3903.72 Superintendent to annually value reserves for life insurance policies, annuity and pure endowment contracts.

(A) The superintendent of insurance shall annually value, or cause to be valued, the reserve liabilities, referred to in this section as reserves, for all outstanding life insurance policies and annuity and pure endowment contracts of every life insurance company doing business in this state. The superintendent may certify the amount of such reserves, specifying the mortality tables, rates of interest, and net level premium method and other methods used to calculate reserves. In calculating reserves, the superintendent may use group methods and approximate averages for fractions of a year or otherwise. The valuation of the reserves of a company organized under the laws of a foreign government shall be limited to its United States business.

In lieu of a valuation of the reserves of a foreign company, the superintendent may accept the valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when such valuation complies with the minimum standards required by this section, provided such official accepts the certificate of valuation of the superintendent when such certificate states that the valuation was made in a specified manner and when such valuation complies with the minimum standards required by the law of that state or jurisdiction.

A company, which adopts a standard of valuation producing aggregate reserves greater than those required by this section, may adopt a lower standard of valuation with the approval of the superintendent, but not lower than the minimum provided by this section. However, the holding of additional reserves previously determined by a qualified actuary to be necessary for the actuary to render the opinions required by divisions (B)(1) and (2) of this section shall not be deemed to be the adoption of a higher standard of valuation.

(B)

(1) Every life insurance company doing business in this state shall annually submit to the superintendent the opinion of a qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified by rule by the superintendent are computed appropriately, are based on assumptions that satisfy contractual provisions, and are consistent with prior reported amounts. The opinion shall be submitted no later than March 1, 1996, and no later than the first day of March of each year thereafter. The superintendent shall adopt rules establishing the form and content of this opinion, and may require the life insurance company to supply information in addition to that contained in the actuarial opinion.

As used in this section, a "qualified actuary" means a person who is a member in good standing of the American academy of actuaries and who meets the requirements set by rule by the superintendent.

(2)

(a) Every life insurance company, except as exempted by rule adopted by the superintendent, shall also include in the annual opinion required by division (B)(1) of this section an opinion of the same qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified by rule by the superintendent, when considered in light of the assets held by the company with respect to the reserves and related actuarial items, including, but not limited to, the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision for the company's obligations under the policies and contracts, including, but not limited to, the benefits under and the expenses associated with the policies and contracts.

(b) The superintendent may provide by rule for a transition period for establishing any higher reserves that the qualified actuary may consider necessary to render the opinion required by division (B) of this section.

(c) Each opinion required by division (b) of this section shall be supported by a memorandum prepared in form and content as specified by rule by the superintendent.

(d) If a life insurance company fails to provide a supporting memorandum within the period of time specified by rule by the superintendent, or if the superintendent determines that a supporting memorandum fails to meet the standards set out in the rule, or is otherwise unacceptable to the superintendent, the superintendent may employ, at the expense of the insurance company, a qualified actuary to review the opinion and the basis for the opinion and prepare such supporting memorandum as is required by the superintendent.

(3) Every opinion required by division (B) of this section is governed by the following:

(a) The opinion shall be submitted with the annual statement reflecting the valuation of the reserve liabilities.

(b) The opinion shall apply to all business in force including individual and group health insurance plans.

(c) The opinion shall be based on standards adopted from time to time by the actuarial standards board of the American academy of actuaries and on such additional standards as the superintendent may prescribe by rule.

(d) In the case of an opinion required to be submitted by a foreign or alien life insurance company, the superintendent may accept the opinion filed by that company with the insurance regulatory authority of another state if the superintendent determines that the opinion reasonably meets the requirements applicable to a company domiciled in this state.

(e) Except in cases of fraud or willful misconduct, the qualified actuary is not liable for damages in any civil action to any person, other than the insurance company and the superintendent, for any act, error, omission, decision, or conduct with respect to the actuary's opinion.

(f) The superintendent shall establish by rule penalties for an insurance company's or qualified actuary's failure to comply with this section.

(g) The superintendent shall keep as confidential and privileged any memorandum received in support of a qualified actuary's opinion and also any other material provided by the insurance company to the superintendent in connection with the opinion. The memorandum and other materials shall not be made public, and shall not be subject to subpoena other than for the purpose of defending an action required by this section or rules adopted under this section. However, if any portion of a confidential and privileged memorandum is cited by the company in its marketing, is cited before any governmental agency other than a state insurance regulatory authority, or is released by the company to the news media, the entire memorandum shall no longer be confidential and privileged.

(h) Notwithstanding division (B)(3)(g) of this section, the superintendent may do any of the following:

(i) Disclose memoranda and other materials described in this section upon obtaining prior written consent from the insurer to which the memorandum or other materials pertain;

(ii) Disclose memoranda and other materials described in this section to the American academy of actuaries upon receipt of a written request from the academy stating that a memorandum or other material is required for the purpose of professional disciplinary proceedings. A request from the American academy of actuaries shall set forth the procedures to be used by the academy for preserving the confidential and privileged status of the memorandum or other material. If the procedures set forth are not satisfactory to the superintendent, the superintendent shall not release the memorandum or other material to the academy.

(iii) Share memoranda and other materials described in this section with the chief deputy rehabilitator, the chief deputy liquidator, other deputy rehabilitators and liquidators, and any other person employed by, or acting on behalf of, the superintendent pursuant to Chapter 3901. or 3903. of the Revised Code, with other local, state, federal, and international regulatory and law enforcement agencies, with local, state, and federal prosecutors, and with the national association of insurance commissioners and its affiliates and subsidiaries, provided that the recipient agrees to maintain the confidential or privileged status of any confidential or privileged memorandum or other material and has authority to do so;

(iv) Disclose memoranda and other materials described in this section in the furtherance of any regulatory or legal action brought by or on behalf of the superintendent or the state, resulting from the exercise of the superintendent's official duties.

(i) Notwithstanding divisions (B)(3)(g) and (h) of this section, the superintendent may authorize the national association of insurance commissioners and its affiliates and subsidiaries by agreement to share confidential or privileged memoranda and other material received pursuant to division (B)(3)(h)(iii) of this section with local, state, federal, and international regulatory and law enforcement agencies and with local, state, and federal prosecutors, provided that the recipient agrees to maintain the confidential or privileged status of the confidential or privileged memorandum or other material and has authority to do so.

(j) Notwithstanding divisions (B)(3)(g) and (h) of this section, the chief deputy rehabilitator, the chief deputy liquidator, and other deputy rehabilitators and liquidators may disclose memoranda and other material described in this section in the furtherance of any regulatory or legal action brought by or on behalf of the superintendent, the rehabilitator, the liquidator, or the state resulting from the exercise of the superintendent's official duties in any capacity.

(k) Nothing in this section shall prohibit the superintendent from receiving memoranda and other material in accordance with section 3901.045 of the Revised Code.

(l) The superintendent may enter into agreements governing the sharing and use of memoranda and materials consistent with the requirements of this section.

(m)

(i) No waiver of any applicable privilege or claim of confidentiality in the memoranda and materials described in this section shall occur as a result of sharing or receiving memoranda and material as authorized in divisions (B)(3)(h)(ii) and (iii), (B)(3)(i), and (B)(3)(k) of this section.

(ii) The disclosure of any memorandum or material in connection with a regulatory or legal action pursuant to divisions (B)(3)(h)(iv) and (B)(3)(j) of this section does not prohibit an insurer or any other person from taking steps to limit the dissemination of the memorandum or material to persons not involved in or the subject of the regulatory or legal action on the basis of any recognized privilege arising under any other section of the Revised Code or the common law.

(C) Except in the case of policies and contracts to which division (D) of this section applies, the minimum standard for the valuation of reserves shall be the method set forth in section 3915.04 of the Revised Code, using four per cent interest and the American experience table of mortality; provided that in no event shall a company's aggregate reserves for policies and contracts which guarantee nonforfeiture benefits be less than the aggregate reserves calculated in accordance with the standard used in calculating nonforfeiture benefits for such policies and contracts.

Reserves for such policies and contracts may be calculated according to standards which produce aggregate reserves greater than the minimum reserves required by this division.

(D) This division applies to all life insurance policies and annuity and pure endowment contracts issued on and after November 5, 1959, or each earlier date not before July 17, 1947, elected by the company for one or more of such policies or contracts as the date on which it would comply with the provisions of the nonforfeiture law for life insurance provided in section 3915.07 of the Revised Code or with the provisions of this division. The minimum standard for the valuation of all such policies and contracts shall be the commissioners reserve valuation method defined in division (E), (F), (H), or (K) of this section and the following tables and interest rates:

(1) For ordinary life insurance policies, excluding disability and accidental death benefits, issued on the standard basis:

(a) On and after November 5, 1959, or an earlier date, not before July 17, 1947, specified in a written notice by the company to the superintendent of its election to use this table and before division (D)(1)(b) of this section became operative for subsequent policy issues, the commissioners 1941 standard ordinary mortality table and three and one-half per cent interest;

(b) On and after January 1, 1966, or an earlier date, not before November 5, 1959, specified in a written notice by the company to the superintendent of its election to use this table and before division (D)(1)(c) of this section becomes operative for subsequent policy issues, the commissioners 1958 standard ordinary mortality table and three and one-half per cent interest before January 1, 1975; four per cent interest on and after January 1, 1975 and before January 1, 1979; and four and one-half per cent interest on and after January 1, 1979; provided that modified premiums and present values for female risks may be calculated at an age three years younger than the actual age of the insured for policies issued before January 1, 1979, and at an age six years younger for policies issued on and after January 1, 1979.

(c) On and after January 1, 1989, or an earlier date, not before January 1, 1983, specified in a written notice by the company to the superintendent of its election to use this table, the commissioners 1980 standard ordinary mortality table and the applicable valuation interest rate as defined in section 3903.721 of the Revised Code. The company may elect to use the commissioners 1980 standard ordinary mortality table with ten-year select mortality factors for any specified plan of life insurance. The superintendent may approve the use of any ordinary mortality table adopted after 1980 by the national association of insurance commissioners for determining the minimum standard for the valuation of such policies.

(2) For industrial life insurance policies, excluding disability and accidental death benefits, issued on the standard basis:

(a) On and after November 5, 1959, or an earlier date, not before July 17, 1947, specified in a written notice by the company to the superintendent of its election to use this table and before division (D)(2)(b) of this section became operative for subsequent policy issues, the 1941 standard industrial mortality table and three and one-half per cent interest;

(b) On and after January 1, 1968, or an earlier date, not before September 2, 1963, specified in a written notice by the company to the superintendent of its election to use this table, the commissioners 1961 standard industrial mortality table and three and one-half per cent interest before January 1, 1975; four per cent interest on and after January 1, 1975 and before January 1, 1979; four and one-half per cent interest on and after January 1, 1979 and before January 1, 1989, or before an earlier date, not before January 1, 1983, specified in a written notice by the company to the superintendent of its election to issue such policies pursuant to the provisions of the nonforfeiture law for life insurance provided in section 3915.071 of the Revised Code. On and after January 1, 1989, or such earlier date, the interest rate to be used in calculating the minimum reserve for such policies is the applicable valuation interest rate as defined in section 3903.721 of the Revised Code. The superintendent may approve the use of any industrial mortality table adopted after 1980 by the national association of insurance commissioners for determining the minimum standard for the valuation of such policies.

(3) For all individual annuity and pure endowment contracts, excluding disability and accidental death benefits, issued:

(a) On and after November 5, 1959, or an earlier date, not before July 17, 1947, as of which the company elected to comply with this division (D)(3)(a) and before division (D)(3)(b) of this section became operative for subsequent contract issues, the 1937 standard annuity mortality table, or, at the option of the company, the annuity mortality table for 1949, ultimate, or any modification of either table approved by the superintendent and three and one-half per cent interest;

(b) On and after January 1, 1979, or an earlier date, not before January 1, 1975, specified by the company in a written notice to the superintendent of its election to use this table, the 1971 individual annuity mortality table or any modification of that table approved by the superintendent and four per cent interest on and after January 1, 1975 and before January 1, 1979; four and one-half per cent interest on and after January 1, 1979, and before January 1, 1983; and the valuation interest rate as defined in section 3903.721 of the Revised Code on and after January 1, 1983, except that on and after January 1, 1975, and before January 1, 1979, the interest rate is six per cent for single premium immediate contracts and on and after January 1, 1979, and before January 1, 1983, the interest rate is five and one-half per cent for single premium deferred contracts and seven and one-half per cent for single premium immediate contracts. The superintendent may approve the use of any individual annuity mortality table adopted after 1980 by the national association of insurance commissioners, either as adopted or as modified by the superintendent, for determining the minimum standard for the valuation of such contracts.

(4) For all annuity and pure endowment contracts, excluding disability and accidental death benefits, purchased under group annuity and pure endowment contracts:

(a) On and after November 5, 1959, or an earlier date, not before July 17, 1947, as of which the company elected to comply with this division (D)(4)(a) and before division (D)(4)(b) of this section became operative for subsequent contract purchases, the group annuity mortality table for 1951, any modification of this table approved by the superintendent, or either of the tables, or modification of either of them, specified in division (D)(3)(a) of this section for individual annuity and pure endowment contracts and three and one-half per cent interest;

(b) On and after January 1, 1979, or an earlier date, not before January 1, 1975, specified by the company in a written notice to the superintendent of its election to use this table, the 1971 group annuity mortality table, or any modification of that table approved by the superintendent, and six per cent interest on and after January 1, 1975, and before January 1, 1979; seven and one-half per cent interest on and after January 1, 1979, and before January 1, 1983, and the valuation interest rate as defined in section 3903.721 of the Revised Code on and after January 1, 1983. The superintendent may approve the use of any group annuity mortality table adopted after 1980 by the national association of insurance commissioners, either as adopted or as modified by the superintendent, for determining the minimum standard for the valuation of such contracts.

(5) For total and permanent disability benefits in or supplementary to ordinary policies and contracts issued:

(a) On and after July 17, 1947, and before January 1, 1961, the class (3) disability table (1926) and three and one-half per cent interest. This table, for active lives, shall be combined with a mortality table permitted for calculating the reserves for life insurance policies.

(b) On and after January 1, 1961, the tables of period 2 disablement rates and the 1930 to 1950 termination rates of the 1952 disability study of the society of actuaries, with due regard for the type of benefit; except that a company may, at its option, use the class (3) disability table (1926) for policies and contracts issued on and after January 1, 1961, and before January 1, 1966. Any such table, for active lives, shall be combined with a mortality table permitted for calculating the reserves for life insurance policies. The interest rate to be used in calculating minimum reserves for such benefits may not exceed the applicable rate specified in division (D)(1) of this section for ordinary life insurance policies. The superintendent may approve the use of any table of disablement rates and termination rates adopted after 1980 by the national association of insurance commissioners for determining the minimum standard for the valuation of such total and permanent benefits.

(6) For accidental death benefits in or supplementary to policies issued:

(a) On and after July 17, 1947, and before January 1, 1961, the inter-company double indemnity mortality table and three and one-half per cent interest. This table shall be combined with a mortality table permitted for calculating the reserves for life insurance policies.

(b) On and after January 1, 1961, the 1959 accidental death benefits table; except that a company may, at its option, use the inter-company double indemnity mortality table for policies issued on and after January 1, 1961, and before January 1, 1966. Either table shall be combined with a mortality table permitted for calculating the reserves for life insurance policies. The interest rate to be used in calculating the minimum reserves for such benefits may not exceed the applicable rate specified in division (D)(1) of this section for ordinary life insurance policies. The superintendent may approve the use of any accidental death benefits table adopted after 1980 by the national association of insurance commissioners for determining the minimum standard for the valuation of such accidental death benefits.

(7) For group life insurance, life insurance issued on the substandard basis and all other special benefits, such tables as may be approved by the superintendent and interest not to exceed the applicable rate used in division (D)(1) of this section for ordinary life insurance policies.

(E) This division defines the commissioners reserve valuation method for all policies, riders, and supplemental policy provisions, with life insurance or endowment benefits, or both, providing for uniform amounts of life insurance and requiring uniform premiums. Reserves for such policies, riders, and provisions, except as otherwise provided in divisions (F) and (K) of this section, shall be the excess, if any, of the present value on the valuation date of the future guaranteed benefits over the present value on that date of the future modified net premiums. The modified net premium is a uniform percentage of each contract premium specified for the guaranteed benefits such that the present value, at the date of issue, of all modified net premiums shall be equal to the present value, on the date of issue, of the future guaranteed benefits plus the excess of division (E)(1) over division (E)(2) of this section, as follows:

(1) A net level annual premium equal to the present value, at the date of issue, of such benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per annum payable on the first and each subsequent anniversary of the policy on which a premium falls due; provided 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 the policy.

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

(F) This division defines the commissioners reserve valuation method for all life insurance policies issued on or after January 1, 1989, that have a first year premium in excess of the premium for the second policy year and for which excess no comparable benefit is provided in the first year and that provide either an endowment benefit or cash surrender value, or both, in an amount greater than the excess. Reserves for such policies before the assumed ending date shall be the greater of the amount calculated in accordance with division (E) of this section and the reserve calculated in accordance with that division but with the following changes:

(1) The value defined in division (E)(1) of this section shall be reduced by fifteen per cent of the amount of such excess first-year premium;

(2) All present values of benefits and premiums shall be determined without reference to premiums and benefits provided for by the policy after the assumed ending date;

(3) The policy shall be assumed to mature on the assumed ending date in the amount of its endowment benefits and cash surrender value. The assumed ending date is the first policy anniversary on which the sum of any endowment benefit and any cash surrender value then available is greater than such excess first-year premium.

On and after the assumed ending date, the reserve for such policies shall be calculated in accordance with division (E) of this section.

(G) Reserves according to the commissioners reserve valuation method for:

(1) All policies, riders, and supplemental policy provisions providing varying amounts of life insurance or requiring payment of varying premiums;

(2) Group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under section 408 of the Internal Revenue Code of 1954, as amended;

(3) Disability and accidental death benefits in all policies and contracts; and

(4) All other benefits, except life insurance and endowment benefits in life insurance policies and benefits provided by all other annuity and pure endowment contracts, shall be calculated by a method consistent with the principles of division (E) of this section.

Extra premiums charged because of impairments or special hazards shall be disregarded in determining modified net premiums.

(H) This division defines the commissioners annuity reserve valuation method for all annuity and pure endowment contracts other than group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under section 408 of the Internal Revenue Code of 1954, as amended.

Reserves for benefits under such contracts, excluding disability and accidental death benefits, shall be the greatest of the respective excesses of the present values, at the date of valuation, of the future guaranteed benefits, including guaranteed nonforfeiture benefits, provided for by such contract at the end of each respective contract year, over the present value, at the date of valuation, of any future valuation considerations derived from future gross considerations required by the terms of the contract that become payable prior to the end of each such respective contract year. The future guaranteed benefits shall be determined by using the mortality table, if any, and the interest rate, or rates, specified in such contracts for determining guaranteed benefits. The valuation considerations are the portions of the respective gross considerations applied under the terms of such contracts to determine nonforfeiture values.

(I) In no event shall a company's aggregate reserves for all life insurance policies, to which division (D) of this section applies, excluding disability and accidental death benefits, be less than the aggregate reserves calculated in accordance with the method set forth in divisions (E), (F), (G), (K), and (L) of this section and the mortality table or tables and rate or rates of interest used in calculating nonforfeiture benefits for such policies.

In no event shall the aggregate reserves for all policies, contracts, and benefits be less than the aggregate reserves determined by the qualified actuary to be necessary to render the opinion required by division (B) of this section.

(J) Reserves for any category of policies, contracts, or benefits as established by the superintendent may be calculated, at the option of the company, according to any standards which produce aggregate reserves for such category greater than those calculated according to the minimum standards provided in this section, but the rate or rates of interest used for policies and contracts, other than annuity and pure endowment contracts, shall not be higher than the corresponding rate or rates of interest used in calculating any nonforfeiture benefits provided for in such standards.

(K) If in any contract year the valuation net premium calculated by the method used in calculating the reserve for a policy or contract but using the minimum valuation standards of mortality and rate of interest is more than the gross premium for such policy or contract, the minimum reserve required for such policy or contract shall be the greater of either the reserve calculated according to the mortality table, rate of interest, and method actually used for such policy or contract, or the reserve calculated by such method but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the actual gross premium in each contract year for which the valuation net premium exceeds the actual gross premium. The minimum valuation standards of mortality and rate of interest referred to in this division are those required by division (D) of this section.

For the purposes of this division, the minimum reserve for any policy to which the provisions of division (F) of this section apply shall be calculated as if the method used in calculating the reserve for such policy were the method defined in division (E) of this section. The minimum reserve for such policy shall be the greater of the reserve calculated in accordance with division (F) of this section and in accordance with this division.

(L) Methods for determining the reserves for plans of life insurance or annuity which are of such a nature that minimum reserves cannot be determined by the methods described in this section shall be promulgated by rule adopted by the superintendent. The reserves to be held under such plans must be appropriate in relation to the benefits and the pattern of premiums for each plan and must be computed by methods which are consistent with the principles of this section. This division applies to any plan of life insurance which provides for future premium determination, the amounts of which are to be determined by the company on the basis of an estimate of future experience made at the time of any such determination.

(M) The superintendent shall adopt rules specifying minimum reserve standards for the valuation of individual and group health plans.

Effective Date: 06-18-2002