POLICY AND PROCEDURE
REGARDING
Determining Reserve Liabilities
for Credit Life Insurance
Prepared by
The Kansas Insurance Department
August
23, 2007
Policy and Procedure Regarding
Determining
Reserve Liabilities for Credit Life Insurance
August 23,
2007
This Policy and Procedure is an adaptation of the
National Association of Insurance Commissioners’ Model Regulation regarding Determining Reserve Liabilities for Credit Life Insurance dated July
2005.
Deletions in the model have been stricken through and additions are
underlined.
Table
of Contents
Section 1. Authority
Section 2. Scope
Section 3. Purpose
Section 4. Definitions
Section 5. 2001 CSO Male Composite Ultimate Mortality
Table
Section 6. Minimum Standards
Section 7. Effective Date
Appendix 2001
CSO Male Composite Ultimate Mortality Table
Section 1. Authority
This rule is promulgated by the
Commissioner of Insurance pursuant to Section [insert applicable reference to
the Standard Valuation Law] of the [insert state] Insurance Statute.
Section 2. Scope
This rule applies to credit life insurance
policies and certificates, and those similar policies and certificates where
there is no identifiable charge made to the debtor.
Section 3. Purpose
The purpose of this rule is to:
A. Recognize the 2001 CSO Male Composite
Ultimate Mortality Table for use in determining the minimum standard of
valuation.
B. Specify the interest rate and method to
be used in determining the minimum standard of valuation.
Section 4. Definitions
A. “2001 CSO Mortality Table” means that
mortality table, consisting of separate rates of mortality for male and female
lives, developed by the -nearest-birthday and age-last-birthday bases of the
mortality tables.
B. “Composite mortality tables” means
mortality tables with rates of mortality that do not distinguish between
smokers and nonsmokers.
C. “Credit life insurance” means life
insurance as defined in [insert applicable reference to definition] K.A.R.
40-5-102 and amendments thereto of the [insert state] Statute
Regulations.
Drafting Note: If existing definitions
are not sufficiently precise to define Credit Life Insurance, some or all of
the following definition may be added to the regulation:
“Credit life insurance” means
insurance on a debtor or debtors, pursuant to or in connection with a specific
loan or other credit
transaction, to provide for
satisfaction of a debt, in whole or in part, upon the death of an insured
debtor.
Credit life insurance does NOT
include:
(a) Insurance written in connection with a
credit transaction that is:
(i) Secured by a first mortgage or deed of
trust; and
(ii) Made to finance the purchase of real
property or the construction of a dwelling thereon, or to refinance a prior
credit transaction made for such a purpose;
(b) Insurance sold as an isolated transaction
on the part of the insurer and not related to an agreement or a plan for
insuring debtors of the creditor.
(c) Insurance for which no identifiable
charge is made to the debtor.
(d) Insurance on accounts receivable.
Section 5. 2001 CSO Male Composite Ultimate Mortality
Table
A. The minimum standard for both male and
female insureds shall be 2001 CSO Male Composite Ultimate Mortality Table.
B. Where the credit life insurance policy or
certificate insures two lives, the minimum standard shall be twice the
mortality in the 2001 CSO Male Composite Ultimate Mortality Table based on the
age of the older insured.
Section
6.
Minimum Standards
A. [Insert applicable reference to the
Valuation of Life Insurance Policies Model Regulation] K.A.R. 40-2-26
shall not apply to credit life insurance.
B. The interest rates used in determining
the minimum standard for valuation shall be the calendar year statutory
valuation interest rates as defined in [insert applicable reference to
Section 4b of the Standard Valuation Law] K.S.A. 2005 Supp. 40-409(d)
and amendments thereto.
C. The method used in determining the
minimum standard for valuation shall be the commissioners reserve valuation
method as defined in [insert applicable reference to Section 5 of the
Standard Valuation Law] K.S.A. 40-409(d).
Drafting Note:
1) Section 6 may not be appropriate or
necessary for some states because of specific language in their versions of the
Standard Valuation Law, the Valuation of Life Insurance Policies Model
Regulation, or their specific statutes on credit insurance.
2) States should be aware that there may be
requirements elsewhere in statutory accounting to test reserves against the
premium refund net liability.
3) In applying the commissioners reserve
valuation method, consideration should be given to the period of time for which
renewability of benefits are guaranteed under the contract. If benefits are
guaranteed for less than one year, the method produces a reserve equal to the
mortality cost from the valuation date to the premium “paid-to” date.
4) The Standard Valuation Law contains
language permitting the use of “group methods and approximate averages for
fractions of a year or otherwise.” Such methods may be appropriate in those
situations where individual certificate data is not readily available to the insurer.
This is especially common in monthly payment programs, with frequent remittance
of small premiums.
Section 7. Effective Date
This rule is applicable to credit life
policies and certificates issued on or after January 1, 200[_] [insert
January 1 of the year next following or coincident with the effective date of
the state’s version of the Recognition of the 2001 CSO Mortality Table for Use
in Determining Minimum Reserve Liabilities and Nonforfeiture Benefits Model
Regulation] the effective date of this regulation.
Legislative History (all references
are to the Proceedings of the NAIC)
2004 Proc.1st Quarter
331, 1668, 1988-1991 (adopted by parent committee).
2004 Proc. 2nd
Quarter 50 (adopted by Plenary).
Determining Reserve Liabilities for Credit
Life Insurance