PART 1. TEXAS DEPARTMENT OF INSURANCE
CHAPTER 4. LIFE AND ANNUITY
(Editor's note: In accordance with Texas Government Code, §2002.014, which permits the omission of material which is "cumbersome, expensive, or otherwise inexpedient," the figures in the proposed amendments to 28 TAC Chapter 4 are not included in the print version of the Texas Register. The figures are available in the on-line version of the September 22, 2023, issue of the Texas Register.)
The Texas Department of Insurance (TDI) proposes to repeal 28 TAC §4.1117.
TDI proposes to amend 28 TAC §§4.201 - 4.206, 4.601 - 4.608, 4.611, 4.613 - 4.628, 4.1001, 4.1002, 4.1004, 4.1005, 4.1008, 4.1010, 4.1011, 4.1101 - 4.1104, 4.1106 - 4.1116, 4.1201, 4.1502 - 4.1510, 4.1602 - 4.1606, 4.1609 - 4.1613, 4.1702 - 4.1707, 4.2102 - 4.2106, 4.2302, 4.2304, 4.2306 - 4.2312, 4.2322, 4.2701, 4.2702, 4.2705, 4.2706, 4.2712 - 4.2716, 4.2721 - 4.2726, 4.2731 - 4.2734, 4.2801 - 4.2808, 4.2811, 4.2821 - 4.2827, 4.2829, and 4.2831 - 4.2836. The amendments are necessary to correct internal section and figure citations made obsolete by the administrative transfer of certain subchapters from Chapter 3 to a new Chapter 4.
EXPLANATION. On July 28, 2023, the Texas Register published notice in 48 TexReg 4127 of the administrative transfer of certain subchapters concerning life insurance and annuity products, from Chapter 3, relating to life, accident, and health insurance and annuities, to a new Chapter 4 in Title 28 of the Texas Administrative Code.
The administrative transfer revised each subchapter and section designation included in the transfer to reflect its new orientation in Chapter 4, but no rule text was amended during the transfer. This proposal now amends internal section and figure citations made obsolete by the administrative transfer.
As part of the administrative transfer notice, the Texas Register published a comparison table illustrating the new organization and designations of subchapters, divisions, and sections in Chapter 4. The transfer table is available on TDI's website at www.tdi.texas.gov/rules.
In addition to amendments to defunct citations, the proposal also makes nonsubstantive changes to (1) add or amend Insurance Code section titles and citations for accessibility and consistency with agency rule drafting style preferences; (2) update TDI contact information, including mailing, physical, and website addresses; and (3) correct and revise punctuation, capitalization, and grammar to reflect current agency drafting style and plain language preferences, as appropriate.
Specifically, amendments to multiple sections include the deletion of "shall" or replacement of "shall" with "must" or another context-appropriate word. The purpose of changing the word "shall" is to provide plain language clarification of the rule text, consistent with current agency style and guidance on the TDI website. Resources TDI uses for plain language guidance include plainlanguage.gov, which provides federal plain language guidelines, and the National Archives guidelines for clear legal documents. Both sources advise using alternatives to the word "shall" to provide clarity for readers.
The proposal replaces "pursuant to" with "under" or "in accordance with," as appropriate; replaces "subchapter" or "chapter" with "title" in citations to other sections in Title 28 of the Texas Administrative Code; and removes "the" when not needed before "Insurance Code." These proposed amendments, along with other nonsubstantive amendments discussed in the following paragraphs, reflect current agency drafting style, adhere to plain language practices, and promote consistency in TDI rule text.
In addition, the administrative transfer and proposed amendments (1) enhance accessibility through thoughtful reorganization; (2) promote readability through nonsubstantive plain language amendments; (3) preserve the capacity of Chapter 4 with deliberate organization; and (4) restore the capacity of Chapter 3 for future rulemaking projects.
This proposal includes nonsubstantive amendments to provisions related to the National Association of Insurance Commissioners (NAIC) rules, regulations, directives, or standards. Because the rules relate to NAIC rules, regulations, directives, or standards, Insurance Code §36.004 requires TDI to consider whether authority exists to enforce or adopt the provisions. TDI has determined that §36.004 does not prohibit the proposed amendments because they are nonsubstantive updates that do not change or expand previously adopted requirements.
The proposed amendments to the sections are described in detail in the following paragraphs, organized by subchapter.
Subchapter C. Consumer Notices for Life Insurance Policy and Annuity Contract Replacements.
Section 4.201. Purpose. The proposed amendments add the title to the Insurance Code §1114.006 citation and remove "the" before "Insurance Code."
Section 4.202. Definitions. The proposed amendments add the title to the Insurance Code Chapter 4054 citation and remove the word "shall."
Section 4.203. Consumer Notice Content and Format Requirements. The proposed amendments update section and figure citations made obsolete after the administrative transfer. The amendments also update the TDI mailing address where persons may request forms specified in the subchapter, amend punctuation, and replace "pursuant to" with "under."
Section 4.204. Consumer Notice Regarding Replacement for Insurers Using Agents. The proposed amendments update figure citations made obsolete after the administrative transfer and replace "shall" with "must." No amendments are proposed to the contents of the figure.
Section 4.205. Direct Response Consumer Notices. The proposed amendments update figure citations made obsolete after the administrative transfer and replace "shall" with "must." No amendments are proposed to the contents of the figures.
Section 4.206. Filing Procedures for Substantially Similar Consumer Notices. The proposed amendments remove §4.206(a), which provides the filing procedure for an insurer subject to Insurance Code Chapter 1114 beginning on December 27, 2007, and ending January 31, 2008. The proposal redesignates the remaining subsections and removes the other effective dates in the section.
The proposed amendments also update figure citations made obsolete after the administrative transfer and add or correct titles to the Insurance Code Chapter 1114 and §1701.054 citations. The proposal also replaces multiple citations to filing requirements found in 28 TAC Chapter 3, Subchapter A, with a general citation to 28 TAC Chapter 3, Subchapter A. The amendments also replace "shall" with "must" and "prior to" with "before" and correct grammar by adding "been" to §4.206(a)(1).
Subchapter F. Individual Life Insurance Policy Form Checklist and Affirmative Requirements.
Section 4.601. Payment of Premiums. The proposed amendments replace "which" with "that," "shall" with "will," "thereof to" with "at," and "his" with "the."
Section 4.602. Grace Period. The proposed amendment replaces "shall" with "must."
Section 4.603. Entire Contract. The proposed amendments remove the word "shall" and replace "which" with "that."
Section 4.604. Incontestable Clause. The proposed amendments add the title to the Insurance Code §1101.006 citation, replace the citation and title of §3.118(e) with §4.621(e), replace "which" with "that," and remove "whatsoever."
Section 4.605. Statements of the Insured. The proposed amendments add the title to the Insurance Code §705.004 citation and replace "which" with "that."
Section 4.606. Misstatement of Age. The proposed amendments replace "shall be such as" with "is the amount that" and amend punctuation.
Section 4.607. Policy Loans. The proposed amendments add the title to the Insurance Code Chapter 1110 citation; amend punctuation; remove "of," "herein," and one instance of "thereon"; replace "which" with "that," "thereto" with "to the policy," "therefor" with "for the loan," and "thereon" with "on the loan"; and add "of the policy" and "in this subchapter" to clarify the sentence given the removal of "thereon" and "herein" from the subsection.
Section 4.608. Automatic Nonforfeiture Benefits. The proposed amendment adds the title to the Insurance Code Chapter 1105 citation.
Section 4.611. Reinstatement. The proposed amendments replace "which" with "that," "shall" with "must," "shall be" with "is," and "shall not have" with "has not."
Section 4.613. Family Group Special Requirements. The proposed amendments replace "shall" with "must" and "which" with "that."
Section 4.614. Dependent Child Riders and Family Term Riders. The proposed amendments add the corresponding titles to the Insurance Code §1101.006 and §1105.007 citations, amend punctuation, and replace "prior to" with "before."
Section 4.615. Requirements for a Package Consisting of a Deferred Life Policy with an Accidental Death Rider Attached. The proposed amendments add the title to the Insurance Code Chapter 1701 citation and replace "which" with "that."
Section 4.616. Substitute or Change of Insured Riders. The proposed amendments add the word "and" at the end of §4.616(d)(3) to clarify that all elements in §4.616(d) must be clearly described. The proposal also replaces the word "shall" with "must" and amends punctuation.
Section 4.617. Preliminary Term Life Insurance. The proposed amendments add "and" after §4.617(1) to clarify that both requirements apply to a contract of life insurance containing a preliminary term insurance rider. The proposal also corrects the spelling of "contestability."
Section 4.618. Conversion Provision. The proposed amendments add "and" after §4.618(3) to clarify that a conversion provision in a policy must comply with the requirements in the section. The proposal also replaces "shall" with "must."
Section 4.619. Limitations of Lawsuits. The proposed amendment replaces "shall accrue" with "accrues."
Section 4.620. Backdating Policies. The proposed amendments replace "which" with "that," "that which" with "what," "his" with "their," and "prior to" with "before" and remove "thereby."
Section 4.621. Settlement at Maturity. The proposed amendments remove "either of" to reflect that §4.621(c) contains more than two paragraphs, amend punctuation, and replace "which would" with "that."
Section 4.622. Tontine Provisions. The proposed amendments replace "which" with "that."
Section 4.623. Assignment Provisions. The proposed amendments replace "which" with "that."
Section 4.624. Provisions Relating to Dividends, Coupon Benefits, or Other Guaranteed Returns. The proposed amendments add the title to the Insurance Code §841.253 citation and replace "which" with "that."
Section 4.625. Premiums Paid in Advance. The proposed amendments amend punctuation and replace "which" with "that" and "therein" with "in the policy."
Section 4.626. Annuity Contracts. The proposed amendments update section citations made obsolete after the administrative transfer by replacing "Sections 3.101 - 3.128" with "All sections in Subchapter F" and replacing the word "title" with "chapter." The proposal also replaces "which" with "that."
Section 4.627. Certain Prohibited Provisions. The proposed amendments replace "which" with "that."
Section 4.628. Renewal Premium on Term Policies. The proposed amendment replaces "shall" with "must."
Subchapter J. Indeterminate Premium Reduction Policies.
The proposal adds "Life -" to the title of Subchapter J to clarify the applicability of the subchapter.
Section 4.1001. Purpose and Scope. The proposed amendments add the title to the Insurance Code Chapter 541 citation and replace "which" with "that" and "subsequent to" with "after." The proposal also adds "and" after §4.1001(a)(1) to clarify that the subchapter applies to life insurance policies that have both characteristics in §4.1001(a).
Section 4.1002. Policy Form Submission. The proposed amendments replace "its" with "the insurer's" to clarify the subject of §4.1002(a)(1), amend punctuation, and replace "which" with "that."
Section 4.1004. Summary of Provisions. The proposed amendments replace "which" with "that" and "subsequent to" with "after."
Section 4.1005. Relation of Initial to Later Premium Charge. The proposed amendment replaces "which" with "that."
Section 4.1008. Minimum Nonforfeiture Values. The proposed amendments add the title to the Insurance Code Chapter 1105 citation and replace "code" with "Insurance Code." The proposal also removes "wherein" and "are required" and adds "which requires" for clarity.
Section 4.1010. Artificial Maximum Premiums Prohibited. The proposed amendments add the titles to the Insurance Code Chapters 1105 and 425, Subchapter B, citations. The proposal also replaces "subsequent to" with "after" and amends punctuation.
Section 4.1011. General Enforcement. The proposed amendment adds the title to the Insurance Code Chapter 541 citation.
Subchapter K. Standards for Acceleration-of-Life-Insurance Benefits for Individual and Group Policies and Riders.
The proposal adds "Life -" to the title of Subchapter K to clarify the applicability of the subchapter.
Section 4.1101. Purpose; Severability. The proposed amendments remove the capitalization of the first word of paragraphs (1) through (5) of §4.1101(a) to reflect the punctuation of the subsection. The proposal also amends punctuation, removes "shall," and replaces "shall remain" with "remains."
Section 4.1102. Acceleration-of-Life-Insurance: Scope of Benefits. The proposed amendments update section citations made obsolete after the administrative transfer, amend punctuation, and remove "shall" and "either." The proposal also replaces "which" with "that," "Acceleration-of-life-insurance" with "Acceleration-of-Life-Insurance," "that" with "That," and "shall" with "must" or "will."
Section 4.1103. Required Policy Definitions; Evidence of Total and Permanent Disability. The proposed amendments update a section citation made obsolete after the administrative transfer and add the titles to the Insurance Code §1111.052 and §1201.003 citations. The proposal also removes "the" before "Insurance Code" and replaces "shall" with "must." The proposal also clarifies §4.1103(a) by removing "either" and amending punctuation throughout the section.
Section 4.1104. Standards for Medical Diagnoses. The proposed amendments replace "shall" with "must."
Section 4.1106. Methods for Determining Benefits and Allowable Charges and Fees. The proposed amendments replace the capitalized catchlines with lowercased catchlines and amend punctuation. The proposal also replaces "shall" with "must" or "may," "which" with "that," "annum" with "year," "one percent" with "1%," "90 day" with "90-day," "Commissioner" with "commissioner," and "regards" with "regard."
Section 4.1107. Limitations on Reduction of Cash Values. The proposed amendments update a section citation made obsolete after the administrative transfer and replace "Lien Method " with "lien method" and "shall" with "may." The proposal also removes "the" before "Insurance Code," amends punctuation, and adds the title to the Insurance Code Chapter 1105 citation.
Section 4.1108. Pro Rata Reduction of Loan upon Acceleration of Benefits. The proposed amendments update a section citation made obsolete after the administrative transfer and replace "Lien Method" with "lien method."
Section 4.1109. Effect of Acceleration of Benefits on Nonforfeiture Calculations. The proposed amendments add the title to the Insurance Code Chapter 1105 citation, replace "shall" with "must," and remove "the" before "Insurance Code."
Section 4.1110. Calculation of Reserves. The proposed amendments update a section citation made obsolete after the administrative transfer, remove "the" before "Insurance Code," and add titles to the citations for Insurance Code Chapter 425, §425.058, and §425.069. The proposal also replaces "shall" with "must," "which" with "that," and "Lien Method" with "lien method."
Section 4.1111. Unfair, Discriminatory or Deceptive Practices Prohibited. The proposed amendments add a comma after "Discriminatory" in the section title and add commas in §4.1111(b) for consistency with the amendment to the section title.
The proposal also removes the parentheses around the title to Insurance Code Chapter 541, removes "the" before "Insurance Code," and replaces "shall" with "may."
Section 4.1112. Notice and Disclosure Requirements for Life Insurance Contracts Containing Acceleration-of-life-insurance Benefits. The proposed amendments capitalize "Acceleration-of-Life-Insurance" in the section title and update section citations made obsolete after the administrative transfer.
The proposal also corrects punctuational errors and replaces "shall" with "must," "which" with "that," "section" with "subsection," and "shall be" with "is."
Section 4.1113. Notice and Disclosure Requirements for Marketing Materials. The proposed amendments update section citations made obsolete after the administrative transfer, amend punctuation, and replace "shall" with "must" and "which" with "that." The proposal also adds an "and" at the end of §4.1113(a)(2) to clarify that a disclosure required under the section must include information in §4.1113(a)(1) - (3).
Section 4.1114. Requirements for Acceleration-of-life-insurance Benefits That Fund Long-Term Care Expenses. The proposed amendments update section citations made obsolete after the administrative transfer, capitalize "Acceleration-of-Life-Insurance" in the section title, clarify that the citation to Subchapter Y is found in Chapter 3 of Title 28, and correct the title for Chapter 3, Subchapter Y.
The amendments also replace "To" with "to" in the title citation to §4.1115 and "chapter" with "title" and correct capitalization throughout the section for consistency with the punctuation used.
Section 4.1115. Requirements for Benefits Represented To Be Qualified for Favorable Federal Tax Treatment. The proposed amendments update section citations made obsolete after the administrative transfer and correct cited section titles in the rule text. The proposal also replaces "To" with "to" in the title of §4.1115; replaces "his or her" with "their," "shall" with "must" or "may," "long term" with "long-term," "prior to" with "before," and "which" with "that"; removes "shall"; adds "of this paragraph" in §4.1115(b)(2)(B); and amends punctuation.
Section 4.1116. Disclosure Related to Tax Qualification of Benefits and Benefits' Effect on Public Assistance. The proposed amendments update section citations made obsolete after the administrative transfer and remove redundant citations to a section title previously cited in §4.1116. The proposal removes the phrase "a life insurance contract" in §4.1116(b) because it is redundant and amends punctuation throughout the section.
The amendments also replace "back-slashes" with "slashes," "acceleration-of-life insurance" with "acceleration-of-life-insurance," and "regards" with "regard."
Section 4.1117. Effective Date. Section 4.1117 is proposed for repeal because the section states the amendments become effective 20 days after the date the adopted rule is filed with the Office of the Secretary of State. This is standard practice for rules under Government Code §2001.036(a) and, as a result, the section is unnecessary.
Subchapter L. Insurance Sold in Connection with Prepaid Funeral Contracts.
The proposal adds "Life -" to the title of Subchapter L to clarify the applicability of the subchapter.
Section 4.1201. Introduction to Joint Memorandum of Understanding. The proposed amendments add the title to the Occupations Code §651.159 citation and update a section citation made obsolete after the administrative transfer.
Subchapter O. Variable Life Insurance.
The proposal adds "Life -" to the title of Subchapter O to clarify the applicability of the subchapter.
Section 4.1502. Definitions. The proposed amendments add a title to the Insurance Code Chapter 1152 citation, add "with" in §4.1502(10), amend punctuation, and replace "which" with "that" and "pursuant to" with "under."
Section 4.1503. Qualifications of Insurer to Issue Variable Life Insurance. The proposed amendments update section citations made obsolete after the administrative transfer, add a title to the Insurance Code Chapter 1152 citation, and correct a title and citation to Chapter 21, Subchapter B, Division 1.
The amendments also remove "concerning notice and hearing" because that citation is outdated and remove "a" before the phrase "life insurance business in this state" to correct the grammar of the sentence. The amendments amend punctuation and replace "subsection" with "section," "which" with "that," "prior to" with "before," "pursuant to" with "under," and "contractholder" with "contract holder."
Section 4.1504. Insurance Contract and Filing Requirements. The proposed amendments add titles to the citations for Insurance Code Chapters 1105 and 1110 and "Chapter 3" to a citation in §4.1504(1)(A). The amendments also replace "chapter" with "title" in relation to the citation to Chapter 3, Subchapter A, and remove a redundant reference to the title of §4.1509.
The amendments also add "and" at the end of §4.1504(3)(P)(v) and §4.1504(4)(A)(iii) to reflect that all the elements listed in those paragraphs must be included under §4.1504(3)(P) and §4.1504(4)(A), and add "or" at the end of §4.1504(5)(C)(iv) to reflect that contracts may offer the dividend options in §4.1504(5)(C)(i) - (v).
The amendments also update section citations made obsolete after the administrative transfer and replace multiple outdated words or terms with language that conforms to current agency drafting style and plain language preferences. These changes remove "of" and "therefor"; amend punctuation; and replace "which" with "that," "contractholder" with "contract holder," "his or her" with "the insured's," "which result" with "that results," "pursuant to" with "under," "prior to" with "before," "thereof" with "of those provisions," "thereon" with "on the contract," and "subsequent to" with "after."
Section 4.1505. Reserve Liabilities for Variable Life Insurance. The proposed amendments add a title to the Insurance Code Chapter 425, Subchapter B, citation and replace "paid up" with "paid-up" and "which" with "that."
Section 4.1506. Separate Accounts. The proposed amendments add titles to the Insurance Code Chapters 1105 and 1152 citations, update section citations made obsolete after the administrative transfer, and correct a reference to the title of a cited administrative code citation.
The proposal adds "and" at the end of §4.1506(7)(F) to clarify that the insurer must disclose in writing all charges that may be made against the separate account including, but not limited to, the elements in §4.1506(7). The proposal also adds "and" at the end of §4.1506(10)(C)(iii) to clarify the information to be included under §4.1506(10)(C). The proposal also removes an "or" at the end of §4.1506(1)(B)(i) because it is redundant. These proposed amendments clarify the rule requirements but are nonsubstantive in nature and do not change the requirements under the rule.
The proposal also amends punctuation and replaces "pursuant to" with "under," "prior to" with "before," "which" with "that," "thereunder" with "under the contract" or "adopted under that section," "which evidences" with "evidencing," and "contractholders" with "contract holders."
Section 4.1507. Information Furnished to Applicants. The proposed amendments update a section citation made obsolete after the administrative transfer and amend punctuation. The proposal also replaces "which" with "that," "contractholder" with "contract holder," "the manner in which" with "how," "prior to" with "before," and "shall" with "must," "may," or "will."
Section 4.1508. Application. The proposed amendments add "and" after §4.1508(2) to clarify that the application for a variable life contract must contain all the elements in the section and replace "shall" with "must" and "which" with "that."
Section 4.1509. Reports to Contractholders. The proposed amendments update a section citation made obsolete after the administrative transfer and add an "and" at the end of §4.1509(2)(D) to clarify that a statement or statements provided annually to contract holders must contain the elements listed in the paragraph.
The proposal also replaces "contractholder" with "contract holder" in the section title and in rule text and replaces "shall" with "must," "pursuant to" with "under," "of" with "or," which" with "that," "prior to" with "before," "therein" with "in the statement" and "his or her" with "their."
Section 4.1510. Separability. The proposed amendments replace the range of section citations with the corresponding citation to Subchapter O and change "title" to chapter." The proposal also removes "thereby," amends the title of Subchapter O for consistency with proposed changes to the subchapter's title, and replaces "thereof" with "of such provisions" and "shall" with "will."
Subchapter P. Required Reinstatement Relating to Mental Incapacity of the Insured for Individual Life Policies Without Nonforfeiture Benefits.
The proposal adds "Life -" to the title of Subchapter P to clarify the applicability of the subchapter.
Section 4.1602. Applicability. The proposed amendments update a section citation made obsolete after the administrative transfer, remove punctuation, and replace "which" with "that."
Section 4.1603. Severability. The proposed amendment removes "shall."
Section 4.1604. Definitions. The proposed amendments remove "shall"; amend punctuation; and replace "Incapacity" with "incapacity" and "Commissioner of Insurance" with "commissioner of insurance."
Section 4.1605. Eligibility Requirements. The proposed amendments remove the language "set forth in paragraphs (1) - (4) of this subsection" at the end of the first sentence in §4.1605 to simplify and clarify the provision. The section is not broken into subsections and there are only four paragraphs in the section, so it is not necessary to list each paragraph. The amendments add the word "following" to clarify the sentence given the removal and replace "shall" with "must" and "prior to" with "before."
Section 4.1606. Payment of Past Due Premiums. The proposed amendment replaces "annum" with "year."
Section 4.1609. Notification and Disclosure Requirements. The proposed amendments update section citations made obsolete after the administrative transfer, remove a cited section title that is redundant, amend punctuation, and replace "thereto" with "to the policy" and "which" with "that."
Section 4.1610. Reinstatement Procedures. The proposed amendment replaces "shall" with "must."
Section 4.1611. Reduced Benefits. The proposed amendments replace "shall" with "must."
Section 4.1612. Form Filing Procedures. The proposed amendments update section citations made obsolete after the administrative transfer and remove two redundant section title citations. The amendments also add "Chapter 3" to the citation in §4.1612(c) and amend the title of Subchapter A in §4.1612(c).
Section 4.1613. Notice and Disclosure Form. The proposed amendments update section and figure citations made obsolete after the administrative transfer. The amendments also remove a redundant title citation and replace "shall" with "must." No amendments are proposed to the contents in the figures.
Subchapter Q. Nonforfeiture Standards for Individual Life Insurance in Employer Pension Plans.
The proposal adds "Life -" to the title of Subchapter Q to clarify the applicability of the subchapter.
Section 4.1702. Definitions. The proposed amendments remove "shall," correct punctuation, and replace "National Association of Insurance Commissioners" with "NAIC" for consistency. The amendments also correct the case law citation in §4.1702(8) by italicizing the names of the parties for consistency with §4.1703.
Section 4.1703. Standard. The proposed amendments change the Norris case law citation in §4.1703(d) to reflect the same case law citation used in §4.1702(8) for consistency. The amendments also remove an unnecessary reference to a list of insurance code sections, update the TDI mailing address; add the titles to the citations for Insurance Code Chapter 425, Subchapter B, and Chapter 1105, Subchapter B; remove "herein"; and replace "paid up" with "paid-up" and "which" with "that."
Section 4.1704. Alternate Rule. The proposed amendments update a section citation made obsolete after the administrative transfer, remove an unnecessary reference to a list of insurance code sections, and add titles to the citations for Insurance Code Chapter 425, Subchapter B, and Chapter 1105, Subchapter B. The amendments also update the TDI mailing address and replace "which" with "that."
Section 4.1705. Unfair Discrimination. The proposed amendment adds a title to the Insurance Code §541.057 citation.
Section 4.1706. Severability. The proposed amendments remove "thereby" and replace "shall" with "will" and "thereof" with "of these provisions."
Section 4.1707. 2001 CSO Mortality Table. The proposed amendments replace the sections cited with a citation to "Subchapter AA, Division 3" and replace "shall" with "must," "pursuant to" with "under," and "title" with "chapter."
Subchapter U. Variable Annuities.
Section 4.2102. Definitions. The proposed amendments add a title to the Insurance Code Chapter 1152 citation, amend punctuation, and replace "which" with "that," "pursuant to" with "under," and "contractholder" with "contract holder."
Section 4.2103. Qualifications of Insurer To Issue Variable Annuities. The proposed amendments replace "To" with "to" in the section title and update a section citation made obsolete after the administrative transfer.
The amendments also amend punctuation and replace "he or she" with "the commissioner"; "State Board of Insurance" with "Department of Insurance"; "which" with "that"; and "shall" with "must," "may," or "will."
Section 4.2104. Separate Accounts. The proposed amendments add a title to the Insurance Code Chapter 1152 citation and update section citations made obsolete after the administrative transfer. The amendments also remove redundant instances of "or" at the end of §4.2104(a)(2)(A) and §4.2104(j)(1) and add "and" at the end of §4.2104(j)(3)(C) to clarify that the insurer must include all the information in paragraph (3), if applicable.
The amendments also replace "To" with "to" in a title citation, amend punctuation, and replace "which" with "that," "contractholders" with "contract holders," "prior to" with "before," "pursuant to" with "under," and "thereunder" with "adopted under that section" or "under the contract," as appropriate.
Section 4.2105. Contract Requirements. The proposed amendments replace outdated Insurance Article citations with current Insurance Code citations and their corresponding titles. The amendments also replace a citation and title to "Board Order 40701" with "Chapter 3, Subchapter A" and its corresponding title citation.
The amendments also amend punctuation throughout, remove "thereunder" and "the" before "Internal Revenue Code," and replace "which," "as of which," or "of which" with "that"; "him or her" or "his or her" with "the commissioner" or "the contract holder," as appropriate; "chapter" with "title"; "prior to" with "before"; "contractholder" with "contract holder"; "pursuant to" with "under"; "shall have" with "has"; "previous to" with "before"; " subparagraph" with " subparagraphs"; and "shall" with "must," "may," "will," or "do."
Section 4.2106. Separability. The proposed amendments remove "thereby" and replace "thereof" with "of these sections" and "shall" with "will."
Subchapter W. Annuity Disclosures.
Division 1: Annuity Contract Disclosures.
Section 4.2302. Applicability and Scope. The proposed amendments remove "the" before Insurance Code and Finance Code for consistency, add titles to the Insurance Chapter 102 citation and the Finance Code Chapter 154 citation, and amend punctuation.
Section 4.2304. Definitions. The proposed amendments update a section citation made obsolete after the administrative transfer and add titles to the Insurance Code Chapter 102 and 4054 citations. The amendments also remove "the" before Insurance Code and "shall" throughout the section and replace "subchapter" with "title."
Section 4.2306. Guaranteed and Non-guaranteed Elements. The proposed amendments update section citations made obsolete after the administrative transfer, replace "Non-guaranteed" with "Non-Guaranteed" in the section title, and replace "subchapter" with "title."
Section 4.2307. Effect on Other Law. The proposed amendments replace "pursuant to" with "under."
Section 4.2308. Required Consumer Notices. The proposed amendments update section citations made obsolete after the administrative transfer and add the title to the Insurance Code §1152.110 citation. The amendments remove "the" before Insurance Code, amend punctuation, and replace "subchapter" with "title," "Internet" with "internet," "which" with "and," "prior to" with "before," and "shall" with "must" or "will."
Section 4.2309. Disclosure Document. The proposed amendment replaces "shall" with "must."
Section 4.2310. Buyer's Guide. The proposed amendments correct punctuation and replace "NAIC" with "National Association of Insurance Commissioners (NAIC)" and "SEC's" with "Securities and Exchange Commission (SEC)."
Section 4.2311. Free Look Period. The proposed amendments replace "shall" with "must" and "shall mean" with "means."
Section 4.2312. Report to Contract Owners. The proposed amendment replaces "shall" with "must."
Division 2: Annuity Suitability Disclosures.
Section 4.2322. Required Forms. The proposed amendments add "(NAIC)" at the end of the first use of "National Association of Insurance Commissioners" and then replace all instances of "National Association of Insurance Commissioners" with "NAIC." The proposal also removes "Texas" before "Insurance Code" for consistency with current agency rule drafting style.
Subchapter AA. Mortality Tables.
Division 1: Annuity Mortality Tables.
Section 4.2701. Purpose. The proposed amendments update section and figure citations made obsolete after the administrative transfer. No amendments are proposed to the contents in the figures.
Section 4.2702. Definitions. The proposed amendments update a section citation made obsolete after the administrative transfer, replace "Actuaries'" with "Actuaries" and "table" with "Table," and amend punctuation. The amendments also add "(NAIC)" at the end of the first use of "National Association of Insurance Commissioners" and then replace all instances of "National Association of Insurance Commissioners" with "NAIC."
Section 4.2705. Application of the 1994 GAR Table. The proposed amendments update a figure citation made obsolete after the administrative transfer. No amendments are proposed to the contents in the figures.
Section 4.2706. Application of the 2012 IAR Mortality Table. The proposed amendments update figure citations made obsolete after the administrative transfer. Amendments to figure citations are proposed in both the rule text and the text of Figure: 28 TAC §4.2706.
Division 2. Smoker-Nonsmoker Composite Mortality Tables.
Section 4.2712. Definitions. The proposed amendments update punctuation and remove "shall."
Section 4.2713. Alternate Tables. The proposed amendments update section citations made obsolete after the administrative transfer, remove an unnecessary reference to a list of insurance code sections in two places, and add the title to the Insurance Code, Chapter 1105, Subchapter B, citation. The amendments also remove a redundant title to a section cited earlier in §4.2713, amend punctuation, update a TDI mailing address, remove "herein," and replace "paid up" with "paid-up."
Section 4.2714. Conditions. The proposed amendment adds the title to the Insurance Code §425.068 citation.
Section 4.2715. Severability. The proposed amendments remove "thereby" and replace "thereof" with "of these sections" and "shall" with "will."
Section 4.2716. 2001 CSO Mortality Table. The proposed amendments update section citations made obsolete after the administrative transfer and replace "shall" with "must," "pursuant to" with "under," and "title" with "chapter."
Division 3. 2001 CSO Mortality Table.
Section 4.2721. Purpose. The proposed amendments update a section citation made obsolete after the administrative transfer and add titles to the citations for Insurance Code Chapter 425, Subchapter B; §425.058; and §1105.055.
Section 4.2722. Definitions. The proposed amendments update punctuation, remove "shall," and capitalize "Mortality."
Section 4.2723. 2001 CSO Mortality Table. The proposed amendments update section citations made obsolete after the administrative transfer and add titles to the citations for Insurance Code Chapter 425, Subchapter B; §425.058; and §1105.055. The proposal also corrects a citation from Insurance Code "§1055.055(h)" to "§1105.055(h)" in §4.2723(b).
The amendments also remove a redundant title to a section cited earlier in §4.2723; replace "Commissioner of Insurance" with "commissioner," "title" with "chapter," and "pursuant to" with "under"; and update a TDI mailing address and the TDI website where the 2001 CSO Mortality Table may be accessed.
Section 4.2724. Conditions. The proposed amendments update section citations made obsolete after the administrative transfer and add the title to the Insurance Code §425.068 citation. The amendments also replace "Chapter 3, Subchapter EE" with "Chapter 4, Subchapter BB, Division 3" in a title citation and correct inconsistent capitalization in §4.2724(a)(1) - (3) to reflect the punctuation used in the section.
Section 4.2725. Applicability of the 2001 CSO Mortality Table to Chapter 3, Subchapter EE of this Title. The proposed amendments update section citations made obsolete after the administrative transfer and replace "Chapter 3, Subchapter EE" with "Chapter 4, Subchapter BB, Division 3" in the section title and rule text. The amendments also amend punctuation, replace "shall be" with "is" and "shall" with "may," and remove "shall," as appropriate.
Section 4.2726. Gender-Blended Tables. The proposed amendments add titles to the citations for Insurance Code Chapter 541 and Chapter 425, Subchapter B; and update the TDI mailing address and the TDI website where the blended tables developed by the American Academy of Actuaries CSO Task Force may be accessed.
Division 4. Preferred Mortality Tables.
Section 4.2731. Purpose. The proposed amendments update a section citation made obsolete after the administrative transfer and add titles to the Insurance Code Chapter 425, Subchapter B and §425.058 citations.
Section 4.2732. Definitions. The proposed amendments remove "shall" and amend punctuation.
Section 4.2733. 2001 CSO Preferred Class Structure Table. The proposed amendments update section citations made obsolete after the administrative transfer and add the title to the Insurance Code Chapter 425, Subchapter B citation. The amendments also replace "pursuant to" with "under" and "prior to" with "before" and update the TDI mailing address and the TDI website where the 2001 CSO Preferred Class Structure Mortality Table may be accessed.
Section 4.2734. Conditions. The proposed amendments update punctuation and replace "NAIC" with "National Association of Insurance Commissioners (NAIC)," "prior to" with "before," and "shall" with "must" or "will."
Subchapter BB. Life and Annuity Reserves.
Division 1. Actuarial Opinion and Memorandum Regulation.
Section 4.2801. Purpose. The proposed amendments remove the language "described in paragraphs (1) - (3) of this section" at the end of the first sentence in §4.2801 to simplify and clarify the provision. The section is not broken into subsections and there are only three paragraphs in the section, so it is not necessary to list out each paragraph. The amendments also add the word "following" to clarify the sentence given the removal and add the title to the Insurance Code §425.054 citation.
Section 4.2802. Scope and Applicability. The proposed amendments update section citations made obsolete after the administrative transfer and add the title to the Insurance Code Chapter 425, Subchapter B citation. The amendments also replace "thereof" with "of the statement of opinion," "shall apply" with "applies," "shall have" with "has," "shall be" with "is," "which" with "that," "his or her" with "their," and "shall" with "must."
Section 4.2803. Commissioner Discretion. The proposed amendments update section citations made obsolete after the administrative transfer and replace "which" with "that."
Section 4.2804. Definitions. The proposed amendments update section citations made obsolete after the administrative transfer and add titles to the Insurance Code §884.307 and §884.402 citations. The proposal also amends punctuation; removes "shall"; and replaces "pursuant to" with "under," "his or her" with "their," and "which includes" with "including."
Section 4.2805. General Requirements. The proposed amendments update a section citation made obsolete after the administrative transfer and add titles to the Insurance Code §§425.054, 425.064, 425.065, 425.068, and 425.069 citations.
Section 4.2806. Statement of Actuarial Opinion Based on an Asset Adequacy Analysis. The proposed amendments update figure and section citations made obsolete after the administrative transfer and add the title to the Insurance Code Chapter 425, Subchapter B citation. The proposal also updates section citations in Figure: 28 TAC §4.2806(b)(2). No other amendments are proposed to the contents in the figures.
The amendments replace "be at least" with "include the following" in §4.2806(f)(1)(C)(ii) for clarity and amend punctuation. The proposal also capitalizes the words beginning each paragraph in §4.2806(f)(1) to reflect the amended punctuation and replaces "subsequent to" with "before" and "being" with "may be" in §4.2806(f)(1)(B) to clarify that before an alternative statement may be issued, the company must file certain requirements.
The proposed amendments also correct a reference to the title of 28 TAC §7.18 and replaces "NAIC" with "National Association of Insurance Commissioners," "that which" with "what," "which" with "that," and "he or she" or "his or her" with "the appointed actuary" or "their."
Section 4.2807. Description of Actuarial Memorandum Including an Asset Adequacy Analysis and Regulatory Asset Adequacy Issues Summary. The proposed amendments update section citations made obsolete after the administrative transfer and add titles to the citations for Insurance Code Chapters 401 and 425, Subchapter B. The proposal replaces citations to Insurance Code §§425.054 - 425.057 with Chapter 425, Subchapter B.
The amendments replace a colon at the end of a statement with "the following" and a period and correct capitalization for consistency with the subsection's organization.
The proposal also updates a TDI mailing address; removes "the" before Insurance Code; amends punctuation; and replaces "which" with "that," "his or her" with "the appointed actuary's," and "their" with "the other actuaries.'"
Section 4.2808. Asset Adequacy Analysis Exemption. The proposed amendments update section citations made obsolete after the administrative transfer, capitalize "Commissioner" as it appears in the title for §4.2803, and replace "pursuant to" with "under" and "shall" with "must."
Division 2. Strengthened Reserves Pursuant to Insurance Code §425.067.
Section 4.2811. Strengthened Reserves Pursuant to Insurance Code §425.067. The proposed amendments add titles to the Insurance Code §425.053 and §425.067 citations and replace "pursuant to" with "under" in the section title.
Division 3. Valuation of Life Insurance Policies.
Section 4.2821. Purpose. The proposed amendments revise capitalization to reflect current agency drafting style. .
Section 4.2822. Adoption of Tables of Select Mortality Factors. The proposed amendments update a figure citation made obsolete after the administrative transfer and replace "age last birthday" with "age-last-birthday," "age nearest birthday" with "age-nearest-birthday," and "which" with "that." No amendments are proposed to the contents in the figures.
Section 4.2823. Applicability. The proposed amendments update section citations made obsolete after the administrative transfer and add the title to the Insurance Code Chapter 425, Subchapter B citation. The proposal also amends punctuation and replaces "Nonlevel" with "nonlevel" and "shall" with "does" or "must."
Section 4.2824. Definitions. The proposed amendments update section and figure citations made obsolete after the administrative transfer; remove a redundant title already cited; update punctuation; and replace "subchapter" with "title," "shall" with "must" or "may," and "one percent" with "1%." These amendments are made in the rule text and in the text of Figure: 28 TAC §4.2824(2).
Proposed amendments also add or correct titles to the citations for Insurance Code Chapter 425, Subchapter B and §§425.061, 425.064, and 425.068; remove "shall" and instances of "the" before Insurance Code; replace "one year" with "one-year,"; and correct capitalization throughout the section. These nonsubstantive amendments are meant to align the section with other similar sections.
Section 4.2825. General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves. The proposed amendments update section citations made obsolete after the administrative transfer; correct a title citing to Insurance Code Chapter 425, Subchapter B; and remove a redundant title already cited.
The amendments correct capitalization and add "or" at the end of §4.2825(b)(3)(G)(iii) to reflect that, if select mortality factors are elected, it may be those found in §4.2825(b).
The amendments also remove "the" before "Insurance Code"; amend punctuation; and replace "shall" with "must, "percent" with "%," "prior to" with "before," and "subchapter" or "chapter" with "title."
Section 4.2826. Calculation of Minimum Valuation Standard for Policies with Guaranteed Nonlevel Gross Premiums of Guaranteed Nonlevel Benefits (Other than Universal Life Policies). The proposed amendments update section citations made obsolete after the administrative transfer; add the title to the Insurance Code Chapter 425, Subchapter B citation; and remove a redundant title already cited. The amendments also update punctuation and replace "prior to" with "before," "subsequent to" with "after," "twenty-four" with "24," and "twenty-five" with "25."
Section 4.2827. Calculation of Minimum Valuation Standard for Flexible Premium and Fixed Premium Universal Life Insurance Policies That Contain Provisions Resulting in the Ability of a Policyholder to Keep a Policy in Force Over a Secondary Guarantee Period. The proposed amendments update section citations made obsolete after the administrative transfer; correct capitalization in §4.2827(d) to reflect the subsection organization; amend punctuation; and replace "one year" with "one-year," "which" with "that," and "shall" with "must."
Section 4.2829. 2001 CSO Mortality Table. The proposed amendments update section citations made obsolete after the administrative transfer by replacing "§§3.9101 - 3.9106" with "Subchapter AA, Division 3" and replace "shall" with "must," "title" with "chapter," and "pursuant to" with "under."
Division 4. Preneed Life Insurance Minimum Mortality Standards for Determining Reserve Liabilities and Nonforfeiture Values.
Section 4.2831. Purpose and Applicability. The proposed amendments update a section citation made obsolete after the administrative transfer and replace "of the Insurance Code" with titles to the Insurance Code §425.058 and §1105.055 citations. The amendments also replace "chapter" with "title" and add "Insurance Code" before the Insurance Code citations.
Section 4.2832. Definitions. The proposed amendments add titles to the Finance Code Chapter 541 and §541.002 citations, remove "shall" and "the" before Finance Code, amend punctuation, and replace "which" with "that."
Section 4.2833. Minimum Valuation Mortality Standards. The proposed amendments update a section citation made obsolete after the administrative transfer and replace "subchapter" with "title" and "shall be" with "is."
Section 4.2834. Minimum Valuation Interest Rate Standards. The proposed amendments correct the title for the Insurance Code Chapter 425, Subchapter B and Chapter 1105 citations; remove "the" before Insurance Code; and replace "shall be" with "are."
Section 4.2835. Minimum Valuation Method Standards. The proposed amendments update the titles for the Insurance Code Chapter 425, Subchapter B and Chapter 1105 citations; update punctuations; replace "shall be" with "is"; and remove "the" before "Insurance Code."
Section 4.2836. Transitional Use of the 2001 CSO Mortality Table. The proposed amendments update section citations made obsolete after the administrative transfer by replacing "§§3.9101 - 3.9106" with "Subchapter AA, Division 3." The proposal also replaces "shall" with "must."
FISCAL NOTE AND LOCAL EMPLOYMENT IMPACT STATEMENT. Rachel Bowden, director of Regulatory Initiatives in the Life and Health Division, has determined that during each year of the first five years the proposed repeal and amendments are in effect, there will be no measurable fiscal impact on state and local governments as a result of enforcing or administering them, other than that imposed by statute. Ms. Bowden made this determination because the proposed repeal and amendments do not add to or decrease state revenues or expenditures, and because local governments are not involved in enforcing or complying with them.
Ms. Bowden does not anticipate measurable effect on local employment or the local economy as a result of this proposal.
PUBLIC BENEFIT AND COST NOTE. For each year of the first five years the proposed repeal and amendments are in effect, Ms. Bowden expects that administering them will have the public benefit of ensuring that TDI's rules are accurate and transparent by reflecting updated citations to sections in Chapter 4 and current state agency addresses, and by eliminating errors in punctuation, grammar, and typography.
Ms. Bowden expects that the proposed repeal and amendments will not increase the cost of compliance for stakeholders because they do not impose substantive changes.
ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS. TDI has determined that the proposed repeal and amendments will not have an adverse economic effect on small or micro businesses, or on rural communities. The proposed amendments are nonsubstantive and do not change requirements in the rule sections. As a result, and in accordance with Government Code §2006.002(c), TDI is not required to prepare a regulatory flexibility analysis.
EXAMINATION OF COSTS UNDER GOVERNMENT CODE §2001.0045. TDI has determined that this proposal does not impose a possible cost on regulated persons.
GOVERNMENT GROWTH IMPACT STATEMENT. TDI has determined that for each year of the first five years that the proposed repeal and amendments are in effect, the proposed rule:
- will not create or eliminate a government program;
- will not require the creation of new employee positions or the elimination of existing employee positions;
- will not require an increase or decrease in future legislative appropriations to the agency;
- will not require an increase or decrease in fees paid to the agency;
- will not create a new regulation;
- will not expand or limit existing regulation because proposed amendments are nonsubstantive, but will repeal one existing section;
- will not increase or decrease the number of individuals subject to the rule's applicability; and
- will not positively or adversely affect the Texas economy.
TAKINGS IMPACT ASSESSMENT. TDI has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action. As a result, this proposal does not constitute a taking or require a takings impact assessment under Government Code §2007.043.
REQUEST FOR PUBLIC COMMENT. TDI will consider any written comments on the proposal that are received by TDI no later than 5:00 p.m., central time, on October 23, 2023. Send your comments to ChiefClerk@tdi.texas.gov or to the Office of the Chief Clerk, MC: GC-CCO, Texas Department of Insurance, P.O. Box 12030, Austin, Texas 78711-2030.
To request a public hearing on the proposal, submit a request before the end of the comment period to ChiefClerk@tdi.texas.gov or to the Office of the Chief Clerk, MC: GC-CCO, Texas Department of Insurance, P.O. Box 12030, Austin, Texas 78711-2030. The request for public hearing must be separate from any comments and received by TDI no later than 5:00 p.m., central time, on October 23, 2023. If TDI holds a public hearing, TDI will consider written and oral comments presented at the hearing.
SUBCHAPTER C. CONSUMER NOTICES FOR LIFE INSURANCE POLICY AND ANNUITY CONTRACT REPLACEMENTS
STATUTORY AUTHORITY. TDI proposes amendments to §§4.201 - 4.206 under Insurance Code §§1114.006, 1114.007, and 36.001.
Insurance Code §1114.006 provides that the commissioner by rule adopt or approve model documents to be used for consumer notices under Insurance Code Chapter 1114.
Insurance Code §1114.007 authorizes the commissioner to adopt reasonable rules in the manner prescribed by Insurance Code Chapter 36, Subchapter A, to accomplish and enforce the purposes of Insurance Code Chapter 1114.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter C affects Insurance Code §§1114.006, 1114.051, and 1114.055.
§4.201.Purpose.
The purpose of this subchapter is to specify the content and
procedural requirements for consumer notices for life insurance policy
and annuity contract replacements as required by [the]
Insurance Code §1114.006, concerning Consumer Notice Documents.
§4.202.Definitions.
When used in this subchapter, the words "agent" and "producer"
[shall] mean, unless the context clearly indicates otherwise,
an individual who holds a license under Insurance Code Chapter 4054,
concerning Life, Accident, and Health Agents, and who sells,
solicits, or negotiates life insurance or annuities in this state.
§4.203.Consumer Notice Content and Format Requirements.
(a) The text contained in Figure: 28 TAC §4.204(b)
[§3.9504(b)], Figure: 28 TAC §4.205(1), [§3.9505(1)] and Figure: 28 TAC §4.205(2) [§3.9505(2)] must be in at least 10-point type and presented
in the same order as indicated in each figure and without any change
to the specified text, including bolding effects, except as provided
in subsections (b), (c), and (d) of this
section.
(b)
Under §4.206 [Pursuant to
§3.9506] of this title (relating to Filing Procedures for
Substantially Similar Consumer Notices), in lieu of using the notices
contained in Figure: 28 TAC §4.204(b) [§3.9504(b)
] or Figure: 28 TAC §4.205(1) [§3.9505(1)
], an insurer may file a notice with the department that is
substantially similar to the text contained in Figure: 28 TAC §4.204(b)
[§3.9504(b)] or Figure: 28 TAC §4.205(1)
[§3.9505(1)] for review and approval by the
commissioner. The commissioner will approve the notice if, in the
commissioner's opinion, the notice protects the rights and interests
of applicants to at least the same extent as the notices adopted in
Figure: 28 TAC §4.204(b) [§3.9504(b)]
or Figure: 28 TAC §4.205(1) [§3.9505(1)].
An insurer required to send the notice specified in Figure: 28 TAC §4.205(2)
[§3.9505(2)] may not file a notice that is
substantially similar to that figure for review and approval by the
commissioner.
(c) Commissioner approval of a notice is not required if a notice promulgated or approved under this subchapter is used and amendments to that notice are limited to the omission of references not applicable to the product being sold or replaced. For purposes of this subchapter, a reference in any notice required under this subchapter to a product that is being sold or replaced is applicable if the reference could be applicable under any possible circumstances and therefore may not be omitted from the required notice.
(d) An insurer may add a company name and identifying form number to notices specified under this subchapter without obtaining commissioner approval.
(e)
The promulgated forms specified in this subchapter
are available upon request from the Life and Health Division,
Life and Health Lines, MC: LH-LHL, Texas Department of Insurance,
P.O. Box 12030, Austin, Texas 78711-2030 [Texas Department
of Insurance, Life and Health Division, Life and Health Lines, MC-LH-LHL,
P.O. Box 12030, Austin, Texas 78711-2030], or by accessing the
department website at www.tdi.texas.gov/forms.
§4.204.Consumer Notice Regarding Replacement for Insurers Using Agents.
(a) An agent who initiates an application for a life
insurance policy or annuity contract must [shall]
submit to the insurer, with or as part of the application, a statement
signed by both the applicant and the agent as to whether the applicant
has existing life insurance policies or annuity contracts.
(b) If the applicant states that the applicant does
have existing policies or contracts, the agent must [shall
] present and read to the applicant, not later than at the time
of taking the application, a notice regarding replacement that contains
the text contained in Figure: 28 TAC §4.204(b) [§3.9504(b)
], or substantially similar notice filed with the department
and approved under this subchapter. The notice must [shall
] be signed by both the applicant and the agent attesting that
the notice has been read aloud by the agent or that the applicant
did not wish the notice to be read aloud, in which case the agent
is not required to read the notice aloud.
Figure: 28 TAC §4.204(b) (.pdf)
[Figure: 28 TAC §3.9504(b)]
§4.205.Direct Response Consumer Notices.
In the case of a life insurance or annuity application initiated
as a result of a direct response solicitation, the insurer must [shall] inquire whether the applicant, by applying for the proposed
policy or contract, intends to replace, discontinue, or change an
existing life insurance policy or annuity contract. The inquiry may
be included with, or submitted as a part of, each completed application
for such policy or contract.
(1) If the insurer has proposed the replacement or
if the applicant indicates a replacement is intended and the insurer
continues with the replacement, the insurer must [shall]
send a notice that contains the text in Figure: 28 TAC §4.205(1)
[§3.9505(1)], or a substantially similar notice
filed with the department and approved under this subchapter.
Figure: 28 TAC §4.205(1) (.pdf)
[Figure: 28 TAC §3.9505(1)]
(2)
If the applicant indicates a replacement or change
is not intended or if the applicant fails to respond to the statement,
the insurer must [shall] send the applicant,
with the policy or contract, a new policy or contract notice that
contains the statements in Figure: 28 TAC §4.205(2)
[§3.9505(2)].
Figure: 28 TAC §4.205(2) (.pdf)
[Figure: 28 TAC §3.9505(2)]
§4.206.Filing Procedures for Substantially Similar Consumer Notices.
[(a) Beginning with the effective
date of this subchapter and ending January 31, 2008, an insurer subject
to Insurance Code Chapter 1114 may use a consumer notice that is substantially
similar to the text promulgated in Figure: 28 TAC §3.9504(b)
or Figure: 28 TAC §3.9505(1) immediately after filing the consumer
notice with the department. An insurer who has filed a consumer notice
that is substantially similar to the text promulgated in Figure: 28
TAC §3.9504(b) or Figure: 28 TAC §3.9505(1) in the period
of time beginning with the effective date of this subchapter and ending
on January 31, 2008, will receive a notice of approval or disapproval
of the consumer notice from the commissioner.]
[(1) An insurer who has filed a consumer notice that is substantially similar to the text promulgated in Figure: 28 TAC §3.9504(b) or Figure: 28 TAC §3.9505(1) in the period of time beginning with the effective date of this subchapter and ending on January 31, 2008, who receives a notice of approval from the commissioner may continue to use the approved consumer notice unless and until such time as the commissioner withdraws approval of the notice.]
[(2) An insurer who has filed a consumer notice that is substantially similar to the text promulgated in Figure: 28 TAC §3.9504(b) or Figure: 28 TAC §3.9505(1) in the period of time beginning with the effective date of this subchapter and ending on January 31, 2008, who receives a notice of disapproval from the commissioner shall stop using the consumer notice, but may refile the notice subject to the requirements of §3.5(b)(6) of this chapter (relating to Filing Authorities and Categories).]
(a) [(b)] An [Effective
February 1, 2008, an] insurer may not use, issue, or deliver
a notice that is substantially similar to a promulgated consumer notice
specified in Figure: 28 TAC §4.204(b) [§3.9504(b)
] or Figure: 28 TAC §4.205(1) [§3.9505(1)
] until it has been approved.
(1) An [Effective February 1, 2008,
an] insurer subject to Insurance Code Chapter 1114, concerning
Replacement of Certain Life Insurance Policies and Annuities, using
agents must either use the text of the notice contained in Figure:
28 TAC §4.204(b) [§3.9504(b)], which
is not subject to filing and approval, or a consumer notice substantially
similar to the text contained in Figure: 28 TAC §4.204(b), [§3.9504(b)] which has been filed under this
section and approved.
(2) In [Effective February 1, 2008,
in] the case of an applicant responding to a direct response
solicitation, an insurer subject to Insurance Code Chapter 1114 must
either use the text contained in Figure: 28 TAC §4.205(1) [§3.9505(1)], which is not subject to filing and approval,
or a consumer notice substantially similar to the text contained in
Figure: 28 TAC §4.205(1), [§3.9505(1)]
which has been filed under this section and approved.
(b) [(c)] A [Effective
February 1, 2008, a] filing of a consumer notice that is substantially
similar to a promulgated consumer notice specified in Figure: 28 TAC §4.204(b) [§3.9504(b)] or Figure: 28 TAC §4.205(1) [§3.9505(1)] must be filed in
accordance with the submission requirements of Chapter 3, Subchapter
A [§3.4] of this title (relating to Submission
Requirements for Filings and Departmental Actions Related to Such
Filings) [chapter (relating to General Submission Requirements),
and is subject to the same standards and procedures as a filing made
under §3.5(a)(1) of this chapter. A filing of a consumer notice
that is substantially similar to a promulgated consumer notice specified
in Figure: 28 TAC §3.9504(b) or Figure: 28 TAC §3.9505(1)
will be processed according to the procedures specified in §3.7
of this chapter (relating to Form Acceptance and Procedures). A consumer
notice that is disapproved by the commissioner is subject to the requirements
of §3.5(b)(6) of this chapter].
(c) [(d)]Insurers [Effective
April 1, 2008, insurers] subject to Chapter 1114 who elect not
to use a consumer notice specified in this subchapter must [shall] file a notice that is substantially similar to a promulgated
consumer notice specified in Figure: 28 TAC §4.204(b) [§3.9504(b)] or Figure: 28 TAC §4.205(1) [§3.9505(1)] no later than 60 days before [prior
to] use. A consumer notice that is substantially similar to
a promulgated consumer notice specified in Figure: 28 TAC §4.204(b)
[§3.9504(b)] or Figure: 28 TAC §4.205(1)
[§3.9505(1) filed after April 1, 2008,] is
subject to Insurance Code §1701.054, concerning Approval
of Form [(relating to approval of forms)]. Insurers
that have filed and received approval of a consumer notice [before
April 1, 2008,] may continue to use the approved consumer notice
unless and until such time as the commissioner withdraws approval
of the notice.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303273
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
28 TAC §§4.601 - 4.608, 4.611, 4.613 - 4.628
STATUTORY AUTHORITY. TDI proposes amendments to §§4.601 - 4.608, 4.611, and 4.613 - 4.628 under Insurance Code §§541.401, 543.001(c), 1701.060 and 36.001.
Insurance Code §541.401 provides that the commissioner may adopt and enforce reasonable rules necessary to accomplish the purposes of Insurance Code Chapter 541.
Insurance Code §543.001(c) provides that the commissioner may adopt and enforce rules as provided by Insurance Code Chapter 541, Subchapter I to accomplish the purposes of §543.001(b)(1), prohibiting misrepresentation, as those purposes relate to life insurance companies.
Insurance Code §1701.060 authorizes the commissioner to adopt reasonable rule necessary to implement the purposes of Insurance Code Chapter 1701.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter F affects Insurance Code Chapters 541, 705, 1101, 1105, 1110, and §841.253 and §1701.060.
§4.601.Payment of Premiums.
(a) The policy must provide that premiums are payable in advance. The policy may provide that the premium is payable at the home office; it may provide that the premium is payable to an agent of the company; or it may provide that the premium is payable at the home office of the company or to an agent of the company.
(b) The policy must provide that a receipt signed by
one or more of the officers of the company will be delivered upon
payment of the premium. The policy must designate the officers who
may sign the receipt. Any manner of "designation" is acceptable if
it will enable the policyholder to determine that the [his
] receipt has been signed by an authorized person.
(c) A policy that [which] permits
a change in the manner of payment of premium (e.g., from annual to
semiannual, quarterly, etc.):
(1) may either specify the amount of premiums required for the periods authorized or the formula for the determination of such premiums; or
(2) may define the amounts by appropriate reference to rates being charged at the date of issue.
(d) The policy may provide that any unpaid premiums
or installments at [thereof to] the end of the
current policy year will [shall] be deducted
from the proceeds payable on death.
§4.602.Grace Period.
(a) The policy must provide for a grace period of at
least one month for the payment of every premium after the first,
during which period the policy must [shall]
remain in full force and effect. If the grace period is expressed
in days, at least 31 days of grace must be granted.
(b) The policy may provide for an interest charge on the unpaid premium during the grace period. If an interest charge is provided for, the interest rate must be specified.
(c) The policy may stipulate that if the insured should die during the grace period, the overdue premium or overdue installment will be deducted from any settlement under the policy. If an interest charge is provided against the overdue payment, the accrued interest may also be deducted.
(d) This section is not applicable to single premium policies.
§4.603.Entire Contract.
(a) The policy must provide that the policy, or policy
and application, [shall] constitute the entire contract
between the parties. Regardless of any statement to the contrary,
the policy will be deemed incomplete if it attempts to incorporate
by reference the provisions of any instrument that [which
] changes or adds to the terms of the policy.
(b) Some policy forms contain a provision that the
application, if attached, [shall] constitute a part of
the contract. If a policy containing such a provision is submitted
without the application, the approval will authorize its issuance
only without the application.
§4.604.Incontestable Clause.
(a) The policy must provide that it will be incontestable not later than two years from its date as provided in Insurance Code §1101.006, concerning Incontestability. If a reinstatement is contested for misrepresentation, then no representation other than one causing the reinstatement may be used to contest the policy. Any contest of the reinstatement may be for a material and fraudulent misrepresentation only and reinstatement may not be contested more than two years after it is effectuated, provided that this provision does not affect the company's right to contest a policy for a representation respecting the initial policy issuance or a different reinstatement during the incontestable period applicable to such issuance or reinstatement. Accidental death benefits and disability benefits need not be subject to such provision.
(b) Any provision that [which]
could lengthen the contestable period of a policy beyond two years
from its date is prohibited. For example, the policy may not state
that it is incontestable after two years "while the policy is continuously
in force."
(c) The policy may contain provisions that [which] allow its validity to be contested at any time [whatsoever
] for:
(1) nonpayment of premium; or
(2) violation of the conditions of the policy relating
to naval or military services in time of war. Note: War clauses are
discussed in §4.621(e) [§3.118(e)]
of this title (relating to Settlement at Maturity) [(relating
to Conversion
Provision)].
(d) If the form under review contains no reference to contest after reinstatement, it will also be acceptable.
(e) If more than one person is insured, the policy form must state that it is incontestable with respect to each insured.
§4.605.Statements of the Insured.
(a) The policy must provide that all statements made by the insured will, in the absence of fraud, be deemed representations and not warranties. The policy may provide that statements made on behalf of the insured will also, in the absence of fraud, be deemed representations and not warranties.
(b) Policy applications sometimes contain agreements that [which] call attention to some, or all, of the
elements that [which] must be proved in avoiding
the policy for misrepresentation. Such agreements are acceptable, provided:
(1) they do not attempt to burden the insured's representations with the legal consequences of warranties;
(2) they do not attempt to require the insured to prove the nonexistence of grounds upon which the insurer could contest the policy; and
(3) they do not attempt to permit the insurer to avoid liability on grounds less stringent than under Insurance Code §705.004, concerning Policy Provision: Misrepresentation in Policy Application, or other applicable law.
§4.606.Misstatement of Age.
(a) The policy must provide that if the age of the
insured has been understated, the amount payable under the policy is
the amount that [shall be such as] the premium paid
would have purchased at the correct age. The word "misstated" may
be used instead of "understated."
(b) If more than one life is insured (e.g., by inclusion
of premium payor benefits or under family group plan), the
amount payable on the death of deceased may be adjusted because of
a misstatement in the age of a surviving insured[,] if
the actuarial construction of the contract so requires.
§4.607.Policy Loans.
(a) A policy loan provision is not required in term insurance policies, nor in pure endowments issued or granted as original policies or in exchange for lapsed or surrendered policies.
(b) Loans must be made available at any time while the policy is in force after premiums for three full years have been paid and a cash value is available.
(c) The loan clause must provide for proper assignment of the policy to the company.
(d) The policy must be the sole security for the loan.
(e) Insurance Code Chapter 1110, concerning Interest
Rates on Certain Policy Loans, deals with interest rates. Insurers
may comply with Chapter 1110 by refiling reprinted and renumbered
policies with a new loan provision or by filing a loan endorsement that
[which] may be attached to newly issued policies
on and after an effective date specified by the insurer. The maximum
rate of interest must be specified in the policy or loan endorsement.
The policy may provide that interest may be made payable in advance
to the end of the current policy year.
(f) The loan clause must provide for lending a sum
equal to[,] or, at the option of the policy
owner, less than[,] the cash value of the policy and [of]
any dividend additions to the policy [thereto].
(g) The policy may provide that the company may deduct from such loan value any existing indebtedness on the policy and any unpaid balance of the premium for the current policy year and may collect interest in advance on the loan to the end of the current year.
(h) The policy may provide that loans may be deferred
for not more than six months after application for the loan [therefor] is made. The six-month period may commence with the
date of receipt of the request by the company, if the policy so provides.
(i)
The loan clause must provide that failure to repay
any such advance, or to pay interest on the loan [thereon
], will not void the policy until the total indebtedness [thereon
] to the company equals or exceeds the cash value of the
policy. The policy may not be terminated merely for failure
to pay loan interest when due. Since the policy may be voided when
the indebtedness equals or exceeds the cash value, this provision
may be so worded that benefits cease upon the precise moment that
the indebtedness equals such
value.
(j)
No condition other than as [herein]
provided in this subchapter will be exacted as a prerequisite
to any such loan.
§4.608.Automatic Nonforfeiture Benefits.
(a) Nonforfeiture values are governed by Insurance Code Chapter 1105, concerning Standard Nonforfeiture Law for Life Insurance.
(b) Occasionally, the cash value (because of the inclusion of accumulated dividends, coupon benefits, or other guaranteed returns) is more than sufficient to purchase the maximum amount of extended term insurance available under the policy. In such cases, the policy must clearly provide for the equitable disposition of the entire cash value.
(c) Automatic nonforfeiture benefits are not applicable to single premium policies.
§4.611.Reinstatement.
(a) All policies that [which]
have nonforfeiture benefits must provide that if, in the event of
default in premium payments, the value of the policy must [shall] be applied for the purchase of other insurance, and if
such insurance is [shall be] in force and the
original policy has not [shall not have] been
surrendered to the company and cancelled, the policy may be reinstated
within three years, or longer at the option of the company, from such
default upon evidence of insurability satisfactory to the company
and payment of arrears of premiums with interest. Evidence of insurability
need not be restricted to evidence of good health only.
(b) If more than one life is insured, evidence of insurability may be required on each individual as a condition precedent to reinstatement of the policy, but the policy may provide for reinstatement of only those lives which are insurable.
(c) This section is not applicable to single premium policies.
§4.613.Family Group Special Requirements.
(a) A family group life insurance policy is considered to be any life insurance policy, other than a regular joint life insurance policy, that grants benefits upon the death of each of the insured members of the family. This does not include individual policies with payor death benefits or beneficiary death benefits when such benefits are provided as a part of the basic policy, or by supplementary agreement and when such additional benefits are designed primarily to promote the continuance of the basic policy. The requirements pertaining to family group policies may not be avoided, however, by merely adding insureds under an individual contract by means of riders or supplementary agreements.
(b)
There must [shall] be included
on the face of the policy the name and age of each insured; the name
of the beneficiary; the maximum amount that [which]
is payable to the payee in the policy in the case of death of such
insured person or persons; and designation of all paragraphs or provisions
limiting or reducing the payment to less than the maximum provided
in the policy. Suicide clauses are the most common type of reduction
provision. The suicide clause, if used, should clearly indicate any
effect that [which] the suicide of one insured
would have on the insurance of other
insureds.
(c) Premiums deductible by the terms of the policy and indebtedness to the company on the policy are considered as counterclaims by the company against the beneficiary. It is not necessary that provisions for such deductions be placed on the face of the policy.
(d) The "face" of the policy means the first page of the policy.
(e)
If the policy provides for coverage that [which] will become effective on the lives of persons who become
members of the family group (by birth or adoption) after the policy
is issued, information relative to these future members need not be
stated on the face of the policy. The policy form will be acceptable
if the provisions relative to these additional members are clear and unambiguous.
§4.614.Dependent Child Riders and Family Term Riders.
(a) The rider must specify the effect on the rider
of the death of the insured(s) under the base policy before [prior to] the expiry date(s) of the rider. The following are
acceptable:
(1) the rider may terminate, in which case no incontestability provision is required;
(2) the rider may convert to paid-up term insurance;
(3) if paid-up term insurance can be surrendered for its cash value, the rider must contain the "surrender within 30 days" statement required by Insurance Code §1105.007, concerning Computation of Cash Surrender Value Following Default; or
(4) the premium for the rider may be waived to the expiry date(s).
(b) If paid-up term insurance is available on the death of the insured under the base policy, the rider or the policy may not provide an incontestable provision for the rider less favorable than specified in Insurance Code §1101.006, concerning Incontestability, with respect to the coverage for each insured from the date the coverage for that insured becomes effective.
(c) The rider or policy must specify the effect on the rider should the insured(s) under the base policy commit suicide.
§4.615.Requirements for a Package Consisting of a Deferred Life Policy with an Accidental Death Rider Attached.
(a) The application must contain a statement that [which] discloses the deferred nature of the insurance and that
[which] reflects the amount of insurance in force
during the deferred period. It may not state only the ultimate amount.
(b) The brief description on the face page and filing back, if any, must call attention to the deferred nature of the insurance, and in no way refer to the accidental death benefit.
(c) If a separate premium is charged for the accidental death benefit, the schedule page must reflect the gross premium broken down in such a manner as to reflect the gross premium for the deferred life insurance and the accidental death benefit independently.
(d) The policy schedule page must reflect the reduced death benefit payable each year the reduction in benefits is maintained, as well as the ultimate face amount payable after the full face amount becomes available. This provision may be in the form of actual figures, a percentage of the ultimate face amount, the premiums plus interest, if applicable, or other provision not in violation of Insurance Code Chapter 1701, concerning Policy Forms, or other laws.
(e) The death benefit during the period of deferred insurance must be as great as the sum of the gross premiums paid (with or without interest). The death benefit may be based on the gross annual premium even though other modes are available under the policy.
(f) The accidental death benefit must be made a part of the entire contract.
(g) The contract of deferred insurance and accidental death benefit must reflect a different form number from any other contract of deferred insurance the company offers.
§4.616.Substitute or Change of Insured Riders.
(a) The rider must [shall] contain
a statement requiring submission of an application signed by both
the owner and the substitute insured.
(b) The rider may require evidence of insurability of the substitute insured.
(c) The following must [shall]
be clearly specified:
(1) policy date;
(2) face amount;
(3) premium structure, including a description of the
determination of premiums for a substitute insured;
and[,]
(4) the plan of insurance.
(d) The disposition of the following items must [shall] be clearly described:
(1) indebtedness under the old policy;
(2) inclusion or exclusion of any supplementary benefits upon exchange;
(3) dividends, if a participating policy; and
(4) adjustments of reserves and cash values.
§4.617.Preliminary Term Life Insurance.
The following requirements apply to a contract of life insurance containing a preliminary term insurance rider:
(1) a grace period must be allowed for payment of the first premium due on the principal policy; and
(2)
the date of commencement of the preliminary term
insurance, which is the date of inception of the contract as a whole,
must be used to measure the period of contestability [contestibility
] and suicide.
§4.618.Conversion Provision.
A conversion provision in a policy must comply with the following:
(1) the conversion provision must [shall]
state the plan and face amount of the new policy;
(2) the text of the provision must [shall]
state what premium rates will apply to the new policy;
(3) the text of the provision must [shall]
discuss the settlement of cash values under the original contract
if the policy is converted on a date other than the expiry date; and
(4) the provision must [shall]
specify that evidence of insurability is not required.
§4.619.Limitations of Lawsuits.
The policy must not contain a provision limiting the time within
which any action at law or in equity may be commenced to less than
two years after the cause of action accrues [shall accrue].
§4.620.Backdating Policies.
(a) The policy must not contain a provision by which
it is issued or takes effect more than six months before the original
application for the insurance was made, if [thereby] the
insured would rate at an age younger than their [his]
age at the date when the application was made, according to their [his] age at the nearest
birthday.
(b) The restrictions against backdating are not violated
by the exercise of conversion privileges contained in the original
policy and that [which] relate back to the original
issue date of the policy, even though the conversion privilege by
its terms is such that the amount of insurance at the conversion may
exceed what [that which] was in force before [prior to]
conversion.
§4.621.Settlement at Maturity.
(a) If the policy provides that proceeds may be paid in installments, it must contain a representative table showing the amounts of such installments.
(b) If the settlement options provision indicates that modes of payment other than monthly may be available, then the amount of such payments must be determinable from the text. If the settlement option indicates a commuted value or present value, to be paid upon death of a payee, the interest rate used to determine this value must be given.
(c) No policy may contain a provision for any mode
of settlement at maturity of less value than the amount insured on
the face of the policy, plus dividend additions, if any, less any
indebtedness to the company on the policy, and less any premium that
may, by the terms of the policy, be deducted. The policy may provide
an exception to this general rule, and reduce the amount of insurance
payable on maturity if death occurs from [either of] the
following causes:
(1) suicide, while sane or insane;
(2) by following stated hazardous occupations; or
(3) from aviation activities under conditions specified by the policy.
(d) Status clauses that [, which would]
attempt an exception if death occurs while the insured is engaged
in the hazardous occupation or aviation activity[,] are prohibited.
(e) Military service may be classed as a hazardous occupation, and benefits may be reduced under authority of this exception. In the alternative, the insurer may, in the incontestable clause, make provisions for contesting the validity of the policy for violations of conditions relating to naval and military services in time of war.
(f) Policies with graded death benefits, such as juvenile policies, will not be approved if they provide for reduction in the amount insured on the face of the policy. Such policies can properly be written by providing the lower amount of insurance in the face of the policy, and making appropriate provisions for increases; or, in the alternative, the in-force insurance at the various durations may be stated in the face of the policy.
(g) The policy must not provide for deduction of all indebtedness of the holder of the contract to the company. The only allowable deduction for indebtedness is an indebtedness on account of and secured by the policy.
§4.622.Tontine Provisions.
Any life insurance policy that [which]
is a tontine policy or that [which] contains
a tontine provision will be disapproved. Provisions by which dividends
during the participating period are not allocated or paid annually
are prohibited as being within the tontine principle unless the policyholder
acquires, on termination of the policy, a vested interest in the dividends that [which] have accrued.
§4.623.Assignment Provisions.
There is no prohibition against a provision that [which] permits the assignment of the policy benefits or proceeds.
However, policies that [which] make provision
for dividends, coupon accumulations, or other guaranteed returns,
and that [which] also contain provision for
the assignment of these funds to a third party for the purpose of
establishing an investment for the policyholder are prohibited.
§4.624.Provisions Relating to Dividends, Coupon Benefits, or Other Guaranteed Returns.
(a) Any provision by which the insurer undertakes to pay specific amounts will be treated as definite contract benefits and valued in accordance with Insurance Code §841.253, concerning Life Insurance Company's Payment of Dividends.
(b) Any policy that [which] contains
a provision promising to pay "dividends" from specified sources must
clearly state that the payment of such dividends must be made from
profits or expense loading.
(c) Any policy that [which] provides
for the payment of dividends, coupon benefits, or other guaranteed
returns must specify the disposition that [which]
will be made of such accumulations if no option is exercised by the
policyholder either on their maturity or in the event of default in
premium payments. Acceptable dispositions are that they be:
(1) applied to the purchase of additional insurance;
(2) left to accumulate at interest;
(3) withdrawn in cash; or
(4) applied to the payment of premiums.
§4.625.Premiums Paid in Advance.
(a) The policy may contain provisions under which the
company will accept advance payments of premiums; but in no event
may the company undertake to accept deposits that [which]
would exceed the maximum amount required to pay all future premiums that [which] will become due under the policy, including
any options contained in the policy [therein].
The contract may permit the insured to withdraw excess deposits in
cash, but any provisions that [which] would
cause a forfeiture of principal[,] or exact a surrender
charge are prohibited. The contract must state the interest rate used
to discount the future premiums and must provide for disposition of
any unused premiums on surrender of the contract or death of the insured.
(b) This section is not applicable to single premium policies.
§4.626.Annuity Contracts.
All sections in Subchapter F [Sections 3.101-3.128
] of this chapter [title] (relating to
Individual Life Insurance Policy Form Checklist and Affirmative Requirements)
apply to the review of ordinary life insurance policies and are not
applicable to annuity contracts. Any contract that [which
] provides death benefits in excess of the total premium paid,
without interest or with interest at a specified rate, or the cash
value at time of death, if greater, will be considered a life insurance
policy. This requirement cannot be avoided by combining riders or
endorsements to a basic annuity, as all pertinent instruments collectively
constitute the contract.
§4.627.Certain Prohibited Provisions.
(a) Any policy that [which] contains
a title, heading, or other indication of its provisions that [which] is misleading will be disapproved. For example, a title,
heading, etc., will be misleading if it contradicts the provisions
of the policy. A life insurance policy may not be described or referred
to as a "bond," nor may premiums be described or referred to as "deposits."
(b) The policy may not contain the words "Approved by the Texas Department of Insurance," "Approved by TDI," "Approved by the commissioner of insurance," or words of a similar import or nature.
§4.628.Renewal Premium on Term Policies.
Renewable term policies may specify rates for renewal terms
in dollars and cents, by reference to rates in use by the company
on the original issue date or by reference to the rates in use by
the company on the renewal date. If such rates are specified by reference
to the rates in effect on the date of issue, such rates must [shall] be submitted with the policy.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303274
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
28 TAC §§4.1001, 4.1002, 4.1004, 4.1005, 4.1008, 4.1010, 4.1011
STATUTORY AUTHORITY. TDI proposes amendments to §§4.1001, 4.1002, 4.1004, 4.1005, 4.1008, 4.1010, and 4.1011 under Insurance Code §§543.001(c), 1701.060, and 36.001.
Insurance Code §543.001(c) provides that the commissioner may adopt and enforce reasonable rules as provided by Insurance Code Chapter 541, Subchapter I to accomplish the purposes of §543.001(b)(1), prohibiting misrepresentation, as those purposes relate to life insurance companies.
Insurance Code §1701.060 specifies that the commissioner may adopt rules necessary to implement the purpose of Insurance Code Chapter 1701.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter J affects Insurance Code Chapter 1105 and §543.001.
§4.1001.Purpose and Scope.
(a) This subchapter is promulgated to regulate life
insurance policies that [which] have the following characteristics:
(1) the premium for the policy is guaranteed for an
initial period of time but after [subsequent to]
such initial period, a maximum premium charge is specified in the
policy; thereafter, the insurer reserves the right to charge a lesser
unspecified amount (this type of policy is hereinafter referred to
as "an indeterminate premium reduction policy"); and
(2) one of the purposes of the policy is to provide insureds with insurance coverage at a lower initial premium than would be obtainable from the insurer if the premiums were required to be unchangeable by the insurer for the life of the policy.
(b) A major purpose of this subchapter is to promote an accurate presentation and description to the insurance-buying public of the indeterminate premium reduction policy. Adequate disclosure is one of the principal objectives of the sections. The sections attempt to ensure that prospective insureds receive a fair, adequate, and accurate impression of the true nature of the indeterminate premium reduction policy. Some of the sections also give notice of certain legal interpretations. The sections are supplementary to and cumulative of other statutes and rules including those promulgated under authority of Insurance Code Chapter 541, concerning Unfair Methods of Competition and Unfair or Deceptive Acts or Practices. This subchapter is applied and interpreted in accordance with the foregoing purposes.
§4.1002.Policy Form Submission.
(a) No indeterminate premium reduction policy may be approved for use in Texas unless the insurer files with the Texas Department of Insurance, in conjunction with such indeterminate premium reduction policy, a statement:
(1) that, to the best of the insurer's [its
] knowledge and belief, the policy submitted is in compliance
with this subchapter;
(2) that advertising and solicitation will be in compliance with this subchapter;
(3) that any premium redetermination will not reflect a distribution of company surplus nor a return of previously collected premiums; and
(4) that any nonguaranteed premium rates used to market
the policy are lower than rates that [which]
the insurer is willing to guarantee in a fixed premium policy with
the same or similar benefits for insureds of essentially the same
class of risk.
(b) A nonguaranteed premium means any charge for insurance, including any percentage deviation from a maximum charge, that an insurer or insurance agent mentions or illustrates as a possible charge for coverage other than the maximum guaranteed premium specified in the policy.
§4.1004.Summary of Provisions.
(a) Upon application for an indeterminate premium reduction
policy or group certificate, a separate form containing a summary that
[which] adequately describes the contractual premium
provisions must be signed by the applicant and submitted to the insurer
in conjunction with the application. A portion of the summary must
include the following information:
(1) the fact that the premium might be changed in the policy;
(2) the frequency of the possible changes;
(3) the fact that the nonguaranteed premium (if used in solicitation or advertising) is not guaranteed but the full maximum could be charged; and
(4) for participating policies, a statement that dividends are only payable if declared by the insurer. If it is not likely that dividends will be paid, a statement to that effect must be included.
(b) The summary required by these sections must be
kept with a copy of the application after [subsequent
to] its receipt by the insurer and maintained in the insurer's
files during the existence of the contract.
§4.1005.Relation of Initial to Later Premium Charge.
If the policy offers an initial premium that [which
] is different from the maximum guaranteed premium specified
in the policy for later policy years, no solicitation or advertisement
may display or state the smaller premium in such a fashion that the
larger premium charge is rendered obscure or deemphasized. The smaller
premium may not be displayed more prominently than the larger premium
charge.
§4.1008.Minimum Nonforfeiture Values.
The minimum basis for cash values is stated in Insurance Code
Chapter 1105, concerning Standard Nonforfeiture Law for Life
Insurance, which requires [wherein] the adjusted
premiums [are required] to be computed as a "uniform percentage
of the respective premiums specified by the policy." Maximum guaranteed
premiums in the policy are specified premiums as defined by the Insurance
Code [code]. Cash values, if any, will not be required
to be redetermined when premiums are reduced for in-force policies.
Minimum nonforfeiture values for indeterminate premium group policies
on other than the term plan must be calculated in accordance with
this section.
§4.1010.Artificial Maximum Premiums Prohibited.
(a) No insurer may incorporate an increment into a maximum premium in an indeterminate premium reduction policy in order to be able to show an increased reduction in later policy years or to reduce cash values, if any, as provided in Insurance Code Chapter 1105, concerning Standard Nonforfeiture Law for Life Insurance, or reserves as provided in Insurance Code Chapter 425, Subchapter B, concerning Standard Valuation Law.
(b) As a condition precedent to policy form approval,
there must accompany each submission of an indeterminate premium reduction
policy a certification by a qualified actuary to the following: that
the maximum premiums specified in the policy do not incorporate an
increment as specified in subsection (a) of this section. An approval
of a policy form after [subsequent to] receipt
of the foregoing certification may not be construed as a determination
by the Texas Department of Insurance that the certification is true
and accurate.
§4.1011.General Enforcement.
A failure to follow and abide by the representations and disclosure provisions required by this subchapter in marketing the indeterminate premium reduction policy is grounds for a withdrawal of approval of the insurer's previously approved indeterminate premium reduction policy forms and is grounds for disapproval of subsequently filed indeterminate premium reduction policy forms. The provisions of this section are additional to and cumulative of all other enforcement provisions provided by law including Insurance Code Chapter 541, concerning Unfair Methods of Competition and Unfair or Deceptive Acts or Practices.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303275
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
28 TAC §§4.1101 - 4.1104, 4.1106 - 4.1116
STATUTORY AUTHORITY. TDI proposes amendments to §§4.1101 - 4.1104 and 4.1106 - 4.1116 under Insurance Code §§1111.053, 1701.060, and 36.001.
Insurance Code §1111.053 provides that the commissioner may adopt rules to implement Insurance Code Chapter 1111, Subchapter B.
Insurance Code §1701.060 specifies that the commissioner may adopt rules necessary to implement the purpose of Insurance Code Chapter 1701.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter K affects Insurance Code §1111.052.
§4.1101.Purpose; Severability.
(a) The commissioner enacts this subchapter to:
(1) expand [Expand] the circumstances
under which insurers can offer acceleration-of-life-insurance benefits,
thus enhancing financial choices for insureds facing terminal or life-threatening
illnesses or
conditions;
(2)
implement [Implement] revised
statutory requirements for certain group and individual life insurance
contracts;
(3)
set [Set] uniform standards
for offering acceleration-of-life-insurance benefits that will be
applicable to all group and individual life insurance plans, creating
a level playing field for insurers and key protections for
consumers;
(4)
allow [Allow] insurers, with
proper disclosures, to offer benefits that will qualify for favorable
tax treatment under federal law, as well as benefits that may not
qualify for favorable tax treatment, but that are available to a broader
class of insureds;
and
(5)
ensure [Ensure] that acceleration-of-life-insurance
benefit provisions that fund long-term care expenses conform basic
definitions and eligibility triggers to those in rules setting minimum
standards for long-term care insurance
contracts.
(b)
If a court of competent jurisdiction holds that
any provision of this subchapter is inconsistent with any statutes
of this state, is unconstitutional or for any other reason is invalid,
the remaining provisions [shall] remain in full effect.
If a court of competent jurisdiction holds that the application of
any provision of this subchapter to particular persons, or in particular
circumstances, is inconsistent with any statutes of this state, is
unconstitutional or for any other reason is invalid, the provision remains
[shall remain] in full effect as to other persons
or
circumstances.
§4.1102.Acceleration-of-Life-Insurance: Scope of Benefits.
(a) An acceleration-of-life-insurance benefit provision
provides a special benefit under a life insurance contract that [, which] prepays all or a portion of the death benefit[,]
based [either] on a long-term care illness, specified disease,
or terminal illness.
(b) The following words and terms, when used in this
subchapter, [shall] have the following meanings[,]
unless the context clearly indicates
otherwise.[:]
(1) Life insurance contract--An individual life insurance policy, a group life insurance policy or certificate of insurance, or a rider to an individual or group life insurance policy or group certificate of insurance.
(2) Long-term care illness--An illness or physical
condition that results in the inability to perform the activities
of daily living or the substantial and material duties of any occupation.
Evidence of a long-term care illness includes, but is not limited
to, illnesses or conditions that [which] require:
(A) confinement in a convalescent nursing home, residential care or intermediate nursing facility, defined consistently with the provisions of §3.3812 of this title (relating to Policy Standards for Provider); or
(B) adult day care services, as defined and provided consistently with §3.3804(b) of this title (relating to Definitions), and home health care services, as defined and provided consistently with §3.3804(b) of this title.
(3) Specified disease--An illness or physical condition that is likely to cause permanent disability or premature death, including, but not limited to, the following:
(A) AIDS;
(B) a malignant tumor;
(C) a condition requiring organ transplantation;
(D) a coronary artery disease resulting in acute infarction or requiring surgery;
(E) a permanent neurological deficit resulting from cerebral vascular accident; or
(F)
a condition of similar severity as specified in
the life insurance contract that [, which] would
be expected to impair the insured's quality or length of life in the
absence of appropriate medical
attention.
(4) Terminal illness--An illness or physical condition, including a physical injury, that can reasonably be expected to result in death in two years or less.
(c)
Any portion of the death benefit remaining after
reduction of the death benefit due to payment of any acceleration-of-life-insurance
benefit referred to in this section and related charges, interest
or liens, as allowed by §4.1106(3) [§3.4306(3)]
of this title (relating to Methods for Determining Benefits and Allowable
Charges and Fees) must [shall] be paid upon
the death of the
insured.
(d) Prepayment of acceleration-of-life-insurance benefits may be in a single sum or in installments.
(e)
The acceleration-of-life-insurance benefits, related
charges, interest, discounts, or liens allowed under this
subchapter, and the balance of the death benefit of the life insurance
contract will [shall] constitute full settlement
on maturity of the face amount of the
contract.
(f)
Specific additional requirements for life insurance
contracts that pay for long-term care expenses through acceleration-of-life-insurance
benefit provisions are contained in §4.1114 [§3.4314
] of this title (relating to Requirements for Acceleration-of-Life-Insurance
[Acceleration-of-life-insurance] Benefits That [that] Fund Long-Term Care
Expenses).
§4.1103.Required Policy Definitions; Evidence of Total and Permanent Disability.
(a) Acceleration-of-life-insurance benefits, and the
illness, condition, care, or confinement necessary to evidence
that the insured has [either] a long-term care illness,
specified disease, or terminal illness, must [shall] be clearly defined in the life insurance contract consistently
with this subchapter.
(b) Such illness, condition, care, or confinement is
evidence of total and permanent disability for purposes of meeting
the standards for providing acceleration-of-life-insurance benefits
set forth in [the] Insurance Code[,] §1111.052, concerning Authority to Pay Accelerated Term Life Benefits, and
§1201.003, concerning Applicability of Chapter, and §4.1102 [§3.4302] of this title (relating
to Acceleration-of-Life-Insurance: Scope of Benefits).
§4.1104.Standards for Medical Diagnoses.
The acceleration-of-life-insurance benefit provision may require
a medical diagnosis of conditions and/or documentation of care or
confinement as defined in the life insurance contract to establish
eligibility for acceleration-of-life-insurance benefits. This may
include a written medical opinion, satisfactory to the company, that
the insured has a terminal illness, a long-term care illness, or a
specified disease. If additional diagnoses by a physician selected
by the company are required, the acceleration-of-life-insurance benefit
provision, or a disclosure statement attached to the front of the
policy or rider, must specify that the additional diagnoses are at
the expense of the company and how conflicting diagnoses will be reconciled.
The specific standards sufficient to meet such eligibility requirements must [shall] be defined in the life insurance contract,
and any acceleration-of-life-insurance benefit must [shall
] be conditioned only upon such requirement or requirements
as defined.
§4.1106.Methods for Determining Benefits and Allowable Charges and Fees.
The acceptable methods for determining an acceleration-of-life-insurance benefit, and allowable charges and fees associated with the benefit, are as specified in this section.
(1) Additional premium or cost of insurance charge
method [Premium or Cost of Insurance Charge Method].
The acceleration-of-life-insurance benefit provision must specify
and define any separately identifiable additional premium or cost-of-insurance
charge, if applicable to the life insurance contract, for any acceleration-of-life-insurance
benefit, and, upon payment of such benefit, reduce the death benefit
of the contract in an amount equal to the acceleration-of-life-insurance
benefit
paid.
(2)
Actuarial discount methods [Discount
Methods]. The acceleration-of-life-insurance benefit provision
must specify or define any administrative fee, not to exceed $150,
and any sound and reasonable actuarial discount, calculated in accordance
with either subparagraph (A) or (B) of this paragraph, as applicable, that [which] may reduce the amount of the acceleration-of-life-insurance
benefit in instances where no additional premium or cost-of-insurance
charge is payable in advance by the policy or certificate holder.
Upon payment of such benefit, the death benefit of the life insurance
contract will be reduced by no more than an amount equal to the acceleration-of-life-insurance
benefit paid, plus the actuarial discount and any administrative fee
deducted to provide the benefit. Each subsequently approved acceleration-of-life-insurance
benefit request may provide for an administrative fee and discount,
subject to the limits defined in this paragraph. The acceleration-of-life-insurance
benefit may be calculated based on either the present value actuarial
discount as described in subparagraph (A) of this paragraph, or, in regard [regards] to an insured with a terminal illness,
on the interest-only actuarial discount as described in subparagraph
(B) of this
paragraph.
(A)
Present value actuarial discount [Value
Actuarial Discount]. The acceleration-of-life-insurance benefit
may be based upon the present value of future benefits provided under
the life insurance contract, less the present value of future premiums,
plus the present value of future dividends, if applicable. The actuarial
discount used to reach this present value calculation must be appropriate
to the life insurance contract design and based on sound actuarial
principles. For an insured with a terminal illness, the present value
actuarial discount may [shall] not reduce the
amount of benefits accelerated by more than 15% of the face amount
of such benefits. For other insureds eligible for acceleration-of-life-insurance
benefits, the interest rate used to derive the present value actuarial
discount applied to the face amount of the benefits accelerated may [shall] not exceed the greater
of:
(i)
the current yield on 90-day [90
day] treasury
bills;
(ii) the current maximum adjustable policy loan interest rate based on Moody's Corporate Bond Yield Averages, or any successor thereto;
(iii)
the life insurance contract's guaranteed cash
value interest rate plus 1% [one percent] per year [annum];
or
(iv)
an alternate rate approved by the commissioner
[Commissioner].
(B)
Interest-only actuarial discount [Actuarial
Discount]. This discount may be applied only in regard [regards] to the death benefit of an insured with a terminal
illness. The interest-only actuarial discount may [shall]
not reduce the amount of the acceleration-of-life-insurance benefit
by more than 10% per year
[annum].
(3)
Lien method [Method]. In
instances where no additional premium or cost of insurance charge
is payable in advance by the policy or certificate holder, and the
acceleration-of-life-insurance benefit is not reduced by a present
value or interest-only actuarial discount, the insurer may consider
the acceleration-of-life-insurance benefit, any administrative expense
charges, any due and unpaid premiums and any accrued interest as a
lien against the death benefit of the life insurance contract, in
accordance with the
following.[:]
(A) The acceleration-of-life-insurance provision must specify or define any administrative fee, not to exceed $150, and any interest charge on the amount of the acceleration-of-life-insurance benefit.
(B) Access to cash value, if any, may be restricted to any excess of the cash value over the sum of the lien and any outstanding loans. Future access to additional policy loans and any partial withdrawals may also be limited to any excess of the cash values over the sum of the lien and any other outstanding policy loans.
(C)
The lien cannot exceed the value of the death benefit
of the life insurance contract. The contract must [shall]
state that coverage will terminate at such time as the lien equals
the value of the death
benefit.
(D)
The interest rate and interest rate methodology
used in the calculation must [shall] be based
on sound actuarial principles and disclosed in the contract and actuarial
memorandum. The interest rate accrued on the portion of the lien equal
to the cash value of the life insurance contract at the time of the
benefit acceleration must [shall] be no more
than the policy loan interest rate stated in the contract. Each subsequently
approved acceleration-of-life-insurance benefit request may provide
for an administrative fee and lien, subject to the limits set forth
in this paragraph. The maximum interest rate used may [shall
] not exceed the greater
of:
(i)
the current yield on 90-day [90
day] treasury
bills;
(ii) the current maximum adjustable policy loan interest rate based on Moody's Corporate Bond Yield Averages, or any successor thereto;
(iii)
the policy's guaranteed cash value interest rate
plus 1% per year [one percent per annum];
or
(iv)
an alternate rate approved by the commissioner
[Commissioner].
§4.1107.Limitations on Reduction of Cash Values.
Except as otherwise authorized under the lien method [Lien Method] for determining benefits under §4.1106(3) [§3.4306(3)] of this title (relating to Methods for Determining
Benefits and Allowable Charges and Fees), if the cash values are reduced
by the acceleration-of-life-insurance benefit, related charges, and
interest, the reduction may [shall] not be unjust
and may [shall] not exceed an amount equal to
the pro rata portion of the cash value associated with the death benefit
used in providing the acceleration-of-life-insurance benefit. Future
cash values may [shall] not be less than the
minimum cash values required by [the] Insurance Code Chapter
1105, concerning Standard Nonforfeiture Law for Life Insurance, for
the reduced future guaranteed death benefits. These minimum cash values
are equal to the present value of the reduced future guaranteed benefits
less the present value of future adjusted premiums, decreased by the
amount of any indebtedness, including liens, under the life insurance
contract. The mortality and interest used in calculating the minimum
cash values will be as provided in [the] Insurance Code
Chapter 1105, for life insurance coverage, disregarding any acceleration-of-life-insurance benefits.
§4.1108.Pro Rata Reduction of Loan upon Acceleration of Benefits.
Unless the insurer is using the lien method [Lien
Method] for determining benefits under §4.1106(3) [§3.4306(3)] of this title (relating to Methods for Determining
Benefits and Allowable Charges and Fees), if there is a loan on the
life insurance contract, the insurer may deduct up to a pro rata portion
of the loan from the amount of the acceleration-of-life-insurance benefit.
§4.1109.Effect of Acceleration of Benefits on Nonforfeiture Calculations.
An acceleration-of-life-insurance benefit provision or rider must [shall] be disregarded in ascertaining nonforfeiture
benefits under [the] Insurance Code Chapter 1105,
concerning Standard Nonforfeiture Law for Life Insurance.
§4.1110.Calculation of Reserves.
(a) Reserves for an acceleration-of-life-insurance
benefit must [shall] be based on tables of disablement,
morbidity, or mortality appropriate for determining liability for
the benefits provided. Such disablement or morbidity tables must [shall] be certified as appropriate by a member of the American
Academy of Actuaries and approved by the Texas Department of Insurance
under [the] Insurance Code §425.058(k), concerning
Computation of Minimum Standard: General Rule, and §425.069, concerning Reserve Computation: Indeterminate Premium Plans and
Certain Other Plans. Reserves for the death benefits or other
supplementary benefits provided by a life insurance contract that [which] includes an acceleration-of-life-insurance benefit must
[shall] be calculated disregarding such benefit,
using mortality and interest rates as provided in [the]
Insurance Code Chapter 425, concerning Reserves and Investments
for Life Insurance. The basis of reserves for any life insurance
contract that [which] contains an acceleration-of-life-insurance
benefit provision must [shall] accompany the
filing of the contract with the Texas Department of
Insurance.
(b)
Reserves for an acceleration-of-life-insurance
benefit under the lien method [Lien Method]
for determining benefits under §4.1106(3) [§3.4306(3)
] of this title (relating to Methods for Determining Benefits
and Allowable Charges and Fees), including accrued interest, represent
assets of the company for statutory reporting purposes. For any life
insurance contract on which the lien exceeds the policy's statutory
reserve liability, such excess must be held as a non-admitted asset.
§4.1111.Unfair, Discriminatory, or Deceptive Practices Prohibited.
(a) Acceleration-of-life-insurance benefit provisions
are subject to [the] Insurance Code Chapter 541, [(] concerning Unfair Methods of Competition and Unfair or Deceptive
Acts or Practices, [)] and rules promulgated
under Chapter 541.
(b) Insurers offering acceleration-of-life-insurance
benefits may [shall] not engage in unfair, discriminatory, or deceptive practices in relation to the offer, sale, or
administration of acceleration-of-life-insurance benefits, including,
but not limited to, the following practices:
(1) reclassification of the insured as a result of payment of the benefit specified in an acceleration-of-life-insurance benefit provision to a class of risk less favorable than the class of risk to which the insured originally belonged;
(2) unfair discrimination among insureds with differing qualifying events; or
(3) unfair discrimination among insureds with similar qualifying events.
§4.1112.Notice and Disclosure Requirements
for Life Insurance Contracts Containing Acceleration-of-Life-Insurance
[Acceleration-of-life-insurance] Benefits.
(a) Except as otherwise stated in this section, every
life insurance contract containing an acceleration-of-life-insurance
benefit provision is [shall be] subject to the
notice and disclosure requirements in paragraphs (1) - (5) of this subsection
[section].
(1) Except as otherwise provided in this paragraph,
the face of every such life insurance contract must [shall
] contain a prominent notice printed, over-printed or stamped,
as appropriate, substantially as follows: "Death benefits, cash values,
and loan values will be reduced if an acceleration-of-life-insurance
benefit is paid." This statement must [shall]
be appropriately modified for contracts that [which]
have no cash or loan values, or in which the cash value is not reduced.
(2) The title of any acceleration-of-life-insurance
benefit must [shall] be descriptive of the coverage
provided and must [shall] use such terms as
"acceleration-of-life-insurance benefit," "accelerated benefit,"
or words of similar
import.
(3)
At the time of the payment of a lump sum acceleration-of-life-insurance
benefit, or, if periodic payments are being made, no less frequently
than every 12 months, the insurer must [shall]
send a statement to the owner or holder of the life insurance contract,
specifying:
(A) the amount of benefits paid (or the amount of benefits paid since the last report);
(B) the effect of the acceleration-of-life-insurance benefit payment on the death benefit, face amount, specified amount, accumulation values, cash values, loan amounts, future charges, and future premiums; and
(C) the amount of benefits remaining available for acceleration.
(4)
Notice that the owner of the life insurance contract
will receive the statement described in paragraph (3) of this subsection must [shall] be included in the acceleration-of-life-insurance
benefit provisions of the life insurance
contract.
(5)
As appropriate, the disclosures contained in either
subsection (a) or (b) of §4.1116 [§3.4316]
of this title (relating to Disclosures Related to Tax Qualification
of Benefits and Benefits' Effect on Public Assistance), and the disclosure
contained in subsection (c) of §4.1116 [§3.4316
], or disclosures substantially similar to these disclosures,
must be included on or attached to the front page of each life insurance
contract subject to this subchapter, except as provided in subsection
(e) of §4.1116
[§3.4316].
(b) The notice and disclosure requirements in subsection (a) must be provided only with the document actually containing the acceleration-of-life-insurance provisions. For example, if acceleration-of-life insurance benefits are provided through a rider to a life policy, the disclosures must only be provided with the rider, not the policy.
§4.1113.Notice and Disclosure Requirements for Marketing Materials.
(a) Any "invitation to contract," as defined in §21.102
of this title (relating to Scope), used in the marketing, solicitation, or sale of a life insurance contract containing an acceleration-of-life-insurance
provision must [shall] clearly and concisely
disclose the following:
(1) the illness, condition, care, or confinement necessary to trigger eligibility for any acceleration-of-life-insurance benefit;
(2) the effect that an acceleration-of-life-insurance benefit provision will have on the death benefit and other values available under the life insurance contract; and
(3) the tax-related disclosures contained in either
subsection (a) or (b) of §4.1116 [§3.4316]
of this title (relating to Disclosures Related to Tax Qualification
of Benefits and Benefits' Effect on Public Assistance), as appropriate,
and the disclosure contained in subsection (c) of §4.1116 [§3.4316], or disclosures substantially similar to these
disclosures.
(b) No insurer or agent, in marketing a life insurance
contract that [which] provides acceleration-of-life-insurance
benefits, may mention, illustrate, or refer to the contract as an
alternative or substitute for catastrophic major medical health insurance.
§4.1114.Requirements for Acceleration-of-Life-Insurance
[Acceleration-of-life-insurance] Benefits That Fund Long-Term Care Expenses.
When a life insurance contract provides for payment of long-term
care expenses funded through an acceleration-of-life-insurance benefit
provision, the long-term care provisions of the contract must meet
the following requirements of Chapter 3, Subchapter Y of
this title [chapter] (relating to Standards
for Long-Term Care Insurance, Non-Partnership and Partnership Long-Term
Care Insurance Coverage Under Individual and Group Policies and Annuity
Contracts, and Life Insurance Policies that Provide Long-Term Care
Benefits Within the Policy) [Standards for Long-Term Care
Insurance Coverage under Individual and Group Policies)]:
(1) terms [Terms] must be defined
consistently with §3.3804 of this title (relating to Definitions);
(2) definitions [Definitions]
and descriptions of providers must be consistent with the requirements
of §3.3812 of this title (relating to Policy Standards for Provider);
(3)
to [To] the extent that the
acceleration-of-life-insurance provisions provide for payment of home
health or adult day care expenses, such provisions must meet applicable
standards contained in §3.3815 of this title (relating to Standards
for Home Health and Adult Day Care
Benefits);
(4)
conditions [Conditions] triggering
eligibility for benefits must comply with §3.3818 of this title
(relating to Standards for Eligibility for Benefits);
and
(5)
to [To] the extent that the
acceleration-of-life-insurance benefit is intended to fund long-term
care expenses that will qualify for favorable tax treatment under
federal law, the long-term care provisions of the contract must further
comply with the provisions of §4.1115 [§3.4315]
of this title (relating to Requirements for Benefits Represented to [To] Be Qualified for Favorable Federal Tax Treatment) that are
applicable to expenses paid for a "qualified long-term care illness,"
as defined in §4.1115 [§3.4315], and
any additional federal requirements for favorable tax treatment.
§4.1115.Requirements for Benefits Represented to [To] Be Qualified for Favorable Federal Tax Treatment.
(a) On or after the effective date of this subchapter, no life insurance contract providing for acceleration-of-life-insurance benefits may be represented to be tax-qualified under federal law governing taxation of such benefits unless such benefits meet the requirements set forth in subsections (b) - (d) of this section.
(b) Acceleration-of-life-insurance benefits described as tax-qualified must be limited to insureds who have a "qualified terminal illness" or a "qualified long-term care illness," as those terms are defined (and terms used within the definitions are defined) in paragraphs (1) - (3) of this subsection.
(1) An insured has a "qualified terminal illness" if
a physician certifies that, as of the date of the certification, the
insured has a terminal illness, as defined in §4.1102(b) [§3.4302(b)] of this title (relating to Acceleration-of-Life-Insurance
[Acceleration of Life Insurance]: Scope of Benefits).
(2) An insured has a "qualified long-term care illness"
if the insured has a "long-term care illness" as defined in §4.1102(b)
[§3.4302(b)] of this title, and a licensed
health care practitioner, acting within the scope of their [his or her] license, certifies, within 12 months before [prior to] the approval of the insured's request to exercise
the acceleration-of-life-insurance provision, that the insured's illness
or physical condition has caused the insured to:
(A) be unable to perform, without substantial assistance from another individual, at least two activities of daily living for a period of at least 90 days due to functional incapacity;
(B) be disabled at a level similar to the level described in subparagraph (A) of this paragraph, as determined by rules promulgated by the United States Secretary of the Treasury, in consultation with the United States Secretary of Health and Human Services, under section 7702B of the Internal Revenue Code of 1986, as amended by the Health Insurance Portability and Accountability Act of 1996; or
(C) require substantial supervision to protect the insured from threats to the insured's health and safety due to the impairment of cognitive ability.
(3) The following words and terms, when
used in this section, [shall] have the following
meanings[,] unless the context clearly indicates
otherwise.[:]
(A) Activities of daily living--Bathing, continence, dressing, eating, toileting and transferring, as those terms are defined in §3.3804(b) of this title (relating to Definitions).
(B)
Impairment of cognitive ability--The deterioration
or loss in intellectual capacity requiring substantial supervision
for protection of self and others, as established by the clinical
diagnosis of any licensed practitioner in this state authorized to
make such a diagnosis. Such diagnosis must [shall]
include the patient's history and physical, neurological, psychological
and/or psychiatric evaluations, and laboratory
findings.
(C)
Substantial supervision--Continual supervision
(that [which] may include cueing by verbal prompting,
gestures, or other demonstrations) by another person that is necessary
to protect a cognitively impaired individual from threats to the individual's
health or
safety.
(c)
Any acceleration-of-life-insurance benefit paid
to an insured with a qualified long-term care illness is limited in
use to payment for instances in which the individual has incurred
expenses for qualified long-term [long term]
care services, as defined in section 7702B of the Internal Revenue
Code of 1986, as amended by the Health Insurance Portability and Accountability
Act of 1996. Such payments will not fail to meet this test solely
because they are made on a per diem or periodic basis without regard
to expenses incurred during the
period.
(d) Any acceleration-of-life-insurance benefit provision providing for payment of expenses incurred for qualified long-term care services by an insured with a qualified long-term care illness:
(1)
may [shall] not pay or reimburse
expenses incurred under Medicare or that would be reimbursable under
Medicare but for the application of a deductible or coinsurance amount,
except expenses that [which] are reimbursable
under Medicare only as a secondary
payor;
(2) may coordinate benefits with Medicare benefits; and
(3)
must meet all requirements of §4.1114 [§3.4314] of this title (relating to Requirements for Acceleration-of-Life-Insurance
[Acceleration-of-life-insurance] Benefits That [that] Fund Long-Term Care
Expenses).
§4.1116.Disclosures Related to Tax Qualification of Benefits and Benefits' Effect on Public Assistance.
(a) Except as provided in subsection (e) of this section,
on or after the effective date of this subchapter, if an insurer markets,
delivers, issues for delivery, or renews a life insurance
contract in Texas that provides only acceleration-of-life-insurance
benefits that are intended to qualify for favorable tax treatment
under federal law, the contract, and any invitation to contract as
provided under §4.1113 [§3.4313] of
this title (relating to Notice and Disclosure Requirements for Marketing
Materials), must include a disclosure substantially similar to the
disclosure set forth in this subsection. When a series of words are
separated by slashes [back-slashes] (e.g., policy/certificate/rider), the insurer should choose the most appropriate word or words
under the circumstances. DISCLOSURE: "The acceleration-of-life-insurance
benefits offered under this policy/certificate/rider are intended
to qualify for favorable tax treatment under the Internal Revenue
Code of 1986. If the acceleration-of-life-insurance benefits qualify
for such favorable tax treatment, the benefits will be excludable
from your income and not subject to federal taxation. Tax laws relating
to acceleration-of-life-insurance benefits are complex. You are advised
to consult with a qualified tax advisor about circumstances under
which you could receive acceleration-of-life-insurance benefits excludable
from income under federal law."
(b) Except as provided in subsection (e) of this section,
on or after the effective date of this subchapter, if an insurer markets,
delivers, issues for delivery, or renews a life insurance
contract in Texas [a life insurance contract] that contains
an acceleration-of-life-insurance benefits provision that meets the
requirements of this subchapter, but that allows benefits to be accelerated
in circumstances in which such benefits would not qualify for favorable
tax treatment under federal law, the contract, and any invitation
to contract as provided under §4.1113 [§3.4313]
of this title [(relating to Notice and Disclosure Requirements
for Marketing Materials)], must include a disclosure substantially
similar to the disclosure set forth in this subsection. When a series
of words are separated by slashes [back-slashes]
(e.g., policy/certificate/rider), the insurer
should choose the most appropriate word or words under the circumstances.
DISCLOSURE: "The acceleration-of-life-insurance benefits offered under
this policy/certificate/rider may or may not qualify for favorable
tax treatment under the Internal Revenue Code of 1986. Whether such
benefits qualify depends on factors such as your life expectancy at
the time benefits are accelerated or whether you use the benefits
to pay for necessary long-term care expenses, such as nursing home
care. If the acceleration-of-life-insurance benefits qualify for favorable
tax treatment, the benefits will be excludable from your income and
not subject to federal taxation. Tax laws relating to acceleration-of-life-insurance
benefits are complex. You are advised to consult with a qualified
tax advisor about circumstances under which you could receive acceleration-of-life-insurance
benefits excludable from income under federal
law."
(c)
Except as provided in subsection (e) of this section,
on or after the effective date of this subchapter, if an insurer markets,
delivers, issues for delivery, or renews a life insurance
contract in Texas that provides acceleration-of-life-insurance benefits,
the contract, and any invitation to contract as provided under §4.1113
[§3.4313] of this title [(relating to
Notice and Disclosure Requirements for Marketing Materials)],
must include a disclosure substantially similar to the disclosure
set forth in this subsection. DISCLOSURE: "Receipt of acceleration-of-life-insurance
benefits may affect your, your spouse or your family's eligibility
for public assistance programs such as medical assistance (Medicaid),
Aid to Families with Dependent Children (AFDC), supplementary social
security income (SSI), and drug assistance programs. You are advised
to consult with a qualified tax advisor and with social service agencies
concerning how receipt of such a payment will affect you, your spouse
and your family's eligibility for public
assistance."
(d)
The disclosure requirements of this section must
be provided only with the document actually containing the acceleration-of-life-insurance
provisions. For example, if acceleration-of-life-insurance
[acceleration-of-life insurance] benefits are provided
through a rider to a life policy, the disclosures must only be provided
with the rider, not the
policy.
(e)
In regard [regards] to certificates
of coverage for group life insurance policies, the disclosures required
by this section must be provided only to certificate holders obtaining
group life coverage on or after the effective date of this
subchapter.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303276
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
STATUTORY AUTHORITY. TDI proposes the repeal of §4.1117 under Insurance Code §§1111.053, 1701.060, and 36.001.
Insurance Code §1111.053 provides that the commissioner may adopt rules to implement Insurance Code Chapter 1111, Subchapter B.
Insurance Code §1701.060 specifies that the commissioner may adopt rules necessary to implement the purpose of Insurance Code Chapter 1701.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Section 4.1117 affects Insurance Code §1111.052.
§4.1117.Effective Date.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303272
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
STATUTORY AUTHORITY. TDI proposes amendments to §4.1201 under Occupations Code §651.159 and Insurance Code §36.001.
Occupations Code §651.159 provides the commissioner adopt a memorandum of understanding with the Texas Funeral Service Commission and the Texas Department of Banking.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Section 4.1201 affects Occupations Code §651.159.
§4.1201.Introduction to Joint Memorandum of Understanding.
(a) Occupations Code §651.159, concerning Memorandum of Understanding: Prepaid Funeral Services, mandates the Texas Department of Insurance, the Texas Funeral Service Commission, and the Texas Department of Banking to adopt by rule a joint memorandum of understanding relating to prepaid funeral services and transactions that:
(1) outlines the responsibilities of each agency in regulating these services and transactions;
(2) establishes procedures to be used by each agency in referring complaints to one of the other agencies;
(3) establishes procedures to be used by each agency in investigating complaints;
(4) establishes procedures to be used by each agency in notifying the other agencies of a complaint or of the investigation of a complaint;
(5) describes actions the agencies regard as deceptive trade practices;
(6) specifies the information the agencies provide consumers and when that information is to be provided; and
(7) sets the administrative penalties each agency imposes for violations.
(b) Any revisions to the joint memorandum of understanding will be adopted by rule by each agency.
(c) The joint memorandum of understanding entered into
by the three agencies is found at §4.1202 [§3.9002
] of this title (relating to Joint Memorandum of Understanding).
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303277
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
STATUTORY AUTHORITY. TDI proposes amendments to §§4.1502 - 4.1510 under Insurance Code §1152.002 and §36.001.
Insurance Code §1152.002 authorizes the commissioner to adopt rules that are fair, reasonable, and appropriate to augment and implement Insurance Code Chapter 1152, including rules establishing requirements for agent licensing, standard policy provisions, and disclosure.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter O affects Insurance Code §1152.101.
§4.1502.Definitions.
The following words and terms, when used in this subchapter,
have the following meanings[,] unless the context clearly
indicates otherwise.
(1) Affiliate of an insurer--Any person, directly or indirectly, controlling, controlled by, or under common control with such insurer; any person who regularly furnishes investment advice to such insurer with respect to its separate accounts for which a specific fee or commission is charged; or any director, officer, partner, or employee of such insurer, controlling or controlled person, or person providing investment advice or any member of the immediate family of such person.
(2)
Agent--Any person, corporation, partnership, or
other legal entity that [which] is licensed
by this state as a life insurance
agent.
(3)
Assumed investment rate--The rate of investment
return that [which] would be required to be
credited to a variable life contract, after deduction of charges for
taxes, investment expenses, and mortality and expense guarantees to
maintain the variable death benefit equal at all times to the amount
of death benefit, other than incidental insurance benefits, which
would be payable under the plan of insurance if the death benefit
did not vary according to the investment experience of the separate
account.
(4) Benefit base--The amount to which the net investment return is applied.
(5) Cash surrender value--The net cash surrender value plus any amounts outstanding as contract loans.
(6) Commissioner--The commissioner of insurance of this state.
(7)
Contract cost factors--Those amounts that [which] affect the price per thousand of life insurance coverage
or other benefits. They include interest, mortality, expense charges,
and fees, including any surrender charges, but not persistency assumptions.
(8) Contract processing day--The day on which charges authorized in the contract are deducted from the contract value.
(9) Contract value--The amount to which interest is credited, and against which separately identified mortality charges, expense charges, fees, and other charges are debited.
(10) Control (including the terms "controlling," "controlled by," and "under common control with")--The possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing more than 10% of the voting securities of any other person. This presumption may be rebutted by a showing made to the satisfaction of the commissioner that control does not exist in fact. The commissioner may determine, after furnishing all persons in interest with notice and opportunity to be heard and making specific findings of fact to support such determination, that control exists in fact, notwithstanding the absence of a presumption to that effect.
(11) Flexible premium contract--Any variable life contract other than a scheduled premium variable life contract as defined in the definition of scheduled premium variable life contract.
(12)
General account--All assets of the insurer other
than assets in separate accounts established under [pursuant
to] Insurance Code Chapter 1152, concerning Separate Accounts,
Variable Contracts, and Related Products, or under [pursuant to] the corresponding sections of the insurance laws
of the state of domicile of a foreign or alien insurer, whether or
not for variable life
insurance.
(13) Incidental insurance benefit--All insurance benefits in a variable life contract, other than the variable death benefit and the minimum death benefit, including, but not limited to, accidental death and dismemberment benefits, disability benefits, guaranteed insurability options, family income, or term riders.
(14) Minimum death benefit--The amount of the guaranteed death benefit, other than incidental insurance benefits, payable under a variable life contract regardless of the investment performance of the separate account.
(15) Net cash surrender value--The maximum amount payable to the contract owner upon surrender.
(16) Net investment return--The rate of investment return in a separate account to be applied to the benefit base.
(17) Person--An individual, corporation, partnership, association, trust, or fund.
(18) Scheduled premium contract--Any variable life contract under which both the amount and timing of premium payments are fixed by the insurer.
(19)
Separate account--A separate account established under [pursuant to] Insurance Code Chapter 1152,
or under [pursuant to] the corresponding section
of the insurance laws of the state of domicile of a foreign or alien
insurer.
(20)
Structural changes--Those changes that [which] are separate from the automatic workings of the contract.
Such changes usually would be initiated by the contract owner and
include changes in the guaranteed benefits, changes in latest maturity
date, or changes in allowable premium payment
period.
(21) Variable death benefit--The amount of the death benefit, other than incidental benefits payable under a variable life contract dependent on the investment performance of the separate account, which the insurer would have to pay in the absence of any minimum death benefit.
(22)
Variable life contract--Any individual variable
life insurance contract that [which] provides
for life insurance the amount or duration of which varies according
to the investment experience of any separate account or accounts established
and maintained by the insurer as to such contract, under [pursuant to] Insurance Code Chapter 1152, or under [pursuant to] the corresponding section of the insurance laws
of the state of domicile of a foreign or alien insurer.
§4.1503.Qualifications of Insurer to Issue Variable Life Insurance.
The following requirements are applicable to all insurers either seeking authority to issue variable life insurance in this state or having the authority to issue variable life insurance in this state.
(1) Licensing and approval to do business in this state. An insurer may not deliver or issue for delivery in this state any variable life insurance contracts unless:
(A) the insurer is licensed or organized to do [a]
life insurance business in this state; and
(B) after having complied with the provisions of Insurance
Code Chapter 1152, concerning Separate Accounts, Variable Contracts,
and Related Products [concerning notice and hearing],
the commissioner has authorized, either as part of the insurer's original
certificate of authority or by charter amendment, the insurer to issue,
deliver, and use variable life contracts, and only after the commissioner
has considered, among other things, the following:
(i) whether the plan of operation for the issuance of variable life contracts is sound;
(ii) whether the general character, reputation, and experience of the management and those persons or firms proposed to supply consulting, investment, administrative, or custodial services to the insurer are such as to reasonably assure competent operation of the variable life business of the insurer in this state; and
(iii) whether the present and foreseeable future financial
condition of the insurer and its method of operation in connection
with the issuance of such contracts is not likely to render its operation
hazardous to the public or its contract holders [contractholders
] in this state. The commissioner will consider, among other things:
(I) the history of operation and financial condition of the insurer;
(II) the qualifications, fitness, character, responsibility, reputation, and experience of the officers and directors and other management of the insurer and those persons or firms proposed to supply consulting, investment, administrative, or custodial services to the insurer;
(III) the applicable law and regulations under which the insurer is authorized in its state of domicile to issue variable life contracts. The state of entry of an alien insurer will be deemed its state of domicile for this purpose; and
(IV) if the insurer is a subsidiary of, or is affiliated by common management or ownership with, another company, its relationship to such other company and the degree to which the requesting insurer, as well as the other company, meets these standards.
(2) Filing for approval to do business in this state. Before any insurer may deliver or issue for delivery any variable life contract in this state, it must file with the Texas Department of Insurance the following information, and any other information specifically requested, for the consideration of the commissioner, on making the determination required by paragraph (1)(B) of this section:
(A) copies of and a general description of the variable life contracts it intends to issue;
(B) a general description of the methods of operation of the variable life insurance business of the insurer, including methods of distribution of contracts and the names of those persons or firms proposed to supply consulting, investment, administrative, custodial, or distributive services to the insurer;
(C) with respect to any separate account maintained by an insurer for any variable life contract, a statement of the investment policy the insurer intends to follow for the investment of the assets held in such separate account, and a statement of procedures for changing such investment policy. The statement of investment policy must include a description of the investment objectives intended for the separate account;
(D)
a description of any investment advisory services
contemplated as required by §4.1506 [§3.806]
of this title (relating to Separate
Accounts);
(E) a copy of the statutes and regulations of the state of domicile of a foreign or alien insurer under which it is authorized to issue variable life contracts;
(F) biographical data not previously filed with the commissioner with respect to officers and directors of the insurer on the appropriate biographical form used in Texas;
(G)
a statement of the insurer's actuary describing
the mortality and expense risks that [which]
the insurer will bear under the contract;
and
(H) the provisions of subparagraphs (A) - (G) of this paragraph will be deemed to have been satisfied to the extent that the information required by the commissioner is provided in form identical to the insurer's registration statement filed under 15 United States Code §77a, et seq.
(3) Standards of suitability. Every insurer seeking approval to enter into the variable life insurance business in this state must establish and maintain a written statement specifying the standards of suitability to be used by the insurer. Such standards of suitability must specify that no recommendation will be made to an applicant to purchase a variable life contract and that no variable life contract will be issued in the absence of reasonable grounds to believe that the purchase of such contract is not unsuitable for such applicant on the basis of information furnished after reasonable inquiry of such applicant concerning the applicant's insurance and investment objectives, financial situation and needs, and any other information known to the insurer or the agent making the recommendation.
(4)
Use of sales material. An insurer authorized to
transact variable life insurance business in this state may not use
any sales material, advertising material, or descriptive literature
or other materials of any kind in connection with its variable life
insurance business in this state unless it complies with Chapter
21, Subchapter B, Division 1 [§§21.101 - 21.122]
of this title (relating to Insurance Advertising) [(relating
to Insurance Advertising, Certain Trade Practices, and Solicitation)].
An insurer issuing flexible premium variable life contracts must provide,
to all prospective purchasers, an illustration of cash surrender values before [prior to] or at the time of delivery of the
contract. Any illustration of cash surrender values delivered to an
applicant or prospective applicant under [pursuant
to] this section [subsection]
must:
(A) include a hypothetical gross investment return of 0.0%, and when other hypothetical gross investment returns are included, the current gross investment return must, to the extent permitted by federal law, be included;
(B) give equal prominence to both guaranteed and non-guaranteed aspects of the contract if guarantees are included in the contract;
(C) prominently display, by way of written statement, the hypothetical nature of the illustration as it relates to investment returns;
(D) prominently state that a contract may terminate due to insufficient premiums and/or poor investment performance; and
(E) prominently show, by way of written statement, that excessive loans or withdrawals may cause the contract to lapse due to insufficient cash surrender value and, at the option of the insurer, prominently display the effects of loans or withdrawals on contract values.
(5)
Requirements applicable to contractual services.
Any material contract between an insurer and suppliers of consulting,
investment, administrative, sales, marketing, custodial, or other
services with respect to variable life insurance operations must be
in writing and provide that the supplier of such services furnish
the commissioner with any information or reports in connection with
such services that [which] the commissioner
may request in order to ascertain whether the variable life insurance
operations of the insurer are being conducted in a manner consistent
with these regulations, and any other applicable law or
regulations.
(6)
Reports to the commissioner. Any insurer authorized
to transact the business of variable life insurance in this state
must submit to the commissioner, in addition to any other materials that [which] may be required by this subchapter or
any other applicable laws or
rules:
(A) an annual statement of the business of its separate account or accounts in such forms as may be prescribed by the National Association of Insurance Commissioners;
(B)
before [prior to] use in
this state, any information furnished to applicants as provided for
in §4.1507 [§3.807] of this title
(relating to Information Furnished to
Applicants);
(C)
before [prior to] use in
this state, the form of any of the reports to contract holders [contractholders] as provided for in §4.1509 [§3.809
] of this title (relating to Reports to Contract Holders [Contractholders]);
and
(D) such additional information concerning its variable life insurance operations or its separate accounts as the commissioner deems necessary.
(7)
Treatment of material reported under paragraph
(6) of this section. Receipt of the material specified in paragraph
(6) of this section does not imply approval or acceptance of the material.
The commissioner will require the redistribution of any previously
distributed material that [which] is found to
be false, misleading, deceptive, or inaccurate in any material
respect.
(8) Authority of the commissioner to disapprove. Any material required to be filed with the commissioner, or approved by the commissioner, will be subject to disapproval if at any time it is found by the commissioner not to comply with the standards established by these rules.
§4.1504.Insurance Contract and Filing Requirements.
The commissioner will not approve any variable life insurance
form filed under [pursuant to] these rules unless
it conforms to the requirement of applicable law.
(1) Filing of variable life contracts. All variable
life contracts, and all riders, endorsements, applications, and other
documents that [which] are to be attached to
and made a part of the contract and that [which]
relate to the variable nature of the contract, must be filed with
the commissioner and approved or exempted, as applicable, by the commissioner before [prior to] delivery or issuance for delivery
in this state.
(A) Each variable life contract, rider, endorsement,
and application must be filed in accordance with Chapter 3, Subchapter
A, of this title [chapter] (relating
to Submission Requirements for Filings and Departmental Actions Related
to Such Filings). A flexible premium variable life contract
submission must be accompanied by the following:
(i) a mathematical demonstration comparing the specimen
contract's cash surrender values, assuming the contract's assumed
investment rate, if any, or in the absence of an assumed investment
rate, on a rate not to exceed the maximum interest rate allowed by
Insurance Code Chapter 1105, concerning Standard Nonforfeiture
Law for Life Insurance, to the minimum cash surrender value
described in paragraph (2)(F) of this section. The specimen contract
should be for the minimum initial face amount permitted to be issued
to a male age 35. The demonstration should not assume changes in face
amount that [which] are optional to the contract
holder [contractholder]. The maturity date and the
premium paying period should be the maximum permitted by the contract.
The premium for each year should be the greater of the minimum premium
permitted for that year or the premium that will allow the contract
to mature at the maturity date assuming guaranteed charges and the
assumed investment rate, if any, or, in the absence of an assumed
investment rate, a rate not to exceed the maximum interest rate permitted
by Insurance Code Chapter 1105;
(ii) an actuarial description that [which]
sets forth maximum expense charges, loads, and surrender charges,
applicable to the contract at issue and upon a change in basic coverage
for all ages, bands, and classes of risk, will be provided in conjunction
with the
contract.
(B)
The commissioner may approve variable life contracts
and related forms with provisions the commissioner deems to be not
less favorable to the contract holder [contractholder]
and the beneficiary than those required by these
rules.
(2) Mandatory contract benefit and design requirements. Variable life contracts delivered or issued for delivery in this state must comply with the following minimum requirements.
(A) Mortality and expense risks must be borne by the insurer. The expense charges must be subject to the maximums stated in the contract. The charge for mortality must be stated in the contract and may not exceed a mortality rate for the attained age of the insured in a table specified for the calculation of cash surrender values in Insurance Code Chapter 1105. Provided, for insurance issued on a substandard basis, the charge for mortality may be the mortality rate for the attained age of the insured in such other tables as may be specified by the company and approved by the Texas Department of Insurance.
(B) For scheduled premium contracts, a minimum death benefit must be provided in an amount at least equal to the initial face amount of the contract so long as premiums are duly paid (subject to paragraph (4) of this section).
(C) The contract must reflect the investment experience of one or more separate accounts established and maintained by the insurer. The insurer must demonstrate that the reflection of investment experience in the variable life contract is actuarially sound.
(D) Each variable life contract must be credited with the full amount of the net investment return applied to the benefit base.
(E) Any changes in variable death benefits of each variable life contract must be determined at least annually.
(F) The cash surrender value of each variable life contract must be determined at least monthly. The method of computation of cash surrender values and other nonforfeiture benefits, as described in the contract and in a statement filed with the commissioner in this state in which the contract is delivered, or issued for delivery, must be in accordance with recognized actuarial procedures that recognize the variable nature of the contract. The method of computation must be such that if the net investment return credited to the contract at all times from the date of issue should be equal to the assumed investment rate with premiums and benefits determined accordingly under the terms of the contract, then the resulting cash surrender values and other nonforfeiture benefits must be at least equal to the minimum values required by Insurance Code Chapter 1105, for a general account contract with such premiums and benefits. The assumed investment rate may not exceed the maximum interest rate permitted under Insurance Code Chapter 1105. If the contract does not contain an assumed investment rate, this demonstration must be based on a rate not to exceed the maximum interest rate permitted under Insurance Code Chapter 1105. The method of computation may disregard incidental minimum guarantees as to the dollar amounts payable. Incidental minimum guarantees include, for example, but are not limited to, a guarantee that the amount payable at death or maturity is at least equal to the amount that otherwise would have been payable if the net investment return credited to the contract at all times from the date of issue had been equal to the assumed investment rate.
(3) Mandatory contract provisions. Every variable life contract filed for approval in this state must contain at least the following.
(A) The cover page or pages corresponding to the cover page of each contract must contain:
(i) a prominent statement in either contrasting color or in boldface type that the amount or duration of death benefit may be variable or fixed under specified conditions;
(ii) a prominent statement in either contrasting color or in boldface type that cash surrender values may increase or decrease in accordance with the experience of the separate account, subject to any specified minimum guarantees;
(iii)
a statement describing any minimum death benefit
required under [pursuant to] paragraph (2)(B)
of this
section;
(iv)
the method, or a reference to the contract provision that [which] describes the method, for determining
the amount of insurance payable at
death;
(v)
a captioned provision that the contract holder [contractholder] may return the variable life contract within
10 days of receipt of the contract by the contract holder [contractholder], and receive a refund equal to the premiums
paid;
(vi)
such other items as are currently required for
fixed benefit life contracts and that [which]
are not inconsistent with this
subchapter.
(B) A grace period in accordance with this subparagraph.
(i)
For scheduled premium contracts, a provision for
a grace period of not less than 31 days from the premium due date that
[which] must provide that when the premium is paid
within the grace period, cash surrender values will be the same, except
for the deduction of any overdue premium, as though the premium were
paid on or before the due
date.
(ii)
For flexible premium contracts, a provision for
a grace period beginning on the contract processing day when the total
charges authorized by the contract that are necessary to keep the
contract in force until the next contract processing day exceed the
amounts available under the contract to pay such charges in accordance
with the terms of the contract. Such grace period must end on a date
not less than the later of the date 61 days after the contract processing
day when the grace period begins, or the date that [which
] is 31 days after the mailing date of the report to contract
holders [contractholders] required by §4.1509(3)
[§3.809(3)] of this title (relating to Reports
to Contract Holders [Contractholders]). The
death benefit payable during the grace period will equal the death
benefit in effect immediately before [prior to]
such period less any overdue charges. If the contract processing days
occur monthly, the insurer may require payment of an amount equal
to the greater
of:
(I)
not more than three times the charges that [which] were due on the contract processing day on which the
amounts available under the contract were insufficient to pay all
charges authorized by the contract that are necessary to keep such
contract in force until the next contract processing day;
or
(II) the amount necessary to keep such contract in force for a period of three calendar months from the contract processing day on which the amounts available under the contract were insufficient to pay all charges authorized by the contract.
(C)
For scheduled premium contracts, a provision that
the contract will be reinstated at any time within two years from
the date of default upon the written application of the insured and
evidence of insurability, including good health, satisfactory to the
insurer, unless the cash surrender value has been paid or the period
of extended insurance has expired, upon the payment of any outstanding
indebtedness arising after [subsequent to] the
end of the grace period following the date of default together with
accrued interest on the contract [thereon] to
the date of reinstatement and payment of an amount not exceeding the
greater
of:
(i) all overdue premiums at an interest rate not exceeding the contract loan interest rate in effect for the period during and after the lapse of the contract, and any indebtedness in effect at the end of the grace period following the date of default with interest at a rate not exceeding the contract loan interest rate in effect for the period during and after the lapse of the contract; or
(ii) 110% of the increase in cash surrender value resulting from reinstatement plus all overdue premiums for incidental insurance benefits with interest at a rate not exceeding the contract loan interest rate in effect for the period during and after the lapse of the contract.
(D)
A full description of the benefit base and [of]
the method of calculation and application of any factors used to adjust
variable benefits under the
contract.
(E) A provision designating the separate account to be used and stating that:
(i) the assets of such separate account must be available to cover the liabilities of the general account of the insurer only to the extent that the assets of the separate account exceed the liabilities of the separate account arising under the variable life contracts supported by the separate account; and
(ii) the assets of such separate account must be valued at least as often as any contract benefits vary but at least monthly.
(F) A provision specifying what documents constitute the entire insurance contract.
(G)
A designation of the officers who are empowered
to make an agreement or representation on behalf of the insurer and
an indication that statements by the insured, or on the insured's [his or her] behalf, are considered as representations and not
warranties.
(H) An identification of the owner of the insurance contract.
(I) A provision setting forth conditions or requirements as to the designation, or change of designation, of a beneficiary and a provision for disbursement of benefits in the absence of a beneficiary designation.
(J) A statement of any conditions or requirements concerning the assignment of the contract.
(K) A description of any adjustments in benefits under the contract to be made in the event of misstatement of age or sex of the insured.
(L)
A provision that the contract will be incontestable
by the insurer after it has been in force for two years during the
lifetime of the insured, provided, however, that any increase in the
amount of the contract's death benefits after [subsequent
to] the contract issue date, which increase occurred upon a
new application or request of the owner and was subject to satisfactory
proof of the insured's insurability, will be incontestable after any
such increase has been in force, during the lifetime of the insured,
for two years from the date of issue of such
increase.
(M) A provision stating that the investment policy of the separate account may not be changed without the approval of the insurance commissioner of the state of domicile of the insurer, and that the approval process is on file with the commissioner of this state.
(N) A provision that the payment of variable death benefits in excess of any minimum death benefits, cash surrender values, contracts loans, or partial withdrawals (except when used to pay the premiums) or partial surrenders may be deferred:
(i)
for up to two months for death benefit payments
or six months for all other payments from the date of request [therefor
], if such payments are based on contract values that [which] do not depend on the investment performances of the separate
accounts;
or
(ii)
for any period during which the New York Stock
Exchange is closed for trading (except for normal holiday closing)
or when the Securities and Exchange Commission has determined that
a state of emergency exists that [which] may
make such payment
impractical.
(O) If settlement options are provided, at least one such option must be provided on a fixed basis only.
(P) A detailed and complete definition for the basis for computing the contract value and the cash surrender value of the contract. For flexible premium variable life contracts, the definition must include the following:
(i) the guaranteed maximum expense charges and loads;
(ii) any limitation on the crediting of additional interest. Interest credits may not remain conditional for a period longer than 12 months;
(iii) any assumed investment rate or rates;
(iv) the guaranteed maximum mortality charges;
(v) any other guaranteed charges; and
(vi) any surrender or partial withdrawal charges.
(Q) Premiums or charges for incidental insurance benefits must be stated separately.
(R) Any other contract provisions required by this subchapter.
(S) Such other items as are currently required for fixed benefit life insurance contracts and are not inconsistent with this subchapter.
(T)
A provision for nonforfeiture insurance benefits.
The insurer may establish either a reasonable minimum cash surrender
value amount[,] or a reasonable death benefit that [which] may be purchased under any nonforfeiture option, below
which any nonforfeiture option will not be
available.
(U) If a flexible premium contract does not provide for a guarantee of death benefit coverage, but does provide for a "maturity date," "end date," or similar date, then the contract must also contain a statement, in close proximity to that date, that it is possible that the coverage may not continue to the maturity date even if scheduled premiums are paid in a timely manner.
(4)
Contract loan provision. Every variable life contract,
other than term insurance contracts and pure endowment contracts,
delivered or issued for delivery in this state must contain provisions that [which] are not less favorable to the contract
holders [contractholders] than the
following.
(A)
A provision for contract loans after the contract
has been in force for one full year that [which]
provides the
following:
(i) at least 75% of the contract's cash surrender value may be borrowed;
(ii) the amount borrowed must bear interest at a rate not to exceed that permitted by Insurance Code Chapter 1110, concerning Interest Rates on Certain Policy Loans;
(iii) any indebtedness must be deducted from the proceeds payable on death; and
(iv) any indebtedness must be deducted from the cash surrender value upon surrender or in determining any nonforfeiture benefit.
(B)
For scheduled premium contracts, whenever the indebtedness
exceeds the cash surrender value, the insurer must give notice of
any intent to cancel the contract if the excess indebtedness is not
repaid within 31 days after the date of mailing of such notice. For
flexible premium contracts, whenever the total charges authorized
by the contract that are necessary to keep the contract in force until
the next following contract processing day exceed the amounts available
under the contract to pay such charges, a report must be sent to the contract holder [contractholder] containing the information
specified by §4.1509(3) [§3.809(3)]
of this title [(relating to Reports to
Contractholders)].
(C)
The contract may provide that if, at any time,
so long as premiums are duly paid, the variable death benefit is less
than it would have been if no loan or withdrawal had ever been made,
the contract holder [contractholder] may increase
such variable death benefit up to what it would have been if there
had been no loan or withdrawal by paying an amount not exceeding 110%
of the corresponding increase in cash surrender values and by furnishing
such evidence of insurability as the insurer may
require.
(D)
The contract may specify a reasonable minimum amount that [which] may be borrowed at any time, but such
minimum may not apply to any automatic premium loan
provision.
(E) No contract loan provision is required if the contract is under extended insurance nonforfeiture option.
(F)
The contract loan provisions must be constructed
so that variable life insurance contract holders [contractholders
] who have not exercised such provisions are not disadvantaged
by the exercise of those provisions
[thereof].
(G)
Amounts paid to the contract holders [contractholders] upon the exercise of any contract loan provision
must be withdrawn from the separate account and must be returned to
the separate account upon repayment except that a stock insurer may
provide the amounts for contract loans from the general
account.
(5) Other contract provisions. The following provisions may in substance be included in a variable life contract or related form delivered or issued for delivery in this state:
(A)
an exclusion for suicide within two years of the
issue date of the contract, provided, however, that to the extent
of the increased death benefits only, the contract may provide an
exclusion for suicide within two years of any increase in death benefits that results [which result] from an application or
request of the owner after [subsequent to] the
contract issue
date;
(B) incidental insurance benefits may be offered on a fixed or variable basis;
(C) contracts issued on a participating basis must offer to pay dividend amounts in cash. In addition, such contracts may offer the following dividend options:
(i) the amount of the dividend may be credited against premium payments;
(ii) the amount of the dividend may be applied to provide amounts of additional fixed or variable benefit life insurance;
(iii) the amount of the dividend may be deposited in the general account at a specified minimum rate of interest;
(iv) the amount of the dividend may be applied to provide paid-up amounts of fixed benefit one-year term insurance; or
(v) the amount of the dividend may be deposited as a variable deposit in the separate account or separate accounts;
(D)
a provision allowing the contract holder [contractholder] to elect in writing in the application for the
contract or thereafter an automatic premium loan on a basis not less
favorable than that required of contract loans under paragraph (4)
of this section, except that a restriction that no more than two consecutive
premiums can be paid under this provision may be
imposed;
(E)
a provision allowing the contract holder [contractholder] to make partial withdrawals;
and/or
(F) any other contract provision approved by the commissioner.
§4.1505.Reserve Liabilities for Variable Life Insurance.
(a) Reserve liabilities for variable life insurance contracts must be established under Insurance Code Chapter 425, Subchapter B, concerning Standard Valuation Law, in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.
(b) For scheduled premiums contracts, reserve liabilities for the guaranteed minimum death benefit must be the reserve needed to provide for the contingency of death occurring when the guaranteed minimum death benefit exceeds the death benefit that would be paid in the absence of the guarantee, and be maintained in the general account of the insurer and must not be less than the greater of the following minimum reserve:
(1) the aggregate total of the term costs, if any, covering a period of one full year from the valuation date, of the guarantee on each variable life contract, assuming an immediate one-third depreciation in the current value of the assets in the separate account followed by a net investment return equal to the assumed investment rate; or
(2) the aggregate total of the "attained age level" reserves on each variable life insurance contract. The "attained age level" reserve on each variable life insurance contract must not be less than zero and must equal the "residue," as described in subparagraph (A) of this paragraph, of the prior year's "attained age level" reserve in the contract, with any such "residue," increased or decreased by a payment computed on an attained-age basis as described in subparagraph (B) of this paragraph.
(A) The "residue" of the prior year's "attained age level" reserve on each variable life insurance contract may not be less than zero and must be determined by adding interest at the valuation interest rate to such prior year's reserve, deducting the tabular claims based on the "excess," if any, of the guaranteed minimum death benefit over the death benefit that would be payable in the absence of such guarantee, and dividing the net result by the tabular probability of survival. The "excess" referred to in the preceding sentence must be based in the actual level of death benefits that would have been in effect during the preceding year in the absence of the guarantee, taking appropriate account of the reserve assumptions regarding the distribution of death claim payments over the year.
(B) The payment referred to in this paragraph must be computed so that the present value of a level of that amount each year over the future premium paying period of the contract is equal to (i) minus (iii), where:
(i) is the present value of the future guaranteed minimum death benefits;
(ii) is the present value of the future death benefits that would be payable in the absence of such guarantee; and
(iii)
is any "residue," as described in subparagraph
(A) of this paragraph, of the prior year's "attained age level" reserve
on such variable life insurance contract. If the contract is paid-up
[paid up], the payment must equal (i) minus (ii)
minus (iii). The amounts of the future death benefits referred to
in clause (ii) of this paragraph must be computed assuming a net investment
return of the separate account that [which]
may differ from the assumed investment rate and/or the valuation interest
but in no event may exceed the maximum interest rate permitted for
the valuation of life
contracts.
(3) The valuation interest rate and mortality table used in computing the two minimum reserves described in paragraph (2)(A) and (B) of this subsection must conform to permissible standards for the valuation of life insurance contracts. In determining such minimum reserve, the insurer may employ suitable approximations and estimates, including, but not limited to, groupings and averages.
(c) For flexible premium contracts, reserve liabilities for any guaranteed minimum death benefit must be maintained in the general account of the insurer and may not be less than the aggregate total of the term costs, if any, covering the period provided for in the guarantee not otherwise provided for by the reserves held in the separate account assuming an immediate one-third depreciation in the current value of the assets of the separate account followed by a net investment return equal to the valuation interest rate. The valuation interest rate and mortality table used in computing this additional reserve, if any, must conform to permissible standards for the valuation of life insurance contracts. In determining such minimum reserve, the insurer may employ suitable approximations and estimates, including, but not limited to, groupings and averages.
(d) Reserve liabilities for all fixed incidental insurance benefits and any guarantees associated with variable incidental insurance benefits must be maintained in the general account, and reserve liabilities for all variable aspects of the variable incidental insurance benefits must be maintained in a separate account, in amounts determined in accordance with the actuarial procedures appropriate to such benefit.
§4.1506.Separate Accounts.
The following requirements apply to the establishment and administration of variable life insurance separate accounts by any domestic insurer.
(1) Establishment of separate accounts. Any domestic
life insurance company issuing variable life contracts must establish
one or more separate accounts under [pursuant to]
Insurance Code Chapter 1152, concerning Separate Accounts, Variable
Contracts, and Related Products.
(A) If no law or other regulation provides for the
custody of separate account assets and if such insurer is not the
custodian of such separate account assets, all contracts for custody
of such assets must be in writing and the commissioner has authority
to review and approve of both the terms of any such contract and the
proposed custodian before [prior to] the transfer
of custody.
(B) In connection with the handling of separate account assets, such insurer may not, without prior written approval of the commissioner, employ in any material manner any person who:
(i) within the last 10 years has been convicted of
any felony or a misdemeanor arising out of such person's conduct involving
embezzlement, fraudulent conversion, or misappropriation of funds
or securities or involving violation of 18 United States Code §§1341,
1342, or 1343, as amended; [or]
(ii) within the last 10 years had been found by any state regulatory authority to have violated or has acknowledged violation of any provision of any state insurance law involving fraud, deceit, or knowing misrepresentation; or
(iii) within the last 10 years has been found by federal or state regulatory authorities to have violated or has acknowledged violation of any provision of federal or state laws involving fraud, deceit, or knowing misrepresentation.
(C) All persons with access to the cash, securities, or other assets allocated to or held by the separate account must be under bond in the amount of not less than $100,000.
(2) Amounts in the separate account. The insurer must maintain in each separate account assets with a value at least equal to the greater of the valuation reserves for the variable portion of the variable life insurance contracts or the benefit base for such contracts.
(3) Investments by the separate account.
(A) No sale, exchange, or other transfer of assets may be made by an insurer or any of its affiliates between any of its separate accounts or between any other investment account and one or more of its separate accounts unless:
(i) in case of a transfer into a separate account, such transfer is made solely to establish the account or to support the operation of the contracts with respect to the separate account to which the transfer is made; and
(ii) such transfer, whether into or from a separate account, is made by a transfer of cash; but other assets may be transferred if approved by the commissioner in advance.
(B) The separate account must have sufficient net investment income and readily marketable assets to meet anticipated withdrawals under contracts funded by the account.
(4) Limitations on ownership.
(A)
A separate account may not purchase or otherwise
acquire the securities of any issuer, other than securities issued
or guaranteed as to principal and interest by the United States, if
immediately after such purchase or acquisition the value of such investment,
together with prior investment of such account in such security valued
as required by these rules, would exceed 10% of the value of the assets
of the separate account. Upon appropriate documentation by the company that[, which] evidences that a waiver of this limitation
will not render the operation of the separate account hazardous to
the public or contract holders [contractholders]
in this state, the commissioner may in writing waive this
limitation.
(B)
No separate account may purchase or otherwise acquire
the voting securities of any issuer if, as a result of such acquisition,
the insurer and its separate accounts in the aggregate will own more
than 10% of the total issued and outstanding voting securities of
such issuer. Upon appropriate documentation by the company evidencing
[, which evidences] that a waiver of this limitation
will not render the operation of the separate account hazardous to
the public or the contract holders [contractholder]
in this state, the commissioner may in writing waive this
limitation.
(C)
The percentage limitations specified in subparagraph
(A) of this paragraph may not be construed to preclude the investment
of the assets of separate accounts in shares of investment companies
registered under [pursuant to] 15 United States
Code §§80b-1 - 80b-21, as amended, or other pools of investment
assets if the investments and investment policies of such investment
companies or asset pools comply substantially with the provisions
of paragraph (3) of this section and other applicable portions of
this
regulation.
(5) Valuation of separate account assets. Investments of the separate account must be valued at their market value on the date of valuation, or at amortized cost if it approximates market value.
(6)
Separate account investment policy. The investment
policy of a separate account operated by a domestic insurer filed
under §4.1503(2)(C) [§3.803(2)(C)]
of this title (relating to Qualifications [Qualification]
of Insurer to Issue Variable Life Insurance) may not be changed without
first filing such change with the
commissioner.
(A)
Any change filed under [pursuant
to] this paragraph will be effective 60 days after the date
it was filed with the commissioner, unless the commissioner notifies
the insurer before the end of such 60-day period of the commissioner's
disapproval of the proposed change. At any time, the commissioner
may, after notice and public hearing, disapprove any change that has
become effective under [pursuant to] this paragraph.
(B)
The commissioner may disapprove the change if the
commissioner determines that the change would be detrimental to the
interests of the contract holders [contractholders]
participating in such separate
accounts.
(7)
Charges against separate account. The insurer must
disclose in writing, before [prior to] or contemporaneously
with delivery of the contract, all charges that may be made against
the separate account, including, but not limited to, the
following:
(A) taxes or reserves for taxes attributable to investment gains and income of the separate account;
(B) actual cost of reasonable brokerage fees and similar direct acquisition and sale costs incurred in the purchase or sale of separate account assets;
(C) actuarially determined costs of insurance (tabular costs) and the release of separate account liabilities. The tabular costs of insurance may not exceed the mortality rate for the attained age of the insured in the table specified for the calculation of cash surrender values in Insurance Code Chapter 1105, concerning Standard Nonforfeiture Law for Life Insurance, provided, for insurance issued on a substandard basis, the charge for mortality may be the mortality rate for the attained age of the insured in such other table as may be specified by the company and approved by the Texas Department of Insurance;
(D) charges for administrative expenses and investment management expenses, including internal costs attributable to the investment management of assets of the separate account;
(E) a charge, at a rate specified in the contract, for mortality and expense guarantees;
(F) any amounts in excess of those required to be held in the separate accounts; and
(G) charges for incidental insurance benefits.
(8)
Standards of conduct. Every insurer seeking approval
to enter into the variable life insurance business in this state must
adopt by formal action of its board of directors a written statement
specifying the standards of conduct of the insurer, its officers,
directors, employees, and affiliates with respect to the purchase
or sale of investments of separate accounts. Such standards of conduct
are binding on the insurer and those to whom it refers. A code of
ethics meeting the requirements of 15 United States Code §80a-17,
as amended, and applicable rules and regulations adopted under
that section [thereunder] satisfies the provisions
of this
paragraph.
(9) Conflicts of interest. Rules under any provision of the Insurance Code or any regulation applicable to the officers and directors of insurance companies with respect to conflicts of interest also apply to members of any separate account's committee or other similar body.
(10) Investment advisory services to a separate account. An insurer may not enter into a contract under which any person undertakes, for a fee, to regularly furnish investment advice to such insurer with respect to its separate accounts maintained for variable life insurance contracts unless:
(A) the person providing such advice is registered as an investment advisor under 15 United States Code §§80b-1 - 80b-21, as amended;
(B) the person providing such advice is an investment manager under 29 United States Code §1001, et seq., as amended, with respect to the assets of each employee benefit plan allocated to the separate account; or
(C) the insurer has filed with the commissioner and continues to file annually the following information and statements concerning the proposed advisor:
(i) the name and form of the organization, and its principal place of business;
(ii) the names and addresses of its partners, officers, directors, and persons performing similar functions or, if such an investment advisor be an individual, of such individual;
(iii)
a written standard of conduct complying in substance
with requirements of paragraph (8) of this section that [which] has been adopted by the investment advisor and is applicable
to the investment advisor, its officers, directors, and affiliates; and
(iv) a statement provided by the proposed advisor as to whether the advisor or any person associated therewith:
(I) has been convicted within 10 years of any felony or misdemeanor arising out of such person's conduct as an employee, salesman, officer or director of an insurance company, a banker, an insurance agent, a securities broker, or an investment advisor involving embezzlement, fraudulent conversion, or misappropriation of funds or securities, or involving the violation of 18 United States Codes §§1341, 1342, or 1343, as amended;
(II) has been permanently or temporarily enjoined by an order, judgment, or decree of any court of competent jurisdiction from acting as an investment advisor, underwriter, broker, or dealer, or as an affiliated person or as an employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice in connection with any such activity;
(III) has been found by federal or state regulatory authorities to have willfully violated or have acknowledged willful violation of any provision of federal or state securities laws or state insurance laws or of any rule or regulation under such laws; or
(IV) has been censored, denied an investment advisor registration, had a registration as an investment advisor revoked or suspended, or been barred or suspended from being associated with an investment advisor by order of federal or state regulatory authorities; and
(D)
such investment advisory contract must be in writing
and provide that it may be terminated by the insurer without penalty
to the insurer or the separate account upon no more than 60 days'
written notice to the investment advisor. The commissioner may, after
notice and opportunity for hearing, by order require such investment
advisory contract to be terminated if the commissioner deems continued
operation under the contract [thereunder] to
be hazardous to the public or the insurer's contract holders
[contractholders].
§4.1507.Information Furnished to Applicants.
An insurer delivering or issuing for delivery in this state
any variable life insurance contracts must [shall]
deliver to the applicant for such contract[,] and obtain
a written acknowledgment of receipt from such applicant coincident
with or before [prior to] the execution of the
application, the following information. The requirements of this section will [shall] be deemed to have been satisfied to
the extent that a disclosure containing information required by this
section is delivered, either in the form of a prospectus included
in the requirements of 15 United States Code §77a, et seq., that
[which] was declared effective by the Securities
and Exchange Commission; or all information and reports required by
29 United States Code §1001 et seq., if the policies are exempted
from the registration requirements of 15 United States Code §77a,
et seq.:
(1) a summary explanation in nontechnical terms, of
the principal features of the contract, including a description of how
[the manner in which] the variable benefits will
reflect the investment experience of the separate account and the
factors that [which] affect such variation.
Such explanation must include notices of the provision required by §4.1504(3)(A)(v)
[§3.804(3)(A)(v)] and (3)(F) of this title
(relating to Insurance Contract and Filing Requirements);
(2) a statement of the investment policy of the separate account, including:
(A) a description of the investment objectives intended for the separate account and the principal types of investments intended to be made; and
(B) any restrictions or limitations on how [the manner in which] the operations of the separate account
are intended to be conducted;
(3) a statement of the net investment return of the separate account for each of the last 10 years or such lesser period as the separate account has been in existence;
(4) a statement of the charges levied against the separate account during the previous year;
(5) a summary of the method to be used in valuing assets held by the separate account;
(6) a summary of the federal income tax aspects of
the contract applicable to the insured, the contract holder [contractholder], and the
beneficiary;
(7)
illustrations of benefits payable under the variable
life insurance contract. Such illustrations must [shall]
be prepared by the insurer and may [shall] not
include projections of past investment experience into the future
or attempted predictions of future investments experience, provided
that nothing contained herein prohibits use of hypothetical assumed
rates of return to illustrate possible levels of benefits if it is
made clear that such assumed rates are hypothetical only.
§4.1508.Application.
The application for a variable life contract must [shall] contain:
(1) a prominent statement that the death benefit may be variable or fixed under specified conditions;
(2) a prominent statement that cash values may increase or decrease in accordance with the experience of the separate account (subject to any specified minimum guarantees); and
(3) questions designed to elicit information that [which] enables the insurer to determine the suitability of variable
life insurance for the applicant.
§4.1509.Reports to Contract Holders [Contractholders].
Any insurer delivering or issuing for delivery in this state
any variable life contracts must [shall] mail
to each variable life insurance contract holder [contractholder
] at their [his or her] last known address
the following reports.
(1) Within 30 days after each anniversary of the contract,
a statement or statements of the cash surrender value, death benefit,
any partial withdrawal or contract loan, any interest charge, any
optional payments allowed under §4.1504(4) [pursuant
to §3.804(4)] of this title (relating to Insurance Contract
and Filing Requirements) under the contract computed as the contract
anniversary date. Provided, however, that such statement may be furnished
within 30 days after a specified date in each contract year so long
as the information contained in the statement [therein]
is computed as of a date not more than 60 days before [prior
to] the mailing of such notice. This statement must [shall] state that, in accordance with the investment experience
of the separate account, the cash surrender values and the variable
death benefit may increase or [of] decrease,
and must [shall] prominently identify any value
described in the statement that [therein which]
may be recomputed before [prior to] the next
statement required by this section. If the contract guarantees that
the variable death benefit on the next contract anniversary date will
not be less than the variable death benefit specified in such statement,
the statement must [shall] be modified to so
indicate. For flexible premium contracts, the report must contain
a reconciliation of the change since the previous report in contract
value and cash surrender value, if different, because of payments
made less deduction for expense charges, withdrawals, investment experience,
insurance charges, and any other charges made against the contract
value. In addition, the report must show the projected contract value
and cash surrender value, if different, as of one year from the end
of the period covered by the report assuming
that:
(A) planned periodic premiums, if any, are paid as scheduled;
(B) guaranteed costs of insurance are deducted; and
(C) the net return is equal to the assumed rate or, in the absence of an assumed rate, is not greater than zero. If the projected value is less than zero, a warning message must be included that states that the contract may be in danger of terminating without value in the next 12 months unless additional premium is paid.
(2) Annually, a statement or statements including:
(A) a summary of the financial statement of the separate account based on the annual statement last filed with the commissioner;
(B) the net investment return of the separate account for the last year and, for each year after the first, a comparison of the investment rate of the separate account during the last year with the investment rate during prior years, up to a total of not less than five years when available;
(C) a list of investments held by the separate account as of a date not earlier than the end of the last year for which an annual statement was filed with the commissioner;
(D) any charges levied against the separate account during the previous year; and
(E) a statement of any change, since the last report, in the investment objective and orientation of the separate account, in any investment restriction or material quantitative or qualitative investment requirement applicable to the separate account or in the investment advisor of the separate account.
(3)
For flexible premium contracts, a report must be
sent to the contract holder [contractholder]
if the amounts available under the contract on any contract processing
day to pay the charges authorized by the contract are less than the
amount necessary to keep the contract in force until the next following
contract processing day. The report must indicate the minimum payment
required under the terms of the contract to keep it in force and the
length of the grace period for payment of such
amount.
§4.1510.Separability.
If any provision of Subchapter O [§§3.801-3.811
] of this chapter [title] (relating to Life
- Variable Life Insurance) or the application of such provisions
[thereof] to any person or circumstance is for any
reason held to be invalid, the remainder of the sections and the application
of such provision to other persons or circumstances will [shall] not be affected
[thereby].
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303279
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
28 TAC §§4.1602 - 4.1606, 4.1609 - 4.1613
STATUTORY AUTHORITY. TDI proposes amendments to §§4.1602 - 4.1606 and 4.1609 - 4.1613 under Insurance Code §1106.010 and §36.001.
Insurance Code §1106.010 provides the commissioner adopt reasonable rules to implement Insurance Code Chapter 1106.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter P affects Insurance Code §1106.009.
§4.1602.Applicability.
This subchapter applies to all individual life policies that [, which] do not provide nonforfeiture benefits issued to Texas
residents by insurers licensed in this state, including stipulated
premium companies and fraternal benefit societies, that [which] lapse due to the mental incapacity of the insured[,]
and that [which] qualify for reinstatement under
the eligibility requirements set forth in §4.1605 [§3.905
] of this title (relating to Eligibility Requirements).
§4.1603.Severability.
Where any term or section of this subchapter is determined
by a court of competent jurisdiction to be inconsistent with the statutes
of this state or to be unconstitutional, the remaining terms and provisions
of this subchapter [shall] remain in effect.
§4.1604.Definitions.
The following words and terms, when used in this subchapter,
[shall] have the following meanings[,] unless
the context clearly indicates otherwise.
(1) Commissioner--The commissioner of insurance [Commissioner of
Insurance].
(2) Department--The Texas Department of Insurance.
(3) Insured--The person whose life is insured under the policy. For purposes of this subchapter, the insured is the owner, unless the insured and owner are different parties as set forth in the policy.
(4) Mental incapacity [Incapacity]--Lacking
the ability, based on reasonable medical judgment, to understand and
appreciate the nature and consequences of a decision regarding failure
to pay a premium when due and the ability to reach an informed decision
in the matter.
(5) Owner--The person who has all the rights and all the responsibilities of the policy.
(6) Policyholder--The owner of the policy.
(7) Proof of mental incapacity--The clinical diagnosis of a physician licensed in this state and qualified to make the diagnosis.
§4.1605.Eligibility Requirements.
An eligible policy that is subject to this subchapter must [shall] be reinstated, without evidence of insurability, on payment
of past due premiums and interest if it meets the following requirements
[set forth in paragraphs (1) - (4) of this
subsection]:
(1)
it has been in force continuously for at least
five years immediately before [prior to] the
date of
lapse;
(2) all premiums have been paid during such period, or within the grace period;
(3) there is a subsequent unintentional default in premium payments caused by the mental incapacity of the insured; and
(4) proof and request for reinstatement are submitted within one year from the date of lapse.
§4.1606.Payment of Past Due Premiums.
The insurer may require, as a condition of reinstatement, payment
of past due premiums, plus interest at a rate not to exceed 6.0% per year
[annum].
§4.1609.Notification and Disclosure Requirements.
(a) The insurer is required to send notice of the conditions
set forth in this subchapter under which the policy may qualify for
reinstatement due to the mental incapacity of the insured. The notice
must be sent to the owner of any individual life policy that [which] does not provide nonforfeiture benefits if the policy
is in force, renewed, or issued on or after September 1,
1995. The notice required to be provided by this subsection must be
provided within 90 days following lapse of an eligible policy.
(b) For all policies issued on or after September 1,
1995, disclosure of the conditions set forth in this subchapter under
which the policy may qualify for reinstatement due to the mental incapacity
of the insured may be made by incorporating the language of §4.1613
[§3.913] of this title (relating to Notice
and Disclosure Form), either in the policy or in an endorsement attached
to the policy, in lieu of the notice requirements set forth in subsection
(a) of this section.
(c) The notice required to be provided by this subsection
will be deemed to be in compliance if mailed by first class mail to
the last known address of the policyholder or if contained in the
policy or included as an endorsement to the policy [thereto].
(d) The notice required by this subsection must be
provided in the form set forth in §4.1613 [§3.913
] of this title [(relating to Notice and Disclosure Form)].
§4.1610.Reinstatement Procedures.
(a) The insurer must [shall]
accept a request for reinstatement and proof of mental incapacity
that is filed by:
(1) the insured, or the owner, if the insured and owner are not the same party;
(2) the legal guardian of the insured;
(3) other legal representative of the insured; or
(4) the legal representative of the estate of the insured.
(b) Proof of mental incapacity and the request for reinstatement must be submitted within one year after the date of lapse of the policy.
§4.1611.Reduced Benefits.
The insurer must [shall] pay the death
benefit under an eligible policy if the insured dies within one year
of the date of lapse and the requirements for submitting proof of
mental incapacity and request for reinstatement are met. The insurer must [shall] reduce the death benefit under a policy
that is eligible for reinstatement under this subchapter by the amount
of premiums due and unpaid on the date of death, plus interest on
such premiums at the reinstatement interest rate, if there is an uncontroverted
claim for benefits that exceeds the amount of premiums and interest owed.
§4.1612.Form Filing Procedures.
(a) For all new forms subject to this subchapter filed
on or after September 1, 1995, the insurer must include with the form
filing written notification to the department specifying the method
of notification as set forth in §4.1609 [§3.909
] of this title (relating to Notification and Disclosure Requirements)
by which the notice requirements of §4.1613 [§3.913
] of this title (relating to Notice and Disclosure Form) will
be met.
(b) For all forms subject to this subchapter approved
or filed before September 1, 1995, the insurer must submit to the
department a certification, signed by an officer of the company, specifying
the method or methods of notification as set forth in §4.1609 [§3.909] of this title [(relating to Notification and
Disclosure Requirements)] by which the notice requirements of §4.1613 [§3.913] of this title [(relating
to Notice and Disclosure Form)] will be met.
(c) All policies and endorsements are subject to the
filing requirements of Chapter 3, Subchapter A of this title
(relating to Submission Requirements for Filings and Departmental
Actions Related to Such Filings) [chapter (relating to
Requirements for Filing of Policy Forms, Riders, Amendments, and Endorsements
for Life, Accident, and Health Insurance and Annuities)].
§4.1613.Notice and Disclosure Form.
(a) If the elected method of compliance is notification
to all existing policyholders as described in §4.1609(b) [§3.902(a)(2)] of this title (relating to Notification and
Disclosure Requirements), the notice required by this subchapter must
[shall] be provided in the following manner:
Figure: 28 TAC §4.1613(a) (.pdf)
[Figure: 28 TAC §3.913(a)]
(b) If the elected method of compliance is notification
within 90 days following the lapse of an eligible policy as described
in §4.1609(a) [§3.909(a)(1)] of this
title [(relating to Notification and Disclosure Requirements)],
the notice required by this subchapter must [shall]
be provided in the following manner:
Figure: 28 TAC §4.1613(b) (.pdf)
[Figure: 28 TAC §3.913(b)]
(c) If the elected method of compliance is incorporating the language of this section in the policy or in an endorsement, the insurer may incorporate the text of subsection (a) of this section, omitting the titles referencing "Notice" and substituting an appropriate prominent title, such as "Reinstatement Due to the Mental Incapacity of the Insured."
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303280
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
STATUTORY AUTHORITY. TDI proposes amendments to §§4.1702 - 4.1707 under Insurance Code §§36.004, 541.057, 541.401, 1105.055(h), and 36.001.
Insurance Code §36.004 provides that the commissioner may adopt a rule to require compliance with a rule, regulation, directive, or standard adopted by the National Association of Insurance Commissioners if certain statutory requirements are met.
Insurance Code §541.057 prohibits unfair discrimination in the rates, dividends, or any other contract terms and conditions for individuals of the same class and life expectancy in life insurance and annuity contracts.
Insurance Code §541.401 provides that the commissioner may adopt and enforce reasonable rules necessary to accomplish the purposes of Insurance Code Chapter 541.
Insurance Code §1105.055(h) specifies that the commissioner may adopt by rule any ordinary mortality table adopted after 1980 by the National Association of Insurance Commissioners.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter Q affects Insurance Code Chapters 425, 541, 543, and 1105.
§4.1702.Definitions.
The following words and terms, when used in this subchapter,
[shall] have the following meanings[,] unless
the context clearly indicates otherwise.
(1) 1980 CET Table--That mortality table consisting of separate rates of mortality for male and female lives, developed by the Society of Actuaries Committee to Recommend New Mortality Tables for Valuation of Standard Individual Ordinary Life Insurance, incorporated in the 1980 National Association of Insurance Commissioners (NAIC) amendments to the Model Standard Valuation Law and Standard Nonforfeiture Law for Life Insurance, and referred to in those models as the Commissioners 1980 Extended Term Insurance Table.
(2) 1980 CET Table (F)--That mortality table consisting of the rates of mortality for female lives from the 1980 CET Table.
(3) 1908 CET Table (M)--That mortality table consisting of the rates of mortality for male lives from the 1980 CET Table.
(4) 1980 CSO Table, with or without Ten-Year Select Mortality Factors--That mortality table, consisting of separate rates of mortality for male and female lives, developed by the Society of Actuaries Committee to Recommend New Mortality for Valuation of Standard Individual Ordinary Life Insurance, incorporated in the 1980 NAIC amendments to the Model Standard Valuation Law and Standard Nonforfeiture Law for Life Insurance, and referred to in those models as the Commissioners 1980 Standard Ordinary Mortality Table, with or without Ten-Year Select Mortality Factors.
(5) 1980 CSO Table (F), with or without Ten-Year Select Mortality Factors--That mortality table consisting of the rates of mortality for female lives from the 1980 CSO Table, with or without Ten-Year Select Mortality Factors.
(6) 1980 CSO Table (M), with or without Ten-Year Select Mortality Factors--That mortality table consisting of the rates of mortality for male lives from the 1980 CSO Table, with or without Ten-Year Select Mortality Factors.
(7)
1980 CSO and 1980 CET smoker and nonsmoker mortality
tables--The mortality tables derived from the 1980 CSO and 1980 CET
mortality tables by the Society of Actuaries Task Force on Smoker/Nonsmoker
Mortality and adopted by the NAIC [National Association
of Insurance Commissioners] in December
1983.
(8)
Norris [Norris] decision--The decision of the United States Supreme
Court in the case of Arizona Governing
Committee for Tax Deferred Annuity and Deferred Compensation Plans
v. Norris [Arizona Governing Committee for Tax Deferred
Annuity and Deferred Compensation Plans v. Norris], 463 U.S.
1073 (1983).
§4.1703.Standard.
(a) For any policy of insurance on the life of either
a male or female insured, delivered, or issued for delivery in this
state after the operative date of former Insurance Code Article 3.44a,
§8 (recodified in Insurance Code Chapter 1105, Subchapter B,
[§§1105.051 - 1105.057] concerning Computation
of Adjusted Premiums Using Nonforfeiture Net Level Premium Method),
and before January 1, 2017, for that policy form, the following tables
described in paragraphs (1) and (2) of this subsection may be used
as specified in subsection (b) of this section in determining minimum
cash surrender values, amounts of paid-up [paid up]
nonforfeiture benefits, or benefits under extended term insurance
provisions included in the policy. For policies issued on or after
January 1, 2017, the valuation manual, adopted under Insurance Code
Chapter 425, Subchapter B, concerning Standard Valuation Law, provides
the tables to be used.
(1) A mortality table that [which]
is a blend of the 1980 CSO Table (M) and 1980 CSO Table (F), with
or without Ten-Year Select Mortality Factors, may, at the option of
the company, be substituted for the 1980 CSO Table, with or without
Ten-Year Select Mortality Factors.
(2) A mortality table that [which]
is of the same blend as used in paragraph (1) of this subsection,
but applied to form a blend of the 1980 CET Table (M) and the 1980
CET Table (F), may, at the option of the company, be substituted for
the 1980 CET Table.
(b) The following tables are to be considered as the basis for acceptable tables:
(1) 100% male, 0% female for tables to be designated as the "1980 CSO-A" and "1980 CET-A" Tables;
(2) 80% male, 20% female for tables to be designated as the "1980 CSO-B" and "1980 CET-B" Tables;
(3) 60% male, 40% female for tables to be designated as the "1980 CSO-C" and "1980 CET-C" Tables;
(4) 50% male, 50% female for tables to be designated as the "1980 CSO-D" and "1980 CET-D" Tables;
(5) 40% male, 60% female for tables to be designated as the "1980 CSO-E" and "1980 CET-E" Tables;
(6) 20% male, 80% female for tables to be designated as the "1980 CSO-F" and "1980 CET-F" Tables; and
(7) 0% male, 100% female for tables to be designated as the "1980 CSO-G" and "1980 CET-G" Tables.
(c)
Values of 1,000 qx for the blended tables as specified
in subsection (b)(2) - (6) of this section can be found in "Proceedings
of the NAIC," Volume 1, 1984, pages 396 - 400. "Proceedings of the
NAIC," Volume 1, 1984, page 457, shows the method by which ten-year
select mortality factors may be obtained. The tables specified in
subsection (b)(1) of this section are the same as the 1980 CSO Table
(M) or the 1980 CET Table (M), as applicable. The tables specified
in subsection (b)(7) of this section are the same as the 1980 CSO
Table (F) or the 1980 CET Table (F), as applicable. The tables specified
in subsection (b)(2) - (6) of this section are adopted [herein]
by reference. Copies of those tables may be obtained by contacting Life
and Health Division, Life and Health Actuarial, MC: LH-ACT, Texas
Department of Insurance, P.O. Box 12030, Austin, Texas 78711-2030 [Texas Department of Insurance, Life and Health Actuarial, MC-LH-ACT,
P.O. Box 12030, Austin, Texas 78711-2030]. The tables in subsection
(b)(1) and (7) of this section are already adopted by statutory law
under alternate
names.
(d)
The tables specified in subsection (b)(1) and (7)
of this section may not be used with respect to policies issued on
or after January 1, 1985, except where the proportion of persons insured
is anticipated to be 90% or more of one sex or the other or except
for certain policies converted from group insurance. Such group conversions
issued on or after January 1, 1986, must use mortality tables based
on the blend of lives by sex expected for such policies if such group
conversions are considered as extensions of the decision in Arizona Governing Committee for Tax Deferred Annuity
and Deferred Compensation Plans v. Norris, 463 U.S. 1073
(1983) [103 S. Ct. 3492 (1983)]. This consideration
has not been clearly defined by court or legislative action in all
jurisdictions, as of the date of promulgation of this
section.
(e) Notwithstanding any other provision of this subchapter, an insurer may not use these blended tables unless the Norris decision is known to apply to the policies involved, or unless there exists a bona fide concern on the part of the insurer that the Norris decision might reasonably be construed to apply by a court having jurisdiction.
§4.1704.Alternate Rule.
(a) In determining minimum cash surrender value and
amounts of paid-up nonforfeiture benefits for any policy of insurance
on either a male or a female insured on a form of insurance with separate
rates for smokers and nonsmokers delivered or issued for delivery
in this state after the operative date of former Insurance Code Article
3.44a, §8 (recodified in Insurance Code Chapter 1105, Subchapter
B, [§§1105.051 - 1105.057] concerning Computation
of Adjusted Premiums Using Nonforfeiture Net Level Premium Method),
and before January 1, 2017, for that policy form, in addition to the
mortality tables that may be used according to §4.1703 [§3.1303] of this title (relating to Standard), the tables
in paragraphs (1) and (2) of this subsection may be used. For policies
issued on or after January 1, 2017, the valuation manual, adopted
under Insurance Code Chapter 425, Subchapter B, concerning Standard
Valuation Law, provides the tables to be used.
(1) A mortality table that [which]
is a blend of the male and female rates of mortality according to
the 1980 CSO Smoker Mortality Table, in the case of lives classified
as smokers, or the 1980 CSO Nonsmoker Mortality Table, in the case
of lives classified as nonsmokers, with or without 10-year select
mortality factors, may, at the option of the company, be substituted
for the 1908 CSO Table, with or without 10-year select mortality factors.
(2) A mortality table that [which]
is of the same blend as used in paragraph (1) of this subsection but
applied to form a blend of the male and female rates of mortality
according to the corresponding 1980 CET Smoker Mortality Table or
1980 CET Nonsmoker Mortality Table or 1980 CET Nonsmoker Mortality
Table may, at the option of the company, be substituted for the 1980
CET Table.
(b) The following blended mortality tables are considered as the basis for acceptable tables according to subsection (a) of this section:
(1) 100% male, 0% female for smoker tables to be designated as the 1980 CSO-SA and 1980 CET-SA Tables;
(2) 80% male, 20% female for smoker tables to be designated as the 1980 CSO-SB and 1980 CET-SB Tables;
(3) 60% male, 40% female for smoker tables to be designated as the 1980 CSO-SC and 1980 CET-SC Tables;
(4) 50% male, 50% female for smoker tables to be designated as the 1980 CSO-SD and 1980 CET-SD Tables;
(5) 40% male, 60% female for smoker tables to be designated as the 1980 CSO-SE and 1980 CET-SE Tables;
(6) 20% male, 80% female for smoker tables to be designated as the 1980 CSO-SF and 1980 CET-SF Tables;
(7) 0% male, 100% female for smoker tables to be designated as the 1980 CSO-SG and 1980 CET-SG Tables;
(8) 100% male, 0% female for nonsmoker tables to be designated as the 1980 CSO-NA and 1980 CET-NA Tables;
(9) 80% male, 20% female for nonsmoker tables to be designated as the 1980 CSO-NB and 1980 CET-NB Tables;
(10) 60% male, 40% female for nonsmoker tables to be designated as the 1980 CSO-NC and 1980 CET-NC Tables;
(11) 50% male, 50% female for nonsmoker tables to be designated as the 1980 CSO-ND and CET-ND Tables;
(12) 40% male, 60% female for nonsmoker tables to be designated as the 1980 CSO-NE and 1980 CET-NE Tables;
(13) 20% male, 80% female for nonsmoker tables to be designated as the 1980 CSO-NF and 1980 CET-NF Tables; and
(14) 0% male, 100% female for nonsmoker tables to be designated as the 1980 CSO-NG and 1980 CET-NG Tables.
(c)
The Texas Department of Insurance adopts and incorporates
into this subchapter by reference the tables to which subsection (b)
of this section refers as tables to be used in conjunction with the
section adopted under this subchapter. Copies of these tables can
be obtained from the Life and Health Division, Life and Health
Actuarial, MC: LH-ACT, Texas Department of Insurance, P.O. Box 12030,
Austin, Texas 78711-2030 [Texas Department of Insurance,
Life and Health Actuarial, MC-LH-ACT, P.O. Box 12030, Austin, Texas
78711-2030].
(d) The tables specified in subsection (b)(1), (7), (8), and (14) of this section may not be used except where the proportion of persons insured is anticipated to be 90% or more of one sex or the other.
(e) Notwithstanding any other provision of this subchapter, an insurer may not use the blended mortality tables in subsection (b) of this section unless the Norris decision is known to apply to the policies involved, or unless there exists a bona fide concern on the part of the insurer that the Norris decision might reasonably be construed to apply by a court having jurisdiction.
§4.1705.Unfair Discrimination.
It is not a violation of Insurance Code §541.057, concerning Unfair Discrimination in Life Insurance and Annuity Contracts, for an insurer to issue the same kind of policy of life insurance on both a sex-distinct and sex-neutral basis, as permitted by this subchapter.
§4.1706.Severability.
If any provision of these sections or the application of
these provisions [thereof] to any person or circumstance
is for any reason held to be invalid, the remainder of the provisions
of this subchapter and the application of such provisions to other
persons or circumstances will [shall] not be
affected [thereby].
§4.1707.2001 CSO Mortality Table.
The 2001 CSO Mortality Table must [shall]
be used for purposes of this subchapter under [pursuant
to] the requirements of Subchapter AA, Division 3 [§§3.9101 - 3.9106] of this chapter [title
] (relating to 2001 CSO Mortality Table).
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303281
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
STATUTORY AUTHORITY. TDI proposes amendments to §§4.2102 - 4.2106 under Insurance Code §§1152.002, 1152.101, and 36.001.
Insurance Code §1152.002 specifies that the commissioner may adopt rules that are fair, reasonable, and appropriate to augment and implement Insurance Code Chapter 1152, including rules establishing requirements for agent licensing, standard policy provisions, and disclosure.
Insurance Code §1152.101 states that the commissioner has sole authority to regulate the issuance and sale of a variable contract under Insurance Code Chapter 1152 and rules adopted under Insurance Code §1152.002.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter U affects Insurance Code §1152.002 and §1152.101.
§4.2102.Definitions.
The following words and terms, when used in this subchapter,
have the following meanings[,] unless the context clearly
indicates otherwise.
(1) Agent--Any person, corporation, partnership, or
other legal entity that [which] is licensed
as a life insurance agent.
(2) Commissioner--The commissioner of insurance of this state.
(3) Flexible premium contract--Any variable annuity contract other than a scheduled premium variable annuity contract.
(4) General account--All assets of the insurer other
than assets in separate accounts established under [pursuant
to] Insurance Code Chapter 1152, concerning Separate Accounts,
Variable Contracts, and Related Products, or under [pursuant to] the corresponding section of the insurance laws
of the state of domicile of a foreign or alien insurer, whether or
not for variable annuities.
(5) Net investment return--The rate of investment return
to be credited to the variable annuity contract in accordance with
the terms of the contract after deductions for tax charges, if any,
and for asset charges either at a rate not in excess of that stated
in the contract, or in the case of a contract issued by a nonprofit
corporation under which the contract holder [contractholder
] participates fully in the investment, mortality, and expense
experience of the account, in an amount not in excess of the actual
expense not offset by other deductions. The net investment return
to be credited to a contract must be determined at least monthly.
(6) Scheduled premium contract--Any variable contract under which both the timing and amount of premium payments are fixed.
(7) Separate account--A separate account established under [pursuant to] Insurance Code Chapter 1152,
or under [pursuant to] the corresponding section
of the insurance laws of the state of domicile of a foreign or alien insurer.
(8) Variable annuity contract--Any individual annuity
contract or group annuity contract or certificate issued in connection
with a group annuity master contract that [which]
provides for benefits that [which] vary according
to the investment experience of a separate account established and
maintained by the insurer as to such contract, under [pursuant
to] Insurance Code Chapter 1152. Annuity benefits may be payable
in fixed or variable amounts or both.
§4.2103.Qualifications of Insurer to [To] Issue Variable Annuities.
The following requirements are applicable to all insurers either seeking authority to issue variable annuities in this state or having the authority to issue variable annuity products in this state.
(1) Licensing and approval to do business in this state.
An insurer may [shall] not deliver or issue
for delivery in this state any variable annuity unless:
(A) the insurer is licensed or organized to do a life insurance business in this state; and
(B) after notice and hearing, the commissioner has
authorized, either as part of the insurer's original certificate of
authority or by charter amendment, the insurer to issue, deliver,
and use variable annuity contracts, and only after the commissioner [he or she] has considered, among other things, the
following:
(i) whether the plan of operation for the issuance of variable annuity contracts is sound;
(ii) whether the general character, reputation, and experience of the management and those persons or firms proposed to supply consulting, investment, administrative, or custodial services to the insurer are such as to reasonably assure competent operation of the variable annuity business of the insurer in this state; and
(iii)
whether the present and foreseeable future financial
condition of the insurer and its method of operation in connection
with the issuance of such contracts is likely to render its operation
hazardous to the public or its contract holders in this state. The
commissioner will [shall] consider, among other
things:
(I) the history of operation and financial condition of the insurer;
(II) the qualifications, fitness, character, responsibility, reputation, and experience of the officers and directors and other management of the insurer and those persons or firms proposed to supply consulting, investment, administrative, or custodial services to the insurer;
(III)
the applicable law and regulations under which
the insurer is authorized in its state of domicile to issue variable
annuity contracts. The state of entry of an alien insurer will [shall] be deemed its state of domicile for this purpose;
and
(IV)
if the insurer is a subsidiary of[,]
or is affiliated by common management or ownership with another company,
its relationship to such other company, and the degree to which the
requesting insurer, as well as the other company, meets the standards
specified in this
subparagraph.
(2)
Filing for approval to do business in this state.
Before any insurer may [shall] deliver or issue
for delivery any variable annuity contract in this state, it must
file with the Department of Insurance [State Board
of Insurance] the following information and any other information
specifically requested, for the consideration of the commissioner,
on making the determination required by paragraph (1)(B) of this section:
(A) copies of and a general description of the variable annuity contracts it intends to issue;
(B) a general description of the methods of operation of the variable annuity business of the insurer, including methods of distribution of contracts and the names of those persons or firms proposed to supply consulting, investment, administrative, custodial, or distributive services to the insurer;
(C)
with respect to any separate account maintained
by an insurer for any variable annuity, a statement of the investment
policy the insurer intends to follow for the investment of the assets
held in such separate account, and a statement of procedures for changing
such investment policy. The statement of investment policy must [shall] include a description of the investment objectives intended
for the separate
account;
(D)
a description of any investment advisory services
contemplated as required by §4.2104 [§3.704]
of this title (relating to Separate
Accounts);
(E) a copy of the statutes and regulations of the state of domicile of a foreign or alien insurer under which it is authorized to issue variable annuity contracts;
(F) biographical data not previously filed with the commissioner with respect to officers and directors of the insurer on the appropriate biographical form used in Texas; and
(G)
a statement of the insurer's actuary describing
the mortality and expense risks that [which]
the insurer will bear under the
contract.
§4.2104.Separate Accounts.
(a) Establishment of separate account. Any domestic
life insurance company issuing variable annuity contracts must establish
one or more separate accounts under [pursuant to]
Insurance Code Chapter 1152, concerning Separate Accounts, Variable
Contracts, and Related Products.
(1) If no law or other regulation provides for the
custody of separate account assets, and if such insurer is not the
custodian of such separate account assets, all contracts for custody
of such assets must be in writing, and the commissioner has authority
to review and disapprove both the terms of any such contract and the
proposed custodian before [prior to] the transfer
of custody.
(2) In connection with the handling of separate account assets, such insurer may not, without prior written approval of the commissioner, employ in any material manner any person who:
(A) within the last 10 years has been convicted of
any felony or a misdemeanor arising out of such person's conduct involving
embezzlement, fraudulent conversion, or misappropriation of funds
or securities or involving violation of 18 United States Code §§1341,
1342, or 1343, as amended; [or]
(B) within the last 10 years has been found by any state regulatory authority to have violated or has acknowledged violation of any provision of any state insurance law involving fraud, deceit, or knowing misrepresentation; or
(C) within the last 10 years has been found by federal or state regulatory authorities to have violated or has acknowledged violation of any provision of federal or state laws involving fraud, deceit, or knowing misrepresentation.
(3) All persons with access to the cash, securities, or other assets allocated to or held by the separate account must be under bond in the amount of not less than $100,000.
(b) Amounts in the separate account. The insurer must maintain in each separate account assets with a value at least equal to the valuation reserves for the variable portion of the variable annuity insurance contracts and other contractual liabilities.
(c) Investments by the separate account. No sale, exchange, or other transfer of assets may be made by an insurer or any of its affiliates between any of its separate accounts or between any other investment account and one or more of its separate accounts, unless:
(1) in case of a transfer into a separate account, such transfer is made solely to establish the account or to support the operation of the contracts with respect to the separate account to which the transfer is made; and
(2) such transfer, whether into or from a separate account, is made by a transfer of cash; but other assets may be transferred if approved by the commissioner in advance.
(d) Limitations on ownership.
(1)
A separate account may not purchase or otherwise
acquire the securities of any issuer, other than securities issued
or guaranteed as to principal and interest by the United States, if
immediately after such purchase or acquisition the value of such investment,
together with prior investments of such account in such security valued
as required by this subchapter, would exceed 10% of the value of the
assets of the separate account. Upon appropriate documentation by
the company, which evidences that a waiver of this limitation will
not render the operation of the separate account hazardous to the
public or the contract holders [contractholders]
in this state, the commissioner may in writing waive this
limitation.
(2)
No separate account may purchase or otherwise acquire
the voting securities of any issuer if, as a result of such acquisition,
the insurer and its separate accounts in the aggregate will own more
than 10% of the total issued and outstanding voting securities of
such issuer. Upon appropriate documentation by the company, which
evidences that a waiver of this limitation will not render the operation
of the separate account hazardous to the public or the contract
holders [contractholders] in this state, the commissioner
may in writing waive this
limitation.
(3)
The percentage limitation specified in paragraph
(1) of this subsection may not be construed to preclude the investment
of the assets of separate accounts in shares of investment companies
registered under [pursuant to] 15 United States
Code §§80b-1 to 80b-21, as amended, or other
pools of investment assets if the investments and investment policies
of such investment companies or asset pools comply substantially with
the provisions of subsection (c) of this section and other applicable
portions of this
regulation.
(e) Valuation of separate account assets. Investments of the separate account must be valued at their market value on the date of valuation, or at amortized cost if it approximates market value.
(f)
Separate account investment policy. The investment
policy of a separate account operated by a domestic insurer filed
under §4.2103(2)(C) [§3.703(2)(c)]
of this title (relating to Qualifications of Insurer to [To] Issue Variable Annuities) may not be changed without first
filing such change with the
commissioner.
(1)
Any change filed under [pursuant
to] this subsection will be effective 60 days after the date
it was filed with the commissioner, unless the commissioner notifies
the insurer before the end of such 60-day period of disapproval of
the proposed change. At any time, the commissioner may, after notice
and public hearing, disapprove any change that has become effective under [pursuant to] this
subsection.
(2)
The commissioner may disapprove the change if the
commissioner determines that the change would be detrimental to the
interest of the contract holders [contractholders]
participating in such separate
account.
(g)
Charges against separate accounts. The insurer
must disclose in writing, before [prior to]
or contemporaneously with delivery of the contract, all charges that
may be made against the separate account, including, but not limited
to, the
following:
(1) taxes or reserves for taxes attributable to investment gains and income of the separate account;
(2) actual cost of reasonable brokerage fees and similar direct acquisition and sale costs incurred in the purchase or sale of separate account assets;
(3) charges for administrative expenses and investment management expenses, including internal costs attributable to the investment management of assets of the separate account;
(4) a charge, at a rate specified in the policy, for any mortality and expense guarantees;
(5) any amounts in excess of those required to be held in the separate account; and
(6) charges for incidental insurance benefits.
(h)
Standards of conduct. Every insurer seeking approval
to enter into the variable annuity business in this state must adopt
by formal action of its board of directors a written statement specifying
the standards of conduct of the insurer, its officers, directors,
employees, and affiliates with respect to the purchase or sale of
investments of separate accounts. Such standards of conduct are binding
on the insurer and those to whom it refers. A code of ethics meeting
the requirements of 15 United States Code §80a-17, as amended,
and applicable rules and regulations adopted under that section [thereunder] will satisfy the provisions of this
subsection.
(i) Conflicts of interest. Rules adopted under any provisions of the Insurance Code or any regulation applicable to the officers and directors of insurance companies with respect to conflicts of interests also apply to members of any separate account's committee or other similar body.
(j) Investment advisory services to a separate account. An insurer may not enter into a contract under which any person undertakes, for a fee, to regularly furnish investment advice to such insurer with respect to its separate accounts maintained for variable annuity contracts unless:
(1)
the person providing such advice is registered
as an investment advisor under 15 United States Code §§80b-1
to 80b-21, as amended;
[or]
(2) the person providing such advice is an investment manager under 29 United States Code §1001, et seq., as amended, with respect to the assets of each employee benefit plan allocated to the separate account; or
(3) the insurer has filed with the commissioner and continues to file annually the following information and statements concerning the proposed advisor:
(A) the name and form of organization, and its principal place of business;
(B) the names and addresses of its partners, officers, directors, and persons performing similar functions or, if such an investment advisor be an individual, the name and address of such individual;
(C)
a written standard of conduct complying in substance
with the requirements of subsection (h) of this section that [which] has been adopted by the investment advisor and is applicable
to the investment advisor, its officers, directors, and affiliates; and
(D) a statement provided by the proposed advisor as to whether the advisor or any person associated therewith:
(i) has been convicted within 10 years of any felony or misdemeanor arising out of such person's conduct as an employee, salesman, officer, or director of an insurance company, a banker, an insurance agent, a securities broker, or an investment advisor involving embezzlement, fraudulent conversion, or misappropriation of funds or securities, or involving the violation of 18 United States Code §§1341, 1342, or 1343;
(ii) has been permanently or temporarily enjoined by an order, judgment, or decree of any court of competent jurisdiction from acting as an investment advisor, underwriter, broker, or dealer, or as an affiliated person or as an employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice in connection with any such activity;
(iii) has been found by federal or state regulatory authorities to have willfully violated or have acknowledged willful violation of any provision of federal or state securities laws or state insurance laws or of any rule or regulation under such laws; or
(iv) has been censored, denied an investment advisor registration, had a registration as an investment advisor revoked or suspended, or been barred or suspended from being associated with an investment advisor by order of federal or state regulatory authorities; and
(4)
such investment advisory contract must be in writing
and provide that it is subject to review and termination by the commissioner
at any time, and that it may be terminated by the insurer without
penalty to the insurer or the separate account upon no more than 60
days' written notice to the investment advisor. The commissioner may,
after notice and opportunity for hearing, by order require such investment
advisory contract to be terminated if the commissioner deems continued
operation under the contract [thereunder] to
be hazardous to the public or the insurer's contract holders
[contractholders].
§4.2105.Contract Requirements.
Variable annuity contracts must conform to the requirements of this section in order to obtain the commissioner's approval.
(1) Filing of variable annuity contracts. All variable
annuity contracts, all riders, endorsements, applications, and other
documents that [which] are attached to and made
a part of the contract and that [which] relate
to the variable nature of the contract, must [shall]
be filed with the commissioner and approved, as applicable, by the
commissioner before [him or her prior to] delivery
or issuance for delivery in this state.
(A) Each variable annuity contract and related forms must [shall] be filed according to Chapter 3, Subchapter
A [(Board Order 40701)] of this title (relating to
Submission Requirements for Filings and Departmental Actions Related
to Such Filings) [chapter (relating to Preparation and
Submission of Individual Life Insurance and Annuity Forms)].
(B) The commissioner may approve variable annuity contracts and related forms with provisions the commissioner deems to be not less favorable to the contract holder, certificate holder, and the beneficiary than those required by these sections.
(2) Mandatory contract provisions. Every variable annuity
contract must [shall] contain at least the following.
(A) The cover page or page corresponding to the cover
page of each contract must [shall] contain:
(i) a prominent statement that the benefits under the contract are on a variable basis; and
(ii) a prominent statement that the dollar amounts will vary to reflect the investment experience of a separate account or separate accounts.
(B) A full description of the investment increment
factors to be used in computing dollar amounts of variable benefits
or variable contractual payments of values [thereunder],
and may guarantee that expense and/or mortality results will [shall] not adversely affect such dollar amounts. In the case
of an individual variable annuity contract under which the expense
and mortality results may adversely affect the dollar amount of benefits,
the expense and mortality factors must [shall]
be stipulated in the contract. In computing the dollar amount of variable
benefits or other contractual payments or values under an individual
variable annuity
contract:
(i)
the annual net investment increment assumption may
[shall] not exceed 5.0% except with the approval
of the
commissioner;
(ii)
to the extent that the level of benefits may be
affected by future mortality results, the mortality factor must [shall] be determined from the Annuity Mortality Table for 1949,
Ultimate, or any modification of that table not having a higher mortality
rate at any age, or, if approved by the commissioner, from another
table.
(C)
A provision designating the separate account to
be used and stating that the portion of the assets of any such separate
account equal to the reserves and other contract liabilities with
respect to such account may [shall] not be chargeable
with liabilities arising out of any other business the company may
conduct.
(D) As appropriate, a provision for a grace period.
(i)
For individual variable annuities that [which] provide for the payment of periodic stipulated payments,
a grace period of 31 days within which any stipulated payment to the
insurer falling due after the first may be made, during which period
of grace the contract must [shall] continue
in force. The contract may include a statement of the basis for determining
the date that [as of which] any such payment
received during the period of grace will [shall]
be applied to produce the values under the contract arising
therefrom.
(ii)
For group variable annuities, a provision that
the contract holder [contractholder] or premium
payor is entitled to a grace period of 31 days for the payment of
any premium due except the first, during which grace period the contract must [shall] continue in force, unless the contract
holder [contractholder] or premium payor has [shall have] given the insurer written notice of discontinuance
in advance of the date of discontinuance and in accordance with the
terms of the contract. The contract may provide that the contract
holder [contractholder] or premium payor will [shall] be liable to the insurer for the payment of pro rata
premium for the time the contract was in force during such grace
period.
(E)
A provision that, at any time within two years
from the date of default in making periodic stipulated payments to
the insurer during the life of the annuitant and unless the cash surrender
value has been paid, the contract may be reinstated upon payment to
the insurer of such overdue payments as required by contract, and
of all indebtedness to the insurer on the contract, including interest.
The contract may include a statement of the basis for determining
the date that [as of which] the amount to cover
such overdue payments and any indebtedness will [shall]
be applied to produce the values under the contract arising
therefrom.
(F) A unique definition of any cash surrender values available under the contract.
(G) A provision for nonforfeiture benefits as defined in paragraph (3) of this section.
(H)
A provision defining the documents that [which] make up the entire
contract.
(I) An identification of the owner of the contract.
(J)
A provision stating that the company must [shall] mail to the individual contract holder [contractholder
] or group contract holder [contractholder]
at least once each year after the first at the contract holder's [his or her] last address known to the company a statement reporting
the investments held in the separate
account.
(K)
For individual variable annuities, a provision
that the company must [shall] mail to the contract
holder [contractholder] at least once in each contract
year, after the first at the contract holder's [his
or her] last address known to the company, a statement reporting
the status of the policy as of a date not more than four months before
[previous to] the date of mailing. In the case of
an annuity contract under which payments have not yet commenced, the
statement must [shall]
contain:
(i) the number of accumulation units credited to such contract and the dollar value of a unit; or
(ii) the value of the contract holder's account.
(3) Reserves and nonforfeiture benefits.
(A)
The reserve liability for variable annuities must
[shall] be established under Insurance Code
Chapter 425, Subchapter B, concerning Standard Valuation Law [pursuant to the Insurance Code, Article 3.28], in accordance
with actuarial procedures that recognize the variable nature of the
benefits provided and any mortality
guarantees.
(B)
The provisions of this paragraph relating to nonforfeiture
benefits do [shall] not apply to
any:
(i) reinsurance;
(ii)
group annuity contract purchases in connection
with one or more retirement plan or plans of deferred compensation
established or maintained by or for one or more employers (including
partnerships or sole proprietorships), employee organizations, or
any combination thereof, or other plans providing individual retirement
accounts or individual retirement annuities under [the]
Internal Revenue Code[,] §408, as now or hereafter
amended;
(iii) premium deposit fund;
(iv) investment annuity;
(v) immediate annuity;
(vi) deferred annuity contract after annuity payments have commenced;
(vii) reversionary annuity; or
(viii)
to any contract that [which]
is to be delivered outside this state through an agent or other representative
of the company issuing the
contract.
(C)
To the extent that any variable annuity contract
provides benefits that [which] do not vary in
accordance with the investment performance of a separate account before
the annuity commencement date, such contract must [shall]
contain provisions that [which] satisfy the
requirements of Insurance Code Chapter 1107, concerning Standard
Nonforfeiture Law for Certain Annuities [the Insurance
Code, Article 3.44b], and may [shall]
not otherwise be subject to this
section.
(D)
No variable annuity contract, except as stated
in subparagraphs [subparagraph] (B) and (C)
of this paragraph, may [shall] be delivered
or issued for delivery in this state unless it contains in substance
the following provisions, or corresponding provisions that [which] in the opinion of the commissioner are at least as favorable
to the contract holder [contractholder], upon
cessation of payment of considerations under the
contract.
(i)
That upon cessation of payment of considerations
under a contract, the company will grant a paid-up annuity benefit
on a plan described in the contract that complies with subparagraph
(H) of this paragraph. Such description must [shall]
include a statement of the mortality table, if any, and guaranteed
or assumed interest rates used in calculating annuity
payments.
(ii)
If a contract provides for a lump sum settlement
at maturity, or at any other time, that upon surrender of the contract
at or before [prior to] the commencement of
any annuity payments, the company will pay in lieu of any paid-up
annuity benefit a cash surrender benefit as described in the contract
that complies with subparagraph (I) of this paragraph. The contract
may provide that the company reserves the right, at its option, to
defer the determination and payment of any cash surrender benefit
for any period during which the New York Stock Exchange is closed
for trading (except for normal holiday closing) or when the Securities
and Exchange Commission has determined that a state of emergency exists that [which] may make such determination and payment
impractical.
(iii) A statement that any paid-up annuity, cash surrender, or death benefits that may be available under the contract are not less than the minimum benefits required by any statute of the state in which the contract is delivered and an explanation of the manner in which such benefits are altered by the existence of any additional amounts credited by the company to the contract, any indebtedness to the company on the contract, or any prior withdrawals from or partial surrenders of the contract.
(E)
The minimum values as specified in this section
of any paid-up annuity, cash surrender, or death benefits available
under a variable annuity contract must [shall]
be based upon nonforfeiture amounts meeting the requirements of this
paragraph. The minimum nonforfeiture amount on any date before [prior to] the annuity commencement date must [shall
] be an amount equal to the percentages of net considerations
(as specified in subparagraph (F) of this paragraph) increased (or
decreased) by the net investment return allocated to the percentages
of net considerations, that [which] amount must
[shall] be reduced to reflect the effect
of:
(i) any partial withdrawals from or partial surrenders of the contract;
(ii) the amount of any indebtedness on the contract, including interest due and accrued;
(iii) an annual contract charge not less than zero nor greater than $30 less the amount of any annual contract charge deducted from any gross considerations credited to the contract during such contract year; and
(iv) a transaction charge of $10 for each transfer to another separate account or to another investment division within the same separate account.
(F)
The percentages of net considerations used to define
the minimum nonforfeiture amount in subparagraph (E) of this paragraph must [shall] meet the requirements of this subparagraph.
(i)
With respect to contracts providing for periodic
considerations, the net considerations for a given contract year used
to define the minimum nonforfeiture amount must [shall]
be an amount not less than zero and must [shall]
be equal to the corresponding gross considerations credited to the
contract during that contract year less an annual contract charge
of $30 and less a collection charge of $1.25 per consideration credited
to the contract during that contract year. The percentages of net
considerations must [shall] be 65% for the first
contract year and 87.5% for the second and later contract years. Notwithstanding
the provisions of the preceding sentence, the percentage must [shall] be 65% of the portion of the total net consideration
for any renewal contract year that [which] exceeds
by not more than two times the sum of those portions of the net considerations
in all prior contract years for which the percentage was
65%.
(ii)
With respect to contracts providing for a single
consideration, the net consideration used to define the minimum nonforfeiture
amount must [shall] be the gross consideration
less a contract charge of $75. The percentage of net consideration must
[shall] be
90%.
(G)
Demonstration that a contract's nonforfeiture amounts
comply with this paragraph must [shall] be based
on the following
assumptions:
(i) values should be tested at the ends of each of the first 20 contract years;
(ii) a net investment return of 7.0% per year should be used;
(iii) if the contract provides for transfers to another separate account or to another investment division within the same separate account, one transfer per contract year should be assumed;
(iv) with respect to contracts providing for periodic considerations, monthly considerations of $100 should be assumed for each of the first 240 months;
(v) with respect to contracts providing for a single consideration, a $10,000 single consideration should be assumed; and
(vi) if the contract provides for allocation of considerations to both fixed and variable accounts, 100% of the considerations should be assumed to be allocated to the variable account.
(H)
Any paid-up annuity benefit available under a variable
annuity contract must [shall] be such that its
present value on the annuity commencement date is at least equal to
the minimum nonforfeiture amount on the date. Such present value must
[shall] be computed using the mortality table, if
any, and the guaranteed or assumed interest rates used in calculating
the annuity
payments.
(I)
For variable annuity contracts that [which
] provide cash surrender benefits, the cash surrender benefit
at any time before [prior to] the annuity commencement
date may [shall] not be less than the minimum
nonforfeiture amount next computed after the request for surrender
is received by the company. The death benefit under such contracts must
[shall] be at least equal to the cash surrender
benefit.
(J)
Any variable annuity contract that [which
] does not provide cash surrender benefits or does not provide
death benefits at least equal to the minimum nonforfeiture amount before
[prior to] the annuity commencement date must [shall] include a statement in a prominent place in the contract
that such benefits are not
provided.
(K)
Notwithstanding the requirements of this section,
a variable annuity contract may provide under the situations specified
in clause (i) or clause (ii) of this subparagraph that the company,
at its option, may cancel the annuity and pay the contract holder [contractholder] its accumulated value and by such payment be
released of any further obligation under such
contract:
(i) if at the time the annuity becomes payable the accumulated value is less than $2,000, or would provide an income the initial amount of which is less than $20 per month; or
(ii)
if before [prior to] the
time the annuity becomes payable under a periodic payment variable
annuity contract no considerations have been received under the contract
for a period of two full years, and
both:
(I)
the total considerations paid before [prior to] such period, reduced to reflect any partial withdrawals
from or partial surrenders of the contract;
and
(II)
the accumulated value[,] amounts to
less than
$2,000.
(L)
For any variable annuity contract that [which] provides, within the same contract by rider or supplemental
contract provision, both annuity benefits and life insurance benefits
that are in excess of the greater of cash surrender benefits or a
return of the gross considerations with interest, the minimum nonforfeiture
benefits must [shall] be equal to the sum of
the minimum nonforfeiture benefits for the annuity portion and the
minimum nonforfeiture benefits, if any, for the life insurance portion
computed as if each portion were a separate contract. Notwithstanding
the provisions of subparagraph (E) of this paragraph, additional benefits
payable in the event of total and permanent disability, as reversionary
annuity or deferred reversionary annuity benefits, or as other contract
benefits additional to life insurance, endowment, and annuity benefits, must [shall] be disregarded in ascertaining the minimum
nonforfeiture amounts, paid-up annuity, cash surrender, and death
benefits required by this section. The inclusion of such additional
benefits may [shall] not be required in any
paid-up benefits, unless such additional benefits separately would
require minimum nonforfeiture amounts, paid-up annuity, cash surrender,
and death
benefits.
(4)
Applications. The application for a variable annuity
contract must [shall]
contain:
(A) a prominent statement that the benefits may increase or decrease in accordance with the experience of a separate account; and
(B) the portion of the premium allocable on the date of issue to any fixed dollar benefits and the portion allocable on the date of issue to the variable benefits.
§4.2106.Separability.
If any provision of these sections or the application of
these sections [thereof] to any person or circumstance
is for any reason held to be invalid, the remainder of these sections
and the application of such provision to other persons or circumstances will [shall] not be affected
[thereby].
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303282
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
DIVISION 1. ANNUITY CONTRACT DISCLOSURES
28 TAC §§4.2302, 4.2304, 4.2306 - 4.2312
STATUTORY AUTHORITY. TDI proposes amendments to §§4.2302, 4.2304, and 4.2306 - 4.2312 under Insurance Code §§31.002, 101.051, 1108.002, 1114.007, 1152.002, and 36.001.
Insurance Code §31.002 specifies that in addition to other required duties, TDI will regulate the business of insurance in this state; administer the workers' compensation system of this state as provided by Labor Code, Title 5; and ensure that the Insurance Code and other laws regarding insurance and insurance companies are executed.
Insurance Code §101.051 specifies that acts that constitute the business of insurance in this state include making or proposing to make, as an insurer, an insurance contract; taking or receiving an insurance application; or issuing or delivering an insurance contract to a resident of this state.
Insurance Code §1108.002 specifies that for the purpose of regulation under the Insurance Code, an annuity contract is considered an insurance policy or contract if the annuity contract is issued by a life, health, or accident insurance company, including a mutual company or fraternal benefit society, or if it is issued under an annuity or benefit plan used by an employer or individual.
Insurance Code §1114.007 authorizes the commissioner to adopt reasonable rules in the manner prescribed by Insurance Code Chapter 36, Subchapter A, to accomplish and enforce the purpose of Insurance Code Chapter 1114.
Insurance Code §1152.002 authorizes the commissioner to adopt rules that are fair, reasonable, and appropriate to augment and implement Insurance Code Chapter 1152, including rules establishing requirements for agent licensing, standard policy provisions, and disclosure.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter W, Division 1 affects Insurance Code §§101.051(b)(1), 101.051(b)(3), 101.051(b)(5)(A), 1114.007, and 1152.002.
§4.2302.Applicability and Scope.
(a) This subchapter applies to all group and individual annuity contracts and certificates, except as provided by subsection (b) of this section.
(b) This subchapter does not apply to the following annuity products, except as provided in subsection (c) of this section:
(1) immediate and deferred annuities that contain no non-guaranteed elements;
(2) annuities used to fund:
(A) an employee pension plan subject to the Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.);
(B) a plan described by the Internal Revenue Code of 1986 §§401(a), 401(k), or 403(b), in which the plan, for purposes of the Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.), is established or maintained by an employer;
(C) a governmental or church plan as defined by the Internal Revenue Code of 1986 §414, or a deferred compensation plan of a state or local government or a tax-exempt organization under the Internal Revenue Code of 1986 §457;
(D) a nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor; or
(E) prepaid funeral benefits, as defined by [the]
Finance Code Chapter 154, concerning Prepaid Funeral Services;
(3) a structured settlement annuity;
(4) a charitable gift annuity qualified under [the]
Insurance Code Chapter 102, concerning Charitable Gift Annuities; or
(5) a funding agreement.
(c) Notwithstanding the exemptions specified in subsection (b) of this section, this subchapter applies to an annuity used to fund a plan or arrangement that is funded solely by contributions an employee elects to make, whether on a pre-tax or after-tax basis, if the insurer has been notified that plan participants may choose from among two or more fixed annuity providers and there is a direct solicitation of an individual employee by an agent for the purchase of an annuity contract. As used in this subsection, "direct solicitation" does not include a meeting held by an agent solely for the purpose of educating or enrolling employees in the plan or arrangement.
§4.2304.Definitions.
(a) Words and terms defined in [the] Insurance
Code Chapter 102, concerning Charitable Gift Annuities,
[shall] have the same meaning when used in this subchapter.
(b) The following words and terms, when used in this
subchapter, [shall] have the following meanings unless
the context clearly indicates otherwise.
(1) Agent--An individual who holds a license under
[the] Insurance Code Chapter 4054, concerning Life,
Accident, and Health Agents, and who sells, solicits, or negotiates
annuities in this state.
(2) Buyer's guide--A document specified as a buyer's guide and adopted by the National Association of Insurance Commissioners (NAIC) to be used in implementation of the NAIC Annuity Disclosure Model Regulation.
(3) Contract owner--The owner named in the annuity contract or, in the case of a group annuity contract, the certificate holder.
(4) Disclosure document--A document intended for consumers
that provides information regarding the features and restrictions
of a specific annuity product and that satisfies the requirements
of §4.2309 [§3.9709] of this title [subchapter] (relating to Disclosure
Document).
(5) Funding agreement--An agreement for an insurer to accept and accumulate funds and to make one or more payments at future dates in amounts that are not based on mortality or morbidity contingencies.
(6) Generic name--A short title descriptive of the annuity contract being illustrated or for which an applicant is applying, such as "single premium deferred annuity."
(7) Structured settlement annuity--A "qualified funding asset," as defined by the Internal Revenue Code of 1986 §130(d), or an annuity that would be a qualified funding asset but for the fact that the annuity is not owned by an assignee under a qualified assignment.
§4.2306.Guaranteed and Non-Guaranteed [Non-guaranteed] Elements.
(a) For the purposes of this subchapter, "guaranteed
element" means an element listed in §4.2305(a)(1) - (7) [§3.9705(a)(1) - (7)] of this title [subchapter
] (relating to Determinable Elements) that is guaranteed and
determined at issue. An element is considered guaranteed if all of
the underlying elements used in its computation are guaranteed.
(b) For the purposes of this subchapter, "non-guaranteed
element" means an element listed in §4.2305(a)(1) - (7) [§3.9705(a)(1) - (7)] of this title [subchapter
] that is subject to the insurer's discretion and is not guaranteed
at issue. An element is considered non-guaranteed if any underlying
element used in its computation is non-guaranteed.
§4.2307.Effect on Other Law.
Compliance with this subchapter is not a defense in any action
brought by or for the department alleging a violation of the Insurance
Code, or, except for this subchapter, any rule adopted under [pursuant to] the Insurance Code.
§4.2308.Required Consumer Notices.
(a) If an application for an annuity contract or certificate
is taken in a face-to-face meeting, the applicant must [shall
] be given at or before the time of application both a disclosure
document and the appropriate buyer's guide specified in §4.2310
[§3.9710] of this title [subchapter
] (relating to Buyer's Guide).
(b) If the application is taken by means other than
in a face-to-face meeting, the applicant must [shall] be sent, not later than the fifth business
day after the date on which the completed application is received
by the insurer, both a disclosure document and the appropriate
buyer's guide specified in §4.2310 [§3.9710]
of this title [subchapter].
(c) If the insurer receives the application as a result of a direct solicitation through the mail, the insurer's providing the appropriate buyer's guide and a disclosure document in a mailing inviting prospective applicants to apply for an annuity contract or certificate satisfies the requirement in subsection (b) of this section that the appropriate buyer's guide and the disclosure document be provided not later than the fifth business day after the date of receipt of the application.
(d)
If the application is received through the internet
[Internet], and if the insurer takes reasonable
steps to ensure that the appropriate buyer's guide and a disclosure
document are available for viewing and printing on the insurer's website and [which] are opened or acknowledged by the prospective
applicant, the provided buyer's guide and disclosure document will [shall] be deemed to satisfy the requirement that the appropriate
buyer's guide and the disclosure document be provided not later than
the fifth business day after the date of receipt of the
application.
(e) A solicitation for an annuity contract that is provided in a manner other than a face-to-face meeting must include a statement that the proposed applicant may contact the insurer for a free annuity buyer's guide.
(f)
Insurers receiving an application for private placement
contracts as defined by [the] Insurance Code §1152.110(a), concerning Private Placement Contracts, are not required to
provide the buyer's guide specified in §4.2310 [§3.9710
] of this title
[subchapter].
(g)
This section applies regardless of whether an insurer
is providing a 15-day free look period like that required in §4.2311(a)
[§3.9711(a)] of this title [subchapter
] (relating to Free Look Period) before [prior
to] the adoption of this subchapter or whether the insurer begins
providing the 15-day free look period in accordance with §4.2311(a)
[§3.9711(a)] of this title [subchapter].
§4.2309.Disclosure Document.
(a) At a minimum, the following information, if applicable, must be included in the disclosure document required to be provided under this subchapter:
(1) the generic name of the contract; the insurer product name, if different from the generic name; the product's form number; and a statement of the fact that the contract is an annuity;
(2) the insurer's name and address;
(3) a description of the contract and the benefits provided under the contract; the description must emphasize the long-term nature of the contract and include examples of the long-term nature as appropriate;
(4) the guaranteed, non-guaranteed, and determinable elements of the contract, any limitations of those elements, and an explanation of how those elements operate;
(5) an explanation of the initial crediting rate, specifying any bonus or introductory portion, the duration of the initial crediting rate, and the fact that rates may change from time to time and are not guaranteed;
(6) periodic income options, both on a guaranteed and non-guaranteed basis;
(7) any value reductions caused by withdrawals from or surrender of the contract;
(8) how values in the contract can be accessed;
(9) the death benefit, if available, and how the death benefit is computed;
(10) a summary of:
(A) the federal tax status of the contract; and
(B) any penalties applicable on withdrawal of values from the contract;
(11) the impact of any rider, such as a long-term care rider;
(12) a list of the specific dollar amount or percentage charges and fees, with an explanation of how those charges and fees apply; and
(13) information about the current guaranteed rate for new contracts that contains a clear notice that the rate is subject to change.
(b)
An insurer must [shall] define
terms used in the disclosure document in language that facilitates
the understanding by a typical person within the segment of the public
to which the disclosure document is
directed.
(c) A disclosure document that complies with the Financial Industry Regulatory Authority (FINRA) Conduct Rules and the United States Securities and Exchange Commission (SEC) prospectus requirements satisfies the requirements of this section for disclosure documents. This subsection does not limit the commissioner's ability to enforce the other provisions of this section or require the use of a FINRA-approved disclosure document. This subsection provides a safe harbor under this subchapter for an annuity contract that is regulated by, and complies with, the FINRA Conduct Rules and the SEC prospectus requirements pertaining to disclosure.
§4.2310.Buyer's Guide.
For the purposes of this subchapter, an appropriate buyer's
guide is the latest version of the buyer's guide adopted by the National
Association of Insurance Commissioners (NAIC) [NAIC]
that applies to the particular type of annuity (such as fixed deferred
annuity, equity-indexed annuity, or variable annuity) that is the
subject of the transaction. If the NAIC has not adopted a buyer's
guide for equity-indexed annuities, then the appropriate buyer's guide
is the Buyer's Guide to Fixed Deferred Annuities that has been most
recently adopted by the NAIC. If the NAIC has not adopted a buyer's
guide for variable annuities, then no buyer's guide is required until
one year after the date on which this subchapter becomes effective.
If the NAIC has not adopted a buyer's guide for variable annuities
within one year after the date on which this subchapter becomes effective,
then for purposes of this subchapter the appropriate buyer's guide
is the latest version of the Securities and Exchange Commission
(SEC) [SEC's] Office of Investor Education and Advocacy
"Variable Annuities: What You Should Know,"[,]
SEC Pub. 011.
§4.2311.Free Look Period.
(a) If the buyer's guide and the disclosure document required by this subchapter are not provided at or before the time of application, a free look period of at least 15 calendar days must be provided during which the applicant may return the contract without penalty.
(b) Notice of the free look period required under this section must be provided to consumers in a notice that is included on or attached to the cover page of the delivered annuity contract. The notice must prominently disclose information concerning the 15-day free look period.
(c) The free look period must [shall]
begin on the date the consumer receives the annuity contract and must
[shall] run concurrently with any other free look
period required under the Texas Administrative Code, the Texas Insurance
Code, or another law of this state.
(d) An unconditional refund without penalty for purposes
of this section for variable or modified guaranteed annuity contracts means [shall mean] a refund equal to the cash surrender
value provided in the annuity contract, plus any fees or charges deducted
from the premiums or imposed under the contract.
(e) The refund and free look period requirements in this section do not apply if the prospective owner is an accredited investor, as defined in Regulation D as adopted by the United States Securities and Exchange Commission.
§4.2312.Report to Contract Owners.
(a)
For annuities in the payout period with changes
in non-guaranteed elements and for the accumulation period of a deferred
annuity, the insurer must [shall] provide each
contract owner with a report, at least annually, on the status of
the
contract.
(b) The report must contain at least the following information:
(1) the beginning and ending dates of the current reporting period;
(2) the accumulation and cash surrender value, if any, at the end of:
(A) the previous reporting period; and
(B) the current reporting period;
(3) the total amounts, if any, that have been credited, charged to the contract or certificate value, or paid during the current reporting period; and
(4) the amount of any outstanding loans as of the end of the current reporting period.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303283
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
STATUTORY AUTHORITY. TDI proposes amendments to §4.2322 under Insurance Code §§36.004, 1115.005, 1115.0514, 1115.0516, and 36.001.
Insurance Code §36.004 provides that the commissioner may adopt a rule to require compliance with a rule, regulation, directive, or standard adopted by the National Association of Insurance Commissioners if certain statutory requirements are met.
Insurance Code §1115.005 provides that the commissioner may adopt reasonable rules in the manner prescribed by Insurance Code Chapter 36, Subchapter A, to accomplish and enforce the purpose of Chapter 1115.
Insurance Code §1115.0514 requires that an agent, before the recommendation or sale of an annuity, provide a disclosure to the consumer on a form prescribed by the commissioner by rule.
Insurance Code §1115.0516 requires agent use, at specified times, of disclosure forms prescribed by the commissioner by rule.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Section 4.2322 affects Insurance Code §1115.0514 and §1115.0516.
§4.2322.Required Forms.
(a) Before the recommendation or sale of an annuity, an agent must provide to the consumer a form that meets the requirements of Insurance Code §1115.0514(b), concerning Disclosure Obligation. The agent must use:
(1) form FIN194 (07/21), which is adopted by reference and is available on the department's form website;
(2) the Insurance Agent (Producer) Disclosure for Annuities form, adopted by the National Association of Insurance Commissioners (NAIC) in the Suitability in Annuity Transactions Model Regulation; or
(3) another form that:
(A) meets the requirements of Insurance Code §1115.0514(b) and is substantially similar to the form specified in paragraph (2) of this subsection;
(B) is understandable to a person with an 8th-grade reading level; and
(C) is written in plain language, consistent with federal plain language recommendations from the Plain Language Action and Information Network.
(b) If, at the time of a recommendation or sale of an annuity, a consumer has not given an agent some or all of the information needed to decide whether the annuity effectively meets the consumer's needs, the agent must obtain a statement signed by the consumer on a form that meets the requirements of Insurance Code §1115.0516(2), concerning Documentation Obligation. The agent must use:
(1) form FIN195 (07/21), which is adopted by reference and is available on the department's form website;
(2)
the Consumer Refusal to Provide Information form,
adopted by the NAIC [National Association of Insurance
Commissioners] in the Suitability in Annuity Transactions Model
Regulation;
or
(3) another form that:
(A) is substantially similar to the form specified in paragraph (2) of this subsection;
(B) is understandable to a person with an 8th-grade reading level; and
(C) is written in plain language, consistent with federal plain language recommendations from the Plain Language Action and Information Network.
(c)
At the time of a recommendation or sale of an annuity,
if a consumer decides to enter into an annuity transaction that is
not based on the agent's recommendation, the agent must obtain a statement
signed by the consumer that meets the requirements of [Texas]
Insurance Code §1115.0516(3). The agent must
use:
(1) form FIN196 (07/21), which is adopted by reference and is available on the department's form website;
(2)
the Consumer Decision to Purchase an Annuity Not
Based on a Recommendation form, adopted by the NAIC [National
Association of Insurance Commissioners] in the Suitability in
Annuity Transactions Model Regulation;
or
(3) another form that:
(A) is substantially similar to the form specified in paragraph (2) of this subsection;
(B) is understandable to a person with an 8th-grade reading level; and
(C) is written in plain language, consistent with federal plain language recommendations from the Plain Language Action and Information Network.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303284
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
DIVISION 1. ANNUITY MORTALITY TABLES
28 TAC §§4.2701, 4.2702, 4.2705, 4.2706
STATUTORY AUTHORITY. TDI proposes amendments to Subchapter AA, Division 1, under Insurance Code §§36.004, 425.053, 425.059(d), and 36.001.
Insurance Code §36.004 provides that the commissioner may adopt a rule to require compliance with a rule, regulation, directive, or standard adopted by the National Association of Insurance Commissioners if certain statutory requirements are met.
Insurance Code §425.053 authorizes TDI to annually value or cause to be valued the reserves for all outstanding annuity and pure endowment contracts before the operative date of the valuation manual required under Insurance Chapter 425.
Insurance Code §425.059(d) provides that the commissioner may approve by rule a mortality table adopted after 1980 by the National Association of Insurance Commissioners or a modification of one of the tables provided in the section.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter AA, Division 1 affects Insurance Code §425.053 and §425.059.
§4.2701.Purpose.
The purpose of this subchapter is to approve and adopt the following mortality tables and establish the effective dates of their use in determining the minimum standard of valuation for annuity and pure endowment contracts:
(1) the 1983 Table "a";
Figure: 28 TAC §4.2701(1) (.pdf)
[Figure: 28 TAC §3.1501(1)]
(2) the 1983 GAM Table;
Figure: 28 TAC §4.2701(2) (.pdf)
[Figure: 28 TAC §3.1501(2)]
(3) the Annuity 2000 Mortality Table;
Figure: 28 TAC §4.2701(3) (.pdf)
[Figure: 28 TAC §3.1501(3)]
(4) the 1994 GAR Table; and
Figure: 28 TAC §4.2701(4) (.pdf)
[Figure: 28 TAC §3.1501(4)]
(5) the 2012 Individual Annuity Reserving (2012 IAR)
Table which, under §4.2706 [§3.1506]
of this title (relating to Application of the 2012 IAR Mortality
Table), is derived from the following tables:
(A) the 2012 Individual Annuity Mortality Period Life (2012 IAM Period) Table; and
Figure: 28 TAC §4.2701(5)(A) (.pdf)
[Figure: 28 TAC §3.1501(5)(A)]
(B) the Projection Scale G2 (Scale G2) table of annual rates.
Figure: 28 TAC §4.2701(5)(B) (.pdf)
[Figure: 28 TAC §3.1501(5)(B)]
§4.2702.Definitions.
The following words and terms, when used in this subchapter,
have the following meanings[,] unless the context clearly
indicates otherwise.
(1) 1983 GAM Table--Mortality table developed by the
Society of Actuaries [Actuaries'] Committee
on Annuities and adopted as a recognized mortality table for annuities
in December 1983, by the National Association of Insurance Commissioners (NAIC).
(2) 1983 Table "a"--Mortality table developed by the
Society of Actuaries [Actuaries'] Committee
to Recommend a New Mortality Basis for Individual Annuity Valuation
and adopted as a recognized mortality table for annuities in June
1982, by the NAIC [National Association of Insurance Commissioners].
(3) 1994 GAR Table--The 1994 Group Annuity Reserving
Table developed by the Society of Actuaries [Actuaries'
] Group Annuity Valuation Table Task Force and adopted as a
recognized mortality table for annuities on December 16, 1996, by
the NAIC [National Association of Insurance Commissioners].
(4) Annuity 2000 Mortality Table--Mortality table developed
by the Society of Actuaries [Actuaries'] Committee
on Life Insurance Research and adopted as a recognized mortality
table for annuities on December 16, 1996, by the NAIC
[National Association of Insurance Commissioners].
(5) Period Table--Table of mortality rates applicable to a given calendar year.
(6) Generational Mortality Table--Mortality table containing a set of mortality rates that decrease for a given age from one year to the next based on a combination of a Period Table and a projection scale containing rates of mortality improvement.
(7) 2012 IAR Table--Generational mortality table developed
by the Society of Actuaries [Actuaries'] Committee
on Life Insurance Research and containing rates, qx2012+n, derived from a combination
of the 2012 IAM Period Table and Projection Scale G2, using the methodology
stated in §4.2706 [§3.1506] of this
title (relating to Application of the 2012 IAR Mortality Table).
(8) 2012 Individual Annuity Mortality Period Life (2012
IAM Period) Table--The Period Table [table]
containing loaded mortality rates for calendar year 2012. This table
contains rates, qx2012
, developed by the Society of Actuaries [Actuaries'
] Committee on Life Insurance Research.
(9) Projection Scale G2 (Scale G2)--Table of annual
rates, G2x, of mortality improvement
by age for projecting future mortality rates beyond calendar year
2012. The Society of Actuaries [Actuaries']
Committee on Life Insurance Research developed this table.
§4.2705.Application of the 1994 GAR Table.
In using the 1994 GAR Table, the mortality rate for a person age x in year (1994 + n) is calculated as follows:
[Figure: 28 TAC §3.1505]
§4.2706.Application of the 2012 IAR Mortality Table.
In using the 2012 IAR Mortality Table, the mortality rate for a person age x in year (2012 + n) is calculated as follows:
[Figure: 28 TAC §3.1506]
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303285
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
STATUTORY AUTHORITY. TDI proposes amendments to Subchapter AA, Division 2, under Insurance Code §§36.004, 541.057, 541.401, 1105.055(h), and 36.001.
Insurance Code §36.004 provides that the commissioner may adopt a rule to require compliance with a rule, regulation, directive, or standard adopted by the National Association of Insurance Commissioners if certain statutory requirements are met.
Insurance Code §541.057 prohibits unfair discrimination in the rates, dividends, or any other contract terms and conditions for individuals of the same class and life expectancy in life insurance and annuity contracts.
Insurance Code §541.401 provides that the commissioner may adopt and enforce reasonable rules necessary to accomplish the purposes of Insurance Code Chapter 541.
Insurance Code §1105.055(h) specifies that the commissioner may adopt by rule any ordinary mortality table adopted after 1980 by the National Association of Insurance Commissioners.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCES TO STATUTE. Subchapter AA, Division 2 affects Insurance Code §§541.057 and 1105.055 - 1105.057.
§4.2712.Definitions.
The following words and terms, when used in these sections,
[shall] have the following meanings[,] unless
the context clearly indicates
otherwise.
(1) 1958 CET Table--That mortality table developed by the Society of Actuaries Special Committee on New Mortality Tables, incorporated in the National Association of Insurance Commissioners (NAIC) Model Standard Nonforfeiture Law for Life Insurance, and referred to in that model as the Commissioners 1958 Extended Term Insurance Table.
(2) 1980 CET Table--That mortality table consisting of separate rates of mortality for male and female lives, developed by the Society of Actuaries Committee to Recommend New Mortality Tables for Valuation of Standard Individual Ordinary Life Insurance, incorporated in the 1980 NAIC amendments to the Model Standard Nonforfeiture Law for Life Insurance, and referred to in those models as the Commissioners 1980 Extended Term Insurance Table.
(3) 1958 CSO Table--That mortality table developed by the Society of Actuaries Special Committee on New Mortality Tables, incorporated in the NAIC Model Standard Nonforfeiture Law for Life Insurance, and referred to in that model as the Commissioners 1958 Standard Ordinary Mortality Table.
(4) 1980 CSO Table, with or without Ten-Year Select Mortality Factors--That mortality table, consisting of separate rates of mortality for male and female lives, developed by the Society of Actuaries Committee to Recommend New Mortality Tables for Valuation of Standard Individual Ordinary Life Insurance, incorporated in the 1980 NAIC amendments to the Model Standard Valuation Law and Standard Nonforfeiture Law for Life Insurance, and referred to in those models as the Commissioners 1980 Standard Ordinary Mortality Table, with or without Ten-Year Select Mortality Factors. The same select factors will be used for both smokers and nonsmokers tables.
(5) Composite mortality tables--The mortality tables previously defined in this section as they were originally published with rates of mortality that do not distinguish between smokers and nonsmokers.
(6) Smoker and nonsmoker mortality tables--The mortality tables with separate rates of mortality for smokers and nonsmokers derived from the tables defined elsewhere in this section, which were developed by the Society of Actuaries Task Force on Smoker/Nonsmoker Mortality and the California Insurance Department staff and recommended by the NAIC Technical Staff Actuarial Group.
§4.2713.Alternate Tables.
(a) For any policy of insurance delivered or issued
for delivery in this state after the operative date of former Insurance
Code Article 3.44a, §8 (recodified in Insurance Code Chapter
1105, Subchapter B, [§§1105.051 - 1105.057] concerning
Computation of Adjusted Premiums Using Nonforfeiture Net Level Premium
Method, for that policy form and before January 1, 1989, at
the option of the company and subject to the conditions stated in §4.2714
[§3.1404] of this title (relating to Conditions):
(1) the 1958 CSO Smoker and Nonsmoker Mortality Tables may be substituted for the 1980 CSO Table, with or without Ten-Year Select Mortality Factors; and
(2) the 1958 CET Smoker and Nonsmoker Mortality Tables may be substituted for the 1980 CET Table.
(b) The tables specified in subsection (a) of this section must be used as described in subsection (a) of this section to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits, or benefits under any extended term insurance provision. Provided, however, that for any category of insurance issued on female lives with minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits, or benefits under any extended term insurance provision determined using 1958 CSO or 1958 CET Smoker and Nonsmoker Mortality Tables, such minimum values may be calculated according to an age not more than six years younger than the actual age of the insured. Provided further that the substitution of the 1958 CSO or CET Smoker and Nonsmoker Mortality Tables is available only if made for each policy of insurance on a policy form delivered or issued for delivery on or after the operative date for that policy form and before a date not later than January 1, 1989.
(c) For any policy of insurance delivered or issued
for delivery in this state after the operative date of former Insurance
Code Article 3.44a, §8 (recodified in Insurance Code Chapter
1105, Subchapter B[, §§1105.051 - 1105.057]),
for the policy form, at the option of the company and subject to the
conditions stated in §4.2714 [§3.1404]
of this title [(relating to Conditions)]:
(1) the 1980 CSO Smoker and Nonsmoker Mortality Tables, with or without Ten-Year Select Mortality Factors, may be substituted for the 1980 CSO Table, with or without Ten-Year Select Mortality Factors; and
(2) the 1980 CET Smoker and Nonsmoker Mortality Tables may be substituted for the 1980 CET Table.
(d)
The tables specified in subsection (c) of this
section must be used as provided in subsection (c) of this section
to determine minimum reserve liabilities and minimum cash surrender
values and amounts of paid-up [paid up] nonforfeiture
benefits, or benefits under any extended term insurance
provision.
(e)
Values of 1,000 qx for the tables specified in
this section can be found in "Proceedings of the NAIC," Volume I,
1984, pages 402 - 413. These tables are adopted [herein]
by reference for use in an appropriate manner as described in this
subchapter. Copies may be obtained by contacting the Life and
Health Division, Life and Health Actuarial, MC: LH-ACT, Texas Department
of Insurance, P.O. Box 12030, Austin, Texas 78711-2030 [Texas
Department of Insurance, Life and Health Actuarial, MC-LH-ACT, P.O.
Box 12030, Austin, Texas 78711-12030]. These tables are more
particularly identified as
follows:
(1) 1958 CSO Nonsmokers and Smokers Mortality Tables;
(2) 1958 CET Nonsmokers and Smokers Mortality Tables;
(3) 1980 CSO Female Nonsmokers and Smokers Mortality Tables;
(4) 1980 CSO Male Nonsmokers and Smokers Mortality Tables;
(5) 1980 CET Female Nonsmokers and Smokers Mortality Tables; and
(6) 1980 CET Male Nonsmokers and Smokers Mortality Tables.
§4.2714.Conditions.
For each plan of insurance with separate rates for smokers and nonsmokers, an insurer may:
(1) use composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits or benefits under any extended term insurance provision;
(2) use smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by Insurance Code §425.068, concerning Reserve Computation: Gross Premium Charged Less Than Valuation Net Premium, and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values, and amounts of paid-up nonforfeiture benefits, or benefits under any extended term insurance provision; or
(3) use smoker and nonsmoker mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits, or benefits under any extended term insurance provision.
§4.2715.Severability.
If any provision of these sections or the application of
these sections [thereof] to any person or circumstance
is for any reason held to be invalid, the remainder of the sections
and the application of such provision to other persons or circumstances will [shall] not be affected
[thereby].
§4.2716.2001 CSO Mortality Table.
The 2001 CSO Mortality Table must [shall]
be used for purposes of this subchapter under [pursuant
to] the requirements of Subchapter AA, Division 3 [§§3.9101 - 3.9106] of this chapter [title
] (relating to 2001 CSO Mortality Table).
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303286
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
STATUTORY AUTHORITY. TDI proposes amendments to Subchapter AA, Division 3, under Insurance Code §§36.004, 425.058(c)(3), 1105.055(h), and 36.001.
Insurance Code §36.004 provides that the commissioner may adopt a rule to require compliance with a rule, regulation, directive, or standard adopted by the National Association of Insurance Commissioners if certain statutory requirements are met.
Insurance Code §425.058(c)(3) specifies that for an ordinary life insurance policy issued on the standard basis, to which Insurance Code Chapter 1105, Subchapter B, applies, the applicable table is any ordinary mortality table adopted after 1980 by the National Association of Insurance Commissioners that is approved by commissioner rule for use in determining the minimum standard values under Insurance Code Chapter 425, Subchapter B.
Insurance Code §1105.055(h) specifies that the commissioner may adopt by rule any ordinary mortality table adopted after 1980 by the National Association of Insurance Commissioners.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter AA, Division 3 affects Insurance Code §§425.051 - 425.077 and 1105.055.
§4.2721.Purpose.
The purpose of this subchapter is to recognize, permit, and
prescribe the use of the 2001 Commissioners Standard Ordinary (CSO)
Mortality Table in accordance with Insurance Code §425.058(c)(3), concerning Computation of Minimum Standard: General Rule, and
§1105.055(h), concerning Use of Mortality Tables and Interest
Rates With Nonforfeiture Net Level Premium Method, and §4.2825
[§3.4505] of this title (relating to General
Calculation Requirements for Basic Reserves and Premium Deficiency
Reserves). For policies issued on or after January 1, 2017, the valuation
manual adopted under Insurance Code Chapter 425, Subchapter B, concerning
Standard Valuation Law, provides applicable mortality tables.
§4.2722.Definitions.
The following words and terms, when used in this subchapter,
[shall] have the following meanings[,] unless
the context clearly indicates otherwise.
(1) 2001 CSO Mortality Table--Mortality [mortality
] tables, consisting of separate rates of mortality for male
and female lives, developed by the American Academy of Actuaries CSO
Task Force from the Valuation Basic Mortality Table developed by the
Society of Actuaries Individual Life Insurance Valuation Mortality
Task Force, and adopted by the National Association of Insurance Commissioners
in December 2002. Unless the context indicates otherwise, the 2001
CSO Mortality Table includes both the ultimate form of that table, and
the select and ultimate form of that table, and includes
both the smoker and nonsmoker mortality tables and the composite mortality
tables. It also includes both the age-nearest-birthday and age-last-birthday
bases of the mortality tables.
(2) 2001 CSO Mortality Table (F)--Mortality [mortality] table consisting of the rates of mortality for female
lives from the 2001 CSO Mortality Table.
(3) 2001 CSO Mortality Table (M)--Mortality [mortality] table consisting of the rates of mortality for male
lives from the 2001 CSO Mortality Table.
(4) Composite mortality tables--Mortality [mortality] tables with rates of mortality that do not distinguish
between smokers and nonsmokers.
(5) Smoker and nonsmoker mortality tables--Mortality [mortality] tables with separate rates of mortality for smokers
and nonsmokers.
§4.2723.2001 CSO Mortality Table.
(a) At the election of the company for any one or more
specified plans of insurance and subject to the conditions stated
in this subchapter, the 2001 CSO Mortality Table may be used as the
minimum standard for policies issued on or after May 1, 2003, and
before the date specified in subsection (b) of this section to which
Insurance Code §425.058(c)(3), concerning Computation of
Minimum Standard: General Rule, and §1105.055(h),
concerning Use of Mortality Tables and Interest Rates With Nonforfeiture
Net Level Premium Method, and §4.2825 [§3.4505
] of this title (relating to General Calculation Requirements
for Basic Reserves and Premium Deficiency Reserves) are applicable.
If the company elects to use the 2001 CSO Mortality Table, it must
do so for both valuation and nonforfeiture
purposes.
(b)
Subject to the conditions stated in this subchapter,
the 2001 CSO Mortality Table must be used in determining minimum standards
for policies issued on and after January 1, 2009, and before January
1, 2017, to which Insurance Code §425.058(c) and §1105.055(h)
[§1055.055(h)] and §4.2825 [§3.4505
] of this title [(relating to General Calculation Requirements
for Basic Reserves and Premium Deficiency Reserves)] are applicable,
except as provided in Subchapter BB, Division 4 [§§3.9601
- 3.9606] of this chapter [title] (relating
to Preneed Life Insurance Minimum Mortality Standards for Determining
Reserve Liabilities and Nonforfeiture Values) for preneed life insurance
policies and certificates. For policies issued on or after January
1, 2017, the valuation manual adopted under Insurance Code Chapter
425, Subchapter B, concerning Standard Valuation Law, provides
applicable mortality
tables.
(c)
The minimum basis for computation of values related
to extended term benefits will be the 2001 CSO Mortality Table under
[pursuant to] the requirements of this
subchapter.
(d)
The commissioner [Commissioner
of Insurance] adopts by reference the 2001 CSO Mortality Table.
The table is available from the Financial Regulation Division,
Actuarial Office, MC: FRD, Texas Department of Insurance, P.O. Box
12030, Austin, Texas 78711-2030 [Texas Department of Insurance,
Financial Regulation Division, Actuarial Office, MC-FRD, P.O. Box
12030, Austin, Texas 78711-2030] or on the internet by accessing
the department's website at www.tdi.texas.gov/rules/2003/ficso.html
[www.tdi.texas.gov/reports/life/ficso.html].
§4.2724.Conditions.
(a) For each plan of insurance with separate rates for smokers and nonsmokers, an insurer may use:
(1) composite [Composite] mortality
tables to determine minimum reserve liabilities and minimum cash surrender
values and amounts of paid-up nonforfeiture benefits;
(2) smoker [Smoker] and nonsmoker
mortality tables to determine the valuation net premiums and additional
minimum reserves, if any, required by Insurance Code §425.068, Reserve Computation: Gross Premium Charged Less Than Valuation Net
Premium, and use composite mortality tables to determine the
basic minimum reserves, minimum cash surrender values, and amounts
of paid-up nonforfeiture benefits; or
(3) smoker [Smoker] and nonsmoker
mortality tables to determine minimum reserve liabilities and minimum
cash surrender values and amounts of paid-up nonforfeiture benefits.
(b) For plans of insurance without separate rates for smokers and nonsmokers, the composite mortality tables must be used.
(c) For the purpose of determining minimum reserve
liabilities and minimum cash surrender values and amounts of paid-up
nonforfeiture benefits, the 2001 CSO Mortality Table may, at the option
of the company for each plan of insurance, be used in its ultimate
or select and ultimate form, subject to the restrictions of §4.2725
[§3.9105] of this title (relating to Applicability
of the 2001 CSO Mortality Table to Chapter 4, Subchapter BB,
Division 3 [Chapter 3, Subchapter EE] of this Title)
relative to use of the select and ultimate form.
§4.2725.Applicability of the 2001 CSO
Mortality Table to Chapter 4, Subchapter BB, Division 3 [Chapter 3, Subchapter EE] of this Title.
(a) The 2001 CSO Mortality Table may be used in applying Chapter 4, Subchapter BB, Division 3 [Chapter 3, Subchapter
EE] of this title (relating to Valuation of Life Insurance Policies)
in the following manner, subject to the transition dates for use of
the 2001 CSO Mortality Table in §4.2723 [§3.9103
] of this title (relating to 2001 CSO Mortality Table).[:]
(1) Section 4.2823(1)(B)(ii) [3.4503(1)(B)(ii)
] of this title (relating to Applicability): The net level reserve
premium is based on the ultimate mortality rates in the 2001 CSO Mortality Table.
(2) Section 4.2824(2) [3.4504(2)]
of this title (relating to Definitions). All calculations are made
using the 2001 CSO Mortality Rate, and, if elected, the optional minimum
mortality standard for deficiency reserves stipulated in paragraph
(4) of this subsection. The value of "qx+k+t-1" is the valuation mortality
rate for deficiency reserves in policy year k+t, but using the unmodified
select mortality rates if modified select mortality rates are used
in the computation of deficiency
reserves.
(3)
Section 4.2825(a) [3.4505(a)]
of this title (relating to General Calculation Requirements for Basic
Reserves and Premium Deficiency Reserves). The 2001 CSO Mortality
Table is the minimum standard for basic
reserves.
(4)
Section 4.2825(b) [3.4505(b)]
of this title. The 2001 CSO Mortality Table is the minimum standard
for deficiency reserves. If select mortality rates are used, they
may be multiplied by X percent for durations in the first segment,
subject to the conditions specified in §4.2825(b)(3)(A) [§3.4505(b)(3)(A)] to (I) of this title. In demonstrating
compliance with those conditions, the demonstrations may not combine
the results of tests that utilize the 1980 CSO Mortality Table with
those tests that utilize the 2001 CSO Mortality Table, unless the
combination is explicitly required by regulation or necessary to be
in compliance with relevant Actuarial Standards of
Practice.
(5)
Section 4.2826(c) [3.4506(c)]
of this title (relating to Calculation of Minimum Valuation Standard
for Policies with Guaranteed Nonlevel Gross Premiums or Guaranteed
Nonlevel Benefits (Other than Universal Life Policies)). The valuation
mortality table used in determining the tabular cost of insurance is
[shall be] the ultimate mortality rates in the 2001
CSO Mortality
Table.
(6)
Section 4.2826(e)(4) [3.4506(e)(4)]
of this title. The calculations specified in §4.2826(e) [§3.4506(e)] of this title [shall] use the ultimate
mortality rates in the 2001 CSO Mortality
Table.
(7)
Section 4.2826(f)(4) [3.4506(f)(4)]
of this title. The calculations specified in §4.2826(f) [§3.4506(f)] of this title [shall] use the ultimate
mortality rates in the 2001 CSO Mortality
Table.
(8)
Section 4.2826(g)(2) [3.4506(g)(2)]
of this title. The calculations specified in §4.2826(g) [§3.4506(g)] of this title [shall] use the ultimate
mortality rates in the 2001 CSO Mortality
Table.
(9)
Section 4.2827(a)(1)(B) [3.4507(a)(1)(B)
] of this title (relating to Calculation of Minimum Valuation
Standard for Flexible Premium and Fixed Premium Universal Life Insurance
Policies That Contain Provisions Resulting in the Ability of a Policyowner
to Keep a Policy in Force Over a Second Guarantee Period). The one-year
valuation premium is [shall be] calculated using
the ultimate mortality rates in the 2001 CSO Mortality
Table.
(b)
Nothing in this section may [shall]
be construed to expand the applicability of Chapter 4, Subchapter
BB, Division 3 of this title [Chapter 3, Subchapter EE]
to include life insurance policies exempted under §4.2823(1) [§3.4503(1)] of this
title.
§4.2726.Gender-Blended Tables.
(a) For any ordinary life insurance policy delivered or issued for delivery in this state on and after May 1, 2003, that utilizes the same premium rates and charges for male and female lives or is issued in circumstances where applicable law does not permit distinctions on the basis of gender, a mortality table that is a blend of the 2001 CSO Mortality Table (M) and the 2001 CSO Mortality Table (F) may, at the option of the company for each plan of insurance, be substituted for the 2001 CSO Mortality Table for use in determining minimum cash surrender values and amounts of paid-up nonforfeiture benefits. No change in minimum valuation standards is implied by this subsection. For any ordinary life insurance policy delivered or issued for delivery in Texas on or after January 1, 2017, the valuation manual adopted under Insurance Code Chapter 425, Subchapter B, concerning Standard Valuation Law, provides the applicable mortality tables.
(b) The company may choose from among the blended tables
developed by the American Academy of Actuaries CSO Task Force and
adopted by the National Association of Insurance Commissioners in
December 2002. These blended tables are available from the Financial
Regulation Division, Actuarial Office, MC: FRD, Texas Department of
Insurance, P.O. Box 12030, Austin, Texas 78711-2030 [Texas
Department of Insurance, Actuarial Office, Financial Regulation Division,
MC-FRD, P.O. Box 12030, Austin, Texas 78711-2030] or on the
internet by accessing the department's website at www.tdi.texas.gov/rules/2003/ficso.html
[www.tdi.texas.gov/reports/life/ficso.html].
(c) It is not, in and of itself, a violation of Insurance Code Chapter 541, concerning Unfair Methods of Competition and Unfair or Deceptive Acts or Practices, for an insurer to issue the same kind of policy of life insurance on both a sex-distinct and sex-neutral basis.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303288
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
STATUTORY AUTHORITY. TDI proposes amendments to Subchapter AA, Division 4, under Insurance Code §§36.004, 425.058(c)(3), 1105.055(h), and 36.001.
Insurance Code §36.004 provides that the commissioner may adopt a rule to require compliance with a rule, regulation, directive, or standard adopted by the National Association of Insurance Commissioners if certain statutory requirements are met.
Insurance Code §425.058(c)(3) specifies that for an ordinary life insurance policy issued on the standard basis, to which Insurance Code Chapter 1105, Subchapter B, applies, the applicable table is any ordinary mortality table adopted after 1980 by the National Association of Insurance Commissioners that is approved by commissioner rule for use in determining the minimum standard values under Insurance Code Chapter 425, Subchapter B.
Insurance Code §1105.055(h) specifies that the commissioner may adopt by rule any ordinary mortality table adopted after 1980 by the National Association of Insurance Commissioners.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter AA, Division 4 affects Insurance Code §425.058.
§4.2731.Purpose.
The purpose of this subchapter is to recognize and permit the
use of mortality tables that reflect differences in mortality between
preferred and standard lives in determining minimum reserve liabilities
in accordance with Insurance Code §425.058(c)(3), concerning
Computation of Minimum Standards: General Rule, and §4.2825
[§3.4505] of this title (relating to General
Calculation Requirements for Basic Reserves and Premium Deficiency
Reserves). Policies issued on or after January 1, 2017, must follow
the applicable mortality table requirements provided by the valuation
manual adopted under Insurance Code Chapter 425, Subchapter B,
concerning Standard Valuation Law.
§4.2732.Definitions.
The following words and terms, when used in this subchapter,
[shall] have the following meanings[,] unless
the context clearly indicates otherwise.
(1) 2001 CSO Mortality Table--Mortality tables, consisting
of separate rates of mortality for male and female lives, developed
by the American Academy of Actuaries CSO Task Force from the Valuation
Basic Mortality Table developed by the Society of Actuaries Individual
Life Insurance Valuation Mortality Task Force, and adopted by the
National Association of Insurance Commissioners (NAIC) in December
2002. The 2001 CSO Mortality Table is included in the Proceedings
of the NAIC (2nd Quarter 2002) and supplemented by the 2001 CSO Preferred
Class Structure Mortality Table defined below. Unless the context
indicates otherwise, the 2001 CSO Mortality Table includes both the
ultimate form of that table and the select and ultimate form of that
table and includes both the smoker and nonsmoker mortality tables
and the composite mortality tables. It also includes both the age-nearest-birthday
and age-last-birthday bases of the mortality tables. Mortality tables
in the 2001 CSO Mortality Table include the following.[:]
(A) 2001 CSO Mortality Table (F)--Mortality table consisting of the rates of mortality for female lives from the 2001 CSO Mortality Table.
(B) 2001 CSO Mortality Table (M)--Mortality table consisting of the rates of mortality for male lives from the 2001 CSO Mortality Table.
(C) Composite mortality tables--Mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers.
(D) Smoker and nonsmoker mortality tables--Mortality tables with separate rates of mortality for smokers and nonsmokers.
(2) 2001 CSO Preferred Class Structure Mortality Table--Mortality tables with separate rates of mortality for super preferred nonsmokers, preferred nonsmokers, residual standard nonsmokers, preferred smokers, and residual standard smoker splits of the 2001 CSO Nonsmoker and Smoker tables as adopted by the NAIC at the September 2006 national meeting and published in the Proceedings of the NAIC (3rd Quarter 2006). Unless the context indicates otherwise, the 2001 CSO Preferred Class Structure Mortality Table includes both the ultimate form of that table and the select and ultimate form of that table. It includes both the smoker and nonsmoker mortality tables. It includes both the male and female mortality tables and the gender composite mortality tables. It also includes both the age-nearest-birthday and age-last-birthday bases of the mortality table.
(3) Statistical agent--An entity with proven systems for protecting the confidentiality of individual insured and insurer information, demonstrated resources for and history of ongoing electronic communications and data transfer ensuring data integrity with insurers, which are its members or subscribers, and a history of and means for aggregation of data and accurate promulgation of the experience modifications in a timely manner.
§4.2733.2001 CSO Preferred Class Structure Table.
(a) Policies issued on or after January 1, 2007, and before January 1, 2017. At the election of the insurer, for each calendar year of issue, for any one or more specified plans of insurance and subject to satisfying the conditions stated in this subchapter, the 2001 CSO Preferred Class Structure Mortality Table may be substituted in place of the 2001 CSO Smoker or Nonsmoker Mortality Table as the minimum valuation standard for policies issued on or after January 1, 2007. Policies issued on or after January 1, 2017, must follow the mortality table requirements provided by the valuation manual adopted under Insurance Code Chapter 425, Subchapter B, concerning Standard Valuation Law.
(b)
Policies issued on or after May 1, 2003, and before
[prior to] January 1, 2007. At the election of the
insurer and with the consent of the commissioner, for policies issued
on or after May 1, 2003, and before [prior to]
January 1, 2007, the 2001 CSO Preferred Class Structure Mortality
Table may be substituted in place of the 2001 CSO Smoker or Nonsmoker
Mortality Table as the minimum valuation standard subject to the conditions
of §4.2734 [§3.9404] of this title
(relating to Conditions). In determining such consent, the commissioner
may rely on the consent of the commissioner of the insurer's state
of
domicile.
(c) Requirement to make election. No election in subsection (a) or (b) of this section may be made until the insurer demonstrates that at least 20% of the business to be valued on this table is in one or more of the preferred classes.
(d)
2001 CSO Preferred Class Structure Mortality Table
Treatment. A table from the 2001 CSO Preferred Class Structure Mortality
Table used in place of a 2001 CSO Mortality Table, under [pursuant to] the requirements of this subchapter, will be treated
as part of the 2001 CSO Mortality Table only for purposes of reserve
valuation under [pursuant to] the requirements
of Subchapter AA, Division 3 [§§3.9101 -
3.9106] of this title (relating to 2001 CSO Mortality
Table).
(e)
Adoption by reference. The commissioner adopts
by reference the 2001 CSO Preferred Class Structure Mortality Table.
The table is available from the Financial Regulation Division,
Actuarial Office, MC: FRD, Texas Department of Insurance, P.O. Box
12030, Austin, Texas 78711-2030 [Texas Department of Insurance,
Financial Regulation Division, Actuarial Office, MC-FRD, P.O. Box
12030, Austin, Texas 78711-2030] or on the internet by accessing
the department's website at www.tdi.texas.gov/rules/2003/ficso.html
[www.tdi.texas.gov/reports/life/ficso.html].
§4.2734.Conditions.
(a) For each plan of insurance with separate rates
for preferred and standard nonsmoker lives, an insurer may use the
super preferred nonsmoker, preferred nonsmoker, and residual standard
nonsmoker tables to substitute for the nonsmoker mortality table found
in the 2001 CSO Mortality Table to determine minimum reserves. At
the time of election and annually thereafter, except for business
valued under the residual standard nonsmoker table, the appointed
actuary must [shall] certify that:
(1) the present value of death benefits over the next ten years after the valuation date, using the anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the valuation basic table corresponding to the valuation table being used for that class; and
(2) the present value of death benefits over the future life of the contracts, using anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the valuation basic table corresponding to the valuation table being used for that class.
(b) For each plan of insurance with separate rates
for preferred and standard smoker lives, an insurer may use the preferred
smoker and residual standard smoker tables to substitute for the smoker
mortality table found in the 2001 CSO Mortality Table to determine
minimum reserves. At the time of election and annually thereafter,
for business valued under the preferred smoker table, the appointed
actuary must [shall] certify that:
(1) the present value of death benefits over the next ten years after the valuation date, using the anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the preferred smoker valuation basic table; and
(2) the present value of death benefits over the future life of the contracts, using anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the preferred smoker valuation basic table.
(c) Unless exempted by the commissioner, every insurer
using the 2001 CSO Preferred Class Structure Table must [shall] annually file with the commissioner, with the National
Association of Insurance Commissioners (NAIC) [NAIC],
or with a statistical agent designated by the NAIC and acceptable
to the commissioner, statistical reports showing mortality and such
other information as the commissioner may deem necessary or expedient
for the administration of the provisions of this regulation. The form
of the reports will [shall] be established by
the commissioner, or the commissioner may require the use of a form
established by the NAIC or by a statistical agent designated by the
NAIC and acceptable to the commissioner. The form of the statistical
reports will [shall] be promulgated by rule.
Insurers are not required to file such statistical reports until such
rule has been adopted by the commissioner. At the commissioner's discretion,
the commissioner may request mortality experience and other information
at any time.
(d) The use of the 2001 CSO Preferred Class Structure
Table for the valuation of policies issued before [prior
to] January 1, 2007, will [shall] not
be permitted in any statutory financial statement in which a company
reports, with respect to any policy or portion of a policy coinsured,
either of the following.[:]
(1) In cases where the mode of payment of the reinsurance premium is less frequent than the mode of payment of the policy premium, a reserve credit that exceeds, by more than the amount specified in this paragraph as Y, the gross reserve calculated before reinsurance. Y is the amount of the gross reinsurance premium that:
(A) provides coverage for the period from the next policy period premium due date to the earlier of the end of the policy year and the next reinsurance premium due date; and
(B) would be refunded to the ceding entity upon the termination of the policy.
(2) In cases where the mode of payment of the reinsurance premium is more frequent than the mode of payment of the policy premium, a reserve credit that is less than the gross reserve, calculated before reinsurance, by an amount that is less than the amount specified in this paragraph as Z. Z is the amount of gross reinsurance premium that the ceding entity would need to pay the assuming company to provide reinsurance coverage from the period of the next reinsurance premium due date to the next policy premium due date minus any liability established for the proportionate amount not remitted to the reinsurer.
(3) For purposes of the conditions stated in paragraphs
(1) and (2) of this subsection, the reserve for the mean reserve method will [shall] be defined as the mean reserve minus
the deferred premium asset, and for the mid-terminal reserve method must [shall] include the unearned premium reserve.
A company may estimate and adjust its accounting on an aggregate basis
in order to meet the conditions to use the 2001 CSO Preferred Class
Structure
Table.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303290
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
DIVISION 1. ACTUARIAL OPINION AND MEMORANDUM REGULATION
STATUTORY AUTHORITY. TDI proposes amendments to Subchapter BB, Division 1, under Insurance Code §§36.004, 425.054, and 36.001.
Insurance Code §36.004 provides that the commissioner may adopt a rule to require compliance with a rule, regulation, directive, or standard adopted by the National Association of Insurance Commissioners if certain statutory requirements are met.
Insurance Code §425.054 provides that the commissioner specify by rule the requirements of an actuarial opinion under §425.064(b), including any matters considered necessary to the opinion's scope.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter BB, Division 1 affects Insurance Code §§425.054 - 425.057.
§4.2801.Purpose.
The purpose of this subchapter is to prescribe guidelines and
standards for the following activities [described
in paragraphs (1) - (3) of this section]:
(1) the submission of a statement of actuarial opinion in accordance with Insurance Code §425.054, concerning Annual Valuation of Reserves for Policies and Contracts Issued on or After Operative Date of Valuation Manual, and for memoranda in support of such opinion;
(2) the appointment of an appointed actuary; and
(3) guidance as to the meaning of "adequacy of reserves."
§4.2802.Scope and Applicability.
(a) This subchapter applies [shall
apply] to all life insurance companies doing business in this
state and to all life insurance companies that [which]
are authorized to reinsure life insurance, annuities, or
accident and health insurance business in this state.
(b) This subchapter must [shall]
be applied in a manner that allows the appointed actuary to utilize their [his or her] professional judgment in performing
the asset analysis and developing the actuarial opinion and supporting
memoranda, consistent with relevant actuarial standards of practice;
however, the commissioner has [shall have] the
authority to specify specific methods of actuarial analysis and actuarial
assumptions when, in the commissioner's judgment, these specifications
are necessary for an acceptable opinion to be rendered relative to
the adequacy of reserves and related
items.
(c) This subchapter applies to the actuarial opinion for the 2005 valuation through the 2016 valuation. The requirements of the valuation manual adopted under Insurance Code Chapter 425, Subchapter B, concerning Standard Valuation Law, apply to actuarial opinions for valuations on or after January 1, 2017.
(d)
A statement of opinion on the adequacy of the reserves
and related actuarial items based on an asset adequacy analysis in
accordance with §4.2806 [§3.1606]
of this title (relating to Statement of Actuarial Opinion Based on
an Asset Adequacy Analysis), and a memorandum in support of the
statement of opinion [thereof] in accordance with §4.2807
[§3.1607] of this title (relating to Description
of Actuarial Memorandum Including an Asset Adequacy Analysis and Regulatory
Asset Adequacy Issues Summary), is [shall be]
required each year, unless exempt under §4.2808 [§3.1608
] of this title (relating to Asset Adequacy Analysis Exemption).
§4.2803.Commissioner Discretion.
The commissioner may require any company, otherwise exempt
from asset adequacy analysis requirements in this subchapter, to provide
an actuarial opinion and actuarial memorandum that [which
] complies with the asset adequacy analysis requirements in
this subchapter including requirements in §4.2806 [§3.1606
] of this title (relating to Statement of Actuarial Opinion
Based on an Asset Adequacy Analysis) and in §4.2807 [§3.1607] of this title (relating to Description of Actuarial
Memorandum Including an Asset Adequacy Analysis and Regulatory Asset
Adequacy Issues Summary) if, in the opinion of the commissioner, an
asset adequacy analysis is necessary with respect to the company.
§4.2804.Definitions.
The following words and terms, when used in this subchapter,
[shall] have the following meanings[,] unless
the context clearly indicates otherwise.
(1) AVR--Asset valuation reserve.
(2) Actuarial opinion--The opinion of an appointed
actuary regarding the adequacy of the reserves and related actuarial
items based on an asset adequacy analysis in accordance with §4.2806
[§3.1606] of this title (relating to Statement
of Actuarial Opinion Based on an Asset Adequacy Analysis) and with
applicable Actuarial Standards of Practice.
(3) Actuarial Standards Board--The board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.
(4) Annual statement--That financial statement as of December 31st of the preceding year required to be filed annually by the company with the Texas Department of Insurance.
(5) Appointed actuary--A qualified actuary who is appointed or retained to prepare the statement of actuarial opinion required by this subchapter, either directly by or by the authority of the board of directors through an executive officer of the company other than the qualified actuary.
(6) Asset adequacy analysis--An analysis that meets
the standards and other requirements referred to in §4.2805(c) [§3.1605(c)] of this title (relating to General
Requirements).
(7) Company--A life insurance company or reinsurer
subject to the provisions of this subchapter including [which
includes] a stipulated premium insurance company insuring or
assuming risk for coverages under Insurance Code §884.307,
concerning Issuance of Annuity Contract, or §884.402,
concerning Additional
Coverage.
(8) IMR--Interest maintenance reserve.
(9) Qualified actuary--An individual who:
(A) is a member in good standing of the American Academy of Actuaries;
(B) is qualified to sign statements of actuarial opinion for life and health insurance company annual statements in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements;
(C) is familiar with the valuation requirements applicable to life and health insurance companies;
(D) has not been found by the commissioner (or, if so found, has subsequently been reinstated as a qualified actuary), following appropriate notice and opportunity for hearing, to have:
(i)
violated any provision of, or any obligation imposed
by, the Insurance Code or other law in the course of their [his or her] dealings as a qualified
actuary;
(ii) been found guilty of fraudulent or dishonest practices;
(iii)
demonstrated their [his or her]
incompetency, lack of cooperation, or untrustworthiness to act as
a qualified
actuary;
(iv)
submitted to the commissioner during the past
five years, under [pursuant to] this subchapter,
an actuarial opinion or memorandum that the commissioner rejected
because it did not meet the provisions of this subchapter including
standards set by the Actuarial Standards Board;
or
(v) resigned or been removed as an actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of failure to adhere to generally acceptable actuarial standards; and
(E) has not failed to notify the commissioner of any action taken by any commissioner of any other state similar to that under subparagraph (D) of this paragraph.
§4.2805.General Requirements.
(a) Submission of statement of actuarial opinion. Any statement of actuarial opinion required by this subchapter must be submitted in accordance with paragraphs (1) and (2) of this subsection.
(1) There is to be included on or attached to page
one of the annual statement for each year beginning with the year
in which this subchapter becomes effective the statement of an appointed
actuary, entitled "Statement of Actuarial Opinion," setting forth
an opinion relating to reserves and related actuarial items held in
support of policies and contracts, in accordance with §4.2806 [§3.1606] of this title (relating to Statement of Actuarial
Opinion Based on an Asset Adequacy Analysis).
(2) Upon written request by the company, the commissioner may grant an extension of the date for submission of the statement of actuarial opinion.
(b) Appointment of actuary. The company must give the commissioner timely written notice of the name, title (and, in the case of a consulting actuary, the name of the firm), and manner of appointment or retention of each person appointed or retained by the company as an appointed actuary and must state in the notice that the person is a qualified actuary. Once notice is furnished, no further notice is required with respect to this person, provided that the company gives the commissioner timely written notice in the event the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements for a qualified actuary. If any person appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice must so state and give the reasons for replacement.
(c) Standards for asset adequacy analysis. The asset adequacy analysis required by this subchapter must:
(1) conform to the Standards of Practice as promulgated from time to time by the Actuarial Standards Board and any additional standards set forth in this subchapter, which standards are to form the basis of the statement of actuarial opinion in accordance with this subchapter; and
(2) be based on methods of analysis as are deemed appropriate for such purposes by the Actuarial Standards Board.
(d) Liabilities to be covered. The liabilities to be covered will be in accordance with paragraphs (1) - (3) of this subsection.
(1) Under authority of Insurance Code §425.054, concerning Actuarial Opinion of Reserves Issued Before Operative Date of Valuation Manual, the statement of actuarial opinion applies to all in-force business on the statement date, whether directly issued or assumed, regardless of when or where issued; for example, annual statement reserves in Exhibits 5, 6, and 7, and claim liabilities in Exhibit 8, Part 1 and equivalent items in the separate account statement or statements.
(2) If the appointed actuary determines as the result of asset adequacy analysis that a reserve should be held in addition to the aggregate reserve held by the company and calculated in accordance with methods set forth in Insurance Code §§425.064, concerning Commissioners Reserve Valuation Method For Life Insurance and Endowment Benefits; 425.065, concerning Commissioners Annuity Reserve Valuation Method For Annuity and Pure Endowment Benefits; 425.068, concerning Reserve Computation: Gross Premium Charged Less Than Valuation Net Premium; and 425.069, concerning Reserve Computation: Indeterminate Premium Plans and Certain Other Plans; and other applicable Insurance Code provisions, the company must establish the additional reserve.
(3) Additional reserves established under paragraph (2) of this subsection and deemed not necessary in subsequent years may be released. Any amounts released must be disclosed in the actuarial opinion for the applicable year. The release of such reserves would not be deemed an adoption of a lower standard of valuation.
§4.2806.Statement of Actuarial Opinion Based on an Asset Adequacy Analysis.
(a) General description. The statement of actuarial opinion required by this section must consist of the following paragraphs:
(1) a paragraph identifying the appointed actuary and their [his or her] qualifications, recommended language
is provided in subsection (b)(1) of this section;
(2) a scope paragraph (recommended language is provided in subsection (b)(2) of this section) identifying the subjects on which an opinion is to be expressed and describing the scope of the appointed actuary's work, including a tabulation delineating the reserves and related actuarial items that have been analyzed for asset adequacy and the method of analysis, and identifying the reserves and related actuarial items covered by the opinion that have not been so analyzed;
(3) a reliance paragraph (recommended language is provided in subsection (b)(3) of this section) describing those areas, if any, where the appointed actuary has deferred to other experts in developing data, procedures, or assumptions (e.g., anticipated cash flows from currently owned assets, including variation in cash flows according to economic scenarios), supported by a statement of each such expert with the information prescribed by subsection (e) of this section; and
(4) an opinion paragraph expressing the appointed actuary's opinion with respect to the adequacy of the supporting assets to mature the liabilities (recommended language is provided in subsection (b)(6) of this section).
(5) One or more additional paragraphs will be needed in individual company cases as follows:
(A) if the appointed actuary considers it necessary
to state a qualification of their [his or her] opinion;
(B) if the appointed actuary must disclose an inconsistency in the method of analysis or basis of asset allocation used at the prior opinion date with that used for this opinion;
(C) if the appointed actuary must disclose whether additional reserves as of the prior opinion date are released as of this opinion date, and the extent of the release; or
(D) if the appointed actuary chooses to add a paragraph briefly describing the assumptions that form the basis for the actuarial opinion.
(b)
Recommended language. The following paragraphs
are to be included in the statement of actuarial opinion in accordance
with this section. The language is what [that which]
should be included in typical circumstances in a statement of actuarial
opinion. The language may be modified as needed to meet the circumstances
of a particular case, but the appointed actuary should use language that [which] clearly expresses their [his
or her] professional judgment. Regardless of the language used,
the opinion must retain all pertinent aspects of the language provided
in this
section.
(1)
The opening paragraph should generally indicate
the appointed actuary's relationship to the company and the appointed
actuary's [his or her] qualifications to sign the
opinion.
(A) For a company actuary, the opening paragraph of the actuarial opinion should include a statement such as:
Figure: 28 TAC §4.2806(b)(1)(A) (.pdf)
[Figure: 28 TAC §3.1606(b)(1)(A)]
(B) For a consulting actuary, the opening paragraph should include a statement such as:
Figure: 28 TAC §4.2806(b)(1)(B) (.pdf)
[Figure: 28 TAC §3.1606(b)(1)(B)]
(2) The scope paragraph should include a statement such as:
Figure: 28 TAC §4.2806(b)(2) (.pdf)
[Figure: 28 TAC §3.1606(b)(2)]
(3) If the appointed actuary has relied on other experts to develop certain portions of the analysis, the reliance paragraph should include a statement such as:
Figure: 28 TAC §4.2806(b)(3) (.pdf)
[Figure: 28 TAC §3.1606(b)(3)]
(4) If the appointed actuary has examined the underlying asset and liability records, the reliance paragraph should include a statement such as:
Figure: 28 TAC §4.2806(b)(4) (.pdf)
[Figure: 28 TAC §3.1606(b)(4)]
(5) If the appointed actuary has not examined the underlying records, but has relied upon data (e.g., listings and summaries of policies in force or asset records) prepared by the company, the reliance paragraph should include a statement such as:
Figure: 28 TAC §4.2806(b)(5) (.pdf)
[Figure: 28 TAC §3.1606(b)(5)]
(6) The opinion paragraph should include a statement such as:
Figure: 28 TAC §4.2806(b)(6) (.pdf)
[Figure: 28 TAC §3.1606(b)(6)]
(c) Assumptions for new issues. The adoption for new issues or new claims or other new liabilities of an actuarial assumption that differs from a corresponding assumption used for prior new issues or new claims or other new liabilities is not a change in actuarial assumptions within the meaning of this section.
(d) Adverse opinions. If the appointed actuary is unable
to form an opinion, then the appointed actuary [he
or she] must refuse to issue a statement of actuarial opinion.
If the appointed actuary's opinion is adverse or qualified, then the
appointed actuary [he or she] must issue an adverse
or qualified actuarial opinion explicitly stating the reasons for
the opinion. This statement should follow the scope paragraph and
precede the opinion paragraph.
(e) Reliance on information furnished by other persons. If the appointed actuary relies on the certification of others on matters concerning the accuracy or completeness of any data underlying the actuarial opinion, or the appropriateness of any other information used by the appointed actuary in forming the actuarial opinion, the actuarial opinion should so indicate the persons the actuary is relying upon and a precise identification of the items subject to reliance. In addition, the persons on whom the appointed actuary relies must provide a certification that precisely identifies the items on which the person is providing information and a statement as to the accuracy, completeness, or reasonableness, as applicable, of the items. This certification must include the signature, title, company, address, email address, and telephone number of the person rendering the certification, as well as the date on which it is signed.
(f) Alternate option.
(1) Insurance Code Chapter 425, Subchapter B, concerning
Standard Valuation Law, gives the commissioner broad authority
to accept the valuation of a foreign insurer when that valuation meets
the requirements applicable to a company domiciled in this state in
the aggregate. As an alternative to the requirements of subsection
(b)(6) of this section, the commissioner may make one or more of the
following additional approaches available to the opining
actuary.[:]
(A) A [a] statement that the
reserves "meet the requirements of the insurance laws and regulations
of the State of (state of domicile) and the formal written standards
and conditions of this state for filing an opinion based on the law
of the state of domicile." If the commissioner chooses to allow this
alternative, a formal written list of standards and conditions must
be made available. If a company chooses to use this alternative, the
standards and conditions in effect on July 1 of a calendar year apply
to statements for that calendar year and remain in effect until they
are revised or revoked. If no list is available, this alternative
is not available.
(B) A [a] statement that the
reserves "meet the requirements of the insurance laws and regulations
of the State of (state of domicile) and I have verified that the company's
request to file an opinion based on the law of the state of domicile
has been approved and that any conditions required by the commissioner
for approval of that request have been met." If the commissioner chooses
to allow this alternative, a formal written statement of such allowance
must be issued no later than March 31 of the year it is first effective.
It will remain valid until rescinded or modified by the commissioner.
The rescission or modifications must be issued no later than March
31 of the year they are first effective. Before [Subsequent
to] that statement may be [being] issued,
if a company chooses to use this alternative, the company must file
a request to do so, along with justification for its use, no later
than April 30 of the year of the opinion to be filed. The request
will be deemed approved on October 1 of that year if the commissioner
has not denied the request by that date.
(C) A [a] statement that the
reserves "meet the requirements of the insurance laws and regulations
of the State of (state of domicile) and I have submitted the required
comparison as specified by this state."
(i) If the commissioner chooses to allow this alternative,
a formal written list of products (to be added to the table in Figure:
28 TAC §4.2806(f)(1)(C)(ii)) [§3.1606(f)(1)(C)(ii))
] for which the required comparison must be provided will be
published. If a company chooses to use this alternative, the list
in effect on July 1 of a calendar year applies to statements for that
calendar year and remains in effect until it is revised or revoked.
If no list is available, this alternative is not available.
(ii) If a company desires to use this alternative,
the appointed actuary must provide a comparison of the gross nationwide
reserves held to the gross nationwide reserves that would be held
under §7.18 of this title (relating to National Association
of Insurance Commissioners [NAIC] Accounting Practices
and Procedures Manual). Gross nationwide reserves are the total reserves
calculated for the total company in force business directly sold and
assumed, indifferent to the state in which the risk resides, without
reduction for reinsurance ceded. The information provided must include
the following [be at least]:
Figure: 28 TAC §4.2806(f)(1)(C)(ii) (.pdf)
[Figure: 28 TAC §3.1606(f)(1)(C)(ii)]
(iii) The information listed must include all products identified by either the state of filing or any other states subscribing to this alternative.
(iv) If there is no codification standard for the type of product or risk in force or if the codification standard does not directly address the type of product or risk in force, the appointed actuary must provide detailed disclosure of the specific method and assumptions used in determining the reserves held.
(2) The commissioner may reject an opinion based on the laws and regulations of the state of domicile and require an opinion based on the laws of this state. If a company is unable to provide the opinion within 60 days of the request or such other period of time determined by the commissioner after consultation with the company, the commissioner may contract with an independent actuary at the company's expense to prepare and file the opinion.
§4.2807.Description of Actuarial Memorandum Including an Asset Adequacy Analysis and Regulatory Asset Adequacy Issues Summary.
(a) General. Any actuarial memorandum required by the provisions of this subchapter must be prepared in accordance with and subject to the provisions and qualifications of paragraphs (1) - (5) of this subsection.
(1) In accordance with Insurance Code Chapter
425, Subchapter B, concerning Standard Valuation Law [§§425.054
- 425.057], the appointed actuary must prepare a memorandum
to the company describing the analysis done in support of the
appointed actuary's [his or her] opinion regarding
the reserves under the opinion. The memorandum must be made available
for examination by the commissioner upon the commissioner's request.
(2) In preparing the memorandum, the appointed actuary
may rely on, and include as a part of the appointed actuary's [his or her] own memorandum, memoranda prepared and signed by
other actuaries who are qualified within the meaning of §4.2804
[§3.1604] of this title (relating to Definitions),
with respect to the areas covered in such memoranda, and so state
in the other actuaries' [their] memoranda.
(3) If the commissioner requests a memorandum and no
such memorandum exists or if the commissioner finds that the analysis
described in the memorandum fails to meet the standards of the Actuarial
Standards Board as required by §4.2805 [§3.1605
] of this title (relating to General Requirements), or the standards
and requirements of this subchapter, the commissioner may designate
a qualified actuary to review the opinion and prepare such supporting
memorandum as is required for review. The reasonable and necessary
expense of the independent review must be paid by the company but
will be directed and controlled by the commissioner.
(4) The reviewing actuary will have the same status as an examiner for purposes of obtaining data from the company, and the work papers and documentation of the reviewing actuary will be retained by the commissioner. The reviewing actuary may not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer required by this subchapter for any one of the current year or the preceding three years.
(5) In accordance with Insurance Code Chapter
425, Subchapter B [§§425.054 - 425.057],
the appointed actuary must prepare a regulatory asset adequacy issues
summary, the contents of which are specified in subsection (c) of
this section. Texas domestic companies must submit the regulatory
asset adequacy issues summary by email to ActuarialDivision@tdi.texas.gov
or by paper copy to the Financial Regulation Division, MC: FRD,
Texas Department of Insurance, P.O. Box 12030, Austin, Texas 78711-2030 [Texas Department of Insurance, Financial Regulation Division, MC-FRD,
P.O. Box 12030, Austin, Texas 78711-2030] no later than March
15 of the year following the year for which a statement of actuarial
opinion based on asset adequacy is required. Nondomestic companies
must submit the regulatory asset adequacy issues summary when requested
by the commissioner.
(b) Details of the memorandum section documenting asset
adequacy analysis. When an actuarial opinion under §4.2806 [§3.1606] of this title (relating to Statement of Actuarial
Opinion Based on an Asset Adequacy Analysis) is provided, the memorandum
must demonstrate that the analysis has been done in accordance with
the standards for asset adequacy referred to in §4.2805(c) [§3.1605(c)] of this title and any additional standards
under this subchapter. The documentation of the assumptions used in
paragraphs (1) and (2) of this subsection must be such that an actuary
reviewing the actuarial memorandum could form a conclusion as to the
reasonableness of the assumptions. The memorandum must
specify:
(1) for reserves:
(A) product descriptions including market description, underwriting and other aspects of a risk profile and the specific risks the appointed actuary deems significant;
(B) source of liability in force;
(C) reserve method and basis;
(D) investment reserves;
(E) reinsurance arrangements;
(F) identification of any explicit or implied guarantees made by the general account in support of benefits provided through a separate account or under a separate account policy or contract and the methods used by the appointed actuary to provide for the guarantees in the asset adequacy analysis;
(G) documentation of assumptions to test reserves for the following:
(i) lapse rates (both base and excess);
(ii) interest crediting rate strategy;
(iii) mortality;
(iv) policyholder dividend strategy;
(v) competitor or market interest rate;
(vi) annuitization rates;
(vii) commissions and expenses; and
(viii) morbidity.
(2) For assets:
(A) portfolio descriptions, including a risk profile disclosing the quality, distribution, and types of assets;
(B) investment and disinvestment assumptions;
(C) source of asset data;
(D) asset valuation bases; and
(E) documentation of assumptions made for:
(i) default costs;
(ii) bond call function;
(iii) mortgage prepayment function;
(iv) determining market value for assets sold due to disinvestment strategy; and
(v) determining yield on assets acquired through the investment strategy.
(3) For the analysis basis:
(A) methodology;
(B) rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;
(C) rationale for degree of rigor in analyzing different blocks of business (including the level of "materiality" that was used in determining how rigorously to analyze different blocks of business);
(D) criteria for determining asset adequacy (including the precise basis for determining if assets are adequate to cover reserves under "moderately adverse conditions" or other conditions as specified in relevant actuarial standards of practice); and
(E) whether the impact of federal income taxes was considered and the method of treating reinsurance in the asset adequacy analysis;
(4) summary of material changes in methods, procedures, or assumptions from prior year's asset adequacy analysis;
(5) summary of results; and
(6) conclusions.
(c) Details of the regulatory asset adequacy issues summary.
(1)
The regulatory asset adequacy issues summary must
include the
following.[:]
(A)
Descriptions [descriptions]
of the scenarios tested (including whether those scenarios are stochastic
or deterministic) and the sensitivity testing done relative to those
scenarios. If negative ending surplus results under certain tests
in the aggregate, the actuary should describe those tests and the
amount of additional reserve as of the valuation date that [which], if held, would eliminate the negative aggregate surplus
values. Ending surplus values must be determined by either extending
the projection period until the in force and associated assets and
liabilities at the end of the projection period are immaterial or
by adjusting the surplus amount at the end of the projection period
by an amount that appropriately estimates the value that can reasonably
be expected to arise from the assets and liabilities remaining in
force.
(B)
The [the] extent to which
the appointed actuary uses assumptions in the asset adequacy analysis
that are materially different than the assumptions used in the previous
asset adequacy
analysis.
(C)
The [the] amount of reserves
and the identity of the product lines that had been subjected to asset
adequacy analysis in the prior opinion but were not subject to analysis
for the current
opinion.
(D)
Comments [comments] on any
interim results that may be of significant concern to the appointed
actuary. For example, the comments must describe the impact of the
insufficiency of assets to support the payment of benefits and expenses
and the establishment of statutory reserves during one or more interim
periods.
(E)
The [the] methods used by
the actuary to recognize the impact of reinsurance on the company's
cash flows, including both assets and liabilities, under each of the
scenarios
tested.
(F)
Whether [whether] the actuary
has been satisfied that all options whether explicit or embedded,
in any asset or liability (including, but not limited to, those affecting
cash flows embedded in fixed income securities) and equity-like features
in any investments have been appropriately considered in the asset
adequacy
analysis.
(2) The regulatory asset adequacy issues summary must contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and be signed and dated by the appointed actuary rendering the actuarial opinion.
(3)
The regulatory asset adequacy issues summary will
be used to examine the company's financial condition and ability to
meet its liabilities. It will be considered information obtained during
the course of an examination under [the] Insurance Code
Chapter 401, concerning Audits and Examinations, and treated
as
confidential.
(d) Conformity to standards of practice. The memorandum must include a statement with wording substantially similar to that of this subsection as follows: "Actuarial methods, considerations, and analyses used in the preparation of this memorandum conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis for this memorandum."
(e) Use of assets supporting the IMR and the AVR. An appropriate allocation of assets in the amount of the IMR, whether positive or negative, must be used in any asset adequacy analysis. Analysis of risks regarding asset default may include an appropriate allocation of assets supporting the AVR; these AVR assets may not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks may include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support. The amount of the assets used for the AVR must be disclosed in the table of reserves and liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets must be disclosed in the memorandum.
(f) Documentation retention. The appointed actuary must retain on file, for at least seven years, sufficient documentation so that it will be possible to determine the procedures followed, the analyses performed, the bases for assumptions, and the results obtained.
§4.2808.Asset Adequacy Analysis Exemption.
(a) Companies that do business only in Texas and no
other state are not required to perform the asset adequacy analysis
required by §4.2805 [§3.1605] of this
title (relating to General Requirements) unless required by the commissioner under §4.2803 [pursuant to §3.1603] of
this title (relating to Commissioner [commissioner]
Discretion).
(b) Companies exempted under subsection (a) of this
section must [shall] submit with the annual
statement an actuarial opinion under [pursuant to]
this subchapter but not based on an asset adequacy analysis.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303291
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
STATUTORY AUTHORITY. TDI proposes amendments to Subchapter BB, Division 2, under Insurance Code §425.067 and §36.001.
Insurance Code §425.067 authorizes the commissioner to establish categories of necessary reserves for certain policies, benefits, or contracts issued by life insurance companies.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter BB, Division 2, affects Insurance Code §425.067.
§4.2811.Strengthened Reserves Under [Pursuant to] Insurance Code §425.067.
A life insurance company may increase the amount of its reserve liabilities by changing the basis of computation as provided in Insurance Code §425.067, concerning Optional Reserve Computations. The insurer may establish a higher reserving basis by reporting an increase in reserve in Exhibit 5A of its annual statement. Thereafter the insurer must continue to report on the higher basis. An insurer may, with the approval of the Texas Department of Insurance, as provided in Insurance Code §425.067, adopt a lower standard of valuation, but not lower than the minimum standard provided in Insurance Code §425.053, concerning Annual Valuation of Reserves for Policies and Contracts Issued Before Operative Date of Valuation Manual.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303292
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
28 TAC §§4.2821 - 4.2827, 4.2829
STATUTORY AUTHORITY. TDI proposes amendments to Subchapter BB, Division 3, under Insurance Code §§36.004, 425.058(c)(3), and 36.001.
Insurance Code §36.004 provides that the commissioner may adopt a rule to require compliance with a rule, regulation, directive, or standard adopted by the National Association of Insurance Commissioners if certain statutory requirements are met.
Insurance Code §425.058(c)(3) specifies that for an ordinary life insurance policy issued on the standard basis, to which Insurance Code Chapter 1105, Subchapter B, applies, the applicable table is any ordinary mortality table adopted after 1980 by the National Association of Insurance Commissioners that is approved by commissioner rule for use in determining the minimum standard values under Insurance Code Chapter 425, Subchapter B.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter BB, Division 3, affects Insurance Code §§425.054, 425.0545, and 425.058(c)(3).
§4.2821.Purpose.
(a) The purpose of this subchapter is to provide:
(1) tables [Tables] of select
mortality factors and rules for their use;
(2) rules [Rules] concerning
a minimum standard for the valuation of plans with nonlevel premiums
or benefits; and
(3) rules [Rules] concerning
a minimum standard for the valuation of plans with secondary guarantees.
(b) The method for calculating basic reserves defined in this subchapter will constitute the Commissioners' Reserve Valuation Method for policies to which this subchapter is applicable.
§4.2822.Adoption of Tables of Select Mortality Factors.
The six tables of select mortality factors adopted in this
section are from the NAIC model regulation titled "Valuation of Life
Insurance Policies Model Regulation" that [which]
was adopted by the NAIC on March 8, 1999. The six tables of base select
mortality factors include: male aggregate, male nonsmokers, male smoker,
female aggregate, female nonsmoker, and female smoker. These tables
apply to both age-last-birthday [age last birthday]
and age-nearest-birthday [age nearest birthday]
mortality tables.
[Figure: 28 TAC §4.4502]
§4.2823.Applicability.
This subchapter applies to all life insurance policies, with or without nonforfeiture values, issued on or after January 1, 2000, and before January 1, 2017, subject to the following exceptions in paragraph (1) of this section and conditions in paragraph (2) of this section. For all life insurance policies, with or without nonforfeiture values, issued on or after January 1, 2017, the requirements of the valuation manual adopted under Insurance Code Chapter 425, Subchapter B, concerning Standard Valuation Law, apply.
(1) Exceptions.
(A) This subchapter does [shall]
not apply to any individual life insurance policy issued on or after
the effective date of this subchapter if the policy is issued in accordance
with, and as a result of, the exercise of a
reentry provision contained in the original life insurance policy
of the same or greater face amount, issued before the effective date
of this subchapter, that guarantees the premium rates of the new policy.
This subchapter also does [shall] not apply
to subsequent policies issued as a result of the exercise of such
a provision, or a derivation of the provision, in the new policy.
(B) This subchapter does [shall]
not apply to any universal life policy that meets all the following requirements:
(i) secondary guarantee period, if any, is five years or less;
(ii) specified premium for the secondary guarantee period is not less than the net level reserve premium for the secondary guarantee period based on the 1980 CSO valuation tables and the applicable valuation interest rate; and
(iii) the initial surrender charge is not less than 100% of the first year annualized specified premium for the secondary guarantee period.
(C)
This subchapter does [shall]
not apply to any variable life insurance policy that provides for
life insurance, the amount or duration of which varies according to
the investment experience of any separate account or
accounts.
(D)
This subchapter does [shall]
not apply to any variable universal life insurance policy that provides
for life insurance, the amount or duration of which varies according
to the investment experience of any separate account or
accounts.
(E)
This subchapter does [shall]
not apply to a group life insurance certificate unless the certificate
provides for a stated or implied schedule of maximum gross premiums
required in order to continue coverage in force for a period in excess
of one
year.
(2) Conditions.
(A)
Calculation of the minimum valuation standard for
policies with guaranteed nonlevel [Nonlevel]
gross premiums or guaranteed nonlevel benefits (other than universal
life policies), or both, must [shall] be in
accordance with the provisions of §4.2826 [§3.4506
] of this title (relating to Calculation of Minimum Valuation
Standard for Policies with Guaranteed Nonlevel Gross Premiums or Guaranteed
Nonlevel Benefits (Other than Universal Life
Policies)).
(B)
Calculation of the minimum valuation standard for
flexible premium and fixed premium universal life insurance policies,
that contain provisions resulting in the ability of a policyholder
to keep a policy in force over a secondary guarantee period, must [shall] be in accordance with the provisions of §4.2827 [§3.4507] of this title (relating to Calculation of Minimum
Valuation Standard for Flexible Premium and Fixed Premium Universal
Life Insurance Policies That Contain Provisions Resulting in the Ability
of a Policyowner to Keep a Policy in Force Over a Secondary Guarantee
Period).
§4.2824.Definitions.
The following words and terms, when used in this subchapter,
[shall] have the following meanings[,] unless
the context clearly indicates otherwise.
(1) Basic reserves--Reserves [reserves]
calculated in accordance with the principles of [the] Insurance
Code §425.064, concerning Commissioners Reserve Valuation
Method for Life Insurance and Endowment Benefits.
(2) Contract segmentation method--The [the
] method of dividing the period from issue to mandatory expiration
of a policy into successive segments, with the length of each segment
being defined as the period from the end of the prior segment (from
policy inception, for the first segment) to the end of the latest
policy year as determined below. All calculations are made using the
1980 CSO valuation tables, as defined in this section, (or any other
valuation mortality table adopted by the NAIC after the effective
date of this subchapter and promulgated by regulation by the commissioner
for this purpose), and, if elected, the optional minimum mortality
standard for deficiency reserves stipulated in §4.2825(b) [§3.4505(b)] of this title [subchapter]
(relating to General Calculation Requirements for Basic Reserves and
Premium Deficiency Reserves).
Figure: 28 TAC §4.2824(2) (.pdf)
[Figure: 28 TAC §3.4504(2)]
(3) Deficiency reserves--The [the]
excess, if greater than zero, of the minimum reserves calculated in
accordance with the principles of [the] Insurance Code
§425.068, concerning Reserve Computation: Gross Premium
Charged Less Than Valuation Net Premium, over the basic reserves.
(4) Guaranteed gross premiums--The [the]
premiums under a policy of life insurance that are guaranteed and
determined at issue.
(5) Maximum valuation interest rates--The [the] interest rates defined in [the] Insurance Code
§425.061, concerning Computation of [Minimum
Standard by] Calendar Year Statutory Valuation Interest
Rate: General Rule [of Issue], that are to be used
in determining the minimum standard for the valuation of life insurance policies.
(6) NAIC--National Association of Insurance Commissioners.
(7) 1980 CSO valuation tables--The [the]
Commissioners' 1980 Standard Ordinary Mortality Table (1980 CSO Table)
without ten-year selection factors, incorporated into the 1980 amendments
to the NAIC Standard Valuation Law, and variations of the 1980 CSO
Table approved by the NAIC, such as the smoker and nonsmoker versions
approved in December 1983.
(8) Scheduled gross premium--The [the]
smallest illustrated gross premium at issue for other than universal
life insurance policies. For universal life insurance policies, scheduled
gross premium means the smallest specified premium described in §4.2827(a)(3)
[§3.4507(a)(3)] of this title [subchapter
] (relating to Calculation of Minimum Valuation Standard for
Flexible Premium and Fixed Premium Universal Life Insurance Policies
That Contain Provisions Resulting in the Ability of a Policyowner
to Keep a Policy in Force Over a Secondary Guarantee Period) if any,
or else the minimum premium described in §4.2827(a)(4) [§3.4507(a)(4)] of this title [subchapter].
(9) Segmented reserves--Reserves [reserves
], calculated using segments produced by the contract segmentation
method, equal to the present value of all future guaranteed benefits
less the present value of all future net premiums to the mandatory
expiration of a policy, where the net premiums within each segment
are a uniform percentage of the respective guaranteed gross premiums
within the segment. The length of each segment is determined by the
"contract segmentation method," as defined in this section. The interest
rates used in the present value calculations for any policy may not
exceed the maximum valuation interest rate, determined with a guarantee
duration equal to the sum of the lengths of all segments of the policy.
For both basic reserves and deficiency reserves computed by the segmented
method, present values must include future benefits and net premiums
in the current segment and in all subsequent segments. The uniform
percentage for each segment is such that, at the beginning of the
segment, the present value of the net premiums within the segment equals:
(A) the present value of the death benefits and endowment benefits within the segment, plus
(B) the present value of any unusual guaranteed cash
value (see §4.2826(d) [§3.4506(d)]
of this title [subchapter] (relating to Calculation
of Minimum Valuation Standard for Policies with Guaranteed Nonlevel
Gross Premiums or Guaranteed Nonlevel Benefits (Other than Universal
Life Policies)) occurring at the end of the segment,
less
(C) any unusual guaranteed cash value occurring at the start of the segment, plus
(D)
for the first segment only, the excess of clause
(i) of this paragraph over clause (ii) of this paragraph, as
follows.[:]
(i)
A [a] net level annual premium
equal to the present value, at the date of issue, of the benefits
provided for in the first segment after the first policy year, divided
by the present value, at the date of issue, of an annuity of one per
year payable on the first and each subsequent anniversary within the
first segment on which a premium falls due. However, the net level
annual premium may [shall] not exceed the net
level annual premium on the nineteen-year premium whole life plan
of insurance of the same renewal year equivalent level amount at an
age one year higher than the age at issue of the
policy.
(ii)
A [a] net one year term
premium for the benefits provided for in the first policy
year.
(10)
Tabular cost of insurance--The [the]
net single premium at the beginning of a policy year for one-year
term insurance in the amount of the guaranteed death benefit in that
policy
year.
(11)
Ten-year select factors--The [the]
select factors in [the] Insurance Code Chapter 425, Subchapter
B, concerning [The] Standard Valuation
Law.
(12)
Unitary reserves--The [the]
present value of all future guaranteed benefits less the present value
of all future modified net premiums,
where:
(A) guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy; and
(B)
modified net premiums are a uniform percentage
of the respective guaranteed gross premiums, where the uniform percentage
is such that, at issue, the present value of the net premiums equals
the present value of all death benefits and pure endowments, plus
the excess of clause (i) of this subparagraph over clause (ii) of
this subparagraph, as
follows.[:]
(i)
A [a] net level annual premium
equal to the present value, at the date of issue, of the benefits
provided for after the first policy year, divided by the present value,
at the date of issue, of an annuity of one per year payable on the
first and each subsequent anniversary of the policy on which a premium
falls due. However, the net level annual premium may [shall
] not exceed the net level annual premium on the nineteen-year
premium whole life plan of insurance of the same renewal year equivalent
level amount at an age one year higher than the age at issue of the
policy.
(ii)
A [a] net one-year [one year] term premium for the benefits provided for in the
first policy
year.
(C) The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the length from issue to the mandatory expiration of the policy.
(13)
Universal life insurance policy--Any [any] individual life insurance policy under the provisions of
which separately identified interest credits (other than in connection
with dividend accumulations, premium deposit funds, or other supplementary
accounts) and mortality or expense charges are made to the policy.
§4.2825.General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves.
(a) At the election of the company for any one or more specified plans of life insurance, the minimum mortality standard for basic reserves may be calculated using the 1980 CSO valuation tables with select mortality factors (or any other valuation mortality table adopted by the NAIC after the effective date of this subchapter and promulgated by regulation by the commissioner for this purpose). If select mortality factors are elected, they may be:
(1) the ten-year select mortality factors incorporated
in [the] Insurance Code Chapter 425, Subchapter B, concerning
[The] Standard Valuation Law;
(2) the select mortality factors adopted in §4.2822
[§3.4502] of this title [subchapter
] (relating to Adoption of Tables of Select Mortality Factors); or
(3) any other table of select mortality factors adopted by the NAIC after the effective date of this regulation and promulgated by regulation by the commissioner for the purpose of calculating basic reserves.
(b) Deficiency reserves, if any, are calculated for each policy as the excess, if greater than zero, of the quantity A over the basic reserve. The quantity A is obtained by recalculating the basic reserve for the policy using guaranteed gross premiums instead of net premiums when the guaranteed gross premiums are less than the corresponding net premiums. At the election of the company for any one or more specified plans of insurance, the quantity A and the corresponding net premiums used in the determination of quantity A may be based upon the 1980 CSO valuation tables with select mortality factors (or any other valuation mortality table adopted by the NAIC after the effective date of this regulation and promulgated by regulation by the commissioner). If select mortality factors are elected, they may be:
(1) the ten-year select mortality factors in [the]
Insurance Code Chapter 425, Subchapter B [, the Standard Valuation Law];
(2) the select mortality factors adopted in §4.2822
[§3.4502] of this title [subchapter];
(3) for [For] durations in the
first segment, X percent of the select mortality factors adopted in §4.2822 [§3.4502] of this title [subchapter], subject to the following:
(A) X may vary by policy year, policy form, underwriting classification, issue age, or any other policy factor expected to affect mortality experience;
(B) X is such that, when using the valuation interest rate used for basic reserves, clause (i) of this subparagraph is greater than or equal to clause (ii) of this subparagraph:
(i)
the [The] actuarial present
value of future death benefits, calculated using the mortality rates
resulting from the application of
X;
(ii)
the [The] actuarial present
value of future death benefits calculated using anticipated mortality
experience without recognition of mortality improvement beyond the
valuation
date;
(C) X is such that the mortality rates resulting from the application of X are at least as great as the anticipated mortality experience, without recognition of mortality improvement beyond the valuation date, in each of the first five years after the valuation date;
(D)
the [The] appointed actuary must [shall] increase X at any valuation date where
it is necessary to continue to meet all the requirements of paragraph
(3) of this
subsection;
(E)
the [The] appointed actuary
may decrease X at any valuation date as long as X continues to meet
all the requirements of paragraph (3) of this subsection;
and
(F)
the [The] appointed actuary must [shall] specifically take into account the adverse
effect on expected mortality and lapsation of any anticipated or actual
increase in gross
premiums.
(G)
If X is less than 100% [100 percent]
at any duration for any policy, the following requirements must [shall] be
met:
(i)
the [The] appointed actuary must [shall] annually prepare an actuarial opinion
and memorandum for the company in conformance with the requirements
of §4.2807 [§3.1607] of this title [chapter] (relating to Description of Actuarial Memorandum Including
an Asset Adequacy Analysis and Regulatory Asset Adequacy Issues Summary);
(ii)
in [In] the regulatory asset
adequacy issues summary prescribed under §4.2807 [§3.1607
] of this title [chapter], the appointed
actuary must [shall] disclose the impact of
the insufficiency of assets to support the payment of benefits and
expenses and the establishment of statutory reserves during one or
more interim periods;
and
(iii)
the [The] appointed actuary must [shall] annually opine for all policies subject
to this regulation as to whether the mortality rates resulting from
the application of X meet the requirements of paragraph (3) of this
subsection. This opinion must [shall] be supported
by an actuarial report, subject to appropriate Actuarial Standards
of Practice promulgated by the Actuarial Standards Board of the American
Academy of Actuaries. The X factors must [shall]
reflect anticipated future mortality, without recognition of mortality
improvement beyond the valuation date, taking into account relevant
emerging experience; or
[.]
(4)
any [Any] other table of
select mortality factors adopted by the NAIC after the effective date
of this regulation and promulgated by regulation by the commissioner
for the purpose of calculating deficiency
reserves.
(c) This subsection applies to both basic reserves and deficiency reserves. Any set of select mortality factors may be used only for the first segment. However, if the first segment is less than ten years, the appropriate ten-year select mortality factors may be used thereafter through the tenth policy year from the date of issue.
(d) In determining basic reserves or deficiency reserves, guaranteed gross premiums without policy fees may be used where the calculation involves the guaranteed gross premium but only if the policy fee is a level dollar amount after the first policy year. In determining deficiency reserves, policy fees may be included in guaranteed gross premiums even if not included in the actual calculation of basic reserves.
(e)
Reserves for policies that have changes to guaranteed
gross premiums, guaranteed benefits, guaranteed charges, or guaranteed
credits that are unilaterally made by the insurer after issue and
that are effective for more than one year after the date of the change must [shall] be the greatest of the
following:
(1)
reserves calculated ignoring the
guarantee;[,]
(2)
reserves assuming the guarantee was made at issue;[,]
and
(3) reserves assuming that the policy was issued on the date of the guarantee.
(f)
The commissioner may require that the company document
the extent of the adequacy of reserves for specified blocks, including
but not limited to policies issued before [prior to]
the effective date of this subchapter. This documentation may include
a demonstration of the extent to which aggregation with other non-specified
blocks of business is relied upon in the formation of the appointed
actuary opinion pursuant to and consistent with the requirements of §4.2807 [§3.1607] of this title
[chapter].
§4.2826.Calculation of Minimum Valuation Standard for Policies with Guaranteed Nonlevel Gross Premiums or Guaranteed Nonlevel Benefits (Other than Universal Life Policies).
(a) Basic reserves. Basic reserves must be calculated as the greater of the segmented reserves and the unitary reserves. Both the segmented reserves and the unitary reserves for any policy must use the same valuation mortality table and selection factors. At the option of the insurer, in calculating segmented reserves and net premiums, either one of the two adjustments described in paragraphs (1) or (2) of this subsection may be made.
(1) An insurer may use the adjustments described in this paragraph.
(A) Treat the unitary reserve, if greater than zero, applicable at the end of each segment as a pure endowment; and
(B) subtract the unitary reserve, if greater than zero, applicable at the beginning of each segment from the present value of guaranteed life insurance and endowment benefits for each segment.
(2) An insurer may use the adjustments described in this paragraph.
(A) Treat the guaranteed cash surrender value, if greater than zero, applicable at the end of each segment as a pure endowment; and
(B) subtract the guaranteed cash surrender value, if greater than zero, applicable at the beginning of each segment from the present value of guaranteed life insurance and endowment benefits for each segment.
(b) Deficiency reserves.
(1) The deficiency reserve at any duration must be calculated:
(A) on a unitary basis if the corresponding basic reserve determined by subsection (a) of this section is unitary;
(B) on a segmented basis if the corresponding basic reserve determined by subsection (a) of this section is segmented; or
(C) on the segmented basis if the corresponding basic reserve determined by subsection (a) of this section is equal to both the segmented reserve and the unitary reserve.
(2)
This subsection applies to any policy for which
the guaranteed gross premium at any duration is less than the corresponding
modified net premium calculated by the method used in determining
the basic reserves, but using the minimum valuation standards of mortality
specified in §4.2825(b) [§3.4505(b)]
of this title (relating to General Calculation Requirements for Basic
Reserves and Premium Deficiency Reserves) and rate of
interest.
(3)
Deficiency reserves, if any, must be calculated
for each policy as the excess if greater than zero, for the current
and all remaining periods, of the quantity A over the basic reserve,
where A is obtained as indicated in §4.2825(b) [§3.4505(b)
] of this title [(relating to General Calculation Requirements
for Basic Reserves and Premium Deficiency
Reserves)].
(4) For deficiency reserves determined on a segmented basis, the quantity A is determined using segment lengths equal to those determined for segmented basic reserves.
(c) Minimum value. Basic reserves may not be less than the tabular cost of insurance for the balance of the policy year, if mean reserves are used. Basic reserves may not be less than the tabular cost of insurance for the balance of the current modal period or to the paid-to-date, if later, but not beyond the next policy anniversary, if mid-terminal reserves are used. The tabular cost of insurance must use the same valuation mortality table and interest rates as that used for the calculation of the segmented reserves. However, if the select mortality factors are used, they must be the ten-year select factors incorporated into Insurance Code Chapter 425, Subchapter B, concerning Standard Valuation Law. In no case may total reserves (including basic reserves, deficiency reserves and any reserves held for supplemental benefits that would expire upon contract termination) be less than the amount that the policyowner would receive (including the cash surrender value of the supplemental benefits, if any, referred to above), exclusive of any deduction for policy loans, upon termination of the policy.
(d) Unusual pattern of guaranteed cash surrender values.
(1)
For any policy with an unusual pattern of guaranteed
cash surrender values, the reserves actually held before [prior to] the first unusual guaranteed cash surrender value
must not be less than the reserves calculated by treating the first
unusual guaranteed cash surrender value as a pure endowment and treating
the policy as an n year policy providing term insurance plus a pure
endowment equal to the unusual cash surrender value, where n is the
number of years from the date of issue to the date the unusual cash
surrender value is
scheduled.
(2)
The reserves actually held after [subsequent
to] any unusual guaranteed cash surrender value must not be
less than the reserves calculated by treating the policy as an n year
policy providing term insurance plus a pure endowment equal to the
next unusual guaranteed cash surrender value, and treating any unusual
guaranteed cash surrender value at the end of the prior segment as
a net single premium,
where:
(A)
n is the number of years from the date of the last
unusual guaranteed cash surrender value before [prior
to] the valuation date to the earlier
of:
(i) the date of the next unusual guaranteed cash surrender value, if any, that is scheduled after the valuation date; or
(ii) the mandatory expiration date of the policy; and
(B) the net premium for a given year during the n year period is equal to the product of the net to gross ratio and the respective gross premium; and
(C) the net to gross ratio is equal to clause (i) of this subparagraph divided by clause (ii) of this subparagraph as follows:
(i) the present value, at the beginning of the n year period, of death benefits payable during the n year period plus the present value, at the beginning of the n year period, of the next unusual guaranteed cash surrender value, if any, minus the amount of the last unusual guaranteed cash surrender value, if any, scheduled at the beginning of the n year period;
(ii) the present value, at the beginning of the n year period, of the scheduled gross premiums payable during the n year period.
(3) For purposes of this subsection, a policy is considered to have an unusual pattern of guaranteed cash surrender values if any future guaranteed cash surrender value exceeds the prior year's guaranteed cash surrender value by more than the sum of:
(A) 110% of the scheduled gross premium for that year;
(B) 110% of one year's accrued interest on the sum of the prior year's guaranteed cash surrender value and the scheduled gross premium using the nonforfeiture interest rate used for calculating policy guaranteed cash surrender values; and
(C) 5% of the first policy year surrender charge, if any.
(e)
Optional exemption for yearly renewable term (YRT)
reinsurance. At the option of the company, the following approach
for reserves on YRT reinsurance may be
used.[:]
(1) Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year.
(2) Basic reserves must never be less than the tabular cost of insurance for the appropriate period, as defined in subsection (c) of this section.
(3) Deficiency reserves.
(A) For each policy year, calculate the excess, if greater than zero, of the valuation net premium over the respective maximum guaranteed gross premium.
(B) Deficiency reserves must never be less than the sum of the present values, at the date of valuation, of the excesses determined in accordance with subparagraph (A) of this paragraph.
(4) For purposes of this subsection, the calculations use the maximum valuation interest rate and the 1980 CSO mortality tables with or without ten-year select mortality factors, or any other table adopted after the effective date of this regulation by the NAIC and promulgated by regulation by the commissioner for this purpose.
(5) A reinsurance agreement will be considered YRT reinsurance for purposes of this subsection if only the mortality risk is reinsured.
(6) If the assuming company chooses this optional exemption, the ceding company's reinsurance reserve credit will be limited to the amount of reserve held by the assuming company for the affected policies.
(f) Optional exemption for attained-age-based yearly renewable term life insurance policies. At the option of the company, the approach described in this subsection for reserves for attained-age-based YRT life insurance policies may be used.
(1) Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year.
(2) Basic reserves may never be less than the tabular cost of insurance for the appropriate period, as defined in subsection (c) of this section.
(3) Deficiency reserves.
(A) For each policy year, calculate the excess, if greater than zero, of the valuation net premium over the respective maximum guaranteed gross premium.
(B) Deficiency reserves may never be less than the sum of the present values, at the date of valuation, of the excesses determined in accordance with subparagraph (A) of this paragraph.
(4) For purposes of this subsection, the calculations use the maximum valuation interest rate and the 1980 CSO valuation tables with or without ten-year select mortality factors, or any other table adopted after the effective date of this regulation by the NAIC and promulgated by regulation by the commissioner for this purpose.
(5) A policy will be considered an attained-age-based YRT life insurance policy for purposes of this subsection if:
(A) the premium rates (on both the initial current premium scale and the guaranteed maximum premium scale) are based upon the attained age of the insured such that the rate for any given policy at a given attained age of the insured is independent of the year the policy was issued; and
(B) the premium rates (on both the initial current premium scale and the guaranteed maximum premium scale) are the same as the premium rates for policies covering all insureds of the same sex, risk class, plan of insurance, and attained age.
(6) For policies that become attained-age-based YRT policies after an initial period of coverage, the approach of this subsection may be used after the initial period if:
(A) the initial period is constant for all insureds of the same sex, risk class, and plan of insurance; or
(B) the initial period runs to a common attained age for all insureds of the same sex, risk class, and plan of insurance; and
(C) after the initial period of coverage, the policy meets the conditions of paragraph (5) of this subsection.
(7) If this election is made, this approach must be applied in determining reserves for all attained-age-based YRT life insurance policies issued on or after the effective date of this subchapter.
(g) Exemption from unitary reserves for certain n-year renewable term life insurance policies. Unitary basic reserves and unitary deficiency reserves need not be calculated for a policy if the conditions described in paragraphs (1) - (3) of this subsection are met.
(1) The policy consists of a series of n-year periods, including the first period and all renewal periods, where n is the same for each period, except for the final renewal period, n may be truncated or extended to reach the expiry age, provided that this final renewal period is less than ten years and less than twice the size of the earlier n-year periods, and for each period, the premium rates on both the initial current premium scale and the guaranteed maximum premium scale are level;
(2) the guaranteed gross premiums in all n-year periods are not less than the corresponding net premiums based upon the 1980 CSO Table with or without the ten-year select mortality factors; and
(3) there are no cash surrender values in any policy year.
(h) Exemption from unitary reserves for certain juvenile policies. Unitary basic reserves and unitary deficiency reserves need not be calculated for a policy if the conditions described in paragraphs (1) - (3) of this subsection are met, based upon the initial current premium scale at issue.
(1)
At issue, the insured is age 24 [twenty-four
] or
younger;
(2)
until the insured reaches the end of the juvenile
period, which must occur at or before age 25 [twenty-five
], the gross premiums and death benefits are level, and there
are no cash surrender values;
and
(3) after the end of the juvenile period, gross premiums are level for the remainder of the premium paying period, and death benefits are level for the remainder of the life of the policy.
§4.2827.Calculation of Minimum Valuation Standard for Flexible Premium and Fixed Premium Universal Life Insurance Policies That Contain Provisions Resulting in the Ability of a Policyowner to Keep a Policy in Force Over a Secondary Guarantee Period.
(a) General.
(1) Policies with a secondary guarantee include:
(A) a policy with a guarantee that the policy will
remain in force at the original schedule of benefits, [benefits
,] subject only to the payment of specified premiums;
(B) a policy in which the minimum premium at any duration
is less than the corresponding one-year [one year]
valuation premium, calculated using the maximum valuation interest
rate and the 1980 CSO valuation tables with or without ten-year select
mortality factors, or any other table adopted after the effective
date of this regulation by the NAIC and promulgated by regulation
by the commissioner for this purpose; or
(C) a policy with any combination of subparagraphs (A) and (B) of this paragraph.
(2) A secondary guarantee period is the period for
which the policy is guaranteed to remain in force subject only to
a secondary guarantee. When a policy contains more than one secondary
guarantee, the minimum reserve must [shall]
be the greatest of the respective minimum reserves at that valuation
date of each unexpired secondary guarantee, ignoring all other secondary
guarantees. Secondary guarantees that are unilaterally changed by
the insurer after issue must [shall] be considered
to have been made at issue. Reserves described in subsections (b)
and (c) of this section must be recalculated from issue to reflect
these changes.
(3) Specified premiums mean the premiums specified
in the policy, the payment of which guarantees that the policy will
remain in force at the original schedule of benefits, but that [which] otherwise would be insufficient to keep the policy in
force in the absence of the guarantee if maximum mortality and expense
charges and minimum interest credits were made and any applicable
surrender charges were assessed.
(4) For purposes of this section, the minimum premium for any policy year is the premium that, when paid into a policy with a zero account value at the beginning of the policy year, produces a zero account value at the end of the policy year. The minimum premium calculation must use the policy cost factors (including mortality charges, loads, and expense charges) and the interest crediting rate, which are all guaranteed at issue.
(5)
The one-year valuation premium means the net one-year
premium based upon the original schedule of benefits for a given policy
year. The one-year valuation premiums for all policy years are calculated
at issue. The select mortality factors defined in §4.2825(b)(2)
- (4) [§3.4505(b)(2),(3) and (4)] of this title
(relating to General Calculation Requirements for Basic Reserves and
Premium Deficiency Reserves) may not be used to calculate the one-year
valuation
premiums.
(6) The one-year valuation premium should reflect the frequency of fund processing, as well as the distribution of deaths assumption employed in the calculation of the monthly mortality charges to the fund.
(b)
Basic Reserves for the Secondary Guarantees. Basic
reserves for the secondary guarantees must [shall]
be the segmented reserves for the secondary guarantee period. In calculating
the segments and the segmented reserves, the gross premiums must [shall] be set equal to the specified premiums, if any, or otherwise
to the minimum premiums, that keep the policy in force and the segments
will be determined according to the contract segmentation method as
defined in §4.2824 [§3.4504] of this
title (relating to
Definitions).
(c)
Deficiency Reserves for the Secondary Guarantees.
Deficiency reserves, if any, for the secondary guarantees must [shall] be calculated for the secondary guarantee period in the
same manner as described in §4.2826(b) [§3.4506(b)
] of this title (Relating to Calculation of Minimum Valuation
Standard for Policies with Guaranteed Nonlevel Gross Premiums or Guaranteed
Nonlevel Benefits (Other Than Universal Life Policies)) with gross
premiums set equal to the specified premiums, if any, or otherwise
to the minimum premiums that keep the policy in
force.
(d) Minimum Reserves. The minimum reserves during the secondary guarantee period are the greater of:
(1)
the [The] basic reserves
for the secondary guarantee plus the deficiency reserve, if any, for
the secondary guarantees;
or
(2)
the [The] minimum reserves
required by other rules or subchapters governing universal life
plans.
§4.2829.2001 CSO Mortality Table.
The 2001 CSO Mortality Table must [shall]
be used for purposes of this subchapter under [pursuant
to] the requirements of Subchapter AA, Division 3 [§§3.9101 - 3.9106] of this chapter [title
] (relating to 2001 CSO Mortality Table).
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303293
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555
STATUTORY AUTHORITY. TDI proposes amendments to Subchapter BB, Division 4, under Insurance Code §§36.004, 425.058(c)(3), 1105.055(h), and 36.001.
Insurance Code §36.004 provides that the commissioner may adopt a rule to require compliance with a rule, regulation, directive, or standard adopted by the National Association of Insurance Commissioners if certain statutory requirements are met.
Insurance Code §425.058(c)(3) specifies that for an ordinary life insurance policy issued on the standard basis, to which Insurance Code Chapter 1105, Subchapter B, applies, the applicable table is any ordinary mortality table adopted after 1980 by the National Association of Insurance Commissioners that is approved by commissioner rule for use in determining the minimum standard values under Insurance Code Chapter 425, Subchapter B.
Insurance Code §1105.055(h) specifies that the commissioner may adopt by rule any ordinary mortality table adopted after 1980 by the National Association of Insurance Commissioners.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
CROSS-REFERENCE TO STATUTE. Subchapter BB, Division 4, affects Insurance Code §425.058 and §1105.055.
§4.2831.Purpose and Applicability.
(a) The purpose of this subchapter is to establish
the minimum mortality standards for reserves and nonforfeiture values
for preneed life insurance policies or certificates, and to recognize,
permit, and prescribe the use of the Ultimate 1980 CSO in determining
the minimum standard of valuation of reserves and the minimum standard
nonforfeiture values for preneed life insurance policies or certificates
in accordance with Insurance Code §425.058(c),
concerning Computation of Minimum Standard: General Rule, and
§1105.055, concerning Use of Mortality Tables and Interest
Rates with Nonforfeiture Net Level Premium Method, [of
the Insurance Code] and §4.2825(a) [§3.4505(a)
] of this title [chapter] (relating to
General Calculation Requirements for Basic Reserves and Premium Deficiency
Reserves).
(b) This subchapter applies to all preneed life insurance policies and certificates issued on or after January 1, 2009.
§4.2832.Definitions.
The following words and terms, when used in this subchapter,
[shall] have the following meanings[,] unless
the context clearly indicates otherwise.
(1) 2001 CSO Mortality Table--Mortality tables, consisting of separate rates of mortality for male and female lives, developed by the American Academy of Actuaries CSO Task Force from the Valuation Basic Mortality Table developed by the Society of Actuaries Individual Life Insurance Valuation Mortality Task Force, and adopted by the NAIC in December 2002. The 2001 CSO Mortality Table is included in the 2nd Quarter 2002 Proceedings of the NAIC. Unless the context indicates otherwise, the 2001 CSO Mortality Table includes both the ultimate form of that table and the select and ultimate form of that table and includes both the smoker and nonsmoker mortality tables and the composite mortality tables. It also includes both the age-nearest-birthday and age-last-birthday bases of the mortality tables.
(2) Department--The Texas Department of Insurance.
(3) NAIC--National Association of Insurance Commissioners.
(4) Prepaid funeral benefits--As defined in [the]
Finance Code §154.002(9), concerning Definitions.
(5) Prepaid funeral benefits contract--A contract or
agreement for prepaid funeral benefits subject to the requirements
of [the] Finance Code Chapter 154, concerning Prepaid
Funeral Services.
(6) Preneed life insurance--A life insurance policy
or certificate that is approved by the department, issued by an insurance
company licensed by the department, issued in conjunction with an
insurance-funded prepaid funeral benefits contract, and that [which], whether by assignment or otherwise, has the purpose
of funding prepaid funeral benefits to be provided at the time of, or
immediately following, the death of the insured. For purposes
of this subchapter, the definition of preneed life insurance does
not include an annuity contract or policy.
(7) Ultimate 1980 CSO--The Commissioners 1980 Standard Ordinary Mortality Table without 10-year selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law approved in December 1983.
§4.2833.Minimum Valuation Mortality Standards.
Except as provided by §4.2836 [§3.9606]
of this title [subchapter] (relating to Transitional
Use of the 2001 CSO Mortality Table), the Ultimate 1980 CSO is [shall be] the minimum mortality standard for determining reserve
liabilities and nonforfeiture values for both male and female insureds
for preneed life insurance policies issued on or after January 1, 2009.
§4.2834.Minimum Valuation Interest Rate Standards.
(a) The interest rates used in determining the minimum
standard for valuation of preneed life insurance are [shall
be] the calendar year statutory valuation rates as defined in
[the] Insurance Code Chapter 425, Subchapter
B, concerning [(]Standard Valuation Law[)].
(b) The interest rates used in determining the minimum
standard for nonforfeiture values for preneed life insurance are [shall be] the calendar year statutory nonforfeiture interest
rates as defined in [the] Insurance Code Chapter 1105,
concerning [(]Standard Nonforfeiture Law for Life
Insurance[)].
§4.2835.Minimum Valuation Method Standards.
(a) The method used in determining the standard for
the minimum valuation of reserves for preneed life insurance is [shall be] the method defined in [the] Insurance Code
Chapter 425, Subchapter B, concerning [(]Standard
Valuation Law[)].
(b) The method used in determining the standard for
the minimum nonforfeiture values for preneed life insurance is [shall be] be the method defined in [the] Insurance
Code Chapter 1105, concerning [(]Standard Nonforfeiture
Law for Life Insurance[)].
§4.2836.Transitional Use of the 2001 CSO Mortality Table.
(a) For preneed life insurance policies or certificates
issued on or after January 1, 2009, and before January 1, 2012, the
2001 CSO Mortality Table may be used as the minimum standard for reserves
and minimum standard for nonforfeiture benefits for both male and
female insureds in accordance with the requirements of Subchapter
AA, Division 3, [§§3.9101 - 3.9106] of
this chapter (relating to 2001 CSO Mortality Table).
(b) If a company elects to use the 2001 CSO Mortality
Table as a minimum standard for any preneed life insurance policy
or certificate issued on or after the effective date of this subsection
and before January 1, 2012, the company must [shall]
provide, as a part of the actuarial opinion memorandum submitted in
support of the company's asset adequacy analysis, an annual written
notification to the domiciliary commissioner. The notification must [shall] include:
(1) a complete list of all preneed life insurance policy and certificate forms that use the 2001 CSO Mortality Table as a minimum standard;
(2) a certification signed by the appointed actuary stating that the reserve methodology, employed by the company in determining reserves for the preneed life insurance policies or certificates issued after the effective date of this subchapter and using the 2001 CSO Mortality Table as a minimum standard, develops adequate reserves (for the purposes of this certification, the preneed life insurance policies or certificates using the 2001 CSO Mortality Table as a minimum standard cannot be aggregated with any other policies); and
(3) supporting information regarding the adequacy of reserves for preneed life insurance policies or certificates issued after the effective date of this subchapter and using the 2001 CSO Mortality Table as a minimum standard for reserves.
(c) Preneed life insurance policies or certificates issued on or after January 1, 2012, must use the Ultimate 1980 CSO in the calculation of minimum nonforfeiture values and minimum reserves.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 8, 2023.
TRD-202303294
Jessica Barta
General Counsel
Texas Department of Insurance
Earliest possible date of adoption: October 22, 2023
For further information, please call: (512) 676-6555