Senate Bill No. 696

Introduced by Senator Roth

February 27, 2015

An act to amend Sections 10159.1, 10163.2, 10489.15, 10489.2, 10489.3, 10489.5, 10489.6, 10489.7, 10489.8, 10489.9, and 10489.93 of, to add Sections 10489.12, 10489.4, 10489.96, 10489.97, 10489.98, 10489.99, and 10489.992 to, and to repeal and add Sections 10489.1 and 10489.95 of, the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

SB 696, as introduced, Roth. Insurance: principle-based valuation.

Existing law governs the issuance of life and disability insurance and authorizes the Insurance Commissioner to regulate those insurers. Existing law requires every life and disability insurer doing business in this state to annually submit 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 the commissioner by regulation are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts, and comply with applicable state law. Among other things, existing law requires insurers to calculate the minimum standard for the valuation of those policies and contracts using specified mortality tables approved by the commissioner, sets forth the applicable interest rates, and establishes the reserve requirements for various types of life and disability policies and contracts.

This bill would explicitly refer to the body of laws imposing those requirements, as specified, as the Standard Valuation Law. The bill would require the commissioner and companies engaging in specified activities relating to the business of life insurance to incorporate the methodology employed by a specified manual of valuation instructions adopted by the National Association of Insurance Commissioners in making determinations relating to reserve requirements and the minimum standard of valuation for policies and contracts, as specified. The bill would require a company to establish reserves using a principle-based valuation that meets specified conditions in that manual, including quantifying the benefits, guarantees, and funding associated with the contracts, and would require the company to develop and file with the commissioner upon request, a principle-based valuation report. The bill would require a company to submit mortality, morbidity, policyholder behavior, or expense experience and other data as prescribed in the valuation manual. The bill would require the commissioner to impose an annual assessment on each insurer, based on the insurer’s gross annual life insurance premium written by an insurer in California during the immediately preceding year, thereby imposing a tax. The bill would exempt certain information submitted by a company to the commissioner from disclosure pursuant to the California Public Records Act and would provide that it is not subject to subpoena or discovery or admissible in evidence in any private civil action. The bill would also authorize the commissioner to hire and assign department staff, and retain nondepartmental actuaries and other consultants, to assist the commissioner in implementing principle-based valuation.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2⁄3 of the membership of each house of the Legislature.

Vote: ²⁄₃. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 10159.1 of the Insurance Code is
amended to read:

10159.1.  

begin insert (a) end insert begin insert   end insert This article is applicable only to policies and
contracts issued on or after the operative date as to such policies
or contracts of this article.

begin insert

(b) The term “operative date of the valuation manual” means
the January 1 of the first calendar year that the valuation manual,
as defined in Section 10489.1, is effective.

end insert

SEC. 2.  

Section 10163.2 of the Insurance Code is amended to
read:

10163.2.  

(a) This section shall apply to all policies issued on
or after the operative date of this section as defined herein. Except
as provided in subdivision (g), the adjusted premiums for any
policy shall be calculated on an annual basis and shall be such
uniform percentage of the respective premiums specified in the
policy for each policy year, excluding amounts payable as extra
premiums to cover impairments or special hazards and also
excluding any uniform annual contract charge or policy fee
specified in the policy in a statement of the method to be used in
calculating the cash surrender values and paid-up nonforfeiture
benefits, that the present value, at the date of issue of the policy,
of all adjusted premiums shall be equal to the sum of (1) the then
present value of the future guaranteed benefits provided for by the
policy; (2) 1 percent of either the amount of insurance, if the
insurance be uniform in amount, or the average amount of
insurance at the beginning of each of the first 10 policy years; and
(3) 125 percent of the nonforfeiture net level premium as
hereinafter defined. Provided, however, that in applying the
percentage specified in (3) no nonforfeiture net level premium
shall be deemed to exceed 4 percent of either the amount of
insurance, if the insurance be uniform in amount, or the average
amount of insurance at the beginning of each of the first 10 policy
years. The date of issue of a policy for the purpose of this section
shall be the date as of which the rated age of the insured is
determined.

(b) The nonforfeiture net level premium shall be equal to the
present value, at the date of issue of the policy, of the guaranteed
benefits provided for by the policy, divided by the present value,
at the date of issue of the policy, of an annuity of 1 percent per
annum payable on the date of issue of the policy and on each
anniversary of such policy on which a premium falls due.

(c) In the case of policies which cause on a basis guaranteed in
the policy, unscheduled changes in benefits or premiums, or which
provide an option for changes in benefits or premiums other than
a change to a new policy, the adjusted premiums and present values
shall initially be calculated on the assumption that future benefits
and premiums do not change from those stipulated at the date of
issue of the policy. At the time of any such change in the benefits
or premiums the future adjusted premiums, nonforfeiture net level
premiums and present values shall be recalculated on the
assumption that future benefits and premiums do not change from
those stipulated by the policy immediately after the change.

(d) Except as otherwise provided in subdivision (g), the
recalculated future adjusted premiums for any such policy shall
be such uniform percentage of the respective future premiums
specified in the policy for each policy year, excluding amounts
payable as extra premiums to cover impairments and special
hazards, and also excluding any uniform annual contract charge
or policy fee specified in the policy in a statement of the method
to be used in calculating the cash surrender values and paid-up
nonforfeiture benefits, that the present value, at the time of change
to the newly defined benefits or premiums, of all such future
adjusted premiums shall be equal to the excess of (1) the sum of
(A) the then present value of the then future guaranteed benefits
provided for by the policy and (B) the additional expense
allowance, if any, over (2) the then cash surrender value, if any,
or present value of any paid-up nonforfeiture benefit under the
policy.

(e) The additional expense allowance, at the time of the change
to the newly defined benefits or premiums, shall be the sum of (1)
1 percent of the excess, if positive, of the average amount of
insurance at the beginning of each of the first 10 policy years
subsequent to the change over the average amount of insurance
prior to the change at the beginning of each of the first 10 policy
years subsequent to the time of the most recent previous change,
or, if there has been no previous change, the date of issue of the
policy; and (2) 125 percent of the increase, if positive, in the
nonforfeiture net level premium.

(f) The recalculated nonforfeiture net level premium shall be
equal to the result obtained by dividing (1) by (2) where:

(1) It equals the sum of:

(A) The nonforfeiture net level premium applicable prior to the
change times the present value of an annuity of 1 percent per
annum payable on each anniversary of the policy on or subsequent
to the date of the change on which a premium would have fallen
due had the change not occurred, and

(B) The present value of the increase in future guaranteed
benefits provided for by the policy, and

(2) It equals the present value of an annuity of 1 percent per
annum payable on each anniversary of the policy on or subsequent
to the date of change on which a premium falls due.

(g) Notwithstanding any other provisions of this section to the
contrary, in the case of a policy issued on a substandard basis
which provides reduced graded amounts of insurance so that, in
each policy year, such policy has the same tabular mortality cost
as an otherwise similar policy issued on the standard basis which
provides higher uniform amounts of insurance, adjusted premiums
and present values for such substandard policy may be calculated
as if it were issued to provide such higher uniform amounts of
insurance on the standard basis.

(h) All adjusted premiums and present values referred to in this
article shall for all policies of ordinary insurance be calculated on
the basis of (1) the Commissioners 1980 Standard Ordinary
Mortality Table or (2) 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; shall for all policies of industrial insurance be calculated
on the basis of the Commissioners 1961 Standard Industrial
Mortality Table; and shall for all policies issued in a particular
calendar year be calculated on the basis of a rate of interest not
exceeding the nonforfeiture interest rate as defined in this section
for policies issued in that calendar year. Provided, however, that:

(1) At the option of the company, calculations for all policies
issued in a particular calendar year may be made on the basis of
a rate of interest not exceeding the nonforfeiture interest rate, as
defined in this section, for policies issued in the immediately
preceding calendar year.

(2) Under any paid-up nonforfeiture benefit, including any
paid-up dividend additions, any cash surrender value available,
whether or not required by Section 10160, shall be calculated on
the basis of the mortality table and rate of interest used in
determining the amount of such paid-up nonforfeiture benefit and
paid-up dividend additions, if any.

(3) A company may calculate the amount of any guaranteed
paid-up nonforfeiture benefit including any paid-up additions under
the policy on the basis of an interest rate no lower than that
specified in the policy for calculating cash surrender values.

(4) In calculating the present value of any paid-up term insurance
with accompanying pure endowment, if any, offered as a
nonforfeiture benefit, the rates of mortality assumed may be not
more than those shown in the Commissioners 1980 Extended Term
Insurance Table for policies of ordinary insurance and not more
than the Commissioners 1961 Industrial Extended Term Insurance
Table for policies of industrial insurance.

(5) For insurance issued on a substandard basis, the calculation
of any such adjusted premiums and present values may be based
on appropriate modifications of the aforementioned tables.

(6)  begin delete Any end delete begin insert (A) end insert begin insert   end insert begin insert For policies issued prior to the operative date of
the valuation manual, any Commissioner’s Standard end insert ordinary
mortality tables, adopted after 1980 by the National Association
of Insurance Commissioners, or its successor, that are approved
by regulation promulgated or bulletin issued by the commissioner
for use in determining the minimum nonforfeiture standard may
be substituted for the Commissioners 1980 Standard Ordinary
Mortality Table with or without Ten-Year Select Mortality Factors
or for the Commissioners 1980 Extended Term Insurance Table.

begin insert

(B) For policies issued on or after the operative date of the
valuation manual, the valuation manual shall provide the
Commissioners’ Standard mortality table for use in determining
the minimum nonforfeiture standard that may be substituted for
the Commissioners 1980 Standard Ordinary Mortality Table with
or without Ten-year Select Mortality Factors or for the
Commissioners 1980 Extended Term Insurance Table. If the
commissioner approves by regulation any Commissioners’
Standard ordinary mortality table adopted by the National
Association of Insurance Commissioners for use in determining
the minimum nonforfeiture standard for policies issued on or after
the operative date of the valuation manual then that minimum
nonforfeiture standard supersedes the minimum nonforfeiture
standard provided by the valuation manual.

end insert

(7)  begin delete Any end delete begin insert (A) end insert begin insert   end insert begin insert For policies issued prior to the operative date of
the valuation manual, any Commissioner’s Standard end insert industrial
mortality tables, adopted after 1980 by the National Association
of Insurance Commissioners, or its successor, that are approved
by regulation promulgated or bulletin issued by the commissioner
for use in determining the minimum nonforfeiture standard may
be substituted for the Commissioners 1961 Standard Industrial
Mortality Table or the Commissioners 1961 Industrial Extended
Term Insurance Table.

begin insert

(B) For policies issued on or after the operative date of the
valuation manual, the valuation manual shall provide the
Commissioners’ Standard mortality table for use in determining
the minimum nonforfeiture standard that may be substituted for
the Commissioners 1961 Standard Ordinary Mortality Table or
the Commissioners 1961 Industrial Extended Term Insurance
Table. If the commissioner approves by regulation any
Commissioners’ Standard ordinary mortality table adopted by the
National Association of Insurance Commissioners for use in
determining the minimum nonforfeiture standard for policies issued
on or after the operative date of the valuation manual then that
minimum nonforfeiture standard supersedes the minimum
nonforfeiture standard provided by the valuation manual.

end insert

(i) The nonforfeiture interest rate begin delete per annum for any policy
issued in a particular calendar year shall be equal to 125 percent
of the calendar year statutory valuation interest rate for such policy
as defined in the Standard Valuation Law, rounded to the nearer
one-quarter of 1 percent. end delete

begin insert

(1) For policies issued prior to the operative date of the
valuation manual, the nonforfeiture interest rate per annum for
any policy issued in a particular calendar year shall be equal to
125 percent of the calendar year statutory valuation interest rate
for the policy as defined in the Standard Valuation Law, rounded
to the nearer one-fourth of 1 percent, provided, however, that the
nonforfeiture interest rate shall not be less that 4 percent.

end insert begin insert

(2) For policies issued on or after the operative date of the
valuation manual, the nonforfeiture interest rate per annum for
any policy issued in a particular calendar year shall be provided
by the valuation manual.

end insert

(j) Notwithstanding any other provision in this code to the
contrary, any refiling of nonforfeiture values or their methods of
computation for any previously approved policy form which
involves only a change in the interest rate or mortality table used
to compute nonforfeiture values shall not require refiling of any
other provisions of that policy form.

(k) After the effective date of this section, any company may
file with the commissioner a written notice of its election to comply
with the provision of this section after a specified date before
January 1, 1989, which shall be the operative date of this section
for such company. If a company makes no such election, the
operative date of this section for such company shall be January
1, 1989.

SEC. 3.  

Section 10489.1 of the Insurance Code is repealed.

begin delete

10489.1.  

This article and Sections 10479, 10480, 10481, 10483,
10484, 10486, and 10489 shall apply to the valuation of policies
and contracts issued on or after the operative date as to policies or
contracts of Article 3a (commencing with Section 10159.1) of
Chapter 1 of Part 2 of Division 2 and shall also apply as provided
in Section 10489.3 to the valuation of benefits purchased under
group annuity and pure endowment contracts issued prior to such
operative date.

end delete

SEC. 4.  

Section 10489.1 is added to the Insurance Code, to
read:

10489.1.  

(a) This article shall be known as the Standard
Valuation Law.

(b) For the purposes of this article, 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) “Appointed actuary” means a qualified actuary who is
appointed in accordance with the valuation manual to prepare the
actuarial opinion required in subdivision (b) of Section 10489.15.

(3) “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 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.

(4) “Deposit-type contract” means contracts that do not
incorporate mortality or morbidity risks and as may be specified
in the valuation manual.

(5) “Life insurance” means contracts that incorporate mortality
risk, including annuity and pure endowment contracts, and as may
be specified in the valuation manual.

(6) “NAIC” means the National Association of Insurance
Commissioners.

(7) “Policyholder behavior” means any action a policyholder,
contractholder, 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 article, 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.

(8) “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 Section 10489.97,
as specified in the valuation manual.

(9) “Qualified actuary” means an individual who is qualified to
sign the applicable statement of actuarial opinion in accordance
with the American Academy of Actuaries qualification standards
for actuaries signing those statements and who meets the
requirements specified in the valuation manual.

(10) “Tail risk” means a risk that occurs either when the
frequency of low probability events is higher than expected under
a normal probability distribution or when there are observed events
of very significant size or magnitude.

(11) “Valuation manual” means the manual of valuation
instructions adopted by the NAIC as specified in this article or as
subsequently amended.

(c) This article and Sections 10480, 10481, 10483, 10484, and
10486 shall apply (1) to the valuation of policies and contracts
subject to this article issued on or after the operative date of the
valuation manual and (2) as provided in Section 10489.3 as to the
valuation of benefits purchased under group annuity and pure
endowment contacts issued prior to that operative date.

SEC. 5.  

Section 10489.12 is added to the Insurance Code, to
read:

10489.12.  

(a) For policies and contracts issued prior to the
operative date of the valuation manual, both of the following shall
be satisfied:

(1) The commissioner 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 issued prior to the operative date of the valuation manual. In
calculating reserves, the commissioner may use group methods
and approximate averages for fractions of a year or otherwise. In
lieu of the valuation of the reserves required of a foreign or alien
company, the 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 article.

(2) Sections 10489.2, 10489.3, 10489.4, 10489.5, 10489.6,
10489.7, 10489.8, 10489.9, 10489.93 and 10489.95 shall apply to
all appropriate policies and contracts subject to this article and
issued prior to the operative date of the valuation manual. Sections
10489.96 and 10489.97 shall not apply to any of those policies
and contracts.

(b) For policies and contracts issued on or after the operative
date of the valuation manual, both of the following shall be
satisfied:

(1) The commissioner shall annually value, or cause to be
valued, the reserves for all outstanding life insurance contracts,
annuity and pure endowment contracts, accident and health
contracts, and deposit-type contracts of every company 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 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 article.

(2) Sections 10489.96 and 10489.97 shall apply to all policies
and contracts issued on or after the operative date of the valuation
manual.

SEC. 6.  

Section 10489.15 of the Insurance Code is amended
to read:

10489.15.  

(a)  begin delete Every life and disability insurer end delete begin insert (1) end insert begin insert   end insert begin insert For an
actuarial opinion prior to the operative date of the valuation
manual, every life insurance company end insert doing business in this state
shall annually submit 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 the commissioner by
regulation are computed appropriately, are based on assumptions
that satisfy contractual provisions, are consistent with prior reported
begin delete amounts, end delete begin insert amounts end insert and comply with applicable laws of this state.
The begin delete commissioner, by regulation, end delete begin insert commissioner end insert shall define begin insert by
regulation end insert the specifics of this opinion and add any other items
deemed to be necessary to its scope.

begin delete

(b) (1)  Every

end delete

begin insert (2) end insert begin insert   end insert begin insert (A) end insert begin insert   end insert begin insert For an actuarial analysis of reserves and assets
supporting reserves, every end insert life begin delete and disability insurer, end delete begin insert insurance
company, end insert except as exempted by begin delete or pursuant to end delete regulation, shall
also annually include in the opinion required by begin delete subdivision (a), end delete
begin insert paragraph (1), end insert an opinion of the same qualified actuary as to
whether the reserves and related actuarial items held in support of
the policies and contracts specified by the commissioner by
regulation, when considered in light of the assets held by the begin delete insurer end delete
begin insert company end insert 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 begin delete insurer’s end delete
begin insert company’s end insert obligations under the policies and contracts, including,
but not limited to, the benefits under and expenses associated with
the policies and contracts.

begin delete

(2)

end delete

begin insert (B) end insert  The commissioner may provide by regulation for a transition
period for establishing any higher reserves that the qualified actuary
may deem necessary in order to render the opinion required by
this section.

begin delete

(c) The opinion required by either subdivision (a) or subdivision
(b) shall be governed by all of the following provisions:

end delete begin insert

(3) An opinion required by paragraph (2) shall be governed by
the following:

end insert begin insert

(A) A memorandum, in form and substance acceptable to the
commissioner as specified by regulation, shall be prepared to
support each actuarial opinion.

end insert begin insert

(B) If the insurance company fails to provide a supporting
memorandum at the request of the commissioner within a period
specified by regulation, or the commissioner determines that the
supporting memorandum provided by the insurance company fails
to meet the standards prescribed by the regulations or is otherwise
unacceptable to the commissioner, the commissioner may engage
a qualified actuary at the expense of the company to review the
opinion and the basis for the opinion and prepare the supporting
memorandum required by the commissioner.

end insert begin insert

(4) Every opinion required by this subdivision shall be governed
by the following provisions:

end insert begin delete

(1)

end delete

begin insert (A) end insert  The opinion shall be submitted with the annual statement
reflecting the valuation of the reserve liabilities for each year
ending on or after December 31, 1992.

begin delete

(2)

end delete

begin insert (B) end insert  The opinion shall apply to all business in force, including
individual and group begin delete life and disability insurance, end delete begin insert health insurance
plans, end insert in form and substance acceptable to the commissioner as
specified by regulation.

begin delete

(3)

end delete

begin insert (C) end insert  The opinion shall be based on standards adopted from time
to time by the Actuarial Standards Board and on any additional
standards begin delete that end delete begin insert as end insert the commissioner may by regulation prescribe.

begin delete

(4)

end delete

begin insert (D) end insert  In the case of an opinion required to be submitted by a
foreign or alien begin delete insurer, end delete begin insert company, end insert the commissioner may accept
the opinion filed by that begin delete insurer end delete begin insert company end insert with the insurance
supervisory official of another state if the commissioner determines
that the opinion reasonably meets the requirements applicable to
begin delete an insurer end delete begin insert a company end insert domiciled in this state.

begin delete

(5)

end delete

begin insert (E) end insert  For the purposes of this section, “qualified actuary” means
a member in good standing of the American Academy of Actuaries
who meets the requirements set forth in begin delete regulations of the
commissioner. end delete begin insert the regulation. end insert

begin delete

(6)

end delete

begin insert (F) end insert  The qualified actuary shall be liable for his or her negligence
or other tortious conduct.

begin delete

(7)

end delete

begin insert (G) end insert  Disciplinary action by the commissioner against the begin delete insurer end delete
begin insert company end insert or the qualified actuary begin delete shall end delete begin insert may end insert be defined in
regulations by the commissioner.

begin insert

(H) Except as provided in subparagraphs (L), (M), and (N),
documents, materials, or other information in the possession or
control of the Department of Insurance that are a memorandum
in support of the opinion, and any other material provided by the
company to the commissioner in connection with the memorandum,
shall be confidential by law and privileged, shall not be subject
to the California Public Records Act, shall not be subject to
subpoena, and shall not be subject to discovery or admissible in
evidence in any private civil action. However, the commissioner
may use the documents, materials, or other information in the
furtherance of any regulatory or legal action brought as a part of
the commissioner’s official duties.

end insert begin insert

(I) Neither the commissioner nor any person who received
documents, materials, or other information while acting under the
authority of the commissioner shall be permitted or required to
testify in any private civil action concerning any confidential
documents, materials, or information subject to subparagraph
(H).

end insert begin insert

(J) In order to assist in the performance of the commissioner’s
duties, the commissioner may do any of the following:

end insert begin insert

(i) Share documents, materials, or other information, including
the confidential and privileged documents, materials, or
information subject to subparagraph (H), with other state, federal,
and international regulatory agencies, with the National
Association of Insurance Commissioners and its affiliates and
subsidiaries, and with state, federal, and international law
enforcement authorities, provided that the recipient agrees to
maintain the confidentiality and privileged status of the document,
material, or other information.

end insert begin insert

(ii) Receive documents, materials, or information, including
otherwise confidential and privileged documents, materials, or
information, from the National Association of Insurance
Commissioners and its affiliates and subsidiaries, and from
regulatory and law enforcement officials of other foreign or
domestic jurisdictions, and shall maintain as confidential or
privileged any document, material, or information received with
notice or the understanding that it is confidential or privileged
under the laws of the jurisdiction that is the source of the document,
material, or information.

end insert begin insert

(iii) Enter into agreements governing sharing and use of
information consistent with subparagraphs (H) to (J), inclusive.

end insert begin insert

(K) No waiver of any applicable privilege or claim of
confidentiality in the documents, materials, or information shall
occur as a result of disclosure to the commissioner under this
section or as a result of sharing as authorized in subparagraph
(J).

end insert begin insert

(L) A memorandum in support of the opinion, and any other
material provided by the company to the commissioner in
connection with the memorandum, may be subject to subpoena for
the purpose of defending an action seeking damages from the
actuary submitting the memorandum by reason of an action
required by this section or by regulations promulgated pursuant
to this section.

end insert begin delete

(8) (A) Any memorandum or other material submitted by the
insurer to the commissioner in support of the opinion shall be kept
confidential by the commissioner and shall not be made public,
provided, however, that the

end delete

begin insert (M) end insert begin insert   end insert begin insert The end insert memorandum or the other material may begin insert otherwise end insert be
released by the commissioner begin delete (i) to any party, end delete with the written
consent of the begin delete insurer, end delete begin insert company end insert or begin delete (ii) end delete to the American Academy
of Actuaries upon begin delete the academy’s written end delete request begin delete and statement end delete
begin insert stating end insert that the memorandum or begin delete the end delete begin insert other end insert material is required for
begin insert the purpose of end insert professional disciplinary proceedings and begin delete that the
academy will observe end delete begin insert setting forth end insert procedures satisfactory to the
commissioner begin delete to preserve end delete begin insert for preserving end insert the confidentiality of the
memorandum or the other material. begin delete The entirety of the end delete

begin insert (N) end insert begin insert   end insert begin insert Once any portion of the end insert confidential memorandum begin delete shall
lose its confidential status on the occurrence of any of the following
events: the citation of any part of the confidential memorandum end delete
begin insert is cited end insert by the begin delete insurer end delete begin insert company end insert in its marketing begin delete efforts, the citation
of any part of the confidential memorandum by the insurer end delete begin insert efforts
or is cited end insert before begin delete any end delete begin insert a end insert governmental agency other than a state
insurance begin delete department, or the release of any part of the confidential
memorandum by the insurer to any news medium. end delete begin insert department or
is released by the company to the news media, all portions of the
confidential memorandum shall no longer be confidential. end insert

begin delete

(B) Notwithstanding subparagraph (A), the confidential
memorandum shall be subject to subpoena (i) on the
commissioner’s consent, or (ii) after notice to the commissioner
and all other interested parties and a hearing in which the superior
court determines that (I) the need for the subpoena outweighs the
interests of the insurer or actuary in preventing release of the
confidential memorandum and the other material, and (II) the
public interest and any ongoing investigation or proceeding
conducted by the commissioner will not be unnecessarily
jeopardized by compliance with the subpoena.

end delete begin insert

(b) (1) For an actuarial opinion of reserves after the operative
date of the valuation manual, every company with outstanding life
insurance contracts, accident and health insurance contracts, or
deposit-type contracts in this state and subject to regulation by
the commissioner shall annually submit the opinion of the
appointed actuary as to whether the reserves and related actuarial
items held in support of the policies and contracts are computed
appropriately, are based on assumptions that satisfy contractual
provisions, are consistent with prior reported amounts, and comply
with applicable laws of this state. The valuation manual shall
prescribe the specifics of this opinion including any items deemed
to be necessary to its scope.

end insert begin insert

(2) For an actuarial analysis of reserves and assets supporting
reserves, every company with outstanding life insurance contracts,
accident and health insurance contracts or deposit-type contracts
in this state and subject to regulation by the commissioner, except
as exempted in the valuation manual, shall also annually include
in the opinion required by paragraph (1) an opinion of the same
appointed actuary as to whether the reserves and related actuarial
items held in support of the policies and contracts specified in the
valuation manual, 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, adequately provide 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.

end insert begin delete

(d) The

end delete

begin insert (3) end insert begin insert   end insert begin insert Every end insert opinion required by begin delete subdivision (b) end delete begin insert this subdivision end insert
shall be governed by begin delete all end delete begin insert both end insert of the following provisions:

begin delete

(1)

end delete

begin insert (A) end insert  A memorandum, in form and substance begin insert as specified in the
valuation manual, and end insert acceptable to the begin delete commissioner as specified
by regulation, end delete begin insert commissioner, end insert shall be prepared to support each
actuarial opinion.

begin delete

(2)

end delete

begin insert (B) end insert  If the begin delete insurer end delete begin insert insurance company end insert fails to provide a
supporting memorandum at the request of the commissioner within
a period specified begin delete by regulation end delete begin insert in the valuation manual, end insert or the
commissioner determines that the supporting memorandum
provided by the begin delete insurer end delete begin insert insurance company end insert fails to meet the
standards prescribed by the begin delete regulations end delete begin insert valuation manual end insert or is
otherwise unacceptable to the commissioner, the commissioner
may engage a qualified actuary at the expense of the begin delete insurer end delete
begin insert company end insert to review the opinion and the basis for the opinion and
prepare begin insert the end insert supporting memorandum begin delete as is end delete required by the
commissioner.

begin insert

(4) Every opinion subject to this subdivision shall be governed
by the following provisions:

end insert begin insert

(A) The opinion shall be in form and substance as specified in
the valuation manual and acceptable to the commissioner.

end insert begin insert

(B) The opinion shall be submitted with the annual statement
reflecting the valuation of the reserve liabilities for each year
ending on or after the operative date of the valuation manual.

end insert begin insert

(C) The opinion shall apply to all policies and contracts subject
to paragraph (2), plus other actuarial liabilities as may be specified
in the valuation manual.

end insert begin insert

(D) The opinion shall be based on standards adopted from time
to time by the Actuarial Standards Board or its successor, and on
such additional standards as may be prescribed in the valuation
manual.

end insert begin insert

(E) If an opinion is 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 reasonably
meets the requirements applicable to a company domiciled in this
state.

end insert begin insert

(F) The qualified actuary shall be liable for his or her
negligence or other tortious conduct.

end insert begin insert

(G) Disciplinary action by the commissioner against the
company or the appointed actuary may be defined in regulations
by the commissioner.

end insert

SEC. 7.  

Section 10489.2 of the Insurance Code is amended to
read:

10489.2.  

begin insert For a computation of minimum standard, except as
provided in Sections 10489.3, 10489.4, and 10489.95, the minimum
standard for the valuation of policies and contracts issued prior
to the effective date of the amendments to this section shall be that
provided by the laws in effect immediately prior to that date. end insert Except
as otherwise provided in Sections 10489.3, 10489.4, and 10489.95,
the minimum standard for the valuation of begin delete all such end delete begin insert those end insert policies
and contracts shall be the commissioners reserve valuation methods
defined in Sections 10489.5, 10489.6, 10489.9, and 10489.95, 31⁄2
percent per annum interest, begin delete except that the interest specified in
subdivisions (c) and (d) may be used for certain annuity and pure
endowment contracts, end delete begin insert or in the case of life insurance policies and
contracts, other than certain annuity and pure endowment
contracts, issued on or after January 1, 1970, end insert 4 percent per annum
interest begin delete for such policies issued or contracts entered into on or after
January 1, 1970, but prior to January 1, 1980, 5 end delete begin delete 1⁄2 end delete begin delete percent per
annum interest end delete begin insert for policies issued prior to January 1, 1980, 5 end insert begin insert 1⁄2 end insert
begin insert percent per annum interest end insert may be used for single premium life
insurance policies and 41⁄2 percent per annum interest for all other
begin delete such end delete policies issued on or after January 1, 1980, and the following
tables:

(a) For begin delete all end delete ordinary policies of life insurance issued on the
standard basis, excluding any disability and accidental death
benefits in begin delete such end delete begin insert those end insert policies--the Commissioners 1941 Standard
Ordinary Mortality Table for begin delete such end delete policies issued prior to the
operative date of subdivision (a) of Section 10163.1, and the
Commissioners 1958 Standard Ordinary Mortality Table for begin delete such end delete
policies issued on or after begin delete such end delete begin insert the end insert operative date begin insert of subdivision
(a) of Section 10163.1, as amended by Chapter 940 of the Statutes
of 1982, end insert and prior to the operative date of Section 10163.2, begin insert as
amended by Chapter 28 of the Statutes of 1997, end insert provided that for
any category of begin delete such end delete policies issued on female risks, all modified
net premiums and present values referred to in begin delete Sections 10489.5,
and 10489.9 end delete begin insert this article end insert may be begin delete calculated, at the option of the
insurer, end delete begin insert calculated end insert according to an age not more than six years
younger than the actual age of the begin delete insured; and for such end delete begin insert insured.
For end insert policies issued on or after the operative date of Section
10163.2, as amended begin delete (i) the end delete begin insert by Chapter 28 of the Statutes of 1997,
the following shall apply: end insert

begin insert (1) end insert begin insert   end insert begin insert The end insert Commissioners 1980 Standard Ordinary Mortality begin delete Table,
or (ii) at end delete begin insert Table. end insert

begin insert (2) end insert begin insert   end insert begin insert At end insert 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 begin delete Factors, or (iii)
any end delete begin insert Factors. end insert

begin insert (3) end insert begin insert   end insert begin insert Any end insert ordinary mortality table, adopted after 1980 by the
National Association of Insurance Commissioners, or its successor,
that is approved by regulation promulgated or bulletin issued by
the commissioner for use in determining the minimum standard
of valuation for such policies.

(b) For begin delete all end delete industrial life insurance policies issued on the
standard basis, excluding any disability and accidental death
benefits in begin delete such end delete begin insert the end insert policies, the 1941 Standard Industrial Mortality
Table for begin delete such end delete policies issued prior to the operative date of
subdivision (b) of Section 10163.1, begin insert of the Standard Nonforfeiture
Law for Life Insurance as amended, end insert and for begin delete such end delete policies issued
on or after begin delete such end delete begin insert the end insert operative date the Commissioners 1961
Standard Industrial Mortality Table or any industrial mortality
begin delete table, end delete begin insert table end insert adopted after 1980 by the begin delete National Association of
Insurance Commissioners, or its successor end delete begin insert NAIC end insert that is approved
by regulation promulgated or bulletin issued by the commissioner
for use in determining the minimum standard of valuation for begin delete such end delete
begin insert the end insert policies.

(c) For individual annuity and pure endowment contracts issued
prior to the compliance date of Section 10489.3, excluding any
disability and accidental death benefits in begin delete such policies--the end delete begin insert the
policies: end insert 1937 Standard Annuity Mortality Table or, at the option
of the company, the Annuity Mortality Table for 1949, begin delete ultimate, end delete
begin insert Ultimate, end insert or any modification of these tables approved by the
commissioner. However, the minimum standard for such contracts
issued from January 1, 1968, through December 31, 1968, with
commencement of benefits deferred not more than one year from
date of issue, may be, at the option of the company, 4 percent per
annum interest, and for contracts issued from January 1, 1969, to
the compliance date of Section 10489.3, with commencement of
benefits deferred not more than 10 years from date of issue and
with premiums payable in one sum may be, at the option of the
company, 5 percent per annum interest.

(d) For group annuity and pure endowment contracts, excluding
any disability and accidental death benefits in begin delete such policies--the end delete
begin insert the policies: the end insert Group Annuity Mortality Table for 1951, begin delete any end delete begin insert a end insert
modification of begin delete such end delete begin insert the end insert table approved by the commissioner, or,
at the option of the company, any of the tables or modifications
of the tables specified for individual annuity and pure endowment
contracts. However, the minimum standard for annuities and pure
endowments purchased or to be purchased prior to the compliance
date of Section 10489.3, under group annuity and pure endowment
contracts with considerations received on or after January 1, 1968,
through December 31, 1968, may be, at the option of the company,
4 percent per annum interest, and for annuities and pure
endowments purchased or to be purchased prior to the compliance
date of Section 10489.3, under group annuity and pure endowment
contracts with considerations received from January 1, 1969, to
the compliance date of Section 10489.3, may be at the option of
the company, 5 percent per annum interest.

(e) For total and permanent disability benefits in or
supplementary to ordinary policies or begin delete contracts--for end delete begin insert contracts:
for end insert 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 begin delete National Association of Insurance Commissioners, or its successor, end delete
begin insert NAIC end insert that are approved by regulation promulgated or bulletin
issued by the commissioner for use in determining the minimum
standard of valuation for begin delete such end delete begin insert those end insert policies; for policies or
contracts issued on or after January 1, 1961, and prior to January
1, 1966, either begin delete such end delete begin insert those end insert 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 begin delete shall end delete begin insert shall, end insert 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
begin delete for policies end delete issued on or after January 1, begin delete 1966, end delete begin insert 1966: end insert the 1959
Accidental Death Benefits Table or any accidental death benefits
table, adopted after 1980 by the begin delete National Association of Insurance
Commissioners, or its successor, end delete begin insert NAIC end insert that is approved by
regulation promulgated or bulletin issued by the commissioner for
use in determining the minimum standard of valuation for begin delete such
policies; end delete begin insert those policies, end insert for policies issued on or after January 1,
1961, and prior to January 1, 1966, either begin delete such end delete begin insert that end insert 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 begin delete permitted end delete for calculating
the reserves for life insurance policies.

(g) For group life insurance, life insurance issued on the
substandard basis and other special begin delete benefits, such end delete begin insert benefits: end insert tables
begin delete as may be end delete approved by the commissioner.

(h)  begin delete With the adoption of tables by the National Association of
Insurance Commissioners after 1980, the end delete begin insert The end insert commissioner begin delete may,
by regulation or bulletin, end delete begin insert may by bulletin end insert withdraw approval begin delete of
the use of previously adopted end delete begin insert to end insert tables replaced by begin delete the end delete newly
adopted tables.

SEC. 8.  

Section 10489.3 of the Insurance Code is amended to
read:

10489.3.  

begin insert (a) end insert begin insert   end insert Except as provided in Section 10489.4, the
minimum standard begin delete for the end delete begin insert of end insert valuation begin delete of all end delete begin insert for end insert individual annuity
and pure endowment contracts issued on or after the begin delete compliance end delete
begin insert operative end insert date of begin delete Section 10489.3, end delete begin insert the amendments made to this
section by the act that added subdivision (b) end insert and for begin delete all end delete annuities
and pure endowments purchased on or after begin delete the compliance end delete begin insert that
operative end insert date begin delete of Section 10489.3, end delete under group annuity and pure
endowment contracts, shall be the commissioners reserve valuation
methods defined in Sections 10489.5 and begin delete 10489.6, end delete begin insert 10489.6 end insert and
the following tables and interest rates:

begin delete

(a)

end delete

begin insert (1) end insert  For individual annuity and pure endowment contracts issued
prior to January 1, 1980, excluding any disability and accidental
death benefits in begin delete such end delete begin insert those end insert contracts, the Individual Annuity
Mortality Table for 1971, or any modification of begin delete such end delete begin insert this end insert table
approved by the commissioner, begin delete and an interest rate of: end delete

begin delete

(1) Six percent per annum for all such contracts with
commencement of benefits deferred not more than 10 years from
date of issue and with premiums payable in one sum.

end delete

begin delete (2) end delete begin delete   end delete begin delete Four end delete begin insert 6 percent per annum interest rate for all contracts with
commencement of benefits deferred not more than 10 years from
the date of issue and with premiums payable in one sum and 4 end insert
percent per annum begin insert interest end insert for all other begin delete such end delete begin insert individual annuity
and pure endowment end insert contracts.

begin delete

(b)

end delete

begin insert (2) end insert  For individual single premium immediate annuity contracts
issued on or after January 1, 1980, excluding any disability and
accidental death benefits in begin delete such contracts, end delete begin insert those contracts: end insert the
begin insert 1971 end insert Individual Annuity Mortality Table begin delete for 1971 end delete or any individual
annuity mortality begin delete table, end delete begin insert table end insert adopted after 1980 by the begin delete National
Association of Insurance Commissioners, or its successor, end delete begin insert NAIC end insert
that is approved by regulation promulgated or bulletin issued by
the commissioner for use in determining the minimum standard
of valuation for begin delete such end delete begin insert these end insert contracts, or any modification of these
tables approved by the commissioner, and 71⁄2 percent per annum
interest.

begin delete

(c)

end delete

begin insert (3) end insert  For individual annuity and pure endowment contracts issued
on or after January 1, 1980, other than single premium immediate
annuity contracts, excluding any disability and accidental death
benefits in begin delete such end delete begin insert those end insert contracts, the begin delete individual end delete begin insert 1971 Individual end insert
Annuity Mortality Table begin delete for 1971 end delete or any individual annuity
mortality table, adopted after 1980 by the begin delete National Association of
Insurance Commissioners, or its successor, end delete begin insert NAIC end insert that is approved
by regulation promulgated or bulletin issued by the commissioner
for use in determining the minimum standard of valuation for begin delete such end delete
begin insert those end insert contracts, or any modification of these tables approved by
the commissioner, and 51⁄2 percent per annum interest for single
premium deferred annuity and pure endowment contracts and 41⁄2
percent per annum interest for all other begin delete such end delete individual annuity
and pure endowment contracts.

begin delete

(d) For all

end delete

begin insert (4) end insert begin insert   end insert begin insert For end insert annuities and pure endowments purchased prior to
January 1, 1980, under group annuity and pure endowment
contracts, excluding any disability and accidental death benefits
purchased under begin delete such contracts, end delete begin insert those contracts: end insert the begin insert 1971 end insert Group
Annuity Mortality begin delete Table for 1971, end delete begin insert Table end insert or any modification of
this table approved by the commissioner, and 6 percent per annum
interest.

begin delete

(e) For all

end delete

begin insert (5) end insert begin insert   end insert begin insert For end insert annuities and pure endowments purchased on or after
January 1, 1980, under group annuity and pure endowment
contracts, excluding any disability and accidental death benefits
purchased under begin delete such contracts, end delete begin insert those contracts: end insert the begin insert 1971 end insert Group
Annuity Mortality begin delete Table for 1971 end delete begin insert Table, end insert or any group annuity
mortality begin delete table, end delete begin insert table end insert adopted after 1980 by the begin delete National
Association of Insurance Commissioners, or its successor, end delete begin insert NAIC end insert
that is approved by regulation promulgated or bulletin issued by
the commissioner for use in determining the minimum standard
of valuation for begin delete such end delete annuities and pure endowments, or any
modification of these tables approved by the commissioner, and
71⁄2 percent begin delete per annum end delete interest.

begin delete

All

end delete

begin insert (6) end insert begin insert   end insert begin insert All end insert individual annuity and pure endowment contracts entered
into prior to January 1, 1980, and all annuities and pure
endowments purchased prior to January 1, 1980, under group
annuity and pure endowment contracts shall remain subject to the
provisions of Article 3A (commencing with Section 10489.1) as
it existed prior to January 1, 1980.

begin delete

(f) With the adoption of tables by the National Association of
Insurance Commissioners after 1980, the

end delete

begin insert (b) end insert begin insert   end insert begin insert The end insert commissioner begin delete may, by regulation or bulletin, end delete begin insert may, by
bulletin, end insert withdraw approval begin delete of the end delete begin insert to end insert use begin delete of previously adopted end delete
tables replaced by begin delete the end delete newly adopted tables.

SEC. 9.  

Section 10489.4 is added to the Insurance Code, to
read:

10489.4.  

(a) For the computation of minimum standard by
calendar year of issue, the interest rates used in determining the
minimum standard for the valuation of the following shall be the
calendar year statutory valuation interest rates as defined in this
section:

(1) Life insurance policies issued in a particular calendar year,
on or after the operative date of Section 10163.2 as amended by
Section 28 of the Statutes of 1997.

(2) Individual annuity and pure endowment contracts issued in
a particular calendar year on or after January 1, 1982.

(3) Annuities and pure endowments purchased in a particular
calendar year on or after January 1, 1982, under group annuity and
pure endowment contracts.

(4) The net increase, if any, in a particular calendar year after
January 1, 1982, in amounts held under guaranteed interest
contracts.

(b) (1) For the calendar year statutory valuation interest rates,
expressed in the following formulas as “I,” shall be determined as
follows and the results rounded to the nearest one-fourth of 1
percent:

(A) For life insurance:

 

I = .03 + W (R1- .03) + W⁄2 (R2- .09)

Where

R1is the lesser of R and .09,

R2 is the greater of R and .09,

R is the reference interest rate defined in this section,

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 is the reference interest rate defined in this section,

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), the
formula for life insurance stated in subparagraph (A) 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 subparagraph (B) 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
subparagraph (B) 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 subparagraph (B) shall apply.

(2) However, if the calendar year statutory valuation interest
rate for a life insurance policy 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 1
percent, the calendar year statutory valuation interest rate for the
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 in 1979) and shall be determined for each
subsequent calendar year regardless of when Section 10163.2, as
amended by Chapter 28 of the Statutes of 1997, becomes operative.

(c) The weighting factors referred to in the formulas stated above
are given in the following tables:

(1) Weighting Factors for Life Insurance:

 

Guarantee Duration (Years)	Weighting 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.

(2) Weighting factors 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 shall be .80.

(3) Weighting factors for other annuities and for guaranteed
interest contracts, except as stated in paragraph (2), shall be as
specified in subparagraphs (A), (B), and (C), according to the rules
and definitions in subparagraphs (D), (E), and (F):

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

 

Guarantee Duration (Years)	Weighting Factor for Plan Type
	A	B	C
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

 

(B) For annuities and guaranteed interest contracts valued on a
change in fund basis, the factors shown in subparagraph (A)
increased by:

 

Plan Type
A	B	C
.15	.25	.05

 

(C) For annuities and guaranteed interest contracts valued on
an issue year basis, other than those with no cash settlement
options, that do not guarantee interest on considerations received
more than one year after issue or purchase and for annuities and
guaranteed interest contracts valued on a change in fund basis that
do not guarantee interest rates on considerations received more
than 12 months beyond the valuation date, the factors shown in
subparagraph (A) or derived in subparagraph (B) increased by
____.

(D) 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 guaranteed duration is the number of
years from the date of issue or date of purchase to the date annuity
benefits are scheduled to commence.

(E) Plan type as used in the above tables is defined as follows:

(i) For Plan Type A: At any time a policyholder may withdraw
funds only (I) with an adjustment to reflect changes in interest
rates or asset values since receipt of the funds by the insurance
company, (II) without an adjustment but installments over five
years or more, (III) as an immediate life annuity, or (IV) no
withdrawal permitted.

(ii) For Plan Type B: Before expiration of the interest rate
guarantee, a policyholder may withdraw funds only (I) with an
adjustment to reflect changes in interest rates or asset values since
receipt of the funds by the insurance company, (II) without an
adjustment but in installments over five years or more, or (III) no
withdrawal permitted. At the end of the interest rate guarantee,
funds may be withdrawn without an adjustment in a single sum or
installments over less than five years.

(iii) For 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 (I) without adjustment to reflect
changes in interest rates or asset values since receipt of the funds
by the insurance company, or (II) subject only to a fixed surrender
charge stipulated in the contract as a percentage of the fund.

(F) 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.

(d) The reference interest rate referred to in subdivision (b) shall
be defined as follows:

(1) For 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 preceding the year of issue, of the
monthly average of the composite yield on seasoned corporate
bonds, as published by Moody’s Investors Service, Inc.

(2) 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 the monthly average of the composite yield on seasoned
corporate bonds, as published by Moody’s Investors Service, Inc.

(3) 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 subdivision (b), 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 the monthly average of the composite yield on
seasoned corporate bonds, as published by Moody’s Investors
Service, Inc.

(4) 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 subparagraph (B) of
paragraph (1) of subdivision (c), 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 the monthly
average of the composite yield on seasoned corporate bonds, as
published by Moody’s Investors Service, Inc.

(5) 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 the monthly average of the
composite yield on seasoned corporate bonds, as published by
Moody’s Investors Service, Inc.

(6) 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
paragraph (1) of subdivision (c), the average over a period of 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.

(e) As an alternative method for determining reference interest
rates, in the event that the monthly average of the composite yield
on seasoned corporate bonds is no longer published by Moody’s
Investors Service, Inc., or in the event that the NAIC determines
that the monthly average of the composite yield on seasoned
corporate bonds 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 adopted by the NAIC and approved by
regulation promulgated by the commissioner may be substituted.

(f) This section shall apply to all certificates and contracts issued
by a fraternal benefit society.

SEC. 10.  

Section 10489.5 of the Insurance Code is amended
to read:

10489.5.  

begin insert (a) end insert begin insert   end insert Except as otherwise provided in Sections 10489.6,
10489.9, and begin delete 10489. 95, end delete begin insert 10489.95, end insert 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 begin delete such end delete begin insert the end insert future guaranteed benefits provided for by begin delete such end delete begin insert those end insert
policies, over the then present value of any future modified net
premiums therefor. The modified net premiums for begin delete any such end delete begin insert a end insert
policy shall be begin delete such end delete begin insert the end insert uniform percentage of the respective
contract premiums for begin delete such end delete begin insert the end insert benefits begin insert such end insert that the present value,
at the date of issue of the policy, of all begin delete such end delete modified net premiums
shall be equal to the sum of the then present value of begin delete such end delete begin insert the end insert
benefits provided for by the policy and the excess of begin delete (a) of (b), end delete
begin insert paragraph (1) over paragraph (2), end insert as follows:

begin delete

(a)

end delete

begin insert (1) end insert  A net level annual premium equal to the present value, at
the date of issue begin delete of such end delete begin insert of the end insert 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 begin delete such end delete begin insert the end insert policy on which a premium
falls begin delete due; except that such end delete begin insert due. However, the net end insert level annual
premium shall not exceed the net level annual begin delete premium, end delete begin insert premium end insert
on the 19-year premium whole life plan for insurance of the same
amount at an age one year higher than the age at issue of begin delete such end delete begin insert the end insert
policy.

begin delete

(b)

end delete

begin insert (2) end insert  A net one-year term premium for begin delete such end delete begin insert the end insert benefits provided
for in the first policy year.

begin delete

Provided that for any life

end delete

begin insert (b) end insert begin insert   end insert begin insert For a life end insert 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 begin delete such end delete begin insert the end insert excess
and which provides an endowment benefit or a cash surrender
value or a combination begin delete thereof end delete in an amount greater than begin delete such end delete begin insert the end insert
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 begin delete such end delete
begin insert the end insert excess premium shall, except as otherwise provided in Section
10489.9, be the greater of the reserve as of begin delete such end delete begin insert the end insert policy
anniversary calculated as described in begin delete the first paragraph of this
section end delete begin insert subdivision (a) end insert and the reserve as of begin delete such end delete begin insert the end insert policy
anniversary calculated as described in begin delete the first paragraph of this
section, end delete begin insert subdivision (a), end insert but with begin delete (i) end delete begin insert (1) end insert the value defined in
begin delete subparagraph (a) of that paragraph end delete begin insert paragraph (1) of subdivision
(a) end insert being reduced by 15 percent of the amount of begin delete such end delete begin insert the end insert excess
first year premium, begin delete (ii) end delete begin insert (2) end insert 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,
begin delete (iii) end delete begin insert (3) end insert the policy being assumed to mature on begin delete such end delete begin insert that end insert date as
an endowment, and begin delete (iv) end delete begin insert (4) end insert the cash surrender value provided on
begin delete such end delete begin insert that end insert date being considered as an endowment benefit. In
making the above comparison the mortality and interest bases
stated in Sections 10489.2 and 10489.4 shall be used.

begin delete

Reserves

end delete

begin insert (c) end insert begin insert   end insert begin insert Reserves end insert according to the commissioners reserve valuation
method begin delete for (1) life end delete begin insert shall be calculated by a method consistent with
subdivisions (a) and (b) for the following: end insert

begin insert (1) end insert begin insert   end insert begin insert Life end insert insurance policies providing for a varying amount of
insurance or requiring the payment of varying begin delete premiums, (2) group end delete
begin insert premiums. end insert

begin insert (2) end insert begin insert   end insert begin insert Group end insert 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 begin delete now or hereafter amended; (3) disability end delete
begin insert amended. end insert

begin insert (3) end insert begin insert   end insert begin insert Disability end insert and accidental death benefits in all policies and
begin delete contracts; and (4) all end delete begin insert contracts. end insert

begin insert (4) end insert begin insert   end insert begin insert All end insert other benefits, except life insurance and endowment
benefits in life insurance policies and benefits provided by all other
annuity and pure endowment contracts, begin delete shall be calculated by a
method consistent with the principles of the preceding paragraphs
of this section, end delete except that any extra premiums charged because
of impairments or special hazards shall be disregarded in the
determination of modified net premiums.

SEC. 11.  

Section 10489.6 of the Insurance Code is amended
to read:

10489.6.  

begin insert (a) end insert begin insert   end insert 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.

begin delete

Reserves

end delete

begin insert (b) end insert begin insert   end insert begin insert Reserves end insert according to the commissioners annuity reserve
method for benefits under annuity or pure endowment contracts,
excluding any disability and accidental death benefits in begin delete such end delete begin insert the end insert
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 begin delete such end delete begin insert the end insert 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 begin delete such end delete begin insert the end insert contract, that become payable
prior to the end of begin delete such end delete begin insert the end insert 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 begin delete such end delete begin insert the end insert
contracts for determining guaranteed benefits. The valuation
considerations are the portions of the respective gross
considerations applied under the terms of begin delete such end delete begin insert the end insert contracts to
determine nonforfeiture values.

SEC. 12.  

Section 10489.7 of the Insurance Code is amended
to read:

10489.7.  

(a)  begin delete In no event shall an insurer’s end delete begin insert A company’s end insert
aggregate reserves for all life insurance policies, excluding
disability and accidental death benefits, begin insert shall not end insert be less than the
aggregate reserves calculated in accordance with the methods set
forth in Sections 10489.5, 10489.6, 10489.9, and 10489.93 and
the mortality table or tables and rate or rates of interest used in
calculating nonforfeiture benefits for begin delete such end delete begin insert the end insert policies.

(b)  begin delete In no event shall the end delete begin insert The end insert aggregate reserves for all policies,
contracts, and benefits begin insert shall not end insert be less than the aggregate reserves
determined by the begin delete qualified end delete begin insert appointed end insert actuary to be necessary to
render the opinion required by Section 10489.15.

SEC. 13.  

Section 10489.8 of the Insurance Code is amended
to read:

10489.8.  

begin insert (a) end insert begin insert   end insert Reserves for any category of policies, begin delete contracts end delete
begin insert contracts, end insert or benefits begin delete as end delete established by the commissioner may be
calculated, at the option of the begin delete insurer, end delete begin insert company, end insert according to any
standards begin delete which end delete begin insert that end insert produce greater aggregate reserves for begin delete such end delete
begin insert the end insert category than those calculated according to the minimum
standard begin delete herein provided, end delete begin insert provided in this article, end insert but the rate or
rates of interest used for policies and contracts, other than annuity
and pure endowment contracts, shall not be begin delete higher end delete begin insert greater end insert than
the corresponding rate or rates of interest used in calculating any
nonforfeiture benefits provided begin delete for therein. end delete begin insert in the policies or
contracts. end insert

begin delete

Any such company

end delete

begin insert (b) end insert begin insert   end insert begin insert A company, end insert which begin insert adopts end insert at any time begin delete shall have adopted
any end delete begin insert a end insert standard of valuation producing greater aggregate reserves
than those calculated according to the minimum standard provided
begin delete in this article may, with the approval of the commissioner, adopt
any end delete begin insert under this article, may adopt a end insert lower standard of valuation
begin insert with the approval of the commissioner end insert , but not lower than the
minimum provided in this begin delete article. However, end delete begin insert article unless, end insert for the
purposes of this section, the holding of additional reserves
previously determined by a qualified actuary to be necessary to
render the opinion required by Section 10489.15 shall not be
deemed to be the adoption of a higher standard of valuation.

SEC. 14.  

Section 10489.9 of the Insurance Code is amended
to read:

10489.9.  

begin insert (a) end insert begin insert   end insert If in any contract year the gross premium charged
by any life insurer 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.
begin insert The minimum valuation standards of mortality and rate of interest
referred to in this section are those standards stated in Sections
10489.2, 10489.3, and 1489.4. end insert

begin delete

Provided that for any

end delete

begin insert (b) end insert begin insert   end insert begin insert For a end insert 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 section shall be applied
as if the method actually used in calculating the reserve for such
policy were the method described in Section 10489.5, ignoring
the second paragraph of Section 10489.5. The minimum reserve
at each policy anniversary of such a policy shall be the greater of
the minimum reserve calculated in accordance with Section
10489.5, including the second paragraph of that section, and the
minimum reserve calculated in accordance with this section.

SEC. 15.  

Section 10489.93 of the Insurance Code is amended
to read:

10489.93.  

In the case of begin delete any end delete begin insert a end insert plan of life insurance that
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 begin delete any end delete begin insert a end insert plan of life
insurance or annuity that is of begin delete such end delete a nature that the minimum
reserves cannot be determined by the methods described in Sections
10489.5, 10489.6, and 10489.9, the reserves begin delete which end delete begin insert that end insert are held
under begin delete any such plan must: end delete begin insert the plan shall: end insert

(a) Be appropriate in relation to the benefits and the pattern of
premiums for that plan; and

(b) Be computed by a method begin delete which end delete begin insert that end insert is consistent with the
principles of this Standard Valuation Law, as determined by
regulations promulgated by the commissioner.

SEC. 16.  

Section 10489.95 of the Insurance Code is repealed.

begin delete

10489.95.  

The commissioner shall adopt a regulation
concerning the minimum standards applicable to the valuation of
disability insurance.

end delete

SEC. 17.  

Section 10489.95 is added to the Insurance Code, to
read:

10489.95.  

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 subdivision (b) of Section 10489.12. For
disability and 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 regulation.

SEC. 18.  

Section 10489.96 is added to the Insurance Code, to
read:

10489.96.  

(a) 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
subdivision (b) of Section 10489.12, except as provided under
subdivision (e) or (g).

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

(1) The valuation manual has been adopted by the NAIC by an
affirmative vote of at least 42 members, or three-fourths of the
members voting, whichever is greater.

(2) 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
75 percent 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.

(3) 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 42 of the following 55
jurisdictions: The 50 States of the United States, American Samoa,
the American Virgin Islands, the District of Columbia, Guam, and
Puerto Rico.

(c) 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:

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

(A) At least three-fourths of the members of the NAIC voting,
but not less than a majority of the total membership.

(B) Members of the NAIC representing jurisdictions totaling
greater than 75 percent of the direct premiums written as reported
in the following annual statements most recently available prior
to the vote in subparagraph (A): life, accident, and health annual
statement, health annual statements, or fraternal annual statements.

(2) The valuation manual becomes effective pursuant to an order
adopted by the commissioner, which shall not be subject to Chapter
3.5 (commencing with Section 11340) of Part 1 of Division 3 of
Title 2 of the Government Code.

(d) The valuation manual shall specify all of the following:

(1) Minimum valuation standards for and definitions of the
policies or contracts subject to subdivision (b) of Section 10489.12.
Those minimum valuation standards shall be:

(A) The commissioners reserve valuation method for life
insurance contracts, other than annuity contracts, subject to
subdivision (b) of Section 10489.12.

(B) The commissioners annuity reserve valuation method for
annuity contracts subject to subdivision (b) of Section 10489.12.

(C) Minimum reserves for all other policies or contracts subject
to subdivision (b) of Section 10489.12.

(2) Which policies or contracts or types of policies or contracts
that are subject to the requirements of a principle-based valuation
in subdivision (a) of Section 10489.97 and the minimum valuation
standards consistent with those requirements.

(3) For policies and contracts subject to a principle-based
valuation under Section 10489.97:

(A) Requirements for the format of reports to the commissioner
under paragraph (3) of subdivision (b) of Section 10489.97, and
which shall include information necessary to determine if the
valuation is appropriate and in compliance with this article.

(B) Assumptions shall be prescribed for risks over which the
company does not have significant control or influence.

(C) Procedures for corporate governance and oversight of the
actuarial function, and a process for appropriate waiver or
modification of those procedures.

(4) For policies not subject to a principle-based valuation under
Section 10489.97, the minimum valuation standard shall be either
of the following:

(A) Be consistent with the minimum standard of valuation prior
to the operative date of the valuation manual.

(B) 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.

(5) 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.

(6) The data and form of the data required under Section
10489.98, with whom the data is required to be submitted, and
may specify other requirements including data analyses and
reporting of analyses.

(e) 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, or conflicts
with, this code, then the company shall, with respect to those
requirements, comply with the minimum valuation standards
prescribed by the code or by the commissioner by regulation or
bulletin.

(f) 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
article. The commissioner may rely upon the opinion, regarding
the provisions contained within this article, of a qualified actuary
engaged by the commissioner of another state, district, or territory
of the United States. As used in this subdivision, the term “engage”
includes employment and contracting.

(g) 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 article, and the company shall adjust the reserves
as required by the commissioner. The commissioner may take
other disciplinary action as permitted pursuant to all other
applicable law.

SEC. 19.  

Section 10489.97 is added to the Insurance Code, to
read:

10489.97.  

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

(1) Quantify the benefits, 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.

(2) 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.

(3) Incorporate assumptions that are derived in one of the
following manners:

(A) The assumption is prescribed in the valuation manual.

(B) 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.

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

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

(b) A company using a principle-based valuation for one or
more policies or contracts subject to this section as specified in
the valuation manual shall do the following:

(1) Establish procedures for corporate governance and oversight
of the actuarial valuation function consistent with those described
in the valuation manual.

(2) Provide to the commissioner and the board of directors of
the company an annual certification of the effectiveness of the
internal controls with respect to the principle-based valuation. The
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.

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

(c) A principle-based valuation may include a prescribed
formulaic reserve component.

SEC. 20.  

Section 10489.98 is added to the Insurance Code, to
read:

10489.98.  

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

SEC. 21.  

Section 10489.99 is added to the Insurance Code, to
read:

10489.99.  

(a) For purposes of this section, “confidential
information” shall mean:

(1) A memorandum in support of an opinion submitted under
Section 10489.15 and any other documents, materials, and other
information, including, but not limited to, all working papers, and
copies thereof, created, produced, or obtained by or disclosed to
the commissioner or any other person in connection with the
memorandum.

(2) All documents, materials, and other information, including,
but not limited to, all working papers, and copies thereof, created,
produced, or obtained by or disclosed to the commissioner or any
other person in the course of an examination made under
subdivision (f) of Section 10489.96. However, if an examination
report or other material prepared in connection with an examination
made under Article 4 (commencing with Section 729) of Chapter
1 of Part 2 of Division 1 is not held as private and confidential
information under that article, an examination report or other
material prepared in connection with an examination made under
subdivision (f) of Section 10489.96 shall not be “confidential
information” to the same extent as if the examination report or
other material had been prepared under Article 4.

(3) Any reports, documents, materials, and other information
developed by a company in support of, or in connection with, an
annual certification by the company under paragraph (2) of
subdivision (b) of Section 10489.97 evaluating the effectiveness
of the company’s internal controls with respect to a principle-based
valuation and any other documents, materials, and other
information, including, but not limited to, all working papers, and
copies thereof, created, produced, or obtained by or disclosed to
the commissioner or any other person in connection with those
reports, documents, materials, and other information.

(4) Any principle-based valuation report developed under
paragraph (3) of subdivision (b) of Section 10489.97 and any other
documents, materials, and other information, including, but not
limited to, all working papers, and copies thereof, created,
produced, or obtained by or disclosed to the commissioner or any
other person in connection with the report.

(5) All of the following:

(A) Any documents, materials, data, and other information
submitted by a company under Section 10489.98, to be known
collectively, as “experience data.”

(B) Experience data plus any other documents, materials, data,
and other information, including, but not limited to, all working
papers, and copies thereof, created or produced in connection with
the experience data, in each case that includes any potentially
company-identifying or personally identifiable information, that
is provided to or obtained by the commissioner, to be known,
collectively, as “experience materials.”

(C) Any other documents, materials, data, and other information,
including, but not limited to, all working papers, and copies thereof,
created, produced, or obtained by or disclosed to the commissioner
or any other person in connection with the experience materials. 

(b) (1) Except as provided in this section, a company’s
confidential information is confidential by law and privileged, it
shall not be subject to the California Public Records Act, and shall
not be subject to subpoena or discovery or admissible in evidence
in any private civil action. However, the commissioner is
authorized to use the confidential information in a regulatory or
legal action brought against the company as a part of the
commissioner’s official duties.

(2) The commissioner, and any person who received confidential
information while acting under the authority of the commissioner,
shall not be permitted or required to testify in a private civil action
concerning any confidential information.

(3) In order to assist in the performance of the commissioner’s
duties, the commissioner may share confidential information with
the following recipients, provided that the recipient agrees, and
has the legal authority to agree, to maintain the confidentiality and
privileged status of the documents, materials, data, and other
information in the same manner and to the same extent as required
for the commissioner:

(A) Other state, federal, and international regulatory agencies
and with the NAIC and its affiliates and subsidiaries.

(B) In the case of confidential information specified in
paragraphs (1) and (4) of subdivision (a) of Section 10489.99 only,
with the Actuarial Board for Counseling and Discipline or its
successor upon request stating that the confidential information is
required for the purpose of professional disciplinary proceedings
and with state, federal, and international law enforcement officials.

(4) The commissioner may receive documents, materials, data,
and other information, including otherwise confidential and
privileged documents, materials, data, or information, from the
NAIC and its affiliates and subsidiaries, from regulatory or law
enforcement officials of other foreign or domestic jurisdictions,
and from the Actuarial Board for Counseling and Discipline or its
successor and shall maintain as confidential or privileged any
document, material, data, or other information received with notice
or the understanding that it is confidential or privileged under the
laws of the jurisdiction that is the source of the document, material,
or other information.

(5) The commissioner may enter into agreements governing
sharing and use of information consistent with this subdivision.

(6) A waiver of any applicable privilege or claim of
confidentiality in the confidentiality information shall not occur
as a result of disclosure to the commissioner under this section or
as a result of sharing as authorized in paragraph (3).

(7) A privilege established under the law of any state or
jurisdiction that is substantially similar to the privilege established
under subdivision (b) shall be available and enforced in any
proceeding in, and in any court of, this state.

(8) For purposes of this section, “regulatory agency,” “law
enforcement agency,” and the “NAIC” include, but are not limited
to, their employees, agents, consultants, and contractors.

(c) Notwithstanding subdivision (b), any confidential
information specified in paragraphs (1) and (4) of subdivision (a):

(1) May be subject to subpoena for the purpose of defending
an action seeking damages from the appointed actuary submitting
the related memorandum in support of an opinion submitted under
Section 10489.15 or principle-based valuation report developed
under paragraph (3) of subdivision (b) of Section 10489.97 by
reason of an action required by this article or by regulations
promulgated pursuant to this article.

(2) May otherwise be released by the commissioner with the
written consent of the company.

(3) Once any portion of a memorandum in support of an opinion
submitted under Section 10489.15 or a principle-based valuation
report developed under paragraph (3) of subdivision (b) of Section
10489.97 is cited by the company in its marketing or is publicly
volunteered to or before a governmental agency other than a state
insurance department or is released by the company to the news
media, all portions of the memorandum or report shall no longer
be confidential.

SEC. 22.  

Section 10489.992 is added to the Insurance Code,
to read:

10489.992.  

(a) (1) The commissioner may hire and assign
department staff, and retain nondepartment actuaries and other
consultants, to assist the commissioner with preparing to implement
and implementing, directly or indirectly, principle-based valuation.

(2) The commissioner may appoint a person to serve as an expert
in preparing to implement and implementing, directly or indirectly,
principle-based valuation. That person may be an employee of the
department exempt from the state civil service system within the
meaning of Section 4 of Article VII of the California Constitution.
The person’s salary or compensation shall be fixed by the
commissioner and effective and payable without approval of the
Department of Human Resources, pursuant to Section 19825 of
the Government Code.

(b) (1) Notwithstanding any other law, the commissioner may
annually assess all insurers that are subject to this article to defray
costs the department incurs preparing to implement and
implementing, directly or indirectly, principle-based valuation,
including, but not limited to, department salaries and overhead,
and actuary and consultant fees and expenses.

(2) The commissioner shall annually set an “aggregate
assessment amount” and an assessment amount for each tier listed
in paragraph (4). The aggregate assessment amount shall be the
amount necessary to provide sufficient moneys to carry-out the
projected workload to implement, directly or indirectly,
principle-based valuation. The annual aggregate assessment amount
shall be no less than one million dollars ($1,000,000).

(3) At least 90 days before finalizing the annual aggregate
assessment amount and assessment amount for the tiers listed in
paragraph (4), the commissioner shall provide notice of the
commissioner’s preliminary determination of those amounts. The
notice shall explain how the commissioner derived the amounts
and provide no less than 45 days for interested parties to provide
comments.

(4) Not less than 45 days after the due date for comments
specified in paragraph (3), the commissioner shall by bulletin
establish the annual aggregate assessment amount according to
the insurer’s annual premium based on the below tiers. For
purposes of this section, “annual premium” shall mean the gross
annual life insurance premium written by an insurer in California
during the immediately preceding year as reported in its annual
statutory financial statement.

 

Annual Premium	Initial Annual Assessment Per Insurer
$500,000,001 +	$75,000
$400,000,001 - $500,000,000	$50,000
$300,000,001 - $400,000,000	$40,000
$200,000,001 - $300,000,000	$30,000
$150,000,001 - $200,000,000	$20,000
$100,000,001 - $150,000,000	$10,000
$50,000,001 - $100,000,000	$5,000

 

(5) All examinations and analyses of reserves and
principle-based valuation methodologies performed under Section
730 may be at the expense of the company, organization, or person
examined, pursuant to Section 736.

(c) Before retaining an independent actuary or consultant under
paragraph (1) of subdivision (a), the commissioner shall require a
written declaration by the actuary or consultant that:

(1) The actuary shall not disclose to another party, other than
the department, and shall protect from unauthorized use, any
confidential information, as defined in Section 10489.99, obtained
in the course of his or her work for the commissioner, unless
authorized to do so by the commissioner or required by law.

(2) The actuary or consultant shall not disclose to another party
and shall protect from unauthorized use, all confidential
information obtained from the department in the course of his or
her work for the commissioner.

(d) Before retaining an independent actuary or consultant under
paragraph (1) of subdivision (a), the commissioner shall require a
written declaration by the actuary or consultant that:

(1) The actuary or consultant will not perform professional
services involving an actual or potential conflict of interest unless
all of the following are satisfied:

(A) The actuary’s or consultant’s ability to perform the services
fairly is unimpaired.

(B) There has been disclosure of the conflict to all present, or
known prospective, clients or employers of the actuary or
consultant whose interests would be affected by the conflict.

(C) All present, or known prospective, clients or employers of
the actuary or consultant have expressly agreed to the performance
of the services by the actuary or consultant.

(2) The actuary or actuarial firm with which the actuary is
affiliated was not involved in developing the reserves or
principle-based valuation methodology under consideration by the
actuary.

(3) The actuary or consultant has disclosed any financial interest
in the companies whose reserves or principle-based valuation
methodologies may be affected by the actuary’s or consultant’s
services.

(e) The commissioner may develop and amend regulations to
implement or modify subdivisions (c) and (d). The initial adoption
of the regulations shall be deemed to be an emergency and
necessary in order to address a situation calling for immediate
action to avoid serious harm to the public peace, health, safety, or
general welfare. Notwithstanding Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code, any emergency regulation adopted or amended by the
commissioner pursuant to this section shall remain in effect until
amended or repealed by the department. All bulletins adopted by
the commissioner pursuant to this article shall not be subject to
Chapter 3.5 (commencing with Section 11340) of Part 1 of Division
3 of Title 2 of the Government Code.

SEC. 23.  

The Legislature finds and declares that Section 3 of
this act, which amends Section 10489.15 of the Insurance Code,
imposes a limitation on the public’s right of access to the meetings
of public bodies or the writings of public officials and agencies
within the meaning of Section 3 of Article I of the California
Constitution. Pursuant to that constitutional provision, the
Legislature makes the following findings to demonstrate the interest
protected by this limitation and the need for protecting that interest:

In order to protect proprietary information, it is necessary to
enact legislation to ensure that information provided pursuant to
the Standard Valuation Law provided pursuant to this act is kept
confidential.