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DEPARTMENT OF CONSUMER AND BUSINESS SERVICES,
INSURANCE DIVISION

 

DIVISION 31

ACCOUNTING AND INVESTMENTS (ORS CHAPTER 733); REHABILITATION AND
LIQUIDATION OF INSURERS (ORS CHAPTER 734)

Minimum Reserve Standards for Individual and Group Health Insurance Contracts

836-031-0200

Scope, Authority; Statutes Implemented; Application

(1) OAR 836-031-0200 to 836-031-0300 apply to all individual and group health insurance coverages except credit insurance and establish minimum standards for the following three categories of health insurance reserves:

(a) Claim reserves, under OAR 836-031-0230;

(b) Premium reserves, under OAR 836-031-0240; and

(c) Contract reserves, under OAR 836-031-0250.

(2) OAR 836-031-0200 to 836-031-0300 are adopted pursuant to the authority of ORS 731.244 and 733.080 for the purpose of implementing 733.080.

(3) Reserving requirements under OAR 836-031-0200 to 836-031-0300 must be incorporated in the annual statement of an insurer for the year ending December 31, 1995, and for each year thereafter.

Stat. Auth.: ORS 731.244 & 733.080
Stats. Implemented: ORS 733.080
Hist.: ID 7-1995, f. & cert. ef. 11-15-95

836-031-0210

Definitions, Application and Explanation of Technical Terms Used

As used in OAR 836-031-0200 to 836-031-0300, the following terms have the following definitions and applications and are explained as follows:

(1) "Annual claim cost" means the net annual cost per unit of benefit before the addition of claim settlement expenses, other policy expenses or a margin for profit or contingencies.

(2) "Date of disablement" means the earliest date on which the insured is considered as being disabled under the definition of disability in the contract, based on a doctor's evaluation or other evidence. Normally this date will coincide with the start of any elimination period.

(3) "Elimination period" means a number of days, weeks or months specified in a policy, starting at the beginning of each period of loss, during which no benefits are payable.

(4) "Gross premium" means the amount of premium charged by the insurer and includes the net premium (based only on claim-cost) for the risk, together with any loading for expenses, profit or contingencies.

(5) "Group insurance" includes blanket insurance and any other forms of group insurance, and franchise insurance.

(6) "Level premium" means a premium calculated to remain unchanged throughout either the lifetime of the policy or some shorter projected period of years. The premium need not be guaranteed. If the premium is not guaranteed, although it is calculated to remain level, it may be changed if any of the assumptions on which it was based is revised at a later time.

(7) "Long-term care insurance" has the meaning given that term in ORS 743.652.

(8) "Modal premium" means the premium paid according to the billing frequency selected in the contract, which could be annual, semi-annual quarterly, monthly or weekly.

(9) "Negative reserve" means a negative value of the terminal reserve, which occurs when the values of the benefits are decreasing with advancing age or duration.

(10) "Preliminary term reserve method" means the method of valuation in which the valuation net premium for each year falling within the preliminary term period is exactly sufficient to cover the expected incurred claims of that year, so that the terminal reserves will be zero at the end of the year. At the end of the preliminary term period, a new constant valuation net premium (or stream of changing valuation premiums) becomes applicable such that the present value of all such premiums is equal to the present value of all claims expected to be incurred following the end of the preliminary term period.

(11) "Reserve" includes all items of benefit liability, whether in the nature of incurred claim liability or in the nature of contract liability relating to future periods of coverage, and whether the liability is accrued or unaccrued.

(12) "Terminal reserve" means the reserve at the end of a contract year equal to the present value of benefits expected to be incurred after that contract year minus the present value of future valuation net premiums.

(13) "Unearned premium reserve" means the reserve that values that portion of the premium paid or due to the insurer that is applicable to the period of coverage extending beyond the valuation date.

(14) "Valuation net modal premium" means the modal fraction of the valuation net annual premium that corresponds to the gross modal premium in effect on any contract to which contract reserves apply. Thus if the mode of payment in effect is quarterly, the valuation net modal premium is the quarterly equivalent of the valuation net annual premium.

Stat. Auth.: ORS 731.244 & ORS 733.080
Stats. Implemented: ORS 733.080
Hist.: ID 7-1995, f. & cert. ef. 11-15-95

836-031-0220

Principles Governing Reserves

(1) When an insurer determines that health insurance reserves meeting the minimum standards specified in OAR 836-031-0200 to 836-031-0300 are inadequate, increased reserves shall be held and shall be considered the minimum reserves for that insurer.

(2) With respect to any block of contracts, or with respect to an insurer's health insurance business as a whole, a prospective gross premium valuation is the ultimate test of reserve adequacy as of a given valuation date. Such a gross premium valuation must take into account, for all contracts in force, including those in a claims status or in a continuation of benefits status on the valuation date, the present value as of the valuation date of the following:

(a) All expected benefits unpaid;

(b) All expected expenses unpaid; and

(c) All unearned or expected premiums, adjusted for future premium increases reasonably expected to be put into effect.

(3) A gross premium valuation described in section (2) of this rule is to be performed whenever a significant doubt exists as to reserve adequacy with respect to any major block of contracts, or with respect to the insurer's health insurance business as a whole. In the event inadequacy is found to exist, immediate loss recognition shall be made and the reserves restored to adequacy. Adequate reserves (inclusive of claim, premium and contract reserves, if any) by this standard shall be held with respect to all contracts, regardless of whether contract reserves are required for such contracts under OAR 836-031-0200 to 836-031-0300.

(4) Whenever minimum reserves as defined in OAR 836-031-0200 to 836-031-0300 exceed reserve requirements as determined by a prospective gross premium valuation, such minimum reserves remain the minimum requirement under OAR 836-031-0200 to 836-031-0300.

(5) Adequacy of an insurer's health insurance reserves is determined on the basis of all three categories of reserves, including claim reserves, premium reserves and contract reserves, combined.

Stat. Auth.: ORS 731.244 & ORS 733.080
Stats. Implemented: ORS 733.080
Hist.: ID 7-1995, f. & cert. ef. 11-15-95

836-031-0230

Claim Reserves

(1) The following provisions apply to claim reserves generally:

(a) An insurer must maintain claim reserves for all incurred but unpaid claims on all health insurance policies;

(b) An insurer must maintain appropriate claim expense reserves with respect to the estimated expense of settlement of all incurred but unpaid claims; and

(c) An insurer must test all such reserves for prior valuation years for adequacy and reasonableness using claim runoff schedules in accordance with the statutory financial statement, including consideration of any residual unpaid liability.

(2) The following minimum standards apply to claim reserves for disability income insurance:

(a) Interest. The maximum interest rate for claim reserves is specified in OAR 836-031-0280;

(b) Morbidity. Minimum standards with respect to morbidity are those specified in OAR 836-031-0270 except that at the option of the insurer:

(A) For claims with a duration from date of disablement of less than two years, reserves may be based on the experience of the insurer, if such experience is considered credible, or upon other assumptions that to place a sound value on the liabilities; and

(B) For group disability income claims with a duration from date of disablement of more than two years but less than five years, reserves may, with the approval of the Director, be based on the experience of the insurer. The request for such approval of a plan of modification to the reserve basis must include:

(i) An analysis of the credibility of the experience;

(ii) A description of how the experience of the insurer is proposed to be used in setting reserves;

(iii) A description and quantification of the margins to be included;

(iv) A summary of the financial impact that the proposed plan of modification would have had on the last filed annual statement of the insurer;

(v) A copy of the approval of the proposed plan of modification by the commissioner of the state of domicile; and

(vi) Any other information requested by the Director; and

(c) Duration of disablement. For contracts with an elimination period, the duration of disablement must be measured as dating from the time that benefits would have begun to accrue had there been no elimination period.

(3) The following minimum standards apply to claim reserves for all other benefits:

(a) Interest. The maximum interest rate for claim reserves is specified in OAR 836-031-0280;

(b) Morbidity or other contingency. The reserve must be based on the experience of the insurer, if such experience is considered credible, or upon other assumptions that place a sound value on the liabilities.

(4) Any generally accepted or reasonable actuarial method or combination of methods may be used to estimate all claim liabilities. The methods used for estimating liabilities generally may be aggregate methods, or various reserve items may be separately valued. Approximations based on groupings and averages may also be employed. Adequacy of the claim reserves, however, shall be determined in the aggregate.

Stat. Auth.: ORS 731.244 & ORS 733.080
Stats. Implemented: ORS 733.080
Hist.: ID 7-1995, f. & cert. ef. 11-15-95

836-031-0240

Premium Reserves

(1) The following provisions apply to premium reserves generally:

(a) An insurer must maintain unearned premium reserves for all contracts with respect to the period of coverage beyond the date of valuation for which premiums, other than premiums paid in advance, have been paid;

(b) If premiums due and unpaid are carried as an asset, an insurer must treat such premiums as premiums in force, subject to unearned premium reserve determination for which premiums, other than premiums paid in advance, have been paid. An insurer must carry the value of unpaid commissions, premium taxes and the cost of collection associated with due and unpaid premiums as an offsetting liability;

(c) The gross premiums paid in advance for a period of coverage commencing after the next premium due date that follows the date of valuation may be appropriately discounted to the valuation date and shall be held either as a separate liability or as an addition to the unearned premium reserve that would otherwise be required as a minimum.

(2) The following are minimum standards for unearned premium reserves:

(a) The minimum unearned premium reserve with respect to any contract is the pro rata unearned modal premium that applies to the premium period beyond the valuation date. Such premium must be determined on the basis of:

(A) The valuation net modal premium on the contract reserve basis applying to the contract; or

(B) The gross modal premium for the contract if no contract reserve applies;

(b) Notwithstanding subsection (a) of this section, the sum of the unearned premium and contract reserves for all contracts of the insurer subject to contract reserve requirements shall not be less than the gross modal unearned premium reserve on all such contracts as of the date of valuation. Such sum shall never be less than the expected claims for the period beyond the valuation date represented by such unearned premium reserve, to the extent not provided for elsewhere.

(3) An insurer may employ suitable approximations and estimates, including but not limited to groupings, averages and aggregate estimation in computing premium reserves. Such approximations or estimates must be tested periodically to determine their continuing adequacy and reliability.

Stat. Auth.: ORS 731.244 & ORS 733.080
Stats. Implemented: ORS 733.080
Hist.: ID 7-1995, f. & cert. ef. 11-15-95

836-031-0250

Contract Reserves

(1) The following provisions apply to contract reserves generally:

(a) Unless otherwise specified in subsection (b) of this section (1), an insurer must maintain contract reserves for:

(A) All individual and group contracts with which level premiums are used; or

(B) All individual and group contracts with respect to which, owing to the gross premium pricing structure at issue, the value of the future benefits at any time exceeds the value of future valuation net premiums at that time.The values specified in this paragraph (B) of this subsection shall be determined on the basis specified in section (2) of this rule;

(b) Contracts that cannot be continued after one year from issue do not require a contract reserve;

(c) The contract reserve is in addition to claim reserves and premium reserves;

(d) The methods and procedures for contract reserves must be consistent with those for claim reserves for any contract, or else appropriate adjustment must be made when necessary to assure provision for the aggregate liability. The definition of the date of incurral must be the same in both determinations.

(2) The following are minimum standards for contract reserves:

(a) Morbidity or other contingency. Minimum standards with respect to morbidity are those set forth in OAR 836-031-0270. Valuation net premiums used under each contract must have a structure consistent with the gross premium structure at issue of the contract as this relates to advancing age of insured, contract duration and period for which gross premiums have been calculated. Contracts for which tabular morbidity standards are not specified in 836-031-0270 shall be valued using tables established for reserve purposes by a qualified actuary and acceptable to the Director;

(b) Interest. The maximum interest rate is specified in OAR 836-031-0280;

(c) Termination rates. Termination rates used in the computation of reserves shall be on the basis of a mortality table as specified in OAR 836-031-0290, except provided in this subsection. When a morbidity standard specified in OAR 836-031-0270 is on an aggregate basis, the morbidity standard may be adjusted to reflect the effect of insurer underwriting by policy duration. The adjustments must be appropriate to the underwriting and are subject to prior approval by the Director. Total termination rates that exceed the specified mortality table rates may be used for the following benefits, but the total termination rates used may still not exceed the lesser of 80 percent of the total termination rate used in the calculation of the gross premiums or eight percent. The specified benefits are as follows:

(A) Contracts for which premium rates are not guaranteed;

(B) For return of premium; or

(C) Other deferred cash benefits;

(d) Reserve method:

(A) For insurance, excepting long-term care insurance and return of premium or other deferred cash benefits, the minimum reserve is the reserve calculated on the two-year full preliminary term reserve method; that is, under which the terminal reserve is zero at the first and also the second contract anniversary;

(B) For long-term care insurance, the minimum reserve is the reserve calculated on the one-year full preliminary term reserve method; and

(C) For return of premium or other deferred cash benefits, the minimum reserve is the reserve calculated as follows:

(i) On the one year preliminary term reserve method if such benefits are provided at any time before the 20th anniversary;

(ii) On the two year preliminary term reserve method if such benefits are provided only on or after the 20th anniversary;

(iii) The preliminary term reserve method may be applied only in relation to the date of issue of a contract. Reserve adjustments introduced later, as a result of rate increases, revisions in assumptions (e.g., projected inflation rates) or for other reasons, are to be applied immediately as of the effective date of adoption of the adjusted basis;

(e) Negative reserves. Negative reserves on any benefit may be offset against positive reserves for other benefits in the same contract, but the total contract reserve with respect to all benefits combined may not be less than zero.

(3) The following provisions apply with regard to alternative valuation methods and assumptions generally:

(a) If the contract reserve on all contracts to which an alternative method or basis is applied is not less in the aggregate than the amount determined according to the applicable standards specified in sections (1) and (2) of this rule, an insurer may use any reasonable assumptions as to interest rates, termination and mortality rates, and rates of morbidity or other contingency; and

(b) Subject to subsection (a) of this section, an insurer may employ methods other than the methods stated in sections (1) and (2) of this rule in determining a sound value of its liabilities under such contracts. The methods may include but are not limited to the following:

(A) The net level premium method;

(B) The one-year full preliminary term reserve method;

(C) Prospective valuation on the basis of actual gross premiums with reasonable allowance for future expenses;

(D) The use of approximations such as those involving age groupings, groupings of several years of issue, average amounts of indemnity, grouping of similar contract forms;

(E) The computation of the reserve for one contract benefit as a percentage of, or by other relation to, the aggregate contract reserves exclusive of the benefit or benefits so valued; and

(F) The use of a composite annual claim cost for all or any combination of the benefits included in the contracts valued.

(4) The following apply with regard to tests for adequacy and reasonableness of contract reserves:

(a) Annually, an insurer shall make an appropriate review of the prospective contract liabilities of the insurer on contracts valued by tabular reserves to determine the continuing adequacy and reasonableness of the tabular reserves, giving consideration to future gross premiums. Subject to the minimum standards of section (2) of this rule, the insurer shall make appropriate increments to such tabular reserves if such tests indicate that the basis of such reserves is no longer adequate.

(b) In the event an insurer has a contract or a group of related similar contracts for which future gross premiums will be restricted by contract, insurance department regulations or for other reasons, such that the future gross premiums reduced by expenses for administration, commissions, and taxes will be insufficient to cover future claims, the insurer shall establish contract reserves for such shortfall in the aggregate.

Stat. Auth.: ORS 731.244 & ORS 733.080
Stats. Implemented: ORS 733.080
Hist.: ID 7-1995, f. & cert. ef. 11-15-95

836-031-0260

Reinsurance

Increases to or credits against reserves held that arise because of reinsurance assumed or reinsurance ceded must be determined in a manner consistent with OAR 836-031-0200 to 836-031-0300 and also with all applicable provisions of the reinsurance contracts that affect the liabilities of the insurer.

Stat. Auth.: ORS 731.244 & 733.080
Stats. Implemented: ORS 733.080
Hist.: ID 7-1995, f. & cert. ef. 11-15-95

836-031-0270

Specific Standards for Morbidity

The following standards apply to morbidity:

(1) Minimum morbidity standards for valuation of specified benefits provided in individual health insurance policies are as follows:

(a) For disability income benefits due to accident or sickness:

(A) Contract reserves:

(i) Contracts issued on or after January 1, 1965 and prior to January 1, 1987: The 1964 Commissioners Disability Table (64 CDT) or, at the option of the insurer, a more recent table approved by the Director;

(ii) Contracts issued on or after January 1, 1995: the 1985 Commissioners Individual Disability Tables A (85CIDA) or the 1985 Commissioners Individual Disability Tables B (85CIDB). Each insurer shall elect, with respect to all individual contracts issued in any one statement year, whether it will use Tables A or Tables B as the minimum standard. An insurer may, however, elect to use the other tables with respect to any subsequent statement year;

(iii) Contracts issued during 1987 through 1994: Optional use of either the 1964 Table or the 1985 Tables as provided in paragraph (ii) of this subsection;

(B) Claim reserves: The minimum morbidity standard in effect for contract reserves on currently issued contracts, as of the date the claim is incurred.

(b) For hospital benefits, surgical benefits and maternity benefits (scheduled benefits or fixed time period benefits only):

(A) Contract reserves:

(i) Contracts issued on or after January 1, 1955, and before January 1, 1982: The 1956 Intercompany Hospital-Surgical Tables; and

(ii) Contracts issued on or after January 1, 1982: the 1974 Medical Expense Tables, Table A, Transactions of the Society of Actuaries, Volume XXX, pg. 63. Refer to the paper (in the same volume, pg. 9) to which this table is appended, including its discussions, for methods of adjustment for benefits not directly valued in Table A: Development of the 1974 Medical Expense Benefits, Houghton and Wolf;

(B) Claim reserves: No specific standard. See subsection (e) of this section;

(c) Cancer expense benefits (Scheduled benefits or fixed time period benefits only):

(A) Contract reserves: Contracts issued on or after January 1, 1986: the 1985 NAIC Cancer Claim Cost Tables;

(B) Claim reserves: No specific standard. See subsection (e) of this section;

(d) Accidental death benefits:

(A) Contract reserves: Contracts issued on or after January 1, 1965: the 1959 Accidental Death Benefits Table.

(B) Claim reserves: Actual amount incurred.

(e) Other individual contract benefits:

(A) Contract reserves: For all other individual contract benefits, morbidity assumptions are to be determined by using tables established for reserve purposes by a qualified actuary and acceptable to the Director;

(B) Claim reserves: For all benefits other than disability, claim reserves are to be determined by using tables established for reserve purposes by a qualified actuary and acceptable to the Director.

(2) Minimum morbidity standards for valuation of specified benefits for group health insurance policies are as follows:

(a) For disability income benefits due to accident or sickness:

(A) Contract reserves:

(i) Contracts issued prior to January 1, 1995: Use of the 87CGDT is optional; and

(ii) Contracts issued on or after January 1, 1995: the 1987 Commissioners Group Disability Income Table (87CGDT); and

(B) Claim reserves:

(i) For claims incurred on or after January 1, 1995: the 1987 Commissioners Group Disability Income Table (87CGDT); and

(ii) For claims incurred prior to January 1, 1995: Use of the 87CGDT is optional; and

(b) Other group contract benefits:

(A) Contract reserves: For all other group contract benefits, morbidity assumptions are to be determined by using tables established for reserve purposes by a qualified actuary and acceptable to the Director;

(B) Claim reserves: For all benefits other than disability, claim reserves are to be determined by using tables established for reserve purposes by a qualified actuary and acceptable to the Director;

[ED. NOTE: Tables referenced are available from the agency.]

Stat. Auth.: ORS 731.244 & ORS 733.080
Stats. Implemented: ORS 733.080
Hist.: ID 7-1995, f. & cert. ef. 11-15-95

836-031-0280

Specific Standards for Interest

(1) For contract reserves, the maximum interest rate is the maximum rate permitted by law in the valuation of whole life insurance issued on the same date as the health insurance contract.

(2) For claim reserves on policies that require contract reserves, the maximum interest rate is the maximum rate permitted by law in the valuation of whole life insurance issued on the same date as the claim incurral date.

(3) For claim reserves on policies not requiring contract reserves, the maximum interest rate is the maximum rate permitted by law in the valuation of single premium immediate annuities issued on the same date as the claim incurral date, reduced by one hundred basis points.

Stat. Auth.: ORS 731.244 & ORS 733.080
Stats. Implemented: ORS 733.080
Hist.: ID 7-1995, f. & cert. ef. 11-15-95

836-031-0290

Specific Standards for Mortality

(1) Except as provided in section (2) of this rule, the mortality basis used shall be according to any table (but without use of selection factors) permitted by law for the valuation of whole life insurance issued on the same date as the health insurance contract.

(2) Other mortality tables adopted by the NAIC and also adopted by the Director may be used in the calculation of the minimum reserves if appropriate for the type of benefits and if approved by the Director. The request for such approval must include the proposed mortality table and the reason that the standard specified in section (1) of this rule is inappropriate.

Stat. Auth.: ORS 731.244 & ORS 733.080
Stats. Implemented: ORS 733.080
Hist.: ID 7-1995, f. & cert. ef. 11-15-95

836-031-0300

Reserves for Waiver of Premium

(1) Waiver of premium reserves involves several special considerations. First, the disability valuation tables promulgated by the NAIC are based on exposures that include contracts on premium waiver as in-force contracts. Hence, contract reserves based on these tables are not reserves on active lives but rather are reserves on contracts in force. This is true for the 1964 CDT and for both the 1985 CIDA and CIDB tables.

(2) Reserves using any of the tables described in section (1) of this rule shall value reserves on the following basis:

(a) Claim reserves must include reserves for premiums expected to be waived, valuing as a minimum the valuation net premium being waived;

(b) Premium reserves must include contracts on premium waiver as in-force contracts, valuing as a minimum the unearned modal valuation net premium being waived; and

(c) Contract reserves must include recognition of the waiver of premium benefit in addition to other contract benefits provided for, valuing as a minimum the valuation net premium to be waived.

Stat. Auth.: ORS 731.244 & ORS 733.080
Stats. Implemented: ORS 733.080
Hist.: ID 7-1995, f. & cert. ef. 11-15-95

ACCOUNTING
(ORS 733.010 to 733.230)

Investments and Accounting Generally

836-031-0400

Allowed Assets

For the purpose of applying investment limitations and prohibitions in ORS Chapter 733 that are based upon percentages, the allowed assets of an insurer shall be those allowed assets described in 733.010 that are shown in the financial statement filed by the insurer for the period immediately preceding the period for which the most recent financial statement was filed.

Stat. Auth.: ORS 731.244, 733.010 & 733.695
Stats. Implemented: ORS 733.010 & 733.510 - 733.780
Hist.: ID 5-1992, f. & cert. ef. 3-26-92

836-031-0410

Title Insurance Unearned Premium Reserve

(1) For the purpose of implementing ORS 733.090(2), the amount of the unearned premium reserve shall be determined as follows for each foreign or alien title insurer relating to policies insuring titles to real property in this state and for each domestic title insurer relating to all of its policies insuring titles to real property:

(a) Three percent of all gross premiums on title insurance policies issued by it during the preceding 15 years and prior to January 1, 2002; plus

(b) A percentage of all gross premiums on title insurance policies issued by it during the current calendar year as determined from section (2) of this rule; less

(c) Percentage portions of reserve additions for each calendar year following January 1, 2002 and preceding the current calendar year, as specified by the Director.

(2) The percentage of premium for reserve additions in subsection (b) of section (1) of this rule shall be as follows:

(a) Three percent for calendar year 2002.

(b) Four percent for calendar year 2003.

(c) Five percent for calendar year 2004.

(d) Six percent for calendar year 2005.

(e) Six and one-half percent for calendar year 2006.

(f) Seven percent for calendar year 2007 and for each calendar year thereafter.

(3) The portion of the unearned premium reserve of a foreign insurer relating to its policies insuring real property located elsewhere shall be not less than the amounts prescribed or permitted by the laws of the insurer's domicile.

(4) This rule applies to all reporting periods beginning on and after January 1, 2002.

Stat. Auth.: ORS 731.244 & 733.090
Stats. Implemented: ORS 733.090
Hist.: ID 13-2002, f. & cert. ef. 5-14-02; ID 7-2005, f. & cert. ef. 4-21-05

Standard Valuation Law; Actuarial Opinions and Memoranda

836-031-0600

Purpose

The purpose of OAR 836-031-0600 to 836-031-0690 is to prescribe:

(1) Requirements for statements of actuarial opinion to be submitted in accordance with ORS 733.304 and for memoranda in support thereof;

(2) Rules applicable to the appointment of an appointed actuary.

(3) Guidance as to the meaning of “adequacy of reserves.”

Stat. Auth.: ORS 731.244 & 733.304
Stats. Implemented: ORS 733.304
Hist.: ID 10-1992, f. & cert. ef. 5-27-92; ID 5-2011, f. & cert. ef. 2-23-11

836-031-0610

Authority

OAR 836-031-0600 to 836-031-0690 are adopted pursuant to ORS 733.300 to 733.322 generally and 733.304 specifically.

Stat. Auth.: ORS 731.244
Stats. Implemented: ORS 733.304
Hist.: ID 10-1992, f. & cert. ef. 5-27-92; ID 1-1993(Temp), f. & cert. ef. 2-4-93; ID 4-1993, f. 7-27-93, cert. ef. 7-30-93; ID 19-2006, f. & cert. ef. 9-26-06

830-031-0620

Scope

(1) OAR 836-031-0600 to 836-031-0690 apply to all life insurers transacting insurance in this state and to all life insurers that are authorized to reinsure life insurance, annuities or health insurance business in this state OAR 836-031-0600 to 836-031-0690 shall be applied in a manner that allows the appointed actuary to utilize his or her professional judgment in performing the asset analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards and practices. However, the director may specify specific methods of actuarial analysis and actuarial assumptions when, in the director’s judgment, these specifications are necessary for an acceptable opinion to be rendered relative to the adequacy of reserves and related items.

(2) OAR 836-031-0600 to 836-031-0690 shall be applicable to all annual statements filed with the office of the director after the effective date of this change to OAR 836-031-0600 to 836-031-0690. A statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with 836-031-0670 and a memorandum in support thereof in accordance with 836-031-0680 are required each year.

Stat. Auth.: ORS 731.244 & 733.304
Stats. Implemented: ORS 733.304
Hist.: ID 10-1992, f. & cert. ef. 5-27-92; ID 5-2011, f. & cert. ef. 2-23-11

836-031-0630

Definitions

As used in OAR 836-031-0600 to 836-031-0690:

(1) "Actuarial Opinion" means the opinion of an appointed actuary regarding the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with 836-031-0670 and with currently accepted actuarial standards;

(2) "Actuarial Standards Board" is the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.

(3) "Annual Statement" means that statement required by ORS 731.574 of the Insurance Code to be filed by the company with the Director annually.

(4) "Appointed Actuary" means any individual who is appointed or retained in accordance with the requirements set forth in OAR 836-031-0640(3) to provide the actuarial opinion and supporting memorandum as required by ORS 733.304.

(5) "Asset Adequacy Analysis" means an analysis that meets the standards and other requirements referred to in OAR 836-031-0640(4).

(6) "Company" means a life insurance company or reinsurer subject to the provisions of OAR 836-031-0600 to 836-031-0690.

(7) "Qualified Actuary" means any individual who meets the requirements set forth in OAR 836-031-0640(2).

Stat. Auth.: ORS 731.244
Stats. Implemented: ORS 733.304
Hist.: ID 10-1992, f. & cert. ef. 5-27-92; ID 1-1993(Temp), f. & cert. ef. 2-4-93; ID 4-1993, f. 7-27-93, cert. ef. 7-30-93; ID 5-2011, f. & cert. ef. 2-23-11

836-031-0640

General Requirements

(1) The following provisions apply to submission of the statement of actuarial opinions:

(a) There is to be included on or attached to page 1 of the annual statement for each year beginning with 1992 the statement of an appointed actuary, entitled "Statement of Actuarial Opinion," setting forth an opinion relating to reserves and related actuarial items held in support of policies and contracts, in accordance with OAR 836-031-0670.

(b) Upon written request by the company, the Director may grant an extension of the date for submission of the statement of actuarial opinion.

(2) For purposes of OAR 836-031-0600 to 836-031-0690, a "qualified actuary" is an individual who:

(a) Is a member in good standing of the American Academy of Actuaries;

(b) Is qualified to sign statements of actuarial opinion for life and health insurance company annual statements in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements;

(c) Is familiar with the valuation requirements applicable to life and health insurance companies;

(d) Has not been found by the Director, or if so found has subsequently been reinstated as a qualified actuary, following appropriate notice and hearing to have:

(A) Violated any provision of, or any obligation imposed by, the Insurance Code or other law in the course of the qualified actuary's dealings as a qualified actuary;

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

(C) Demonstrated incompetency, lack of cooperation or untrustworthiness to act as a qualified actuary;

(D) Submitted to the Director during the past five years, pursuant to OAR 836-031-0600 to 836-031-0690, an actuarial opinion or memorandum that the Director rejected because it did not meet the provisions of 836-031-0600 to 836-031-0690, including standards set by the Actuarial Standards Board; or

(E) Resigned or been removed as an actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of failure to adhere to generally acceptable actuarial standards; and

(e) Has not failed to notify the Director of any action taken by any insurance regulator of any other state similar to that under subsection (d) of this section.

(3) For purposes of OAR 836-031-0600 to 836-031-0690, an "appointed actuary" is a qualified actuary who is appointed or retained to prepare the statement of actuarial opinion required by 836-031-0600 to 836-031-0690, either directly by or by the authority of the board of directors through an executive officer of the company other than the qualified actuary. The company shall give the Director timely written notice of the name, title (and, in the case of a consulting actuary, the name of the firm) and manner of appointment or retention of each person appointed or retained by the company as an appointed actuary and shall state in the notice that the person meets the requirements set forth in section (2) of this rule. Once notice is furnished, no further notice is required with respect to this person if the company gives the Director timely written notice in the event the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements set forth in section (2) of this rule. If any person appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice shall so state and give the reasons for replacement.

(4) This section establishes standards for asset adequacy analysis. The asset adequacy analysis required by OAR 836-031-0600 to 836-031-0690:

(a) Shall conform to the Standards of Practice as promulgated from time to time by the Actuarial Standards Board and acceptable to the Director, and on any additional standards under OAR 836-031-0600 to 836-031-0690, which standards are to form the basis of the statement of actuarial opinion in accordance with OAR 836-0331-0600 to 836-031-0690; and

(b) Shall be based on methods of analysis as are deemed appropriate for such purposes by the Actuarial Standards Board and acceptable to the Director.

(5) The following apply to liabilities to be covered:

(a) Under authority of ORS 733.304, the statement of actuarial opinion shall apply to all in force business on the statement date whether directly issued or assumed regardless of when or where issued, e.g., reserves of Exhibits 8, 9, and 10, and claim liabilities in Exhibit 11, Part I and equivalent items in the separate account statement or statements;

(b) If the appointed actuary determines as the result of asset adequacy analysis that a reserve should be held in addition to the aggregate reserve held by the company and calculated in accordance with methods set forth in ORS 733.312, 733.314, 733.320, and 733.322, the company shall establish such additional reserve;

(c) Additional reserves established under subsection (b) of this section and deemed not necessary in subsequent years may be released. Any amount released shall be disclosed in the actuarial opinion for the applicable year. The release of such reserves is not to be deemed an adoption of a lower standard of valuation.

[ED. NOTE: Exhibits referenced are available from the agency.]

Stat. Auth.: ORS 731.244 & 733.304
Stats. Implemented: ORS 733.304
Hist.: ID 10-1992, f. & cert. ef. 5-27-92; ID 5-2011, f. & cert. ef. 2-23-11

836-031-0670

Statement of Actuarial Opinion Based On an Asset Adequacy Analysis

(1) General Description. The statement of actuarial opinion submitted in accordance with this rule must consist of:

(a) A paragraph identifying the appointed actuary and the qualifications of the qualified actuary, as provided in subsection (2)(a) of this rule;

(b) A scope paragraph identifying the subjects on which an opinion is to be expressed and describing the scope of the appointed actuary's work, including a tabulation delineating the reserves and related actuarial items that have been analyzed for asset adequacy and the method of analysis, as provided in subsection (2)(b) of this rule, and identifying the reserves and related actuarial items covered by the opinion that have not been so analyzed;

(c) A reliance paragraph describing those areas, if any, where the appointed actuary has deferred to other experts in developing data, procedures or assumptions, (e.g., anticipated cash flows from currently owned assets, including variation in cash flows according to economic scenarios, as provided in subsection (2)(c) of this rule, supported by a statement of each such expert in the form prescribed by section (5) of this rule;

(d) An opinion paragraph expressing the appointed actuary's opinion with respect to the adequacy of the supporting assets to mature the liabilities, as provided in subsection (2)(f) of this rule; and

(e) One or more additional paragraphs, to be included in individual company cases as follows:

(A) If the appointed actuary considers it necessary to state a qualification of the appointed actuary's opinion;

(B) If the appointed actuary must disclose an inconsistency in the method of analysis or basis of asset allocation used at the prior opinion date with that used for the appointed actuary's opinion;

(C) If the appointed actuary must disclose whether additional reserves of the prior opinion date are released as of this opinion date, and the extent of the release; and

(D) If the appointed actuary chooses to add a paragraph briefly describing the assumptions forming the basis for the actuarial opinion.

(2) Recommended Language. The following paragraphs must be included in the statement of actuarial opinion in accordance with this section. The following provisions of this section are those that in typical circumstances would be included in a statement of actuarial opinion. The language may be modified as needed to meet the circumstances of a particular case, but the appointed actuary must use language that clearly expresses the professional judgment of the appointed actuary. However, in any event, the opinion must retain all pertinent aspects of the language provided in this section. The following provisions apply:

(a) The opening paragraph must indicate generally the appointed actuary's relationship to the company and qualifications of the appointed actuary to sign the opinion, as follows:

(A) For a company actuary, the opening paragraph of the actuarial opinion must include a statement such as:

"I, (name), am (title) of (insurance company name) and a member of the American Academy of Actuaries. I was appointed by, or by the authority of, the Board of Directors of the insurer to render this opinion as stated in the letter to the director dated (insert date). I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies."

(B) For a consulting actuary, the opening paragraph must include a statement such as:

"I, (name), a member of the American Academy of Actuaries, am associated with the firm of (name of consulting form). I have been appointed by, or by the authority of, the Board of Directors of (name of company) to render this opinion as stated in the letter to the Commissioner dated (insert date). I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies."

(b) The scope paragraph must include a statement such as:

"I have examined the actuarial assumptions and actuarial methods used in determining reserves and related actuarial items listed below, as shown in the annual statement of the company, as prepared for filing with state regulatory officials, as of December 31, 20( ). Tabulated below are those reserves and related actuarial items that have been subjected to asset adequacy analysis." See Table 1 (Reserves and Liabilities).

(c) If the appointed actuary has relied on other experts to develop certain portions of the analysis, the reliance paragraph must include a statement such as the following:

“I have relied on (name), (title) for (e.g., “anticipated cash flows from currently owned assets, including variations in cash flows according to economic scenarios” or “certain critical aspects of the analysis performed in conjunction with forming my opinion.”), as certified in the attached statement. I have reviewed the information relied upon for reasonableness.”

Such a statement of reliance on other experts must be accompanied by a statement by each of such experts on the form prescribed in section (5) of this rule.

(d) If the appointed actuary has examined the underlying asset and liability records, the reliance paragraph must include a statement such as:

"My examination included such review of the actuarial assumptions and actuarial methods and of the underlying basic asset and liability records and such tests of the actuarial calculations as I considered necessary. I also reconciled the underlying basic asset and liability records to (exhibits and schedules listed as applicable) of the company’s current annual statement."

(e) If the appointed actuary has not examined the underlying records, but has relied upon data (e.g., listings and summaries of policies in force or asset records) prepared by the company, the reliance paragraph must include a statement such as:

“In forming my opinion on (specify types of reserves) I relied upon data prepared by (name and title of company officer certifying in force records or other data) as certified in the attached statements. I evaluated that data for reasonableness and consistency. I also reconciled that data to (exhibits and schedules to be listed as applicable) of the company’s current annual statement. In other respects, my examination included review of the actuarial assumptions and actuarial methods used and tests of the calculations I considered necessary.”

Such a section shall be accompanied by a statement by each person relied upon, in the form prescribed by section (5) of this rule.

(f) The opinion paragraph must include a statement such as:

"In my opinion, the reserves and related actuarial values concerning the statement items identified above:

(i) Are computed in accordance with presently accepted actuarial standards consistently applied and are fairly stated, in accordance with sound actuarial principles;

(ii) Are based on actuarial assumptions that produce reserves at least as great as those called for in any contract provision as to reserve basis and method, and are in accordance with all other contract provisions;

(iii) Meet the requirements of the Insurance Law and regulation of the state of (state of domicile) and are at least as great as the minimum aggregate amounts required by the state in which this statement is filed;

(iv) Are computed on the basis of assumptions consistent with those used in computing the corresponding items in the annual statement of the preceding year-end (with any exceptions noted below);

(v) Include provision for all actuarial reserves and related statement items that ought to be established.

The reserves and related items, when considered in light of the assets held by the company with respect to such 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, according to currently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the company. At the discretion of the director, this language may be omitted for an opinion filed on behalf of a company doing business only in Oregon and in no other state.

The actuarial methods, considerations and analyses used in forming my opinion conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis of this statement of opinion.

This opinion is updated annually as required by statute. To the best of my knowledge, there have been no material changes from the applicable date of the annual statement to the date of the rendering of this opinion that should be considered in reviewing this opinion; or

The following material change or changes that occurred between the date of the statement for which this opinion is applicable and the date of this opinion should be considered in reviewing this opinion: (Describe the change or changes.)

The appointed actuary must choose one of the above two paragraphs, whichever is applicable.

The impact of unanticipated events subsequent to the date of this opinion is beyond the scope of this opinion. The analysis of asset adequacy portion of this opinion should be viewed recognizing that the company's future experience may not follow all the assumptions used in the analysis.

__________________________________________

Signature of Appointed Actuary

__________________________________________

Address of Appointed Actuary

__________________________________________

Telephone Number of Appointed Actuary

__________________________________________

Date"

(3) Assumptions for New Issues. The adoption, for new issues or new claims or other new liabilities, of an actuarial assumption that differs from a corresponding assumption used for prior new issues or new claims or other new liabilities is not a change in actuarial assumptions within the meaning of this rule.

(4) Adverse Opinions. If the appointed actuary is unable to form an opinion, the appointed actuary must refuse to issue a statement of actuarial opinion. If the appointed actuary's opinion is adverse or qualified, the appointed actuary must issue an adverse or qualified actuarial opinion explicitly stating the reason or reasons for the opinion. Such a statement must follow the scope paragraph and precede the opinion paragraph.

(5) Reliance on Information Furnished by Other Persons. If the appointed actuary relies on the certification of others on matters concerning the accuracy or completeness of any data underlying the actuarial opinion, or the appropriateness of any other information used by the appointed actuary in forming the actuarial opinion, the actuarial opinion should so indicate the persons the actuary is relying upon and a precise identification of the items subject to reliance. In addition, the persons on whom the appointed actuary relies shall provide a certification that precisely identifies the items on which the person is providing information and a statement as to the accuracy, completeness or reasonableness, as applicable, of the items. This certification shall include the signature, title, company, address and telephone number of the person rendering the certification, as well as the date on which it is signed.

(6) Alternate Option

(a) The Standard Valuation Law gives the director broad authority to accept the valuation of a foreign insurer when that valuation meets the requirements applicable to a company domiciled in this state in the aggregate. As an alternative to the requirements of subsection B(6)(c), the director may make one or more of the following additional approaches available to the opining actuary:

(A) A statement that the reserves “meet the requirements of the insurance laws and regulations of the State of (state of domicile) and the formal written standards and conditions of this state for filing an opinion based on the law of the state of domicile.” If the director chooses to allow this alternative, a formal written list of standards and conditions shall be made available. If a company chooses to use this alternative, the standards and conditions in effect on July 1 of a calendar year shall apply to statements for that calendar year, and they shall remain in effect until they are revised or revoked. If no list is available, this alternative is not available.

(B) A statement that the reserves “meet the requirements of the insurance laws and regulations of the State of (state of domicile) and I have verified that the company’s request to file an opinion based on the law of the state of domicile has been approved and that any conditions required by the director for approval of that request have been met.” If the director chooses to allow this alternative, a formal written statement of such allowance shall be issued no later than March 31 of the year it is first effective. It shall remain valid until rescinded or modified by the director. Such rescission or modifications shall be issued no later than March 31 of the year they are first effective. Subsequent to that statement being issued, if a company chooses to use this alternative, the company shall file a request to do so, along with justification for its use, no later than April 30 of the year of the opinion to be filed. The request shall be deemed approved on October 1 of that year if the director has not denied the request by that date.

(C) A statement that the reserves “meet the requirements of the insurance laws and regulations of the State of (state of domicile) and I have submitted the required comparison as specified by this state.”

(i) If the director chooses to allow this alternative, a formal written list of products (to be added to the table in Item (ii) below) for which the required comparison shall be provided will be published. If a company chooses to use this alternative, the list in effect on July 1 of a calendar year shall apply to statements for that calendar year, and it shall remain in effect until it is revised or revoked. If no list is available, this alternative is not available.

(ii) If a company desires to use this alternative, the appointed actuary shall provide a comparison of the gross nationwide reserves held to the gross nationwide reserves that would be held under NAIC codification standards. Gross nationwide reserves are the total reserves calculated for the total company in force business directly sold and assumed, indifferent to the state in which the risk resides, without reduction for reinsurance ceded. The information provided shall be at least:

Product Type

Death Benefit or Account Value

Reserves Held

Codification Reserves

Codification Standard

(iii) The information listed shall include all products identified by either the state of filing or any other states subscribing to this alternative

(iv) If there is no codification standard for the type of product or risk in force or if the codification standard does not directly address the type of product or risk in force, the appointed actuary shall provide detailed disclosure of the specific method and assumptions used in determining the reserves held.

(v) The comparison provided by the company is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.

(b) Notwithstanding the above, the director may reject an opinion based on the laws and regulations of the state of domicile and require an opinion based on the laws of this state. If a company is unable to provide the opinion within 60 days of the request or such other period of time determined by the director after consultation with the company, the director may contract an independent actuary at the company’s expense to prepare and file the opinion.

[ED. NOTE: Tables referenced are available from the agency.]

Stat. Auth.: ORS 731.244
Stats. Implemented: ORS 733.304
Hist.: ID 10-1992, f. & cert. ef. 5-27-92; ID 1-1993(Temp), f. & cert. ef. 2-4-93; ID 4-1993, f. 7-27-93, cert. ef. 7-30-93; ID 5-2011, f. & cert. ef. 2-23-11

836-031-0680

Description of Actuarial Memorandum Including an Asset Adequacy Analysis and Regulatory Asset Adequacy Summary

(1) General provisions. The following general provisions apply to actuarial memoranda that include an asset adequacy analysis:

(a) In accordance with ORS 733.304 (Standard Valuation Law), the appointed actuary shall prepare a memorandum to the Company describing the analysis done in support of the appointed actuary's opinion regarding the reserves under an opinion pursuant to OAR 836-0310-670. The memorandum must be made available for examination by the Director upon request of the Director but shall be returned to the company after such examination and not be filed with the Department;

(b) In preparing the memorandum, the appointed actuary may rely on, and include as a part of the appointed actuary's own memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of OAR 836-031-0640(2), with respect to the areas covered in such memoranda, and so state in their memoranda;

(c) If the Director requests a memorandum and no such memorandum exists or if the Director finds that the analysis described in the memorandum fails to meet the standards of the Actuarial Standards Board or the standards and requirements of OAR 836-031-0600 to 836-031-0690, the Director may designate a qualified actuary to review the opinion and prepare such supporting memorandum as is required for review. The reasonable and necessary expense of the independent review shall be paid by the company but shall be directed and controlled by the Director;

(d) The reviewing actuary shall have the same status as an examiner for purposes of obtaining data from the company and the work papers and documentation of the reviewing actuary shall be retained by the Director. However, any information provided by the company to the reviewing actuary and included in the work papers shall be considered as material provided by the company to the Director and shall be kept confidential to the same extent as is prescribed by law with respect to other material provided by the company to the Director pursuant to the Standard Valuation Law. The reviewing actuary shall not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer pursuant to OAR 836-031-0600 to 836-031-0690 for any one of the current year or the preceding three years.

(e) In accordance with ORS 733.304, the appointed actuary shall prepare a regulatory asset adequacy issues summary, the contents of which are specified in section (3) of this rule. All companies domiciled in Oregon shall submit the regulatory asset adequacy issues summary no later than March 15 of the year following the year for which a statement of actuarial opinion based on asset adequacy is required. For all other companies, the memorandum must be made available for examination by the Director upon request of the Director. The regulatory asset adequacy issues summary is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.

(2) Provisions relating to the Memorandum Section Documenting Asset Adequacy Analysis. When an actuarial opinion under OAR 836-031-0670 is provided, the memorandum shall demonstrate that the analysis has been done in accordance with standards for asset adequacy referred to in 836-031-0640(4) and any additional standards under OAR 836-031-0600 to 836-031-0690. It must specify:

(a) For reserves:

(A) Product descriptions, including market description, underwriting and other aspects of a risk profile and the specific risks the appointed actuary deems significant;

(B) Source of liability in force;

(C) Reserve method and basis;

(D) Investment reserves;

(E) Reinsurance arrangements;

(F) Identification of any explicit or implied guarantees made by the general account in support of benefits provided through a separate account or under a separate account policy or contract and the methods used by the appointed actuary to provide for the guarantees in the asset adequacy analysis; and

(G) Documentation of the following assumptions, sufficient for an actuary reviewing the actuarial memorandum to form the following conclusion as to the reasonableness of the assumptions in the context of asset adequacy testing:

(i) Base and excess lapse rates;

(ii) Interest crediting rate strategy;

(iii) Mortality;

(iv) Policyholder dividend strategy;

(v) Competitor or market interest rate;

(vi) Annuitization rates;

(vii) Commission and expenses; and

(viii) Morbidity.

(b) For assets:

(A) Portfolio descriptions, including a risk profile disclosing the quality, distribution and types of assets;

(B) Investment and disinvestment assumptions;

(C) Source of asset data;

(D) Asset valuation bases;

(E) Documentation of assumptions sufficient for an actuary reviewing the actuarial memorandum to form a conclusion as to the reasonableness of the assumption, made for:

(i) Default costs;

(ii) Bond call function;

(iii) Mortgage prepayment function;

(iv) Determining market value for assets sold due to disinvestment strategy; and

(v) Determining yield on assets acquired through the investment strategy.

(c) For the analysis basis:

(A) Methodology;

(B) Rationale for inclusion and exclusion of different blocks of business and how pertinent risks were analyzed;

(C) Rational for degree of rigor in analyzing different blocks of business (include in the rationale the level of “materiality” that was used in determining how rigorously to analyze different blocks of business);

(D) Criteria for determining asset adequacy (include in the criteria the precise basis for determining if assets are adequate to cover reserves under “moderately adverse conditions” or other conditions as specified in relevant actuarial standards of practice); and

(E) Whether the impact of federal income taxes was considered and the method of treating reinsurance in the asset adequacy analysis;

(d) A summary of material changes in methods, procedures or assumptions from prior year’s asset adequacy analysis.

(e) Summary of results; and

(f) Conclusion or conclusions.

(3)Details of the Regulatory Asset Adequacy Issues Summary. The regulatory asset adequacy issues summary shall:

(a) Include all of the following:

(A) Descriptions of the scenarios tested, including whether those scenarios are stochastic or deterministic, and the sensitivity testing done relative to those scenarios. If negative ending surplus results under certain tests in the aggregate, the actuary should describe those tests and the amount of additional reserve as of the valuation date, which, if held, would eliminate the negative aggregate surplus values. Ending surplus values shall be determined by either extending the projection period until the in-force and associated assets and liabilities at the end of the projection period are immaterial or by adjusting the surplus amount at the end of the projection period by an amount that appropriately estimates the value that can reasonably be expected to arise from the assets and liabilities remaining in force.

(B) The extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different than the assumptions used in the previous asset adequacy analysis.

(C) The amount of reserves and the identity of the product lines that had been subjected to asset adequacy analysis in the prior opinion but were not subject to analysis for the current opinion.

(D) Comments on any interim results that may be of significant concern to the appointed actuary. For example, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods.

(E) The methods used by the actuary to recognize the impact of reinsurance on the company’s cash flows, including both assets and liabilities, under each of the scenarios tested.

(F) Whether the actuary has been satisfied that all options whether explicit or embedded, in any asset or liability, including but not limited to those affecting cash flows embedded in fixed income securities, and equity-like features in any investments have been appropriately considered in the asset adequacy analysis.

(b) Contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and shall be signed and dated by the appointed actuary rendering the actuarial opinion.

(4) Conformity to Standards of Practice. The memorandum must include the following statement:

"Actuarial methods, considerations and analyses used in the preparation of this memorandum conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis for this memorandum."

Stat. Auth.: ORS 731.244 & 733.304
Stats. Implemented: ORS 733.304
Hist.: ID 10-1992, f. & cert. ef. 5-27-92; ID 5-2011, f. & cert. ef. 2-23-11

836-031-0690

Additional Considerations for Analysis

(1) Use of Assets Supporting the Interest Maintenance Reserve and the Asset Valuation Reserve. An appropriate allocation of assets in the amount of the Interest Maintenance Reserve (IMR), whether positive or negative, must be used in any asset adequacy analysis. Analysis of risks regarding asset default may include an appropriate allocation of assets supporting the Asset Valuation Reserve (AVR); these AVR assets may not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks may include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support. The amount of the assets used for the AVR shall be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.

(2) Documentation. The appointed actuary shall retain on file, for at least seven years, sufficient documentation so that it will be possible to determine the procedures followed, the analyses performed, the bases for assumptions and the results obtained.

Stat. Auth.: ORS 731.244
Stats. Implemented: ORS 733.304
Hist.: ID 10-1992, f. & cert. ef. 5-27-92; ID 1-1993(Temp), f. & cert. ef. 2-4-93; ID 4-1993, f. 7-27-93, cert. ef. 7-30-93; ID 5-2011, f. & cert. ef. 2-23-11

Valuation of Life Insurance Policies

836-031-0750

Purpose, Authority and Applicability

(1) The purpose of OAR 836-031-0750 to 836-031-0775 is to provide:

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

(b) A minimum standard for the valuation of plans with nonlevel premiums or benefits; and

(c) A minimum standard for the valuation of plans with secondary guarantees.

(2) The method for calculating basic reserves defined in OAR 836-031-0750 to 836-031-0775 constitutes the Commissioners' Reserve Valuation Method for policies to which 836-031-0750 to 836-031-0775 apply.

(3) OAR 836-031-0750 to 836-031-0775 are adopted under the rulemaking authority of ORS 731.244 for the purpose of implementing 733.030

Stat. Auth.: ORS 731.244
Stats. Implemented: ORS 733.030, 733.210 & 733.300 - 733.322
Hist.: ID 7-1999, f. 12-29-99, cert. ef. 1-1-00

836-031-0755

Applicability

OAR 836-031-0750 to 836-031-0775 apply to all life insurance policies, with or without nonforfeiture values, issued on or after January 1, 2000, subject to 836-051-0106 and the following exceptions and conditions:

(1) The following exceptions apply:

(a) OAR 836-031-0750 to 836-031-0775 do 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 the effective date of this regulation, that guarantees the premium rates of the new policy. OAR 836-031-0750 to 836-031-0775 also do 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) OAR 836-031-0750 to 836-031-0775 do not apply to any universal life policy that meets all the following requirements:

(A) Secondary guarantee period, if any, is five years or less;

(B) Specified premium for the secondary guarantee period is not less than the net level reserve premium for the secondary guarantee period based on CSO valuation tables as defined in OAR 836-031-0760 and the applicable valuation interest rate; and

(C) The initial surrender charge is not less than 100 percent of the first year annualized specified premium for the secondary guarantee period.

(c) OAR 836-031-0750 to 836-031-0775 do 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) OAR 836-031-0750 to 836-031-0775 do 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) OAR 836-031-0750 to 836-031-0775 do not apply to a group life insurance certificate unless the certificate provides for a stated or implied schedule of maximum gross premiums required in order to continue coverage in force for a period in excess of one year.

(2) The following conditions apply:

(a) Calculation of the minimum valuation standard for policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits (other than universal life policies), or both, shall be in accordance with the provisions of OAR 836-031-0770.

(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 OAR 836-031-0775.

Stat. Auth.: ORS 731.244
Stats. Implemented: ORS 733.030, 733.210 & 733.300 - 733.322
Hist.: ID 7-1999, f. 12-29-99, cert. ef. 1-1-00; ID 9-2003, f. 12-26-03, cert. ef. 1-1-04

836-031-0760

Definitions

As used in OAR 836-031-0750 to 836-031-0775:

(1) "Basic reserves" means reserves calculated in accordance with ORS 733.306.

(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 in this section. All calculations are made using the 1980 CSO valuation tables, as defined in section (6) of this rule, (or any other valuation mortality table adopted by the National Association of Insurance Commissioners (NAIC) after January 1, 2000, and adopted by rule by the Director of the Department of Consumer and Business Services for this purpose), and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in OAR 836-031-0765(2). [Example not included. See ED. NOTE.]

(3) "Deficiency reserves" means the excess, if greater than zero, of minimum reserves calculated in accordance with ORS 733.320 over 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 ORS 733.310 (Computation of Minimum Standard by Calendar Year of Issue) 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 OAR 836-031-0775(1)(c), if any, or else the minimum premium described in OAR 836-031-0775(1)(d).

(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:

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

(B) The present value of any unusual guaranteed cash value (according to OAR 836-031-0770(4)) occurring at the end of the segment, less

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

(D) For the first segment only, the excess of subparagraph (i) over subparagraph (ii), as follows:

(i) 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.

(ii) 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 section.

(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:

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

(B) Modified net premiums are a uniform percentage of the respective guaranteed gross premiums, where the uniform percentage is such that, at issue, the present value of the net premiums equals the present value of all death benefits and pure endowments, plus the excess of subparagraph (i) over subparagraph (ii), as follows:

(i) 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.

(ii) 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.

[ED. NOTE: Examples referenced available from the agency.]

Stat. Auth.: ORS 731.244
Stats. Implemented: ORS 733.030, 733.210 & 733.300 - 733.322
Hist.: ID 7-1999, f. 12-29-99, cert. ef. 1-1-00; ID 9-2003, f. 12-26-03, cert. ef. 1-1-04

836-031-0765

General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves

General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves

(1) At the election of the insurer 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 adopted by the Director of the Department of Consumer and Business Services by rule 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; or

(c) Any other table of select mortality factors adopted by the NAIC after January 1, 2000, and adopted by the Director of the Department of Consumer and Business Services by rule 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 adopted by the Director of the Department of Consumer and Business Services by rule 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 of this regulation;

(c) For durations in the first segment, X percent of the select mortality factors in the Appendix , subject to the following:

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

(B) X is such that, when using the valuation interest rate used for basic reserves, subparagraph (i) is greater than or equal to subparagraph (ii);

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

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

(C) X is such that the mortality rates resulting from the application of X are at least as great as the anticipated mortality experience, without recognition of mortality improvement beyond the valuation date, in each of the first five years after the valuation date;

(D) The appointed actuary shall increase X at any valuation date where it is necessary to continue to meet all the requirements of this subsection;

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

(F) 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.

(G) If X is less than 100 percent at any duration for any policy, the following requirements shall be met:

(i) The appointed actuary shall annually prepare an actuarial opinion and memorandum for the company in conformance with the requirements of OAR 836-031-0670;

(ii) The appointed actuary shall disclose, in the Regulatory Asset Adequacy Issues Summary, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods; and

(iii) The appointed actuary shall annually opine for all policies subject to OAR 836-031-0750 to 836-031-0775 as to whether the mortality rates resulting from the application of X meet the requirements of this subsection. 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 adopted by the Director of the Department of Consumer and Business Services by rule for the purpose of calculating deficiency reserves.

(3) This section 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

(c) Reserves assuming that the policy was issued on the date of the guarantee.

(6) The Director of the Department of Consumer and Business Services may require that the insurer 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 non-specified blocks of business is relied upon in the formation of the appointed actuary opinion pursuant to and consistent with the requirements of OAR 836-031-0670.

Stat. Auth.: ORS 731.244
Stats. Implemented: ORS 733.030, 733.210 & 733.300 - 733.322
Hist.: ID 7-1999, f. 12-29-99, cert. ef. 1-1-00; ID 1-2013, f. & cert. ef. 2-6-13

836-031-0770

Calculation of Minimum Valuation Standard for Policies with Guaranteed Nonlevel Gross Premiums or Guaranteed Nonlevel 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 as follows 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; or

(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:

(A) On a unitary basis if the corresponding basic reserve determined by section (1) of this rule is unitary;

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

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

(b) This subsection applies to any policy for which the guaranteed gross premium at any duration is less than the corresponding modified net premium calculated by the method used in determining the basic reserves, but using the minimum valuation standards of mortality (specified in OAR 836-031-0565(2)) 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 OAR 836-031-0565(2).

(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 above), 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, when

(A) 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:

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

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

(B) The net premium for a given year during the n year period is equal to the product of the net to gross ratio and the respective gross premium; and

(C) The net to gross ratio is equal to subparagraph (i) divided by subparagraph (ii) as follows:

(i) The present value, at the beginning of the n year period, of death benefits payable during the n year period plus the present value, at the beginning of the n year period, of the next unusual guaranteed cash surrender value, if any, minus the amount of the last unusual guaranteed cash surrender value, if any, scheduled at the beginning of the n year period.

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

(c) For purposes of this subsection, a policy is considered to have an unusual pattern of guaranteed cash surrender values if any future guaranteed cash surrender value exceeds the prior year's guaranteed cash surrender value by more than the sum of:

(A) 110 percent of the scheduled gross premium for that year;

(B) 110 percent of one year's accrued interest on the sum of the prior year's guaranteed cash surrender value and the scheduled gross premium using the nonforfeiture interest rate used for calculating policy guaranteed cash surrender values; and

(C) Five percent of the first policy year surrender charge, if any.

(5) This section creates an optional exemption for yearly renewable term reinsurance. At the option of the insurer, the following approach for reserves on yearly renewable term 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 section (3) of this rule.

(c) Deficiency reserves.

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

(B) Deficiency reserves shall never be less than the sum of the present values, at the date of valuation, of the excesses determined in accordance with paragraph (A) of this subsection.

(d) For purposes of this section, 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, and adopted by the Director of the Department of Consumer and Business Services by rule for this purpose.

(e) A reinsurance agreement shall be considered yearly renewable term reinsurance for purposes of this subsection if only the mortality risk is reinsured.

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

(6) This section creates an optional exemption for attained-age-based yearly renewable term life insurance policies. At the option of the insurer, the following approach for reserves for attained-age-based yearly renewable term 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 section (3) of this rule.

(c) Deficiency reserves.

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

(B) Deficiency reserves shall never be less than the sum of the present values, at the date of valuation, of the excesses determined in accordance with paragraph (A) of this subsection.

(d) For purposes of this subsection, the calculations use the maximum valuation interest rate and the 1980 CSO valuation tables with or without ten-year select mortality factors, or any other table adopted after January 1, 2000, by the NAIC and adopted by the Director of the Department of Consumer and Business Services by rule for this purpose.

(e) A policy shall be considered an attained-age-based yearly renewable term life insurance policy for purposes of this subsection if:

(A) The premium rates (on both the initial current premium scale and the guaranteed maximum premium scale) are based upon the attained age of the insured such that the rate for any given policy at a given attained age of the insured is independent of the year the policy was issued; and

(B) The premium rates (on both the initial current premium scale and the guaranteed maximum premium scale) are the same as the premium rates for policies covering all insureds of the same sex, risk class, plan of insurance and attained age.

(f) For policies that become attained-age-based yearly renewable term policies after an initial period of coverage, the approach of this section may be used after the initial period if::

(A) The initial period is constant for all insureds of the same sex, risk class and plan of insurance, or the initial period runs to a common attained age for all insureds of the same sex, risk class and plan of insurance; and

(B) After the initial period of coverage, the policy meets the conditions of subsection (e) of this section.(g) If the election under this section is made, the approach in this section shall be applied in determining reserves for all attained-age-based yearly renewable term life insurance policies issued on or after January 1, 2000.

(7) This section creates an 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 10 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 Table with or without the ten-year select mortality factors; and

(c) There are no cash surrender values in any policy year.

(8) This section creates an 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 24 or younger;

(b) Until the insured reaches the end of the juvenile period, which shall occur at or before age 25, 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.

Stat. Auth.: ORS 731.244
Stats. Implemented: ORS 733.030, ORS 733.210 & ORS 733.300 - ORS 733.322
Hist.: ID 7-1999, f. 12-29-99, cert. ef. 1-1-00

836-031-0775

Calculation of Minimum Valuation Standard for Flexible Premium and Fixed Premium Universal Life Insurance Policies that Contain Provisions Resulting in the Ability of a Policyowner to Keep a Policy in Force Over a Secondary Guarantee Period

(1) The following standards apply for purposes of this rule:

(a) Policies with a secondary guarantee include:

(A) A policy with a guarantee that the policy will remain in force at the original schedule of benefits, subject only to the payment of specified premiums;

(B) A policy in which the minimum premium at any duration is less than the corresponding one year 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 adopted by the Director of the Department of Consumer and Business Services by rule for this purpose; or

(C) A policy with any combination of paragraphs (A) and (B) of this subsection.

(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 sections (2) and (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 rule, 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 OAR 836-031-0765(2)(b), (c) and (d) 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 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 OAR 836-031-0760(2).

(3) Deficiency reserves, if any, for the secondary guarantees shall be calculated for the secondary guarantee period in the same manner as described in OAR 836-031-0770(2) with gross premiums set equal to the specified premiums, if any, or otherwise to the minimum premiums that keep the policy in force.

(4) 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 governing universal life plans.

Stat. Auth.: ORS 731.244
Stats. Implemented: ORS 733.030, ORS 733.210 & ORS 733.300 - ORS 733.322
Hist.: ID 7-1999, f. 12-29-99, cert. ef. 1-1-00

836-031-0800

Purpose, authority

(1) The purpose of OAR 836-031-0800 to 836-031-0815 is to recognize, permit and prescribe the use of mortality tables that reflect differences in mortality between preferred and standard lives in determining minimum reserve liabilities in accordance with ORS 733.306 and OAR 836-031-0765.

(2) OAR 836-031-0800 to 836-031-0815 are adopted pursuant to the authority of ORS 731.244 and 733.306, for the purpose of implementing 733.306.

Stat. Auth: ORS 731.244 & 733.306
Stats. Implemented: ORS 733.306
Hist.: ID 2-2007, f. & cert. ef. 2-12-07

836-031-0805

Definitions

(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 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 section (2) 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:

(a) "2001 CSO Mortality Table (F)" means that mortality table consisting of the rates of mortality for female lives from the 2001 CSO Mortality Table;

(b) "2001 CSO Mortality Table (M)" means that mortality table consisting of the rates of mortality for male lives from the 2001 CSO Mortality Table;

(c) "Composite mortality tables" means mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers;

(d) "Smoker and nonsmoker mortality tables" means mortality tables with separate rates of mortality for smokers and nonsmokers.

(2) "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.

(3) "Statistical agent" means an entity with proven systems for protecting the confidentiality of individual insured and insurer information; demonstrated resources for the history of ongoing electronic communications and data transfer ensuring data integrity with insurers that 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.

[ED. NOTE: Tables referenced are available from the agency.]

Stat. Auth: ORS 731.244 & 733.306
Stats. Implemented: ORS 733.306
Hist.: ID 2-2007, f. & cert. ef. 2-12-07

836-031-0810

2001 CSO Preferred Class Structure Table

(1) At the election of the insurer, for each calendar year of issue, for any one or more specified plans of insurance and subject to satisfying the conditions stated in OAR 836-031-0800 to 836-031-0815, 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. For policies issued on or after January 1, 2004 (the date of adoption of OAR 836-051-0106, Life Insurance Valuation and Nonforfeiture Standards), and prior to January 1, 2007, the 2001 CSO Preferred Class Structure Mortality Tables may be substituted with the consent of the director and subject to the conditions of OAR 836-031-0815. In determining whether to consent to the substitution, the director may rely on the consent of the Insurance Commissioner of the company’s state of domicile. No such election may be made until the insurer demonstrates at least 20 percent 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 OAR 836-031-0800 to 836-031-0815, will be treated as part of the 2001 CSO Mortality Table only for purposes of reserve valuation pursuant to the requirements of the NAIC model regulation "Recognition of the 2001 CSO Mortality Table For Use in Determining Minimum Reserve Liabilities and Nonforfeiture Benefits Model Regulation."

(2) Tables referenced in this rule are available from the Insurance Division of the Department of Consumer and Business Services.

[ED. NOTE: Tables referenced are available from the agency.]

Stat. Auth: ORS 731.244 & 733.306
Stats. Implemented: ORS 733.306
Hist.: ID 2-2007, f. & cert. ef. 2-12-07; ID 17-2011, f. & cert. ef. 10-31-11

836-031-0815

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;

(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 preferred smoker valuation basic table.

(3) Unless exempted by the Director, each authorized insurer using the 2001 CSO Preferred Class structure Table shall annually file with the Director, with the NAIC or with a statistical agent designated by the NAIC and acceptable to the Director, statistical reports showing mortality an such other information ask the Director may deem necessary or expedient for the administration of the provisions of OAR 836-031-0800 to 836-031-0815. The form of the reports shall be established by the Director or the Director may require the use of a form established by the NAIC or by a statistical agent designated by the NAIC and acceptable to the Director.

(4)(a) The use of the 2001 CSO Preferred Class Structure Table for the valuation of policies issued prior to January 1, 2007 is not permitted in any statutory financial statement in which a company reports, with respect to any policy or portion of a policy coinsured, either of the following:

(A) In cases where the mode of payment of the reinsurance premium is less frequent than the mode of payment of the policy premium, a reserve credit that exceeds, by more than the amount specified in the paragraph as Y, the gross reserve calculated before reinsurance. Y is the amount of the gross reinsurance premium that:

(i) Provides coverage for the period from the next policy premium due date to the earlier of the end of the policy year and the next reinsurance premium due date; and

(ii) Would be refunded to the ceding entity upon the termination of the policy.

(B) In cases where the mode of payment of the reinsurance premium is more frequent than the mode of payment of the policy premium, a reserve credit that is less than the gross reserve, calculated before reinsurance, by an amount that is less than the amount specified in this paragraph as Z. Z is the amount of the gross reinsurance premium that the ceding entity would need to pay the assuming company to provide reinsurance coverage from the period of the next reinsurance premium due date to the next policy premium due date minus any liability established for the proportionate amount not remitted to the reinsurer.

(b) A company may estimate and adjust its accounting on an aggregate basis in order to meet the conditions to use the 2001 CSO Preferred Class Structure Table. For purposes of this condition, but the reserve credit and the gross reserve before reinsurance:

(A) For the mean reserve method defined as the mean reserve minus the deferred premium asset; and

(B) For the mid-terminal reserve method which includes the unearned premium reserve.

(5) Tables referenced in this rule are available from the Insurance Division of the Department of Consumer and Business Services.

[ED. NOTE: Tables referenced are available from the agency.]

Stat. Auth: ORS 731.244 & 733.306
Stats. Implemented: ORS 733.306
Hist.: ID 2-2007, f. & cert. ef. 2-12-07; ID 17-2011, f. & cert. ef. 10-31-11

836-031-0855

Recoupment of Assessments by Oregon Insurance Guaranty Association

(1) This rule is adopted under the authority of ORS 731.244 and 734.579, for the purpose of implementing 734.579, relating to the recoupment by insurers of assessments made by the Oregon Insurance Guaranty Association under 734.570. For the purpose of this rule:

(a) "OIGA assessment" means the assessment imposed on an insurer by the Oregon Insurance Guaranty Association.

(b) "Recoupment assessment" means the assessment charged by the insurer to its policyholders.

(2) An insurer shall recoup an OIGA assessment from its policyholders on premiums written or renewed on or after the recoupment start date as provided in section (6) of this rule. The recoupment assessment shall be imposed on a pro-rata basis of net direct written premiums. For the purpose of this section, "net direct written premiums" are gross premiums, including policy and membership fees, less return premiums and premiums on policies not taken, as reported in column 1 of the Oregon State Page, Exhibit of Premium and Losses. An insurer may state the recoupment assessment to be charged to each policyholder in terms of a rate instead of a dollar amount and shall adjust the notice in section (5) of this rule as appropriate.

(3) An insurer may state the amount or rate of the recoupment assessment in the premium statement on the declaration page or other page of an insurance policy that serves as a declaration page rather than on the premium billing statement if the premium billing statement clearly informs the policyholder that the recoupment assessment is so located on the declaration page or other page. For the purpose of this section, the premium billing statement is the statement transmitted by the insurer to the policyholder that informs the policyholder of the premium due.

(4) If an insurer does not issue a premium billing statement, the insurer must state the amount or rate of the recoupment assessment on the declaration page, on a balance due notice or on a rate quote.

(5) An insurer shall include the following notice on or with the statement of recoupment assessment at the first time each year in which a recoupment assessment is made: Most insurers doing business in Oregon participate in the Oregon Insurance Guaranty Association. In the event an insurer fails, the Association settles unpaid claims on behalf of consumers. Oregon law requires that policies be surcharged directly to recover the costs of handling those claims. If your policy is surcharged, the term (Note: each insurer must insert here the descriptive term it uses to designate the surcharge) along with an indicated dollar amount will be displayed with the statement of your surcharge.

(6) An insurer shall begin recoupment of an OIGA assessment on a date that is on or after January 1 of the year following the year in which the OIGA assessment was imposed but not later than April 1 of that year and shall continue the recoupment assessment for the 12-month period following that date. On and after the date on which an insurer's recoupment period begins, the insurer must state the amount or rate of the recoupment billed to the policyholder. An insurer shall make a good faith effort to fully collect the OIGA assessment during that period and may adjust the amount or rate of a recoupment assessment in the course of the period as needed to make the recoupment more accurate or to add any additional recoupment assessment required by subsequent OIGA assessments against the insurer. Any such adjustment shall apply to all policies from which a recoupment assessment is collected on and after the date of the adjustment.

(7) The minimum threshold below which a recoupment assessment need not be made is the amount at which the cost of recouping the OIGA assessment exceeds the amount to be recouped. When an insurer decides not to recoup an amount under this section, the insurer shall record the amount not recouped as an expense on the income statement of the insurer. An insurer may not later recoup any amount so recorded.

(8) Not later than June 1 of each year in which a 12-month recoupment assessment period established by an insurer under section (6) of this section is completed, the insurer shall submit to the Director, on a form prescribed by the Director, the annual certification required by ORS 734.579, indicating the total recoupment assessed and recovered during that recoupment period.

(9) If the amount of recoupment assessments collected by an insurer within the 12-month period beginning on the date on which the insurer began the recoupment exceeds the total amount of the OIGA assessment against the insurer, the insurer shall do one of the following:

(a) Pay back the excess.

(b) Subject to section (10) of this rule, carry over the amount of the excess to a date that is not later than June 1 of the year following the year in which the insurer submits the annual certification under section (8) of this rule for the recoupment period to which the excess applies.

(10) Not later than June 1 of the year to which an insurer has carried over an amount of excess under section (9)(b) of this rule, the insurer must dispose of the excess carried over according to one of the following methods:

(a) By applying the excess to reduce any new recoupment assessment arising during the carry-over period.

(b) By returning the excess to its current policyholders.

(c) Except as provided in this subsection, by transferring the excess to the Oregon Insurance Guaranty Association, which shall hold all amounts so received for the purpose of paying covered claims arising under subsequent insurer insolvencies. If the amount of the excess divided by the number of policies from which recoupment assessments were collected is $10 or more, the insurer instead shall dispose of the excess according to the method in subsection (a) or (b) of this section.

(11) If the amount of recoupment assessments collected by an insurer within the 12-month period beginning on the date on which the insurer began the recoupment is less than the total amount of the assessment against the insurer, the insurer shall carry over the amount of the insufficiency to the next 12-month period in which the insurer imposes a new recoupment assessment. The amount carried over shall be applied to increase the new recoupment assessment. If the insurer determines, however, that the cost of recouping the remaining amount exceeds the amount of the insufficiency, the insurer need not carry over the insufficiency. The insurer instead shall record the amount not recouped as an expense on the income statement of the insurer. An insurer may not later recoup any amount so recorded.

(12) An insurer may take all or any part of a recoupment charge owing from a policyholder from the first payment of premium by the policyholder.

Stat. Auth.: ORS 731.244 & 734.579
Stats. Implemented: 734.579
Hist.: ID 5-2003(Temp), f. & cert. ef. 11-26-03 thru 5-15-04; ID 4-2004, f. 5-14-04, cert. ef. 5-15-04; ID 12-2006, f. & cert. ef. 6-26-06

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