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S.F. No. 3230 - Principle Based Reserving Method for Certain Insurance Companies (First Engrossment)
 
Author: Senator Vicki Jensen
 
Prepared By: Christopher B. Stang, Senate Counsel (651/296-0539)
 
Date: May 4, 2016



 

This bill implements the National Association of Insurance Commissioners ("NAIC") Standard Valuation Law and revisions to the NAIC Standard Nonforfeiture Law for Life Insurance.

Section 1 defines “operative date of the valuation manual” as January 1 of the first calendar year the valuation manual is effective (“VME”). Certain events must occur before the valuation manual is effective.

Section 2 provides that for policies issued on or after the VME, the mortality table included in the valuation manual can be used by the insurer, unless the commissioner of commerce promulgates rules requiring a specific mortality table to be used. The nonforfeiture interest rate will be provided by the valuation manual.  

Section 3, subdivision 1a provides definitions, including that “principle-based valuation” means a reserve valuation that uses one or more methods or assumptions determined by the insurer and meets the requirements of subdivision 11; and “valuation manual” means the method of valuation instructions adopted by the NAIC.

Subdivision 2 provides that the valuation of reserves for policies issued on or after the operative date of Laws 1947, chapter 182 (generally, January 1, 1948) and until the VME, are to be valued according to the current method.

Subdivision 2a clarifies that this subdivision applies to policies issued on or after the operative date of Laws 1947, chapter 182 (generally, January 1, 1948) and until the VME.

Subdivision 2b clarifies that this subdivision applies to policies issued on or after the operative date of Laws 1947, chapter 182 (generally, January 1, 1948) and until the VME.

Subdivision 2c provides that the commissioner must annually value, or cause to be valued, the reserves for life insurance contracts, annuity and pure endowment contracts, accident and health contracts, and deposit-type contracts, issued on or after the VME.

Subdivision 2d requires every insurer to annually submit to the commissioner an actuarial opinion and memorandum including certain information and computations about the insurer’s reserves. The opinion and memorandum must meet specifics provided by the valuation manual, and be acceptable to the commissioner. The commissioner has the authority to engage an actuary at the expense of the insurer to prepare a memorandum under certain circumstances. An insurer’s failure to file the opinion and memorandum is a violation of section 72A.061, subdivision 3, which includes a penalty of $25 per day for each day in default, and a possible suspension of license to do business after 90 days in default. 

Subdivisions 3 to 7 make technical changes.

Subdivision 9 provides that the commissioner determines the minimum standard of valuation for accident and health insurance contracts issued on or after the operative date of Laws 1947, chapter 182 (generally, January 1, 1948) and until the VME. Provides that, for contracts issued on or after the VME, the valuation manual prescribes the minimum standard of valuation, pursuant to subdivision 2c.

Subdivision 10, paragraph (a) provides that, for policies issued on or after the VME, the valuation manual provides the minimum standard of valuation, pursuant to subdivision 2c, with exceptions. Paragraph (b) provides that the operative date of the valuation manual is January 1 of the year following the first July 1 by which certain events have occurred.  Paragraph (c) provides that changes to the valuation manual, unless otherwise specified in the change, occur on January 1, if certain events have occurred.  Paragraph (d) requires the valuation manual to include certain information about valuation methods, the applicability of valuation methods to policies, and the format and information which must be included in reports.  Paragraph (e) provides that the commissioner can promulgate rules providing minimum valuation standards, if no specific valuation standard is otherwise provided. Paragraph (f) allows the commissioner to engage an actuary at the expense of the insurer to perform an examination or review of certain aspects of the insurer. Paragraph (g) allows the commissioner to require an insurer to change an assumption or method the commissioner believes is necessary in order for the insurer to comply with the valuation manual and this section. Provides a system for discipline and hearings to resolve disputes between the commissioner and the insurer.

Subdivision 11 requires insurers to use a principle-based valuation method for establishing reserves. Provides the general methodology insurers must use to determine reserves, subject to specific information in the valuation manual. Requires insurers to have certain governance and oversight over actuarial functions, and certify annually to the commissioner about the governance and oversight. 

Subdivision 12 requires insurers to submit certain data to the commissioner.

Subdivision 13 classifies certain data submitted by the insurer to the commissioner as confidential or protected nonpublic data. Classifies certain data as subject, or not subject, to subpoena. 

Subdivision 14 allows the commissioner to exempt certain product forms or lines from the principle-based reserve requirements in subdivision 10.  

 
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