Texas Insurance Code - Not Codified - Article 3.28. Standard Valuation Law
Legal Research Home >
Texas Lawyer > Insurance Code - Not Codified > Texas Insurance Code - Not Codified - Article 3.28. Standard Valuation Law
Art. 3.28. STANDARD VALUATION LAW.
Article repealed effective April 1, 2007
Title
Sec. 1. This Article shall be known as the Standard Valuation
Law.
Reserve Valuation
Sec. 2. The State Board of Insurance shall annually value, or
cause to be valued, the reserve liabilities (hereinafter called
reserves) for all outstanding life insurance policies and annuity
and pure endowment contracts of every life insurance company doing
business in this state, and may certify the amount of any such
reserves, specifying the mortality table or tables, rate or rates
of interest, and methods (net level premium method or other) used in
the calculation of such reserves. In calculating such reserves,
the Board may use group methods and approximate averages for
fractions of a year or otherwise. In lieu of the valuation of the
reserves herein required of any foreign or alien company, the Board
may accept any valuation made, or caused to be made, by the
insurance supervisory official of any state or other jurisdiction
when such valuation complies with the minimum standard herein
provided and if the official of such state or jurisdiction accepts
as sufficient and valid for all legal purposes the certificate of
valuation of the State Board of Insurance when such certificate
states the valuation to have been made in a specified manner
according to which the aggregate reserves would be at least as large
as if they had been computed in the manner prescribed by the law of
that state or jurisdiction.
Opinion of reserves
Sec. 2A. (a) General. (1) In conjunction with the annual
statement and in addition to other information required by this
article, every life insurance company doing business in this state
shall annually submit to the State Board of Insurance the opinion of
a qualified actuary as to whether the reserves and related
actuarial items held in support of the policies and contracts
specified by rule of the Board are computed appropriately, are
based on assumptions which satisfy contractual provisions, are
consistent with prior reported amounts, and comply with applicable
laws of this state. The Board by rule shall define the specific
requirements of this opinion and shall include any matters deemed
to be necessary to the opinion's scope. For purposes of this
subdivision, "qualified actuary" has the meaning assigned by
Article 1.11(d) of this code. A person who, before September 1,
1993, satisfied the requirements of the Board to submit an opinion
under this subdivision may also submit the opinion required by this
subdivision.
(2) The opinion required under this section shall apply to
all business in force including individual and group health
insurance plans, in form and substance as specified by Board rule
and acceptable to the commissioner.
(3) In the case of an opinion required to be submitted by a
foreign or alien company, the commissioner may accept the opinion
filed by that company with the insurance supervisory official of
another state if the commissioner determines that the opinion filed
in the other state reasonably meets the requirements applicable to
a company domiciled in this state.
(4) A. Except in cases of fraud or wilful misconduct or as
provided by Subsection (a)(7)B of this section, a person who
certifies to an opinion under this section shall not be liable for
damages to a person other than the insurance company covered by the
opinion prepared by the certifying person for any act, error,
omission, decision, or conduct with respect to the person's
opinion.
(B) Subsection (a)7A of this section does not apply to a
monetary forfeiture imposed under Section 7, Article 1.10,
Insurance Code.
(5) A company or a person who certifies to an opinion under
this section and that fails to comply with or violates this section
or rules adopted by the Board pursuant to this section is subject to
disciplinary action under Section 7, Article 1.10, Insurance Code.
(6) A memorandum, in form and substance in compliance with
rules of the State Board of Insurance, shall be prepared to support
each opinion.
(7) If an insurance company fails to provide a supporting
memorandum at the request of the commissioner within a period
specified by rule or the commissioner determines that the
supporting memorandum provided by the insurance company fails to
meet the standards prescribed by the Board's rules or is otherwise
unacceptable to the commissioner, the commissioner may engage an
actuary or other financial specialist as defined by Board rule at
the expense of the company to review the opinion and the basis for
the opinion and prepare such supporting memorandum.
(b) Actuarial Analysis of Reserves and Assets Supporting
Such Reserves. Every life insurance company, except as exempted by
or pursuant to rule adopted by the Board, shall also annually
include in the opinion required by Subsection (a)(1) of this
section, an opinion of the same person who certifies to the opinion
under Subsection (a)(1) of this section as to whether the reserves
and related actuarial items held in support of the policies and
contracts specified by Board rule, when considered in light of the
assets held by the company with respect to the reserves and related
actuarial items, including but not limited to the investment
earnings on the assets and the considerations anticipated to be
received and retained under the policies and contracts, make
adequate provision for the company's obligations under the policies
and contracts, including but not limited to the benefits under and
expenses associated with the policies and contracts. The rules
adopted by the Board under this section may exempt those companies
that would be exempted from the requirements stated in this
subsection (b) according to the most recently adopted regulation by
the National Association of Insurance Commissioners entitled
"Model Actuarial Opinion and Memorandum Regulation" or its
successor regulation if the Board considers the exemption
appropriate.
Computation of Minimum Standard
Sec. 3. The minimum standard for the valuation of all such
policies and contracts issued prior to the operative date of
Article 3.44a (the Standard Nonforfeiture Law for Life Insurance)
shall be that provided in Section 12 of this article. Except as
otherwise provided in Sections 4 and 5 of this article, the minimum
standard for the valuation of all such policies and contracts
issued on or after the operative date of Article 3.44a (the Standard
Nonforfeiture Law for Life Insurance) shall be the commissioners
reserve valuation methods defined in Sections 6, 7, and 10 of this
article, three and one-half per cent (3-1/2%) interest; in the case
of policies and contracts, other than annuity and pure endowment
contracts, issued on or after June 14, 1973, four per cent (4%)
interest for such policies issued prior to August 29, 1977; or five
and one-half per cent (5-1/2%) interest for single premium life
insurance policies and four and one-half per cent (4-1/2%) interest
for all other such policies issued on and after August 29, 1977, and
the following tables:
(a) For all ordinary policies of life insurance issued on
the standard basis, excluding any disability and accidental death
benefits in such policies, the Commissioners 1941 Standard Ordinary
Mortality Table for such policies issued prior to the operative
date of Section 6 of the Standard Nonforfeiture Law for Life
Insurance, as amended, the Commissioners 1958 Standard Ordinary
Mortality Table for such policies issued on or after the operative
date of Section 6 of the Standard Nonforfeiture Law for Life
Insurance, as amended, and prior to the operative date of Section 8
of the Standard Nonforfeiture Law for Life Insurance, as amended,
provided that for any category of such policies issued on female
risks, all modified net premiums and present values referred to in
this Act may be calculated according to an age not more than three
years younger than the actual age of the insured for policies issued
prior to August 29, 1977 and not more than six years younger than
the actual age of the insured for policies issued on and after
August 29, 1977; and for such policies issued on or after the
operative date of Section 8 of the Standard Nonforfeiture Law for
Life Insurance, as amended, (i) the Commissioners 1980 Standard
Ordinary Mortality Table, or (ii) at the election of the company for
any one or more specified plans of life insurance, the
Commissioners 1980 Standard Ordinary Mortality Table with Ten-Year
Select Mortality Factors, or (iii) any ordinary mortality table
adopted after 1980 by the National Association of Insurance
Commissioners that is approved by regulation promulgated by the
State Board of Insurance for use in determining the minimum
standard valuation for such policies.
(b) For all industrial life insurance policies issued on the
standard basis, excluding any disability and accidental death
benefits in such policies, the 1941 Standard Industrial Mortality
Table for such policies issued prior to the operative date of
Section 7 of the Standard Nonforfeiture Law for Life Insurance, as
amended, and for such policies issued on or after such operative
date, the Commissioners 1961 Standard Industrial Mortality Table or
any industrial mortality table adopted after 1980 by the National
Association of Insurance Commissioners that is approved by
regulation promulgated by the State Board of Insurance for use in
determining the minimum standard of valuation for such policies.
(c) For individual annuity and pure endowment contracts,
excluding any disability and accidental death benefits in such
policies, the 1937 Standard Annuity Mortality Table, or, at the
option of the company, the Annuity Mortality Table for 1949,
Ultimate, or any modification of either of these tables approved by
the State Board of Insurance.
(d) For group annuity and pure endowment contracts,
excluding any disability and accidental death benefits in such
policies, the Group Annuity Mortality Table for 1951, any
modification of such table approved by the State Board of
Insurance, or, at the option of the company, any of the tables or
modifications of tables specified for individual annuity and pure
endowment contracts.
(e) For total and permanent disability benefits in or
supplementary to ordinary policies or contracts, for policies or
contracts issued on or after January 1, 1966, the tables of Period 2
disablement rates and the 1930 to 1950 termination rates of the 1952
Disability Study of the Society of Actuaries, with due regard to the
type of benefit, or any tables of disablement rates and termination
rates adopted after 1980 by the National Association of Insurance
Commissioners that are approved by regulation promulgated by the
State Board of Insurance for use in determining the minimum
standard of valuation for such policies; for policies or contracts
issued on or after January 1, 1961, and prior to January 1, 1966,
either such tables or, at the option of the company, the Class (3)
Disability Table (1926); and for policies issued prior to January
1, 1961, the Class (3) Disability Table (1926). Any such table
shall, for active lives, be combined with a mortality table
permitted for calculating the reserves for life insurance policies.
(f) For accidental death benefits in or supplementary to
policies, for policies issued on or after January 1, 1966, the 1959
Accidental Death Benefits Table or any accidental death benefits
table adopted after 1980 by the National Association of Insurance
Commissioners that is approved by regulation promulgated by the
State Board of Insurance for use in determining the minimum
standard of valuation for such policies; for policies issued on or
after January 1, 1961, and prior to January 1, 1966, either such
table or, at the option of the company, the Inter-Company Double
Indemnity Mortality Table; and for policies issued prior to
January 1, 1961, the Inter-Company Double Indemnity Mortality
Table. Either table shall be combined with a mortality table
permitted for calculating the reserves for life insurance policies.
(g) For group life insurance, life insurance issued on the
substandard basis and other special benefits, such tables as may be
approved by the State Board of Insurance.
Text of subsec. (h) effective until Sept. 1, 2013
(h) Notwithstanding any other law, the minimum reserve
requirements applicable to a policy issued under Article 3.53 of
this code are met if, in aggregate, the reserves are maintained at
100 percent of the 1980 Commissioner's Standard Ordinary Mortality
Table, with interest not to exceed 5.5 percent. This subsection
expires September 1, 2013.
Computation of Minimum Standard for Annuities
Sec. 4. Except as provided in Section 5 of this article, the
minimum standard for the valuation of all individual annuity and
pure endowment contracts issued on or after the operative date of
this Section 4, as defined herein, and for all annuities and pure
endowments purchased on or after such operative date under group
annuity and pure endowment contracts shall be the commissioners
reserve valuation methods defined in Sections 6 and 7 of this
article and the following tables and interest rates:
(a) For individual annuity and pure endowment contracts
issued prior to August 29, 1977, excluding any disability and
accidental death benefits in such contracts, the 1971 Individual
Annuity Mortality Table, or any modification of this table approved
by the State Board of Insurance, and six per cent (6%) interest for
single premium immediate annuity contracts, and four per cent (4%)
interest for all other individual annuity and pure endowment
contracts.
(b) For individual single premium immediate annuity
contracts issued on or after August 29, 1977, excluding any
disability and accidental death benefits in such contracts, the
1971 Individual Annuity Mortality Table or any individual annuity
mortality table adopted after 1980 by the National Association of
Insurance Commissioners that is approved by regulation promulgated
by the State Board of Insurance for use in determining the minimum
standard of valuation for such contracts, or any modification of
these tables approved by the State Board of Insurance, and seven and
one-half per cent (7-1/2%) interest.
(c) For individual annuity and pure endowment contracts
issued on or after August 29, 1977, other than single premium
immediate annuity contracts, excluding any disability and
accidental death benefits in such contracts, the 1971 Individual
Annuity Mortality Table or any individual annuity mortality table
adopted after 1980 by the National Association of Insurance
Commissioners that is approved by regulation promulgated by the
State Board of Insurance for use in determining the minimum
standard of valuation for such contracts, or any modification of
these tables approved by the State Board of Insurance, and five and
one-half per cent (5-1/2%) interest for single premium deferred
annuity and pure endowment contracts and four and one-half per cent
(4-1/2%) interest for all other such individual annuity and pure
endowment contracts.
(d) For all annuities and pure endowments purchased prior to
August 29, 1977, under group annuity and pure endowment contracts,
excluding any disability and accidental death benefits purchased
under such contracts, the 1971 Group Annuity Mortality Table, or
any modification of this table approved by the State Board of
Insurance, and six per cent (6%) interest.
(e) For all annuities and pure endowments purchased on or
after August 29, 1977, under group annuity and pure endowment
contracts, excluding any disability and accidental death benefits
purchased under such contracts, the 1971 Group Annuity Mortality
Table or any group annuity mortality table adopted after 1980 by the
National Association of Insurance Commissioners that is approved by
regulation promulgated by the State Board of Insurance for use in
determining the minimum standard of valuation for such annuities
and pure endowments, or any modification of these tables approved
by the State Board of Insurance, and seven and one-half per cent
(7-1/2%) interest.
After June 14, 1973, any company may file with the State Board
of Insurance a written notice of its election to comply with the
provisions of this section after a specified date before January 1,
1979, which shall be the operative date of this section for such
company; provided, a company may elect a different operative date
for individual annuity and pure endowment contracts from that
elected for group annuity and pure endowment contracts. If a
company makes no such election, the operative date of this section
for such company shall be January 1, 1979.
Computation of Minimum Standard by Calendar Year of Issue
Sec. 5. (a) Applicability of this section
(1) The calendar year statutory valuation interest rates as
defined in this Section shall be the interest rates used in
determining the minimum standard for valuation of:
(A) all life insurance policies issued in a particular
calendar year on or after the operative date of Section 8 of the
Standard Nonforfeiture Law for Life Insurance;
(B) all individual annuity and pure endowment contracts
issued in a particular calendar year on or after January 1, 1982;
(C) all annuities and pure endowments purchased in a
particular calendar year on or after January 1, 1982, under group
annuity and pure endowment contracts; and
(D) the net increase, if any, in a particular calendar year
after January 1, 1982, in amounts held under guaranteed interest
contracts.
(b) Calendar Year Statutory Valuation Interest Rates
(1) The calendar year statutory valuation interest rates,
"I," shall be determined as follows and the results rounded to the
nearer one-fourth of one per cent (1/4 of 1%):
(A) For life insurance,
I = .03 + W(R1 - .03) + W/2 (R2 - .09).
(B) For single premium immediate annuities and for annuity
benefits involving life contingencies arising from other annuities
with cash settlement options and from guaranteed interest contracts
with cash settlement options,
I = .03 + W(R - .03)
where R1 is the lesser of R and .09,
R2 is the greater of R and .09,
R is the reference interest rate defined in this section, and
W is the weighting factor defined in this section.
(C) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued
on an issue year basis, except as stated in Paragraph (B) of
Subdivision (1) of Subsection (b) of this section, the formula for
life insurance stated in Paragraph (A) of Subdivision (1) of
Subsection (b) of this section shall apply to annuities and
guaranteed interest contracts with guarantee durations in excess of
10 years and the formula for single premium immediate annuities
stated in Paragraph (B) of Subdivision (1) of Subsection (b) of this
section shall apply to annuities and guaranteed interest contracts
with guarantee duration of 10 years or less.
(D) For other annuities with no cash settlement options and
for guaranteed interest contracts with no cash settlement options,
the formula for single premium immediate annuities stated in
Paragraph (B) of Subdivision (1) of Subsection (b) of this section
shall apply.
(E) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued
on a change in fund basis, the formula for single premium immediate
annuities stated in Paragraph (B) of Subdivision (1) of Subsection
(b) of this section shall apply.
(2) However, if the calendar year statutory valuation
interest rate for any life insurance policies issued in any
calendar year determined without reference to this sentence differs
from the corresponding actual rate for similar policies issued in
the immediately preceding calendar year by less than one-half of
one per cent (1/2 of 1%), the calendar year statutory valuation
interest rate for such life insurance policies shall be equal to the
corresponding actual rate for the immediately preceding calendar
year. For purposes of applying the immediately preceding sentence,
the calendar year statutory valuation interest rate for life
insurance policies issued in a calendar year shall be determined
for 1980 (using the reference interest rate defined for 1979) and
shall be determined for each subsequent calendar year regardless of
when Section 8 of the Standard Nonforfeiture Law for Life Insurance
becomes operative.
(c) Weighting Factors
(1) The weighting factors referred to in the formulas stated
above are given in the following tables:
(A) Weighting Factors for Life Insurance: Guarantee Duration Weighting (Years) Factors 10 or less .50 More than 10, but not more than 20 .45 More than 20 .35
For life insurance, the guarantee duration is the maximum number of
years the life insurance can remain in force on a basis guaranteed
in the policy or under options to convert to plans of life insurance
with premium rates or nonforfeiture values or both which are
guaranteed in the original policy;
(B) Weighting factor for single premium immediate annuities
and for annuity benefits involving life contingencies arising from
other annuities with cash settlement options and guaranteed
interest contracts with cash settlement options:
.80
(C) Weighting factors for other annuities and for guaranteed
interest contracts, except as stated in Paragraph (B) of
Subdivision (1) of Subsection (c) of this section, shall be as
specified in tables (i), (ii), and (iii) below, according to the
rules and definitions in (iv), (v), and (vi) below:
(i) For annuities and guaranteed interest contracts valued on
an issue year basis:
Guarantee Weighting Factor Duration for Plan Type (Years) ABC 5 or less: .80 .60 .50 More than 5, but not more than 10: .75 .60 .50 More than 10, but not more than 20: .65 .50 .45 More than 20: .45 .35 .35 (ii)Forannuitiesand Plan Type guaranteedinterestcontracts ABC valued on a change in fund basis, thefactorsshownin(i)above increased by: .15 .25 .05 (iii)Forannuitiesand Plan Type guaranteedinterestcontracts ABC valuedonanissueyearbasis (otherthanthose withno cash settlement options)which donot guaranteeintereston considerations received more than one year after issueorpurchase and for annuitiesand guaranteed interestcontractsvaluedon a change in fundbasis which donot guaranteeinterestrateson considerations received more than 12 monthsbeyondthevaluation date, the factorsshown in (i) or derived in (ii) increased by: .05 .05 .05
(iv) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, the
guarantee duration is the number of years for which the contract
guarantees interest rates in excess of the calendar year statutory
valuation interest rate for life insurance policies with guarantee
duration in excess of 20 years. For other annuities with no cash
settlement options and for guaranteed interest contracts with no
cash settlement options, the guarantee duration is the number of
years from the date of issue or date of purchase to the date annuity
benefits are scheduled to commence.
(v) Plan type as used in the above tables (i), (ii), and
(iii) is defined as follows:
Plan Type A: At any time policyholder may withdraw funds only
(1) with an adjustment to reflect changes in interest rates or asset
values since receipt of funds by the insurance company, or (2)
without such adjustment but in installments over five years or
more, or (3) as an immediate life annuity, or (4) no withdrawal
permitted.
Plan Type B: Before expiration of the interest rate
guarantee, the policyholder may withdraw funds only (1) with an
adjustment to reflect changes in interest rates or asset values
since receipt of the funds by the insurance company, or (2) without
such adjustment but in installments over five years or more, or (3)
no withdrawal permitted. At the end of interest rate guarantee,
funds may be withdrawn without such adjustment in a single sum or
installments over less than five years.
Plan Type C: Policyholder may withdraw funds before
expiration of interest rate guarantee in a single sum or
installments over less than five years either (1) without
adjustment to reflect changes in interest rates or asset values
since receipt of the funds by the insurance company, or (2) subject
only to a fixed surrender charge stipulated in the contract as a
percentage of the fund.
(vi) A company may elect to value guaranteed interest
contracts with cash settlement options and annuities with cash
settlement options on either an issue year basis or on a change in
fund basis. Guaranteed interest contracts with no cash settlement
options and other annuities with no cash settlement options must be
valued on an issue year basis. As used in this section, an issue
year basis of valuation refers to a valuation basis under which the
interest rate used to determine the minimum valuation standard for
the entire duration of the annuity or guaranteed interest contract
is the calendar year valuation interest rate for the year of issue
or year of purchase of the annuity or guaranteed interest contract,
and the change in fund basis of valuation refers to a valuation
basis under which the interest rate used to determine the minimum
valuation standard applicable to each change in the fund held under
the annuity or guaranteed interest contract is the calendar year
valuation interest rate for the year of the change in the fund.
(d) Reference Interest Rate
(1) Except as provided in Subsection (e) of this section,
the reference interest rate referred to in Subsection (b) of this
section shall be defined as follows:
(A) For all life insurance, the lesser of the average over a
period of 36 months and the average over a period of 12 months,
ending on June 30 of the calendar year next preceding the year of
issue, of Moody's Corporate Bond Yield Average--Monthly Average
Corporates, as published by Moody's Investors Service, Inc.
(B) For single premium immediate annuities and for annuity
benefits involving life contingencies arising from other annuities
with cash settlement options and guaranteed interest contracts with
cash settlement options, the average over a period of 12 months,
ending on June 30 of the calendar year of issue or year of purchase,
of Moody's Corporate Bond Yield Average--Monthly Average
Corporates, as published by Moody's Investors Service, Inc.
(C) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued
on a year of issue basis, except as stated in Paragraph (B) of
Subdivision (1) of Subsection (d) of this section, with guarantee
duration in excess of 10 years, the lesser of the average over a
period of 36 months and the average over a period of 12 months,
ending on June 30 of the calendar year of issue or purchase, of
Moody's Corporate Bond Yield Average--Monthly Average Corporates,
as published by Moody's Investors Service, Inc.
(D) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued
on a year of issue basis, except as stated in Paragraph (B) of
Subdivision (1) of Subsection (d) of this section, with guarantee
duration of 10 years or less, the average over a period of 12
months, ending on June 30 of the calendar year of issue or purchase,
of Moody's Corporate Bond Yield Average--Monthly Average
Corporates, as published by Moody's Investors Service, Inc.
(E) For other annuities with no cash settlement options and
for guaranteed interest contracts with no cash settlement options,
the average over a period of 12 months, ending on June 30 of the
calendar year of issue or purchase, of Moody's Corporate Bond Yield
Average--Monthly Average Corporates, as published by Moody's
Investors Service, Inc.
(F) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued
on a change in fund basis, except as stated in Paragraph (B) of
Subdivision (1) of Subsection (d) of this section, the average over
a period of 12 months, ending on June 30 of the calendar year of the
change in the fund, of Moody's Corporate Bond Yield
Average--Monthly Average Corporates, as published by Moody's
Investors Service, Inc.
(e) State Board of Insurance Promulgation of Definitions of
Reference Interest Rate
The State Board of Insurance shall, not less than annually,
determine whether the definition of reference interest rates as
specified in Subsection (d) of this section continues to be a
reasonably accurate approximation of the average yield achieved
from purchases in the United States in publicly quoted markets of
investment grade fixed term and fixed interest corporate
obligations for the times specified in such subsection and shall,
if it determines that such definition is no longer such reasonably
accurate approximation, promulgate rules in the manner specified in
the Administrative Procedure and Texas Register Act, as amended
(Article 6252-13a, Vernon's Texas Civil Statutes), to adopt such
alternative methods as are appropriate to achieve such purpose.
Commissioners Reserve Valuation Method
Sec. 6. Except as otherwise provided in Sections 7 and 10 of
this article, reserves according to the commissioners reserve
valuation method, for the life insurance and endowment benefits of
policies providing for a uniform amount of insurance and requiring
the payment of uniform premiums shall be the excess, if any, of the
present value, at the date of valuation, of such future guaranteed
benefits provided for by such policies, over the then present value
of any future modified net premiums therefor. The modified net
premiums for any such policy shall be such uniform percentage of the
respective contract premiums for such benefits that the present
value, at the date of issue of the policy, of all such modified net
premiums shall be equal to the sum of the then present value of such
benefits provided for by the policy and the excess of (a) over (b),
as follows:
(a) A net level annual premium equal to the present value,
at the date of issue, of such benefits provided for after the first
policy year, divided by the present value, at the date of issue, of
an annuity of one per annum payable on the first and each subsequent
anniversary of such policy on which a premium falls due; provided,
however, that such net level annual premium shall not exceed the net
level annual premium on the nineteen year premium whole life plan
for insurance of the same amount at an age one year higher than the
age at issue of such policy.
(b) A net one year term premium for such benefits provided
for in the first policy year.
Provided that for any life insurance policy issued on or
after January 1, 1985, for which the contract premium in the first
policy year exceeds that of the second year and for which no
comparable additional benefit is provided in the first year for
such excess and which provides an endowment benefit or a cash
surrender value or a combination thereof in an amount greater than
such excess premium, the reserve according to the commissioners
reserve valuation method as of any policy anniversary occurring on
or before the assumed ending date defined herein as the first policy
anniversary on which the sum of any endowment benefit and any cash
surrender value then available is greater than such excess premium
shall, except as otherwise provided in Section 10 of this article,
be the greater of the reserve as of such policy anniversary
calculated as previously described in this Section 6 and the
reserve as of such policy anniversary calculated as previously
described in this Section 6 but with (i) the value defined in
Subsection (a) of Section 6 of this article being reduced by fifteen
per cent (15%) of the amount of such excess first year premium, (ii)
all present values of benefits and premiums being determined
without reference to premiums or benefits provided for by the
policy after the assumed ending date, (iii) the policy being
assumed to mature on such date as an endowment, and (iv) the cash
surrender value provided on such date being considered as an
endowment benefit. In making the above comparison the mortality
and interest bases stated in Sections 3 and 5 of this article shall
be used.
Reserves according to the commissioners reserve valuation
method for: (1) life insurance policies providing for a varying
amount of insurance or requiring the payment of varying premiums;
(2) group annuity and pure endowment contracts purchased under a
retirement plan or plan of deferred compensation, established or
maintained by an employer (including a partnership or sole
proprietorship) or by an employee organization, or by both, other
than a plan providing individual retirement accounts or individual
retirement annuities under Section 408 of the Internal Revenue
Code, as now or hereafter amended; (3) disability and accidental
death benefits in all policies and contracts; and (4) all other
benefits, except life insurance and endowment benefits in life
insurance policies and benefits provided by all other annuity and
pure endowment contracts; shall be calculated by a method
consistent with the principles of the preceding paragraphs of this
section.
Commissioners Reserve Valuation Method--Annuity and Pure Endowment
Benefits
Sec. 7. This section shall apply to all annuity and pure
endowment contracts other than group annuity and pure endowment
contracts purchased under a retirement plan or plan of deferred
compensation, established or maintained by an employer (including a
partnership or sole proprietorship) or by an employee organization,
or by both, other than a plan providing individual retirement
accounts or individual retirement annuities under Section 408 of
the Internal Revenue Code, as now or hereafter amended.
Reserves according to the commissioners annuity reserve
method for benefits under annuity or pure endowment contracts,
excluding any disability and accidental death benefits in such
contracts, shall be the greatest of the respective excesses of the
present values, at the date of valuation, of the future guaranteed
benefits, including guaranteed nonforfeiture benefits, provided
for by such contracts at the end of each respective contract year,
over the present value, at the date of valuation, of any future
valuation considerations derived from future gross considerations,
required by the terms of such contract, that become payable prior to
the end of such respective contract year. The future guaranteed
benefits shall be determined by using the mortality table, if any,
and the interest rate or rates specified in such contracts for
determining guaranteed benefits. The valuation considerations are
the portions of the respective gross considerations applied under
the terms of such contracts to determine nonforfeiture values.
Minimum Reserves
Sec. 8. In no event shall a company's aggregate reserves for
all life insurance policies, excluding disability and accidental
death benefits, issued on or after the operative date of Article
3.44a (the Standard Nonforfeiture Law for Life Insurance), be less
than the aggregate reserves calculated in accordance with the
methods set forth in Sections 6, 7, 10, and 11 and the mortality
table or tables and rate or rates of interest used in calculating
nonforfeiture benefits for such policies.
Minimum aggregate reserves
Sec. 8A. In no event shall aggregate reserves of a company
covered by Section 8 of this article for all policies, contracts,
and benefits be less than the aggregate reserves determined to be
necessary to render the opinion required by Section 2A of this
article.
Optional Reserve Calculation
Sec. 9. Reserves for all policies and contracts issued prior
to the operative date of Article 3.44a (the Standard Nonforfeiture
Law for Life Insurance) may be calculated, at the option of the
company, according to any standards which produce greater aggregate
reserves for all such policies and contracts than the minimum
reserves required by the laws in effect immediately prior to such
date.
Reserves for any category of policies, contracts or benefits
as established by the State Board of Insurance, issued on or after
the operative date of Article 3.44a (the Standard Nonforfeiture Law
for Life Insurance), may be calculated, at the option of the
company, according to any standards which produce greater aggregate
reserves for such category than those calculated according to the
minimum standard herein provided, but the rate or rates of interest
used for policies and contracts, other than annuity and pure
endowment contracts, shall not be higher than the corresponding
rate or rates of interest used in calculating any nonforfeiture
benefits provided therein.
Any such company which at any time shall have adopted any
standard of valuation producing greater aggregate reserves than
those calculated according to the minimum standard herein provided
may, with the approval of the State Board of Insurance, adopt any
lower standard of valuation, but not lower than the minimum herein
provided.
Effect of opinion on standard of valuation
Sec. 9A. For the purposes of Section 9 of this article, the
holding of additional reserves previously determined to be
necessary to render the opinion required by Section 2A of this
article shall not be deemed to be the adoption of a higher standard
of valuation.
Reserve Calculation--Valuation Net Premium Exceeding the Gross
Premium Charged
Sec. 10. If in any contract year the gross premium charged by
any life insurance company on any policy or contract is less than
the valuation net premium for the policy or contract calculated by
the method used in calculating the reserve thereon but using the
minimum valuation standards of mortality and rate of interest, the
minimum reserve required for such policy or contract shall be the
greater of either the reserve calculated according to the mortality
table, rate of interest, and method actually used for such policy or
contract, or the reserve calculated by the method actually used for
such policy or contract but using the minimum valuation standards
of mortality and rate of interest and replacing the valuation net
premium by the actual gross premium in each contract year for which
the valuation net premium exceeds the actual gross premium. The
minimum valuation standards of mortality and rate of interest
referred to in this section are those standards stated in Sections 3
and 5 of this article.
Provided that for any life insurance policy issued on or
after January 1, 1985, for which the gross premium in the first
policy year exceeds that of the second year and for which no
comparable additional benefit is provided in the first year for
such excess and which provides an endowment benefit or a cash
surrender value or a combination thereof in an amount greater than
such excess premium, the foregoing provisions of this Section 10
shall be applied as if the method actually used in calculating the
reserve for such policy were the method described in Section 6 of
this article, ignoring the second paragraph of Section 6. The
minimum reserve at each policy anniversary of such a policy shall be
the greater of the minimum reserve calculated in accordance with
Section 6, including the second paragraph of that section, and the
minimum reserve calculated in accordance with this Section 10.
Reserve Calculation--Indeterminate Premium Plans and Certain Other
Plans
Sec. 11. In the case of any plan of life insurance which
provides for future premium determination, the amounts of which are
to be determined by the insurance company based on then estimates of
future experience, or in the case of any plan of life insurance or
annuity which is of such a nature that the minimum reserves cannot
be determined by the methods described in Sections 6, 7, and 10 of
this article, the reserves which are held under any such plan must:
(a) be appropriate in relation to the benefits and the
pattern of premiums for that plan, and
(b) be computed by a method which is consistent with the
principles of this Standard Valuation Law, as determined by
regulations promulgated by the State Board of Insurance.
Notwithstanding any other provision in the laws of this
state, any policy, contract, or certificate providing life
insurance under any such plan must be affirmatively approved by the
State Board of Insurance before it can be marketed, issued,
delivered, or used in this state.
Computation of Minimum Standard by Calendar Year of Issue
Sec. 12. This section shall apply only to those policies and
contracts issued prior to the operative date of Article 3.44a (the
Standard Nonforfeiture Law for Life Insurance). The reserve
liability of all such policies and contracts shall be computed in
accordance with their terms and the following rules:
(a) As respects policies issued prior to the first day of
January, 1910, the computation shall be on the basis of the American
Experience Table of Mortality and four and one-half per cent
(4-1/2%) interest per annum.
(b) As respects policies issued after the 31st day of
December, 1909, and prior to January 1, 1948, the computation shall
be on the basis of the Actuaries or Combined Experience Table of
Mortality with four per cent (4%) interest per annum, if the
interest rate guaranteed in the policy is four per cent (4%) per
annum or higher. If any such policies were issued upon a reserve
basis of an interest rate lower than four per cent (4%) per annum,
then the computation shall be made on the basis of the American
Experience Table of Mortality with interest at such lower specified
rate.
(c) As respects policies issued after the 31st day of
December, 1947, the computation shall be on the basis of the
mortality table and interest rate specified in the respective
policies, provided that (A) the specified rate of interest shall
not exceed three and one-half per cent (3-1/2%) per annum; (B) the
specified table for policies other than policies of industrial life
insurance shall be the American Experience Table of Mortality, the
American Men Ultimate Table of Mortality, the Commissioners 1941
Standard Ordinary Mortality Table, or, as respects policies issued
after the 31st day of December, 1959, the Commissioners 1958
Standard Ordinary Mortality Table; and (C) the specified table for
policies of industrial life insurance shall be the American
Experience Table of Mortality, the Standard Industrial Mortality
Table, the Sub-Standard Industrial Mortality Table, the 1941
Standard Industrial Mortality Table, or the 1941 Sub-Standard
Industrial Mortality Table, or, as respects policies issued after
the 31st day of December, 1963, the Commissioners 1961 Standard
Industrial Mortality Table.
(d) As respects policies on female risks issued after the
31st day of December, 1959, other than policies of industrial life
insurance, computation shall be based on any mortality table and
rate of interest permitted under Subsection (c) of Section 12 of
this article and specified in the respective policies but may at the
option of the company be based on an age not more than three (3)
years younger than the actual age of the insured.
(e) Except as otherwise provided in Section 4 of this
article with respect to coverages purchased on or after the
operative date of such subsection under group annuity and pure
endowment contracts, as respects policies issued on substandard
risks and annuity contracts and contracts or policies for
disability benefits and accidental death benefits, the computation
shall be on the basis of the standards and methods adopted by the
respective companies and approved by the State Board of Insurance.
(f) The reserve values of all policies of group insurance
issued prior to May 15, 1947, shall be computed upon the basis of
the American Men Ultimate Table of Mortality with interest at the
rate of three per cent (3%) or three and one-half per cent (3-1/2%)
per annum as provided in such policies. The reserve values of all
policies of group insurance issued on and subsequent to May 15,
1947, and prior to January 1, 1961, shall be computed upon the basis
of either the American Men Ultimate Table of Mortality or the
Commissioners 1941 Standard Ordinary Mortality Table with interest
at a rate not in excess of three and one-half per cent (3-1/2%) per
annum as provided in such policies. The reserve values of all
policies of group insurance issued on and subsequent to January 1,
1961, shall be computed on the basis of an interest rate not
exceeding three and one-half per cent (3-1/2%) per annum and such
mortality table as shall be adopted by the company with the approval
of the State Board of Insurance.
Repeal of Conflicting Laws
Sec. 13. All acts and parts of acts inconsistent with the
provisions of this article are hereby repealed.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1959, 56th Leg., p.
960, ch. 448, Sec. 1; Acts 1963, 58th Leg., p. 1117, ch. 434, Sec.
2; Acts 1973, 63rd Leg., p. 1070, ch. 411, Sec. 1, 2, eff. June 14,
1973; Acts 1977, 65th Leg., p. 2098, ch. 842, Sec. 1 to 5, eff. Aug.
29, 1977; Acts 1981, 67th Leg., p. 2170, ch. 508, Sec. 1, eff. Aug.
31, 1981.
Sec. 2A added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.101, eff.
Sept. 1, 1991; Secs. 8A, 9A added by Acts 1991, 72nd Leg., ch. 242,
Sec. 11.102, eff. Sept. 1, 1991; Sec. 2A(a)(1) amended by Acts
1993, 73rd Leg., ch. 685, Sec. 7.01, eff. Sept. 1, 1993; Sec. 2A(b)
amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.02, eff. Sept. 1,
1993; Sec. 3 amended by Acts 2001, 77th Leg., ch. 1318, Sec. 1, eff.
Sept. 1, 2001.
Article: 2.10-4 2.10-5 3.10 3.11 3.16 3.17 3.18 3.28 3.29 3.31 3.32 3.33 3.38 3.39 3.39a
Last modified: August 11, 2007
|
