A. Definitions. For the purposes of this section the following definitions shall apply on or after the operative date of the valuation manual:

1. "Accident and health insurance" means contracts that incorporate morbidity risk and provide protection against economic loss resulting from accident, sickness, or medical conditions and as may be specified in the valuation manual;

2. "Company" means an entity which:

(a)has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in this state and has at least one such policy in force or on claim, or

(b)has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in any state and is required to hold a certificate of authority to write life insurance, accident and health insurance, or deposit-type contracts in this state;

3. "Deposit-type contract" means contracts that do not incorporate mortality or morbidity risks and as may be specified in the valuation manual;

4. "Life insurance" means contracts that incorporate mortality risk, including annuity and pure endowment contracts, and as may be specified in the valuation manual;

5. "NAIC" means the National Association of Insurance Commissioners;

6. "Policyholder behavior" means any action a policyholder, contract holder or any other person with the right to elect options, such as a certificate holder, may take under a policy or contract subject to this section, including, but not limited to, lapse, withdrawal, transfer, deposit, premium payment, loan, annuitization, or benefit elections prescribed by the policy or contract but excluding events of mortality or morbidity that result in benefits prescribed in their essential aspects by the terms of the policy or contract;

7. "Principle-based valuation" means a reserve valuation that uses one or more methods or one or more assumptions determined by the insurer and is required to comply with subsection Q of this section as specified in the valuation manual;

8. "Tail risk" means a risk that occurs either where the frequency of low probability events is higher than expected under a normal probability distribution or where there are observed events of very significant size or magnitude; and

9. "Valuation manual" means the manual of valuation instructions adopted by the NAIC as specified in this section or as subsequently amended.

B. Reserve Valuation.

1. Policies and Contracts Issued Prior to the Operative Date of the Valuation Manual.

(a)The Insurance Commissioner shall annually make calculations of all outstanding policies, additions thereto, unpaid dividends, annuity and pure endowment contracts and all other obligations of every life insurance corporation doing business in this state issued prior to the operative date of the valuation manual. In lieu of the valuation of the reserves required of a foreign or alien company, the Insurance Commissioner may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when the valuation complies with the minimum standard provided in this section.

(b)The provisions set forth in subsections C, D, E, F, G, H, J, K, L, M, N and O of this section shall apply to all policies and contracts, as appropriate, subject to this section issued prior to the operative date of the valuation manual and the provisions set forth in subsections P and Q of this section shall not apply to any such policies and contracts.

2. Policies and Contracts Issued On and After the Operative Date of the Valuation Manual.

(a)The Insurance Commissioner shall annually make calculations of all outstanding policies, additions thereto, unpaid dividends, annuity and pure endowment contracts, accident and health contracts, deposit-type contracts, and all other obligations of every company doing business in this state issued on or after the operative date of the valuation manual. In lieu of the valuation of the reserves required of a foreign or alien company, the Insurance Commissioner may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when the valuation complies with the minimum standard provided in this section.

(b)The provisions set forth in subsections P and Q of this section shall apply to all policies and contracts issued on or after the operative date of the valuation manual.

C. 1. Valuations made by the Insurance Commissioner shall be made upon the net premium basis. In the case of alien insurers, such valuation shall be limited to its United States business. The legal minimum standard for valuation of contracts issued before the first day of January, 1910, shall be the Actuaries or Combined Experience Table of Mortality, with interest at four percent (4%) per annum, and for valuation of contracts issued on or after said date and before June 6, 1949, shall be the American Experience Table of Mortality, or the American Men Table of Mortality, with interest at three and one-half percent (3 1/2%) per annum. Except as otherwise provided policies issued on or after the operative date of paragraph 4 of subsection I of Section 4029 of this title, policies issued on or after June 6, 1949, shall be valued, collectively as to all such policies or severally as to policies of any plan or form at the option of the company according to the American Experience Table of Mortality, the American Men Table of Mortality, the Commissioners 1941 Standard Ordinary Mortality Table or on and after July 1, 1962, the Commissioners 1958 Standard Ordinary Mortality Table for policies of ordinary insurance, and the Standard Industrial Mortality Table (1907), or the 1941 Standard Industrial Mortality Table or the Commissioners 1961 Standard Industrial Mortality Table for policies of industrial insurance, with interest at not more than three and one-half percent (3 1/2%) per annum, or four percent (4%) per annum in the case of policies issued on or after April 11, 1974, and prior to March 17, 1978, and four and one-half percent (4 1/2%) per annum for policies issued on or after March 17, 1978; provided, however, that policies issued to substandard risks or other special classes may be valued according to such other mortality tables, with interest at not more than three and one-half percent (3 1/2%) per annum, or four percent (4%) per annum in the case of policies issued on or after April 11, 1974, and prior to March 17, 1978, and four and one-half percent (4 1/2%) per annum for policies issued on or after March 17, 1978, as may be approved by the Insurance Commissioner.

2. 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 Commissioner.

3. 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 Commissioner, or, at the option of the company, any of the tables or modifications of tables specified for individual annuity and pure endowment contracts.

4. The mortality table used in determining the minimum standard for the valuation of ordinary life insurance policies issued on or after the operative date of paragraph 4 of subsection I of Section 4029 of this title shall be (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 NAIC, that is approved by regulation promulgated by the Commissioner for use in determining the minimum standard of valuation for such policies.

5. Except as provided in subsection D of this section, the minimum standard of valuation for individual annuity and pure endowment contracts issued on or after the operative date of this section and for annuities and pure endowments purchased on or after such operative date under group annuity and pure endowment contracts shall be the Commissioner's reserve valuation methods defined in subsections G and H of this section 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 benefit in such contracts, the 1971 Individual Annuity Mortality Table, or any modification of this table approved by the Commissioner, and six percent (6%) interest for single premium immediate annuity contracts, and four percent (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 NAIC that is approved by regulation promulgated by the Commissioner for use in determining the minimum standard of valuation for such contracts, or any modification of these tables approved by the Commissioner, and seven and one-half percent (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 NAIC that is approved by regulation promulgated by the Commissioner for use in determining the minimum standard of valuation for such contracts, or any modification of these tables approved by the Commissioner, and five and one-half percent (5 1/2%) interest for single premium deferred annuity and pure endowment contracts and four and one-half percent (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 Commissioner, and six percent (6%) interest, and

(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 NAIC that is approved by regulation promulgated by the Commissioner for use in determining the minimum standard of valuation for such annuities and pure endowments, or any modification of these tables approved by the Commissioner, and seven and one-half percent (7 1/2%) interest.

After June 14, 1973, any company may file with the Commissioner a written notice of its election to comply with the provisions of this section after a specified date before January 1, 1985, 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, 1985.

D. 1. The interest rates used in determining the minimum standard for the valuation of all life insurance policies issued in a particular calendar year on or after the operative date of paragraph 4 of subsection I of Section 4029 of this title shall be the calendar year statutory valuation interest rates as defined in this section.

2. The interest rates used in determining the minimum standard valuation of individual annuity and pure endowment contracts issued in a particular calendar year on or after January 1, 1985, and annuities and pure endowments purchased in a particular calendar year on or after January 1, 1985, under group annuity and pure endowment contracts shall be the calendar year statutory valuation interest rates as defined in this section.

E. 1. The calendar year statutory valuation interest rates, I, shall be determined as follows and the results rounded to the nearest one-fourth of one percent (1/4 of 1%):

(a)For life insurance,

I = .03 + W (Ra - .03) + (W/2) (Rb - .09)

where Ra is the lesser of R and .09, Rb 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,

(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 R 1 is the lesser of R and .09, R 2 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 subparagraph (b) of this paragraph, the formula for life insurance stated in subparagraph (a) of this paragraph shall apply to annuities and guaranteed interest contracts with guarantee durations in excess of ten (10) years and the formula for single premium immediate annuities stated in subparagraph (b) of this paragraph shall apply to annuities and guaranteed interest contracts with guarantee duration of ten (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 subparagraph (b) of this paragraph shall apply, and

(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 subparagraph (b) of this paragraph 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 percent (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.

F. 1. The weighting factors referred to in the formulas stated above are given in the following table:

(a)Weighting Factors for Life Insurance:

Guarantee

DurationWeighting

(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 subparagraph (b) of this paragraph, shall be as specified in tables (1), (2) and (3) below, according to the rules and definitions in (4) and (5) below:

(1)For annuities and guaranteed interest contracts valued on an issue year basis:

GuaranteeWeighting Factor

Durationfor 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

(2)For annuities and guaranteed interest contracts valued on a change in fund basis, the factors shown in (1) above increased by:

Plan Type

ABC

.15.25.05

(3)For annuities and guaranteed interest contracts valued on an issue year basis (other than those with no cash settlement options) which do not guarantee interest on considerations received more than one (1) year after issue or purchase and for annuities and guaranteed interest contracts valued on a change in fund basis which do not guarantee interest rates on considerations received more than twelve (12) months beyond the valuation date, the factors shown in (1) or derived in (2) increased by:

Plan Type

ABC

.05.05.05

(4)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 twenty (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.

(5)Plan type as used in the above tables 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 the funds by the insurance company, or (2) without such adjustment but in installments over five (5) 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, policyholder may withdraw funds only (1) with 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 (5) 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 (5) years.

Plan Type C: Policyholder may withdraw funds before expiration of interest rate guarantee in a single sum or installments over less than five (5) 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.

2. 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 shall 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.

G. 1. The reference interest rate referred to above shall be defined as follows:

(a)For life insurance, the lesser of the average over a period of thirty-six (36) months and the average over a period of twelve (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 twelve (12) months, ending on June 30 of the calendar year of issue or year of purchase of the Monthly Average of the Composite Yield on Seasoned Corporate Bonds, 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 an issue year basis, except as stated in subparagraph (b) of this paragraph, with guarantee duration in excess of ten (10) years, the lesser of the average over a period of thirty-six (36) months and the average over a period of twelve (12) months, ending on June 30 of the calendar year of issue or purchase, of the Monthly Average of the Composite Yield on Seasoned Corporate Bonds, 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 an issue year basis, except as stated in subparagraph (b) of this paragraph, with guarantee duration of ten (10) years or less, the average over a period of twelve (12) months, ending on June 30 of the calendar year of issue or purchase, of the Monthly Average of the Composite Yield on Seasoned Corporate Bonds, 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 twelve (12) months, ending on June 30 of the calendar year of issue or purchase, of the Monthly Average of the Composite Yield on Seasoned Corporate Bonds, as published by Moody's Investors Service, Inc., and

(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 subparagraph (b) of this paragraph, the average over a period of twelve (12) months, ending on June 30 of the calendar year of the change in the fund, of the Monthly Average of the Composite Yield on Seasoned Corporate Bonds, as published by Moody's Investors Service, Inc.

H. In the event that the Moody's Corporate Bond Yield Average - Monthly Average Corporates is no longer published by Moody's Investors Service, Inc., or in the event that the NAIC determines that the Moody's Corporate Bond Yield Average - Monthly Average Corporates as published by Moody's Investors Service, Inc., is no longer appropriate for the determination of the reference interest rate, then an alternative method for determination of the reference interest rate, which is adopted by the NAIC and approved by regulation promulgated by the Commissioner, may be substituted.

I. The Commissioner may vary the standards of interest and mortality in particular cases of invalid life and other extra hazards and value policies in groups, use approximate averages for fractions of a year and otherwise, and accept the valuation of the Department of Insurance of any other state or country, if made upon a basis and according to standards not lower than herein required or authorized, in place of the valuation herein required.

J. If in any contract year the gross premium charged by any company on any policy or contract is less than the valuation net premium for the policy or contract calculated by the method used in computing the reserve liability 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 subsection are those standards stated in this section.

Provided that for any life insurance policy issued on or after January 1, 1986, 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 subsection shall be applied as if the method actually used in calculating the reserve for such policy were the method described in paragraph 2 of subsection L of this section, ignoring subparagraph (c) of that paragraph. The minimum reserve at each policy anniversary of such a policy shall be the greater of the minimum reserve calculated in accordance with paragraph 2 of subsection L of this section, including subparagraph (c) of that paragraph, and the minimum reserve calculated in accordance with this subsection.

K. Term Insurance.

Policies issued by life insurance companies doing business in this state may provide for not more than one (1) year preliminary term insurance, purchased by the whole or part of the premium to be received during the first policy year, under the conditions prescribed in this section.

L. Reserves.

1. Reserves on policies of ordinary insurance which are valued in accordance with the American Experience Table of Mortality, or the American Men Table of Mortality, and policies of industrial insurance which are valued in accordance with the Standard Industrial Mortality Table (1907), which are issued on or after June 6, 1949, may be computed as follows: If the premium charged for term insurance under a limited payment life preliminary term policy providing for the payment of all premiums thereon in less than twenty (20) years from the date of the policy or under an endowment preliminary term policy, exceeds that charged for life insurance, under twenty-year payment life preliminary term policies of the same company, the reserve thereon at the end of any year, including the first, shall not be less than the reserve on a twenty-payment life preliminary term policy issued in the same year and at the same age, together with an amount which shall be equivalent to the accumulation of a net level premium sufficient to provide for a pure endowment at the end of the premium payment period equal to the difference between the value at the end of such period of such a twenty-payment life preliminary term policy and the full reserve at such time of such a limited payment life or endowment policy. The premium payment period is the period during which premiums are concurrently payable under such twenty-payment life preliminary term policy and such limited payment life or endowment policy. Any policy valued in accordance with this paragraph shall specify the mortality table, rate of interest, and method used in calculating the reserves on the policy.

2. Reserves on policies of ordinary insurance which are valued in accordance with the Commissioners 1941 Standard Ordinary Mortality Table, the Commissioners 1958 Standard Ordinary Mortality Table, or the Commissioners 1980 Standard Ordinary Mortality Table, policies of industrial insurance which are valued in accordance with the 1941 Standard Industrial Mortality Table or the Commissioners 1961 Standard Industrial Mortality Table and policies valued in accordance with any substandard mortality table approved by the Commissioner pursuant to this section, issued on or after June 6, 1949, may be computed in accordance with the Commissioners Reserve Valuation method, defined as follows: Reserves 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 subparagraph (a) over subparagraph (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 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 the age one (1) 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, and

(c)provided that for any life insurance policy issued on or after January 1, 1986, 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 subsection J of this section, be the greater of the reserve as of such policy anniversary calculated as described in this paragraph and the reserve as of such policy anniversary calculated as described in subparagraph (a) of this paragraph, but with (i) the value defined in subparagraph (a) of that paragraph being reduced by fifteen percent (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 this section shall be used.

Reserves for life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums shall be calculated by a method consistent with the principles of paragraph 2 of this subsection, provided that any extra premiums charged because of impairments or special hazards shall be disregarded in the determination of modified net premiums. All modified net premiums and present values referred to in this section, except those based on sex-distinct mortality tables, may be calculated according to an age not more than six (6) years younger than the actual age of the insured in the case of any category of ordinary policies issued on female risks.

M. 1. Reserves on policies of any category may be computed, at the option of the company, according to any valuation standard which produces greater aggregate reserves than those computed according to the minimum standard provided in this section.

2. 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 subsections C, I, J, K, and N of this section, 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 Commissioner.

N. 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.

O. For accident and health insurance contracts issued on or after the operative date of the valuation manual, the standard prescribed in the valuation manual is the minimum standard of valuation required under paragraph 2 of subsection B of this section. For accident and health insurance contracts issued prior to the operative date of the valuation manual, the minimum standard of valuation is the standard adopted by the commissioner by rule.

P. Valuation Manual for Policies Issued On or After the Operative Date of the Valuation Manual.

1. For policies issued on or after the operative date of the valuation manual, the standard prescribed in the valuation manual is the minimum standard of valuation required under paragraph 2 of subsection B of this section, except as provided under paragraph 5 or 7 of this subsection.

2. The operative date of the valuation manual is January 1 of the first calendar year following the first July 1 as of which all of the following have occurred:

(a)the valuation manual has been adopted by the NAIC by an affirmative vote of at least forty-two members, or three-fourths (3/4) of the members voting, whichever is greater,

(b)the Standard Valuation Law, as amended by the NAIC in 2009, or legislation including substantially similar terms and provisions, has been enacted by states representing greater than seventy-five percent (75%) of the direct premiums written as reported in the following annual statements submitted for 2008: life, accident and health annual statements; health annual statements; or fraternal annual statements, and

(c)the Standard Valuation Law, as amended by the NAIC in 2009, or legislation including substantially similar terms and provisions, has been enacted by at least forty-two of the following fifty-five jurisdictions: the fifty states of the United States, American Samoa, the American Virgin Islands, the District of Columbia, Guam, and Puerto Rico.

3. Unless a change in the valuation manual specifies a later effective date, changes to the valuation manual shall be effective on January 1 following the date when all of the following have occurred:

(a)the change to the valuation manual has been adopted by the NAIC by an affirmative vote representing:

(1)at least three-fourths (3/4) of the members of the NAIC voting, but not less than a majority of the total membership, and

(2)members of the NAIC representing jurisdictions totaling greater than seventy-five percent (75%) of the direct premiums written as reported in the following annual statements most recently available prior to the vote in division (1) of this subparagraph: life, accident and health annual statements; health annual statements; or fraternal annual statements, and

(b)the valuation manual becomes effective pursuant to order adopted by the commissioner.

4. The valuation manual must specify all of the following:

(a)minimum valuation standards for and definitions of the policies or contracts subject to paragraph 2 of subsection B of this section. Such minimum valuation standards shall be:

(1)the commissioner's reserve valuation method for life insurance contracts, other than annuity contracts, subject to paragraph 2 of subsection B of this section,

(2)the commissioner's annuity reserve valuation method for annuity contracts subject to paragraph 2 of subsection B of this section, and

(3)minimum reserves for all other policies or contracts subject to paragraph 2 of subsection B of this section,

(b)which policies or contracts or types of policies or contracts that are subject to the requirements of a principle-based valuation in paragraph 1 of subsection Q of this section and the minimum valuation standards consistent with those requirements,

(c)for policies and contracts subject to a principle-based valuation under subsection Q of this section:

(1)requirements for the format of reports to the commissioner under subparagraph (c) of paragraph 2 of subsection Q of this section and which shall include information necessary to determine if the valuation is appropriate and in compliance with this section,

(2)assumptions shall be prescribed for risks over which the company does not have significant control or influence, and

(3)procedures for corporate governance and oversight of the actuarial function, and a process for appropriate waiver or modification of such procedures,

(d)for policies not subject to a principle-based valuation under subsection Q of this section, the minimum valuation standard shall either:

(1)be consistent with the minimum standard of valuation prior to the operative date of the valuation manual, or

(2)develop reserves that quantify the benefits and guarantees, and the funding, associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring,

(e)other requirements, including, but not limited to, those relating to reserve methods, models for measuring risk, generation of economic scenarios, assumptions, margins, use of company experience, risk measurement, disclosure, certifications, reports, actuarial opinions and memorandums, transition rules and internal controls, and

(f)the data and form of the data required under subsection R of this section, with whom the data must be submitted, and may specify other requirements, including data analyses and reporting of analyses.

5. In the absence of a specific valuation requirement or if a specific valuation requirement in the valuation manual is not, in the opinion of the commissioner, in compliance with this subsection, then the company shall, with respect to such requirements, comply with minimum valuation standards prescribed by the commissioner by regulation.

6. The commissioner may engage a qualified actuary, at the expense of the company, to perform an actuarial examination of the company and opine on the appropriateness of any reserve assumption or method used by the company, or to review and opine on a company's compliance with any requirement set forth in this section. The commissioner may rely upon the opinion, regarding provisions contained within this section, of a qualified actuary engaged by the commissioner of another state, district or territory of the United States. As used in this paragraph, the term "engage" includes employment and contracting.

7. The commissioner may require a company to change any assumption or method that in the opinion of the commissioner is necessary in order to comply with the requirements of the valuation manual or this section; and the company shall adjust the reserves as required by the commissioner. The commissioner may take other disciplinary action as permitted pursuant to rule.

Q. Requirements of a Principle-Based Valuation.

1. A company must establish reserves using a principle-based valuation that meets the following conditions for policies or contracts as specified in the valuation manual:

(a)quantify the benefits and guarantees, and the funding, associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring during the lifetime of the contracts. For policies or contracts with significant tail risk, reflects conditions appropriately adverse to quantify the tail risk,

(b)incorporate assumptions, risk analysis methods and financial models and management techniques that are consistent with, but not necessarily identical to, those utilized within the company's overall risk assessment process, while recognizing potential differences in financial reporting structures and any prescribed assumptions or methods,

(c)incorporate assumptions that are derived in one of the following manners:

(1)the assumption is prescribed in the valuation manual,

(2)for assumptions that are not prescribed, the assumptions shall:

(i)be established utilizing the company's available experience, to the extent it is relevant and statistically credible, or

(ii)to the extent that company data is not available, relevant, or statistically credible, be established utilizing other relevant, statistically credible experience, and

(d)provide margins for uncertainty including adverse deviation and estimation error, such that the greater the uncertainty the larger the margin and resulting reserve.

2. A company using a principle-based valuation for one or more policies or contracts subject to this subsection as specified in the valuation manual shall:

(a)establish procedures for corporate governance and oversight of the actuarial valuation function consistent with those described in the valuation manual,

(b)provide to the commissioner and the board of directors an annual certification of the effectiveness of the internal controls with respect to the principle-based valuation. Such controls shall be designed to assure that all material risks inherent in the liabilities and associated assets subject to such valuation are included in the valuation, and that valuations are made in accordance with the valuation manual. The certification shall be based on the controls in place as of the end of the preceding calendar year, and

(c)develop, and file with the commissioner upon request, a principle-based valuation report that complies with standards prescribed in the valuation manual.

3. A principle-based valuation may include a prescribed formulaic reserve component.

R. Experience Reporting for Policies In Force On or After the Operative Date of the Valuation Manual.

A company shall submit mortality, morbidity, policyholder behavior, or expense experience and other data as prescribed in the valuation manual.

S. When the actual funds of any life insurance company doing business in this state, exclusive of its capital, are not of a net cash value equal to its liabilities including the net value of its policies according to the basis and minimum standards prescribed or authorized by the laws of this state, it shall be the duty of the Insurance Commissioner to give notice to such company and its agents to discontinue issuing new policies within this state, until such time as its funds have become equal to its liabilities as aforesaid. Any officer or agent who, after such notice has been given, issues or delivers a new policy from and on behalf of such company before its funds have become equal to its liabilities, as aforesaid, shall forfeit to the state for each offense a sum not less than One Hundred Dollars ($100.00) nor more than Five Thousand Dollars ($5,000.00) for each occurrence.

T. Single State Exemption.

1. The Commissioner may exempt specific product forms or product lines of a domestic company that is licensed and doing business only in Oklahoma from the requirements of subsection P of this section provided:

(a)the Commissioner has issued an exemption in writing to the company and has not subsequently revoked the exemption in writing, and

(b)the company computes reserves using assumptions and methods used prior to the operative date of the valuation manual in addition to any requirements established by the commissioner and promulgated by regulation.

2. For any company granted an exemption under this section, subsections B and C of Section 4061 of this title and subsections C, D, E, F, G, H, J, K, L, M, N and O of this section shall be applicable. With respect to any company applying this exemption, any reference to subsection P found in subsections B and C of Section 4061 and subsections C, D, E, F, G, H, J, K, L, M, N and O of this section shall not be applicable.

U. Conflict of law.

If any provision of law is inconsistent with the provisions of this section, this section shall prevail.

Added by Laws 1957, p. 283, § 1510, operative July 1, 1957. Amended by Laws 1961, p. 268, § 1, emerg. eff. July 5, 1961; Laws 1963, c. 25, §§ 1, 2; Laws 1974, c. 31, § 1, emerg. eff. April 11, 1974; Laws 1978, c. 55, § 1, emerg. eff. March 17, 1978; Laws 1982, c. 118, § 1, emerg. eff. April 6, 1982; Laws 1984, c. 149, § 5, eff. Nov. 1, 1984; Laws 2014, c. 50, § 1, eff. Nov. 1, 2014; Laws 2016, c. 73, § 4, eff. Nov. 1, 2016.