SB0094 EngrossedLRB099 05120 MLM 25149 b

1    AN ACT concerning insurance.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Illinois Insurance Code is amended by
5changing Sections 223 and 229.2 as follows:
 
6    (215 ILCS 5/223)  (from Ch. 73, par. 835)
7    Sec. 223. Director to value policies - Legal standard of
8valuation.
9    (1) For policies and contracts issued prior to the
10operative date of the Valuation Manual, the The Director shall
11annually value, or cause to be valued, the reserve liabilities
12(hereinafter called reserves) for all outstanding life
13insurance policies and annuity and pure endowment contracts of
14every life insurance company doing business in this State,
15except that in the case of an alien company, such valuation
16shall be limited to its United States business, and may certify
17the amount of any such reserves, specifying the mortality table
18or tables, rate or rates of interest, and methods (net level
19premium method or other) used in the calculation of such
20reserves. Other assumptions may be incorporated into the
21reserve calculation to the extent permitted by the National
22Association of Insurance Commissioners' Accounting Practices
23and Procedures Manual. In calculating such reserves, he may use

 

 

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1group methods and approximate averages for fractions of a year
2or otherwise. In lieu of the valuation of the reserves herein
3required of any foreign or alien company, he may accept any
4valuation made, or caused to be made, by the insurance
5supervisory official of any state or other jurisdiction when
6such valuation complies with the minimum standard herein
7provided in this Section.
8    The provisions set forth in this subsection (1) and in
9subsections (2), (3), (4), (5), (6), and (7) of this Section
10shall apply to all policies and contracts, as appropriate,
11subject to this Section issued prior to the operative date of
12the Valuation Manual. The provisions set forth in subsections
13(8) and (9) of this Section shall not apply to any such
14policies and contracts.
15    For policies and contracts issued on or after the operative
16date of the Valuation Manual, the Director shall annually
17value, or cause to be valued, the reserve liabilities
18(reserves) for all outstanding life insurance contracts,
19annuity and pure endowment contracts, accident and health
20contracts, and deposit-type contracts of every company issued
21on or after the operative date of the Valuation Manual. In lieu
22of the valuation of the reserves required of a foreign or alien
23company, the Director may accept a valuation made, or caused to
24be made, by the insurance supervisory official of any state or
25other jurisdiction when the valuation complies with the minimum
26standard provided in this Section.

 

 

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1    The provisions set forth in subsections (8) and (9) of this
2Section shall apply to all policies and contracts issued on or
3after the operative date of the Valuation Manual. and if the
4official of such state or jurisdiction accepts as sufficient
5and valid for all legal purposes the certificate of valuation
6of the Director when such certificate states the valuation to
7have been made in a specified manner according to which the
8aggregate reserves would be at least as large as if they had
9been computed in the manner prescribed by the law of that state
10or jurisdiction.
11    Any such company which adopts at any time a has adopted any
12standard of valuation producing greater aggregate reserves
13than those calculated according to the minimum standard herein
14provided under this Section may adopt a lower standard of
15valuation, with the approval of the Director, adopt any lower
16standard of valuation, but not lower than the minimum herein
17provided, however, that, for the purposes of this subsection,
18the holding of additional reserves previously determined by the
19appointed a qualified actuary to be necessary to render the
20opinion required by subsection (1a) shall not be deemed to be
21the adoption of a higher standard of valuation. In the
22valuation of policies the Director shall give no consideration
23to, nor make any deduction because of, the existence or the
24possession by the company of
25        (a) policy liens created by any agreement given or
26    assented to by any assured subsequent to July 1, 1937, for

 

 

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1    which liens such assured has not received cash or other
2    consideration equal in value to the amount of such liens,
3    or
4        (b) policy liens created by any agreement entered into
5    in violation of Section 232 unless the agreement imposing
6    or creating such liens has been approved by a Court in a
7    proceeding under Article XIII, or in the case of a foreign
8    or alien company has been approved by a court in a
9    rehabilitation or liquidation proceeding or by the
10    insurance official of its domiciliary state or country, in
11    accordance with the laws thereof.
12    (1a) This subsection shall become operative at the end of
13the first full calendar year following the effective date of
14this amendatory Act of 1991.
15        (A) General.
16            (1) Prior to the operative date of the Valuation
17        Manual, every Every life insurance company doing
18        business in this State shall annually submit the
19        opinion of a qualified actuary as to whether the
20        reserves and related actuarial items held in support of
21        the policies and contracts specified by the Director by
22        regulation are computed appropriately, are based on
23        assumptions that satisfy contractual provisions, are
24        consistent with prior reported amounts and comply with
25        applicable laws of this State. The Director by
26        regulation shall define the specifics of this opinion

 

 

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1        and add any other items deemed to be necessary to its
2        scope.
3            (2) The opinion shall be submitted with the annual
4        statement reflecting the valuation of reserve
5        liabilities for each year ending on or after December
6        31, 1992.
7            (3) The opinion shall apply to all business in
8        force including individual and group health insurance
9        plans, in form and substance acceptable to the Director
10        as specified by regulation.
11            (4) The opinion shall be based on standards adopted
12        from time to time by the Actuarial Standards Board and
13        on additional standards as the Director may by
14        regulation prescribe.
15            (5) In the case of an opinion required to be
16        submitted by a foreign or alien company, the Director
17        may accept the opinion filed by that company with the
18        insurance supervisory official of another state if the
19        Director determines that the opinion reasonably meets
20        the requirements applicable to a company domiciled in
21        this State.
22            (6) For the purpose of this Section, "qualified
23        actuary" means a member in good standing of the
24        American Academy of Actuaries who meets the
25        requirements set forth in its regulations.
26            (7) Except in cases of fraud or willful misconduct,

 

 

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1        the qualified actuary shall not be liable for damages
2        to any person (other than the insurance company and the
3        Director) for any act, error, omission, decision or
4        conduct with respect to the actuary's opinion.
5            (8) Disciplinary action by the Director against
6        the company or the qualified actuary shall be defined
7        in regulations by the Director.
8            (9) A memorandum, in form and substance acceptable
9        to the Director as specified by regulation, shall be
10        prepared to support each actuarial opinion.
11            (10) If the insurance company fails to provide a
12        supporting memorandum at the request of the Director
13        within a period specified by regulation or the Director
14        determines that the supporting memorandum provided by
15        the insurance company fails to meet the standards
16        prescribed by the regulations or is otherwise
17        unacceptable to the Director, the Director may engage a
18        qualified actuary at the expense of the company to
19        review the opinion and the basis for the opinion and
20        prepare the supporting memorandum as is required by the
21        Director.
22            (11) Any memorandum in support of the opinion, and
23        any other material provided by the company to the
24        Director in connection therewith, shall be kept
25        confidential by the Director and shall not be made
26        public and shall not be subject to subpoena, other than

 

 

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1        for the purpose of defending an action seeking damages
2        from any person by reason of any action required by
3        this Section or by regulations promulgated hereunder;
4        provided, however, that the memorandum or other
5        material may otherwise be released by the Director (a)
6        with the written consent of the company or (b) to the
7        American Academy of Actuaries upon request stating
8        that the memorandum or other material is required for
9        the purpose of professional disciplinary proceedings
10        and setting forth procedures satisfactory to the
11        Director for preserving the confidentiality of the
12        memorandum or other material. Once any portion of the
13        confidential memorandum is cited by the company in its
14        marketing or is cited before any governmental agency
15        other than a state insurance department or is released
16        by the company to the news media, all portions of the
17        confidential memorandum shall be no longer
18        confidential.
19        (B) Actuarial analysis of reserves and assets
20    supporting those reserves.
21            (1) Every life insurance company, except as
22        exempted by or under regulation, shall also annually
23        include in the opinion required by paragraph (A)(1) of
24        this subsection (1a), an opinion of the same qualified
25        actuary as to whether the reserves and related
26        actuarial items held in support of the policies and

 

 

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1        contracts specified by the Director by regulation,
2        when considered in light of the assets held by the
3        company with respect to the reserves and related
4        actuarial items including, but not limited to, the
5        investment earnings on the assets and the
6        considerations anticipated to be received and retained
7        under the policies and contracts, make adequate
8        provision for the company's obligations under the
9        policies and contracts including, but not limited to,
10        the benefits under and expenses associated with the
11        policies and contracts.
12            (2) The Director may provide by regulation for a
13        transition period for establishing any higher reserves
14        which the qualified actuary may deem necessary in order
15        to render the opinion required by this Section.
16    (1b) Actuarial Opinion of Reserves after the Operative Date
17of the Valuation Manual.
18        (A) General.
19            (1) Every company with outstanding life insurance
20        contracts, accident and health insurance contracts, or
21        deposit-type contracts in this State and subject to
22        regulation by the Director shall annually submit the
23        opinion of the appointed actuary as to whether the
24        reserves and related actuarial items held in support of
25        the policies and contracts are computed appropriately,
26        are based on assumptions that satisfy contractual

 

 

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1        provisions, are consistent with prior reported
2        amounts, and comply with applicable laws of this State.
3        The Valuation Manual shall prescribe the specifics of
4        this opinion, including any items deemed to be
5        necessary to its scope.
6            (2) The opinion shall be submitted with the annual
7        statement reflecting the valuation of such reserve
8        liabilities for each year ending on or after the
9        operative date of the Valuation Manual.
10            (3) The opinion shall apply to all policies and
11        contracts subject to paragraph (B) of this subsection
12        (1b), plus other actuarial liabilities as may be
13        specified in the Valuation Manual.
14            (4) The opinion shall be based on standards adopted
15        from time to time by the Actuarial Standards Board or
16        its successor and on additional standards as may be
17        prescribed in the Valuation Manual.
18            (5) In the case of an opinion required to be
19        submitted by a foreign or alien company, the Director
20        may accept the opinion filed by that company with the
21        insurance supervisory official of another state if the
22        Director determines that the opinion reasonably meets
23        the requirements applicable to a company domiciled in
24        this State.
25            (6) Except in cases of fraud or willful misconduct,
26        the appointed actuary shall not be liable for damages

 

 

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1        to any person (other than the insurance company and the
2        Director) for any act, error, omission, decision, or
3        conduct with respect to the appointed actuary's
4        opinion.
5            (7) Disciplinary action by the Director against
6        the company or the appointed actuary shall be defined
7        by the Director by rule.
8            (8) A memorandum, in a form and substance as
9        specified in the Valuation Manual and acceptable to the
10        Director, shall be prepared to support each actuarial
11        opinion.
12            (9) If the insurance company fails to provide a
13        supporting memorandum at the request of the Director
14        within a period specified in the Valuation Manual or
15        the Director determines that the supporting memorandum
16        provided by the insurance company fails to meet the
17        standards prescribed by the Valuation Manual or is
18        otherwise unacceptable to the Director, the Director
19        may engage a qualified actuary at the expense of the
20        company to review the opinion and the basis for the
21        opinion and prepare the supporting memorandum as is
22        required by the Director.
23        (B) Every company with outstanding life insurance
24    contracts, accident and health insurance contracts, or
25    deposit-type contracts in this State and subject to
26    regulation by the Director, except as exempted in the

 

 

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1    Valuation Manual, shall also annually include in the
2    opinion required by subparagraph (1) of paragraph (A) of
3    this subsection (1b), an opinion of the same appointed
4    actuary as to whether the reserves and related actuarial
5    items held in support of the policies and contracts
6    specified in the Valuation Manual, when considered in light
7    of the assets held by the company with respect to the
8    reserves and related actuarial items, including, but not
9    limited to, the investment earnings on the assets and the
10    considerations anticipated to be received and retained
11    under the policies and contracts, make adequate provision
12    for the company's obligations under the policies and
13    contracts, including, but not limited to, the benefits
14    under and expenses associated with the policies and
15    contracts.
16    (2) This subsection shall apply to only those policies and
17contracts issued prior to the operative date of Section 229.2
18(the Standard Non-forfeiture Law).
19        (a) Except as otherwise in this Article provided, the
20    legal minimum standard for valuation of contracts issued
21    before January 1, 1908, shall be the Actuaries or Combined
22    Experience Table of Mortality with interest at 4% per annum
23    and for valuation of contracts issued on or after that date
24    shall be the American Experience Table of Mortality with
25    either Craig's or Buttolph's Extension for ages under 10
26    and with interest at 3 1/2% per annum. The legal minimum

 

 

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1    standard for the valuation of group insurance policies
2    under which premium rates are not guaranteed for a period
3    in excess of 5 years shall be the American Men Ultimate
4    Table of Mortality with interest at 3 1/2% per annum. Any
5    life company may, at its option, value its insurance
6    contracts issued on or after January 1, 1938, in accordance
7    with their terms on the basis of the American Men Ultimate
8    Table of Mortality with interest not higher than 3 1/2% per
9    annum.
10        (b) Policies issued prior to January 1, 1908, may
11    continue to be valued according to a method producing
12    reserves not less than those produced by the full
13    preliminary term method. Policies issued on and after
14    January 1, 1908, may be valued according to a method
15    producing reserves not less than those produced by the
16    modified preliminary term method hereinafter described in
17    paragraph (c). Policies issued on and after January 1,
18    1938, may be valued either according to a method producing
19    reserves not less than those produced by such modified
20    preliminary term method or by the select and ultimate
21    method on the basis that the rate of mortality during the
22    first 5 years after the issuance of such contracts
23    respectively shall be calculated according to the
24    following percentages of rates shown by the American
25    Experience Table of Mortality:
26            (i) first insurance year 50% thereof;

 

 

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1            (ii) second insurance year 65% thereof;
2            (iii) third insurance year 75% thereof;
3            (iv) fourth insurance year 85% thereof;
4            (v) fifth insurance year 95% thereof.
5        (c) If the premium charged for the first policy year
6    under a limited payment life preliminary term policy
7    providing for the payment of all premiums thereon in less
8    than 20 years from the date of the policy or under an
9    endowment preliminary term policy, exceeds that charged
10    for the first policy year under 20 payment life preliminary
11    term policies of the same company, the reserve thereon at
12    the end of any year, including the first, shall not be less
13    than the reserve on a 20 payment life preliminary term
14    policy issued in the same year at the same age, together
15    with an amount which shall be equivalent to the
16    accumulation of a net level premium sufficient to provide
17    for a pure endowment at the end of the premium payment
18    period, equal to the difference between the value at the
19    end of such period of such a 20 payment life preliminary
20    term policy and the full net level premium reserve at such
21    time of such a limited payment life or endowment policy.
22    The premium payment period is the period during which
23    premiums are concurrently payable under such 20 payment
24    life preliminary term policy and such limited payment life
25    or endowment policy.
26        (d) The legal minimum standard for the valuations of

 

 

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1    annuities issued on and after January 1, 1938, shall be the
2    American Annuitant's Table with interest not higher than 3
3    3/4% per annum, and all annuities issued before that date
4    shall be valued on a basis not lower than that used for the
5    annual statement of the year 1937; but annuities deferred
6    10 or more years and written in connection with life
7    insurance shall be valued on the same basis as that used in
8    computing the consideration or premiums therefor, or upon
9    any higher standard at the option of the company.
10        (e) The Director may vary the standards of interest and
11    mortality as to contracts issued in countries other than
12    the United States and may vary standards of mortality in
13    particular cases of invalid lives and other extra hazards.
14        (f) The legal minimum standard for valuation of waiver
15    of premium disability benefits or waiver of premium and
16    income disability benefits issued on and after January 1,
17    1938, shall be the Class (3) Disability Table (1926)
18    modified to conform to the contractual waiting period, with
19    interest at not more than 3 1/2% per annum; but in no event
20    shall the values be less than those produced by the basis
21    used in computing premiums for such benefits. The legal
22    minimum standard for the valuation of such benefits issued
23    prior to January 1, 1938, shall be such as to place an
24    adequate value, as determined by sound insurance
25    practices, on the liabilities thereunder and shall be such
26    that the value of the benefits under each and every policy

 

 

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1    shall in no case be less than the value placed upon the
2    future premiums.
3        (g) The legal minimum standard for the valuation of
4    industrial policies issued on or after January 1, 1938,
5    shall be the American Experience Table of Mortality or the
6    Standard Industrial Mortality Table or the Substandard
7    Industrial Mortality Table with interest at 3 1/2% per
8    annum by the net level premium method, or in accordance
9    with their terms by the modified preliminary term method
10    hereinabove described.
11        (h) Reserves for all such policies and contracts may be
12    calculated, at the option of the company, according to any
13    standards which produce greater aggregate reserves for all
14    such policies and contracts than the minimum reserves
15    required by this subsection.
16    (3) This subsection shall apply to only those policies and
17contracts issued on or after January 1, 1948 or such earlier
18operative date of Section 229.2 (the Standard Non-forfeiture
19Law) as shall have been elected by the insurance company
20issuing such policies or contracts.
21        (a) Except as otherwise provided in subsections (4),
22    (6), and (7), the minimum standard for the valuation of all
23    such policies and contracts shall be the Commissioners
24    Reserve valuation method defined in paragraphs (b) and (f)
25    of this subsection and in subsection 5, 3 1/2% interest for
26    such policies issued prior to September 8, 1977, 5 1/2%

 

 

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1    interest for single premium life insurance policies and 4
2    1/2% interest for all other such policies issued on or
3    after September 8, 1977, and the following tables:
4            (i) The Commissioners 1941 Standard Ordinary
5        Mortality Table for all Ordinary policies of life
6        insurance issued on the standard basis, excluding any
7        disability and accidental death benefits in such
8        policies, for such policies issued prior to the
9        operative date of subsection (4a) of Section 229.2
10        (Standard Non-forfeiture Law); and the Commissioners
11        1958 Standard Ordinary Mortality Table for such
12        policies issued on or after such operative date but
13        prior to the operative date of subsection (4c) of
14        Section 229.2 provided that for any category of such
15        policies issued on female risks all modified net
16        premiums and present values referred to in this Section
17        Act may, prior to September 8, 1977, be calculated
18        according to an age not more than 3 years younger than
19        the actual age of the insured and, after September 8,
20        1977, calculated according to an age not more than 6
21        years younger than the actual age of the insured; and
22        for such policies issued on or after the operative date
23        of subsection (4c) of Section 229.2, (i) the
24        Commissioners 1980 Standard Ordinary Mortality Table,
25        or (ii) at the election of the company for any one or
26        more specified plans of life insurance, the

 

 

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1        Commissioners 1980 Standard Ordinary Mortality Table
2        with Ten-Year Select Mortality Factors, or (iii) any
3        ordinary mortality table adopted after 1980 by the NAIC
4        National Association of Insurance Commissioners and
5        approved by regulations promulgated by the Director
6        for use in determining the minimum standard of
7        valuation for such policies.
8            (ii) For all Industrial Life Insurance policies
9        issued on the standard basis, excluding any disability
10        and accidental death benefits in such policies--the
11        1941 Standard Industrial Mortality Table for such
12        policies issued prior to the operative date of
13        subsection 4 (b) of Section 229.2 (Standard
14        Non-forfeiture Law); and for such policies issued on or
15        after such operative date the Commissioners 1961
16        Standard Industrial Mortality Table or any industrial
17        mortality table adopted after 1980 by the NAIC National
18        Association of Insurance Commissioners and approved by
19        regulations promulgated by the Director for use in
20        determining the minimum standard of valuation for such
21        policies.
22            (iii) For Individual Annuity and Pure Endowment
23        contracts, excluding any disability and accidental
24        death benefits in such policies--the 1937 Standard
25        Annuity Mortality Table--or, at the option of the
26        company, the Annuity Mortality Table for 1949,

 

 

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1        Ultimate, or any modification of either of these tables
2        approved by the Director.
3            (iv) For Group Annuity and Pure Endowment
4        contracts, excluding any disability and accidental
5        death benefits in such policies--the Group Annuity
6        Mortality Table for 1951, any modification of such
7        table approved by the Director, or, at the option of
8        the company, any of the tables or modifications of
9        tables specified for Individual Annuity and Pure
10        Endowment contracts.
11            (v) For Total and Permanent Disability Benefits in
12        or supplementary to Ordinary policies or contracts for
13        policies or contracts issued on or after January 1,
14        1966, the tables of Period 2 disablement rates and the
15        1930 to 1950 termination rates of the 1952 Disability
16        Study of the Society of Actuaries, with due regard to
17        the type of benefit, or any tables of disablement rates
18        and termination rates adopted after 1980 by the NAIC
19        National Association of Insurance Commissioners and
20        approved by regulations promulgated by the Director
21        for use in determining the minimum standard of
22        valuation for such policies; for policies or contracts
23        issued on or after January 1, 1961, and prior to
24        January 1, 1966, either such tables or, at the option
25        of the company, the Class (3) Disability Table (1926);
26        and for policies issued prior to January 1, 1961, the

 

 

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1        Class (3) Disability Table (1926). Any such table
2        shall, for active lives, be combined with a mortality
3        table permitted for calculating the reserves for life
4        insurance policies.
5            (vi) For Accidental Death benefits in or
6        supplementary to policies--for policies issued on or
7        after January 1, 1966, the 1959 Accidental Death
8        Benefits Table or any accidental death benefits table
9        adopted after 1980 by the NAIC National Association of
10        Insurance Commissioners and approved by regulations
11        promulgated by the Director for use in determining the
12        minimum standard of valuation for such policies; for
13        policies issued on or after January 1, 1961, and prior
14        to January 1, 1966, any of such tables or, at the
15        option of the company, the Inter-Company Double
16        Indemnity Mortality Table; and for policies issued
17        prior to January 1, 1961, the Inter-Company Double
18        Indemnity Mortality Table. Either table shall be
19        combined with a mortality table permitted for
20        calculating the reserves for life insurance policies.
21            (vii) For Group Life Insurance, life insurance
22        issued on the substandard basis and other special
23        benefits--such tables as may be approved by the
24        Director.
25        (b) Except as otherwise provided in paragraph (f) of
26    subsection (3), subsection (5), and subsection (7)

 

 

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1    reserves according to the Commissioners reserve valuation
2    method, for the life insurance and endowment benefits of
3    policies providing for a uniform amount of insurance and
4    requiring the payment of uniform premiums shall be the
5    excess, if any, of the present value, at the date of
6    valuation, of such future guaranteed benefits provided for
7    by such policies, over the then present value of any future
8    modified net premiums therefor. The modified net premiums
9    for any such policy shall be such uniform percentage of the
10    respective contract premiums for such benefits that the
11    present value, at the date of issue of the policy, of all
12    such modified net premiums shall be equal to the sum of the
13    then present value of such benefits provided for by the
14    policy and the excess of (A) over (B), as follows:
15            (A) A net level annual premium equal to the present
16        value, at the date of issue, of such benefits provided
17        for after the first policy year, divided by the present
18        value, at the date of issue, of an annuity of one per
19        annum payable on the first and each subsequent
20        anniversary of such policy on which a premium falls
21        due; provided, however, that such net level annual
22        premium shall not exceed the net level annual premium
23        on the 19 year premium whole life plan for insurance of
24        the same amount at an age one year higher than the age
25        at issue of such policy.
26            (B) A net one year term premium for such benefits

 

 

SB0094 Engrossed- 21 -LRB099 05120 MLM 25149 b

1        provided for in the first policy year.
2        For any life insurance policy issued on or after
3    January 1, 1987, for which the contract premium in the
4    first policy year exceeds that of the second year with no
5    comparable additional benefit being provided in that first
6    year, which policy provides an endowment benefit or a cash
7    surrender value or a combination thereof in an amount
8    greater than such excess premium, the reserve according to
9    the Commissioners reserve valuation method as of any policy
10    anniversary occurring on or before the assumed ending date,
11    defined herein as the first policy anniversary on which the
12    sum of any endowment benefit and any cash surrender value
13    then available is greater than such excess premium, shall,
14    except as otherwise provided in paragraph (f) of subsection
15    (3), be the greater of the reserve as of such policy
16    anniversary calculated as described in the preceding part
17    of this paragraph (b) and the reserve as of such policy
18    anniversary calculated as described in the preceding part
19    of this paragraph (b) with (i) the value defined in subpart
20    A of the preceding part of this paragraph (b) being reduced
21    by 15% of the amount of such excess first year premium,
22    (ii) all present values of benefits and premiums being
23    determined without reference to premiums or benefits
24    provided for by the policy after the assumed ending date,
25    (iii) the policy being assumed to mature on such date as an
26    endowment, and (iv) the cash surrender value provided on

 

 

SB0094 Engrossed- 22 -LRB099 05120 MLM 25149 b

1    such date being considered as an endowment benefit. In
2    making the above comparison, the mortality and interest
3    bases stated in paragraph (a) of subsection (3) and in
4    subsection (6) shall be used.
5        Reserves according to the Commissioners reserve
6    valuation method for (i) life insurance policies providing
7    for a varying amount of insurance or requiring the payment
8    of varying premiums, (ii) group annuity and pure endowment
9    contracts purchased under a retirement plan or plan of
10    deferred compensation, established or maintained by an
11    employer (including a partnership or sole proprietorship)
12    or by an employee organization, or by both, other than a
13    plan providing individual retirement accounts or
14    individual retirement annuities under Section 408 of the
15    Internal Revenue Code, as now or hereafter amended, (iii)
16    disability and accidental death benefits in all policies
17    and contracts, and (iv) all other benefits, except life
18    insurance and endowment benefits in life insurance
19    policies and benefits provided by all other annuity and
20    pure endowment contracts, shall be calculated by a method
21    consistent with the principles of this paragraph (b),
22    except that any extra premiums charged because of
23    impairments or special hazards shall be disregarded in the
24    determination of modified net premiums.
25        (c) In no event shall a company's aggregate reserves
26    for all life insurance policies, excluding disability and

 

 

SB0094 Engrossed- 23 -LRB099 05120 MLM 25149 b

1    accidental death benefits be less than the aggregate
2    reserves calculated in accordance with the methods set
3    forth in paragraphs (b), (f), and (g) of subsection (3) and
4    in subsection (5) and the mortality table or tables and
5    rate or rates of interest used in calculating
6    non-forfeiture benefits for such policies.
7        (d) In no event shall the aggregate reserves for all
8    policies, contracts, and benefits be less than the
9    aggregate reserves determined by the appointed qualified
10    actuary to be necessary to render the opinion required by
11    subsection (1a).
12        (e) Reserves for any category of policies, contracts or
13    benefits as established by the Director, may be calculated,
14    at the option of the company, according to any standards
15    which produce greater aggregate reserves for such category
16    than those calculated according to the minimum standard
17    herein provided, but the rate or rates of interest used for
18    policies and contracts, other than annuity and pure
19    endowment contracts, shall not be higher than the
20    corresponding rate or rates of interest used in calculating
21    any nonforfeiture benefits provided for therein.
22        (f) If in any contract year the gross premium charged
23    by any life insurance company on any policy or contract is
24    less than the valuation net premium for the policy or
25    contract calculated by the method used in calculating the
26    reserve thereon but using the minimum valuation standards

 

 

SB0094 Engrossed- 24 -LRB099 05120 MLM 25149 b

1    of mortality and rate of interest, the minimum reserve
2    required for such policy or contract shall be the greater
3    of either the reserve calculated according to the mortality
4    table, rate of interest, and method actually used for such
5    policy or contract, or the reserve calculated by the method
6    actually used for such policy or contract but using the
7    minimum standards of mortality and rate of interest and
8    replacing the valuation net premium by the actual gross
9    premium in each contract year for which the valuation net
10    premium exceeds the actual gross premium. The minimum
11    valuation standards of mortality and rate of interest
12    referred to in this paragraph (f) are those standards
13    stated in subsection (6) and paragraph (a) of subsection
14    (3).
15        For any life insurance policy issued on or after
16    January 1, 1987, for which the gross premium in the first
17    policy year exceeds that of the second year with no
18    comparable additional benefit provided in that first year,
19    which policy provides an endowment benefit or a cash
20    surrender value or a combination thereof in an amount
21    greater than such excess premium, the foregoing provisions
22    of this paragraph (f) shall be applied as if the method
23    actually used in calculating the reserve for such policy
24    were the method described in paragraph (b) of subsection
25    (3), ignoring the second paragraph of said paragraph (b).
26    The minimum reserve at each policy anniversary of such a

 

 

SB0094 Engrossed- 25 -LRB099 05120 MLM 25149 b

1    policy shall be the greater of the minimum reserve
2    calculated in accordance with paragraph (b) of subsection
3    (3), including the second paragraph of said paragraph (b),
4    and the minimum reserve calculated in accordance with this
5    paragraph (f).
6        (g) In the case of any plan of life insurance which
7    provides for future premium determination, the amounts of
8    which are to be determined by the insurance company based
9    on then estimates of future experience, or in the case of
10    any plan of life insurance or annuity which is of such a
11    nature that the minimum reserves cannot be determined by
12    the methods described in paragraphs (b) and (f) of
13    subsection (3) and subsection (5), the reserves which are
14    held under any such plan shall:
15            (i) be appropriate in relation to the benefits and
16        the pattern of premiums for that plan, and
17            (ii) be computed by a method which is consistent
18        with the principles of this Standard Valuation Law, as
19        determined by regulations promulgated by the Director.
20    (4) Except as provided in subsection (6), the minimum
21standard of for the valuation for of all individual annuity and
22pure endowment contracts issued on or after the operative date
23of this subsection, as defined herein, and for all annuities
24and pure endowments purchased on or after such operative date
25under group annuity and pure endowment contracts shall be the
26Commissioners Reserve valuation methods defined in paragraph

 

 

SB0094 Engrossed- 26 -LRB099 05120 MLM 25149 b

1(b) of subsection (3) and subsection (5) and the following
2tables and interest rates:
3        (a) For individual single premium immediate annuity
4    contracts, excluding any disability and accidental death
5    benefits in such contracts, the 1971 Individual Annuity
6    Mortality Table, any individual annuity mortality table
7    adopted after 1980 by the NAIC National Association of
8    Insurance Commissioners and approved by regulations
9    promulgated by the Director for use in determining the
10    minimum standard of valuation for such contracts, or any
11    modification of those tables approved by the Director, and
12    7 1/2% interest.
13        (b) For individual and pure endowment contracts other
14    than single premium annuity contracts, excluding any
15    disability and accidental death benefits in such
16    contracts, the 1971 Individual Annuity Mortality Table,
17    any individual annuity mortality table adopted after 1980
18    by the NAIC National Association of Insurance
19    Commissioners and approved by regulations promulgated by
20    the Director for use in determining the minimum standard of
21    valuation for such contracts, or any modification of those
22    tables approved by the Director, and 5 1/2% interest for
23    single premium deferred annuity and pure endowment
24    contracts and 4 1/2% interest for all other such individual
25    annuity and pure endowment contracts.
26        (c) For all annuities and pure endowments purchased

 

 

SB0094 Engrossed- 27 -LRB099 05120 MLM 25149 b

1    under group annuity and pure endowment contracts,
2    excluding any disability and accidental death benefits
3    purchased under such contracts, the 1971 Group Annuity
4    Mortality Table, any group annuity mortality table adopted
5    after 1980 by the NAIC National Association of Insurance
6    Commissioners and approved by regulations promulgated by
7    the Director for use in determining the minimum standard of
8    valuation for such annuities and pure endowments, or any
9    modification of those tables approved by the Director, and
10    7 1/2% interest.
11    After September 8, 1977, any company may file with the
12Director a written notice of its election to comply with the
13provisions of this subsection after a specified date before
14January 1, 1979, which shall be the operative date of this
15subsection for such company; provided, a company may elect a
16different operative date for individual annuity and pure
17endowment contracts from that elected for group annuity and
18pure endowment contracts. If a company makes no election, the
19operative date of this subsection for such company shall be
20January 1, 1979.
21    (5) This subsection shall apply to all annuity and pure
22endowment contracts other than group annuity and pure endowment
23contracts purchased under a retirement plan or plan of deferred
24compensation, established or maintained by an employer
25(including a partnership or sole proprietorship) or by an
26employee organization, or by both, other than a plan providing

 

 

SB0094 Engrossed- 28 -LRB099 05120 MLM 25149 b

1individual retirement accounts or individual retirement
2annuities under Section 408 of the Internal Revenue Code, as
3now or hereafter amended.
4    Reserves according to the Commissioners annuity reserve
5method for benefits under annuity or pure endowment contracts,
6excluding any disability and accidental death benefits in such
7contracts, shall be the greatest of the respective excesses of
8the present values, at the date of valuation, of the future
9guaranteed benefits, including guaranteed nonforfeiture
10benefits, provided for by such contracts at the end of each
11respective contract year, over the present value, at the date
12of valuation, of any future valuation considerations derived
13from future gross considerations, required by the terms of such
14contract, that become payable prior to the end of such
15respective contract year. The future guaranteed benefits shall
16be determined by using the mortality table, if any, and the
17interest rate, or rates, specified in such contracts for
18determining guaranteed benefits. The valuation considerations
19are the portions of the respective gross considerations applied
20under the terms of such contracts to determine nonforfeiture
21values.
22    (6)(a) Applicability of this subsection. The interest
23rates used in determining the minimum standard for the
24valuation of
25        (A) all life insurance policies issued in a particular
26    calendar year, on or after the operative date of subsection

 

 

SB0094 Engrossed- 29 -LRB099 05120 MLM 25149 b

1    (4c) of Section 229.2 (Standard Nonforfeiture Law),
2        (B) all individual annuity and pure endowment
3    contracts issued in a particular calendar year ending on or
4    after December 31, 1983,
5        (C) all annuities and pure endowments purchased in a
6    particular calendar year ending on or after December 31,
7    1983, under group annuity and pure endowment contracts, and
8        (D) the net increase in a particular calendar year
9    ending after December 31, 1983, in amounts held under
10    guaranteed interest contracts
11shall be the calendar year statutory valuation interest rates,
12as defined in this subsection.
13        (b) Calendar Year Statutory Valuation Interest Rates.
14            (i) The calendar year statutory valuation interest
15        rates shall be determined according to the following
16        formulae, rounding "I" to the nearest .25%.
17                (A) For life insurance,
18                    I = .03 + W (R1 - .03) + W/2 (R2 - .09).
19                (B) For single premium immediate annuities and
20            annuity benefits involving life contingencies
21            arising from other annuities with cash settlement
22            options and from guaranteed interest contracts
23            with cash settlement options,
24                    I = .03 + W (R - .03) or with prior
25                approval of the Director I = .03 + W (Rq -
26                .03).

 

 

SB0094 Engrossed- 30 -LRB099 05120 MLM 25149 b

1            For the purposes of this subparagraph (i), "I"
2        equals the calendar year statutory valuation interest
3        rate, "R" is the reference interest rate defined in
4        this subsection, "R1" is the lesser of R and .09, "R2"
5        is the greater of R and .09, "Rq" is the quarterly
6        reference interest rate defined in this subsection,
7        and "W" is the weighting factor defined in this
8        subsection.
9                (C) For other annuities with cash settlement
10            options and guaranteed interest contracts with
11            cash settlement options, valued on an issue year
12            basis, except as stated in (B), the formula for
13            life insurance stated in (A) applies to annuities
14            and guaranteed interest contracts with guarantee
15            durations in excess of 10 years, and the formula
16            for single premium immediate annuities stated in
17            (B) above applies to annuities and guaranteed
18            interest contracts with guarantee durations of 10
19            years or less.
20                (D) For other annuities with no cash
21            settlement options and for guaranteed interest
22            contracts with no cash settlement options, the
23            formula for single premium immediate annuities
24            stated in (B) applies.
25                (E) For other annuities with cash settlement
26            options and guaranteed interest contracts with

 

 

SB0094 Engrossed- 31 -LRB099 05120 MLM 25149 b

1            cash settlement options, valued on a change in fund
2            basis, the formula for single premium immediate
3            annuities stated in (B) applies.
4            (ii) If the calendar year statutory valuation
5        interest rate for any life insurance policy issued in
6        any calendar year determined without reference to this
7        subparagraph differs from the corresponding actual
8        rate for similar policies issued in the immediately
9        preceding calendar year by less than .5%, the calendar
10        year statutory valuation interest rate for such life
11        insurance policy shall be the corresponding actual
12        rate for the immediately preceding calendar year. For
13        purposes of applying this subparagraph, the calendar
14        year statutory valuation interest rate for life
15        insurance policies issued in a calendar year shall be
16        determined for 1980, using the reference interest rate
17        defined for 1979, and shall be determined for each
18        subsequent calendar year regardless of when subsection
19        (4c) of Section 229.2 (Standard Nonforfeiture Law)
20        becomes operative.
21        (c) Weighting Factors.
22            (i) The weighting factors referred to in the
23        formulae stated in paragraph (b) are given in the
24        following tables.
25                (A) Weighting Factors for Life Insurance.
26GuaranteeWeighting

 

 

SB0094 Engrossed- 32 -LRB099 05120 MLM 25149 b

1DurationFactors
2(Years)
310 or less.50
4More than 10, but not more than 20.45
5More than 20.35
6                For life insurance, the guarantee duration is
7            the maximum number of years the life insurance can
8            remain in force on a basis guaranteed in the policy
9            or under options to convert to plans of life
10            insurance with premium rates or nonforfeiture
11            values or both which are guaranteed in the original
12            policy.
13                (B) The weighting factor for single premium
14            immediate annuities and for annuity benefits
15            involving life contingencies arising from other
16            annuities with cash settlement options and
17            guaranteed interest contracts with cash settlement
18            options is .80.
19                (C) The weighting factors for other annuities
20            and for guaranteed interest contracts, except as
21            stated in (B) of this subparagraph (i), shall be as
22            specified in tables (1), (2), and (3) of this
23            subpart (C), according to the rules and
24            definitions in (4), (5) and (6) of this subpart
25            (C).
26                    (1) For annuities and guaranteed interest

 

 

SB0094 Engrossed- 33 -LRB099 05120 MLM 25149 b

1                contracts valued on an issue year basis.
2GuaranteeWeighting Factor
3Durationfor Plan Type
4(Years) A    B   C
55 or less......................................80  .60 .50
6More than 5, but not
7more than 10...................................75  .60 .50
8More than 10, but not
9more than 20...................................65  .50 .45
10More than 20...................................45  .35 .35
11                    (2) For annuities and guaranteed interest
12                contracts valued on a change in fund basis, the
13                factors shown in (1) for Plan Types A, B and C
14                are increased by .15, .25 and .05,
15                respectively.
16                    (3) For annuities and guaranteed interest
17                contracts valued on an issue year basis, other
18                than those with no cash settlement options,
19                which do not guarantee interest on
20                considerations received more than one year
21                after issue or purchase, and for annuities and
22                guaranteed interest contracts valued on a
23                change in fund basis which do not guarantee
24                interest rates on considerations received more
25                than 12 months beyond the valuation date, the
26                factors shown in (1), or derived in (2), for

 

 

SB0094 Engrossed- 34 -LRB099 05120 MLM 25149 b

1                Plan Types A, B and C are increased by .05.
2                    (4) For other annuities with cash
3                settlement options and guaranteed interest
4                contracts with cash settlement options, the
5                guarantee duration is the number of years for
6                which the contract guarantees interest rates
7                in excess of the calendar year statutory
8                valuation interest rate for life insurance
9                policies with guarantee durations in excess of
10                20 years. For other annuities with no cash
11                settlement options, and for guaranteed
12                interest contracts with no cash settlement
13                options, the guarantee duration is the number
14                of years from the date of issue or date of
15                purchase to the date annuity benefits are
16                scheduled to commence.
17                    (5) The plan types used in the above tables
18                are defined as follows.
19                    Plan Type A is a plan under which the
20                policyholder may not withdraw funds, or may
21                withdraw funds at any time but only (a) with an
22                adjustment to reflect changes in interest
23                rates or asset values since receipt of the
24                funds by the insurance company, (b) without
25                such an adjustment but in installments over 5
26                years or more, or (c) as an immediate life

 

 

SB0094 Engrossed- 35 -LRB099 05120 MLM 25149 b

1                annuity.
2                    Plan Type B is a plan under which the
3                policyholder may not withdraw funds before
4                expiration of the interest rate guarantee, or
5                may withdraw funds before such expiration but
6                only (a) with an adjustment to reflect changes
7                in interest rates or asset values since receipt
8                of the funds by the insurance company, or (b)
9                without such adjustment but in installments
10                over 5 years or more. At the end of the
11                interest rate guarantee, funds may be
12                withdrawn without such adjustment in a single
13                sum or installments over less than 5 years.
14                    Plan Type C is a plan under which the
15                policyholder may withdraw funds before
16                expiration of the interest rate guarantee in a
17                single sum or installments over less than 5
18                years either (a) without adjustment to reflect
19                changes in interest rates or asset values since
20                receipt of the funds by the insurance company,
21                or (b) subject only to a fixed surrender charge
22                stipulated in the contract as a percentage of
23                the fund.
24                    (6) A company may elect to value
25                guaranteed interest contracts with cash
26                settlement options and annuities with cash

 

 

SB0094 Engrossed- 36 -LRB099 05120 MLM 25149 b

1                settlement options on either an issue year
2                basis or on a change in fund basis. Guaranteed
3                interest contracts with no cash settlement
4                options and other annuities with no cash
5                settlement options shall be valued on an issue
6                year basis. As used in this Section, "issue
7                year basis of valuation" refers to a valuation
8                basis under which the interest rate used to
9                determine the minimum valuation standard for
10                the entire duration of the annuity or
11                guaranteed interest contract is the calendar
12                year valuation interest rate for the year of
13                issue or year of purchase of the annuity or
14                guaranteed interest contract. "Change in fund
15                basis of valuation", as used in this Section,
16                refers to a valuation basis under which the
17                interest rate used to determine the minimum
18                valuation standard applicable to each change
19                in the fund held under the annuity or
20                guaranteed interest contract is the calendar
21                year valuation interest rate for the year of
22                the change in the fund.
23        (d) Reference Interest Rate. The reference interest
24    rate referred to in paragraph (b) of this subsection is
25    defined as follows.
26            (A) For all life insurance, the reference interest

 

 

SB0094 Engrossed- 37 -LRB099 05120 MLM 25149 b

1        rate is the lesser of the average over a period of 36
2        months, and the average over a period of 12 months,
3        with both periods ending on June 30, or with prior
4        approval of the Director ending on December 31, of the
5        calendar year next preceding the year of issue, of
6        Moody's Corporate Bond Yield Average - Monthly Average
7        Corporates, as published by Moody's Investors Service,
8        Inc.
9            (B) For single premium immediate annuities and for
10        annuity benefits involving life contingencies arising
11        from other annuities with cash settlement options and
12        guaranteed interest contracts with cash settlement
13        options, the reference interest rate is the average
14        over a period of 12 months, ending on June 30, or with
15        prior approval of the Director ending on December 31,
16        of the calendar year of issue or year of purchase, of
17        Moody's Corporate Bond Yield Average - Monthly Average
18        Corporates, as published by Moody's Investors Service,
19        Inc.
20            (C) For annuities with cash settlement options and
21        guaranteed interest contracts with cash settlement
22        options, valued on a year of issue basis, except those
23        described in (B), with guarantee durations in excess of
24        10 years, the reference interest rate is the lesser of
25        the average over a period of 36 months and the average
26        over a period of 12 months, ending on June 30, or with

 

 

SB0094 Engrossed- 38 -LRB099 05120 MLM 25149 b

1        prior approval of the Director ending on December 31,
2        of the calendar year of issue or purchase, of Moody's
3        Corporate Bond Yield Average-Monthly Average
4        Corporates, as published by Moody's Investors Service,
5        Inc.
6            (D) For other annuities with cash settlement
7        options and guaranteed interest contracts with cash
8        settlement options, valued on a year of issue basis,
9        except those described in (B), with guarantee
10        durations of 10 years or less, the reference interest
11        rate is the average over a period of 12 months, ending
12        on June 30, or with prior approval of the Director
13        ending on December 31, of the calendar year of issue or
14        purchase, of Moody's Corporate Bond Yield
15        Average-Monthly Average Corporates, as published by
16        Moody's Investors Service, Inc.
17            (E) For annuities with no cash settlement options
18        and for guaranteed interest contracts with no cash
19        settlement options, the reference interest rate is the
20        average over a period of 12 months, ending on June 30,
21        or with prior approval of the Director ending on
22        December 31, of the calendar year of issue or purchase,
23        of Moody's Corporate Bond Yield Average-Monthly
24        Average Corporates, as published by Moody's Investors
25        Service, Inc.
26            (F) For annuities with cash settlement options and

 

 

SB0094 Engrossed- 39 -LRB099 05120 MLM 25149 b

1        guaranteed interest contracts with cash settlement
2        options, valued on a change in fund basis, except those
3        described in (B), the reference interest rate is the
4        average over a period of 12 months, ending on June 30,
5        or with prior approval of the Director ending on
6        December 31, of the calendar year of the change in the
7        fund, of Moody's Corporate Bond Yield Average-Monthly
8        Average Corporates, as published by Moody's Investors
9        Service, Inc.
10            (G) For annuities valued by a formula based on Rq,
11        the quarterly reference interest rate is, with the
12        prior approval of the Director, the average within each
13        of the 4 consecutive calendar year quarters ending on
14        March 31, June 30, September 30 and December 31 of the
15        calendar year of issue or year of purchase of Moody's
16        Corporate Bond Yield Average-Monthly Average
17        Corporates, as published by Moody's Investors Service,
18        Inc.
19        (e) Alternative Method for Determining Reference
20    Interest Rates. In the event that the Moody's Corporate
21    Bond Yield Average-Monthly Average Corporates is no longer
22    published by Moody's Investors Services, Inc., or in the
23    event that the NAIC National Association of Insurance
24    Commissioners determines that Moody's Corporate Bond Yield
25    Average-Monthly Average Corporates as published by Moody's
26    Investors Service, Inc. is no longer appropriate for the

 

 

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1    determination of the reference interest rate, then an
2    alternative method for determination of the reference
3    interest rate, which is adopted by the NAIC National
4    Association of Insurance Commissioners and approved by
5    regulations promulgated by the Director, may be
6    substituted.
7    (7) Minimum Standards for Accident and Health (Disability,
8Accident and Sickness) Insurance Contracts Plans. The Director
9shall promulgate a regulation containing the minimum standards
10applicable to the valuation of health (disability, sickness and
11accident) plans which are issued prior to the operative date of
12the Valuation Manual. For accident and health (disability,
13accident and sickness) insurance contracts issued on or after
14the operative date of the Valuation Manual, the standard
15prescribed in the Valuation Manual is the minimum standard of
16valuation required under subsection (1).
17    (8) Valuation Manual for Policies Issued On or After the
18Operative Date of the Valuation Manual.
19        (a) For policies issued on or after the operative date
20    of the Valuation Manual, the standard prescribed in the
21    Valuation Manual is the minimum standard of valuation
22    required under subsection (1), except as provided under
23    paragraphs (e) or (g) of this subsection (8).
24        (b) The operative date of the Valuation Manual is
25    January 1 of the first calendar year following the first
26    July 1 when all of the following have occurred:

 

 

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1            (i) The Valuation Manual has been adopted by the
2        NAIC by an affirmative vote of at least 42 members, or
3        three-fourths of the members voting, whichever is
4        greater.
5            (ii) The Standard Valuation Law, as amended by the
6        NAIC in 2009, or legislation including substantially
7        similar terms and provisions, has been enacted by
8        states representing greater than 75% of the direct
9        premiums written as reported in the following annual
10        statements submitted for 2008: life, accident and
11        health annual statements; health annual statements; or
12        fraternal annual statements.
13            (iii) The Standard Valuation Law, as amended by the
14        NAIC in 2009, or legislation including substantially
15        similar terms and provisions, has been enacted by at
16        least 42 of the following 55 jurisdictions: the 50
17        states of the United States, American Samoa, the
18        American Virgin Islands, the District of Columbia,
19        Guam, and Puerto Rico.
20        (c) Unless a change in the Valuation Manual specifies a
21    later effective date, changes to the Valuation Manual shall
22    be effective on January 1 following the date when the
23    change to the Valuation Manual has been adopted by the NAIC
24    by an affirmative vote representing:
25            (i) at least three-fourths of the members of the
26        NAIC voting, but not less than a majority of the total

 

 

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1        membership; and
2            (ii) members of the NAIC representing
3        jurisdictions totaling greater than 75% of the direct
4        premiums written as reported in the following annual
5        statements most recently available prior to the vote in
6        subparagraph (i) of this paragraph (c): life, accident
7        and health annual statements; health annual
8        statements; or fraternal annual statements.
9        (d) The Valuation Manual must specify all of the
10    following:
11            (i) Minimum valuation standards for and
12        definitions of the policies or contracts subject to
13        subsection (1). Such minimum valuation standards shall
14        be:
15                (A) the Commissioners reserve valuation method
16            for life insurance contracts, other than annuity
17            contracts, subject to subsection (1);
18                (B) the Commissioners annuity reserve
19            valuation method for annuity contracts subject to
20            subsection (1); and
21                (C) minimum reserves for all other policies or
22            contracts subject to subsection (1).
23            (ii) Which policies or contracts or types of
24        policies or contracts are subject to the requirements
25        of a principle-based valuation in paragraph (a) of
26        subsection (9) and the minimum valuation standards

 

 

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1        consistent with those requirements.
2            (iii) For policies and contracts subject to a
3        principle-based valuation under subsection (9):
4                (A) Requirements for the format of reports to
5            the Director under subparagraph (iii) of paragraph
6            (b) of subsection (9), and which shall include
7            information necessary to determine if the
8            valuation is appropriate and in compliance with
9            this Section.
10                (B) Assumptions shall be prescribed for risks
11            over which the company does not have significant
12            control or influence.
13                (C) Procedures for corporate governance and
14            oversight of the actuarial function, and a process
15            for appropriate waiver or modification of such
16            procedures.
17            (iv) For policies not subject to a principle-based
18        valuation under subsection (9), the minimum valuation
19        standard shall either:
20                (A) be consistent with the minimum standard of
21            valuation prior to the operative date of the
22            Valuation Manual; or
23                (B) develop reserves that quantify the
24            benefits and guarantees and the funding associated
25            with the contracts and their risks at a level of
26            conservatism that reflects conditions that include

 

 

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1            unfavorable events that have a reasonable
2            probability of occurring.
3            (v) Other requirements, including, but not limited
4        to, those relating to reserve methods, models for
5        measuring risk, generation of economic scenarios,
6        assumptions, margins, use of company experience, risk
7        measurement, disclosure, certifications, reports,
8        actuarial opinions and memorandums, transition rules,
9        and internal controls.
10            (vi) The data and form of the data required under
11        subsection (10) of this Section, with whom the data
12        must be submitted, and may specify other requirements,
13        including data analyses and the reporting of analyses.
14        (e) In the absence of a specific valuation requirement
15    or if a specific valuation requirement in the Valuation
16    Manual is not, in the opinion of the Director, in
17    compliance with this Section, then the company shall, with
18    respect to such requirements, comply with minimum
19    valuation standards prescribed by the Director by rule.
20        (f) The Director may engage a qualified actuary, at the
21    expense of the company, to perform an actuarial examination
22    of the company and opine on the appropriateness of any
23    reserve assumption or method used by the company, or to
24    review and opine on a company's compliance with any
25    requirement set forth in this Section. The Director may
26    rely upon the opinion regarding provisions contained

 

 

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1    within this Section of a qualified actuary engaged by the
2    Director of another state, district, or territory of the
3    United States. As used in this paragraph, "engage" includes
4    employment and contracting.
5        (g) The Director may require a company to change any
6    assumption or method that in the opinion of the Director is
7    necessary in order to comply with the requirements of the
8    Valuation Manual or this Section; and the company shall
9    adjust the reserves as required by the Director. The
10    Director may take other disciplinary action as permitted
11    pursuant to law.
12    (9) Requirements of a Principle-Based Valuation.
13        (a) A company must establish reserves using a
14    principle-based valuation that meets the following
15    conditions for policies or contracts as specified in the
16    Valuation Manual:
17            (i) Quantify the benefits and guarantees, and the
18        funding, associated with the contracts and their risks
19        at a level of conservatism that reflects conditions
20        that include unfavorable events that have a reasonable
21        probability of occurring during the lifetime of the
22        contracts. For policies or contracts with significant
23        tail risk, reflect conditions appropriately adverse to
24        quantify the tail risk.
25            (ii) Incorporate assumptions, risk analysis
26        methods, and financial models and management

 

 

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1        techniques that are consistent with, but not
2        necessarily identical to, those utilized within the
3        company's overall risk assessment process, while
4        recognizing potential differences in financial
5        reporting structures and any prescribed assumptions or
6        methods.
7            (iii) Incorporate assumptions that are derived in
8        one of the following manners:
9                (A) The assumption is prescribed in the
10            Valuation Manual.
11                (B) For assumptions that are not prescribed,
12            the assumptions shall:
13                    (1) be established utilizing the company's
14                available experience, to the extent it is
15                relevant and statistically credible; or
16                    (2) to the extent that company data is not
17                available, relevant, or statistically
18                credible, be established utilizing other
19                relevant, statistically credible experience.
20            (iv) Provide margins for uncertainty, including
21        adverse deviation and estimation error, such that the
22        greater the uncertainty, the larger the margin and
23        resulting reserve.
24        (b) A company using a principle-based valuation for one
25    or more policies or contracts subject to this subsection as
26    specified in the Valuation Manual shall:

 

 

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1            (i) Establish procedures for corporate governance
2        and oversight of the actuarial valuation function
3        consistent with those described in the Valuation
4        Manual.
5            (ii) Provide to the Director and the board of
6        directors an annual certification of the effectiveness
7        of the internal controls with respect to the
8        principle-based valuation. Such controls shall be
9        designed to ensure that all material risks inherent in
10        the liabilities and associated assets subject to such
11        valuation are included in the valuation, and that
12        valuations are made in accordance with the Valuation
13        Manual. The certification shall be based on the
14        controls in place as of the end of the preceding
15        calendar year.
16            (iii) Develop and file with the Director upon
17        request a principle-based valuation report that
18        complies with standards prescribed in the Valuation
19        Manual.
20        (c) A principle-based valuation may include a
21    prescribed formulaic reserve component.
22    (10) Experience Reporting for Policies In Force On or After
23the Operative Date of the Valuation Manual. A company shall
24submit mortality, morbidity, policyholder behavior, or expense
25experience and other data as prescribed in the Valuation
26Manual.

 

 

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1    (11) Confidentiality.
2        (a) For the purposes of this subsection (11),
3    "confidential information" means any of the following:
4            (i) A memorandum in support of an opinion submitted
5        under subsection (1) of this Section and any other
6        documents, materials, and other information,
7        including, but not limited to, all working papers, and
8        copies thereof, created, produced or obtained by or
9        disclosed to the Director or any other person in
10        connection with the memorandum.
11            (ii) All documents, materials, and other
12        information, including, but not limited to, all
13        working papers, and copies thereof, created, produced,
14        or obtained by or disclosed to the Director or any
15        other person in the course of an examination made under
16        paragraph (f) of subsection (8) of this Section.
17            (iii) Any reports, documents, materials, and other
18        information developed by a company in support of, or in
19        connection with, an annual certification by the
20        company under subparagraph (ii) of paragraph (b) of
21        subsection (9) of this Section evaluating the
22        effectiveness of the company's internal controls with
23        respect to a principle-based valuation and any other
24        documents, materials, and other information,
25        including, but not limited to, all working papers, and
26        copies thereof, created, produced, or obtained by or

 

 

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1        disclosed to the Director or any other person in
2        connection with such reports, documents, materials,
3        and other information.
4            (iv) Any principle-based valuation report
5        developed under subparagraph (iii) of paragraph (b) of
6        subsection (9) of this Section and any other documents,
7        materials and other information, including, but not
8        limited to, all working papers, and copies thereof,
9        created, produced or obtained by or disclosed to the
10        Director or any other person in connection with such
11        report.
12            (v) Any documents, materials, data, and other
13        information submitted by a company under subsection
14        (10) of this Section (collectively, "experience data")
15        and any other documents, materials, data, and other
16        information, including, but not limited to, all
17        working papers, and copies thereof, created or
18        produced in connection with such experience data, in
19        each case that include any potentially
20        company-identifying or personally identifiable
21        information, that is provided to or obtained by the
22        Director (together with any experience data, the
23        "experience materials") and any other documents,
24        materials, data and other information, including, but
25        not limited to, all working papers and copies thereof,
26        created, produced, or obtained by or disclosed to the

 

 

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1        Director or any other person in connection with such
2        experience materials.
3        (b) Privilege for and Confidentiality of Confidential
4    Information.
5            (i) Except as provided in this subsection (11), a
6        company's confidential information is confidential by
7        law and privileged, and shall not be subject to the
8        Freedom of Information Act, subpoena, or discovery or
9        admissible as evidence in any private civil action;
10        however, the Director is authorized to use the
11        confidential information in the furtherance of any
12        regulatory or legal action brought against the company
13        as a part of the Director's official duties.
14            (ii) Neither the Director nor any person who
15        received confidential information while acting under
16        the authority of the Director shall be permitted or
17        required to testify in any private civil action
18        concerning any confidential information.
19            (iii) In order to assist in the performance of the
20        Director's duties, the Director may share confidential
21        information (A) with other state, federal, and
22        international regulatory agencies and with the NAIC
23        and its affiliates and subsidiaries and (B) in the case
24        of confidential information specified in subparagraphs
25        (i) and (iv) of paragraph (a) of subsection (11) only,
26        with the Actuarial Board for Counseling and Discipline

 

 

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1        or its successor upon request stating that the
2        confidential information is required for the purpose
3        of professional disciplinary proceedings and with
4        state, federal, and international law enforcement
5        officials; in the case of (A) and (B), provided that
6        such recipient agrees and has the legal authority to
7        agree, to maintain the confidentiality and privileged
8        status of such documents, materials, data, and other
9        information in the same manner and to the same extent
10        as required for the Director.
11            (iv) The Director may receive documents,
12        materials, data, and other information, including
13        otherwise confidential and privileged documents,
14        materials, data, or information, from the NAIC and its
15        affiliates and subsidiaries, from regulatory or law
16        enforcement officials of other foreign or domestic
17        jurisdictions, and from the Actuarial Board for
18        Counseling and Discipline or its successor and shall
19        maintain as confidential or privileged any document,
20        material, data, or other information received with
21        notice or the understanding that it is confidential or
22        privileged under the laws of the jurisdiction that is
23        the source of the document, material, or other
24        information.
25            (v) The Director may enter into agreements
26        governing the sharing and use of information

 

 

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1        consistent with paragraph (b) of this subsection (11).
2            (vi) No waiver of any applicable privilege or claim
3        of confidentiality in the confidential information
4        shall occur as a result of disclosure to the Director
5        under this subsection (11) or as a result of sharing as
6        authorized in subparagraph (iii) of paragraph (b) of
7        this subsection (11).
8            (vii) A privilege established under the law of any
9        state or jurisdiction that is substantially similar to
10        the privilege established under paragraph (b) of this
11        subsection (11) shall be available and enforced in any
12        proceeding in and in any court of this State.
13            (viii) In this subsection (11), "regulatory
14        agency", "law enforcement agency", and "NAIC" include,
15        but are not limited to, their employees, agents,
16        consultants, and contractors.
17        (c) Notwithstanding paragraph (b) of this subsection
18    (11), any confidential information specified in
19    subparagraphs (i) and (iv) of paragraph (a) of this
20    subsection (11):
21            (i) may be subject to subpoena for the purpose of
22        defending an action seeking damages from the appointed
23        actuary submitting the related memorandum in support
24        of an opinion submitted under subsection (1) of this
25        Section or principle-based valuation report developed
26        under subparagraph (iii) of paragraph (b) of

 

 

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1        subsection (9) of this Section by reason of an action
2        required by this Section or by regulations promulgated
3        under this Section;
4            (ii) may otherwise be released by the Director with
5        the written consent of the company; and
6            (iii) once any portion of a memorandum in support
7        of an opinion submitted under subsection (1) of this
8        Section or a principle-based valuation report
9        developed under subparagraph (iii) of paragraph (b) of
10        subsection (9) of this Section is cited by the company
11        in its marketing or is publicly volunteered to or
12        before a governmental agency other than a state
13        insurance department or is released by the company to
14        the news media, all portions of such memorandum or
15        report shall no longer be confidential.
16    (12) Exemptions.
17        (a) The Director may exempt specific product forms or
18    product lines of a domestic company that is licensed and
19    doing business only in Illinois from the requirements of
20    subsection (8) of this Section, provided that:
21            (i) the Director has issued an exemption in writing
22        to the company and has not subsequently revoked the
23        exemption in writing; and
24            (ii) the company computes reserves using
25        assumptions and methods used prior to the operative
26        date of the Valuation Manual in addition to any

 

 

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1        requirements established by the Director and adopted
2        by rule.
3        (b) For any company granted an exemption under this
4    subsection, subsections (1), (2), (3), (4), (5), (6), and
5    (7) shall be applicable. With respect to any company
6    applying this exemption, any reference to subsection (8)
7    found in subsections (1), (2), (3), (4), (5), (6), and (7)
8    shall not be applicable.
9    (13) Definitions. For the purposes of this Section, the
10following definitions shall apply beginning on the operative
11date of the Valuation Manual:
12    "Accident and health insurance" means contracts that
13incorporate morbidity risk and provide protection against
14economic loss resulting from accident, sickness, or medical
15conditions and as may be specified in the Valuation Manual.
16    "Appointed actuary" means a qualified actuary who is
17appointed in accordance with the Valuation Manual to prepare
18the actuarial opinion required in paragraph (b) of subsection
19(1) of this Section.
20    "Company" means an entity that (a) has written, issued, or
21reinsured life insurance contracts, accident and health
22insurance contracts, or deposit-type contracts in this State
23and has at least one such policy in force or on claim or (b) has
24written, issued, or reinsured life insurance contracts,
25accident and health insurance contracts, or deposit-type
26contracts in any state and is required to hold a certificate of

 

 

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1authority to write life insurance, accident and health
2insurance, or deposit-type contracts in this State.
3    "Deposit-type contract" means contracts that do not
4incorporate mortality or morbidity risks and as may be
5specified in the Valuation Manual.
6    "Life insurance" means contracts that incorporate
7mortality risk, including annuity and pure endowment
8contracts, and as may be specified in the Valuation Manual.
9    "NAIC" means the National Association of Insurance
10Commissioners.
11    "Policyholder behavior" means any action a policyholder,
12contract holder, or any other person with the right to elect
13options, such as a certificate holder, may take under a policy
14or contract subject to this Section including, but not limited
15to, lapse, withdrawal, transfer, deposit, premium payment,
16loan, annuitization, or benefit elections prescribed by the
17policy or contract, but excluding events of mortality or
18morbidity that result in benefits prescribed in their essential
19aspects by the terms of the policy or contract.
20    "Principle-based valuation" means a reserve valuation that
21uses one or more methods or one or more assumptions determined
22by the insurer and is required to comply with subsection (9) of
23this Section as specified in the Valuation Manual.
24    "Qualified actuary" means an individual who is qualified to
25sign the applicable statement of actuarial opinion in
26accordance with the American Academy of Actuaries

 

 

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1qualification standards for actuaries signing such statements
2and who meets the requirements specified in the Valuation
3Manual.
4    "Tail risk" means a risk that occurs either where the
5frequency of low probability events is higher than expected
6under a normal probability distribution or where there are
7observed events of very significant size or magnitude.
8    "Valuation Manual" means the manual of valuation
9instructions adopted by the NAIC as specified in this Section
10or as subsequently amended.
11(Source: P.A. 95-86, eff. 9-25-07 (changed from 1-1-08 by P.A.
1295-632); 95-876, eff. 8-21-08.)
 
13    (215 ILCS 5/229.2)  (from Ch. 73, par. 841.2)
14    Sec. 229.2. Standard Non-forfeiture Law for Life
15Insurance.
16    (1) No policy of life insurance, except as stated in
17subsection (8), shall be delivered or issued for delivery in
18this State unless it contains in substance the following
19provisions or corresponding provisions which in the opinion of
20the Director are at least as favorable to the defaulting or
21surrendering policyholder and are essentially in compliance
22with subsection (7) of this law:
23    (i) That, in the event of default in any premium payment,
24the company will grant, upon proper request not later than 60
25days after the due date of the premium in default, a paid-up

 

 

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1nonforfeiture benefit on a plan stipulated in the policy,
2effective as of such due date, of such amount as may be
3hereinafter specified. In lieu of such stipulated paid-up
4nonforfeiture benefit, the company may substitute, upon proper
5request not later than 60 days after the due date of the
6premium in default, an actuarially equivalent alternative
7paid-up nonforfeiture benefit which provides a greater amount
8or longer period of death benefits or, if applicable, a greater
9amount or earlier payment of endowment benefits.
10    (ii) That, upon surrender of the policy within 60 days
11after the due date of any premium payment in default after
12premiums have been paid for at least 3 full years in the case
13of Ordinary insurance or 5 full years in the case of Industrial
14insurance, the company will pay, in lieu of any paid-up
15nonforfeiture benefit, a cash surrender value of such amount as
16may be hereinafter specified.
17    (iii) That a specified paid-up nonforfeiture benefit shall
18become effective as specified in the policy unless the person
19entitled to make such election elects another available option
20not later than 60 days after the due date of the premium in
21default.
22    (iv) That, if the policy shall have become paid-up by
23completion of all premium payments or if it is continued under
24any paid-up nonforfeiture benefit which became effective on or
25after the third policy anniversary in the case of Ordinary
26insurance or the fifth policy anniversary in the case of

 

 

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1Industrial insurance, the company will pay, upon surrender of
2the policy within 30 days after any policy anniversary, a cash
3surrender value of such amount as may be hereinafter specified.
4    (v) In the case of policies which cause on a basis
5guaranteed in the policy unscheduled changes in benefits or
6premiums, or which provide an option for changes in benefits or
7premiums other than a change to a new policy, a statement of
8the mortality table, interest rate, and method used in
9calculating cash surrender values and the paid-up
10nonforfeiture benefits available under the policy. In the case
11of all other policies, a statement of the mortality table and
12interest rate used in calculating the cash surrender values and
13the paid-up nonforfeiture benefits available under the policy,
14together with a table showing the cash surrender value, if any,
15and paid-up nonforfeiture benefit, if any, available under the
16policy on each policy anniversary either during the first 20
17policy years or during the term of the policy, whichever is
18shorter, such values and benefits to be calculated upon the
19assumption that there are no dividends or paid-up additions
20credited to the policy and that there is no indebtedness to the
21company on the policy.
22    (vi) A statement that the cash surrender values and the
23paid-up nonforfeiture benefits available under the policy are
24not less than the minimum values and benefits required by or
25pursuant to the insurance law of the state in which the policy
26is delivered; an explanation of the manner in which the cash

 

 

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1surrender values and the paid-up nonforfeiture benefits are
2altered by the existence of any paid-up additions credited to
3the policy or any indebtedness to the company on the policy; if
4a detailed statement of the method of computation of the values
5and benefits shown in the policy is not stated therein, a
6statement that such method of computation has been filed with
7the insurance supervisory official of the state in which the
8policy is delivered; and a statement of the method to be used
9in calculating the cash surrender value and paid-up
10nonforfeiture benefit available under the policy on any policy
11anniversary beyond the last anniversary for which such values
12and benefits are consecutively shown in the policy.
13    Any of the foregoing provisions or portions thereof not
14applicable by reason of the plan of insurance may, to the
15extent inapplicable, be omitted from the policy.
16    The company shall reserve the right to defer the payment of
17any cash surrender value for a period of 6 months after demand
18therefor with surrender of the policy.
19    (2) (i) Any cash surrender value available under the policy
20in the event of default in a premium payment due on any policy
21anniversary, whether or not required by subsection (1), shall
22be an amount not less than the excess, if any, of the present
23value, on such anniversary, of the future guaranteed benefits
24which would have been provided for by the policy, including any
25existing paid-up additions, if there had been no default, over
26the sum of (i) the then present value of the adjusted premiums

 

 

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1as defined in subsections 4, 4(a), 4(b) and 4(c), corresponding
2to premiums which would have fallen due on and after such
3anniversary, and (ii) the amount of any indebtedness to the
4company on the policy.
5    (ii) For any policy issued on or after the operative date
6of subsection 4(c), which provides supplemental life insurance
7or annuity benefits at the option of the insured for an
8identifiable additional premium by rider or supplemental
9policy provision, the cash surrender value shall be an amount
10not less than the sum of the cash surrender value as determined
11in paragraph (i) for an otherwise similar policy issued at the
12same age without such rider or supplemental policy provision
13and the cash surrender value as determined in such paragraph
14for a policy which provides only the benefits otherwise
15provided by such rider or supplemental policy provision.
16    (iii) For any family policy issued on or after the
17operative date of subsection 4(c), which defines a primary
18insured and provides term insurance on the life of the spouse
19of the primary insured expiring before the spouse attains age
2071, the cash surrender value shall be an amount not less than
21the sum of the cash surrender value as determined in paragraph
22(i) for an otherwise similar policy issued at the same age
23without such term insurance on the life of the spouse and the
24cash surrender value as determined in such paragraph for a
25policy which provides only the benefits otherwise provided by
26such term insurance on the life of the spouse.

 

 

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1    (iv) Any cash surrender value available within 30 days
2after any policy anniversary under any policy paid up by
3completion of all premium payments or any policy continued
4under any paid-up nonforfeiture benefit, whether or not
5required by subsection (1), shall be an amount not less than
6the present value, on such anniversary, of the future
7guaranteed benefits provided for by the policy, including any
8existing paid-up additions, decreased by any indebtedness to
9the company on the policy.
10    (3) Any paid-up nonforfeiture benefit available under the
11policy in the event of default in a premium payment due on any
12policy anniversary shall be such that its present value as of
13such anniversary shall be at least equal to the cash surrender
14value then provided for by the policy, or if none is provided
15for, that cash surrender value which would have been required
16by this section in the absence of the condition that premiums
17shall have been paid for at least a specified period.
18    (4) This subsection (4) shall not apply to policies issued
19on or after the operative date of subsection (4c). Except as
20provided in the third paragraph of this subsection, the
21adjusted premiums for any policy shall be calculated on an
22annual basis and shall be such uniform percentage of the
23respective premium specified in the policy for each policy
24year, excluding any extra premiums charged because of
25impairments or special hazards, that the present value, at the
26date of issue of the policy, of all such adjusted premiums

 

 

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1shall be equal to the sum of (i) the then present value of the
2future guaranteed benefits provided for by the policy; (ii) 2%
3of the amount of insurance, if the insurance be uniform in
4amount, or of the equivalent uniform amount, as hereinafter
5defined, if the amount of insurance varies with duration of the
6policy; (iii) 40% of the adjusted premium for the first policy
7year; (iv) 25% of either the adjusted premium for the first
8policy year or the adjusted premium for a whole life policy of
9the same uniform or equivalent uniform amount with uniform
10premiums for the whole of life issued at the same age for the
11same amount of insurance, whichever is less. Provided, however,
12that in applying the percentages specified in (iii) and (iv)
13above, no adjusted premium shall be deemed to exceed 4% of the
14amount of insurance or uniform amount equivalent thereto. The
15date of issue of a policy for the purpose of this subsection
16shall be the date as of which the rated age of the insured is
17determined.
18    In the case of a policy providing an amount of insurance
19varying with duration of the policy, the equivalent uniform
20amount thereof for the purpose of this subsection shall be
21deemed to be the level amount of insurance, provided by an
22otherwise similar policy, containing the same endowment
23benefit or benefits, if any, issued at the same age and for the
24same term, the amount of which does not vary with duration and
25the benefits under which have the same present value at the
26inception of the insurance as the benefits under the policy;

 

 

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1provided, however, that in the case of a policy providing a
2varying amount of insurance issued on the life of a child under
3age 10, the equivalent uniform amount may be computed as though
4the amount of insurance provided by the policy prior to the
5attainment of age 10 were the amount provided by such policy at
6age 10.
7    The adjusted premiums for any policy providing term
8insurance benefits by rider or supplemental policy provision
9shall be equal to (a) the adjusted premiums for an otherwise
10similar policy issued at the same age without such term
11insurance benefits, increased, during the period for which
12premiums for such term insurance benefits are payable, by (b)
13the adjusted premiums for such term insurance, the foregoing
14items (a) and (b) being calculated separately and as specified
15in the first 2 paragraphs of this subsection except that, for
16the purposes of (ii), (iii) and (iv) of the first such
17paragraph, the amount of insurance or equivalent uniform amount
18of insurance used in the calculation of the adjusted premiums
19referred to in (b) shall be equal to the excess of the
20corresponding amount determined for the entire policy over the
21amount used in the calculation of the adjusted premiums in (a).
22    Except as otherwise provided in subsections (4a) and (4b),
23all adjusted premiums and present values referred to in this
24section shall for all policies of Ordinary insurance be
25calculated on the basis of the Commissioners 1941 Standard
26Ordinary Mortality Table, provided that for any category of

 

 

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1Ordinary insurance issued on female risks adjusted premiums and
2present values may be calculated according to an age not more
3than 3 years younger than the actual age of the insured, and
4such calculations for all policies of Industrial insurance
5shall be made on the basis of the 1941 Standard Industrial
6Mortality Table. All calculations shall be made on the basis of
7the rate of interest, not exceeding 3 1/2% per annum, specified
8in the policy for calculating cash surrender values and paid-up
9nonforfeiture benefits. Provided, however, that in calculating
10the present value of any paid-up term insurance with
11accompanying pure endowment, if any, offered as a nonforfeiture
12benefit, the rates of mortality assumed may be not more than
13130% of the rates of mortality according to such applicable
14table. Provided, further, that for insurance issued on a
15substandard basis, the calculation of any such adjusted
16premiums and present values may be based on such other table of
17mortality as may be specified by the company and approved by
18the Director.
19    (4a) This subsection (4a) shall not apply to Ordinary
20policies issued on or after the operative date of subsection
21(4c). In the case of Ordinary policies issued on or after the
22operative date of this subsection (4a) as defined herein, all
23adjusted premiums and present values referred to in this
24Section shall be calculated on the basis of the Commissioners
251958 Standard Ordinary Mortality Table and the rate of interest
26specified in the policy for calculating cash surrender values

 

 

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1and paid-up nonforfeiture benefits, provided that such rate of
2interest shall not exceed 3 1/2% per annum except that a rate
3of interest not exceeding 5 1/2% per annum may be used for
4policies issued on or after September 8, 1977, except that for
5any single premium whole life or endowment insurance policy a
6rate of interest not exceeding 6 1/2% per annum may be used and
7provided that for any category of Ordinary insurance issued on
8female risks, adjusted premiums and present values may be
9calculated according to an age not more than 6 years younger
10than the actual age of the insured. Provided, however, that in
11calculating the present value of any paid-up term insurance
12with accompanying pure endowment, if any, offered as a
13nonforfeiture benefit, the rates of mortality assumed may be
14not more than those shown in the Commissioners 1958 Extended
15Term Insurance Table. Provided, however, that for insurance
16issued on a substandard basis, the calculation for any such
17adjusted premiums and present values may be based on such other
18table of mortality as may be specified by the company and
19approved by the Director. After the effective date of this
20subsection (4a), any company may file with the Director written
21notice of its election to comply with the provisions of this
22subsection after a specified date before January 1, 1966. After
23the filing of such notice, then upon such specified date (which
24shall be the operative date of this subsection for such
25company), this subsection shall become operative with respect
26to the Ordinary policies thereafter issued by such company. If

 

 

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1a company makes no such election, the operative date of this
2subsection for such company shall be January 1, 1966.
3    (4b) This subsection (4b) shall not apply to Industrial
4policies issued on or after the operative date of subsection
5(4c). In the case of Industrial policies issued on or after the
6operative date of this subsection (4b) as defined herein, all
7adjusted premiums and present values referred to in this
8Section shall be calculated on the basis of the Commissioners
91961 Standard Industrial Mortality Table and the rate of
10interest specified in the policy for calculating cash surrender
11values and paid-up nonforfeiture benefits, provided that such
12rate of interest shall not exceed 3 1/2% per annum except that
13a rate of interest not exceeding 5 1/2% per annum may be used
14for policies issued on or after September 8, 1977, except that
15for any single premium whole life or endowment insurance policy
16a rate of interest not exceeding 6 1/2% per annum may be used.
17Provided, however, that in calculating the present value of any
18paid-up term insurance with accompanying pure endowment, if
19any, offered as a nonforfeiture benefit, the rates of mortality
20assumed may be not more than those shown in the Commissioners
211961 Industrial Extended Term Insurance Table. Provided,
22further, that for insurance issued on a substandard basis, the
23calculations of any such adjusted premiums and present values
24may be based on such other table of mortality as may be
25specified by the company and approved by the Director. After
26the effective date of this subsection (4b), any company may

 

 

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1file with the Director a written notice of its election to
2comply with the provisions of this subsection after a specified
3date before January 1, 1968. After the filing of such notice,
4then upon such specified date (which shall be the operative
5date of this subsection for such company), this subsection
6shall become operative with respect to the Industrial policies
7thereafter issued by such company. If a company makes no such
8election, the operative date of this subsection for such
9company shall be January 1, 1968.
10    (4c)(a) This subsection shall apply to all policies issued
11on or after its operative date. Except as provided in paragraph
12(g), the adjusted premiums for any policy shall be calculated
13on an annual basis and shall be such uniform percentage of the
14respective premiums specified in the policy for each policy
15year, excluding amounts payable as extra premiums to cover
16impairments or special hazards and any uniform annual contract
17charge or policy fee specified in the policy in a statement of
18the method to be used in calculating the cash surrender value
19and paid-up nonforfeiture benefits of the policy, that the
20present value, at the date of issue of the policy, of all
21adjusted premiums shall be equal to the sum of (i) the then
22present value of the future guaranteed benefits provided for by
23the policy; (ii) 1% of either the amount of insurance, if the
24insurance is uniform in amount, or the average amount of
25insurance at the beginning of each of the first 10 policy
26years; and (iii) 125% of the nonforfeiture net level premium as

 

 

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1hereinafter defined. In applying the percentage specified in
2(iii), however, no nonforfeiture net level premium shall exceed
34% of either the amount of insurance, if the insurance is
4uniform in amount, or the average amount of insurance at the
5beginning of each of the first 10 policy years. The date of
6issue of a policy for the purpose of this subsection is the
7date as of which the rated age of the insured is determined.
8    (b) The nonforfeiture net level premium equals the present
9value, at the date of issue of the policy, of the guaranteed
10benefits provided for by the policy divided by the present
11value, at the date of issue of the policy, of an annuity of one
12per annum payable on the date of issue of the policy and on
13each anniversary of such policy on which a premium falls due.
14    (c) In the case of a policy which causes, on a basis
15guaranteed in such policy, unscheduled changes in benefits or
16premiums, or which provides an option for changes in benefits
17or premiums other than a change to a new policy, adjusted
18premiums and present values shall initially be calculated on
19the assumption that future benefits and premiums do not change
20from those stipulated at the date of issue of such policy. At
21the time of any such change in the benefits or premiums, the
22future adjusted premiums, nonforfeiture net level premiums and
23present values shall be recalculated on the assumption that
24future benefits and premiums do not change from those
25stipulated by such policy immediately after the change.
26    (d) Except as otherwise provided in paragraph (g), the

 

 

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1recalculated future adjusted premiums for any policy shall be
2such uniform percentage of the respective future premiums
3specified in the policy for each policy year, excluding amounts
4payable as extra premiums to cover impairments and special
5hazards and any uniform annual contract charge or policy fee
6specified in the policy in a statement of the method to be used
7in calculating the cash surrender values and paid-up
8nonforfeiture benefits, that the present value, at the time of
9change to the newly defined benefits or premiums, of all such
10future adjusted premiums shall be equal to the excess of (A)
11the sum of (i) the then present value of the then future
12guaranteed benefits provided for by the policy and (ii) the
13additional expense allowance, if any, over (B) the then cash
14surrender value, if any, or present value of any paid-up
15nonforfeiture benefit under the policy.
16    (e) The additional expense allowance at the time of the
17change to the newly defined benefits or premiums shall be the
18sum of (i) 1% of the excess, if positive, of the average amount
19of insurance at the beginning of each of the first 10 policy
20years subsequent to the change over the average amount of
21insurance prior to the change at the beginning of each of the
22first 10 policy years subsequent to the time of the most recent
23previous change, or, if there has been no previous change, the
24date of issue of the policy; and (ii) 125% of the increase, if
25positive, in the nonforfeiture net level premium.
26    (f) The recalculated nonforfeiture net level premium

 

 

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1equals the result obtained by dividing X by Y, where
2    (i) X equals the sum of
3    (A) the nonforfeiture net level premium applicable prior to
4the change times the present value of an annuity of one per
5annum payable on each anniversary of the policy on or
6subsequent to the date of the change on which a premium would
7have fallen due had the change not occurred, and
8    (B) the present value of the increase in future guaranteed
9benefits provided for by the policy; and
10    (ii) Y equals the present value of an annuity of one per
11annum payable on each anniversary of the policy on or
12subsequent to the date of change on which a premium falls due.
13    (g) Notwithstanding any other provisions of this
14subsection to the contrary, in the case of a policy issued on a
15substandard basis which provides reduced graded amounts of
16insurance so that, in each policy year, such policy has the
17same tabular mortality cost as an otherwise similar policy
18issued on the standard basis which provides higher uniform
19amounts of insurance, adjusted premiums and present values for
20such substandard policy may be calculated as if it were issued
21to provide such higher uniform amounts of insurance on the
22standard basis.
23    (h) All adjusted premiums and present values referred to in
24this Section shall for all policies of ordinary insurance be
25calculated on the basis of the Commissioners 1980 Standard
26Ordinary Mortality Table or, at the election of the company for

 

 

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1any one or more specified plans of life insurance, the
2Commissioners 1980 Standard Ordinary Mortality Table with
3Ten-Year Select Mortality Factors. All adjusted premiums and
4present values referred to in this Section shall for all
5policies of Industrial insurance be calculated on the basis of
6the Commissioners 1961 Standard Industrial Mortality Table.
7All adjusted premiums and present values referred to in this
8Section for all policies issued in a particular calendar year
9shall be calculated on the basis of a rate of interest not
10exceeding the nonforfeiture interest rate as defined in this
11subsection for policies issued in that calendar year. The
12provisions of this paragraph are subject to the provisions set
13forth in subparagraphs (i) through (vii).
14    (i) At the option of the company, calculations for all
15policies issued in a particular calendar year may be made on
16the basis of a rate of interest not exceeding the nonforfeiture
17interest rate, as defined in this subsection, for policies
18issued in the immediately preceding calendar year.
19    (ii) Under any paid-up nonforfeiture benefit, including
20any paid-up dividend additions, any cash surrender value
21available, whether or not required by subsection (1), shall be
22calculated on the basis of the mortality table and rate of
23interest used in determining the amount of such paid-up
24nonforfeiture benefit and paid-up dividend additions, if any.
25    (iii) A company may calculate the amount of any guaranteed
26paid-up nonforfeiture benefit, including any paid-up additions

 

 

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1under the policy, on the basis of an interest rate no lower
2than that specified in the policy for calculating cash
3surrender values.
4    (iv) In calculating the present value of any paid-up term
5insurance with an accompanying pure endowment, if any, offered
6as a nonforfeiture benefit, the rates of mortality assumed may
7be not more than those shown in the Commissioners 1980 Extended
8Term Insurance Table for policies of ordinary insurance and not
9more than the Commissioner 1961 Industrial Extended Term
10Insurance Table for policies of industrial insurance.
11    (v) For insurance issued on a substandard basis, the
12calculation of any such adjusted premiums and present values
13may be based on appropriated modifications of the
14aforementioned tables.
15    (vi) For policies issued prior to the operative date of the
16Valuation Manual, any Commissioners Standard Mortality Table
17Any ordinary mortality tables adopted after 1980 by the
18National Association of Insurance Commissioners and approved
19by regulations promulgated by the Director for use in
20determining the minimum nonforfeiture standard may be
21substituted for the Commissioners 1980 Standard Ordinary
22Mortality Table with or without Ten-Year Select Mortality
23Factors or for the Commissioners 1980 Extended Term Insurance
24Table.
25    For policies issued on or after the operative date of the
26Valuation Manual, the Valuation Manual shall provide the

 

 

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1Commissioners Standard Ordinary Mortality Table for use in
2determining the minimum nonforfeiture standard that may be
3substituted for the Commissioners 1980 Standard Ordinary
4Mortality Table with or without Ten-Year Select Mortality
5Factors or for the Commissioners 1980 Extended Term Insurance
6Table. If the Director approves by regulation any Commissioners
7Standard Ordinary Mortality Table adopted by the National
8Association of Insurance Commissioners for use in determining
9the minimum nonforfeiture standard for policies issued on or
10after the operative date of the Valuation Manual, then that
11minimum nonforfeiture standard supersedes the minimum
12nonforfeiture standard provided by the Valuation Manual.
13    (vii) For policies issued prior to the operative date of
14the Valuation Manual, any Commissioners Standard Industrial
15Mortality Table Any industrial mortality tables adopted after
161980 by the National Association of Insurance Commissioners and
17approved by regulations promulgated by the Director for use in
18determining the minimum nonforfeiture standard may be
19substituted for the Commissioners 1961 Standard Industrial
20Mortality Table or the Commissioners 1961 Industrial Extended
21Term Insurance Table.
22    For policies issued on or after the operative date of the
23Valuation Manual, the Valuation Manual shall provide the
24Commissioners Standard Industrial Mortality Table for use in
25determining the minimum nonforfeiture standard that may be
26substituted for the Commissioners 1961 Standard Industrial

 

 

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1Mortality Table or the Commissioners 1961 Industrial Extended
2Term Insurance Table. If the Director approves by regulation
3any Commissioners Standard Industrial Mortality Table adopted
4by the National Association of Insurance Commissioners for use
5in determining the minimum nonforfeiture standard for policies
6issued on or after the operative date of the Valuation Manual,
7then that minimum nonforfeiture standard supersedes the
8minimum nonforfeiture standard provided by the Valuation
9Manual.
10    (i) The nonforfeiture interest rate is defined as follows:
11        (i) For policies issued prior to the operative date of
12    the Valuation Manual, the The nonforfeiture interest rate
13    per annum for any policy issued in a particular calendar
14    year shall be equal to 125% of the calendar year statutory
15    valuation interest rate for such policy, as defined in the
16    Standard Valuation Law, rounded to the nearest .25%,
17    provided, however, that the nonforfeiture interest rate
18    shall not be less than 4.00%.
19        (ii) For policies issued on and after the operative
20    date of the Valuation Manual, the nonforfeiture interest
21    rate per annum for any policy issued in a particular
22    calendar year shall be provided by the Valuation Manual.
23    (j) Notwithstanding any other provision in this Code to the
24contrary, any refiling of nonforfeiture values or their methods
25of computation for any previously approved policy form which
26involves only a change in the interest rate or mortality table

 

 

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1used to compute nonforfeiture values shall not require refiling
2of any other provisions of that policy form.
3    (k) After the effective date of this subsection, any
4company may, with respect to any category of insurance, file
5with the Director a written notice of its election to comply
6with the provisions of this subsection after a specified date
7before January 1, 1989. That date shall be the operative date
8of this subsection for that category of insurance for such
9company. If a company makes no such election, the operative
10date of this subsection for that category of insurance issued
11by such company shall be January 1, 1989.
12    (5) In the case of any plan of life insurance which
13provides for future premium determination, the amounts of which
14are to be determined by the insurance company based on then
15estimates of future experience, or in the case of any plan of
16life insurance which is of such a nature that minimum values
17cannot be determined by the methods described in subsections
18(1), (2), (3), (4), (4a), (4b) or (4c), then
19    (a) the Director shall satisfy himself that the benefits
20provided under such plan are substantially as favorable to
21policyholders and insured parties as the minimum benefits
22otherwise required by subsections (1), (2), (3), (4), (4a),
23(4b) or (4c);
24    (b) the Director shall satisfy himself that the benefits
25and the pattern of premiums of that plan are not such as to
26mislead prospective policyholders or insured parties; and

 

 

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1    (c) the cash surrender values and paid-up nonforfeiture
2benefits provided by such plan shall not be less than the
3minimum values and benefits computed by a method consistent
4with the principles of this Standard Nonforfeiture Law law for
5Life Insurance, as determined by regulations promulgated by the
6Director.
7    (6) Any cash surrender value and any paid-up nonforfeiture
8benefit, available under the policy in the event of default in
9a premium payment due at any time other than on the policy
10anniversary, shall be calculated with allowance for the lapse
11of time and the payment of fractional premiums beyond the last
12preceding policy anniversary. All values referred to in
13subsections (2), (3), (4), (4a), (4b) and (4c) may be
14calculated upon the assumption that any death benefit is
15payable at the end of the policy year of death. The net value
16of any paid-up additions, other than paid-up term additions,
17shall be not less than the amounts used to provide such
18additions. Notwithstanding the provisions of subsection (2),
19additional benefits payable (i) in the event of death or
20dismemberment by accident or accidental means, (ii) in the
21event of total and permanent disability, (iii) as reversionary
22annuity or deferred reversionary annuity benefits, (iv) as term
23insurance benefits provided by a rider or supplemental policy
24provision to which, if issued as a separate policy, this
25section would not apply, (v) as term insurance on the life of a
26child or on the lives of children provided in a policy on the

 

 

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1life of a parent of the child, if such term insurance expires
2before the child's age is 26, is uniform in amount after the
3child's age is one, and has not become paid-up by reason of the
4death of a parent of the child, and (vi) as other policy
5benefits additional to life insurance and endowment benefits,
6and premiums for all such additional benefits, shall be
7disregarded in ascertaining cash surrender values and
8nonforfeiture benefits required by this section, and no such
9additional benefits shall be required to be included in any
10paid-up nonforfeiture benefits.
11    (7) This subsection shall apply to all policies issued on
12or after January 1, 1987. Any cash surrender value available
13under the policy in the event of default in a premium payment
14due on any policy anniversary shall be in an amount which does
15not differ by more than .2% of either the amount of insurance
16if the insurance is uniform in amount, or the average amount of
17insurance at the beginning of each of the first 10 policy
18years, from the sum of (a) the greater of zero and the basic
19cash value hereinafter specified and (b) the present value of
20any existing paid-up additions less the amount of any
21indebtedness to the company under the policy.
22    The basic cash value equals the present value, on such
23anniversary, of the future guaranteed benefits which would have
24been provided for by the policy, excluding any existing paid-up
25additions and before deduction of any indebtedness to the
26company, if there had been no default, less the then present

 

 

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1value of the nonforfeiture factors, as hereinafter defined,
2corresponding to premiums which would have fallen due on and
3after such anniversary. The effects on the basic cash value of
4supplemental life insurance or annuity benefits or of family
5coverage, as described in subsection (2) or (4), whichever is
6applicable, shall, however, be the same as are the effects
7specified in subsection (2) or (4), whichever is applicable, on
8the cash surrender values defined in that subsection.
9    The nonforfeiture factor for each policy year equals a
10percentage of the adjusted premium for the policy year, as
11defined in subsection (4) or (4c), whichever is applicable.
12Except as is required by the next succeeding sentence of this
13paragraph, such percentage
14    (a) shall be the same percentage for each policy year
15between the second policy anniversary and the later of (i) the
16fifth policy anniversary and (ii) the first policy anniversary
17at which there is available under the policy a cash surrender
18value in an amount, before including any paid-up additions and
19before deducting any indebtedness, of at least .2% of either
20the amount of insurance, if the insurance is uniform in amount,
21or the average amount of insurance at the beginning of each of
22the first 10 policy years; and
23    (b) shall be such that no percentage after the later of the
242 policy anniversaries specified in the preceding item (a) may
25apply to fewer than 5 consecutive policy years.
26    No basic cash value may be less than the value which would

 

 

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1be obtained if the adjusted premiums for the policy, as defined
2in subsection (4) or (4c), whichever is applicable, were
3substituted for the nonforfeiture factors in the calculation of
4the basic cash value.
5    All adjusted premiums and present values referred to in
6this subsection shall for a particular policy be calculated on
7the same mortality and interest bases as those used in
8accordance with the other subsections of this law. The cash
9surrender values referred to in this subsection shall include
10any endowment benefits provided for by the policy.
11    Any cash surrender value available other than in the event
12of default in a premium payment due on a policy anniversary,
13and the amount of any paid-up nonforfeiture benefit available
14under the policy in the event of default in a premium payment
15shall be determined in manners consistent with the manners
16specified for determining the analogous minimum amounts in
17subsections 1, 2, 3, 4c, and 6. The amounts of any cash
18surrender values and of any paid-up nonforfeiture benefits
19granted in connection with additional benefits such as those
20listed as items (i) through (vi) in subsection (6) shall
21conform with the principles of this subsection (7).
22    (8) This Section shall not apply to any of the following:
23    (a) reinsurance,
24    (b) group insurance,
25    (c) a pure endowment,
26    (d) an annuity or reversionary annuity contract,

 

 

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1    (e) a term policy of uniform amount, which provides no
2guaranteed nonforfeiture or endowment benefits, or renewal
3thereof, of 20 years or less expiring before age 71, for which
4uniform premiums are payable during the entire term of the
5policy,
6    (f) a term policy of decreasing amount, which provides no
7guaranteed nonforfeiture or endowment benefits, on which each
8adjusted premium, calculated as specified in subsections (4),
9(4a), (4b) and (4c), is less than the adjusted premium so
10calculated, on a term policy of uniform amount, or renewal
11thereof, which provides no guaranteed nonforfeiture or
12endowment benefits, issued at the same age and for the same
13initial amount of insurance and for a term of 20 years or less
14expiring before age 71, for which uniform premiums are payable
15during the entire term of the policy,
16    (g) a policy, which provides no guaranteed nonforfeiture or
17endowment benefits, for which no cash surrender value, if any,
18or present value of any paid-up nonforfeiture benefit, at the
19beginning of any policy year, calculated as specified in
20subsections (2), (3), (4), (4a), (4b) and (4c), exceeds 2.5% of
21the amount of insurance at the beginning of the same policy
22year,
23    (h) any policy which shall be delivered outside this State
24through an agent or other representative of the company issuing
25the policy.
26    For purposes of determining the applicability of this

 

 

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1Section, the age of expiry for a joint term life insurance
2policy shall be the age of expiry of the oldest life.
3    (9) For the purposes of this Section:
4    "Operative date of the Valuation Manual" means the January
51 of the first calendar year that the Valuation Manual is
6effective.
7    "Valuation Manual" has the same meaning as set forth in
8Section 223 of this Code.
9(Source: P.A. 83-1465.)