Chapter 3901-6 | Life Insurance

Ohio Administrative Code

3901

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Rule

Rule 3901-6-01 | Solicitation of life insurance and/or annuity contracts.

Effective:

November 16, 2023

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to set forth standards and protect consumers by establishing certain requirements and prohibiting certain practices related to the solicitation and sale of life insurance and annuity contracts.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041, 3901.21, and 3901.212 of the Revised Code.

This rule applies to all life insurance and annuity products solicited, marketed, or sold in this state.

(D) Prohibition of misleading policies

In reviewing policies for approval or disapproval, the superintendent may consider the titles, terms and text of that policy and request and review the following materials and data:

(1) Any and all advertisements, estimates, comparisons, illustrations, circulars, statements, notices, brochures, pamphlets, letters, posters, announcements, articles, projections, literature, pictures, reports, books, newspapers, magazines, records, films or other material of any nature whatsoever made, issued, circulated, published, disseminated, delivered, used, referred to or placed before the public in any manner in connection with or in conjunction with that policy; and

(2) Any and all oral statements, assertions, or representations, the sales techniques or procedures, and the training, study, or learning devices or programs made, used, followed, or employed by the officers, agents, employees, or representatives of the insurance company.

(E) Policy name or title

No person, insurance company, insurance agent, insurance broker or insurance company representative may deliver within this state or issue for delivery within this state, any policy of life insurance or sales or advertising material relating thereto without the use of the words "life insurance" in its name or title unless accompanied by other language clearly indicating that the contract is a policy of life insurance or annuity, whichever is applicable.

(F) Sales practices

No life insurance company or official, employee, broker, agent, solicitor, or other representative, in writing or orally, may do any of the following to induce the purchase of any policy within this state:

(1) Make any statement or use any sales or advertising material in connection with any policy which provides a pure guaranteed annual endowment unless the gross premium and benefit amount are shown separately and distinctly from the gross premium for and the amount of the life insurance benefit on the same page and without undue emphasis or prominence to either benefit.

(2) Make any statement or use any sales or advertising material, unless the amount of the pure guaranteed annual endowment is expressed in dollars and not as a percentage of any premium or benefit.

(3) Make any statement or use any sales or advertising material wherein the pure guaranteed annual endowment is described as a "guaranteed check," "guaranteed dividend," "return," etc., or anything other than a guaranteed benefit for which a premium is being paid by the policyholder.

(4) Fail to disclose to the prospect, orally and in writing, in dollars on a year-to-year cumulative basis, the amount of benefit on such annual endowments and the cost, including the amount by which premiums are reduced after maturity of the last endowment for a proposed or in effect policy with a series of fully guaranteed endowments. Paragraphs (F)(1) to (F)(4) of this rule only apply to fully guaranteed annual endowments that are equal to or less than the policy's gross annual premium.

(5) Make any statement or reference to dividends on a life insurance policy or annuity contract that would reasonably imply any of the following:

(a) That dividends are anything other than an adjustment of the cost of insurance in the form of an equitable distribution of surplus that reflects the actual experience of the insurance company principally in mortality, interest return on investment, and administrative expense.

(b) That dividends to a policyholder are substantially "profits," "earnings," "return," or "investment return" unless and to the extent that aggregate dividends received exceed the gross premiums paid by the policyholder.

(d) That dividends are income tax free without an explanation that they constitute a partial refund of the policyholder's premium, and, therefore, would constitute income only when, and to the extent that, distributions during the life of the insured or annuitant exceed the aggregate premiums paid on the policy.

(e) That dividends in the future are apt to increase due to the historical trend of dividend payments by the life insurance company unless there is also a disclosure of any deficit in unassigned surplus during the years those dividend payments were made.

(6) Make any statement or illustration with respect to sharing in divisible surplus or surplus of the company other than because of the company's current dividend scale with a disclosure that its scale may increase or decrease in the future and a disclosure that there is a deficit in unassigned surplus, if a deficit exists.

(7) State or imply that a policyholder will secure a right to a stated percentage of net gain from operations or other benefits, which are not a part of the policy itself or made a part thereof by rider or other instrument previously approved by the department.

(8) Use the terms "investment," "investment plan," "expansion plan," "profit," "profits," "profit sharing," and other similar terms in connection with a policy of life insurance or an annuity contract in a context or under such circumstances or conditions as to have the capacity or tendency to mislead a purchaser or prospect to believe that they will receive something other than a life insurance policy or annuity contract.

(9) Refer to a policyholder as a "partner" unless they have been advised that they do not have the legal rights of a partner in a statutory or common law sense.

(10) Make any statement or distribute any sales literature prepared by an allegedly independent third person or unrelated company that purports to analyze the policy or life insurance company without disclosing the amount of remuneration or fee, if any, paid, directly or indirectly, to that third person or company for its analysis.

(11) Make any statement or imply that projected dividends under a participating policy will be or can be sufficient at any time to assure the receipt of any benefits, such as a paid-up policy or "self-sustaining" policy, without the further payment of premiums, unless the statement is accompanied by an adequate explanation as to:

(a) What benefits or coverage would be provided or discontinued at such time; and

(b) The conditions under which this would occur.

(12) Make any statement or reference in any solicitation of an application for life insurance related to the growth of the life insurance industry or to the tax status of life insurance companies in connection with or in a context that could reasonably be interpreted or understood to interest a prospect in the purchase of shares of stock in an insurance company or becoming an investor in an insurance company rather than in the purchase of a life insurance policy.

(13) Make any statement that reasonably gives rise to the inference that the policyholder or a prospective policyholder, by virtue of purchasing a policy of life insurance, will enjoy a status common to a stockholder or will acquire a stock ownership interest in the insurance company, its parent, or any affiliated company.

(14) Make any reference to or statement concerning an insurance company's "investment department," "insured investment department," or similar terminology in a manner that would imply that the policy was sold or issued by the investment department of the life insurance company.

(15) Make any statement or reference that would reasonably imply that the purchaser or prospective purchaser will become a member of a limited group of persons who are to receive special advantages or favored treatment in the payment of dividends by purchasing a policy, unless the policy form filed with and approved by the department contains the following language "This clause has no relation or applicability to policies under which insured persons of one class or risk may receive dividends at a higher rate than persons of another class of risk nor shall it imply that any policy may contain a preferential benefit which discriminates against future policyholders."

(16) Make any statement or reference concerning a parent or affiliate's growth, earnings or future prospects without a clear explanation that the identified parent or affiliate is not the life insurance company whose policy is offered for sale.

(17) State or imply that life insurance proceeds payable at death are in lieu of "profits" or shares of surplus the policyholder would have received had they lived or otherwise infer that life insurance protection merely is incidental to the contract.

(18) State or imply that sales of a policy are limited to shareholders, persons recommended by shareholders, or to insurance released by shareholders, unless an assignable option to purchase life insurance is granted to each shareholder, which option may not be assigned to the life insurance company, and a record of all assignments identifying both assignor and assignee is maintained by the company.

(19) State or imply that policyholders who are said to act as "centers of influence" or descriptions of similar context for an insurance company will share in the company's surplus, earnings or profits in some preferential manner based on those actions, recognition, or status unless the preference is clearly expressed in the policy form provisions filed with and not disapproved by the department. A provision that the "policy participates in the surplus of the company" does not create a preference because it is common to participating policies.

(20) Describe or refer to premium payments in language that states that the payment is a "deposit" unless:

(a) The payment establishes a debtor-creditor relationship between the life insurance company and the policyholder and a showing is made as to when and how the deposit may be withdrawn; or

(b) The term is used in conjunction with the word "premium" in a manner that clearly indicates the true character of the payment.

(21) Provide any illustration or projection of future dividends on a policy unless:

(a) The illustration or projection is based upon the experience currently used by the insurance company for dividends or upon a scale adopted by the company; and

(b) The illustration or projection clearly indicates that the dividends shown are not guaranteed.

(22) Use the words "dividends," "cash dividends," "surplus," or similar phrases in a manner that would state or imply that the payment of dividends in any amount is guaranteed or certain to occur.

(23) State or imply that a purchaser of a policy will share in all or part of the earnings, profits or net operating gains of the insurance company, provided that nothing in this subsection is intended to prohibit a representation that a holder of a participating life insurance policy will participate equitably in any future distributions out of the surplus of the company.

(24) State that the insured is guaranteed certain benefits if the policy is allowed to lapse without making an adequate explanation of the nonforfeiture benefits.

(25) Describe a life insurance policy or related premium payments in terms of "units of participation" or "units," or use the words "contract," "contract plan," "plan," or similar terms, unless accompanied by other language clearly indicating the reference is to a life insurance policy.

(26) Include in sales kits and prepared sales presentations proposed answers, to be used in response to a prospect's questions as to whether life insurance is being sold, which are designed to avoid a clear and unequivocal statement that life insurance is the subject matter of the solicitation.

(27) Display any material to a prospective policyholder of life insurance or endowment benefits that includes illustrations, using dollar amounts, unless the material clearly identifies the source of the dollar amounts and the subject to which such amounts pertain.

(28) Make any general statement that insurance companies make a profit because of policy lapse or surrenders.

(29) Make any comparison between the policy being offered and a previous or prior policy or the life insurance companies that issued that policy if the previous or prior policy is no longer lawful, unless a fair and reasonable disclosure related to the previous or prior policy or the life insurance company that issued that policy had unfavorable experience with that previous or prior policy.

(30) State or imply that possession of a license to sell life insurance or a charter to engage in the business of life insurance is unique, or anything other than that which is required of all persons or companies that market life insurance.

(31) State that the sales presentation delivered to the prospect is on file with the department of insurance.

(32) State that a policy contains certain features that are not found in other life insurance policies, unless that statement is true.

(33) Represent that an option to purchase insurance in the future is equivalent to having that additional amount of insurance obtainable through exercise of the option actually in force.

(34) Offer to sell any life insurance policy or annuity contract in any capacity other than that of a fully licensed life insurance agent.

(35) Reference a policy of life insurance or an annuity contract in a manner that would misrepresent the true nature of the policy or contract.

(36) Distribute any literature or make any statement about any other company or any of its policies based upon the company's being required to change any policy forms, sales, marketing, advertising, or other materials or presentations to induce any policyholder or prospect to purchase, amend, lapse, forfeit, change, or surrender insurance.

(37) State or imply that a prospective policyholder must purchase a policy immediately upon initial contact by agent or lose the opportunity to purchase that policy.

(38) The above listing of proscribed acts is not intended to be exhaustive; other acts, not listed above but otherwise unlawful, will not be condoned.

(G) Consumer information

Information about the insurance products referenced in this rule, including consumer guides, and definitions of insurance terms, is available to consumers on the department's website or by contacting the department by phone.

(H) Severability

If any paragraph, term or provision of this rule is adjudged invalid for any reason, the judgment shall not affect, impair or invalidate any other paragraph, term or provision of this rule, but the remaining paragraphs, terms and provisions shall be and continue in full force and effect.

Last updated November 16, 2023 at 8:31 AM

Supplemental Information

Authorized By: 3901.041, 3901.21, and 3901.212
Amplifies: 3901.19 to 3901.26, 3905.14(B)(9)
Five Year Review Date: 8/31/2028

Rule 3901-6-02 | Correlated sales of life insurance and mutual funds or other securities.

Effective:

November 16, 2023

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to establish minimum standards for the form of proposals and statements used to solicit, service, or collect premiums for life insurance which is sold as part of a mutual fund or other security.

(B) Authority

This rule is promulgated pursuant to the authority invested in the superintendent under sections 3901.041, 3901.21, and 3901.212 of the Revised Code.

This rule applies to:

(1) Acts and practices in the advertising promotion, solicitation, negotiation of, or effecting the sale of:

(a) A life insurance policy or annuity contract that is part of the sales of shares of a mutual fund or other security, or

(b) A contract that assumes or requires the purchase of a life insurance policy as part of the sale of shares of a mutual fund or other security.

(2) Any acts and practices related to the solicitation, sale, servicing, or collection of premiums for a life insurance policy or annuity contract that is part of the sale of shares of a mutual fund or other security by an insurance company, agent, person, corporation, partnership, association, trust, or fund, including language disseminated by means of sales kits, policy jackets or covers, letters, personal presentations, visual aids and other sales media.

As used in this rule, "security" has the same meaning as set forth in division (B) of section 1707.01 of the Revised Code as well as participation in common trust funds of any financial institution.

(D) Responsibility of company and agent

Any proposal or billing from an insurance company, agent, or person to whom this rule applies in connection with correlated sales of a life insurance policy or annuity contract that is part of the sale of shares of a mutual fund or other securities is subject to this rule. Every insurance company will ensure that its agents comply with this rule.

(E) Tie-in sales

A customer's or prospective purchaser's right to purchase a life insurance policy or annuity contract only, shares of a mutual fund or other securities only, or both a life insurance policy or annuity contract and shares of a mutual fund or other securities is to be fully disclosed by an agent at the commencement of and throughout any sales presentation for a life insurance policy or annuity contract sold as part of the sale of shares of a mutual fund or other security.

(F) Written proposal

A clear and unambiguous written proposal to a consumer or prospective purchaser of a life insurance policy or annuity contract sold as part of the sale of shares of a mutual fund or other security is to be provided by an agent not later than at the time the solicitation or proposal is made. A copy of that written proposal is to be retained by the agent or insurance company in accordance with paragraph (I) of this rule.

(G) Contents of proposal

Any proposal created according to this rule will:

(1) Be dated and signed by the insurance agent or company;

(2) State the name of the insurance company in which the life insurance policy or annuity contract is to be written;

(3) State that the purchaser has the right to purchase the life insurance policy or annuity contract only, mutual fund shares or other securities only, or both the life insurance policy or annuity contract and mutual fund shares or other securities;

(4) Accurately and completely state all facts related to the life insurance policy or annuity contract sold as part of the sale of shares of a mutual fund or other security;

(5) Be free from any misrepresentations or false, deceptive, or misleading words, figures or statements that could independently or collectively have the capacity or tendency to mislead or deceive;

(6) Show the premium for the life insurance policy or annuity contract separately from any other charge;

(7) If values which may accrue prior to the death of the insured or contract holder are involved in the presentation, show the value of the life insurance policy or annuity contract separate from any other values;

(8) If a death benefit is involved in the presentation, show the amount of the death benefit for the life insurance policy or annuity contract separate from any other benefit which may accrue upon the death of the insured or contract holder;

(9) Set forth all matters pertaining to the life insurance policy or annuity contract separate from any matter not pertaining to the life insurance policy or annuity contract; and

(10) Set forth policy numbers, name of company, face values, and cash values of all existing policies or annuity contracts of the insured or contract holder, respectively, indicating those policies or annuity contracts to be surrendered if the proposal is accepted.

(H) Statement to be separate

The premium for the life insurance policy or annuity contract is to be itemized and shown separate from any other itemized charges or values listed in any bill, statement, draft, or representation sent or delivered to any prospect, policyholder, or contract holder. However, nothing in this rule requires the total premium for the life insurance policy or annuity contract to be further itemized.

(I) Maintenance of advertising and other sales material files by company

Every insurance company subject to this rule is required to retain all advertising or other sales materials used in connection with the sale of a life insurance policy or annuity contract as part of the sale of shares of a mutual fund or other securities with a notation attached thereto that indicates the manner and extent of distribution, nature of use, and form number of any policy issued in connection with the applicable correlate plan, including every printed, published, or prepared advertisement, advertising material, sales literature, and sales aid of any other kind. Such records are to be retained for at least three years and are subject to regular and periodic inspection by this department. The records are to be made available for inspection at the insurance company's home or principal office.

(J) Exclusion

This rule does not apply to any arrangement for the correlated sale of a life insurance policy or annuity contract as part of the sale of share of a mutual fund or other securities that would be a "security" as defined by the Securities Act of 1933 or the Ohio Securities Act of July 22, 1929 (Chapter 1707. of the Revised Code). However, any sales literature and contract to purchase a life insurance policy or annuity contract in connection with an arrangement for the correlated sale of a life insurance policy or annuity contract is subject to the requirements in Chapter 3905. of the Revised Code.

(K) Dual license required

No person shall sell, solicit, or negotiate insurance that is part of a sale of shares of a mutual fund or other security unless that person is licensed and appointed as an insurance agent in accordance with sections 3905.02 and 3905.20 of the Revised Code and licensed by the division of securities of the department of commerce, state of Ohio, in accordance with Chapter 1707. of the Revised Code.

(L) Violation

A violation of this rule is an unfair and deceptive practice under sections 3901.19 to 3901.26 of the Revised Code and misrepresentation under section 3999.08 of the Revised Code.

(M) Severability

If any portion of this rule or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the rule or related rules which can be given effect without the invalid portion or application, and to this end the provisions of this rule are severable.

Last updated November 16, 2023 at 8:31 AM

Supplemental Information

Authorized By: 3901.041, 3901.21, 3901.212
Amplifies: 3901.19 to 3901.26, 3915.14, 3999.04, 3999.05, 3999.08, 3999.10
Five Year Review Date: 8/31/2028

Rule 3901-6-03 | Life insurance disclosure.

Effective:

November 16, 2023

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to assist consumers by requiring insurers to deliver information about life insurance policies that will better allow those consumers to select the most appropriate policy for their needs, improve their understanding of the policy's basic features, and improve the consumer's ability to evaluate the relative costs of different policies.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041, 3901.21, 3901.212, and 3905.28 of the Revised Code.

(1) Except for the exemptions specified in paragraph (C)(2) of this rule, this rule applies to any solicitation, negotiation or procurement of life insurance occurring within this state by any issuer of life insurance contracts including fraternal benefit societies.

(2) Unless specifically included, this rule does not apply to:

(a) Annuities;

(b) Credit life insurance;

(d) Life insurance policies issued in connection with pension and welfare plans as defined by and subject to the federal Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. section 1001 et seq. as amended; or

(e) Variable life insurance under which the amount or duration of the life insurance varies according to the investment experience of a separate account.

(D) Definitions

(1) "Buyer's Guide" is the document included as appendix A to this rule.

(2) Cost comparison indexes

(a) "Surrender Cost Comparison Index--Guaranteed Basis" is calculated by applying the following steps:

(i) Step one: determine the guaranteed cash surrender value, if any, available at the end of the tenth and twentieth policy years.

(ii) Step two: divide the result of step one by an interest factor that converts it into an equivalent level annual amount that, if paid at the beginning of each year, would accrue to the value in step one over the respective periods stipulated in step one. If the period is ten years, the factor is 13.207 and if the period is twenty years, the factor is 34.719.

(iii) Step three: determine the equivalent guaranteed level premium by accumulating each guaranteed annual premium payable for the basic policy or rider at five per cent interest compounded annually to the end of the period stipulated in step one and dividing the result by the respective factors stated in step two. This amount is the guaranteed annual premium payable for a level premium plan.

(iv) Step four: subtract the result of step two from the result of step three.

(v) Step five: divide the result of step four by the number of thousands of the equivalent guaranteed level death benefit, using the company's guaranteed rate schedule to determine the amount payable upon death for purposes of paragraph (D)(3)(a) of this rule, to arrive at the "Surrender Cost Comparison Index-Guaranteed Basis."

(b) "Net Payment Cost Comparison Index--Guaranteed Basis" is calculated in the same manner as the comparable "Surrender Cost Comparison Index--Guaranteed Basis" except that the cash surrender value is set at zero.

(3) "Equivalent Guaranteed Level Death Benefit" of a policy or term life insurance rider is an amount calculated as follows:

(a) Step six: accumulate the amount payable upon death, regardless of the cause of death, at the beginning of each policy year for ten and twenty years at five per cent interest compounded annually to the end of the tenth and twentieth policy years respectively.

(b) Step seven: divide each accumulation of step six by an interest factor that converts the accumulation into one equivalent level annual amount that, if paid at the beginning of each year, would accrue to the value in step six over the respective periods stipulated in step six. If the period is ten years, the factor is 13.207 and if the period is twenty years, the factor is 34.719.

(4) "Generic Name" is a short title that is descriptive of the premium and benefit patterns of a policy or a rider.

(5) "Policy Data" is a display or schedule of guaranteed numerical values for each policy year or a series of designated policy years of the following information: premiums; death benefits; cash surrender values and endowment benefits.

(6) "Policy summary" is a written statement describing the elements of the policy, including:

(a) A prominently placed title such as: "STATEMENT OF POLICY COST AND BENEFIT INFORMATION."

(b) The name and address of the insurance agent or, if no agent is involved, a statement of the procedure to be followed to receive responses to inquiries regarding the policy summary.

(c) The full name and home office or administrative office address of the company where the life insurance policy is to be or has been written.

(d) The generic name of the basic policy and each rider.

(e) The following amounts, where applicable, for the first five policy years and representative policy years thereafter sufficient to clearly illustrate the premium and benefit patterns, including the years for which cost comparison indexes are displayed and the earlier of at least one age from sixty through sixty-five and policy maturity:

(i) The guaranteed annual premium for the basic policy;

(ii) The guaranteed annual premium for each optional rider;

(iii) The guaranteed amount payable upon death at the beginning of the policy year regardless of the cause of death, other than suicide or other specifically enumerated exclusions, which is provided by the basic policy and each optional rider, with benefits provided under the basic policy and each rider shown separately;

(iv) The guaranteed total cash surrender values at the end of the year with values shown separately for the basic policy and each rider; and

(v) Any guaranteed endowment amounts payable under the policy which are not included under cash surrender values in this paragraph.

(f) The effective policy loan annual percentage interest rate specifying whether this rate is applied in advance or in arrears, if the policy contains this provision, or a statement that the annual percentage rate will be determined by the company in accordance with the provisions of the policy and applicable law, if the policy loan interest rate is adjustable.

(g) Separate cost comparison indexes for the basic policy and for each optional term life insurance rider for ten and twenty years but in no case beyond the premium-paying period. Cost comparison indexes need not be included for basic policies, optional riders covering more than one life, or optional riders which are limited to benefits, such as accidental death benefits, disability waiver of premium, preliminary term life insurance coverage of less than twelve months and guaranteed insurability benefits.

(h) This statement in close proximity to the cost comparison indexes:

"An explanation of the intended use of these indexes is provided in the Life Insurance Buyer's Guide."

(i) The date on which the policy summary is prepared.

The policy summary must consist of a separate document. All information required to be disclosed must be set out in such a manner as not to minimize or render any portion obscure. Any amounts which remain level for two or more years of the policy may be represented by a single number if it is clearly indicated what amounts are applicable for each policy year. Amounts in paragraph (D)(6)(e) of this rule are to be listed in total, not on a per thousand nor per unit basis. If more than one insured is covered under one policy or rider, death benefits are to be displayed separately for each insured or for each class of insureds if death benefits do not differ within the class. Zero amounts are to be displayed as a zero and not as a blank.

(E) Duties of insurers

(1) The insurer is responsible for providing all prospective purchasers with a copy of the buyer's guide and a policy summary prior to accepting the applicant's initial premium or premium deposit; provided, however, that:

(a) If an illustration subject to the requirements of rule 3901-6-04 of the Administrative Code is used in the sale of a policy, a policy summary need not be provided. Only guarantees may be shown in the policy summary for policies written with an application date on or after the effective date of rule 3901-6-04 of the Administrative Code.

(b) If the policy for which application is made or its policy summary contains an unconditional refund provision of at least ten days, the buyer's guide and policy summary are to be delivered with the policy or prior to delivery of the policy.

(c) If the equivalent guaranteed level death benefit of the policy for which application is made does not exceed five thousand dollars, an insurer will be considered to have met the requirement to provide a policy summary upon delivery of a written statement containing the information described in paragraphs (D)(6)(b), (D)(6)(c), (D)(6)(d), (D)(6)(e)(i), (D)(6)(e)(ii), (D)(6)(e)(iii), (D)(6)(e)(iv), (D)(6)(f), (D)(6)(g), (D)(6)(h), and (D)(6)(i) of this rule.

(2) In the case of a solicitation by direct response methods, the insurer shall provide the buyer's guide and a policy summary prior to accepting the applicant's application; provided however, that if the policy for which application is made contains an unconditional refund provision of at least ten days, the buyer's guide and a policy summary may be delivered with the policy.

(3) Insurers will make the buyer's guide, a policy summary, or policy data available to the prospective purchaser upon the prospective purchaser's request.

(F) Special plans

This paragraph modifies the application of this rule as indicated for certain special plans of life insurance:

(1) "Flexible Premium and Benefit Policies." For policies commonly called "universal life insurance policies," which:

(a) Permit the policyowner to vary, independently of each other, the amount and timing of premium payments, or the amount payable on death; and

(b) Provide for a cash value that is based on separately identified interest credits and mortality and expense charges applied to the policy.

All indexes and other data are to be displayed assuming specific schedules of anticipated premiums and death benefits at issue.

In addition to all other information required by this rule, the policy summary shall indicate when the policy will expire based on the interest rates and mortality and other charges guaranteed in the policy and the anticipated or assumed annual premiums shown in the policy summary.

(2) "Multitrack Policies." For policies which allow a policyowner to change or convert the policy from one plan or amount to another, the policy summary:

(a) Will display all indexes and other data assuming that the option is not exercised; and

(b) May display all indexes and other data using a stated assumption about the exercise of the option.

(3) "Policies with Any Rate Subject to Continued Insurability." For policies that allow a policyowner a reduced premium rate if the insured periodically submits evidence of continued insurability, the policy summary will:

(a) Display cost indexes and other data assuming that the insured always qualifies for the lowest premium;

(b) Display cost indexes and other data assuming that the company always charges the highest premiums allowable; and

(G) General rules

(1) A complete file containing one copy of each document authorized and used by the insurer pursuant to this rule will be maintained by the insurer at its home office or principal office and contain one copy of each authorized form for a period of three years following the date of its last authorized use, unless otherwise provided by this rule.

(2) Prior to commencing a life insurance sales presentation, an agent shall inform the prospective purchaser that the agent is acting as a life insurance agent and inform the prospective purchaser of the full name of the insurance company which the agent is representing to the buyer. In sales situations in which an agent is not involved, the insurer shall identify its full name.

(3) No term may be used in a way that would reasonably imply that the agent is primarily engaged in an advisory business in which compensation is unrelated to sales unless that is actually the case. Terms that could reasonably imply an advisory business include financial planner, investment advisor, financial consultant, financial counselor, or financial counseling.

(4) No reference may be made to a dividend or non-guaranteed element.

(5) Any statement regarding the use of the cost comparison indexes are to include an explanation to the effect that the indexes are useful only for the comparison of the relative costs of two or more similar policies.

(H) Failure to comply

Failure of an insurer or an agent to provide or deliver the buyer's guide, a policy summary or policy data as provided in paragraphs (E) and (F) of this rule, constitute an omission which misrepresents the benefits, advantages, conditions or terms of an insurance policy. In addition to any other penalties provided by the laws of this state, a violation of this rule is an unfair and deceptive act or practice under section 3901.21 of the Revised Code.

(I) Severability

Last updated November 16, 2023 at 8:31 AM

Supplemental Information

Authorized By: 3901.041, 3901.21, 3901.212, 3905.28
Amplifies: 3901.19 to 3901.26
Five Year Review Date: 8/31/2028
Prior Effective Dates: 8/5/1978

Rule 3901-6-04 | Life insurance illustrations.

Effective:

November 17, 2022

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to provide rules for life insurance policy illustrations that will protect consumers and foster consumer education. The rule provides illustration formats, prescribes standards to be followed when illustrations are used, and specifies the disclosures that are required in connection with illustrations. The goals of this rule are to ensure that illustrations do not mislead purchasers of life insurance and to make illustrations more understandable. Insurers will, as far as possible, eliminate the use of footnotes and caveats and define terms used in the illustration in language that would be understood by a typical person within the segment of the public to which the illustration is directed.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3901.21 of the Revised Code.

This rule applies to all group and individual life insurance policies and certificates except:

(1) Variable life insurance;

(2) Individual and group annuity contracts;

(3) Credit life insurance; or

(4) Life insurance policies with illustrated death benefits on any individual not exceeding ten thousand dollars.

(D) Definitions

(1) "Actuarial Standards Board" means the board established by the American academy of actuaries to develop and promulgate standards of actuarial practice.

(2) "Contract premium" means the gross premium that is required to be paid under a fixed premium policy, including the premium for a rider for which benefits are shown in the illustration.

(3) "Currently payable scale" means a scale of non-guaranteed elements in effect for a policy form as of the preparation date of the illustration or declared to become effective within the next ninety-five days.

(4) "Disciplined current scale" means a scale of non-guaranteed elements constituting a limit on illustrations currently being illustrated by an insurer that is reasonably based on actual recent historical experience, as certified annually by an illustration actuary designated by the insurer. Further guidance in determining the disciplined current scale as contained in standards established by the actuarial standards board may be relied upon if the standards:

(a) Are consistent with all provisions of this rule;

(b) Limit a disciplined current scale to reflect only actions that have already been taken or events that have already occurred;

(c) Do not permit a disciplined current scale to include any projected trends of improvements in experience or any assumed improvements in experience beyond the illustration date; and

(d) Do not permit assumed expenses to be less than minimum assumed expenses.

(5) "Generic name" means a short title descriptive of the policy being illustrated such as "whole life," "term life," or "flexible premium adjustable life."

(6) "Guaranteed elements" and "non-guaranteed elements".

(a) "Guaranteed elements" means the premiums, benefits, values, credits or charges under a policy of life insurance that are guaranteed and determined at issue.

(b) "Non-guaranteed elements" means the premiums, benefits, values, credits or charges under a policy of life insurance that are not guaranteed or not determined at issue.

(7) "Illustrated scale" means a scale of non-guaranteed elements currently being illustrated that is not more favorable to the policy owner than the lesser of:

(a) The disciplined current scale; or

(b) The currently payable scale.

(8) "Illustration" means a presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years and that is one of the three types defined as followed:

(a) "Basic illustration" means a ledger of proposal used in the sale of a life insurance policy that shows both guaranteed and non-guaranteed elements.

(b) "Supplemental illustration" means an illustration furnished in addition to a basic illustration that meets the applicable requirements of this rule, and that may be presented in a format differing from the basic illustration, but may only depict a scale of non-guaranteed elements that is permitted in a basic illustration.

(c) "In force illustration" means an illustration furnished at any time after the policy that it depicts has been in force for one year or more.

(9) "Illustration actuary" means an actuary meeting the requirements of paragraph (K) of this rule who certifies to illustrations based on the standard of practice promulgated by the actuarial standards board.

(10) "Lapse-supported illustration" means an illustration of a policy form failing the test of self-supporting as defined in this rule, under a modified persistency rate assumption using persistency rates underlying the disciplined current scale for the first five years and one hundred per cent policy persistency thereafter.

(11)

(a) "Minimum assumed expenses" means the minimum expenses that may be used in the calculation of the disciplined current scale for a policy form. The insurer may choose to designate each year the method of determining assumed expenses for all policy forms from the following:

(i) Fully allocated expenses;

(ii) Marginal expenses; and

(iii) A generally recognized expense table based on fully allocated expenses representing a significant portion of insurance companies and approved by the national association of insurance commissioners (NAIC) or by the superintendent.

(b) Marginal expenses may be used only if greater than a generally recognized expense table. If no generally recognized expense table is approved, fully allocated expenses must be used.

(12) "Non-term group life" means a group policy or individual policies of life insurance issued to members of an employer group or other permitted group where:

(a) Every plan of coverage was selected by the employer or other group representative;

(b) Some portion of the premium is paid by the group or through payroll deduction; and

(13) "Policy owner" means the owner named in the policy or the certificate holder in the case of a group policy.

(14) "Premium outlay" means the amount of premium assumed to be paid out-of-pocket by the policy owner or other premium payer.

(15) "Self-supporting illustration" means an illustration of a policy form for which it can be demonstrated that, when using experience assumptions underlying the disciplined current scale, for all illustrated points in time on or after the fifteenth policy anniversary or the twentieth policy anniversary for second-or-later-to-die policies (or upon policy expiration if sooner), the accumulated value of all policy cash flows equals or exceeds the total policy owner value available. For this purpose, policy owner value will include cash surrender values and any other illustrated benefit amounts available at the policy owner's election.

(E) Policies to be illustrated

(1) Each insurer marketing policies to which this rule is applicable shall notify the superintendent whether a policy form is to be marketed with or without an illustration. For all policy forms being actively marketed on the effective date of this rule, the insurer shall identify in writing those forms and whether or not an illustration will be used with them. For policy forms filed after the effective date of this regulation, the identification shall be made at the time of filing. Any previous identification may be changed by notice to the superintendent.

(2) If the insurer identifies a policy form as one to be marketed without an illustration, any use of an illustration for any policy using that form prior to the first policy anniversary is prohibited.

(3) If a policy form is identified by the insurer as one to be marketed with an illustration, a basic illustration prepared and delivered in accordance with this regulation is required, except that a basic illustration need not be provided to individual members of a group or to individuals insured under multiple lives coverage issued to a single applicant unless the coverage is marketed to these individuals. The illustration furnished to an applicant for a group life insurance policy or policies issued to a single applicant on multiple lives may be either an individual or composite illustration representative of the coverage on the lives of members of the group or the multiple lives covered.

(4) Potential enrollees of non-term group life subject to this rule shall be furnished a quotation with the enrollment materials. The quotation shall show potential policy values for sample ages and policy years on a guaranteed and non-guaranteed basis appropriate to the group and the coverage. This quotation shall not be considered an illustration for purposes of this rule, but all information provided shall be consistent with the illustrated scale. A basic illustration shall be provided at delivery of the certificate to enrollees for non-term group life who enroll for more than the minimum premium necessary to provide pure death benefit protection. The insurer shall make a basic illustration available to any non-term group life enrollee who requests it.

(F) General rules and prohibitions

(1) An illustration used in the sale of a life insurance policy shall satisfy the applicable requirements of this rule, be clearly labeled "life insurance illustration" and contain the following basic information:

(a) Name of insurer;

(b) Name and business address of agent or insurer's authorized representative, if any;

(d) Underwriting or rating classification upon which the illustration is based;

(e) Generic name of policy, the company product name, if different, and form number;

(f) Initial death benefit; and

(g) Dividend option election or application of non-guaranteed elements, if applicable.

(2) When using an illustration in the sale of a life insurance policy, an insurer or its agents or other authorized representatives shall not:

(a) Represent the policy as anything other than a life insurance policy;

(b) Use or describe non-guaranteed elements in a manner that is misleading or has the capacity or tendency to mislead;

(d) Use an illustration that does not comply with the requirements of this rule;

(e) Use an illustration that at any policy duration depicts policy performance more favorable to the policy owner than that produced by the illustrated scale of the insurer whose policy is being illustrated;

(f) Provide an applicant with an incomplete illustration;

(g) Represent in any way that premium payments will not be required for each year of the policy in order to maintain the illustrated death benefits, unless that is the fact;

(h) Use the term "vanish" of "vanishing premium," or a similar term that implies the policy becomes paid up, to describe a plan for using non-guaranteed elements to pay a portion of future premiums;

(i) Except for policies that can never develop nonforfeiture values, use an illustration that is "lapse-supported"; or

(j) Use an illustration that is not "self-supporting."

(3) If an interest rate used to determine the illustrated non-guaranteed elements is shown, it shall not be greater than the earned interest rate underlying the disciplined current scale.

(G) Standards for basic illustrations

(1) Format. A basic illustration shall conform with the following requirements:

(a) The illustration shall be labeled with the date on which it was prepared.

(b) Each page, including any explanatory notes or pages, shall be numbered and show its relationship to the total number of pages in the illustration (e.g., the fourth page of a seven-page illustration shall be labeled "page 4 of 7 pages").

(d) If the age of the proposed insured is shown as a component of the tabular detail, it shall be issue age plus the number of years the policy is assumed to have been in force.

(e) The assumed payments on which the illustrated benefits and values are based shall be identified as premium outlay or contract premium, as applicable. For policies that do not require a specific contract premium, the illustrated payments shall be identified as premium outlay.

(f) Guaranteed death benefits and values available upon surrender, if any, for the illustrated premium outlay or contract premium shall be shown and clearly labeled guaranteed.

(g) If the illustration shows any non-guaranteed elements, they cannot be based on a scale more favorable to the policy owner than the insurer's illustrated scale at any duration. These elements shall be clearly labeled non-guaranteed.

(h) The guaranteed elements, if any, shall be shown before corresponding non-guaranteed elements and shall be specifically referred to on any page of an illustration that shows or describes only the non-guaranteed elements (e.g., "see page one for guaranteed elements.")

(i) The account or accumulation value of a policy, if shown, shall be identified by the name this value is given in the policy being illustrated and shown in close proximity to the corresponding value available upon surrender.

(j) The value available upon surrender shall be identified by the name this value is given in the policy being illustrated and shall be the amount available to the policy owner in a lump sum after deduction of surrender charges, policy loans and policy loan interest, as applicable.

(k) Illustrations may show policy benefits and values in graphic or chart form in addition to the tabular form.

(l) Any illustration of non-guaranteed elements shall be accompanied by a statement indicating that:

(i) The benefits and values are not guaranteed;

(ii) The assumptions on which they are based are subject to change by the insurer; and

(iii) Actual results may be more or less favorable.

(m) If the illustration shows that the premium payer may have the option to allow policy charges to be paid using non-guaranteed values, the illustration must clearly disclose that a charge continues to be required and that, depending on actual results, the premium payer may need to continue or resume premium outlays. Similar disclosure shall be made for premium outlay of lesser amounts or shorter durations than the contract premium. If a contract premium is due, the premium outlay display shall not be left blank or show zero unless accompanied by an asterisk or similar mark with an explanation that the policy is not paid up.

(n) If the applicant plans to use dividends or policy values, guaranteed or non-guaranteed, to pay all or a portion of the contract premium or policy charges, or for any other purpose, the illustration may reflect those plans and the impact on future policy benefits and values.

(2) Narrative summary. A basic illustration shall include the following:

(a) A brief description of the policy being illustrated, including a statement that it is a life insurance policy;

(b) A brief description of the premium outlay or contract premium, as applicable, for the policy. For a policy that does not require payment of a specific contract premium, the illustration shall show the premium outlay that must be paid to guarantee coverage for the term of the contract, subject to maximum premiums allowable to qualify as a life insurance policy under the applicable provisions of the Internal Revenue Code;

(c) A brief description of any policy features, riders, or options, guaranteed or non-guaranteed, shown in the basic illustration and the impact they may have on the benefits and values of the policy;

(d) Identification and a brief definition of column headings and key terms used in the illustration; and

(e) A statement containing the following: "this illustration assumes that the currently illustrated non-guaranteed elements used will not change for all years shown. This is not likely to occur, and actual results may be more or less favorable than those shown."

(3) Numeric summary.

(a) Following the narrative summary, a basic illustration shall include a numeric summary of the death benefits and values and the premium outlay and contract premium, as applicable. For a policy that provides for a contract premium, the guaranteed death benefits and values shall be based on the contract premium. This summary shall be shown for at least policy years five, ten and twenty, and at age seventy, if applicable, on the three bases shown in this paragraph. For multiple life policies the summary shall show policy years five, ten, twenty and thirty.

(i) Policy guarantees;

(ii) Insurer's illustrated scale;

(iii) Insurer's illustrated scale used but with the non-guaranteed elements reduced as follows:

(a) Dividends at fifty per cent of the dividends contained in the illustrated scale used;

(b) Non-guaranteed credited interest at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used; and

(c) All non-guaranteed charges, including but not limited to, term insurance charges, mortality and expense charges, at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used.

(b) In addition, if coverage would cease prior to policy maturity or age one hundred, the year in which coverage ceases shall be identified for each of the three bases.

(4) Statements. Statements substantially similar to the following shall be included on the same page as the numeric summary and signed by the applicant, or the policy owner in the case of an illustration provided at time of delivery, as required in this rule.

(a) A statement to be signed and dated by the applicant or policy owner reading as follows: "I have received a copy of this illustration and understand that any non-guaranteed elements illustrated are subject to change and could be either higher or lower. The agent has told me they are not guaranteed."

(b) A statement to be signed and dated by the insurance agent or other authorized representative of the insurer reading as follows: "I certify that this illustration has been presented to the applicant and that I have explained that any non-guaranteed elements illustrated are subject to change. I have made no statements that are inconsistent with the illustration."

(5) Tabular detail.

(a) A basic illustration shall include the following for at least each policy year from one to ten and for every fifth policy year thereafter ending at age one hundred, policy maturity or final expiration; and except for term insurance beyond the twentieth year, for any year in which the premium outlay and contract premium, if applicable, is to change:

(i) The premium outlay and mode the applicant plans to pay and the contract premium, as applicable;

(ii) The corresponding guaranteed death benefit, as provided in the policy; and

(iii) The corresponding guaranteed value available upon surrender, as provided in the policy.

(b) For a policy that provides for a contract premium, the guaranteed death benefit and value available upon surrender, shall correspond to the period of time (policy year) for which the contract premium has been paid.

(c) Non-guaranteed elements may be shown if described in the contract. In the case of an illustration for a policy on which the insurer intends to credit terminal dividends, they may be shown if the insurer's current practice is to pay terminal dividends. If any non-guaranteed elements are shown they must be shown at the same durations as the corresponding guaranteed elements, if any. If no guaranteed benefit or value is available at any duration for which a non-guaranteed benefit or value is shown, a zero shall be displayed in the guaranteed column.

(H) Standards for supplemental illustrations

(1) A supplemental illustration may be provided so long as:

(a) It is appended to, accompanied by or preceded by a basic illustration that complies with this rule;

(b) The non-guaranteed elements shown are not more favorable to the policy owner than the corresponding elements based on the scale used in the basic illustration;

(d) For a policy that has a contract premium, the contract premium underlying the supplemental illustration is equal to the contract premium shown in the basic illustration. For policies that do not require a contract premium, the premium outlay underlying the supplemental illustration shall be equal to the premium outlay shown in the basic illustration.

(2) The supplemental illustration shall include a notice referring to the basic illustration for guaranteed elements and other important information.

(I) Delivery of illustration and record retention

(1)

(a) If a basic illustration is used by an insurance agent or other authorized representative of the insurer in the sale of a life insurance policy and the policy is applied for as illustrated, a copy of that illustration, signed in accordance with this rule, shall be submitted to the insurer at the time of policy application. A copy also shall be provided to the applicant.

(b) If the policy is issued other than as applied for, a revised basic illustration conforming to the policy as issued shall be sent with the policy. The revised illustration shall conform to the requirements of this rule, shall be labeled "Revised Illustration" and shall be signed and dated by the applicant or policy owner and agent or other authorized representative of the insurer no later than the time the policy is delivered. A copy shall be provided to the insurer and the policy owner.

(2)

(a) If no illustration is used by an insurance agent or other authorized representative of the insurer in the sale of a life insurance policy or if the policy is applied for other than as illustrated, the agent or representative shall certify to that effect in writing on a form provided by the insurer. On the same form the applicant shall acknowledge that no illustration conforming to the policy applied for was provided and shall further acknowledge an understanding that an illustration conforming to the policy as issued will be provided no later than at the time of policy delivery. This form shall be submitted to the insurer at the time of policy application.

(b) If the policy is issued, a basic illustration conforming to the policy as issued shall be sent with the policy and signed no later than the time the policy is delivered. A copy shall be provided to the insurer and the policy owner.

(3) If the basic illustration or revised illustration is sent to the applicant or policy owner by mail from the insurer, it shall include instructions for the applicant or policy owner to sign the duplicate copy of the numeric summary page of the illustration for the policy issued and return the signed copy to the insurer. The insurer's obligation under this paragraph shall be satisfied if it can demonstrate that it has made a diligent effort to secure a signed copy of the numeric summary page. The requirement to make a diligent effort shall be deemed satisfied if the insurer includes in the mailing a self-addressed postage prepaid envelope with instructions for the return of the signed numeric summary page.

(4) A copy of the basic illustration and a revised basic illustration, if any, signed as applicable, along with any certification that either no illustration was used or that the policy was applied for other than as illustrated, shall be retained by the insurer until three years after the policy is no longer in force. A copy need not be retained if no policy is issued.

(J) Annual report; notice to policy owners

(1) In the case of a policy designated as one for which illustrations will be used, the insurer shall provide each policy owner with an annual report on the status of the policy that shall contain at least the following information;

(a) For universal life policies, the report shall include the following:

(i) The beginning and end date of the current report period;

(ii) The policy value at the end of the previous report period and at the end of the current report period;

(iii) The total amounts that have been credited or debited to the policy value during the current report period, identifying each by type (e.g., interest, mortality, expense and riders);

(iv) The current death benefit at the end of the current report period on each life covered by the policy;

(v) The net cash surrender value of the policy as of the end of the current report period;

(vi) The amount of outstanding loans, if any, as of the end of the current report period; and

(vii) For fixed premium policies:

If, assuming guaranteed interest, mortality and expense loads and continued scheduled premium payments, the policy's net cash surrender value is such that it would not maintain insurance in force until the end of the next reporting period, a notice to this effect shall be included in the report; or

(viii) For flexible premium policies:

If, assuming guaranteed interest, mortality and expense loads, the policy's net cash surrender value will not maintain insurance in force until the end of the next reporting period unless further premium payments are made, a notice to this effect shall be included in the report.

(b) For all other policies, where applicable:

(i) Current death benefit;

(ii) Annual contract premium;

(iii) Current cash surrender value;

(iv) Current dividend;

(v) Application of current dividend; and

(vi) Amount of outstanding loan.

(c) Insurers writing life insurance policies that do not build nonforfeiture values shall only be required to provide an annual report with respect to these policies for those years when a change has been made to non-guaranteed policy elements by the insurer.

(2) If the annual report does not include an in force illustration, it shall contain the following notice displayed prominently: "IMPORTANT POLICY OWNER NOTICE: you should consider requesting more detailed information about your policy to understand how it may perform in the future. You should not consider replacement of your policy or make changes in your coverage without requesting a current illustration. You may annually request, without charge, such an illustration by calling [insurer's phone number], writing to [insurer's name] at [insurer's address] or contacting your agent. If you do not receive a current illustration of your policy within thirty days from your request, you should contact your state insurance department." The insurer may vary the sequential order of the methods for obtaining an in force illustration.

(3) Upon the request of the policy owner, the insurer shall furnish an in force illustration of current and future benefits and values based on the insurer's present illustrated scale. This illustration shall comply with the requirements of paragraphs (F)(1), (F)(2), (G)(1) and (G)(5) of this rule. No signature or other acknowledgment of receipt of this illustration shall be required.

(4) If an adverse change in non-guaranteed elements that could affect the policy has been made by the insurer since the last annual report, the annual report shall contain a notice of that fact and the nature of the change prominently displayed.

(K) Annual certifications

(1) The board of directors of each insurer shall appoint one or more illustration actuaries.

(2) The illustration actuary shall certify that the disciplined current scale used in illustrations is in conformity with actuarial standard of practice no. 24, compliance with the NAIC life insurance illustrations model regulation, promulgated by the actuarial standards board in December 2016, and that the illustrated scales used in insurer-authorized illustrations meet the requirements of this rule.

(3) The illustration actuary shall:

(a) Be a member of the American academy of actuaries and qualified to provide such certifications as described in the U.S. qualifications standards promulgated by the American academy of actuaries pursuant to the code of professional conduct;

(b) Be familiar with the standard of practice regarding life insurance policy illustrations;

(i) Violated any provision of, or any obligation imposed by, the insurance law or other law in the course of actuary's dealings as an illustration actuary;

(ii) Been found guilty of fraudulent or dishonest practices;

(iii) Demonstrated the actuary's incompetence, lack of cooperation, or untrustworthiness to act as an illustration actuary; or

(iv) Resigned or been removed as an illustration 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 a failure to adhere to generally acceptable actuarial standards;

(d) Not fail to notify the superintendent of any action taken by a commissioner of another state similar to that under paragraph (K)(3)(c) of this rule;

(e) Disclose in the annual certification whether, since the last certification, a currently payable scale applicable for business issued within the previous five years and within the scope of the certification has been reduced for reasons other than changes in the experience factors underlying the disciplined current scale. If non-guaranteed elements illustrated for new policies are not consistent with those illustrated for similar in force policies, this must be disclosed in the annual certification. If non-guaranteed elements illustrated for both new and in force policies are not consistent with the non-guaranteed elements actually being paid, charged or credited to the same or similar forms, this must be disclosed in the annual certification; and

(f) Disclose in the annual certification the method used to allocate overhead expenses for all illustrations:

(i) Fully allocated expenses;

(ii) Marginal expenses; or

(iii) A generally recognized expense table based on fully allocated expenses representing a significant portion of insurance companies and approved by the NAIC or by the superintendent.

(4)

(a) The illustration actuary shall file a certification with the board and with the superintendent:

(i) Annually for all policy forms for which illustrations are used; and

(ii) Before a new policy form is illustrated.

(b) If an error in a previous certification is discovered, the illustration actuary shall promptly notify the board of directors of the insurer and the superintendent.

(5) If an illustration actuary is unable to certify the scale for any policy form illustration the insurer intends to use, the actuary shall promptly notify the board of directors of the insurer and the superintendent of the actuary's inability to certify.

(6) A responsible officer of the insurer, other than the illustration actuary, shall certify annually:

(a) That the illustration formats meet the requirements of this rule and that the scales used in the insurer-authorized illustrations are those scales certified by the illustration actuary; and

(b) That the company has provided its agents with information about the expense allocation method used by the company in its illustrations and disclosed as required in paragraph (K)(3)(f) of this rule.

(7) The annual certifications shall be provided to the superintendent each year by a date determined by the insurer.

(8) If an insurer changes the illustration actuary responsible for all or a portion of the company's policy forms, the insurer shall promptly notify the superintendent of that fact and disclose the reason for the change.

(L) Penalties

In addition to any other penalties provided by the laws of this state, an insurer, agent, or authorized representative of the insurer that violates a requirement of this rule shall be guilty of a violation of section 3901.21 of the Revised Code.

(M) Severability

(N) Effective date

This rule shall apply to policies illustrated or written with an application date on or after the effective date.

Last updated November 17, 2022 at 8:53 AM

Supplemental Information

Authorized By: 3901.041, 3901.21
Amplifies: 3901.19 to 3901.23
Five Year Review Date: 8/31/2027
Prior Effective Dates: 11/16/2017

Rule 3901-6-05 | Replacement of life insurance and annuities.

Effective:

November 16, 2023

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to:

(1) Regulate the activities of insurers and agents with respect to the replacement of existing life insurance and annuities.

(2) Protect the interests of life insurance and annuity purchases by establishing minimum standards of conduct to be observed in replacement or financed purchase transactions. It will:

(a) Assure that purchasers receive information with which a decision can be made in the purchaser's own best interest;

(b) Reduce the opportunity for misrepresentation and incomplete disclosure; and

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3901.21 of the Revised Code. This rule implements sections 3901.19 to 3901.221 of the Revised Code.

(1) Unless otherwise specifically included, this rule does not apply to transactions involving:

(a) Credit life insurance;

(b) Group life insurance or group annuities where there is no direct solicitation of individuals by an insurance agent. Direct solicitation does not include any group meeting held by an insurance agent solely for the purpose of educating or enrolling individuals or, when initiated by an individual member of the group, assisting with the selection of investment options offered by a single insurer in connections with enrolling that individual. Group life insurance or group annuity certificates marketed through direct response solicitation are subject to the provisions of paragraph (I) of this rule.

(d) An application to the existing insurer that issued the existing policy or contract when a contractual change or a conversion privilege is being exercised; or, when the existing policy or contract is being replaced by the same insurer pursuant to a program filed with and approved by the superintendent; or, when a term conversion privilege is exercised among corporate affiliates;

(e) Proposed life insurance that is to replace life insurance under a binding or conditional receipt issued by the same company;

(f)

(i) Policies or contracts used to fund:

(a) An employee pension or welfare benefit plan that is covered by the "Employee Retirement and Income Security Act (ERISA)";

(b) A plan described by sections 401(a), 401(k) or 403(b) of the "Internal Revenue Code," where the plan, for the purposes of "ERISA," is established or maintained by an employer;

(c) A governmental or church plan defined in section 414, a governmental or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under section 457 of the "Internal Revenue Code;" or

(d) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor;

(ii) Notwithstanding paragraph (C)(1)(f)(i) of this rule, this rule applies to policies or contracts used to fund any plan or arrangement that is funded solely by contributions an employee elects to make, whether on a pre-tax or after-tax basis, and where the insurer has been notified that plan participants may choose from among two or more insurers and there is a direct solicitation of an individual employee by an insurance agent for the purchase of a contract or policy. As used in this paragraph, direct solicitation does not include any group meeting held by an insurance agent solely for the purpose of educating individuals about the plan or arrangement or enrolling individuals in the plan or arrangement or, when initiated by an individual employee, assisting with the selection of investment options offered by a single insurer in connections with enrolling that individual employee;

(g) Where new coverage is provided under a life insurance policy or contract and the cost is borne wholly by the insured's employer or by an association of which the insured is a member;

(h) Existing life insurance that is a non-convertible term life insurance policy that will expire in five years or less and cannot be renewed;

(i) Immediate annuities that are purchased with proceeds from an existing contract. Immediate annuities purchased with proceeds from an existing policy are not exempted from the requirements of this rule; or

(j) Structured settlements.

(2) Registered contracts are exempt from the requirements of paragraphs (G)(1)(b) and (H)(2) of this rule with respect to the provision of illustrations or policy summaries; however, premium or contract contribution amounts and identification of the appropriate prospectus or offering circular is required instead.

(D) Definitions

As used in this rule:

(1) "Agent" or "insurance agent" means any person that, in order to sell, solicit, or negotiate insurance, is required to be licensed under the laws of this state with a life line of authority. For the purposes of this rule, the term "agent" is defined to include agents, brokers and producers.

(2) "Direct-response solicitation" means a solicitation through a sponsoring or endorsing entity or individually solely through mails, telephone, the Internet or other mass communication media.

(3) "Existing insurer" means the insurance company whose policy or contract is or will be changed or affected in a manner described with the definition of "replacement."

(4) "Existing policy or contract" means an individual life insurance policy (policy) or annuity contract (contract) in force, including a policy under a binding or conditional receipt or a policy or contract that is within an unconditional refund period.

(5) "Financed purchase" means the purchase of a new policy involving the actual or intended use of funds obtained by the withdrawal or surrender of, or by borrowing from values of an existing policy to pay all or part of any premium due on the new policy. For purposes of a regulatory review of an individual transaction only, if a withdrawal, surrender or borrowing involving the policy values of an existing policy is used to pay premiums on a new policy owned by the same policyholder and issued by the same company within four months before or thirteen months after the effective date of the new policy, it will be deemed prima facie evidence of the policyholder's intent to finance the purchase of the new policy with existing policy values. This prima facie standard is not intended to increase or decrease the monitoring obligations contained in paragraph (F)(1)(e) of this rule.

(6) "Illustration" means a presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years as defined in rule 3901-6-04 of the Administrative Code.

(7) "Policy summary":

(a) For policies or contracts other than universal life policies, means a written statement regarding a policy or contract which shall contain to the extent applicable, but need not be limited to, the following information: current death benefit; annual contract premium; current cash surrender value; current dividend; application of current dividend; and amount of outstanding loan.

(b) For universal life policies, means a written statement that shall contain at least the following information: the beginning and end date of the current report period; the policy value at the end of the previous report period and at the end of the current report period; the total amounts that have been credited or debited to the policy value during the current report period, identifying each by type (e.g., interest, mortality, expense and riders); the current death benefit at the end of the current report period on each life covered by the policy; the net cash surrender value of the policy as of the end of the current report period; and the amount of outstanding loans, if any, as of the end of the current report period.

(8) "Replacing insurer" means the insurance company that issues or proposes to issue a new policy or contract that replaces an existing policy or contract or is a financed purchase.

(9) "Registered contract" means a variable annuity contract or variable life insurance policy subject to the prospectus delivery requirements of the "Securities Act of 1933," as amended.

(10) "Replacement" means a transaction in which a new policy or contract is to be purchased, and it is known or should be known to the proposing agent, or to the proposing insurer if there is no agent, that by reason of the transaction, an existing policy or contract has been or is to be:

(a) Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated;

(b) Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values;

(c) Amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid;

(d) Reissued with any reduction in cash value; or

(e) Used in a financed purchase.

(11) "Sales material" means a sales illustration and any other written, printed or electronically presented information created, or completed or provided by the company or agent and used in the presentation to the policy or contract owner related to the policy or contract purchased.

(E) Duties of agents

(1) A agent who initiates an application 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 policies or contracts. If the answer is "no," the agent's duties with respect to replacement are complete.

(2) If the applicant answered "yes" to the question regarding existing coverage referred to in paragraph (E)(1) of this rule, the agent shall present and read to the applicant, not later than at the time of taking the application, a notice regarding replacements in the form as described in appendix A to this rule or other substantially similar form approved by the superintendent. However, no approval is required when amendments to the notice are limited to the omission of references not applicable to the product being sold or replaced. The notice 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 need not have read the notice aloud) and left with the applicant.

(3) The notice shall list all life insurance policies or annuities proposed to be replaced, properly identified by name of insurer, the insured or annuitant, and policy or contract number if available; and shall include a statement as to whether each policy or contract will be replaced or whether a policy will be used as a source of financing for the new policy or contract. If a policy or contract number has not been issued by the existing insurer, alternative identification, such as an application or receipt number, shall be listed.

(4) In connection with a replacement transaction, the agent shall leave with the applicant at the time an application for a new policy or contract is completed the original or a copy of all sales material. With respect to electronically presented sales material, it shall be provided to the policy or contract owner in printed form no later than at the time of policy or contract delivery.

(5) Except as provided in paragraph (G)(3) of this rule, in connection with a replacement transaction the agent shall submit to the insurer to which an application for a policy or contract is presented, a copy of each document required by this section, a statement identifying any preprinted or electronically presented company approved sales materials used, and copies of any individualized sales materials, including any illustrations related to the specific policy or contract purchased.

(F) Duties of insurers that use agents

Each insurer shall:

(1) Maintain a system of supervision and control to ensure compliance with the requirements of this rule including the following:

(a) Inform its agents of the requirements of this rule and incorporate the requirements of this rule into all relevant agent training manuals prepared by the insurer;

(b) Provide to each agent a written statement of the company's position with respect to the acceptability of replacements providing guidance to its agent as to the appropriateness of these transactions;

(c) A system to review the appropriateness of each replacement transaction that the agent does not indicate is in accordance with paragraph (F)(1)(b) of this rule;

(d) Procedures to confirm that the requirements of this rule have been met; and

(e) Procedures to detect transactions that are replacements of existing policies or contracts by the existing insurer, but that have not been reported as such by the applicant or agent. Compliance with this rule may include, but shall not be limited to, systematic customer surveys, interviews, confirmation letters, or programs of internal monitoring.

(2) Have the capacity to monitor each agent's life insurance policy and annuity contract replacements for that insurer, and shall produce, upon request, and make such records available to the superintendent of insurance. The capacity to monitor shall include the ability to produce records for each agent's:

(a) Life replacements, including financed purchases, as a percentage of the agent's total annual sales for life insurance;

(b) Number of lapses of policies by the agent as a percentage of the agent's total annual sales for life insurance;

(d) Number of transactions that are unreported replacements of existing policies or contracts by the existing insurer detected by the company's monitoring system as required by paragraph (F)(1)(e) of this rule; and

(e) Replacements, indexed by replacing agent and existing insurer;

(3) Require with or as a part of each application for life insurance or an annuity a signed statement by both the applicant and the agent as to whether the applicant has existing policies or contracts;

(4) Require with each application for life insurance or an annuity that indicates an existing policy or contract a completed notice regarding replacements as contained in appendix A to this rule.

(5) When the applicant has existing policies or contracts, each insurer shall be able to produce copies of any sales material required by paragraph (E)(5) of this rule, the basic illustration and any supplemental illustrations related to the specific policy or contract that is purchased, and the agent's and applicant's signed statements with respect to financing and replacement for at least five years after the termination or expiration of the proposed policy or contract;

(6) Ascertain that the sales material and illustrations required by paragraph (E)(5) of this rule meet the requirements of this rule and are complete and accurate for the proposed policy or contract;

(7) If an application does not meet the requirements of this rule, notify the agent and applicant and fulfill the outstanding requirements; and

(8) Maintain records in paper, photograph, microprocess, magnetic, mechanical or electronic media or by any process that accurately reproduces the actual document.

(G) Duties of replacing insurers that use agents

(1) Where a replacement is involved in the transaction, the replacing insurer shall:

(a) Verify that the required forms are received and are in compliance with this rule;

(b) Notify any other existing insurer that may be affected by the proposed replacement within five business days of receipt of a completed application indicating replacement or when the replacement is identified if not indicated on the application, and mail a copy of the available illustration or policy summary for the proposed policy or available disclosure document for the proposed contract within five business days of a request from an existing insurer;

(c) Be able to produce copies of the notification regarding replacement required in paragraph (E)(2) of this rule, indexed by agent, for at least five years or until the next regular examination by the insurance department of a company's state of domicile, whichever is later; and

(d) Provide to the policy or contract owner notice of the right to return the policy or contract within thirty days of the delivery of the contract and receive an unconditional full refund of all premiums or considerations paid on it, including any policy fees or charges or, in the case of a variable or market value adjustment policy or contract, a payment of the cash surrender value provided under the policy or contract plus the fees and other charges deducted from the gross premiums or considerations or imposed under such policy or contract; such notice may be included in appendix A or appendix C to this rule.

(2) In transactions where the replacing insurer and the existing insurer are the same or subsidiaries or affiliates under common ownership or control, allow credit for the period of time that has elapsed under the replaced policy's or contract's incontestability and suicide period up to the face amount of the existing policy or contract. With regard to financed purchases, the credit may be limited to the amount the face amount of the existing policy is reduced by the use of existing policy values to fund the new policy or contract.

(3) If an insurer prohibits the use of sales material other than that approved by the company, as an alternative to the requirements made of an insurer pursuant to paragraph (E)(5) of this rule, the insurer may:

(a) Require with each application a statement signed by the agent that:

(i) Represents that the agent used only company-approved sales material; and

(ii) States that copies of all sales material were left with the applicant in accordance with paragraph (E)(4) of this rule; and

(b) Within ten days of the issuance of the policy or contract:

(i) Notify the applicant by sending a letter or by verbal communication with the applicant by a person whose duties are separate from the marketing area of the insurer, that the agent has represented that copies of all sales material have been left with the applicant in accordance with paragraph (E)(4) of this rule;

(ii) Provide the applicant with a toll free number to contact company personnel involved in the compliance function if such is not the case; and

(iii) Stress the importance of retaining copies of the sales material for future reference; and

(c) Be able to produce a copy of the letter or other verification in the policy file for at least five years after the termination or expiration of the policy or contract.

(H) Duties of the existing insurer

Where a replacement is involved in the transaction, the existing insurer shall:

(1) Retain and be able to produce all replacement notifications received, indexed by replacing insurer, for at least five years or until the conclusion of the next regular examination conducted by the insurance department of its state of domicile, whichever is later.

(2) Send a letter to the policy or contract owner of the right to receive information regarding the existing policy or contract values including, if available, an in force illustration or policy summary if an in force illustration cannot be produced with five business days of receipt of a notice that an existing policy or contract is being replaced. The information shall be provided within five business days of receipt of the request from the policy or contract owner.

(3) Upon receipt of a request to borrow, surrender or withdraw any policy values, send a notice advising the policyowner that the release of policy values may affect the guaranteed elements, non-guaranteed elements, face amount or surrender value of the policy from which the values are released. The notice shall be sent separate from the check if the check is sent to anyone other than the policyowner. In the case of consecutive automatic premium loans, the insurer is only required to send the notice at the time of the first loan.

(I) Duties of insurers with respect to direct response solicitations

(1) In the case of an application that is initiated as a result of a direct response solicitation, the insurer shall require, with or as part of each completed application for a policy or contract, a statement asking whether the applicant, by applying for the proposed policy or contract, intends to replace, discontinue or change any existing policy or contract. If the applicant indicates a replacement or change is not intended or if the applicant fails to respond to the statement, the insurer shall send the applicant, with the policy or contract, a notice regarding replacement in appendix B to this rule, or other substantially similar form approved by the superintendent.

(2) 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 shall:

(a) Provide to applicants or prospective applicants with the policy or contract a notice, as described in appendix C to this rule, or other substantially similar form approved by the superintendent. In these instances the insurer may delete the references to the agent, including the agent's signature, and references not applicable to the product being sold or replaced, without having to obtain approval of the form from the superintendent. The insurer's obligation to obtain the applicant's signature is satisfied if the insurer can demonstrate that it has made a diligent effort to secure a signed copy of the notice referred to in this paragraph. The requirement to make a diligent effort will be deemed satisfied if the insurer includes in the mailing a self-addressed postage prepaid envelope with instructions for the return of the signed notice referred to in this paragraph; and

(b) Comply with the requirements of paragraph (G)(1)(b) of this rule, if the applicant furnishes the names of the existing insurers, and the requirements of paragraphs (G)(1)(c), (G)(1)(d) and (G)(2) of this rule.

(J) Violations and penalties

(1) Any failure to comply with this rule will be considered a violation of section 3901.20 of the Revised Code. Examples of violations include:

(a) Any deceptive or misleading information set forth in sales material;

(b) Failing to ask the applicant in completing the application the pertinent questions regarding the possibility of financing or replacement;

(d) Advising an applicant to respond negatively to any question regarding replacement in order to prevent notice to the existing insurer; or

(e) Advising a policy or contract owner to write directly to the company in such a way as to attempt to obscure the identity of the replacing agent or company.

(2) Policy and contract owners have the right to replace existing life insurance policies or annuity contracts after indicating in or as a part of applications for new coverage that replacement is not their intention; however, patterns of such action by policy or contract owners of the same agent shall be deemed prima facie evidence of the agent's knowledge that replacement was intended in connection with the identified transactions, and these patterns of action shall be deemed prima facie evidence of the agent's intent to violate this rule.

(3) Where it is determined that the requirements of this rule have not been met the replacing insurer shall provide to the policyowner an in force illustration if available or policy summary for the replacement policy or available disclosure document for the replacement contract and the appropriate notice regarding replacements in appendix A or appendix C to this rule.

(4) Violations of this rule shall subject the violators to penalties that may include the revocation or suspension of a agent's or company's license, monetary fines and the forfeiture of any commissions or compensation paid to a agent as a result of the transaction in connection with which the violations occurred. In addition, where the superintendent has determined that the violations were material to the sale, the insurer may be required to make restitution, restore policy or contract values and pay interest on the amount refunded in cash.

(K) Severability

View Appendix

Last updated November 16, 2023 at 8:32 AM

Supplemental Information

Authorized By: 3901.041
Amplifies: 3901.19 to 3901.21
Five Year Review Date: 8/31/2028
Prior Effective Dates: 3/1/2007

Rule 3901-6-06 | Accelerated death benefits.

Effective:

November 17, 2022

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to regulate accelerated death benefit provisions of individual and group life insurance policies and to provide required standards of disclosure.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3915.24 of the Revised Code.

This rule shall apply to all accelerated death benefit provisions of individual and group life insurance policies issued or delivered in this state on or after the effective date of this rule. This rule shall not apply to long-term care insurance or products providing long-term care benefits that are subject to sections 3923.41 to 3923.48 of the Revised Code and any rules promulgated thereunder.

(D) Definitions

(1) "Accelerated death benefits" covered under this rule are benefits payable under a life insurance contract:

(a) To a policyowner or certificateholder during the lifetime of the insured, at the time of a qualifying event; and

(b) Which reduce the death benefit otherwise payable under the life insurance contract; and

(2) "Qualifying event" shall mean one or more of the following:

(a) A medical condition which would result in a drastically limited life span; or

(b) A medical condition which has required or requires extraordinary medical intervention, such as, but not limited to, major organ transplant or continuous artificial life support, without which the insured would die; or

(c) Any condition which usually requires continuous confinement in an eligible institution as defined in the contract if the insured is expected to remain there for the rest of the insured's life; or

(d) A medical condition which would, in the absence of extensive or extraordinary medical treatment, result in a drastically limited life span. Such conditions may include, "but are not limited to," one or more of the following:

(i) Coronary artery disease resulting in an acute infarction or requiring surgery;

(ii) Permanent neurological deficit resulting from cerebral vascular accident;

(iii) End stage renal failure;

(iv) Acquired immune deficiency syndrome (AIDS); or

(v) Other medical conditions which the superintendent shall approve for any particular filing; or

(e) Other qualifying events which the superintendent shall approve for any particular filing. This includes, but is not limited to, chronic illness which is a permanent inability to perform, without substantial assistance from another individual, a specified number of activities of daily living (bathing, continence, dressing, eating, toileting and transferring), and/or permanent severe cognitive impairment and similar forms of dementia.

(3) "Drastically limited life span" shall mean a projected life span of a minimum of six months or less and a maximum of twenty-four months or less.

(E) Type of product

Accelerated death benefit riders and life insurance policies with accelerated death benefit provisions are primarily mortality risks rather than morbidity risks. They are life insurance benefits subject to Chapter 3915. of the Revised Code.

(F) Assignee/beneficiary

Prior to the payment of the accelerated death benefit, the insurer is required to obtain from an assignee or irrevocable beneficiary a signed acknowledgment of concurrence for payout. If the insurer making the accelerated death benefit is itself the assignee under the policy, no such acknowledgment is required.

(G) Payment procedures

(1) The payment options shall include the option to receive the benefit in a lump sum and may include an option to receive the benefit in periodic payments for a period certain only. Periodic payments based on the continued survival or institutional confinement of the insured are prohibited.

(2) The policy or rider shall state that payment of the accelerated death benefit is due immediately upon receipt of the due written proof of eligibility. If the insurer requires filing of a claim form, the company shall provide the claim form within fifteen calendar days of the acceleration request. If the insurer does not timely provide the claim form, then written proof of eligibility is deemed sufficient.

(H) Accidental death benefit provision

If any death benefit remains after payment of an accelerated death benefit, the accidental death benefit provision, if any, in the policy or rider shall not be affected by the payment of the accelerated death benefit.

(I) Disclosures

(1) Descriptive title

The term "accelerated death benefit" shall be included in the descriptive title. Products regulated under this rule shall not be described or marketed as long-term care insurance or as providing long-term care benefits.

(2) Tax consequences

A disclosure statement is required at the time of application for the policy or rider and at the time the accelerated death benefit payment request is submitted that receipt of these benefits may be a taxable event and that the owner should seek additional information about the tax status of the payment from a personal tax advisor. The disclosure statement shall be prominently displayed on the first page of the policy or rider and any other related documents.

(3) Solicitations

(a) A written disclosure including, but not necessarily limited to, a brief description of the accelerated death benefit and definitions of the conditions or occurrences triggering payment of the benefits shall be given to the applicant. The description shall include an explanation and a generic illustration numerically demonstrating any effect of the payment of a benefit on the policy's cash value, account value, death benefit, premium, policy loans and policy liens.

(i) In the case of agent solicited insurance, the agent shall provide the disclosure form to the applicant prior to or concurrently with the application. Acknowledgment of the disclosure shall be signed by the applicant and writing agent.

(ii) In the case of a solicitation by direct response methods, the insurer shall provide the disclosure form to the applicant at the time the policy is delivered, with a notice that a full premium refund shall be received if the policy is returned to the company within the free look period.

(iii) In the case of group insurance policies, the disclosure form shall be contained as part of the certificate of coverage or any related document furnished by the insurer for the certificateholder.

(b) Disclosure of premium charge

(i) Insurers with financing options other than as described in paragraphs (O)(1)(b) and (O)(1)(c) of this rule shall disclose to the policyowner any premium or cost of insurance charge for the accelerated death benefit. These insurers shall make a reasonable effort to assure that the certificateholder is aware of any additional premium or cost of insurance charge if the certificateholder is required to pay such charge.

(ii) Insurers shall furnish an actuarial demonstration to the state insurance department when filing the product disclosing the method of arriving at their cost for the accelerated death benefit.

(c) The insurer shall disclose to the policyowner any administrative expense charge. The insurer shall make a reasonable effort to assure that the certificateholder is aware of any administrative expense charge if the certificateholder is required to pay such charge.

(4) Effect of the benefit payment

When a policyowner or certificateholder requests an acceleration, the insurer shall send a statement to the policyowner or certificateholder and irrevocable beneficiary showing any effect that the payment of the accelerated death benefit will have on the policy's cash value, account value, death benefit, premium, policy loans and policy liens. The statement shall disclose that receipt of accelerated death benefit payments may adversely affect the recipient's eligibility for medicaid or other government benefits or entitlements. In addition, receipt of an accelerated death benefit payment may be taxable and assistance should be sought from a personal tax advisor. When a previous disclosure statement becomes invalid as a result of an acceleration of the death benefit, the insurer shall send a revised disclosure statement to the policyowner or certificateholder and irrevocable beneficiary. When the insurer agrees to accelerate death benefits, the insurer shall issue an amended schedule page to the policyowner or notify the certificateholder under a group policy to reflect any new, reduced in-force face amount of the contract.

(J) Effective date of accelerated death benefits

The accelerated death benefit provision shall be effective on the effective date of the policy or rider.

(K) Waiver of premiums

The insurer may offer a waiver of premium for the accelerated death benefit provision in the absence of a regular waiver of premium provision being in effect. At the time the benefit is claimed, the insurer shall explain any continuing premium requirement to keep the policy in force.

(L) Discrimination

Insurers shall not unfairly discriminate among insureds with differing qualifying events covered under the policy or among insureds with similar qualifying events covered under the policy. Insurers shall not apply further conditions on the payment of the accelerated death benefits other than those conditions specified in the policy or rider.

(M) Prohibited provisions

The following provisions are prohibited in accelerated death benefit policy provisions or rider:

(1) A requirement that the cause of the qualifying event first manifest itself or be diagnosed after issuance of the underlying policy or form, and

(2) A waiting period requirement, and

(3) A requirement that the underlying policy or rider be in force past the incontestable period, and

(4) A provision that, upon acceleration of part of the policy death benefit, the insured forfeits the remainder of the policy death benefit, and

(5) Exclusions or restrictions for an accelerated death benefit that are not also exclusions or restrictions in the underlying policy, and

(6) A time frame within which proof of eligibility must be provided, and

(7) Restrictions on the use of the accelerated death benefit proceeds.

(N) Incontestability

The form shall be incontestable on the same, or more favorable basis, as the underlying policy.

(O) Actuarial standards

(1) Financing options

(a) The insurer may require a premium charge or cost of insurance charge for the accelerated death benefit. These charges shall be based on sound actuarial principles. In the case of group insurance, the additional cost may also be reflected in the experience rating.

(b) The insurer may pay a present value of the face amount. The calculation shall be based on any applicable actuarial discount appropriate to the policy design. The interest rate or interest rate methodology used in the calculation shall be based on sound actuarial principles and disclosed in the contract or actuarial memorandum. The maximum Interest rate used shall be no greater than the greater of:

(i) The current yield on ninety day treasury bills; or

(ii) The current maximum statutory adjustable policy loan interest rate; or

(iii) The policy loan interest rate stated in the contract.

(c) The insurer may accrue an interest charge on the amount of the accelerated death benefits. The interest rate or interest rate methodology used in the calculation shall be based on sound actuarial principles and disclosed in the contract or actuarial memorandum. The maximum interest rate used shall be no greater than the greater of:

(i) The current yield on ninety day treasury bills; or

(ii) The current maximum statutory adjustable policy loan interest rate; or

(iii) The policy loan interest rate stated in the contract.

The interest rate accrued on the portion of the lien which is equal in amount to the cash value of the contract at the time of the benefit acceleration shall be no more than the policy loan interest rate stated in the contract.

(2) Effect on cash value

(a) Except as provided in paragraph (O)(2)(b) of this rule, when an accelerated death benefit is payable, there shall be no more than a pro rata reduction in the cash value based on the percentage of death benefits accelerated to produce the accelerated death benefit payment.

(b) Alternatively, the payment of accelerated death benefits, any administrative expense charge, any future premiums and any accrued interest can be considered a lien against the death benefit of the policy or rider and the access to the cash value may be restricted to any excess of the cash value over the sum of any other outstanding loans and the lien. Future access to additional policy loans could also be limited to any excess of the cash value over the sum of the lien and any other outstanding policy loans.

(3) Effect of any outstanding policy loans on accelerated death benefit payment

When payment of an accelerated death benefit results in a pro rata reduction in the cash value, the payment may not be applied toward repaying an amount greater than a pro rata portion of any outstanding policy loans.

(P) Actuarial disclosure and reserves

(1) Actuarial memorandum

A qualified actuary should describe the accelerated death benefits, the risks, the expected costs and the calculation of statutory reserves in an actuarial memorandum accompanying each state filing. The insurer shall maintain in its files descriptions of the bases and procedures used to calculate benefits payable under these provisions. These descriptions shall be made available for examination by the superintendent upon request.

(2) Reserves

(a) When benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy Reserves shall be determined in accordance with sections 3903.72 to 3903.7211 of the Revised Code and any other appropriate rules. All valuation assumptions used in constructing the reserves shall be determined as appropriate for statutory valuation purposes by a member in good standing of the American academy of actuaries. Mortality tables and interest approved for life insurance reserves by the superintendent may be used as well as appropriate assumptions for the other provisions incorporated in the policy form. The actuary must follow both actuarial standards and certification for good and sufficient reserves. Reserves in the aggregate should be sufficient to cover:

(i) Policies upon which no claim has yet arisen; and

(ii) Policies upon which an accelerated claim has arisen.

(b) For policies and certificates which provide actuarially equivalent benefits, no additional reserves need to be established.

(c) Policy liens and policy loans, including accrued interest, represent assets of the company for statutory reporting purposes. For any policy on which the policy lien exceeds the policy's statutory reserve liability such excess must be held as a non-admitted asset.

(Q) Severability

Last updated November 17, 2022 at 8:53 AM

Supplemental Information

Authorized By: 3901.041, 3915.24
Amplifies: 3915.21 to 3915.24
Five Year Review Date: 8/31/2027
Prior Effective Dates: 11/16/2017

Rule 3901-6-07 | Universal life insurance.

Effective:

November 17, 2022

Promulgated Under:

119.03

PDF:

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(A) Purpose

The purpose of this rule is to supplement existing regulations on life insurance policies in order to accommodate the development and issuance of universal life insurance plans.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041, 3903.72 to 3903.7211, 3915.05, 3915.07 to 3915.073, 3915.09, 3915.14, and 3921.16 of the Revised Code.

This rule applies to all individual universal life insurance policies and group universal life insurance certificates except those policies defined under paragraph (C)(19) of rule 3901-6-08 of the Administrative Code (variable life insurance).

(D) Definitions

As used in this rule:

(1) "Account Value" means the amount to which separately identified interest credits and mortality, expense, or other charges are made under a universal life insurance policy.

(2) "Cash Surrender Value" is the account value less any applicable surrender charges.

(3) "Fixed Premium Universal Life Insurance Policy" means a universal life insurance policy other than a flexible premium universal life insurance policy.

(4) "Flexible Premium Universal Life Insurance Policy" means a universal life insurance policy which permits the policyowner to vary, independently of each other, the amount or timing of one or more premium payments or the amount of insurance.

(5) "Guaranteed Maturity Fund" at any duration is that amount which, together with future guaranteed maturity premiums, will mature the policy based on all policy guarantees at issue.

(6) "Guaranteed Maturity Premium" for flexible premium universal life insurance policies shall be that level gross premium, paid at issue and periodically thereafter over the period during which premiums are allowed to be paid, which will mature the policy on the latest maturity date, if any, permitted under the policy, otherwise at the highest age in the valuation mortality table, for an amount which is in accordance with the policy structure. The guaranteed maturity premium is calculated at issue based on all policy guarantees at issue excluding guarantees linked to an external referent. The guaranteed maturity premium for fixed premium universal life insurance policies shall be the premium defined in the policy which at issue provides the minimum policy guarantees. The guaranteed maturity premium for both flexible and fixed premium policies shall be adjusted for death benefit corridors provided by the policy. The guaranteed maturity premium may be less than the premium necessary to pay all charges.

(7) "Interest-indexed Universal Life Insurance Policy" means any universal life insurance policy where the interest credits are linked to an external referent.

(8) "Maturity Amount" shall be the initial death benefit where the death benefit is level over the lifetime of the policy except for the existence of a minimum-death-benefit corridor, or shall be the specified amount where the death benefit equals a specified amount plus the account value or cash surrender value except for the existence of a minimum-death-benefit corridor.

(9) "Net Surrender Value" is the cash surrender value less any amounts outstanding as policy loans.

(10) "Structural Changes" are those changes which are separate from the automatic workings of the policy. Such changes usually would be initiated by the policyowner and include changes in the guaranteed benefits, changes in the latest maturity date, or changes in allowable premium payment period. For fixed premium universal life policies with redetermination of all credits and charges no more frequently than annually, on policy anniversaries, structural changes also include changes in guaranteed benefits, or in fixed premiums, unanticipated by the guaranteed maturity premium for such policies at the date of issue, even if such changes arise from automatic workings of the policy.

(11) "Universal Life Insurance Policy" means any individual life insurance policy or group life insurance certificate 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 and expense charges are made to the policy. A universal life insurance policy may provide for other credits and charges, such as charges for the cost of benefits provided by rider.

(E) Valuation

(1) Requirements

The minimum valuation standard for universal life insurance policies shall be the commissioners reserve valuation method, described in this paragraph for such policies, and the tables and interest rates specified in this paragraph. The terminal reserve for the basic policy and any benefits and/or riders for which premiums are not paid separately as of any policy anniversary shall be equal to the net level premium reserves less (C) and less (D), where:

Reserves by the net level premium method shall be equal to ((A)-(B))r where (A), (B) and "r" are as defined in this paragraph.

(A) is the present value of all future guaranteed benefits at the date of valuation

(B) is the quantity (PVFB/ä_x) ä_x+t where

PVFB is the present value of all benefits guaranteed at issue assuming future guaranteed maturity premiums are paid by the policyowner and taking into account all guarantees contained in the policy or declared by the insurer, ä_x and ä_x+t are present values of an annuity of one per year payable on policy anniversaries beginning at ages x and x+t, respectively, and continuing until the highest attained age at which a premium may be paid under the policy,

x is the issue age, and

t is the duration of the policy.

"r" is equal to one, unless the policy is a flexible premium policy and the account value is less than the guaranteed maturity fund, in which case "r" is the ratio of the account value to the guaranteed maturity fund.

((a)-(b)) (ä_x+t/ä_x) r where

ä_x+t, ä_x and r are as defined in this paragraph.

(a) is a net level annual premium equal to the present value, at the date of issue based on the plan of insurance defined at issue by the guaranteed maturity premiums and all guarantees contained in the policy or declared by the insurer, of life insurance and endowment benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per annum payable on the first and each subsequent anniversary of such policy on which a premium is allowed to be paid; provided, however, that such net level annual premium shall not exceed the net level annual premium on the nineteen year premium whole life plan for insurance of the same amount at an age one year higher than the age at issue of such policy.

(b) is a net one year term premium for such benefits provided for in the first policy year.

(D) is the sum of any additional quantities analogous to (C) which arise because of structural changes in the policy, with each such quantity being determined on a basis consistent with that of (C) using the maturity date in effect at the time of the change.

The guaranteed maturity premium, the guaranteed maturity fund and (B) in this paragraph shall be recalculated to reflect any structural changes in the policy. This recalculation shall be done in a manner consistent with the descriptions in this paragraph.

The recalculation of (B) in this paragraph, for fixed premium universal life structural changes, shall exclude from PVFB, the present value of future guaranteed benefits, those guaranteed benefits which are funded by the excess of the insurer's declared guarantees of interest, mortality and expenses, over the guarantees contained in the policy at the date of issue.

Future guaranteed benefits are determined by (A) in this paragraph projecting the greater of the guaranteed maturity fund and the account value, taking into account future guaranteed maturity premiums, if any, and using all guarantees of interest, mortality, expense deductions, etc., contained in the policy or declared by the insurer; and (B) in this paragraph taking into account any benefits guaranteed in the policy or by declaration which do not depend on the account value.

All present values shall be determined using (A) in this paragraph an interest rate (or rates) specified by section 3903.723 or 3903.724 of the Revised Code, for policies issued in the same year; (B) in this paragraph the mortality rates specified by section 3903.723 of the Revised Code, for policies issued in the same year or contained in such other table as may be approved by the superintendent for this purpose; and (C) in this paragraph any other tables needed to value supplementary benefits provided by a rider which is being valued together with the policy.

The reserve shall never be less than the greater of (A) in this paragraph the amount determined by the method in this paragraph, or (B) in this paragraph the cash surrender value.

(2) Alternative minimum reserves

If, in any policy year, the guaranteed maturity premium on any universal life insurance policy is less than the valuation net premium for such policy, calculated by the valuation method actually used in calculating the reserve thereon but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for such contract shall be the greater of (A) or (B) in this paragraph.

(a) The reserve calculated according to the method, the mortality table, and the rate of interest actually used.

(b) The reserve calculated according to the method actually used but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the guaranteed maturity premium in each policy year for which the valuation net premium exceeds the guaranteed maturity premium.

For universal life insurance reserves on a net level premium basis, the valuation net premium is PVFB/ä_x and for reserves on a commissioners reserve valuation method, the valuation net premium is (PVFB/ä_x) + ((a) - (b))/ä_x.

(F) Nonforfeiture

(1) Minimum cash surrender values for flexible premium universal life insurance policies

Minimum cash surrender values for flexible premium universal life insurance policies shall be determined separately for the basic policy and any benefits and riders for which premiums are paid separately. The following requirements pertain to a basic policy and any benefits and riders for which premiums are not paid separately.

The minimum cash surrender value (before adjustment for indebtedness and dividend credits) available on a date as of which interest is credited to the policy shall be equal to the accumulation to that date of the premiums paid minus the accumulations to that date of:

(a) The benefit charges;

(b) The averaged administrative expense charges for the first policy year and any insurance-increase years;

(d) Initial and additional acquisition expense charges not exceeding the initial or additional expense allowances, respectively;

(e) Any service charges actually made (excluding charges for cash surrender or election of a paid-up nonforfeiture benefit); and

(f) Any deductions made for partial withdrawals.

All accumulations shall be at the actual rate or rates of interest at which interest credits have been made unconditionally to the policy (or have been made conditionally, but for which the conditions have since been met), less any unamortized unused initial and additional expense allowances.

Interest on the premiums and on all charges referred to in paragraphs (F)(1)(a) to (F)(1)(f) of this rule shall be accumulated from and to such dates as are consistent with the manner in which interest is credited in determining the account value.

The benefit charges shall include the charges made for mortality and any charges made for riders or supplementary benefits for which premiums are not paid separately. If benefit charges are substantially level by duration and develop low or no cash values, then the superintendent shall have the right to require higher cash values unless the insurer provides adequate justification that the cash values are appropriate in relation to the policy's other characteristics.

The administrative expense charges shall include charges per premium payment, charges per dollar of premium paid, periodic charges per thousand dollars of insurance, periodic per policy charges, and any other charges permitted by the policy to be imposed without regard to the policyowner's request for services.

The averaged administrative expense charges for any year shall be those which would have been imposed in that year if the charge rate or rates for each transaction or period within the year had been equal to the arithmetic average of the corresponding charge rates which the policy states will be imposed in policy years two through twenty in determining the account value.

The initial acquisition expense charges shall be the excess of the expense charges, other than service charges, actually made in the first policy year over the averaged administrative expense charges for that year. Additional acquisition expense charges shall be the excess of the expense charges, other than service charges, actually made in an insurance-increase year over the averaged administrative expense charges for that year. An insurance-increase year shall be the year beginning on the date of increase in the amount of insurance by policyowner request (or by the terms of the policy).

Service charges shall include charges permitted by the policy to be imposed as the result of a policyowner's request for a service by the insurer or of special transactions.

The initial expense allowance shall be the allowance provided by divisions (D) and (E) of section 3915.07 of the Revised Code or by divisions (D)(1) and (D)(2) of section 3915.071 of the Revised Code, as applicable, for a fixed premium, fixed benefit endowment policy with a face amount equal to the initial face amount of the flexible premium universal life insurance policy, with level premiums paid annually until the highest attained age at which a premium may be paid under the flexible premium universal life insurance policy, and maturing on the latest maturity date permitted under the policy, if any, otherwise at the highest age in the valuation mortality table. The unused initial expense allowance shall be the excess, if any, of the initial expense allowance over the initial acquisition expense charges as defined in this rule.

If the amount of insurance is subsequently increased upon request of the policyowner (or by the terms of the policy), an additional expense allowance and an unused additional expense allowance shall be determined on a basis consistent with this rule and with division (D)(4)(d) of section 3915.071 of the Revised Code, using the face amount and the latest maturity date permitted at that time under the policy.

The unamortized unused initial expense allowance during the policy year beginning on the policy anniversary at age x+t (where "x" is the same issue age) shall be the unused initial expense allowance multiplied by ä_x+t/ä_x where ä_x+t and ä_x are present values of an annuity of one per year payable on policy anniversaries beginning at ages x+t and x, respectively, and continuing until the highest attained age at which a premium may be paid under the policy, both on the mortality and interest bases guaranteed in the policy. An unamortized unused additional expense allowance shall be the unused additional expense allowance multiplied by a similar ratio of annuities, with ä_x replaced by an annuity beginning on the date as of which the additional expense allowance was determined.

(2) Minimum cash surrender values for fixed premium universal life insurance policies.

For fixed premium universal life policies, the minimum cash surrender values shall be determined separately for the basic policy and any benefits and riders for which premiums are paid separately. The following requirements pertain to a basic policy and any benefits and riders for which premiums are not paid separately.

The minimum cash surrender value (before adjustment for indebtedness and dividend credits) available on a date as of which interest is credited to the policy shall be equal to ((A)-(B)-(C)-(D) in this paragraph), where:

(A) is the present value of all future guaranteed benefits.

(B) is the present value of future adjusted premiums. The adjusted premiums are calculated as described in divisions (D) and (E) of section 3915.07 of the Revised Code or divisions (D)(1) and (D)(2) of section 3915.071 of the Revised Code, as applicable. If divisions (D)(1) and (D)(2) of section 3915.071 of the Revised Code are applicable, the nonforfeiture net level premium is equal to the quantity PVFB/ä_x,

Where PVFB is the present value of all benefits guaranteed at issue assuming future premiums are paid by the policyowner and all guarantees contained in the policy or declared by the insurer.

ä_x is the present value of an annuity of one per year payable on policy anniversaries beginning at age x and continuing until the highest attained age at which a premium may be paid under the policy.

(C) is the present value of any quantities analogous to the nonforfeiture net level premium which arise because of guarantees declared by the insurer after the issue date of the policy. ä_x shall be replaced by an annuity beginning on the date as of which the declaration became effective and payable until the end of the period covered by the declaration.

(D) is the sum of any quantities analogous to (B) which arise because of structural changes in the policy.

Future guaranteed benefits are determined by (a) projecting the account value, taking into account future premiums, if any, and using all guarantees of interest, mortality, expense deductions, etc., contained in the policy or declared by the insurer; and (b) taking into account any benefits guaranteed in the policy or by declaration which do not depend on the account value.

All present values shall be determined using (a) an interest rate (or rates) specified by section 3915.07 or 3915.071 of the Revised Code for policies issued in the same year and (b) the mortality rates specified by section 3915.07 or 3915.071 of the Revised Code for policies issued in the same year or contained in such other table as may be approved by the superintendent for this purpose.

(3) Minimum paid-up nonforfeiture benefits

If a universal life insurance policy provides for the optional election of a paid-up nonforfeiture benefit, it shall be such that its present value shall be at least equal to the cash surrender value provided for by the policy on the effective date of the election. The present value shall be based on mortality and interest standards at least as favorable to the policyowner as (a) in the case of a flexible premium universal life insurance policy, the mortality and interest basis guaranteed in the policy for determining the account value, or (b) in the case of a fixed premium policy the mortality and interest standards permitted for paid-up nonforfeiture benefits by section 3915.07 or 3915.071 of the Revised Code. In lieu of the paid-up nonforfeiture benefit, the insurer may substitute, upon proper request not later than sixty days after the due date of the premium in default, an actuarially equivalent alternative paid-up nonforfeiture benefit which provides a greater amount or longer period of death benefits, or, if applicable, a greater amount or earlier payment of endowment benefits.

Any secondary guarantees should be taken into consideration when computing minimum paid-up nonforfeiture benefits.

To preserve equity between policies on a premium paying basis and on a paid-up basis, present values must comply with paragraph (E)(1) of this rule for flexible premium universal life insurance policies and with paragraph (F)(2) of this rule for fixed premium policies.

A charge may be made at the surrender of the policy provided that the result after the deduction of the charge is not less than the minimum cash surrender value required by this paragraph.

(G) Mandatory policy provisions

The policy shall provide the following:

(1) Periodic disclosure to policyowner

The policy shall provide that the policyowner will be sent, without charge, at least annually, a report which will serve to keep such policyowner advised as to the status of the policy. The end of the current report period must be not more than three months previous to the date of the mailing of the report.

Such report shall include the following:

(a) The beginning and end date of the current report period.

(b) The account value at the end of the previous report period and at the end of current report period.

(c) The total amounts which have been credited or debited to the account value during the current report period, identifying each by type (e.g., interest, mortality, expense and riders).

(d) The current death benefit at the end of the current report period on each life covered by the policy.

(e) The net cash surrender value of the policy as of the end of the current report period.

(f) The amount of outstanding loans, if any, as of the end of the current report period.

(g) For fixed premium policies:

(h) For flexible premium policies:

(2) Policy guarantees

The policy shall provide guarantees of minimum interest credits and maximum mortality and expense charges. All values and data shown in the policy shall be based on guarantees. No figures based on nonguarantees shall be included in the policy. Minimum and maximum guarantees are in addition to any index guarantees. If "guaranteed" credits and/or charges are also the "current" credits and/or charges, such amounts may be included in the policy if clearly labeled. The maturity date is not considered a guarantee for purposes of this rule.

(3) Calculation of cash surrender values

The policy shall contain at least a general description of the calculation of cash surrender values including the following information:

(a) The guaranteed maximum expense charges and loads.

(b) Any limitation on the crediting of additional interest. Interest credits shall not remain conditional for a period longer than twenty-four months.

(d) The guaranteed maximum mortality charges.

(e) Any other guaranteed charges.

(f) Any surrender or partial withdrawal charges.

For fixed premium universal life insurance policies, a table of the cash surrender value and/or nonforfeiture benefits must be shown for the first twenty policy years or the terms of the policy, if shorter.

(4) Changes in basic coverage

If the policyowner has the right to change the basic coverage, any limitation on the amount or timing of such change shall be stated in the policy. If the policyowner has the right to increase the basic coverage, the policy shall state whether a new period of contestability and/or suicide is applicable to the additional coverage.

(5) Grace period and lapse

The policy shall provide for written notice to be sent to the policyowner's last known address at least thirty days prior to termination of coverage.

A flexible premium policy shall provide for a grace period of at least one month after lapse. Unless otherwise defined in the policy, lapse shall occur on that date on which the net cash surrender value first equals zero.

A fixed premium policy shall provide for a grace period of at least one month after lapse.

(6) Misstatement of age or sex

If there is a misstatement of age or sex in the policy, the amount of the death benefit shall be that which would be purchased by the most recent mortality charge at the correct age or sex. The superintendent may approve other methods which are deemed satisfactory.

(7) Maturity date

If a policy provides for a "maturity date," "end date," or similar date, then the policy shall also contain a statement, in close proximity to that date, that it is possible that coverage may not continue to the maturity date even if scheduled premiums are paid in a timely manner, if such is the case.

(H) Interest-indexed universal life insurance policies

(1) Initial filing requirements

The following information shall be submitted in connection with any filing of interest-indexed universal life insurance policies ("interest-indexed policies").

(a) A description of how the interest credits are determined, including:

(i) A description of the index;

(ii) The relationship between the value of the index and the actual interest rate to be credited;

(iii) The frequency and timing of determining the interest rate;

(iv) The allocation of interest credits, if more than one rate of interest applies to different portions of the policy value.

(b) The insurer's investment policy, which includes a description of the following:

(i) How the insurer addressed the reinvestment risks;

(ii) How the insurer plans to address the risk of capital loss on cash outflows;

(iii) How the insurer plans to address the risk that appropriate investments may not be available or not available in sufficient quantities;

(iv) How the insurer plans to address the risk that the indexed interest rate may fall below the minimum contractual interest rate guaranteed in the policy;

(v) The amount and type of assets currently held for interest-indexed policies;

(vi) The amount and type of assets expected to be acquired in the future.

(c) If policies are linked to an index for a specified period less than to the maturity date of the policy, a description of the method used (or currently contemplated) to determine interest credits upon the expiration of such period.

(d) A description of any interest guarantee in addition to or in lieu of the index.

(e) A description of any maximum premium limitations and the conditions under which they apply.

(2) Additional filing requirements

(a) Annually, every insurer shall submit a statement of actuarial opinion by the insurer's actuary similar to the example contained in paragraph (H)(3) of this rule.

(b) Annually, every insurer shall submit a description of the amount and type of assets currently held by the insurer with respect to its interest-indexed policies.

(c) Prior to implementation, every domestic insurer shall submit a description of any material change in the insurer's investment strategy or method of determining the interest credits. A change is considered to be material if it would affect the form or definition of the index (i.e., any change in the information supplied in paragraph (H)(1) of this rule) or if it would significantly change the amount or type of assets held for interest-indexed policies.

(d) The requirements of paragraphs (H)(2)(a) and (H)(2)(b) of this rule may be omitted if an actuarial opinion, in accordance with the requirements of sections 3903.722 and 3903.726 of the Revised Code, is filed annually.

(3) Statement of actuarial opinion for interest-indexed universal life insurance policies.

"I, ____________ (name), am ____________ (position or relationship to insurer) for the xyz life insurance company (the insurer) in the state of ____________________(state of domicile of insurer).

I am a member of the "American Academy of Actuaries" and I fulfill the requirements of a qualified actuary as defined in division (B)(9) of section 3903.72 of the Revised Code.

I have considered the provisions of the policies. I have considered any reinsurance agreements pertaining to such policies, the characteristics of the identified assets and the investment policy adopted by the insurer as they affect future insurance and investment cash flows under such policies and related assets. My examination included such tests and calculations as I considered necessary to form an opinion concerning the insurance and investment cash flows arising from the policies and related assets.

I relied on the investment policy of the insurer and on projected investment cash flows.

The tests were conducted under various assumptions as to future interest rates, and particular attention was given to those provisions and characteristics that might cause future insurance and investment cash flows to vary with changes in the level of prevailing interest rates.

In my opinion, the anticipated insurance and investment cash flows referred to above make good and sufficient provision for the contractual obligations of the insurer under these insurance policies."

_____________________________ signature of actuary

If the actuary has not examined the underlying records but has relied upon listings and summaries of policies in force, an appropriate statement of such reliance should be included here.

If the actuary has not developed the investment cash flows, but has relied upon someone else, an appropriate statement of such reliance should be included with this statement.

(I) Severability

Last updated November 17, 2022 at 8:53 AM

Supplemental Information

Authorized By: 3901.041
Amplifies: 3903.72 to 3903.7211, 3915.05, 3915.073, 3915.09, 3915.14, 3921.16
Five Year Review Date: 8/31/2027

Rule 3901-6-08 | Variable life insurance.

Effective:

November 16, 2023

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to amplify sections 3907.15 and 3911.01 of the Revised Code to provide for the regulation of fixed premium and flexible premium variable life insurance policies.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under section 3901.041 of the Revised Code.

(1) "Affiliate of an insurer" means 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 any such insurer, controlling or controlled person, or person providing investment advice, or any member of the immediate family of such person.

(2) "Agent" means any person, corporation, partnership, or other legal entity which is licensed by this state as a life insurance agent with a variable line of authority.

(3) "Assumed investment rate" means the rate of investment return which would be required to be credited to a variable life insurance policy, 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" means the amount, to which the net investment return is applied.

(5) "Control" (including the terms "controlling," "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or non-management 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 ten per cent of the voting securities of any other person. This presumption may be rebutted by a showing made to the satisfaction of the superintendent that control does not exist in fact. The superintendent may determine, after furnishing all persons in interest 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.

(6) "Flexible premium policy" means any variable life insurance policy other than a scheduled premium policy as specified in paragraph (C)(14) of this rule.

(7) "General account" means all assets of the insurer other than assets in separate accounts established pursuant to section 3907.15 of the Revised Code, or 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 life insurance.

(8) "Incidental insurance benefit" means all insurance benefits in a variable life insurance policy, 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.

(9) "Minimum death benefit" means the amount of the guaranteed death benefit, other than incidental insurance benefits, payable under a variable life insurance policy regardless of the investment performance of the separate account.

(10) "Net investment return" means the rate of investment return in a separate account to be applied to the benefit base.

(11) "Person" means an individual, corporation, partnership, association, trust, or fund.

(12) "Policy processing day" means the day on which charges authorized in the policy are deducted from the policy's cash value.

(13) "Scheduled premium policy" means any variable life insurance policy under which both the amount and timing of premium payments are fixed by the insurer.

(14) "Separate account" means a separate account established pursuant to section 3907.15 of the Revised Code or pursuant to the corresponding section of the insurance laws of the state of domicile of a foreign or alien insurer.

(15) "Superintendent" means the insurance superintendent of Ohio.

(16) "Variable death benefit" means the amount of the death benefit, other than incidental insurance benefits, payable under a variable life insurance policy dependent on the investment performance of the separate account, which the insurer would have to pay in the absence of any minimum death benefit.

(17) "Variable life insurance policy" means any individual policy 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 policy, pursuant to section 3907.15 of the Revised Code, or pursuant to the corresponding section of the insurance laws of the state of domicile of a foreign or alien insurer.

(D) Qualification 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 authority to issue variable life insurance in this state.

(1) Licensing and approval to do business in this state.

An insurer shall not deliver or issue for delivery in this state any variable life insurance policy unless:

(a) The insurer is licensed or organized to do a life insurance business in this state;

(b) The insurer has obtained the written approval of the superintendent for the issuance of variable life insurance policies in this state. The superintendent shall grant such written approval only after he or she has found that:

(i) The plan of operation for the issuance of variable life insurance policies is not unsound;

(ii) 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 insurance business of the insurer in this state; and

(iii) The present and foreseeable future financial condition of the insurer and its method of operation in connection with the issuance of such policies is not likely to render its operation hazardous to the public or its policyholders in this state. The superintendent shall consider, among other things:

(a) The history of operation and financial condition of the insurer;

(b) 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;

(c) The applicable laws and regulations under which the insurer is authorized in its state of domicile to issue variable life insurance policies. The state of entry of an alien insurer is deemed its state of domicile for this purpose; and

(d) 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.

The superintendent may, at his or her discretion, require that an insurer, before it delivers or issues for delivery any variable life insurance policy in this state, file with this department the following information for the consideration of the superintendent in making the determination required by paragraph (D)(1)(b) of this rule:

(a) Copies of and a general description of the variable life insurance policies 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 policies and the names of those persons or firms proposed to supply consulting, investment, administrative, custodial or distribution services to the insurer;

(c) With respect to any separate account maintained by an insurer for any variable life insurance policy, a statement of the investment policy the issuer 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 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 paragraph (G)(10) of this rule;

(e) A copy of the statutes and regulations of the state of domicile of the insurer under which it is authorized to issue variable life insurance policies;

(f) Biographical data with respect to officers and directors of the insurer on the "National Association of Insurance Commissioners" biographical affidavit; and

(g) A statement of the insurer's actuary describing the mortality and expense risks which the insurer will bear under the policy.

(3) Standards of suitability.

Every insurer seeking approval to enter into the variable life insurance business in this state shall establish and maintain a written statement specifying the standards of suitability to be used by the insurer. Such standards of suitability shall specify that no recommendations shall be made to an applicant to purchase a variable life insurance policy and that no variable life insurance policy shall be issued in the absence of reasonable grounds to believe that the purchase of such policy 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 to the agent making the recommendation.

(4) Use of sales materials.

An insurer authorized to transact variable life insurance business in this state shall 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 which is false, misleading, deceptive, or inaccurate.

(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 shall be in writing and provide that the supplier of such services shall furnish the superintendent with any information or reports in connection with such services which the superintendent may request in order to ascertain whether the variable life insurance operations of the insurer are being conducted in a manner consistent with this chapter and any other applicable laws or rules.

(6) Reports to the superintendent.

Any insurer authorized to transact the business of variable life insurance in this state shall submit to the superintendent, in addition to any other materials which may be required by this rule or any other applicable laws or rules:

(a) An annual statement of the business of its separate account or accounts in such form as may be prescribed by the "National Association of Insurance Commissioners;" and

(b) Prior to the use in this state, any information furnished to applicants as provided for in paragraph (H) of this rule; and

(c) Prior to the use in this state, the form of any of the reports to policyholders as provided for in paragraph (J) of this rule; and

(d) Such additional information concerning its variable life insurance operations or its separate accounts as the superintendent deems necessary.

Any material submitted to the superintendent under paragraph (D)(6) of this rule shall be disapproved if it is found to be false, misleading, deceptive, or inaccurate in any material respect and, if previously distributed, the superintendent shall require the distribution of amended material.

(7) Authority of superintendent to disapprove.

Any material required to be filed with and approved by the superintendent is subject to disapproval if at any time it is found by him or her not to comply with the standards established by this rule.

(E) Insurance policy requirements

Policy qualification. The superintendent shall not approve any variable life insurance form filed pursuant to this rule unless it conforms to the requirements of paragraph (E) of this rule.

(1) Filing of variable life insurance policies.

All variable life insurance policies, and all riders, endorsements, applications, and other documents which are to be attached to and made a part of the policy and which relate to the variable nature of the policy, shall be filed with the superintendent and approved by him or her prior to delivery or issuance for delivery in this state.

(a) The procedures and requirements for such filing and approval shall be, to the extent appropriate and not inconsistent with this rule, the same as those otherwise applicable to other life insurance policies.

(b) The superintendent may approve variable life insurance policies and related forms with provisions the superintendent deems to be not less favorable to the policyholder and the beneficiary than those required by this rule.

(2) Mandatory policy benefit and design requirements.

Variable life insurance policies delivered or issued for delivery in this state shall comply with the following minimum requirements:

(a) Mortality and expense risks are borne by the insurer. The mortality and expense charges are subject to the maximums stated in the contract.

(b) For scheduled premium policies, a minimum death benefit is provided in an amount at least equal to the initial face amount of the policy so long as premiums are duly paid subject to the provisions of paragraph (E)(4) of this rule.

(c) The policy reflects 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 insurance policy is actuarially sound.

(d) Each variable life insurance policy is 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 insurance policy are determined at least annually.

(f) The cash value of each variable life insurance policy is determined at least monthly. The method of computation of cash values and other non-forfeiture benefits, as described either in the policy or in a statement filed with the superintendent of the state in which the policy is delivered, or issued for delivery, is in accordance with actuarial procedures that recognize the variable nature of the policy. The method of computation must be such that, if the net investment return credited to the policy 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 policy, then the resulting cash values and other non-forfeiture benefits must be at least equal to the minimum values required by section 3915.07 of the Revised Code (standard non-forfeiture law) for a general account policy with such premiums and benefits. The assumed investment rate is not to exceed the maximum interest rate permitted under the standard non-forfeiture law of this state. If the policy does not contain an assumed investment rate, this demonstration is based on the maximum interest rate permitted under the standard non-forfeiture law. The method of computation may disregard incidental minimum guarantees as to the dollar amounts payable. Incidental minimum guarantees include, for example, but are not to be 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 policy at all times from the date of issue had been equal to the assumed investment rate.

(g) The computation of values required for each variable life insurance policy may be based upon such reasonable and necessary approximations as are acceptable to the superintendent.

(3) Mandatory policy provisions.

Every variable life insurance policy filed for approval in this state shall contain at least the following:

(a) The cover page or pages corresponding to the cover pages of each such policy shall contain:

(i) A prominent statement in either contrasting color or in boldface type that the amount or duration of death benefits may be variable or fixed under specified conditions;

(ii) A prominent statement in either contrasting color or in boldface type that cash 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 pursuant to paragraph (E)(2)(b) of this rule;

(iv) The method, or a reference to the policy provision which describes the method, for determining the amount of insurance payable at death;

(v) To the extent permitted by state law, a captioned provision that the policyholder may return the variable life insurance policy within ten days of receipt of the policy by the policyholder, and receive a refund equal to the sum of (a) the difference between the premiums paid including any policy fees or other charges and the amounts allocated to any separate accounts under the policy, and (b) the value of the amounts allocated to any separate accounts under the policy, on the date the returned policy is received by the insurer or its agent. Until such time as state law authorizes the return of payments as calculated in the preceding sentence, the amount of the refund is the total of all premium payments for such policy;

(vi) Such other items as are currently required for fixed benefit life insurance policies and which are not inconsistent with this rule.

(b)

(i) For scheduled premium policies, a provision for a grace period of not less than thirty-one days from the premium due date which provides that where the premium is paid within the grace period, policy values will be the same, except for the deduction of any overdue premium, as if the premium were paid on or before the due date.

(ii) For flexible premium policies, a provision for a grace period beginning on the policy processing day when the total charges authorized by the policy that are necessary to keep the policy in force until the next policy processing day exceed the amounts available under the policy to pay such charges in accordance with the terms of the policy. Such grace period ends on a date not less than sixty-one days after the mailing date of the report to policyholders required by paragraph (J)(3) of this rule.

(iii) The death benefit payable during the grace period will equal the death benefit in effect immediately prior to such period less any overdue charges. If the policy processing days occur monthly, the insurer may require the payment of not more than three times the charges which were due on the policy processing day on which the amounts available under the policy were insufficient to pay all charges authorized by the policy that are necessary to keep such policy in force until the next policy processing day.

(c) For scheduled premium policies, a provision that the policy 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 subsequent to the end of the grace period following the date of default together with accrued interest thereon to the date of reinstatement and payment of an amount not exceeding the greater of:

(i) All overdue premiums and any indebtedness in effect at the end of the grace period following the date of default with interest as provided in section 3915.051 of the Revised Code.

(ii) One hundred ten per cent of the increase in cash value resulting from reinstatement plus all overdue premiums for incidental insurance benefits using an interest rate provided in section 3915.051 of the Revised Code.

(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 policy;

(e) A provision designating the separate account to be used and stating that:

(i) The assets of such separate account shall 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 insurance policies supported by the separate account.

(ii) The assets of such separate account shall be valued at least as often as any policy benefits vary but at least monthly.

(f) A provision specifying what documents constitute the entire insurance contract under state law;

(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 his 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 policy;

(k) A description of any adjustments in policy values to be made in the event of misstatement of age or sex of the insured;

(l) A provision that the policy is 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 policy's death benefits subsequent to the policy 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, is 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 will not be changed without the approval of the insurance superintendent of the state of domicile of the insurer, and that the approval process is on file with the superintendent of this state;

(n) A provision that payment of variable death benefits in excess of any minimum death benefits, cash values, policy loans, or partial withdrawals (except when used to pay premiums) or partial surrenders may be deferred:

(i) For up to six months from the date of request, if such payments are based on policy values which do not depend on the investment performance of the separate account, or

(ii) Otherwise, 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 which may make such payment impractical.

(o) If settlement options are provided, at least one such option provided will be on a fixed basis only;

(p) A description of the basis for computing the cash value and the surrender value under the policy;

(q) Premiums or charges for incidental insurance benefits are stated separately;

(r) Any other policy provision required by this rule;

(s) Such other items as are currently required for fixed benefit life insurance policies and are not inconsistent with this rule; and

(t) A provision for non-forfeiture insurance benefits. The insurer may establish a reasonable minimum cash value below which any non-forfeiture insurance options will not be available.

(4) Policy loan provisions.

Every variable life insurance policy, other than term insurance policies and pure endowment policies, delivered or issued for delivery in this state shall contain provisions which are not less favorable to the policyholder than a provision for policy loans after the policy has been in force for two full years which provides the following:

(a) At least seventy-five per cent of the policy's cash surrender value may be borrowed.

(b) The amount borrowed bears interest at a rate not to exceed that permitted by state insurance law.

(d) Any indebtedness is deducted from the cash surrender value upon surrender or in determining any non-forfeiture benefit.

(e) For scheduled premium policies, whenever the indebtedness exceeds the cash surrender value, the insurer will give notice of any intent to cancel the policy if the excess indebtedness is not repaid within thirty-one days after the date of mailing of such notice. For flexible premium policies, whenever the total charges authorized by the policy that are necessary to keep the policy in force until the next following policy processing day exceed the amounts available under the policy to pay such charges, a report must be sent to the policyholder containing the information specified by paragraph (J)(3) of this rule.

(f) The policy 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 policyholder 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 one hundred ten per cent of the corresponding increase in cash value, and by furnishing such evidence of insurability as the insurer may request.

(g) The policy may specify a reasonable minimum amount which may be borrowed at any time, but such minimum does not apply to any automatic premium loan provision.

(h) No policy loan provision is required if the policy is under extended insurance non-forfeiture option.

(i) The policy loan provisions are constructed so that variable life insurance policyholders who have not exercised such provisions are not disadvantaged by the exercise thereof.

(j) Amounts paid to the policyholders upon the exercise of any policy loan provision shall be withdrawn from the separate account and shall be returned to the separate account upon repayment, except that a stock insurer may provide the amounts for policy loans from the general account.

(5) Other policy provisions.

The following provisions may in substance be included in a variable life insurance policy 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 policy; provided, however, that to the extent of the increased death benefits only, the policy may provide an exclusion for suicide within two years of any increase in death benefits which results from an application of the owner subsequent to the policy issue date;

(b) Incidental insurance benefits may be offered on a fixed or variable basis;

(c) Policies issued on a participating basis shall offer to pay dividend amounts in cash. In addition, such policies 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;

(v) The amount of the dividend may be deposited as a variable deposit in a separate account.

(d) A provision allowing the policyholder to elect in writing in the application for the policy, or thereafter, an automatic premium loan on a basis not less favorable than that required of policy loans under paragraph (E)(4) of this rule, 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 policyholder to make partial withdrawals; and

(f) Any other policy provision approved by the superintendent.

(F) Reserve liabilities for variable life insurance

(1) Reserve liabilities for variable life insurance policies shall be established under sections 3903.721 and 3903.728 of the Revised Code in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.

(2) Reserve liabilities for the guaranteed minimum death benefit shall 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 shall be maintained in the general account of the insurer and not be less than the greater of the following minimum reserves:

(a) The aggregate total of the term costs, if any, covering a period of one full year from the valuation date or, if less, covering the period provided for in the guarantee not otherwise provided for by the reserves held in the separate account, on each variable life insurance 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

(b) 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 shall not be less than zero and shall equal the "residue," as described in paragraph (F)(2)(b)(i) of this rule, of the prior year's "attained age level" reserve on the contract, with any such "residue," increased or decreased by a payment computed on an attained age basis as described in paragraph (F)(2)(b)(ii) of this rule.

(i) The "residue" of the prior year's "attained age level" reserve on each variable life insurance contract shall not be less than zero and shall 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 shall be based on 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.

(ii) The payment referred to in paragraph (F)(2)(b) of this rule shall be computed so that the present value of a level payment of that amount each year over the future period for which charges for this risk will be collected under the contract, is equal to (A) minus (B) minus (C), where (A) is the present value of the future guaranteed minimum death benefits, (B) is the present value of the future death benefits that would be payable in the absence of such guarantee, and (C) is any "residue," as described in paragraph (F)(2)(b)(i) of this rule, of the prior year's "attained age level" reserve on such variable life insurance contract. If no future charges for this risk will be collected under the contract, the payment shall equal (A) minus (B) minus (C). The amounts of future death benefits referred to in (B) shall be computed assuming a net investment return of the separate account which may differ from the assumed investment rate or the valuation interest rate, but in no event may exceed the maximum interest rate permitted for the valuation of life contracts.

(c) The valuation interest rate and mortality table used in computing the two minimum reserves described in paragraphs (F)(2)(a) and (F)(2)(b) of this rule shall conform to permissible standards for the valuation of life insurance contracts. In determining such minimum reserve, the company may employ suitable approximations and estimates, including but not limited to groupings and averages.

(3) Reserve liabilities for all fixed incidental insurance benefits and any guarantees associated with variable incidental insurance benefits shall be maintained in the general account, and reserve liabilities for all variable aspects of the variable incidental insurance benefits shall be maintained in a separate account, in amounts determined in accordance with the actuarial procedures appropriate to such benefit.

(G) Separate accounts

The following requirements apply to the establishment and administration of variable life insurance separate accounts by any domestic insurer.

(1) Establishment and administration of separate accounts.

Any domestic insurer issuing variable life insurance shall establish one or more separate accounts pursuant to section 3907.15 of the Revised Code.

(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 shall be in writing, and the superintendent has the authority to review and approve of both the terms of any such contract and the proposed custodian prior to the transfer of custody.

(b) Such insurer shall not, without the prior written approval of the superintendent, employ in any material connection with the handling of separate account asset any person who:

(i) Within the last ten 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 section 1341, 1342, or 1343 of Title 18, United States Code; or

(ii) Within the last ten 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

(iii) Within the last ten years has been found by federal or state regulatory authorities to have violated or has acknowledged violation of any provision of federal or state securities laws involving fraud, deceit, or knowing misrepresentation.

(c) All persons with access to the cash, securities, or other assets of the separate account shall be under bond in the amount of not less than the following amounts:

Total Assets
Under $100,000
More than:	But not more than:
$ 100,000	$ 600,000
600,000	1,200,000
1,200,000	3,200,000
3,200,000	4,450,000
4,450,000	6,450,000
6,450,000	90,450,000
90,450,000	350,450,000
350,450,000	1,070,450,000
1,070,450,000

Minimum Amount of Bond
$10,000
$ 10,000 plus	4% of assets over	$ 100,000
30,000 plus	3 1/3% of assets over	600,000
50,000 plus	2 1/2% of assets over	1,200,000
100,000 plus	2% of assets over	3,200,000
125,000 plus	1 1/4% of assets over	4,450,000
150,000 plus	5/8% of assets over	6,450,000
675,000 plus	3/8% of assets over	90,450,000
1,625,000 plus	3/16% of assets over	350,450,000
3,075,000 plus	3/32% of assets over	1,070,450,000
Until total bond equals $5,000,000.

(d) The assets of such separate accounts shall be valued at least as often as variable benefits are determined, but in any event at least monthly.

(2) Amounts in the separate account.

The insurer shall 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 policies, or the benefit base for such policies.

(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 policies 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 superintendent in advance.

(b) The separate account shall have sufficient net investment income and readily marketable assets to meet anticipated withdrawals under policies funded by the account.

(4) Limitations on ownership.

(a) A separate account shall 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 rule, would exceed ten per cent of the value of the assets of the separate account. To the extent permitted by state law, the superintendent may waive this limitation in writing if he or she believes such waiver will not render the operation of the separate account hazardous to the public or the policyholders in this state.

(b) No separate account shall 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 ten per cent of the total issued and outstanding voting securities of such issuer. To the extent permitted by state law, the superintendent may waive this limitation in writing if he or she believes such waiver will not render the operation of the separate account hazardous to the public or the policyholders in this state, or jeopardize the independent operation of the issuer of such securities.

(c) The percentage limitation specified in paragraph (G)(4)(a) of this rule, shall not be construed to preclude the investment of the assets of separate accounts in shares of investment companies registered pursuant to the Investment Company Act of 1940, 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 (G)(3) of this rule and other applicable portions of this rule.

(5) Valuation of separate account assets.

Investments of the separate account are 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 paragraph (D)(2)(c) of this rule shall not be changed without first filing such change with the insurance superintendent.

(a) Any change filed pursuant to this paragraph is effective sixty days after the date it was filed with the superintendent, unless the superintendent notifies the insurer before the end of such sixty-day period of his or her disapproval of the proposed change. At any time the superintendent may, after notice and public hearing, disapprove any change that has become effective pursuant to this paragraph.

(b) The superintendent may disapprove the change if he or she determines that the change would be detrimental to the interests of the policyholders participating in such separate account.

(7) Charges against separate account.

The insurer must disclose in writing, prior to or contemporaneously with delivery of the policy, 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;

(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 policy, for mortality and expense guarantees;

(f) Any amounts in excess of those required to be held in the separate accounts;

(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 shall 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 or codes of ethics meeting the requirements of section 17j under the Investment Company Act of 1940 and its applicable rules and regulations thereunder satisfies the provisions of this paragraph.

(9) Conflicts of interest.

Rules under any provision of the insurance laws of this state or any rule 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 shall 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 policies unless:

(a) The person providing such advice is registered as an investment adviser under the Investment Advisers Act of 1940; or

(b) The person providing such advice is an investment manager under the Employee Retirement Income Security Act of 1974 with respect to the assets of each employee benefit plan allocated to the separate account; or

(c) The insurer has filed with the superintendent and continues to file annually the following information and statements concerning the proposed adviser:

(i) The name and form of organization, state of 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 the requirements of paragraph (G)(8) of this rule which has been adopted by the investment adviser and is applicable to the investment adviser, his officers, directors, and affiliates;

(iv) A statement provided by the proposed adviser as to whether the adviser or any person associated therewith:

(a) Has been convicted within ten 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 adviser involving embezzlement, fraudulent conversion, or misappropriation of funds or securities, or involving the violation of section 1341, 1342, or 1343 of Title 18 of the United States Code;

(b) Has been permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from acting as an investment adviser, 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;

(c) 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 any such laws; or

(d) Has been censured, denied an investment adviser registration, had a registration as an investment adviser revoked or suspended, or been barred or suspended from being associated with an investment adviser by order of federal or state regulatory authorities; and

(d) Such investment advisory contract shall 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 sixty days' written notice to the investment adviser.

The superintendent may, after notice and opportunity for hearing, by order require such investment advisory contract to be terminated if he or she deems continued operation thereunder to be hazardous to the public or the insurer's policyholders.

(H) Information furnished to applicants

An insurer delivering or issuing for delivery in this state any variable life insurance policies shall deliver the following to the applicant for the policy, and obtain a written acknowledgment of receipt from such applicant coincident with or prior to the execution of the application. The requirements of this paragraph are deemed to have been satisfied to the extent that a disclosure containing information required by this paragraph is delivered, either in the form of a prospectus included in the requirements of the Securities Act of 1933 and which was declared effective by the "Securities and Exchange Commission"; or all information and reports required by the employee retirement income Security Act of 1974 if the policies are exempted from the registration requirements of the Securities Act of 1933 pursuant to section 3 (a)(2) thereof.

(1) A summary explanation, in non-technical terms, of the principal features of the policy, including a description of the manner in which the variable benefits will reflect the investment experience of the separate account and the factors which affect such variation. Such explanation must include notices of the provision required by paragraphs (E)(3)(a)(v) and (E)(3)(f) of this rule;

(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 restriction or limitations on 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 ten 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 policy applicable to the insured, the policyholder and the beneficiary;

(7) Illustrations of benefits payable under the variable life insurance contract. Such illustrations shall be prepared by the insurer and shall not include projections of past investment experience into the future or attempted predictions of future investment 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.

(I) Applications

The application for a variable life insurance policy 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 which enables the insurer to determine the suitability of variable life insurance for the applicant.

(J) Reports to policyholders

Any insurer delivering or issuing for delivery in this state any variable life insurance policies shall mail to each variable life insurance policyholder at his or her last known address the following reports:

(1) Within thirty days after each anniversary of the policy, a statement or statements of the cash surrender value, death benefit, any partial withdrawal or policy loan, any interest charge, any optional payments allowed pursuant to paragraph (E)(4) of this rule under the policy computed as of the policy anniversary date. Provided, however, that such statement may be furnished within thirty days after a specified date in each policy year, so long as the information contained therein is computed as of a date not more than sixty days prior to the mailing of such notice. This statement shall state that, in accordance with the investment experience of the separate account, the cash values and the variable death benefits may increase or decrease, and shall prominently identify any value described therein which may be recomputed prior to the next statement required by this paragraph. If the policy guarantees that the variable death benefit on the next policy anniversary date will not be less than the variable death benefit specified in such statement, the statement shall be modified to so indicate. For flexible premium policies, the report must contain a reconciliation of the change since the previous report in cash value and cash surrender value, if different, because of payments made (less deductions for expense charges), withdrawals, investment experience, insurance charges and any other charges made against the cash value. In addition, the report must show the projected cash 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 investment return is equal to the guaranteed rate or, in the absence of a guaranteed rate, is not greater than zero. If the projected value is less than zero, a warning message must be included that states that the policy may be in danger of terminating without value in the next twelve 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 superintendent;

(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 superintendent;

(d) Any charges levied against the separate account during the previous year;

(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 adviser of the separate account.

(3) For flexible premium policies, a report must be sent to the policyholder if the amounts available under the policy on any policy processing day to pay the charges authorized by the policy are less than the amount necessary to keep the policy in force until the next following policy processing day. The report must indicate the minimum payment required under the terms of the policy to keep it in force and the length of the grace period for payment of such amount.

(K) Foreign companies

If the law or regulation in the place of domicile of a foreign company provides a degree of protection to the policyholders and the public which is substantially similar to that provided by this rule, the superintendent, to the extent deemed appropriate by the superintendent in his or her discretion, may consider compliance with such law or regulation as compliance with this rule.

(L) Qualifications of agents for the sale of variable life insurance

(1) Qualification to sell variable life insurance.

(a) No person may sell or offer for sale in this state any variable life insurance policy unless such person is an agent and has filed with the superintendent, in a form satisfactory to the superintendent, evidence that such person holds any license or authorization which may be required for the solicitation or sale of variable life insurance.

(b) Any examination administered by the department for the purpose of determining the eligibility of any person for licensing as an agent shall, after the effective date of this rule, include such questions concerning the history, purpose, regulation, and sale of variable life insurance as the superintendent deems appropriate.

(2) Reports of disciplinary actions.

Any person qualified in this state under this rule to sell or offer to sell variable life insurance shall immediately report to the superintendent:

(a) Any suspension or revocation of his agent's license in any other state or territory of the "United States";

(b) The imposition of any disciplinary sanction, including suspension or expulsion from membership, suspension, or revocation of or denial of registration, imposed upon him by any national securities exchange, or national securities association, or any federal, state, or territorial agency with jurisdiction over securities or variable life insurance;

(c) Any judgment or injunction entered against him on the basis of conduct deemed to have involved fraud, deceit, misrepresentation, or violation of any insurance or securities law or regulation.

(3) Refusal to qualify agent to sell variable life insurance; suspension, revocation, or nonrenewal of qualification:

The superintendent may reject any application or suspend or revoke or refuse to renew any agent's qualification under this rule to sell or offer to sell variable life insurance upon any ground that would bar such applicant or such agent from being licensed to sell other life insurance contracts in this state. The rules governing any proceeding relating to the suspension or revocation of an agent's license shall also govern any proceeding for suspension or revocation of an agent's qualification to sell or to offer to sell variable life insurance.

(M) Severability

Last updated November 16, 2023 at 8:32 AM

Supplemental Information

Authorized By: 3901.041
Amplifies: 3907.15, 3911.01
Five Year Review Date: 8/31/2028
Prior Effective Dates: 3/4/1986, 10/1/1997

Rule 3901-6-10 | Valuation of life insurance policies.

Effective:

November 16, 2023

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

(1) The purpose of this rule is to provide:

(a) Tables of select mortality factors and rules for their use;

(b) Rules concerning a minimum standard for the valuation of plans with non-level premiums or benefits; and

(2) The method for calculating basic reserves defined in this rule will constitute the "Commissioners' Reserve Valuation Method" for policies to which this regulation is applicable.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under section 3901.041 of the Revised Code.

This rule shall apply to all life insurance policies, with or without nonforfeiture values, issued on or after January 1, 2000, subject to the following exceptions and conditions.

(1) Exceptions

(a) This rule does not apply to any individual life insurance policy issued on or after January 1, 2000 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 January 1, 2000, that guarantees the premium rates of the new policy. This rule also does 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 rule does not apply to any universal life policy that meets all the following conditions:

(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 CSO valuation tables as defined in paragraph (D)(6) of this rule and the applicable valuation interest rate; and

(iii) The initial surrender charge is not less than one hundred per cent of the first year annualized specified premium for the secondary guarantee period.

(c) This rule does 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 rule does 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 rule does not apply to a group life insurance certificate unless the certificate provides for a stated or implied schedule of maximum gross premiums necessary 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 non-level gross premiums or guaranteed non-level benefits (other than universal life policies), or both, shall be in accordance with the provisions of paragraph (F) of this rule.

(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, shall be in accordance with the provisions of paragraph (G) of this rule.

(D) Definitions

For purposes of this rule:

(1) "Basic reserves" means reserves calculated in accordance with divisions (E), (F), and (G) of section 3903.723 of the Revised Code.

(2) "Contract segmentation method" means 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 paragraph (D)(6) of this rule, (or any other valuation mortality table adopted by the "National Association of Insurance Commissioners" (NAIC) after January 1, 2000 and promulgated by rule by the superintendent for this purpose), and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in paragraph (E)(2) of this rule.

The length of a particular contract segment shall be set equal to the minimum of the value t for which G_t is greater than R_t (if G_t never exceeds R_t the segment length is deemed to be the number of years from the beginning of the segment to the mandatory expiration date of the policy), where G_t and R_t are defined as follows:

G_t = GP_x+k+t / GP_x+k+t-1

Where:

x = Original issue age;

k = The number of years from the date of issue to the beginning of the segment;

t = 1, 2, ...; t is reset to 1 at the beginning of each segment;

GP_x+k+t-1 = Guaranteed gross premium per thousand of face amount for year t of the segment, ignoring policy fees only if level for the premium paying period of the policy.

R_t = Q_x+k+t / Q_x+k+t-1

However, R_t may be increased or decreased by one per cent in any policy year, at the company's option, but R_t shall not be less than one;

Where:

x, k, and t are defined above, and

Q_x+k+t-1 = Valuation mortality rate for deficiency reserves in policy year k+t but using the mortality of paragraph (E)(2)(b) of this rule if paragraph (E)(2)(c) of this rule is elected for deficiency reserves.

However, if GP_x+k+t is greater than 0 and GP_x+k+t-1 is equal to 0, G_t shall be deemed to be 1000. If GP_x+k+t and GP_x+k+t-1 are both equal to 0, G_t shall be deemed to be 0.

(3) "Deficiency reserves" means the excess, if greater than zero, of

(a) Minimum reserves calculated in accordance with division (K) of section 3903.723 of the Revised Code over

(b) Basic reserves.

(4) "Guaranteed gross premiums" means the premiums under a policy of life insurance that are guaranteed and determined at issue.

(5) "Maximum valuation interest rates" means the interest rates defined in section 3903.724 of the Revised Code ("Determination of valuation interest rate") that are to be used in determining the minimum standard for the valuation of life insurance policies.

(6) "1980 CSO valuation tables" means 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.

(7) "Scheduled gross premium" means 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 paragraph (G)(1)(c) of this rule, if any, or else the minimum premium described in paragraph (G)(1)(d) of this rule.

(8)

(a) "Segmented reserves" means 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 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:

(i) The present value of the death benefits within the segment, plus

(ii) The present value of any unusual guaranteed cash value (see paragraph (F)(4) of this rule) occurring at the end of the segment, less

(iii) Any unusual guaranteed cash value occurring at the start of the segment, plus

(iv) For the first segment only, the excess of the item (a) over item (b), as follows:

(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 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.

(b) A net one year term premium for the benefits provided for in the first policy year.

(b) The length of each segment is determined by the "contract segmentation method," as defined in this paragraph.

(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 sum of the lengths of all segments of the policy.

(d) For both basic reserves and deficiency reserves computed by the segmented method, present values shall include future benefits and net premiums in the current segment and in all subsequent segments.

(9) "Tabular cost of insurance" means 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.

(10) "Ten-year select factors" means the select factors adopted with the 1980 amendments to the "NAIC Standard Valuation Law."

(11)

(a) "Unitary reserves" means the present value of all future guaranteed benefits less the present value of all future modified net premiums where:

(i) Guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy; and

(ii) 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 item (a) over item (b), as follows:

(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 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.

(b) A net one year term premium for the benefits provided for in the first policy year.

(b) 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.

(12) "Universal life insurance policy" means 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.

(E) General calculation requirements for basic reserves and premium deficiency reserves

(1) 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 January 1, 2000 and promulgated by rule by the superintendent for this purpose). If select mortality factors are elected, they may be:

(a) The ten-year select mortality factors incorporated into the 1980 amendments to the "NAIC Standard Valuation Law";

(b) The select mortality factors in the appendix to this rule; or

(c) Any other table of select mortality factors adopted by the NAIC after January 1, 2000 and promulgated by rule by the superintendent for the purpose of calculating basic reserves.

(2) 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 January 1, 2000 and promulgated by rule by the superintendent). If select mortality factors are elected, they may be:

(a) The ten-year select mortality factors incorporated into the 1980 amendments to the "NAIC Standard Valuation Law";

(b) The select mortality factors in the appendix to this rule;

(c) For durations in the first segment, X per cent of the select mortality factors in the appendix to this rule, subject to the following:

(i) X may vary by policy year, policy form, underwriting classification, issue age, or any other policy factor expected to affect mortality experience;

(ii) X is such that, when using the valuation interest rate used for basic reserves, item (a) is greater than or equal to item (b):

(a) The actuarial present value of future death benefits, calculated using the mortality rates resulting from the application of X;

(b) The actuarial present value of future death benefits calculated using anticipated mortality experience without recognition of mortality improvement beyond the valuation date;

(iii) 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;

(iv) The appointed actuary shall increase X at any valuation date where it is necessary to continue to meet all the requirements of paragraph (E)(2)(c) of this rule;

(v) The appointed actuary may decrease X at any valuation date as long as X continues to meet all the requirements of paragraph (E)(2)(c) of this rule; and

(vi) The appointed actuary shall specifically take into account the adverse effect on expected mortality and lapsation of any anticipated or actual increase in gross premiums.

(vii) If X is less than one hundred per cent at any duration for any policy, the following requirements shall be met:

(a) The appointed actuary shall annually prepare an actuarial opinion and memorandum for the company in conformance with the requirements of section VM-30 of the current edition of the "Valuation Manual" published by the NAIC; and

(b) The appointed actuary shall annually opine for all policies subject to this rule as to whether the mortality rates resulting from the application of X meet the requirements of paragraph (E)(2)(c) of this rule. This opinion 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 shall reflect anticipated future mortality, without recognition of mortality improvement beyond the valuation date, taking into account relevant emerging experience.

(d) Any other table of select mortality factors adopted by the NAIC after January 1, 2000 and promulgated by rule by the superintendent for the purpose of calculating deficiency reserves.

(3) This paragraph 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 incorporated into the 1980 amendments to the "NAIC Standard Valuation Law" may be used thereafter through the tenth policy year from the date of issue.

(4) 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.

(5) 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 shall be the greatest of the following:

(a) Reserves calculated ignoring the guarantee,

(b) Reserves assuming the guarantee was made at issue, and

(6) The commissioner may order that the company document the extent of the adequacy of reserves for specified blocks, including but not limited to policies issued prior to January 1, 2000. This documentation may include a demonstration of the extent to which aggregation with other nonspecified blocks of business is relied upon in the formation of the appointed actuary opinion pursuant to and consistent with the requirements of section VM-30 of the current edition of the "Valuation Manual" published by the NAIC.

(F) Calculation of minimum valuation standard for policies with guaranteed non-level gross premiums or guaranteed non-level benefits (other than universal life policies)

(1) Basic reserves

Basic reserves shall be calculated as the greater of the segmented reserves and the unitary reserves. Both the segmented reserves and the unitary reserves for any policy shall use the same valuation mortality table and selection factors. At the option of the insurer, in calculating segmented reserves and net premiums, either of the adjustments described in paragraph (F)(1)(a) or (F)(1)(b) of this rule may be made:

(a) Treat the unitary reserve, if greater than zero, applicable at the end of each segment as a pure endowment; and 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.

(b) Treat the guaranteed cash surrender value, if greater than zero, applicable at the end of each segment as a pure endowment; and 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.

(2) Deficiency reserves

(a) The deficiency reserve at any duration shall be calculated:

(i) On a unitary basis if the corresponding basic reserve determined by paragraph (F)(1) of this rule is unitary;

(ii) On a segmented basis if the corresponding basic reserve determined by paragraph (F)(1) of this rule is segmented; or

(iii) On the segmented basis if the corresponding basic reserve determined by paragraph (F)(1) of this rule is equal to both the segmented reserve and the unitary reserve.

(b) This paragraph shall apply 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 paragraph (E)(2) of this rule) and rate of interest.

(c) Deficiency reserves, if any, shall 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 paragraph (E)(2) of this rule.

(d) For deficiency reserves determined on a segmented basis, the quantity A is determined using segment lengths equal to those determined for segmented basic reserves.

(3) 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 shall use the same valuation mortality table and interest rates as that used for the calculation of the segmented reserves. However, if select mortality factors are used, they shall be the ten-year select factors incorporated into the 1980 amendments of the "NAIC 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 in this rule), exclusive of any deduction for policy loans, upon termination of the policy.

(4) Unusual pattern of guaranteed cash surrender values

(a) For any policy with an unusual pattern of guaranteed cash surrender values, the reserves actually held prior to the first unusual guaranteed cash surrender value shall 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.

(b) The reserves actually held subsequent to any unusual guaranteed cash surrender value shall 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

(i) n is the number of years from the date of the last unusual guaranteed cash surrender value prior to the valuation date to the earlier of:

(a) The date of the next unusual guaranteed cash surrender value, if any, that is scheduled after the valuation date; or

(b) The mandatory expiration date of the policy; and

(ii) 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

(iii) The net to gross ratio is equal to item (a) divided by item (b) as follows:

(a) 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.

(b) The present value, at the beginning of the n year period, of the schedule gross premiums payable during the n year period.

(c) For purposes of this paragraph, 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:

(i) One hundred ten per cent of the scheduled gross premium for that year;

(ii) One hundred ten per cent 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

(iii) Five per cent of the first policy year surrender charge, if any.

(5) Optional exemption for yearly renewable term reinsurance

At the option of the company, the following approach for reserves on YRT reinsurance may be used:

(a) Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year.

(b) Basic reserves shall never be less than the tabular cost of insurance for the appropriate period, as defined in paragraph (F)(3) of this rule.

(i) For each policy year, calculate the excess, if greater than zero, of the valuation net premium over the respective maximum guaranteed gross premium.

(ii) Deficiency reserves shall never be less than the sum of the present values, at the date of valuation, of the excesses determined in accordance with paragraph (F)(5)(c)(i) of this rule.

(d) 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 January 1, 2000 by the NAIC and promulgated by rule by the superintendent for this purpose.

(e) A reinsurance agreement shall be considered YRT reinsurance for purposes of this paragraph if only the mortality risk is reinsured.

(f) If the assuming company chooses this optional exemption, the ceding company's reinsurance reserve credit shall be limited to the amount of reserve held by the assuming company for the affected policies.

(6) Optional exemption for attained-age-based yearly renewable term life insurance policies

At the option of the company, the following approach for reserves for attained-age-based YRT life insurance policies may be used:

(a) Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year.

(b) Basic reserves shall never be less than the tabular cost of insurance for the appropriate period, as defined in paragraph (F)(3) of this rule.

(i) For each policy year, calculate the excess, if greater than zero, of the valuation net premium over the respective maximum guaranteed gross premium.

(ii) Deficiency reserves shall never be less than the sum of the present values, at the date of valuation, of the excesses determined in accordance with paragraph (F)(6)(c)(i) of this rule.

(d) For purposes of this paragraph, 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 January 1, 2000 by the NAIC and promulgated by rule by the superintendent for this purpose.

(e) A policy shall be considered an attained-age-based YRT life insurance policy for purposes of this paragraph if:

(i) 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

(ii) 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.

(f) For policies that become attained-age-based YRT policies after an initial period of coverage, the approach of this paragraph may be used after the initial period if:

(i) The initial period is constant for all insureds of the same sex, risk class and plan of insurance; or

(ii) The initial period runs to a common attained age for all insureds of the same sex, risk class and plan of insurance; and

(iii) After the initial period of coverage, the policy meets the conditions of paragraph (F)(6)(e) of this rule.

(g) If this election is made, this approach shall be applied in determining reserves for all attained-age-based YRT life insurance policies issued on or after January 1, 2000.

(7) 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 following conditions are met:

(a) 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 that 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;

(b) The guaranteed gross premiums in all n-year periods are not less than the corresponding net premiums based upon the 1980 CSO valuation tables with or without the ten-year select mortality factors; and

(8) Exemption from unitary reserves for certain juvenile policies

Unitary basic reserves and unitary deficiency reserves need not be calculated for a policy if the following conditions are met, based upon the initial current premium scale at issue:

(a) At issue, the insured is age twenty-four or younger;

(b) Until the insured reaches the end of the juvenile period, which shall occur at or before age twenty-five, the gross premiums and death benefits are level, and there are no cash surrender values; and

(c) 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.

(G) Calculation of minimum valuation standard for flexible premium and fixed premium universal life insurance policies that contain provisions resulting in the ability of the policyowner to keep a policy in force over a secondary guarantee period

(1) General

(a) Policies with a secondary guarantee include:

(i) A policy with a guarantee that the policy will remain in force at the original schedule of benefits, subject only to the payment of specified premiums;

(ii) A policy in which the minimum premium at any duration is less than the corresponding 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 January 1, 2000 by the NAIC and promulgated by rule by the superintendent for this purpose; or

(iii) A policy with any combination of paragraphs (G)(1)(a)(i) and (G)(1)(a)(ii) of this rule.

(b) 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 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 shall be considered to have been made at issue. Reserves described in paragraphs (G)(2) and (G)(3) of this rule shall be recalculated from issue to reflect these changes.

(c) 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 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.

(d) For purposes of this paragraph, 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 shall use the policy cost factors (including mortality charges, loads and expense charges) and the interest crediting rate, which are all guaranteed at issue.

(e) 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 paragraphs (E)(2)(b), (E)(2)(c) and (E)(2)(d) of this rule may not be used to calculate the one-year valuation premiums.

(f) 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.

(2) Basic reserves for the secondary guarantees

Basic reserves for the secondary guarantees shall be the segmented reserves for the secondary guarantee period. In calculating the segments and the segmented reserves, the gross premiums 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 paragraph (D)(2) of this rule.

(3) Deficiency reserves for the secondary guarantees

Deficiency reserves, if any, for the secondary guarantees shall be calculated for the secondary guarantee period in the same manner as described in paragraph (F)(2) of this rule with gross premiums set equal to the specified premiums, if any, or otherwise to the minimum premiums that keep the policy in force.

(4) Minimum reserves

The minimum reserves during the secondary guarantee period are the greater of:

(a) The basic reserves for the secondary guarantee plus the deficiency reserve, if any, for the secondary guarantees; or

(b) The minimum reserves required by other rules or regulations governing universal life plans.

(H) Severability

View Appendix

Last updated November 16, 2023 at 8:32 AM

Supplemental Information

Authorized By: 3901.041
Amplifies: 3903.72, 3903.723, 3901.724
Five Year Review Date: 8/31/2028
Prior Effective Dates: 1/21/2009 (Emer.), 4/24/2009

Rule 3901-6-10.1 | Smoker/nonsmoker mortality tables.

Effective:

November 16, 2023

Promulgated Under:

119.03

PDF:

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(A) Purpose

The purpose of this rule is to implement sections 3915.07, 3915.071, and 3903.72 of the Revised Code by permitting the use of mortality tables that reflect differences in mortality between smokers and nonsmokers in determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits for plans of insurance with separate premium rates for smokers and nonsmokers.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under section 3901.041 of the Revised Code.

(1) "Commissioners 1980 standard ordinary mortality tables (1980 "CSO"), with or without ten-year select mortality factors" means those tables referred to in divisions (E) and (F) of section 3915.071 of the Revised Code.

(2) "Commissioners 1980 extended term insurance table (1980 "CET")" means the table referred to in division (I) of section 3915.071 of the Revised Code.

(3) "Commissioners 1958 standard ordinary mortality table (1958 "CSO")" means that table referred to in division (E)(1) of section 3915.07 of the Revised Code.

(4) "Commissioners 1958 extended term insurance table (1958 "CET")" means that table referred to in division (E)(1) of section 3915.07 of the Revised Code.

(5) "Smoker and nonsmoker mortality tables" means those mortality tables with separate rates of mortality for smokers and nonsmokers derived from the tables defined in paragraphs (C)(1) to (C)(4) of this rule.

(6) "Composite mortality tables" means those tables defined in paragraphs (C)(1) to (C)(4) of this rule.

(D) Alternate tables

(1) For any policy of insurance delivered or issued for delivery in this state after the operative date of section 3915.071 of the Revised Code for that policy form and before January 1, 1989, at the option of the company and subject to the conditions stated in paragraph (E) of this rule:

(a) The commissioners 1958 standard ordinary smoker and nonsmoker mortality tables may be substituted for the commissioners 1980 standard ordinary mortality table, with or without ten-year select mortality factors; and

(b) The commissioners 1958 extended term smoker and nonsmoker mortality tables may be substituted for the commissioners 1980 extended term table,

For use in determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits.

Provided 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 determined using the commissioners 1958 standard ordinary or extended term 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 commissioners 1958 standard ordinary or extended term 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.

(2) For any policy of insurance delivered or issued for delivery in this state after the operative date of section 3915.071 of the Revised Code for that policy form at the option of the company and subject to the conditions stated in paragraph (E) of this rule:

(a) The commissioners 1980 standard ordinary smoker and nonsmoker mortality tables, with or without ten-year select mortality factors, may be substituted for the commissioners 1980 standard ordinary mortality table, with or without ten-year select mortality factors; and

(b) The commissioners 1980 extended term smoker and nonsmoker mortality table may be substituted for the commissioners 1980 extended term mortality table,

For use in determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits.

(E) 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;

(2) Use smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, pursuant to section 3903.72 of the Revised Code and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values and amounts of paid-up nonforfeiture benefits;

(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

(4) Use smoker and nonsmoker mortality tables, without electing the 1980 "CSO" as a valuation basis, to determine valuation net premium and additional minimum reserves for plans of term insurance which have no cash values and which are reserved on the 1958 "CSO" mortality table.

(F) Severability

Last updated November 16, 2023 at 8:32 AM

Supplemental Information

Authorized By: 3901.041
Amplifies: 3915.07, 3903.72, 3915.071
Five Year Review Date: 8/31/2028
Prior Effective Dates: 11/15/2018

Rule 3901-6-10.2 | Gender blended mortality tables.

Effective:

November 16, 2023

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to implement section 3915.071 of the Revised Code by permitting individual life insurance policies to provide the same cash surrender values and paid-up nonforfeiture benefits to both men and women. No change in minimum valuation standards is implied by this rule.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under section 3901.041 of the Revised Code.

(1) "Commissioners 1980 standard ordinary mortality tables" or "1980 CSO, with or without ten-year select mortality factors," means those tables consisting of separate rates of mortality for male and female lives referred to in division (E)(1) of section 3915.071 of the Revised Code.

(2) "Commissioners 1980 standard ordinary mortality tables (M)" or "1980 CSO (M), with or without ten-year select mortality factors," means that mortality table consisting of the rates of mortality for male lives from the 1980 CSO, with or without ten-year select mortality factors.

(3) "Commissioners 1980 standard ordinary mortality tables (F)" or "1980 CSO (F), with or without ten-year select mortality factors," means that mortality table consisting of the rates of mortality for female lives from the 1980 CSO with or without ten-year select mortality factors.

(4) "Commissioners 1980 extended term insurance table," or "1980 CET," means that table consisting of separate rates of mortality for male and female lives referred to in division (I) of section 3915.071 of the Revised Code.

(5) "Commissioners 1980 extended term insurance table (M)" or "1980 CET (M)" means that mortality table consisting of the rates of mortality for male lives from the 1980 CET.

(6) "Commissioners 1980 extended term insurance table (F)" or "1980 CET (F)" means that mortality table consisting of the rates of mortality for female lives from the 1980 CET.

(7) "Commissioners 1980 standard ordinary and commissioners 1980 extended term smoker and nonsmoker mortality tables" mean those tables consisting of separate rates of mortality for smokers and nonsmokers derived from the 1980 CSO and 1980 CET mortality tables by the "Society of Actuaries Task Force" on smoker/nonsmoker mortality adopted by the "National Association of Insurance Commissioners" in December, 1983.

(D) Rule

(1) For any policy of insurance on the life of either a male or female insured delivered or issued for delivery in this state on or after August 1, 1983:

(a) A mortality table, which is a blend of the commissioners 1980 standard ordinary mortality tables (M) and the commissioners 1980 standard ordinary mortality tables (F), may, at the option of the company, be substituted for the 1980 CSO, with or without ten-year select mortality factors; and

(b) A mortality table, which is of the same blend as used in paragraph (D)(1)(a) of this rule but applied to form a blend of the commissioners 1980 extended term insurance table (M) and the commissioners 1980 extended term insurance table (F) may, at the option of the company, be substituted for the commissioners 1980 extended term insurance table; and

(c) Gender blended tables with ten-year select mortality factors may be derived and, at the option of the company, be substituted for the commissioners 1980 standard ordinary mortality tables . Such tables may be derived by applying select factors to gender blended tables without select factors where the select factors are derived by using the following formula for use in determining minimum cash surrender values and amounts of paid-up nonforfeiture benefits:

(2) The following blendings will be considered as the basis for acceptable gender blended tables. However, other blendings are acceptable:

(a) One hundred per cent male zero per cent female for tables to be designated as the "1980 CSO-A" and "1980 CET-A" tables.

(b) Eighty per cent male twenty per cent female for tables to be designated as the "1980 CSO-B" and "1980 CET-B" tables.

(d) Fifty per cent male fifty per cent female for tables to be designated as the "1980 CSO-D" and "1980 CET-D" tables.

(e) Forty per cent male sixty per cent female for tables to be designated as the "1980 CSO-E" and "1980 CET-E" tables.

(f) Twenty per cent male eighty per cent female for tables to be designated as the "1980 CSO-F" and "1980 CET-F" tables.

(g) Zero per cent male one hundred per cent female for tables to be designated as the "1980 CSO-G" and "1980 CET-G" tables.

The tables described in paragraphs (D)(2)(a) and (D)(2)(g) of this rule are not to be used with respect to policies issued on or after January 1, 1985, except where the proportion of persons insured is anticipated to be ninety per cent 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 may be required to comply with applicable state and/or federal laws regarding discrimination based on gender.

(E) Alternate rule for smoker/nonsmoker

In determining minimum cash surrender values and amounts of paid-up nonforfeiture benefits for any policy of insurance on the life of either a male or 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 section 3915.071 of the Revised Code for that policy form, in addition to the mortality tables that may be used according to paragraph (D) of this rule:

(1) A mortality table 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 ten-year select mortality factors, may at the option of the company be substituted for the 1980 CSO , with or without ten-year select mortality factors; and

(2) A mortality table which is of the same blend as used in paragraph (E)(1) of this rule 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 may at the option of the company be substituted for the 1980 CET .

The following blended mortality tables will be considered acceptable:

"SA:" 100% male 0% female smoker tables designated as "1980 CSO-SA" and "1980 CET-SA" tables.

"SB:" 80% male 20% female smoker tables designated as "1980 CSO-SB" and "1980 CET-SB" tables.

"SC:" 60% male 40% female smoker tables designated as "1980 CSO-SC" and "1980 CET-SC" tables.

"SD:" 50% male 50% female smoker tables designated as "1980 CSO-SD" and "1980 CET-SD" tables.

"SE:" 40% male 60% female smoker tables designated as "1980 CSO-SE" and "1980 CET-SE" tables.

"SF:" 20% male 80% female smoker tables designated as "1980 CSO-SF" and "1980 CET-SF" tables.

"SG:" 0% male 100% female smoker tables designated as "1980 CSO-SG" and "1980 CET-SG" tables.

"NA:" 100% male 0% female nonsmoker tables designated as "1980 CSO-NA" and "1980 CET-NA" tables.

"NB:" 80% male 20% female nonsmoker tables designated as "1980 CSO-NB" and "1980 CET-NB" tables.

"NC:" 60% male 40% female nonsmoker tables designated as "1980 CSO-NC" and "1980 CET-NC" tables.

"ND:" 50% male 50% female nonsmoker tables designated as "1980 CSO-ND" and "1980 CET-ND" tables.

"NE:" 40% male 60% female nonsmoker tables designated as "1980 CSO-NE" and "1980 CET-NE" tables.

"NF:" 20% male 80% female nonsmoker tables designated as "1980 CSO-NF" and "1980 CET-NF" tables.

"NG:" 0% male 100% female nonsmoker tables designated as "1980 CSO-NG" and "1980 CET-NG" tables.

Tables "SA," "SG," "NA," and "NG" are not acceptable as blended tables unless the proportion of persons insured is anticipated to be ninety per cent or more of one sex or the other.

(F) Unfair discrimination

It is not a violation of section 3911.19 of the Revised Code for an insurer to issue the same kind of policy of life insurance on both a sex distinct and sex neutral basis.

(G) Severability

Last updated November 16, 2023 at 8:33 AM

Supplemental Information

Authorized By: 3901.041
Amplifies: 3915.07, 3915.071
Five Year Review Date: 8/31/2028
Prior Effective Dates: 3/28/2004

Rule 3901-6-11 | Recognition of the 2001 CSO mortality table for use in determining minimum reserve liabilities and nonforfeiture benefits.

Effective:

May 9, 2021

Promulgated Under:

119.03

PDF:

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(A) Purpose

The purpose of this rule is to recognize, permit and prescribe the use of the 2001 commissioners standard ordinary (CSO) mortality table in accordance with sections 3903.723 and 3915.071 of the Revised Code and rule 3901-6-10 of the Administrative Code (valuation of life insurance policies).

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041, 3903.723, and 3915.071 of the Revised Code.

(1) "2001 CSO mortality table" means that mortality table, 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)". 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)" means that mortality table consisting of the rates of mortality for female lives from the 2001 CSO morality table.

(3) "2001 CSO mortality table (M)" means that mortality table consisting of the rates of mortality for male lives from the 2001 CSO mortality table.

(4) "Composite mortality tables" means mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers.

(5) "Smoker and nonsmoker mortality tables" means mortality tables with separate rates of mortality for smokers and nonsmokers.

(D) 2001 CSO mortality table

(1) At the election of the company for any one or more specified plans of insurance and subject to the conditions stated in this rule, the 2001 CSO mortality table may be used as the minimum standard for policies issued on or after January 1, 2004 and before the date specified in paragraph (D)(2) of this rule to which division (B) of section 3903.723 and divisions (E) and (I) of section 3915.071 of the Revised Code and paragraphs (E)(1) and (E)(2) of rule 3901-6-10 of the Administrative Code are applicable. If the company elects to use the 2001 CSO mortality table, it shall do so for both valuation and nonforfeiture purposes.

(2) Subject to the conditions stated in this rule, the 2001 CSO mortality table shall be used in determining minimum standards for policies issued on and after January 1, 2009, to which division (B) of section 3903.723 and divisions (E) and (I) of section 3915.071 of the Revised Code and paragraphs (E)(1) and (E)(2) of rule 3901-6-10 of the Administrative Code are applicable.

(E) Conditions

(1) For each plan of insurance with separate rates for smokers and nonsmokers an insurer may use:

(a) Composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits;

(b) Smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by divisions (J) and (O) of section 3903.723 of the Revised Code and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values and amounts of paid-up nonforfeiture benefits; or

(c) Smoker and nonsmoker mortality to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits.

(2) For plans of insurance without separate rates for smokers and nonsmokers the composite mortality tables shall be used.

(3) 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 paragraph (F) of rule 3901-6-10 of the Administrative Code relative to use of the select and ultimate form.

(4) When the 2001 CSO mortality table is the minimum reserve standard for any plan for a company, the actuarial opinion in the annual statement filed with the superintendent shall be based on an asset adequacy analysis in accordance with the requirements of section 3903.726 of the Revised Code. The superintendent may exempt a company from this requirement if it only does business in this state and in no other state.

(F) Applicability of the 2001 CSO mortality table to rule 3901-6-10 of the Administrative Code

(1) The 2001 CSO mortality table may be used in applying rule 3901-6-10 of the Administrative Code in the following manner, subject to the transition dates for use of the 2001 CSO mortality table in paragraph (D) of this rule (unless otherwise noted, the references in this paragraph are to rule 3901-6-10 of the Administrative Code):

(a) Paragraph (C)(1)(b)(ii) of rule 3901-6-10 of the Administrative Code: the net level reserve premium is based on the ultimate mortality rates in the 2001 CSO mortality table.

(b) Paragraph (D)(2) of rule 3901-6-10 of the Administrative Code: all calculations are made using the 2001 CSO mortality rate, and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in paragraph (F)(1)(d) of this rule. The value of "q subscript x+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.

(c) Paragraph (E)(1) of rule 3901-6-10 of the Administrative Code: the 2001 CSO mortality table is the minimum standard for basic reserves.

(d) Paragraph (E)(2) of rule 3901-6-10 of the Administrative Code: the 2001 CSO mortality table is the minimum standard for deficiency reserves. If select mortality rates are used, they may be multiplied by X per cent for durations in the first segment, subject to the conditions specified in paragraphs (E)(2)(c)(i) to (E)(2)(c)(vii) of rule 3901-6-10 of the Administrative Code. 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 rule or necessary to be in compliance with relevant actuarial standards of practice.

(e) Paragraph (F)(3) of rule 3901-6-10 of the Administrative Code: the valuation mortality table used in determining the tabular cost of insurance shall be the ultimate mortality rates in the 2001 CSO mortality table.

(f) Paragraph (F)(5)(d) of rule 3901-6-10 of the Administrative Code: the calculations specified in paragraph (F)(5) of rule 3901-6-10 of the Administrative Code shall use the ultimate mortality rates in the 2001 CSO mortality table.

(g) Paragraph (F)(6)(d) of rule 3901-6-10 of the Administrative Code: the calculations specified in paragraph (F)(6) of rule 3901-6-10 of the Administrative Code shall use the ultimate mortality rates in the 2001 CSO mortality table.

(h) Paragraph (F)(7)(b) of rule 3901-6-10 of the Administrative Code: the calculations specified in paragraph (F)(7) of rule 3901-6-10 of the Administrative Code shall use the ultimate mortality rates in the 2001 CSO mortality table.

(i) Paragraph (G)(1)(a)(ii) of rule 3901-6-10 of the Administrative Code: the one-year valuation premium shall be calculated using the ultimate mortality rates in the 2001 CSO mortality table.

(2) Nothing in this paragraph shall be construed to expand the applicability of rule 3901-6-10 of the Administrative Code to include life insurance policies exempted under paragraph (C)(1) of rule 3901-6-10 of the Administrative Code.

(G) Gender-blended tables

(1) For any ordinary life insurance policy delivered or issued for delivery in this state on and after January 1, 2004, 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 paragraph of this rule.

(2) The company may choose from among the blended tables developed by the American academy of actuaries CSO task force and adopted by the NAIC in December 2002.

(3) It shall not, in and of itself, be a violation of section 3901.21 of the Revised Code for an insurer to issue the same kind of policy of life insurance on both a sex-distinct and sex-neutral basis.

(H) Severability

Last updated May 10, 2021 at 10:12 AM

Supplemental Information

Authorized By: 3901.041, 3903.72, 3915.071
Amplifies: 3903.72, 3915.071
Five Year Review Date: 8/30/2025
Prior Effective Dates: 10/29/2015

Rule 3901-6-12 | Permitting the recognition of preferred mortality tables for use in determining minimum reserve liabilities.

Effective:

October 29, 2015

Promulgated Under:

119.03

PDF:

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(A) Purpose

The purpose of this rule is to provide authorized companies an alternative to rule 3901-6-11 of the Administrative Code, by recognizing, permitting and prescribing the use of mortality tables that reflect differences in mortality between preferred and standard lives in determining minimum reserve liabilities in accordance with sections 3903.723 and 3915.071 of the Revised Code and rule 3901-6-10 of the Administrative Code (valuation of insurance policies).

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041, 3903.723 and 3915.071 of the Revised Code.

(1) "2001 CSO mortality table" means that mortality table, 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 in paragraph (C)(6) of this rule. 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:

(2) "2001 CSO mortality table (F)" means that mortality table consisting of the rates of mortality for female lives from the 2001 CSO mortality table

(3) "2001 CSO mortality table (M)" means that mortality table consisting of the rates of mortality for male lives from the 2001 CSO mortality table.

(4) "Composite mortality tables" means mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers.

(5) "Smoker and nonsmoker mortality tables" means mortality tables with separate rates of mortality for smokers and nonsmokers.

(6) "2001 CSO preferred class structure mortality table" means 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 NAIC proceedings (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.

(7) "Statistical agent" means 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.

(D) 2001 CSO preferred class structure table

At the election of the company, for each calendar year of issue, for any one or more specified plans of insurance and subject to satisfying the conditions stated in this rule, 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, or, with the consent of the superintendent, on or after September 18, 2003. No such election shall be made until the company demonstrates at least twenty per cent of the business to be valued on this table is in one or more of the preferred classes. A table from the 2001 CSO preferred class structure mortality table used in place of a 2001 CSO mortality table, pursuant to the requirements of this rule, will be treated as part of the 2001 CSO mortality table only for purposes of reserve valuation pursuant to the requirements of rule 3901-6-11 of the Administrative Code, (Recognition of the 2001 CSO mortality table for use in determining minimum reserve liabilities and nonforfeiture benefits).

(E) Conditions

(1) 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 shall certify that:

(a) 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.

(b) 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.

(2) 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 shall certify that:

(a) 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 corresponding to the valuation table being used for that class.

(3) Unless exempted by the superintendent, every authorized insurer using the 2001 CSO preferred class structure table shall annually file with the superintendent, with the NAIC, or with a statistical agent designated by the NAIC and acceptable to the superintendent, statistical reports showing mortality and such other information as the superintendent may deem necessary or expedient for the administration of the provisions of this rule. The form of the reports shall be established by the superintendent or the superintendent may require the use of a form established by the NAIC or by a statistical agent designated by the NAIC and acceptable to the superintendent.

(F) Severability

Last updated October 11, 2023 at 1:52 PM

Supplemental Information

Authorized By: 3901.041
Amplifies: 3901.19 to 3901.221
Five Year Review Date: 8/30/2025
Prior Effective Dates: 1/21/2009 (Emer.)

Rule 3901-6-13 | Suitability in annuity transactions.

Effective:

February 14, 2021

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

(1) The purpose of this rule is to require insurance agents, as defined in this rule, to act in the best interest of the consumer when making a recommendation of an annuity and to require insurers, including fraternal benefit societies, to establish and maintain a system to supervise recommendations so that the insurance needs and financial objectives of consumers, at the time of the transaction, are effectively addressed.

(2) This rule will bring Ohio law into compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Public Law Number 111-203, 111th Cong., 2d sess. (July 21, 2010).

(B) Authority

This rule is adopted pursuant to the authority vested in the superintendent under sections 3901.041 and 3901.19 to 3901.26 of the Revised Code.

(1) This rule shall apply to any sale or recommendation of an annuity.

(2) Nothing herein shall be construed to create or imply a private cause of action for a violation of this rule or to subject an insurance agent to civil liability under the best interest standard of care outlined in this rule or under standards governing the conduct of a fiduciary or a fiduciary relationship.

(D) Exemptions

Unless otherwise specifically included, this rule shall not apply to transactions involving:

(1) Direct response solicitations where there is no recommendation based on information collected from the consumer pursuant to this rule;

(2) Contracts used to fund:

(a) An employee pension or welfare benefit plan that is covered by the "Employee Retirement and Income Security Act" (ERISA);

(b) A plan described by sections 401(a), 401(k), 403(b), 408(k) or 408(p) of the Internal Revenue Code, as amended, if established or maintained by an employer;

(c) A government or church plan defined in section 414 of the Internal Revenue Code, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under section 457 of the Internal Revenue Code; or

(d) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.

(3) Settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process; or

(4) Formal pre-need funeral contracts, as defined in division (T) of section 4717.01 of the Revised Code, provided the consideration paid to purchase, exchange or replace the annuity is reasonable related to the price of the pre-need funeral contract, and a pre-need funeral contract is in place at the time the annuity is purchased, exchanged or replaced.

(E) Definitions

(1) "Annuity" means an annuity that is an insurance product under state law that is individually solicited, whether the product is classified as an individual or group annuity.

(2) "Cash compensation" means any discount, concession, fee, service fee, commission, sales charge, loan, override, or cash benefit received by an insurance agent in connection with the recommendation or sale of an annuity from an insurer, intermediary, or directly from the consumer.

(3) "Consumer profile information" means information that is reasonably appropriate to determine whether a recommendation addresses the consumer's financial situation, insurance needs and financial objectives, including, at a minimum, the following:

(a) Age;

(b) Annual income;

(d) Financial experience;

(e) Insurance needs;

(f) Financial objectives;

(g) Intended use of the annuity;

(h) Financial time horizon;

(i) Existing assets or financial products, including investment, annuity and insurance holdings;

(j) Liquidity needs;

(k) Liquid net worth;

(l) Risk tolerance, including but not limited to, willingness to accept non-guaranteed elements in the annuity;

(m) Financial resources used to fund the annuity; and

(n) Tax status.

(4) "Continuing education credit" or "CE credit" means fifty minutes of educational instruction that has been specifically approved to meet the agent annuity training requirements of paragraph (G)(2) of this rule.

(5) "Continuing education provider" or "CE provider" means an individual or entity that is approved to offer continuing education courses pursuant to rule 3901-5-02 of the Administrative Code.

(6) "FINRA" means the "Financial Industry Regulatory Authority" or a succeeding agency.

(7) "Insurer" means a company, including a fraternal benefit society, required to be licensed under the laws of this state to provide insurance products, including annuities.

(8) "Insurance agent" or "agent" means a person or entity required to be licensed under the laws of this state to sell, solicit or negotiate insurance, including annuities. For purposes of this rule, "insurance agent" or "agent" include an insurer where no insurance agent is involved.

(9) "Intermediary" means an entity contracted directly with an insurer or with another entity contracted with an insurer to facilitate the sale of the insurer's annuities by insurance agents.

(10) "Material conflict of interest" means a financial interest of the agent in the sale of an annuity that a reasonable person would expect to influence the impartiality of a recommendation. Material conflict of interest does not include cash compensation or non-cash compensation.

(11) "Non-cash compensation" means any form of compensation that is not cash compensation, including, but not limited to, health insurance, office rent, office support and retirement benefits.

(12) "Non-guaranteed elements" means the premiums, credited interest rates (including any bonus), benefits, values, dividends, non-interest based credits, charges or elements of formulas used to determine any of these, that are subject to company discretion and are not guaranteed at issue. An element is considered non-guaranteed if any of the underlying non-guaranteed elements are used in its calculation.

(13) "Recommendation" means advice provided by an insurance agent to an individual consumer that was intended to result or does result in a purchase, an exchange or a replacement of an annuity in accordance with that advice. Recommendation does not include general communication to the public, generalized customer services assistance or administrative support, general educational information and tools, prospectuses, or other product and sales material.

(14) "Replacement" means a transaction in which a new annuity is to be purchased, and it is known or should be known to the proposing agent, or to the proposing insurer whether or not an agent is involved, that by reason of the transaction, an existing annuity or other insurance policy has been or is to be any of the following:

(a) Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated;

(b) Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values;

(c) Amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid;

(d) Reissued with any reduction in cash value; or

(e) Used in a financed purchase.

(15) "SEC" means the United States securities and exchange commission.

(F) Duties of insurers, including fraternal benefit societies and insurance agents

(1) Best interest obligations. An insurance agent, when making a recommendation of an annuity, shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the agent's or the insurer's financial interest ahead of the consumer's interest. An agent has acted in the best interest of the consumer if they have satisfied the following obligations regarding care, disclosure, conflict of interest and documentation:

(a)

(i) Care obligation. The agent, in making a recommendation shall exercise reasonable diligence, care and skill to:

(a) Know the consumer's financial situation, insurance needs and financial objectives;

(b) Understand the available recommendation options after making a reasonable inquiry into options available to the agent;

(c) Have a reasonable basis to believe the recommended option effectively addresses the consumer's financial situation, insurance needs and financial objectives over the life of the product, as evaluated in light of the consumer profile information; and

(d) Communicate the basis or bases of the recommendation.

(ii) The requirements under paragraph (F)(1)(a)(i) of this rule include making reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation of an annuity.

(iii) The requirements under paragraph (F)(1)(a)(i) of this rule require an agent to consider the types of products the agent is authorized and licensed to recommend or sell that address the consumer's financial situation, insurance needs and financial objectives. This does not require analysis or consideration of any products outside the authority and license of the agent or other possible alternative products or strategies available in the market at the time of the recommendation. Agents shall be held to standards applicable to agents with similar authority and licensure.

(iv) The requirements under paragraph (F)(1) of this rule do not create a fiduciary obligation or relationship and only create a regulatory obligation as established in this rule.

(v) The consumer profile information, characteristics of the insurer, and product costs, rates, benefits and features are those factors generally relevant in making a determination whether an annuity effectively addresses the consumer's financial situation, insurance needs and financial objectives, but the level of importance of each factor under the care obligation of paragraph (F)(1)(a) of this rule may vary depending on the facts and circumstances of a particular case. However, each factor may not be considered in isolation.

(vi) The requirements under paragraph (F)(1)(a)(i) of this rule include having a reasonable basis to believe the consumer would benefit from certain features of the annuity, such as annuitization, death or living benefit or other insurance-related features.

(vii) The requirements under paragraph (F)(1)(a)(i) of this rule apply to the particular annuity as a whole and the underlying subaccounts to which funds are allocated at the time of purchase or exchange of an annuity, and riders and similar product enhancements, if any.

(viii) The requirements under paragraph (F)(1)(a)(i) of this rule do not mean the annuity with the lowest one-time or multiple occurrence compensation structure shall necessarily be recommended.

(ix) The requirements under paragraph (F)(1)(a)(i) of this rule do not mean the agent has ongoing monitoring obligations under the care obligation under this paragraph, although such an obligation may be separately owed under the terms of a fiduciary, consulting, investment advising or financial planning agreement between the consumer and the agent.

(x) In the case of an exchange or replacement of an annuity, the agent shall consider the whole transaction, which includes taking into consideration whether:

(a) The consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, such as death, living or other contractual benefits, or be subject to increased fees, investment advisory fees or charges for riders and similar product enhancements;

(b) The replacing product would substantially benefit the consumer in comparison to the replaced product over the life of the product; and

(c) The consumer has had another annuity exchange or replacement and, in particular, an exchange or replacement within the preceding sixty months.

(xi) Nothing in this rule should be construed to require an agent to obtain any license other than an insurance agent license with the appropriate line of authority to sell, solicit or negotiate insurance in this state, including but not limited to any securities license, in order to fulfill the duties and obligations contained in this rule; provided the agent does not give advice or provide services that are otherwise subject to securities laws or engage in any other activity requiring other professional licenses.

(b) Disclosure obligation.

(i) Prior to the recommendation or sale of an annuity, the agent shall prominently disclose to the consumer on a form substantially similar to appendix A of this rule:

(a) A description of the scope and terms of the relationship with the consumer and the role of the agent in the transaction;

(b) An affirmative statement on whether the agent is licensed and authorized to sell the following products:

(i) Fixed annuities;

(ii) Fixed indexed annuities;

(iii) Variable annuities;

(iv) Life insurance;

(v) Mutual funds;

(vi) Stocks and bonds; and

(vii) Certificates of deposit.

(c) An affirmative statement describing the insurers the agent is authorized, contracted, appointed, or otherwise able to sell insurance products for, using the following descriptions:

(i) From one insurer;

(ii) From two or more insurers; or

(iii) From two or more insurers although primarily contracted with one insurer.

(d) A description of the sources and types of cash compensation and non-cash compensation to be received by the agent, including whether the agent is to be compensated for the sale of a recommended annuity by commission as part of premium or other remuneration received from the insurer, intermediary or other agent or by fee as a result of a contract for advice or consulting services; and

(e) A notice of the consumer's right to request additional information regarding cash compensation described in paragraph (F)(1)(b)(ii) of this rule.

(ii) Upon request of the consumer or the consumer's designated representative, the agent shall disclose:

(a) A reasonable estimate of the amount of cash compensation to be received by the agent, which may be stated as a range of amounts or percentages; and

(b) Whether the cash compensation is a one-time or multiple occurrence amount, and if a multiple occurrence amount, the frequency and amount of the occurrence, which may be stated as a range of amounts or percentages.

(iii) Prior to or at the time of the recommendation or sale of an annuity, the agent shall have a reasonable basis to believe the consumer has been informed of various features of the annuity, such as the potential surrender period and surrender charge, potential tax penalty if the consumer sells, exchanges, surrenders or annuitizes the annuity, mortality and expense fees, investment advisory fees, any annual fees, potential charges for and features of riders, or other options of the annuity, limitations on interest returns, potential changes in non-guaranteed elements of the annuity, insurance and investment components and market risk.

(c) Conflict of interest obligation. An agent shall identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest.

(d) Documentation obligation. An agent shall at the time of recommendation or sale:

(i) Make a written record of any recommendation and the basis for the recommendation subject to this rule;

(ii) Obtain a consumer signed statement on a form substantially similar to appendix B of this rule documenting:

(a) A customer's refusal to provide the consumer profile information, if any; and

(b) A customer's understanding of the ramifications of not providing his or her consumer profile information or providing insufficient consumer profile information.

(iii) Obtain a consumer signed statement on a form substantially similar to appendix C of this rule acknowledging the annuity transaction is not recommended if a customer decides to enter into an annuity transaction that is not based on the agent's recommendation.

(e) Application of the best interest obligation. Any requirement applicable to an agent under paragraph (F)(1) of this rule shall apply to every agent who has exercised material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation or sale, regardless of whether the agent has had any direct contact with the consumer. Activities such as providing or delivering marketing or educational materials, product wholesaling or other back office product support, and general supervision of an agent do not, in and of themselves, constitute material control or influence.

(2) Transactions not based on a recommendation.

(a) Except as provided under paragraph (F)(2)(b) of this rule, an insurance agent, shall have no obligation to a consumer under paragraph (F)(1) of this rule related to any annuity transaction if:

(i) No recommendation is made;

(ii) A recommendation was made and was later found to have been prepared based on materially inaccurate information provided by the consumer;

(iii) A consumer refuses to provide relevant consumer profile information and the annuity transaction is not recommended; or

(iv) A consumer decides to enter into an annuity transaction that is not based on a recommendation of the insurance agent.

(b) An insurer's issuance of an annuity subject to paragraph (F)(2)(a) of this rule shall be reasonable under all the circumstances actually known to the insurer at the time the annuity is issued.

(3) Supervision system

(a) Except as permitted under paragraph (F)(2) of this rule, an insurer may not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity would effectively address the particular consumer's financial situation, insurance needs and financial objectives based on the consumer's consumer profile information.

(b) An insurer shall establish and maintain a supervision system that is reasonably designed to achieve the insurer's and its insurance agents' compliance with this rule, including, but not limited to, the following:

(i) The insurer shall establish and maintain reasonable procedures to inform its insurance agents of the requirements of this rule and shall incorporate the requirements of this rule into relevant insurance agent training manuals;

(ii) The insurer shall establish and maintain standards for insurance agent product training and shall establish and maintain reasonable procedures to require its insurance agents to comply with the requirements of paragraph (G) of this rule;

(iii) The insurer shall provide product-specific training and training materials that explain all material features of its annuity products to its insurance agents;

(iv) The insurer shall establish and maintain procedures for the review of each recommendation prior to issuance of an annuity that are designed to ensure there is a reasonable basis to determine that the recommended annuity would effectively address the particular consumer's financial situation, insurance needs and financial objectives. Such review procedures may apply a screening system for the purpose of identifying selected transactions for additional review and may be accomplished electronically or through other means including, but not limited to, physical review. Such an electronic or other system may be designed to require additional review only of those transactions identified for additional review by the selection criteria;

(v) The insurer shall establish and maintain reasonable procedures to detect recommendations that are not in compliance with paragraphs (F)(1), (F)(2), (F)(4), and (F)(5) of this rule. These may include, but are not limited to, confirmation of consumer's consumer profile information, systematic customer surveys, agent and consumer interviews, confirmation letters, agent statements or attestations and programs of internal monitoring. Nothing in this paragraph prevents an insurer from complying with this paragraph by applying sampling procedures, or by confirming the consumer profile information or other required information under paragraph (F) of this rule after issuance or delivery of the annuity;

(vi) The insurer shall establish and maintain reasonable procedures to assess, prior to or upon issuance or delivery of an annuity, whether an agent has provided to the consumer the information required to be provided under paragraph (F) of this rule;

(vii) The insurer shall establish and maintain reasonable procedures to identify and address suspicious consumer refusals to provide consumer profile information;

(viii) The insurer shall establish and maintain reasonable procedures to identify and eliminate any sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sales of specific annuities within a limited period of time. The requirements of this paragraph are not intended to prohibit the receipt of health insurance, office rent, office support, retirement benefits or other employee benefits by employees as long as those benefits are not based upon the volume of sales of a specific annuity within a limited period of time; and

(ix) The insurer shall annually provide a written report to senior management, including to the senior manager responsible for audit functions, which details a review, with appropriate testing, reasonably designed to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any.

(c)

(i) Nothing in paragraph (F)(3) of this rule restricts an insurer from contracting for performance of a function (including maintenance of procedures) required under paragraph (F)(3) of this rule. An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties pursuant to paragraph (H) of this rule regardless of whether the insurer contracts for performance of a function and regardless of the insurer's compliance with paragraph (F)(3)(c)(ii) of this rule.

(ii) An insurer's supervision system under paragraph (F)(3) of this rule shall include supervision of contractual performance under this paragraph. This includes, but is not limited to, the following:

(a) Monitoring and, as appropriate, conducting audits to assure that the contracted function is properly performed; and

(b) Annually obtaining a certification from a senior manager who has responsibility for the contracted function that the manager has a reasonable basis to represent, and does represent, that the function is properly performed.

(d) An insurer is not required to include in its system of supervision an insurance agent's recommendations to consumers of products other than the annuities offered by the insurer, or include consideration of or comparison to options available to the agent or compensation relating to those options other than annuities or other products offered by the insurer.

(4) Prohibited practices. Neither an agent nor an insurer shall dissuade, or attempt to dissuade, a consumer from:

(a) Truthfully responding to an insurer's request for confirmation of the consumer profile information;

(b) Filing a complaint; or

(5) Safe harbor

(a) Recommendations and sales of annuities made in compliance with comparable standards shall satisfy the requirements under this rule. Paragraph (F)(5) of this rule applies to all recommendations and sales of annuities made by financial professionals in compliance with business rules, controls and procedures that satisfy a comparable standard even if such standard would not otherwise apply to the product or recommendation at issue. However, nothing in paragraph (F)(5) of this rule shall limit the superintendent's ability to investigate and enforce the provisions of this rule.

(b) Nothing in paragraph (F)(5)(a) of this rule shall limit the insurer's obligation to comply with paragraph (F)(3)(a) of this rule, although the insurer may base its analysis on information received from either the financial professional or the entity supervising the financial professional.

(i) Monitor the relevant conduct of the financial professional seeking to rely on paragraph (F)(5)(a) of this rule or the entity responsible for supervising the financial professional, such as the financial professional's broker-dealer or an investment adviser registered under federal securities laws using information collected in the normal course of an insurer's business; and

(ii) Provide to the entity responsible for supervising the financial professional seeking to rely on paragraph (F)(5)(a) of this rule, such as the financial professional's broker-dealer or investment adviser registered under federal securities laws, information and reports that are reasonably appropriate to assist such entity to maintain its supervision system.

(d) For purposes of paragraph (F)(5) of this rule, "financial professional" means an agent that is regulated and acting as:

(i) A broker-dealer registered under federal securities laws or a registered representative of a broker-dealer;

(ii) An investment adviser registered under federal securities laws or an investment adviser representative associated with the federal registered investment adviser; or

(iii) A plan fiduciary under section 3(21) of the Employee Retirement Income Security Act of 1974 (ERISA) or fiduciary under section 4975(e)(3) of the Internal Revenue Code (IRC) or any amendments or successor statutes thereto.

(e) For purposes of paragraph (F)(5) of this rule, "comparable standards" means:

(i) With respect to broker-dealers and registered representatives of broker-dealers, applicable SEC and FINRA rules pertaining to best interest obligations and supervision of annuity recommendations and sales, including, but not limited to, "Regulation Best Interest" and any amendments or successor regulations thereto;

(ii) With respect to investment advisers registered under federal securities laws or investment adviser representatives, the fiduciary duties and all other requirements imposed on such investment advisers or investment adviser representatives by contract or under the Investment Advisers Act of 1940, including but not limited to, the form ADV and interpretations; and

(iii) With respect to plan fiduciaries or fiduciaries, means the duties, obligations, prohibitions and all other requirements attendant to such status under ERISA or the IRC and any amendments or successor statutes thereto.

(G) Insurance agent training

(1) An insurance agent shall not solicit the sale of an annuity product unless the insurance agent has adequate knowledge of the product to recommend the annuity and the insurance agent is in compliance with the insurer's standards for product training. An insurance agent may rely on insurer-provided product-specific training standards and materials to comply with this paragraph.

(2) In addition to the requirements in paragraph (G)(1) of this rule, insurance agents subject to this rule shall comply with the following continuing education requirements:

(a) An insurance agent who engages in the sale, solicitation or negotiation of annuity products shall complete a one-time four credit training course provided by a department of insurance approved continuing education provider.

(b) An insurance agent who holds a life insurance line of authority on the effective date of this rule and who desires to sell annuities shall complete the requirements of paragraph (G)(2) within six months after the effective date of this rule. Individuals who obtain a life insurance line of authority on or after the effective date of this rule may not engage in the sale of annuities until the annuity training course required under paragraph (G)(2) of this rule has been completed.

(c) The minimum length of the training required under paragraph (G)(2) of this rule shall be sufficient to qualify for at least four CE credits, but may be longer.

(d) The training required under paragraph (G)(2) of this rule shall include information on the following topics:

(i) The types of annuities and various classifications of annuities;

(ii) Identification of the parties to an annuity;

(iii) How product specific annuity contract features affect consumers;

(iv) The application of income taxation of qualified and non-qualified annuities;

(v) The primary uses of annuities; and

(vi) Appropriate standard of conduct, sales practices, replacement and disclosure requirements.

(e) Providers of courses intended to comply with paragraph (G)(2) of this rule shall cover all topics listed in the prescribed outline and shall not present any marketing information or provide training on sales techniques or provide specific information about a particular insurer's products. Additional topics may be offered in conjunction with and in addition to the required outline.

(f) A provider of an annuity training course intended to comply with paragraph (G)(2)(a) of this rule shall register as a CE provider in this state and comply with the rules and guidelines applicable to insurance agent and continuing education courses as set forth in rule 3901-5-02 of the Administrative Code.

(g) An agent who has completed an annuity training course approved by the department of insurance prior to the effective date of this rule shall, within six months after the effective date of this rule, complete either:

(i) A new four credit training course approved by the department of insurance after the effective date of this rule; or

(ii) An additional one-time one credit training course approved by the department of insurance and provided by the department of insurance-approved education provider on appropriate sales practices, replacement and disclosure requirements under this amended rule.

(h) Annuity training courses may be conducted and completed by classroom or self-study methods in accordance with rule 3901-5-03 of the Administrative Code.

(i) Providers of annuity training shall comply with the reporting requirements and shall issue certificates of completion in accordance with rule 3901-5-04 of the Administrative Code.

(j) For Ohio non-resident agents, the satisfaction of the training requirements of another state that are substantially similar to the provisions of paragraph (G)(2)(a) of this rule shall be deemed to satisfy the training requirements of paragraph (G)(2) of this rule in this state.

(k) The satisfaction of the components of the training requirements of any course or courses with components substantially similar to the provisions of paragraph (G)(2) of this rule shall be deemed to satisfy the training requirements of paragraph (G)(2) of this rule in this state.

(l) An insurer shall verify that an insurance agent has completed the four hour annuity training course required under paragraph (G)(2) of this rule before allowing the agent to sell an annuity product for that insurer. An insurer may satisfy its responsibility under paragraph (G)(2) of this rule by obtaining certificates of completion of the training course or obtaining reports provided by superintendent-sponsored database systems or vendors or from a reasonably reliable commercial database vendor that has a reporting arrangement with approved insurance education providers.

(H) Compliance mitigation; penalties

(1) An insurer is responsible for compliance with this rule. If a violation occurs, either because of the action or inaction of the insurer or its insurance agent, the superintendent may order:

(a) An insurer to take reasonably appropriate corrective action for any consumer harmed by a failure to comply with this rule by the insurer, an entity contracted to perform the insurer's supervisory duties or by its insurance agent;

(b) A general agency, business entity, independent agency or the insurance agent to take reasonably appropriate corrective action for any consumer harmed by the insurance agent's violation of this rule; and

(2) Any applicable penalty under the Unfair and Deceptive Trade Practices Act, sections 3911.19 to 3911.26 of the Revised Code, for a violation of this rule may be reduced or eliminated if corrective action for the consumer was taken promptly after a violation was discovered or the violation was not part of a pattern or practice.

(3) The authority to enforce compliance with this rule is vested exclusively in the superintendent of insurance.

(I) Record keeping

(1) Insurers, independent agencies, business entity agents and insurance agents shall maintain or be able to make available to the superintendent records of the information collected from the consumer, disclosures made to the consumer, including the summaries of oral disclosures, and other information used in making the recommendations that were the basis for insurance transactions for eight years after the insurance transaction is completed by the insurer. An insurer is permitted, but shall not be required, to maintain documentation on behalf of an insurance agent.

(2) Records required to be maintained by this rule may be maintained in paper, photographic, micro-process, magnetic, mechanical or electronic media or by any process that accurately reproduces the actual document.

(J) Severability

If any paragraph, term or provision of this rule is adjudged invalid for any reason, such judgment shall not affect, impair or invalidate any other paragraph, term or provision of this rule, but the remaining paragraphs, terms and provisions shall be and continue in full force and effect.

(K) Effective date

Insurers and insurance agents shall comply with the requirements of this rule within six months after the effective date of this rule.

Last updated October 11, 2023 at 1:53 PM

Supplemental Information

Authorized By: 3901.041, 3901.19 to 3901.26
Amplifies: 3901.19 to 3901.26
Five Year Review Date: 8/31/2028
Prior Effective Dates: 3/1/2007

Rule 3901-6-14 | Annuity disclosure.

Effective:

November 16, 2023

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to provide standards for the disclosure of certain minimum information about annuity contracts to protect consumers and foster consumer education. The rule specifies the minimum information to be disclosed, the method for disclosing it and the use and content of illustrations, if used, in connection with the sale of annuity contracts. The goal of this rule is to ensure that purchasers of annuity contracts understand certain basic features of annuity contracts.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3901.19 to 3901.21 of the Revised Code.

This rule applies to all group and individual annuity contracts and certificates except:

(1) Immediate and deferred annuities that contain no non-guaranteed elements;

(2) Annuities used to fund:

(a) An employee pension that is covered by the Employee Retirement and Income Security Act of 1974 (29 U.S.C. section 1001 to 1148) (ERISA);

(b) A plan described by sections 401(a), 401(k), and 403(b) of the Internal Revenue Code of 1986, as amended (26 U.S.C. sections 401(a), 401(k) and 403(b)), where the plan, for the purposes of ERISA, is established or maintained by an employer;

(c) A governmental or church plan defined in section 414 or a deferred compensation plan of a state or local government or a tax exempt organization under section 457 of the Internal Revenue Code; or

(d) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.

(3) Notwithstanding paragraph (C)(2) of this rule, this rule applies to annuities 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, and where the insurance company 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 paragraph, direct solicitation does not include any meeting held by an agent solely for the purpose of educating or enrolling employees in the plan or arrangement;

(4) Non-registered variable annuities issued exclusively to an accredited investor or qualified purchaser as those terms are defined by the Securities Act of 1933 (15 U.S.C. section 77a to 77aa), the Investment Company Act of 1940 (15 U.S.C. section 80a-1 to 80b-21), or the regulations promulgated under either of those acts, and offered for sale and sold in a transaction that is exempt from registration under the Securities Act of 1933 (15 U.S.C. section 77a to 77aa).

(5)

(a) Transactions involving variable annuities and other registered products in compliance with "Securities and Exchange Commission" (SEC) rules and "Financial Industry Regulatory Authority" (FINRA) rules relating to disclosures and illustrations.

(b) Notwithstanding paragraph (C)(5)(a) of this rule, the delivery of the buyer's guide is required in sales of variable annuities, and when appropriate, in sales of other registered products.

(c) Nothing in this paragraph limits the superintendent's ability to enforce the provisions of this rule or to require additional disclosure.

(6) Structured settlement annuities; and

(7) Funding agreements.

(D) Definitions

For the purposes of this rule:

(1) "Buyers guide" means, as appropriate for the annuity being offered for sale, either the "Buyer's Guide for Deferred Annuities - Variable," "Buyer's Guide for Deferred Annuities - Fixed," or the "Buyer's Guide for Deferred Annuities" approved by the national association of insurance commissioners; use of the "Buyer's Guide for Deferred Annuities" is considered appropriate in all sales.

(2) "Contract owner" means the owner named in the annuity contract or certificate holder in the case of a group annuity contract.

(3) "Determinable elements" means elements that are derived from processes or methods that are guaranteed at issue and not subject to company discretion, but where the values or amounts cannot be determined until some point after issue. These elements include the premiums, credited interest rates (including any bonus), benefits, values, non-interest based credits, charges or elements of formulas used to determine any of these. These elements may be described as guaranteed but not determined at issue. An element is considered determinable if it was calculated from underlying determinable elements only, or from both determinable and guaranteed elements.

(4) "Funding agreement" means 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.

(5) "Generic name" means a short title descriptive of the annuity contract being applied for or illustrated such as "single premium deferred annuity."

(6) "Guaranteed elements" means the premiums, credited interest rates (including any bonus), benefits, values, non-interest based credits, charges or elements of formulas used to determine any of these, that are guaranteed and determined at issue. An element is considered guaranteed if all of the underlying elements that go into its calculation are guaranteed.

(7) "Illustration" means a personalized presentation or depiction prepared for and provided to an individual consumer that includes non-guaranteed elements of an annuity contract over a period of years.

(8) "Market Value Adjustment" or "MVA" feature is a positive or negative adjustment that may be applied to the account value and/or cash value of the annuity upon withdrawal, surrender, contract annuitization or death benefit payment based on either the movement of an external index or on the company's current guaranteed interest rate being offered on new premiums or new rates for renewal periods, if that withdraw, surrender contract annuitization or death benefit payment occurs at a time other than on a specified guaranteed benefit date.

(9) "Non-guaranteed elements" means the premiums, credited interest rates (including any bonus), benefits, values, dividends, non-interest based credits, charges or elements of formulas used to determine any of these, that are subject to company discretion and are not guaranteed at issue. An element is considered non-guaranteed if any of the underlying non-guaranteed elements are used in its calculation.

(10) "Structured settlement annuity" means a "qualified funding asset" as defined in section 130(d) of the Internal Revenue Code or an annuity that would be a qualified funding asset under section 130(d) of the Internal Revenue Code but for the fact that it is not owned by an assignee under a qualified assignment.

(E) Standards for the disclosure document and buyer's guide:

(1) The applicant shall be given the buyer's guide that is appropriate for the annuity being offered for sale contained in appendix A, B or C to this rule. The variable annuity version contained in appendix A to this rule is acceptable in sales of variable annuities and any other securities registered annuities covered by this rule. The fixed annuity version contained in appendix B to this rule is acceptable in sales of fixed annuities, including fixed indexed annuities. The combination version contained in appendix C to this rule is acceptable in all sales.

(2) Where the application for an annuity contract is taken in a face-to-face meeting, the applicant shall at or before the time of application be given both the disclosure document described in paragraph (E)(5) of this rule and the appropriate buyer's guide, as required in paragraph (E)(1) of this rule.

(3) Where the application for an annuity contract is taken by means other than in a face-to-face meeting, the applicant shall be sent both the disclosure document and the appropriate buyer's guide, as required in paragraph (E)(1) of this rule, no later than five business days after the completed application is received by the insurer.

(a) With respect to an application received as a result of a direct solicitation through the mail:

(i) Providing the appropriate buyer's guide, as required in paragraph (E)(1) of this rule, in a mailing inviting prospective applicants to apply for an annuity contract shall be deemed to satisfy the requirement that the buyer's guide be provided no later than five business days after receipt of the application.

(ii) Providing a disclosure document in a mailing inviting a prospective applicant to apply for an annuity contract shall be deemed to satisfy the requirement that the disclosure document be provided no later than five business days after receipt of the application.

(b) With respect to an application received via the internet:

(i) Taking reasonable steps to make the appropriate buyer's guide, as required in paragraph (E)(1) of this rule, available for viewing and printing on the insurer's website shall be deemed to satisfy the requirement that the buyer's guide be provided no later than five business days of receipt of the application.

(ii) Taking reasonable steps to make the disclosure document available for viewing and printing on the insurer's website shall be deemed to satisfy the requirement that the disclosure document be provided no later than five business days after receipt of the application.

(c) A solicitation for an annuity contract provided in other than a face-to-face meeting shall include a statement that the proposed applicant may contact the insurance department of the state for a free annuity buyer's guide. In lieu of the foregoing statement, an insurer may include a statement that the prospective applicant may contact the insurer for a free annuity buyer's guide.

(4) Where the appropriate buyer's guide, as required in paragraph (E)(1) of this rule, and disclosure document are not provided at or before the time of application, a free look period of no less than fifteen days shall be provided for the applicant to return the annuity contract without penalty. This free look shall run concurrently with any other free look provided under state law or rule.

(5) At a minimum, the following information shall be included in the disclosure document required to be provided under this rule:

(a) The generic name of the contract, the company product name, if different, and form number, and the fact that it is an annuity;

(b) The insurer's legal name and physical address, website and telephone number;

(c) A description of the contract and its benefits, emphasizing its long-term nature, including examples where appropriate:

(i) The guaranteed, and non-guaranteed elements of the contract, and their limitations, if any, including for fixed indexed annuities, the elements used to determine the index-based interest, such as the participation rates, caps, or spread, and an explanation of how they operate;

(ii) An explanation of the initial crediting rate, or for fixed indexed annuities, an explanation of how the index-based interest is determined specifying any bonus or introductory portion, the duration of the rate and the fact that rates may change from time to time and are not guaranteed;

(iii) Periodic income options both on a guaranteed and non-guaranteed basis;

(iv) Any value reductions caused by withdrawals from or surrender of the contract;

(v) How values in the contract can be accessed;

(vi) The death benefit, if available and how it will be calculated;

(vii) A summary of the federal tax status of the contract and any penalties applicable on withdrawal of values from the contract; and

(viii) Impact of any rider, including, but not limited to, a guaranteed living benefit or long-term care rider.

(d) Specific dollar amount or percentage charges and fees listed with an explanation of how they apply; and

(e) Information about the current guaranteed rate or indexed crediting rate formula, if applicable, for new contracts that contains a clear notice that the rate is subject to change.

(6) Insurers shall define terms used in the disclosure statement in language that facilitates the understanding by a typical person within the segment of the public to which the disclosure statement is directed.

(F) Standards for annuity illustrations

(1) An insurer or agent may elect to provide a consumer an illustration at any time, provided that the illustration is in compliance with this paragraph and:

(a) Clearly labeled as an illustration;

(b) Includes a statement referring consumers to the disclosure document and buyer's guide provided to them at time of purchase for additional information about their annuity; and

(c) Is prepared by the insurer or third party using software that is authorized by the insurer prior to its use, provided that the insurer maintains a system of control over the use of illustrations.

(2) An illustration furnished to an applicant for a group annuity contract or contracts issued to a single applicant on multiple lives may be either an individual or composite illustration representative of the coverage on the lives of members of the group or the multiple lives covered.

(3) The illustration shall not be provided unless accompanied by the disclosure document referenced in paragraph (E) of this rule.

(4) When using an illustration, the illustration shall not:

(a) Describe non-guaranteed elements in a manner that is misleading or has the capacity or tendency to mislead;

(b) State or imply that the payment or amount of non-guaranteed elements is guaranteed; or

(5) Costs and fees of any type shall be individually noted and explained.

(6) An illustration shall conform to the following requirements:

(a) The illustration shall be labeled with the date on which it was prepared;

(b) Each page, including any explanatory notes or pages, shall be numbered and show its relationship to the total number of pages in the disclosure document (e.g., the fourth page of a seven-page disclosure document shall be labeled "page 4 of 7 pages");

(d) If the age of the proposed insured is shown as a component of the tabular detail, it shall be issue age plus the numbers of years the contract is assumed to have been in force;

(e) The assumed premium on which the illustrated benefits and values are based shall be clearly identified, including rider premium for any benefits being illustrated;

(f) Any charges for riders or other contract features assessed against the account value or the crediting rate shall be recognized in the illustrated values and shall be accompanied by a statement indicating the nature of the rider benefits or the contract features, and whether or not they are included in the illustration;

(g) Guaranteed death benefits and values available upon surrender, if any, for the illustrated contract premium shall be shown and clearly labeled guaranteed;

(h) Except as provided in paragraph (F)(6)(v) of this rule, the non-guaranteed elements underlying the non-guaranteed illustrated values shall be no more favorable than current non-guaranteed elements and shall not include any assumed future improvement of such elements. Additionally, non-guaranteed elements used in calculating non-guaranteed illustrated values at any future duration shall reflect any planned changes, including any planned changes that may occur after expiration of an initial guaranteed or bonus period;

(i) In determining the non-guaranteed illustrated values for a fixed indexed annuity, the index-based interest rate and account value shall be calculated for three different scenarios: one to reflect historical performance of the index for the most recent ten calendar years; one to reflect the historical performance of the index for the continuous period of ten calendar years out of the last twenty calendar years that would result in the least index value growth (the "low scenario"); one to reflect the historical performance of the index for the continuous period of ten calendar years out of the last twenty calendar years that would result in the most index value growth (the "high scenario"). The following requirements apply:

(i) The most recent ten calendar years and the last twenty calendar years are defined to end on the prior December thirty-one, except for illustrations prepared during the first three months of the year, for which the end date of the calendar year period may be the December thirty-one prior to the last full calendar year;

(ii) If any index utilized in determination of an account value has not been in existence for at least ten calendar years, indexed returns for that index shall not be illustrated. If the fixed indexed annuity provides an option to allocate account value to more than one indexed or fixed declared rate account, and one or more of those indexes has not been in existence for at least ten calendar years, the allocation to such indexed account(s) shall be assumed to be zero;

(iii) If any index utilized in determination of an account value has been in existence for at least ten calendar years but less than twenty calendar years, the ten calendar year periods that define the low and high scenarios shall be chosen from the exact number of years the index has been in existence;

(iv) The non-guaranteed element(s), such as caps, spreads, participation rates or other interest crediting adjustments, used in calculating the non-guaranteed index-based interest rate shall be no more favorable than the corresponding current element(s);

(v) If a fixed indexed annuity provides an option to allocate the account value to more than one indexed or fixed declared rate account:

(a) The allocation used in the illustration shall be the same for all three scenarios; and

(b) The ten calendar year periods resulting in the least and greatest index growth periods shall be determined independently for each indexed account option.

(vi) The geometric mean annual effective rate of the account value growth over the ten calendar year period shall be shown for each scenario;

(vii) If the most recent ten calendar year historical period experience of the index is shorter than the number of years needed to fulfill the requirement of paragraph (H) of this rule, the most recent ten calendar year historical period experience of the index shall be used for each subsequent ten calendar year period beyond the initial period for the purpose of calculating the account value for the remaining years of the illustration;

(viii) The low and high scenarios:

(a) Need not show surrender values (if different than account values);

(b) Shall not extend beyond ten calendar years (and therefore are not subject to the requirements of paragraph (H) of this rule beyond paragraph (H)(1)(a) of this rule; and

(c) May be shown on a separate page. A graphical presentation shall also be included comparing the movement of the account value over the ten calendar year period for the low scenario, the high scenario and the most recent ten calendar year scenario.

(ix) The low and high scenarios should reflect the irregular nature of the index performance and should trigger every type of adjustment to the index-based interest rate under the contract. The effect of the adjustments should be clear; for example, additional columns showing how the adjustment applied may be included. If an adjustment to the index-based interest rate is not triggered in the illustration (because no historical values of the index in the required illustration range would have triggered it), the illustration shall so state.

(j) The guaranteed elements, if any, shall be shown before corresponding non-guaranteed elements and shall be specifically referred to on any page of an illustration that shows or describes only the non-guaranteed elements (e.g., "see page 1 for guaranteed elements");

(k) The account or accumulation value of a contract, if shown, shall be identified by the name this value is given in the contract being illustrated and shown in close proximity to the corresponding value available upon surrender;

(l) The value available upon surrender shall be identified by the name this value is given in the contract being illustrated and shall be the amount available to the contract owner in a lump sum after deduction of surrender charges, bonus forfeitures, contract loans, contract loan interest and application of any market value adjustment, as applicable;

(m) Illustrations may show contract benefits and values in graphic or chart form in addition to the tabular form;

(n) Any illustration of non-guaranteed elements shall be accompanied by a statement indicating that:

(i) The benefits and values are not guaranteed;

(ii) The assumptions on which they are based are subject to change by the insurer; and

(iii) Actual results may be higher or lower.

(o) Illustrations based on non-guaranteed credited interest and non-guaranteed annuity income rates shall contain equally prominent comparisons to guaranteed credited interest and guaranteed annuity income rates, including any guaranteed and non-guaranteed participation rates, caps or spreads for fixed indexed annuities;

(p) The annuity income rate illustrated shall not be greater than the current annuity income rate unless the contract guarantees are in fact more favorable;

(q) Illustrations shall be concise and easy to read;

(r) Key terms shall be defined and then used consistently throughout the illustration;

(s) Illustrations shall not depict values beyond the maximum annuitization age or date;

(t) Annuitization benefits shall be based on contract values that reflect surrender charges or any other adjustments, if applicable;

(u) Illustrations shall show both annuity income rates per one-thousand dollars and the dollar amounts of the periodic income payable; and

(v) For participating immediate and deferred income annuities:

(i) Illustrations shall not assume any future improvement in the applicable dividend scale (or scales, if more than one dividend scale applies, such as for a flexible premium annuity);

(ii) Illustrations shall reflect the equitable apportionment of dividends, whether performance meets, exceeds or falls short of expectations;

(iii) If the dividend scale is based on a portfolio rate method, the portfolio rate underlying the illustrated dividend scale shall not be assumed to increase;

(iv) If the dividend scale is based on an investment cohort method, the illustrated dividend scale shall assume that reinvestment rates grade to long-term interest rates, subject to the following conditions:

(a) Any assumptions as to future investment performance in the dividend formula shall be consistent with assumptions that are reflected in the marketplace within the normal range of analyst forecasts and investor behavior; these assumptions shall not be changed arbitrarily, notwithstanding changes in markets or economic conditions, and must be consistent with assumptions that the issuer uses with respect to other lines of business; and

(b) The illustrated dividend scale shall assume that reinvestment rates grade to long-term interest rates, based on U.S. treasury bonds. For the purposes of this grading, the assumed long-term rates shall not exceed the rates calculated using the formula in paragraph (F)(6)(v)(iv)(c) of this rule, based on the time to maturity or reinvestment (the "Tenor") of the investments supporting the cohort of policies.

(c) Maximum long-term interest rates shall be calculated for tenors of three months (or less), five years, ten years and twenty years (or more), using U.S. treasury rates. For each tenor, the maximum long-term interest rate will vary over time, based on historical interest rates as they emerge. The formula for the maximum long-term interest rate is the average of the median bond rate over the last six hundred months and the average bond rate over the last one hundred twenty months, rounded to the nearest quarter of one per cent.

(d) The maximum long-term interest rate for a tenor shall be recalculated once per year, in January, using historical rates as of December thirty-one of the calendar year two years prior to the calendar year of the calculation date. The historical rate for each month is the rate reported for the last business day of the month.

(e) Grading to the maximum long-term interest rates shall take place over:

(i) No less than twenty years from issue if U.S. treasury rates as of the illustration date are below the long-term rates, or

(ii) No more than twenty years from issue if the U.S. treasury rates as of the illustration date are above the long-term rates.

(f) When the ten year U.S. treasury rate is less than the ten year maximum long-term interest rate, an additional illustrated dividend scale shall be presented. This additional illustrated dividend scale shall satisfy the following conditions:

(i) Assume that reinvestment U.S. treasury rates do not exceed the initial investment U.S. treasury rates; and

(ii) Illustrate dividends no less than half of the dividends illustrated under the current dividend scales.

If paragraphs (F)(6)(v)(iv)(f)(i) and (F)(6)(v)(iv)(f)(ii) of this rule are in conflict - i.e., if half of the current dividends are greater than would be permitted by condition in paragraph (F)(6)(v)(iv)(f)(i) of this rule - then the reinvestment U.S. treasury rates shall equal the initial investment U.S. treasury rates.

(g) The illustration shall include disclosure that is substantially similar to the following:

"The illustrated current dividend scale is based on interest rates that are assumed to gradually [increase/decrease] from current interest rates to long-term interest rates, over a period of [twenty] years. By regulation, the long-term assumed interest rates cannot and do not exceed the rates listed in column (c) of the table below."

If the illustration contains an additional dividend scale pursuant to paragraph (F)(6)(v)(iv)(f) of this rule, then the illustration shall also include disclosure that is substantially similar to the following: "The additional illustrated dividend scale is based on interest rates that are assumed not to increase and do not exceed the interest rates in column (b) of the table below."

(a)	(b)	(c)
	Treasury Rate as of 12/31/2016	Long-Term Treasury Rate
3 Months (or less)	0.51%	3.00%
5 Years	1.93%	4.50%
10 Years	2.45%	5.00%
20 Years (or more)	3.06%	5.50%

(G) An annuity illustration shall include a narrative summary that includes the following unless provided at the same time in a disclosure document:

(1) A brief description of any contract features, riders or options, guaranteed and/or nonguaranteed, shown in the basic illustration and the impact they may have on the benefits and values of the contract;

(2) A brief description of any other optional benefits or features that are selected, but not shown in the illustration and the impact they have on the benefits and values of the contract;

(3) Identification and a brief definition of column headings and key terms used in the illustration;

(4) A statement containing in substance the following:

(a) For other than fixed indexed annuities:

This illustration assumes the annuity's current nonguaranteed elements will not change. It is likely that they will change and actual values will be higher or lower than those in this illustration but will not be less than the minimum guarantees; and

The values in this illustration are not guarantees or even estimates of the amounts you can expect from your annuity. Please review the entire "Disclosure Document" and "Buyer's Guide" provided with your "Annuity Contract" for more detailed information.

(b) For fixed indexed annuities:

This illustration assumes the index will repeat historical performance and that the annuity's current non-guaranteed elements, such as caps, spreads, participation rates or other interest crediting adjustments, will not change. It is likely that the index will not repeat historical performance, the non-guaranteed elements will change, and actual values will be higher or lower than those in this illustration but will not be less than the minimum guarantees; and

(5) Additional explanations as follows:

(a) Minimum guarantees shall be clearly explained;

(b) The effect on contract values of contract surrender prior to maturity shall be explained;

(d) For annuities sold as an IRA, qualified plan or in another arrangement subject to the required minimum distribution (RMD) requirements of the Internal Revenue Code, the effect of RMDs on the contract values shall be explained;

(e) For annuities with recurring surrender charge schedules, a clear and concise explanation of what circumstances will cause the surrender charge to recur; and

(f) A brief description of the types of annuity income options available shall be explained, including:

(i) The earliest or only maturity date for annuitization (as the term is defined in the contract);

(ii) For contracts with an optional maturity date, the periodic income amount for at least one of the annuity income options available based on the guaranteed rates in the contract, at the later of age seventy or ten years after issue, but in no case later than the maximum annuitization age or date in the contract;

(iii) For contracts with a fixed maturity date, the periodic income amount for at least one of the annuity income options available, based on the guaranteed rates in the contract at the fixed maturity date; and

(iv) The periodic income amount based on the currently available periodic income rates for the annuity income option in paragraph (G)(5)(f)(ii) or (G)(5)(f)(iii) of this rule, if desired.

(H) Following the narrative summary, an illustration shall include a numeric summary which shall include at minimum, numeric values at the following durations:

(1)

(a) First ten contract years; or

(b) Surrender charge period if longer than ten years, including any renewal surrender charge period(s).

(2) Every tenth contract year up to the later of thirty years or age seventy; and

(3)

(a) Required annuitization age; or

(b) Required annuitization date.

(I) If the annuity contains a market value adjustment, hereafter MVA, the following provisions apply to the illustration:

(1) The MVA shall be referred to as such throughout the illustration;

(2) The narrative shall include an explanation, in simple terms, of the potential effect of the MVA on the value available upon surrender;

(3) The narrative shall include an explanation, in simple terms, of the potential effect of the MVA on the death benefit;

(4) A statement, containing in substance the following, shall be included:

When you make a withdrawal the amount you receive may be increased or decreased by a "Market Value Adjustment" (MVA). If interest rates on which the MVA is based go up after you buy your annuity, the MVA likely will decrease the amount you receive. If interest rates go down, the MVA will likely increase the amount you receive.

(5) Illustrations shall describe both the upside and the downside aspects of the contract features relating to the market value adjustment;

(6) The illustrative effect of the MVA shall be shown under at least one positive and one negative scenario. This demonstration shall appear on a separate page and be clearly labeled that it is information demonstrating the potential impact of a MVA;

(7) Actual MVA floors and ceilings as listed in the contract shall be illustrated; and

(8) If the MVA has significant characteristics not addressed in paragraphs (I)(1) to (I)(6) of this rule, the effect of such characteristics shall be shown in the illustration.

(J) A narrative summary for a fixed indexed annuity illustration also shall include the following unless provided at the same time in a disclosure document:

(1) An explanation, in simple terms, of the elements used to determine the index-based interest, including but not limited to, the following elements:

(a) The "Index(es)" which will be used to determine the index-based interest;

(b) The "Indexing Method" - such as point-to-point, daily averaging, monthly averaging;

(d) The "Participation Rate," if applicable;

(e) The "Cap," if applicable; and

(f) The "Spread," if applicable.

(2) The narrative shall include an explanation, in simple terms, of how index-based interest is credited in the indexed annuity;

(3) The narrative shall include a brief description of the frequency with which the company can re-set the elements used to determine the index-based credits, including the participation rate, the cap, and the spread, if applicable; and

(4) If the product allows the contract holder to make allocations to declared-rate segment, then the narrative shall include a brief description of:

(a) Any options to make allocations to a declared-rate segment, both for new premiums and for transfers from the indexed-based segments; and

(b) Differences in guarantees applicable to the declared-rate segment and the indexed-based segments.

(K) A numeric summary for a fixed indexed annuity illustration shall include, at a minimum, the following elements:

(1) The assumed growth rate of the index in accordance with paragraph (F)(6)(i) of this rule;

(2) The assumed values for the participation rate, cap and spread, if applicable; and

(3) The assumed allocation between indexed-based segments and declared-rate segment, if applicable, in accordance with paragraph (F)(6)(i) of this rule.

(L) If the contract is issued other than as applied for, a revised illustration conforming to the contract as issued shall be sent with the contract, except that non-substantive changes, including, but not limited to, changes in the amount of expected initial or additional premiums and any changes in amounts of exchanges pursuant to section 1035 of the Internal Revenue Code, rollovers or transfers, which do not alter the key benefits and features of the annuity as applied for will not require a revised illustration unless requested by the applicant.

(M) Report to contract owners

(1) For annuities in the payout period that include non-guaranteed elements and for deferred annuities in the accumulation period, the insurer shall provide each contract owner with a report, at least annually, on the status of the contract that contains at least the following information:

(a) The beginning and end date of the current report period;

(b) The accumulation and cash surrender value, if any, at the end of the previous report period and at the end of the current report period;

(c) The total amounts, if any, that have been credited, charged to the contract value or paid during the current report period; and

(d) The amount of outstanding loans, if any, as of the end of the current report period.

(N) Penalties

In addition to any other penalties provided by the laws of this state, a violation of this rule by an insurer or agent shall be considered an unfair and deceptive trade practice subject to any one or more penalties set forth in sections 3901.19 to 3901.221 of the Revised Code.

(O) Recordkeeping

(1) Insurers or insurance agents shall maintain or be able to make available to the superintendent records of the information collected from the consumer and other information provided in the disclosure statement (including illustrations) for eight years after the contract is delivered by the insurer. An insurer is permitted, but shall not be required, to maintain documentation on behalf of an insurance agent.

(P) Severability

View Appendix View Appendix

Last updated November 16, 2023 at 8:33 AM

Supplemental Information

Authorized By: 3901.041
Amplifies: 3901.19 to 3901.21
Five Year Review Date: 8/31/2028
Prior Effective Dates: 3/1/2007, 11/15/2018

Rule 3901-6-15 | Preneed life insurance minimum standards for determining reserve liabilities and nonforfeiture values.

Effective:

November 16, 2023

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to establish for preneed insurance products minimum mortality standards for reserves and nonforfeiture values, and to require the use of the "1980 Commissioners Standard Ordinary (CSO) Life Valuation Mortality Table" for use in determining the minimum standard of valuation of reserves and the minimum standard nonforfeiture values for preneed insurance products.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041, 3903.72, 3903.721, and 3915.071 of the Revised Code and rule 3901-6-10 of the Administrative Code (valuation of life insurance policies).

This rule applies to preneed insurance contracts, as defined in paragraph (D)(3) of this rule.

(D) Definitions

(1) The term "2001 CSO Mortality Table" means that mortality table, 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)." 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) The term "Ultimate 1980 CSO" means the "Commissioners' 1980 Standard Ordinary Life Valuation Mortality Tables (1980 CSO)" without ten-year selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law approved in December 1983.

(3) For the purposes of this rule, a preneed insurance contract is any life insurance policy or certificate that will be marketed and sold solely to fund preneed funeral contracts, as defined by division (T) of section 4717.01 of the Revised Code. The status of the policy or contract as preneed insurance is determined at the time of issue in accordance with the policy form filing, pursuant to section 3915.14 of the Revised Code.

(E) Minimum valuation mortality standards

For preneed insurance contracts, as defined in paragraph (D)(3) of this rule, the minimum mortality standard for determining reserve liabilities and nonforfeiture values for both male and female insureds is the "Ultimate 1980 CSO."

(F) Minimum valuation interest rate standards

(1) The interest rates used in determining the minimum standard for valuation of preneed insurance are the calendar year statutory valuation interest rates as defined in section 3903.724 of the Revised Code.

(2) The interest rates used in determining the minimum standard for nonforfeiture values for preneed insurance are the calendar year statutory nonforfeiture interest rates as defined in division (F) of section 3915.071 of the Revised Code.

(G) Minimum valuation method standards

(1) The method used in determining the standard for the minimum valuation of reserves of preneed insurance is the method defined in division (A) of section 3903.723 of the Revised Code.

(2) The method used in determining the standard for the minimum nonforfeiture values for preneed insurance is the method defined in section 3915.071 of the Revised Code.

(H) Transition rules

(1) For preneed insurance policies issued on or after the effective date of this rule and before January 1, 2012, the 2001 CSO may be used as the minimum standard for reserves and minimum standard for nonforfeiture benefits for both male and female insureds.

(2) If an insurer elects to use the 2001 CSO as a minimum standard for any policy issued on or after the effective date of this rule and before January 1, 2012, the insurer shall provide, as a part of the actuarial opinion memorandum submitted in support of the company's asset adequacy testing, an annual written notification to the domiciliary commissioner. The notification shall include:

(a) A complete list of all preneed policy forms that use the 2001 CSO as a minimum standard;

(b) A certification signed by the appointed actuary stating that the reserve methodology employed by the company in determining reserves for the preneed policies issued after the effective date and using the 2001 CSO as a minimum standard, develops adequate reserves (for the purposes of this certification, the preneed insurance policies using the 2001 CSO as a minimum standard cannot be aggregated with any other policies.); and

(c) Supporting information regarding the adequacy of reserves for preneed insurance policies issued after the effective date of this rule and using the 2001 CSO as a minimum standard for reserves.

(3) Preneed insurance policies issued on or after January 1, 2012, must use the "Ultimate 1980 CSO" in the calculation of minimum nonforfeiture values and minimum reserves.

(I) Severability

Last updated November 16, 2023 at 8:34 AM

Supplemental Information

Authorized By: 3901.041
Amplifies: 3903.72, 3915.071
Five Year Review Date: 8/31/2028
Prior Effective Dates: 1/1/2009

Rule 3901-6-16 | Annuity nonforfeiture product standards.

Effective:

July 11, 2012

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to amplify section 3915.073 of the Revised Code and to define the maturity date used for the purpose of calculating nonforfeiture values for annuity contracts filed in this state and to establish rules relative to the calculation of nonforfeiture values for certain product features and designs used in annuity contracts issued in this state.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3901.21 of the Revised Code.

This rule applies to all annuity contracts issued ninety days after the effective date of this rule and not specifically excluded in division (B) of section 3915.073 of the Revised Code.

(D) No private cause of action

Nothing herein shall be construed to create or imply a private cause of action for a violation of this rule.

(E) Definitions

As used in this rule:

(1) "Prospective test" is the nonforfeiture test, included in the filed actuarial memorandum, used to demonstrate compliance with division (F) of section 3915.073 of the Revised Code.

(2) "Retrospective test" is the nonforfeiture test, included in the filed actuarial memorandum, used to demonstrate compliance with division (D) of section 3915.073 of the Revised Code.

(F) Nonforfeiture standards for annuities

(1) Maturity date. For the purpose of the prospective test, notwithstanding the language of the contract, the maturity date shall be the later of the tenth contract anniversary or the contract anniversary following the annuitant's seventieth birthday. The contract anniversary used as the maturity date should be considered as the first day of the year following the contract anniversary (not including any premium payments for that year) and the discounting process should be determined on a curtate (full integral year) basis.

(a) Maturity value used to demonstrate compliance with the prospective test shall be the contract account value.

(b) No surrender charge is permitted on or past the maturity date.

(2) Non-level guaranteed interest rates. If the contract has non-level interest rate guarantees over the period of time for which interest rates are guaranteed, then, for the purposes of the prospective test, the maturity value shall be discounted at an interest rate not to exceed one per cent higher than the level imputed interest rate that produces a maturity value equal to that produced by the interest rates specified in the contract. The level imputed interest rate shall be derived such that gross considerations, net of any expense loads specified in the contract, accumulated at such level imputed interest rate equals gross consideration, net of any expense loads specified in the contract accumulated at the rate or rates specified in the contract.

(3) Rolling surrender charges. For contracts where surrender charge scales are measured from the date of each premium payment, minimum value compliance may be demonstrated assuming each premium payment is treated as a separate single premium contract. For purposes of determining the maturity date for each single premium, that date shall be the later of the tenth anniversary of the payment or the annuitant's seventieth birthday. If minimum value compliance is to be demonstrated in this fashion, the retrospective test minimum values shall be the greater of those based on the contract being treated either as a single contract providing for flexible premiums or as a single contract with each premium being considered a single premium contract.

(4) CD annuities. Annuity products with surrender charges that periodically renew and credited interest rate guarantee periods that periodically renew, sometimes referred to as "CD annuities", are compliant with the nonforfeiture tests provided:

(a) The contract provides for a time period of at least thirty days at each renewal, during which the contract may be surrendered without surrender charges or other penalties.

(b) For prospective test compliance, testing should be performed only once at issue and the surrender charge should be set to zero at every duration beyond the expiration of the initial interest guarantee period.

(c) In demonstrating prospective test compliance, for any period after the expiration of the initial interest guarantee period, the guaranteed credited rate assumed should be the minimum rate guaranteed in the contract.

(d) For a given interest guarantee period, the surrender charge percentage applicable at any renewal duration of that guarantee period should not exceed that for the comparable initial guarantee period duration.

(5) Bonus benefits. The following applies to annuity products that provide an interest bonus, a premium bonus, a persistency bonus or any other amounts and or percentages that are credited to the premiums paid, account value, cash value, cash surrender value or maturity value under a specified condition, other than benefits of the type described above that are provided through any pattern of non-level interest rate guarantees that may be similar to but are not specifically referred to as bonuses or additional credits.

(a) For purposes of demonstrating nonforfeiture compliance, the following requirements apply to bonus benefits:

(i) For purposes of the retrospective test, any bonus amounts are not to be considered gross considerations;

(ii) For purposes, of the prospective test, the bonus amount, accumulated at interest using the rate or rates specified in the contract, is to be considered part of the contract maturity value. The maturity value shall be discounted at an interest rate not to exceed one per cent higher than the level imputed interest rate that produces a maturity value equal to that produced by the interest rate or rates specified in the contract. The level imputed interest rate shall be derived such that gross considerations, net of any expense loads specified in the contract, accumulated at such level imputed interest rate equals gross considerations, net of any expense loads specified in the contract, plus the bonus accumulated at the rate or rates specified in the contract to the maturity date.

(b) Conditions under which bonus benefits may be forfeited; the contract may, at the option of the company, deduct from the account value the amount of any bonus benefit credited, provided the following conditions are met:

(i) The conditions for forfeiture are described in the contract;

(ii) Forfeiture of the bonus will not reduce the cash value below the minimum nonforfeiture benefit as required under this rule;

(iii) No bonus will be forfeited on or after the maturity date.

(c) Notwithstanding paragraph (F)(5)(a) of this rule, annuitization bonuses that are simply an additional percentage applied to the account value at annuitization do not need to be considered part of the maturity value for the purpose of the prospective test but shall be disclosed in the contract.

(6) Market value adjustments. Contracts that contain a market value adjustment (MVA) must comply with the retrospective test including application of the MVA. For the purposes of the prospective test, the MVA may be disregarded.

(G) Severability

Last updated October 11, 2023 at 1:53 PM

Supplemental Information

Authorized By: 3901.041, 3901.21
Amplifies: 3915.073
Five Year Review Date: 8/31/2026