (a) with the written consent of the company or (b) to the American Academy of Actuaries upon request stating that the memorandum or other material is required for the purpose of professional disciplinary proceedings and setting forth procedures satisfactory to the Director for preserving the confidentiality of the memorandum or other material. Once any portion of the confidential memorandum is cited by the company in its marketing or is cited before any governmental agency other than a state insurance department or is released by the company to the news media, all portions of the confidential memorandum shall be no longer confidential.
        (B) Actuarial analysis of reserves and assets
    
supporting those reserves.
            (1) Every life insurance company, except as
        
exempted by or under regulation, shall also annually include in the opinion required by paragraph (A)(1) of this subsection (1a), an opinion of the same qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified by the Director by regulation, when considered in light of the assets held by the company with respect to the reserves and related actuarial items including, but not limited to, the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision for the company's obligations under the policies and contracts including, but not limited to, the benefits under and expenses associated with the policies and contracts.
            (2) The Director may provide by regulation for a
        
transition period for establishing any higher reserves which the qualified actuary may deem necessary in order to render the opinion required by this Section.
    (1b) Actuarial Opinion of Reserves after the Operative Date of the Valuation Manual.
        (A) General.
            (1) Every company with outstanding life insurance
        
contracts, accident and health insurance contracts, or deposit-type contracts in this State and subject to regulation by the Director shall annually submit the opinion of the appointed actuary as to whether the reserves and related actuarial items held in support of the policies and contracts are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts, and comply with applicable laws of this State. The Valuation Manual shall prescribe the specifics of this opinion, including any items deemed to be necessary to its scope.
            (2) The opinion shall be submitted with the
        
annual statement reflecting the valuation of such reserve liabilities for each year ending on or after the operative date of the Valuation Manual.
            (3) The opinion shall apply to all policies and
        
contracts subject to paragraph (B) of this subsection (1b), plus other actuarial liabilities as may be specified in the Valuation Manual.
            (4) The opinion shall be based on standards
        
adopted from time to time by the Actuarial Standards Board or its successor and on additional standards as may be prescribed in the Valuation Manual.
            (5) In the case of an opinion required to be
        
submitted by a foreign or alien company, the Director may accept the opinion filed by that company with the insurance supervisory official of another state if the Director determines that the opinion reasonably meets the requirements applicable to a company domiciled in this State.
            (6) Except in cases of fraud or willful
        
misconduct, the appointed actuary shall not be liable for damages to any person (other than the insurance company and the Director) for any act, error, omission, decision, or conduct with respect to the appointed actuary's opinion.
            (7) Disciplinary action by the Director against
        
the company or the appointed actuary shall be defined by the Director by rule.
            (8) A memorandum, in a form and substance as
        
specified in the Valuation Manual and acceptable to the Director, shall be prepared to support each actuarial opinion.
            (9) If the insurance company fails to provide a
        
supporting memorandum at the request of the Director within a period specified in the Valuation Manual or the Director determines that the supporting memorandum provided by the insurance company fails to meet the standards prescribed by the Valuation Manual or is otherwise unacceptable to the Director, the Director may engage a qualified actuary at the expense of the company to review the opinion and the basis for the opinion and prepare the supporting memorandum as is required by the Director.
        (B) Every company with outstanding life insurance
    
contracts, accident and health insurance contracts, or deposit-type contracts in this State and subject to regulation by the Director, except as exempted in the Valuation Manual, shall also annually include in the opinion required by subparagraph (1) of paragraph (A) of this subsection (1b), an opinion of the same appointed actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified in the Valuation Manual, when considered in light of the assets held by the company with respect to the reserves and related actuarial items, including, but not limited to, the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision for the company's obligations under the policies and contracts, including, but not limited to, the benefits under and expenses associated with the policies and contracts.
    (2) This subsection shall apply to only those policies and contracts issued prior to the operative date of Section 229.2 (the Standard Non-forfeiture Law).
        (a) Except as otherwise in this Article provided, the
    
legal minimum standard for valuation of contracts issued before January 1, 1908, shall be the Actuaries or Combined Experience Table of Mortality with interest at 4% per annum and for valuation of contracts issued on or after that date shall be the American Experience Table of Mortality with either Craig's or Buttolph's Extension for ages under 10 and with interest at 3 1/2% per annum. The legal minimum standard for the valuation of group insurance policies under which premium rates are not guaranteed for a period in excess of 5 years shall be the American Men Ultimate Table of Mortality with interest at 3 1/2% per annum. Any life company may, at its option, value its insurance contracts issued on or after January 1, 1938, in accordance with their terms on the basis of the American Men Ultimate Table of Mortality with interest not higher than 3 1/2% per annum.
        (b) Policies issued prior to January 1, 1908, may
    
continue to be valued according to a method producing reserves not less than those produced by the full preliminary term method. Policies issued on and after January 1, 1908, may be valued according to a method producing reserves not less than those produced by the modified preliminary term method hereinafter described in paragraph (c). Policies issued on and after January 1, 1938, may be valued either according to a method producing reserves not less than those produced by such modified preliminary term method or by the select and ultimate method on the basis that the rate of mortality during the first 5 years after the issuance of such contracts respectively shall be calculated according to the following percentages of rates shown by the American Experience Table of Mortality:
            (i) first insurance year 50% thereof;
            (ii) second insurance year 65% thereof;
            (iii) third insurance year 75% thereof;
            (iv) fourth insurance year 85% thereof;
            (v) fifth insurance year 95% thereof.
        (c) If the premium charged for the first policy year
    
under a limited payment life preliminary term policy providing for the payment of all premiums thereon in less than 20 years from the date of the policy or under an endowment preliminary term policy, exceeds that charged for the first policy year under 20 payment life preliminary term policies of the same company, the reserve thereon at the end of any year, including the first, shall not be less than the reserve on a 20 payment life preliminary term policy issued in the same year at the same age, together with an amount which shall be equivalent to the accumulation of a net level premium sufficient to provide for a pure endowment at the end of the premium payment period, equal to the difference between the value at the end of such period of such a 20 payment life preliminary term policy and the full net level premium reserve at such time of such a limited payment life or endowment policy. The premium payment period is the period during which premiums are concurrently payable under such 20 payment life preliminary term policy and such limited payment life or endowment policy.
        (d) The legal minimum standard for the valuations of
    
annuities issued on and after January 1, 1938, shall be the American Annuitant's Table with interest not higher than 3 3/4% per annum, and all annuities issued before that date shall be valued on a basis not lower than that used for the annual statement of the year 1937; but annuities deferred 10 or more years and written in connection with life insurance shall be valued on the same basis as that used in computing the consideration or premiums therefor, or upon any higher standard at the option of the company.
        (e) The Director may vary the standards of interest
    
and mortality as to contracts issued in countries other than the United States and may vary standards of mortality in particular cases of invalid lives and other extra hazards.
        (f) The legal minimum standard for valuation of
    
waiver of premium disability benefits or waiver of premium and income disability benefits issued on and after January 1, 1938, shall be the Class (3) Disability Table (1926) modified to conform to the contractual waiting period, with interest at not more than 3 1/2% per annum; but in no event shall the values be less than those produced by the basis used in computing premiums for such benefits. The legal minimum standard for the valuation of such benefits issued prior to January 1, 1938, shall be such as to place an adequate value, as determined by sound insurance practices, on the liabilities thereunder and shall be such that the value of the benefits under each and every policy shall in no case be less than the value placed upon the future premiums.
        (g) The legal minimum standard for the valuation of
    
industrial policies issued on or after January 1, 1938, shall be the American Experience Table of Mortality or the Standard Industrial Mortality Table or the Substandard Industrial Mortality Table with interest at 3 1/2% per annum by the net level premium method, or in accordance with their terms by the modified preliminary term method hereinabove described.
        (h) Reserves for all such policies and contracts may
    
be calculated, at the option of the company, according to any standards which produce greater aggregate reserves for all such policies and contracts than the minimum reserves required by this subsection.
    (3) This subsection shall apply to only those policies and contracts issued on or after January 1, 1948 or such earlier operative date of Section 229.2 (the Standard Non-forfeiture Law) as shall have been elected by the insurance company issuing such policies or contracts.
        (a) Except as otherwise provided in subsections (4),
    
(6), and (7), the minimum standard for the valuation of all such policies and contracts shall be the Commissioners Reserve valuation method defined in paragraphs (b) and (f) of this subsection and in subsection 5, 3 1/2% interest for such policies issued prior to September 8, 1977, 5 1/2% interest for single premium life insurance policies and 4 1/2% interest for all other such policies issued on or after September 8, 1977, and the following tables:
            (i) The Commissioners 1941 Standard Ordinary
        
Mortality Table for all Ordinary policies of life insurance issued on the standard basis, excluding any disability and accidental death benefits in such policies, for such policies issued prior to the operative date of subsection (4a) of Section 229.2 (Standard Non-forfeiture Law); and the Commissioners 1958 Standard Ordinary Mortality Table for such policies issued on or after such operative date but prior to the operative date of subsection (4c) of Section 229.2 provided that for any category of such policies issued on female risks all modified net premiums and present values referred to in this Section may, prior to September 8, 1977, be calculated according to an age not more than 3 years younger than the actual age of the insured and, after September 8, 1977, calculated according to an age not more than 6 years younger than the actual age of the insured; and for such policies issued on or after the operative date of subsection (4c) of Section 229.2, (i) the Commissioners 1980 Standard Ordinary Mortality Table, or (ii) at the election of the company for any one 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 NAIC and approved by regulations promulgated by the Director for use in determining the minimum standard of valuation for such policies.
            (ii) For all Industrial Life Insurance policies
        
issued on the standard basis, excluding any disability and accidental death benefits in such policies--the 1941 Standard Industrial Mortality Table for such policies issued prior to the operative date of subsection 4 (b) of Section 229.2 (Standard Non-forfeiture Law); and for such policies issued on or after such operative date the Commissioners 1961 Standard Industrial Mortality Table or any industrial mortality table adopted after 1980 by the NAIC and approved by regulations promulgated by the Director for use in determining the minimum standard of valuation for such policies.
            (iii) For Individual Annuity and Pure Endowment
        
contracts, excluding any disability and accidental death benefits in such 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 Director.
            (iv) For Group Annuity and Pure Endowment
        
contracts, excluding any disability and accidental death benefits in such policies--the Group Annuity Mortality Table for 1951, any modification of such 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.
            (v) 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 NAIC and approved by regulations promulgated by the Director for use in determining the minimum standard of valuation for such 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.
            (vi) 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 NAIC and approved by regulations promulgated by the Director for use in determining the minimum standard of valuation for such policies; for policies issued on or after January 1, 1961, and prior to January 1, 1966, any of such tables 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.
            (vii) For Group Life Insurance, life insurance
        
issued on the substandard basis and other special benefits--such tables as may be approved by the Director.
        (b) Except as otherwise provided in paragraph (f) of
    
subsection (3), subsection (5), and subsection (7) reserves according to the Commissioners 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 such future guaranteed benefits provided for by such policies, over the then present value of any future modified net premiums therefor. The modified net premiums for any such policy shall be such uniform percentage of the respective contract premiums for such benefits that the present value, at the date of issue of the policy, of all such modified net premiums shall be equal to the sum of the then present value of such benefits provided for by the policy and the excess of (A) over (B), as follows:
            (A) A net level annual premium equal to the
        
present value, at the date of issue, of such benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per annum payable on the first and each subsequent anniversary of such policy on which a premium falls due; provided, however, that such net level annual premium shall not exceed the net level annual premium on the 19 year premium whole life plan for insurance of the same amount at an age one year higher than the age at issue of such policy.
            (B) A net one year term premium for such benefits
        
provided for in the first policy year.
        For any life insurance policy issued on or after
    
January 1, 1987, for which the contract premium in the first policy year exceeds that of the second year with no comparable additional benefit being provided in that first year, which policy provides an endowment benefit or a cash surrender value or a combination thereof in an amount greater than such excess premium, the reserve according to the Commissioners reserve valuation method as of any policy anniversary occurring on or before the assumed ending date, defined herein as the first policy anniversary on which the sum of any endowment benefit and any cash surrender value then available is greater than such excess premium, shall, except as otherwise provided in paragraph (f) of subsection (3), be the greater of the reserve as of such policy anniversary calculated as described in the preceding part of this paragraph (b) and the reserve as of such policy anniversary calculated as described in the preceding part of this paragraph (b) with (i) the value defined in subpart A of the preceding part of this paragraph (b) being reduced by 15% of the amount of such 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 such date as an endowment, and (iv) the cash surrender value provided on such date being considered as an endowment benefit. In making the above comparison, the mortality and interest bases stated in paragraph (a) of subsection (3) and in subsection (6) shall be used.
        Reserves according to the Commissioners reserve
    
valuation method 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 Section 408 of the Internal Revenue Code, as now or hereafter amended, (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, shall be calculated by a method consistent with the principles of this paragraph (b), except that any extra premiums charged because of impairments or special hazards shall be disregarded in the determination of modified net premiums.
        (c) In no event shall a company's aggregate reserves
    
for all life insurance policies, excluding disability and accidental death benefits be less than the aggregate reserves calculated in accordance with the methods set forth in paragraphs (b), (f), and (g) of subsection (3) and in subsection (5) and the mortality table or tables and rate or rates of interest used in calculating non-forfeiture benefits for such policies.
        (d) In no event shall the aggregate reserves for all
    
policies, contracts, and benefits be less than the aggregate reserves determined by the appointed actuary to be necessary to render the opinion required by subsection (1a).
        (e) Reserves for any category of policies, contracts
    
or benefits as established by the Director, may be calculated, at the option of the company, according to any standards which produce greater aggregate reserves for such category than those calculated according to the minimum standard herein provided, 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 for therein.
        (f) 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 such 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 such policy or contract, or the reserve calculated by the method actually used for such policy or contract but using the minimum 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 paragraph (f) are those standards stated in subsection (6) and paragraph (a) of subsection (3).
        For any life insurance policy issued on or after
    
January 1, 1987, for which the gross premium in the first policy year exceeds that of the second year with no comparable additional benefit provided in that first year, which policy provides an endowment benefit or a cash surrender value or a combination thereof in an amount greater than such excess premium, the foregoing provisions of this paragraph (f) shall be applied as if the method actually used in calculating the reserve for such policy were the method described in paragraph (b) of subsection (3), ignoring the second paragraph of said paragraph (b). The minimum reserve at each policy anniversary of such a policy shall be the greater of the minimum reserve calculated in accordance with paragraph (b) of subsection (3), including the second paragraph of said paragraph (b), and the minimum reserve calculated in accordance with this paragraph (f).
        (g) In the case of any plan of life insurance which
    
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 paragraphs (b) and (f) of subsection (3) and subsection (5), the reserves which are held under any such plan shall:
            (i) be appropriate in relation to the benefits
        
and the pattern of premiums for that plan, and
            (ii) be computed by a method which is consistent
        
with the principles of this Standard Valuation Law, as determined by regulations promulgated by the Director.
    (4) Except as provided in subsection (6), the minimum standard of valuation for individual annuity and pure endowment contracts issued on or after the operative date of this subsection, as defined herein, and for all annuities and pure endowments purchased on or after such operative date under group annuity and pure endowment contracts shall be the Commissioners Reserve valuation methods defined in paragraph (b) of subsection (3) and subsection (5) and the following tables and interest rates:
        (a) For individual single premium immediate annuity
    
contracts, excluding any disability and accidental death benefits in such contracts, the 1971 Individual Annuity Mortality Table, any individual annuity mortality table adopted after 1980 by the NAIC and approved by regulations promulgated by the Director for use in determining the minimum standard of valuation for such contracts, or any modification of those tables approved by the Director, and 7 1/2% interest.
        (b) For individual and pure endowment contracts other
    
than single premium annuity contracts, excluding any disability and accidental death benefits in such contracts, the 1971 Individual Annuity Mortality Table, any individual annuity mortality table adopted after 1980 by the NAIC and approved by regulations promulgated by the Director for use in determining the minimum standard of valuation for such contracts, or any modification of those tables approved by the 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.
        (c) For all annuities and pure endowments purchased
    
under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under such contracts, the 1971 Group Annuity Mortality Table, any group annuity mortality table adopted after 1980 by the NAIC and approved by regulations promulgated by the Director for use in determining the minimum standard of valuation for such annuities and pure endowments, or any modification of those tables approved by the Director, and 7 1/2% interest.
    After September 8, 1977, any company may file with the Director a written notice of its election to comply with the provisions of this subsection after a specified date before January 1, 1979, which shall be the operative date of this subsection for such company; provided, 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 subsection for such company shall be January 1, 1979.
    (5) This subsection 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 Section 408 of the Internal Revenue Code, as now or hereafter amended.
    Reserves according to the Commissioners 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 such 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 such contract, that become payable prior to the end of such 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 such contracts for determining guaranteed benefits. The valuation considerations are the portions of the respective gross considerations applied under the terms of such contracts to determine nonforfeiture values.
    (6)(a) Applicability of this subsection. The interest rates used in determining the minimum standard for the valuation of
        (A) all life insurance policies issued in a
    
particular calendar year, on or after the operative date of subsection (4c) of Section 229.2 (Standard Nonforfeiture Law),
        (B) all individual annuity and pure endowment
    
contracts issued in a particular calendar year ending on or after December 31, 1983,
        (C) all annuities and pure endowments purchased in a
    
particular calendar year ending on or after December 31, 1983, under group annuity and pure endowment contracts, and
        (D) the net increase in a particular calendar year
    
ending after December 31, 1983, in amounts held under guaranteed interest contracts
shall be the calendar year statutory valuation interest rates, as defined in this subsection.
        (b) Calendar Year Statutory Valuation Interest Rates.
            (i) The calendar year statutory valuation
        
interest rates shall be determined according to the following formulae, rounding "I" to the nearest .25%.
                (A) For life insurance,
                    I = .03 + W (R1 - .03) + W/2 (R2 - .09).
                (B) For single premium immediate annuities
            
and annuity benefits involving life contingencies arising from other annuities with cash settlement options and from guaranteed interest contracts with cash settlement options,
                    I = .03 + W (R - .03) or with prior
                
approval of the Director I = .03 + W (Rq - .03).
            For the purposes of this subparagraph (i), "I"
        
equals the calendar year statutory valuation interest rate, "R" is the reference interest rate defined in this subsection, "R1" is the lesser of R and .09, "R2" is the greater of R and .09, "Rq" is the quarterly reference interest rate defined in this subsection, and "W" is the weighting factor defined in this subsection.
                (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 (B), the formula for life insurance stated in (A) applies to annuities and guaranteed interest contracts with guarantee durations in excess of 10 years, and the formula for single premium immediate annuities stated in (B) above applies to annuities and guaranteed interest contracts with guarantee durations of 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 (B) applies.
                (E) For other annuities with cash settlement
            
options and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, the formula for single premium immediate annuities stated in (B) applies.
            (ii) If the calendar year statutory valuation
        
interest rate for any life insurance policy issued in any calendar year determined without reference to this subparagraph differs from the corresponding actual rate for similar policies issued in the immediately preceding calendar year by less than .5%, the calendar year statutory valuation interest rate for such life insurance policy shall be the corresponding actual rate for the immediately preceding calendar year. For purposes of applying this subparagraph, 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 subsection (4c) of Section 229.2 (Standard Nonforfeiture Law) becomes operative.
        (c) Weighting Factors.
            (i) The weighting factors referred to in the
        
formulae stated in paragraph (b) are given in the following tables.
                (A) Weighting Factors for Life Insurance.
GuaranteeWeighting
DurationFactors
(Years)
10 or less.50
More than 10, but not more than 20.45
More than 20.35
                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) The weighting factor 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 is .80.
                (C) The weighting factors for other annuities
            
and for guaranteed interest contracts, except as stated in (B) of this subparagraph (i), shall be as specified in tables (1), (2), and (3) of this subpart (C), according to the rules and definitions in (4), (5) and (6) of this subpart (C).
                    (1) For annuities and guaranteed interest
                
contracts valued on an issue year basis.
GuaranteeWeighting Factor
Durationfor Plan Type
(Years) A    B   C
5 or less.........................80  .60 .50
More than 5, but not
more than 10.......................75  .60 .50
More than 10, but not
more than 20.......................65  .50 .45
More than 20.......................45  .35 .35
                    (2) For annuities and guaranteed interest
                
contracts valued on a change in fund basis, the factors shown in (1) for Plan Types A, B and C are increased by .15, .25 and .05, respectively.
                    (3) For annuities and guaranteed interest
                
contracts valued on an issue year basis, other than those with no cash settlement options, which do not guarantee interest on considerations received more than one year after issue or purchase, and for annuities and guaranteed interest contracts valued on a change in fund basis which do not guarantee interest rates on considerations received more than 12 months beyond the valuation date, the factors shown in (1), or derived in (2), for Plan Types A, B and C are increased by .05.
                    (4) 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 rate for life insurance policies with guarantee durations in excess of 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.
                    (5) The plan types used in the above
                
tables are defined as follows.
                    Plan Type A is a plan under which the
                
policyholder may not withdraw funds, or may withdraw funds at any time but only (a) with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, (b) without such an adjustment but in installments over 5 years or more, or (c) as an immediate life annuity.
                    Plan Type B is a plan under which the
                
policyholder may not withdraw funds before expiration of the interest rate guarantee, or may withdraw funds before such expiration but only (a) with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, or (b) without such adjustment but in installments over 5 years or more. At the end of the interest rate guarantee, funds may be withdrawn without such adjustment in a single sum or installments over less than 5 years.
                    Plan Type C is a plan under which the
                
policyholder may withdraw funds before expiration of the interest rate guarantee in a single sum or installments over less than 5 years either (a) without adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, or (b) subject only to a fixed surrender charge stipulated in the contract as a percentage of the fund.
                    (6) 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 shall be valued on an issue year basis. As used in this Section, "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. "Change in fund basis of valuation", as used in this Section, 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.
        (d) Reference Interest Rate. The reference interest
    
rate referred to in paragraph (b) of this subsection is defined as follows.
            (A) For all life insurance, the reference
        
interest rate is the lesser of the average over a period of 36 months, and the average over a period of 12 months, with both periods ending on June 30, or with prior approval of the Director ending on December 31, 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 reference interest rate is the average over a period of 12 months, ending on June 30, or with prior approval of the Director ending on December 31, 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 annuities with cash settlement options
        
and guaranteed interest contracts with cash settlement options, valued on a year of issue basis, except those described in (B), with guarantee durations in excess of 10 years, the reference interest rate is the lesser of the average over a period of 36 months and the average over a period of 12 months, ending on June 30, or with prior approval of the Director ending on December 31, 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 those described in (B), with guarantee durations of 10 years or less, the reference interest rate is the average over a period of 12 months, ending on June 30, or with prior approval of the Director ending on December 31, 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 annuities with no cash settlement options
        
and for guaranteed interest contracts with no cash settlement options, the reference interest rate is the average over a period of 12 months, ending on June 30, or with prior approval of the Director ending on December 31, 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.
            (F) For annuities with cash settlement options
        
and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, except those described in (B), the reference interest rate is the average over a period of 12 months, ending on June 30, or with prior approval of the Director ending on December 31, 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.
            (G) For annuities valued by a formula based on
        
Rq, the quarterly reference interest rate is, with the prior approval of the Director, the average within each of the 4 consecutive calendar year quarters ending on March 31, June 30, September 30 and December 31 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.
        (e) Alternative Method for Determining Reference
    
Interest Rates. In the event that the Moody's Corporate Bond Yield Average-Monthly Average Corporates is no longer published by Moody's Investors Services, Inc., or in the event that the NAIC 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, which is adopted by the NAIC and approved by regulations promulgated by the Director, may be substituted.
    (7) Minimum Standards for Accident and Health (Disability, Accident and Sickness) Insurance Contracts. The Director shall promulgate a regulation containing the minimum standards applicable to the valuation of health (disability, sickness and accident) plans which are issued prior to the operative date of the Valuation Manual. For accident and health (disability, accident and sickness) insurance contracts issued on or after the operative date of the Valuation Manual, the standard prescribed in the Valuation Manual is the minimum standard of valuation required under subsection (1).
    (8) Valuation Manual for Policies Issued On or After the Operative Date of the Valuation Manual.
        (a) For policies issued on or after the operative
    
date of the Valuation Manual, the standard prescribed in the Valuation Manual is the minimum standard of valuation required under subsection (1), except as provided under paragraphs (e) or (g) of this subsection (8).
        (b) The operative date of the Valuation Manual is
    
January 1 of the first calendar year following the first July 1 when all of the following have occurred:
            (i) The Valuation Manual has been adopted by the
        
NAIC by an affirmative vote of at least 42 members, or three-fourths 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, changes to the Valuation Manual shall be effective on January 1 following the date when the change to the Valuation Manual has been adopted by the NAIC by an affirmative vote representing:
            (i) at least three-fourths of the members of the
        
NAIC voting, but not less than a majority of the total membership; and
            (ii) members of the NAIC representing
        
jurisdictions totaling greater than 75% of the direct premiums written as reported in the following annual statements most recently available prior to the vote in subparagraph (i) of this paragraph (c): 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 subsection (1). Such minimum valuation standards shall be:
                (A) the Commissioners reserve valuation
            
method for life insurance contracts, other than annuity contracts, subject to subsection (1);
                (B) the Commissioners annuity reserve
            
valuation method for annuity contracts subject to subsection (1); and
                (C) minimum reserves for all other policies
            
or contracts subject to subsection (1).
            (ii) Which policies or contracts or types of
        
policies or contracts are subject to the requirements of a principle-based valuation in paragraph (a) of subsection (9) and the minimum valuation standards consistent with those requirements.
            (iii) For policies and contracts subject to a
        
principle-based valuation under subsection (9):
                (A) Requirements for the format of reports to
            
the Director under subparagraph (iii) of paragraph (b) of subsection (9), and which shall include information necessary to determine if the valuation is appropriate and in compliance with this Section.
                (B) Assumptions shall 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 such procedures.
            (iv) For policies not subject to a
        
principle-based valuation under subsection (9), the minimum valuation standard shall either:
                (A) be consistent with the minimum standard
            
of valuation prior to the operative date of the Valuation Manual; or
                (B) develop 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 (10) of this Section, with whom the data must be submitted, and may specify other requirements, including data analyses and the reporting of analyses.
        (e) In the absence of a specific valuation
    
requirement or if a specific valuation requirement in the Valuation Manual is not, in the opinion of the Director, in compliance with this Section, then the company shall, with respect to such requirements, 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 set forth in this Section. The Director may rely upon the opinion regarding provisions contained within this Section of a qualified actuary engaged by the Director of another state, district, or territory of the United States. As used in this paragraph, "engage" includes employment and contracting.
        (g) The Director may require a company to change any
    
assumption or method that in the opinion of the Director is necessary in order to comply with the requirements of the Valuation Manual or this Section; and the company shall adjust the reserves as required by the Director. The Director may take other disciplinary action as permitted pursuant to law.
    (9) Requirements of a Principle-Based Valuation.
        (a) A company must establish reserves using a
    
principle-based valuation that meets the following conditions for policies or contracts as specified in the Valuation Manual:
            (i) 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 policies or contracts with significant tail risk, reflect conditions appropriately adverse to quantify the tail risk.
            (ii) Incorporate assumptions, risk analysis
        
methods, and financial models and management techniques that are consistent with, but not necessarily identical to, those utilized within the company's overall risk assessment process, while recognizing potential differences in financial reporting structures and any prescribed assumptions or methods.
            (iii) Incorporate assumptions that are derived in
        
one of the following manners:
                (A) The assumption is prescribed in the
            
Valuation Manual.
                (B) For assumptions that are not prescribed,
            
the assumptions shall:
                    (1) be established utilizing the
                
company's available experience, to the extent it is relevant and statistically credible; or
                    (2) to the extent that company data is
                
not available, relevant, or statistically credible, be established utilizing other relevant, statistically credible experience.
            (iv) Provide margins for uncertainty, including
        
adverse deviation and estimation error, such that the greater the uncertainty, the larger the margin and resulting reserve.
        (b) A company using a principle-based valuation for
    
one or more policies or contracts subject to this subsection as specified in the Valuation Manual shall:
            (i) Establish procedures for corporate governance
        
and oversight of the actuarial valuation function consistent with those described in the Valuation Manual.
            (ii) 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. Such controls shall be designed to ensure that all material risks inherent in the liabilities and associated assets subject to such valuation are included in the valuation, and that valuations are made in accordance with the Valuation Manual. The certification shall be based on the controls in place as of the end of the preceding calendar year.
            (iii) Develop and file with the Director upon
        
request a principle-based valuation report that complies with standards prescribed in the Valuation Manual.
        (c) A principle-based valuation may include a
    
prescribed formulaic reserve component.
    (10) Experience Reporting for Policies In Force On or After the Operative Date of the Valuation Manual. A company shall submit mortality, morbidity, policyholder behavior, or expense experience and other data as prescribed in the Valuation Manual.
    (11) Confidentiality.
        (a) For the purposes of this subsection (11),
    
"confidential information" means any of the following:
            (i) A memorandum in support of an opinion
        
submitted under subsection (1) of this Section and any other documents, materials, and other information, including, but not limited to, all working papers, and copies thereof, 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 thereof, created, produced, or obtained by or disclosed to the Director or any other person in the course of an examination made under paragraph (f) of subsection (8) of this Section.
            (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 subparagraph (ii) of paragraph (b) of subsection (9) of this Section 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 thereof, 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 subparagraph (iii) of paragraph (b) of subsection (9) of this Section and any other documents, materials and other information, including, but not limited to, all working papers, and copies thereof, created, produced or obtained by or disclosed to the Director or any other person in connection with such report.
            (v) Any documents, materials, data, and other
        
information submitted by a company under subsection (10) of this Section (collectively, "experience data") and any other documents, materials, data, and other information, including, but not limited to, all working papers, and copies thereof, created or produced in connection with such 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 thereof, created, produced, or obtained by or disclosed to the Director or any other person in connection with such experience materials.
        (b) Privilege for and Confidentiality of Confidential
    
Information.
            (i) Except as provided in this subsection (11), a
        
company's confidential information is confidential by law and privileged, and shall not be subject to the Freedom of Information Act, subpoena, or discovery or admissible as evidence in any private civil action; however, the Director is authorized to use the confidential information in the furtherance of any regulatory or legal action brought against the company as a part of the Director's official duties.
            (ii) Neither the Director nor any person who
        
received confidential information while acting under the authority of the Director shall be permitted or required to testify in any private civil action concerning any confidential information.
            (iii) In order to assist in the performance of
        
the Director's duties, the Director may share confidential information (A) with other state, federal, and international regulatory agencies and with the NAIC and its affiliates and subsidiaries and (B) in the case of confidential information specified in subparagraphs (i) and (iv) of paragraph (a) of subsection (11) only, with the Actuarial Board for Counseling and Discipline or its successor upon request stating that the confidential information is required for the purpose of professional disciplinary proceedings and with state, federal, and international law enforcement officials; in the case of (A) and (B), provided that such recipient agrees and has the legal authority to agree, to maintain the confidentiality and privileged status of such documents, materials, data, and other information in the same manner and to the same extent as required for the Director.
            (iv) The Director may receive documents,
        
materials, data, and other information, including otherwise confidential and privileged documents, materials, data, or information, from the NAIC and its affiliates and subsidiaries, from regulatory or law enforcement officials of other foreign or domestic jurisdictions, and from the Actuarial Board for Counseling and Discipline or its successor and shall maintain as confidential or privileged any document, material, data, or other 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 other information.
            (v) The Director may enter into agreements
        
governing the sharing and use of information consistent with paragraph (b) of this subsection (11).
            (vi) No waiver of any applicable privilege or
        
claim of confidentiality in the confidential information shall occur as a result of disclosure to the Director under this subsection (11) or as a result of sharing as authorized in subparagraph (iii) of paragraph (b) of this subsection (11).
            (vii) A privilege established under the law of
        
any state or jurisdiction that is substantially similar to the privilege established under paragraph (b) of this subsection (11) shall be available and enforced in any proceeding in and in any court of this State.
            (viii) In this subsection (11), "regulatory
        
agency", "law enforcement agency", and "NAIC" include, but are not limited to, their employees, agents, consultants, and contractors.
        (c) Notwithstanding paragraph (b) of this subsection
    
(11), any confidential information specified in subparagraphs (i) and (iv) of paragraph (a) of this subsection (11):
            (i) may be 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 subsection (1) of this Section or principle-based valuation report developed under subparagraph (iii) of paragraph (b) of subsection (9) of this Section by reason of an action required by this Section or by regulations promulgated under this Section;
            (ii) may otherwise be released by the Director
        
with the written consent of the company; and
            (iii) once any portion of a memorandum in support
        
of an opinion submitted under subsection (1) of this Section or a principle-based valuation report developed under subparagraph (iii) of paragraph (b) of subsection (9) of this Section is cited by the company in its marketing or is publicly volunteered to or before a governmental agency other than a state insurance department or is released by the company to the news media, all portions of such memorandum or report shall no longer be confidential.
    (12) Exemptions.
        (a) The Director may exempt specific product forms or
    
product lines of a domestic company that is licensed and doing business only in Illinois from the requirements of subsection (8) of this Section, provided that:
            (i) the Director has issued an exemption in
        
writing to the company and has not subsequently revoked the exemption in writing; and
            (ii) the company computes reserves using
        
assumptions and methods used prior to the operative date of the Valuation Manual in addition to any requirements established by the Director and adopted by rule.
        (b) For any company granted an exemption under this
    
subsection, subsections (1), (2), (3), (4), (5), (6), and (7) shall be applicable. With respect to any company applying this exemption, any reference to subsection (8) found in subsections (1), (2), (3), (4), (5), (6), and (7) shall not be applicable.
    (13) Definitions. For the purposes of this Section, the following definitions shall apply beginning on the operative date of the Valuation Manual:
    "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.
    "Appointed actuary" means a qualified actuary who is appointed in accordance with the Valuation Manual to prepare the actuarial opinion required in paragraph (b) of subsection (1) of this Section.
    "Company" means an entity that (a) has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in this State and has at least one such policy in force or on claim or (b) 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.
    "Deposit-type contract" means contracts that do not incorporate mortality or morbidity risks and as may be specified in the Valuation Manual.
    "Life insurance" means contracts that incorporate mortality risk, including annuity and pure endowment contracts, and as may be specified in the Valuation Manual.
    "NAIC" means the National Association of Insurance Commissioners.
    "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.
    "Principle-based valuation" means a reserve valuation that uses one or more methods or one or more assumptions determined by the insurer and is required to comply with subsection (9) of this Section as specified in the Valuation Manual.
    "Qualified actuary" means an individual who is qualified to sign the applicable statement of actuarial opinion in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements and who meets the requirements specified in the Valuation Manual.
    "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.
    "Valuation Manual" means the manual of valuation instructions adopted by the NAIC as specified in this Section or as subsequently amended.
(Source: P.A. 99-162, eff. 1-1-16.)

215 ILCS 5/224

    (215 ILCS 5/224) (from Ch. 73, par. 836)
    Sec. 224. Standard provisions for life policies.
    (1) After the first day of July, 1937, no policy of life insurance other than industrial, group or annuities and pure endowments with or without return of premiums or of premiums and interest, may be issued or delivered in this State, unless such policy contains in substance the following provisions:
        (a) A provision that all premiums after the first
    
shall be payable in advance either at the home office of the company or to an agent of the company, upon delivery of a receipt signed by one or more of the officers who shall be designated in the policy, when such receipt is requested by the policyholder.
        (b) A provision that the insured is entitled to a
    
grace period either of 30 days or of one month within which the payment of any premium after the first may be made, subject at the option of the company to an interest charge not in excess of 6% per annum for the number of days of grace elapsing before the payment of the premium, during which period of grace the policy shall continue in force, but in case the policy becomes a claim during the grace period before the overdue premium is paid, or the deferred premiums of the current policy year, if any, are paid, the amount of such premium or premiums with interest thereon may be deducted in any settlement under the policy.
        (c) A provision that the policy, together with the
    
application therefor, a copy of which shall be endorsed upon or attached to the policy and made a part thereof, shall constitute the entire contract between the parties and that after it has been in force during the lifetime of the insured a specified time, not later than 2 years from its date, it shall be incontestable except for nonpayment of premiums and except at the option of the company, with respect to provisions relative to benefits in the event of total and permanent disability, and provisions which grant additional insurance specifically against death by accident and except for violations of the conditions of the policy relating to naval or military service in time of war or for violation of an express condition, if any, relating to aviation, (except riding as a fare-paying passenger of a commercial air line flying on regularly scheduled routes between definitely established airports) in which case the liability of the company shall be fixed at a definitely determined amount not less than the full reserve for the policy and any dividend additions; provided that the application therefor need not be attached to or made a part of any policy containing a clause making the policy incontestable from date of issue.
        (d) A provision that if it is found at any time
    
before final settlement under the policy that the age of the insured (or the age of the beneficiary, if considered in determining the premium) has been misstated, the amount payable under the policy shall be such as the premium would have purchased at the correct age or ages, according to the company's published rate at date of issue.
        (e) A provision that the policy shall participate
    
annually in the surplus of the company beginning not later than the end of the third policy year; and any policy containing provision for annual participation beginning at the end of the first policy year, may also provide that each dividend be paid subject to the payment of the premiums for the next ensuing year; and the insured under any annual dividend policy shall have the right each year to have the dividend arising from such participation either paid in cash, or applied in reduction of premiums, or applied to the purchase of paid-up additional insurance, or be left to accumulate to the credit of the policy, with interest at such rate as may be determined from time to time by the company, but not less than a guaranteed minimum rate specified in the policy, and payable at the maturity of the policy, but withdrawable on any anniversary date, subject to such further provisions as the policy may provide regarding the application of dividends toward the payment of any premiums unpaid at the end of the grace period; and if the insured fails to notify the company in writing of his election within the period of grace allowed for the payment of premium, the policy shall further provide which of such options are effective.
        (f) A provision that after the policy has been in
    
force 3 full years the company at any time, while the policy is in force, will advance, on proper assignment or pledge of the policy and on the sole security thereof, at a specified maximum fixed or adjusted rate of interest in accordance with Section 229.5, a sum equal to, or at the option of the insured less than the amount required by Section 229.3 under the conditions specified thereby and with notification as required by Section 229.5; and that the company will deduct from such loan value any indebtedness not already deducted in determining such value and any unpaid balance of the premium for the current policy year, and may collect interest in advance on the loan to the end of the current policy year; and any policy may also provide that if the interest on the loan is not paid when due it shall be added to the existing loan and shall bear interest at the same rate. No condition other than as provided herein or in Sections 229.3 and 229.5 shall be exacted as a prerequisite to any such loan. This clause shall not apply to term insurance.
        (g) A provision for nonforfeiture benefits and cash
    
surrender values in accordance with the requirements of paragraph (1) of Section 229.1 or, Section 229.2.
        (h) A table showing in figures the loan values and
    
the options available under the policy each year, upon default in premium payments, during at least the first 20 years of the policy; the policy to contain a provision that the company will furnish upon request an extension of such table beyond the years shown in the policy.
        (i) A provision that in event of default in premium
    
payments the value of the policy is applied to the purchase of other insurance as provided in this Section, and if such insurance is in force and the original policy is not surrendered to the company and cancelled, the policy may be reinstated within 3 years from such default, upon evidence of insurability satisfactory to the company and payment of arrears of premiums and the payment or reinstatement of any other indebtedness to the company upon the policy, with interest on the premiums at a rate not exceeding 6% per annum payable annually and with interest on the indebtedness at a rate not exceeding the rate prescribed by Section 229.5.
        (j) A provision that when a policy is a claim by the
    
death of the insured settlement shall be made upon receipt of due proof of death and not later than 2 months after the receipt of such proof. The policy may require that due proof of the death of the insured shall consist of a certified copy of the death certificate of the insured, or other lawful evidence providing equivalent information, and proof of the claimant's interest in the proceeds.
        (k) If the policy provides for payment of its
    
proceeds in installments, a table showing the amount and period of such installments shall be included in the policy.
        (l) Interest shall accrue on the proceeds payable
    
because of the death of the insured, from date of death, at the rate of 10% annually on the total amount payable or the face amount if payments are to be made in installments until the total payment or first installment is paid, unless payment is made within 31 days from the latest of the following to occur:
            (1) the date that due proof of death is received
        
by the company;
            (2) the date that the company receives sufficient
        
information to determine its liability, the extent of the liability, and the appropriate payee legally entitled to the proceeds; or
            (3) the date that legal impediments to payment of
        
proceeds that depend on the action of parties other than the company are resolved and sufficient evidence of the same is provided to the company; legal impediments to payment include, but are not limited to, (A) the establishment of guardianships and conservatorships, (B) the appointment and qualification of trustees, executors, and administrators, and (C) the submission of information required to satisfy State and federal reporting requirements.
    This provision need not appear in the policy, however,
    
the company shall notify the beneficiary at the time of claim of this provision. The payment of interest shall apply to all policies now in force, as well as those written after the effective date of this amendment.
        (m) Title on the face and on the back of the policy
    
briefly describing its form.
        (n) A provision, or a notice attached to the policy,
    
to the effect that during a period of ten days from the date the policy is delivered to the policy owner, it may be surrendered to the insurer together with a written request for cancellation of the policy and in such event, the insurer will refund any premium paid therefor, including any policy fees or other charges. The Director may by rule exempt specific types of policies from the requirements of this subsection.
    (2) In the case of the replacement of life insurance, as defined in the rule promulgated by the Director, the replacing insurer shall either (1) delay the issuance of its policy for not less than 20 days from the date it has transmitted a policy summary to the existing insurer, or (2) provide in a form titled "Notice Regarding Replacement of Life Insurance", as well as in its policy, or in a separate notice delivered with the policy, that the insured has the right to an unconditional refund of all premiums paid, and that such right may be exercised within a period of 20 days commencing from the date of delivery of such policy. Where option (2) is exercised, the replacing insurer shall also transmit a policy summary to the existing insurer within 3 working days after the date the replacement policy is issued.
    (3) Any of the foregoing provisions or portions thereof not applicable to single premium or nonparticipating or term policies shall to that extent not be incorporated therein. This Section shall not apply to policies of reinsurance nor to policies issued or granted pursuant to the nonforfeiture provisions prescribed in subparagraph (g) of paragraph (1) of this Section.
(Source: P.A. 97-527, eff. 8-23-11.)

215 ILCS 5/224.05

    (215 ILCS 5/224.05)
    Sec. 224.05. Military personnel in military service; no lapse of life insurance policy.
    (a) Except as provided in subsection (b), this Section shall apply to any individual life insurance policy insuring the life of a resident of Illinois who is a member of any component of the U.S. Armed Forces or the National Guard of any state, the District of Columbia, a commonwealth, or a territory of the United States who has entered any full-time training or duty which the service member was ordered to report by the President, Governor of a state, commonwealth, or territory of the United States, or other appropriate military authority, if the life insurance policy meets both of the following conditions:
        (1) The policy has been in force for at least 180
    
days.
        (2) The policy has been brought within the
    
"Servicemembers Civil Relief Act," 117 Stat. 2835 (2003), 50 U.S.C. App. 541 and following.
    (b) This Section does not apply to any policy that was cancelled or that had lapsed for the nonpayment of premiums prior to the commencement of the insured's period of military service.
    (c) An individual life insurance policy described in this Section shall not lapse or be forfeited for the nonpayment of premiums during the military service of a service member in excess of 29 consecutive days during the 2-year period subsequent to the end of the member's period of military service.
    (d) In order to be eligible for the benefits granted to service members under this Section, a service member must provide the life insurance company with a copy of the orders calling the service member to military service and of any orders further extending the service member's period of service.
    (e) This Section does not limit a life insurance company's enforcement of provisions in the insured's policy relating to naval or military service in time of war.
    (f) A violation of this Section constitutes a civil rights violation under the Illinois Human Rights Act.
    All proceeds from the collection of any civil penalty imposed under this subsection shall be deposited into the Illinois Military Family Relief Fund.
(Source: P.A. 97-913, eff. 1-1-13.)

215 ILCS 5/224.1

    (215 ILCS 5/224.1) (from Ch. 73, par. 836.1)
    Sec. 224.1. Employer insurable interest. Notwithstanding any other Section of this Code, an employer or an employer sponsored trust for the benefit of its employees has an insurable interest in the lives of the employer's directors, officers, managers, nonmanagement employees, and retired employees and may insure those lives on an individual or group basis with the consent of the insured. The consent requirement will be satisfied if the insured is provided written notice of the coverage and does not reject such coverage within 30 days of receipt of such notice. The extent of the employer's or the trust's insurable interest for nonmanagement and retired employees shall be limited to an amount commensurate with the employer's projected unfunded liabilities to nonmanagement and retired employees for welfare benefit plans, as defined by the Employee Retirement Income Security Act of 1974, Public Law 93-406, 88 Stat. 829, calculated according to accepted actuarial principles. An insurable interest must exist at the time the contract of life or disability insurance becomes effective, but need not exist at the time the loss occurs. An employer shall not retaliate in any manner against an employee or a retired employee for refusing consent to be insured. The proceeds of any policy or certificate issued pursuant to this Section are exempt from the claims of any creditor or dependent of the insured. As used herein, "employer" means an individual, sole proprietorship, partnership, firm, corporation, association, or any other legal entity that has one or more employees and is legally doing business in this State.
(Source: P.A. 87-936.)

215 ILCS 5/225

    (215 ILCS 5/225) (from Ch. 73, par. 837)
    Sec. 225. Prohibited Provisions for Life Policies. (1) After the effective date of this Code no policy of life insurance may be issued or delivered in this State if it includes any of the following provisions:
    (a) A provision limiting the time within which any action may be commenced to less than 3 years after the cause of action accrues.
    (b) A provision by which the policy purports to be issued or take effect more than 6 months before the original application for the insurance was made, but this provision does not apply in any case of a transfer from one form of policy to another in connection with which the policy owner receives credit for any reserve accumulation under the form of policy from which the transfer was made.
    (c) A provision for any mode of settlement at maturity after the expiration of the contestable period of the policy of less value than the amount insured plus dividend additions, if any, less any indebtedness to the company on or secured by the policy, and less any premium that may by the terms of the policy be deducted, except as permitted by clause (c) of subsection (1) of Section 224.
    (d) A provision for forfeiture of the policy for failure to repay any loan on the policy, or to pay interest on such loan, while the total indebtedness on the policy, including interest, is less than the loan value thereof.
    (e) A provision to the effect that the agent soliciting the insurance is the agent of the person insured under the policy, or making the acts or representations of such agent binding upon the person so insured under the policy.
    (f) A provision limiting the amount payable under a policy by reason of death occurring after the expiration of the contestable period to less than the face amount thereof on account of the kind or character of disease causing the insured's death.
    (2) The provisions of this section do not apply to policies of reinsurance, nor to policies issued or granted under the nonforfeiture provisions prescribed in clause (g) of subsection (1) of Section 224.
(Source: P.A. 83-345.)

215 ILCS 5/226

    (215 ILCS 5/226) (from Ch. 73, par. 838)
    Sec. 226. Standard provisions for annuities and pure endowment contracts. (1) After the effective date of this Section and any amendments thereto no annuity or pure endowment contract, except in case of reversionary annuities, survivorship annuities or annuities contracted by an employer on behalf of his employees, shall be issued or delivered in this State unless it contains in substance the following provisions:
    (a) A provision that there shall be a period of grace, either of thirty days or of one month, within which any stipulated payment to the company falling due after the first year may be made, subject at the option of the company, to an interest charge thereon at a rate to be specified in the contract but not exceeding six per centum per annum for the number of days of grace elapsing before such payment, during which period of grace, the contract shall continue in full force; but in case a claim arises under the contract on account of death during the said period of grace before the overdue payment to the company or the deferred payments of the current contract year, if any, are made, the amount of such payments, with interest on any overdue payments, may be deducted from any amount payable under the contract in settlement.
    (b) If statements, other than those relating to age and identity, are required as a condition to issuing the contract, a provision that the contract shall be incontestable after it has been in force during the lifetime of the person or each of the persons as to whom such statements are required, for a period of two years from its date of issue, except where stipulated payments to the company have not been made and except for violations of the conditions of the contract relating to military or naval service in time of war and except, at the option of the company, with respect to provisions relative to benefits in the event of total and permanent disability and provisions which grant insurance specifically against death by accident.
    (c) A provision that such a contract shall constitute the entire contract between the parties, but if the company desires to make the application a part of the contract it may do so, provided a copy of such application shall be endorsed upon or attached to such contract when issued, and in such case such contract shall contain a provision that it, together with the application therefor, shall constitute the entire contract between the parties.
    (d) A provision that if the age or ages of the person or persons upon whose life or lives the contract is based, or any of them, have been misstated, the amount payable under the contract shall be such as the stipulated payments to the company would have purchased at the correct age or ages.
    (e) If the contract is participating, a provision that the divisible surplus shall be apportioned annually and dividends shall be payable in cash or shall be applicable to any stipulated payment or payments to the company under the contract.
    (f) A provision that after the contract has been in force for three years, if it shall, by its terms, lapse because any stipulated payment to the company shall not have been made, the reserve on such contract, exclusive of the reserve on account of total and permanent disability and additional accidental death benefits, computed according to the standard adopted by the company and in accordance with section 223, shall after deducting not more than one-fifth of the said entire reserve and any indebtedness to the company under the contract, be applied as a net single payment according to said standard, for the purchase of a paid-up annuity or a pure endowment contract, which may be nonparticipating and which shall be payable by the company under the same terms and conditions as the original contract, except as to amount.
    (g) A provision that the contract may be reinstated at any time within one year from the date of default in making stipulated payments to the company, but all overdue stipulated payments and any indebtedness to the company on the contract shall be paid or reinstated, with interest thereon at a rate to be specified in the contract but not exceeding six per centum per annum payable annually, and in cases where applicable, a company may also include a requirement of evidence of insurability satisfactory to the company.
    (h) A provision, or a notice attached to the contract, to the effect that during a period of 10 days from the date the contract is delivered to the contract-owner it may be surrendered to the insurer together with a written request for cancellation of the contract, and that in such event, with the exception of a variable annuity contract, the insurer will refund any premium paid for the contract, including any contract fees or other charges. Cancellation under a variable annuity contract shall entitle a person to an amount equal to the sum of (i) the difference between the premiums paid including any contract fees or other services and the amounts allocated to any separate accounts under the contract and (ii) the cash value of the contract or, if the contract does not have a cash value, the reserve for the contract, on the date the return contract is received by the insurer or its agent. The Director may by rule exempt specific types of contracts from this paragraph.
    (2) Any overpayment by the company on account of misstatement of age, shall be charged against the current or next succeeding payment or payments to be made by the company under the contract, with interest thereon at a rate to be specified in the contract but not exceeding six per centum per annum.
    (3) A company may provide, in lieu of the paid-up values provided in clause (f) of subsection (1), for a paid-up annuity or pure endowment contract in an amount bearing the same proportion to the original annuity or pure endowment contract as the number of stipulated payments which shall have been made to the company shall bear to the total number of stipulated payments required to be made to the company under contract, and if there be any indebtedness to the company under the contract the amount of such paid-up annuity or pure endowment shall be reduced by an amount bearing the same proportion to such paid-up annuity or pure endowment as such indebtedness bears to the cash value on such paid-up annuity or pure endowment, computed according to the standard adopted by the company in accordance with section 223.
(Source: P.A. 82-594.)

215 ILCS 5/226.1

    (215 ILCS 5/226.1) (from Ch. 73, par. 838.1)
    Sec. 226.1. Entitled annuity payment options. Annuity contracts and funding agreements may be issued without a life contingency annuity payment option in the following circumstances: (1) to fund benefits under an employee benefit plan as defined in the Employee Retirement Income Security Act of 1974, as now or hereafter amended; (2) to fund the activities of an organization exempt from taxation under Internal Revenue Code Section 501(c), as now or hereafter amended; (3) to fund a program of a governmental entity or of an agency or instrumentality thereof; (4) to fund an agreement providing for periodic payments entered into in satisfaction of a claim; or (5) to fund a program of an institution having assets in excess of $25,000,000.
(Source: P.A. 92-875, eff. 1-3-03.)

215 ILCS 5/227

    (215 ILCS 5/227) (from Ch. 73, par. 839)
    Sec. 227. Standard provisions for reversionary or survivorship annuity contracts.
    (1) After the effective date of this Code no contract for a reversionary annuity or survivorship annuity shall be issued or delivered in this State unless it contains in substance the following provisions:
    (a) The provisions of clauses (a), (b), (c), (d) and (e) of subsection (1) of section 226, except that under said clause (a) the company may at its option provide for an equitable reduction of the amount of the annuity payments in settlement of an overdue or deferred payment in lieu of providing for a deduction of such payments from an amount payable upon a settlement under the contract.
    (b) A provision that the contract may be reinstated at any time within three years from the date of default in making stipulated payments to the company, upon production of evidence of insurability satisfactory to the company, provided that all overdue payments and any indebtedness to the company on account of the contract shall be paid or reinstated with interest thereon at a rate to be specified in the contract but not exceeding six per centum per annum payable annually.
    (2) Any of the foregoing provisions or portions thereof contained in this section and in section 226 not applicable to non-participating contracts nor to contracts for which a single stipulated payment to the company is made, shall, to that extent, not be incorporated therein.
    (3) The provisions of this section and section 226 shall not apply to contracts of re-insurance nor to contracts for deferred annuities or reversionary annuities included in life insurance policies.
(Source: Laws 1937, p. 696.)

215 ILCS 5/228

    (215 ILCS 5/228) (from Ch. 73, par. 840)
    Sec. 228. Industrial Life Insurance Defined. As used in this Code "industrial life insurance" means either that form of life insurance under which the premiums are payable monthly or more often if the face amount of insurance provided in the policy does not exceed $2,500 and the words "industrial policy" are printed in prominent type on the face of the policy. Any life company authorized to do business in this State may issue industrial policies.
(Source: P.A. 82-498.)