Amended in Assembly June 29, 2015

Amended in Senate May 5, 2015

Amended in Senate April 14, 2015

Senate BillNo. 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, 10489.93, and 10489.94 of, to add Sections 10489.12, 10489.96, 10489.97, 10489.98, 10489.99, and 10489.992 to, and to repeal and add Sections 10489.1, 10489.4, and 10489.95 of, the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

SB 696, as amended, 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 wouldbegin delete requireend deletebegin insert authorizeend insert the commissioner to impose an annual assessment on eachbegin delete insurer,end deletebegin insert company,end insert based on thebegin delete insurer’send deletebegin insert company’send insert 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 23 of the membership of each house of the Legislature.

Vote: 23. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

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

P3    1

SECTION 1.  

Section 10159.1 of the Insurance Code is
2amended to read:

3

10159.1.  

(a) This article is applicable only to policies and
4contracts issued on or after the operative date as to such policies
5or contracts of this article.

6(b) The term “operative date of the valuation manual” means
7the January 1 of the first calendar year that the valuation manual,
8as defined in Section 10489.1, is effective.

9

SEC. 2.  

Section 10163.2 of the Insurance Code is amended to
10read:

11

10163.2.  

(a) This section shall apply to all policies issued on
12or after the operative date of this section as defined herein. Except
13as provided in subdivision (g), the adjusted premiums for any
14policy shall be calculated on an annual basis and shall be such
15uniform percentage of the respective premiums specified in the
16policy for each policy year, excluding amounts payable as extra
17premiums to cover impairments or special hazards and also
18excluding any uniform annual contract charge or policy fee
19specified in the policy in a statement of the method to be used in
20calculating the cash surrender values and paid-up nonforfeiture
21benefits, that the present value, at the date of issue of the policy,
22of all adjusted premiums shall be equal to the sum of (1) the then
23present value of the future guaranteed benefits provided for by the
24policy; (2) 1 percent of either the amount of insurance, if the
25insurance be uniform in amount, or the average amount of
26insurance at the beginning of each of the first 10 policy years; and
27(3) 125 percent of the nonforfeiture net level premium as
28hereinafter defined. Provided, however, that in applying the
29percentage specified in (3) no nonforfeiture net level premium
30shall be deemed to exceed 4 percent of either the amount of
31insurance, if the insurance be uniform in amount, or the average
32amount of insurance at the beginning of each of the first 10 policy
33years. The date of issue of a policy for the purpose of this section
34shall be the date as of which the rated age of the insured is
35determined.

36(b) The nonforfeiture net level premium shall be equal to the
37present value, at the date of issue of the policy, of the guaranteed
38benefits provided for by the policy, divided by the present value,
P4    1at the date of issue of the policy, of an annuity of 1 percent per
2annum payable on the date of issue of the policy and on each
3anniversary of such policy on which a premium falls due.

4(c) In the case of policies which cause on a basis guaranteed in
5the policy, unscheduled changes in benefits or premiums, or which
6provide an option for changes in benefits or premiums other than
7a change to a new policy, the adjusted premiums and present values
8shall initially be calculated on the assumption that future benefits
9and premiums do not change from those stipulated at the date of
10issue of the policy. At the time of any such change in the benefits
11or premiums the future adjusted premiums, nonforfeiture net level
12premiums and present values shall be recalculated on the
13assumption that future benefits and premiums do not change from
14those stipulated by the policy immediately after the change.

15(d) Except as otherwise provided in subdivision (g), the
16recalculated future adjusted premiums for any such policy shall
17be such uniform percentage of the respective future premiums
18specified in the policy for each policy year, excluding amounts
19payable as extra premiums to cover impairments and special
20hazards, and also excluding any uniform annual contract charge
21or policy fee specified in the policy in a statement of the method
22to be used in calculating the cash surrender values and paid-up
23nonforfeiture benefits, that the present value, at the time of change
24to the newly defined benefits or premiums, of all such future
25adjusted premiums shall be equal to the excess of (1) the sum of
26(A) the then present value of the then future guaranteed benefits
27provided for by the policy and (B) the additional expense
28allowance, if any, over (2) the then cash surrender value, if any,
29or present value of any paid-up nonforfeiture benefit under the
30policy.

31(e) The additional expense allowance, at the time of the change
32to the newly defined benefits or premiums, shall be the sum of (1)
331 percent of the excess, if positive, of the average amount of
34insurance at the beginning of each of the first 10 policy years
35subsequent to the change over the average amount of insurance
36prior to the change at the beginning of each of the first 10 policy
37years subsequent to the time of the most recent previous change,
38or, if there has been no previous change, the date of issue of the
39policy; and (2) 125 percent of the increase, if positive, in the
40nonforfeiture net level premium.

P5    1(f) The recalculated nonforfeiture net level premium shall be
2equal to the result obtained by dividing (1) by (2) where:

3(1) It equals the sum of:

4(A) The nonforfeiture net level premium applicable prior to the
5change times the present value of an annuity of 1 percent per
6annum payable on each anniversary of the policy on or subsequent
7to the date of the change on which a premium would have fallen
8due had the change not occurred, and

9(B) The present value of the increase in future guaranteed
10benefits provided for by the policy, and

11(2) It equals the present value of an annuity of 1 percent per
12annum payable on each anniversary of the policy on or subsequent
13to the date of change on which a premium falls due.

14(g) Notwithstanding any other provisions of this section to the
15contrary, in the case of a policy issued on a substandard basis
16which provides reduced graded amounts of insurance so that, in
17each policy year, such policy has the same tabular mortality cost
18as an otherwise similar policy issued on the standard basis which
19provides higher uniform amounts of insurance, adjusted premiums
20and present values for such substandard policy may be calculated
21as if it were issued to provide such higher uniform amounts of
22insurance on the standard basis.

23(h) All adjusted premiums and present values referred to in this
24article shall for all policies of ordinary insurance be calculated on
25the basis of (1) the Commissioners 1980 Standard Ordinary
26Mortality Table or (2) at the election of the company for any one
27or more specified plans of life insurance, the Commissioners 1980
28Standard Ordinary Mortality Table with Ten-Year Select Mortality
29Factors; shall for all policies of industrial insurance be calculated
30on the basis of the Commissioners 1961 Standard Industrial
31Mortality Table; and shall for all policies issued in a particular
32calendar year be calculated on the basis of a rate of interest not
33exceeding the nonforfeiture interest rate as defined in this section
34for policies issued in that calendar year. Provided, however, that:

35(1) At the option of the company, calculations for all policies
36issued in a particular calendar year may be made on the basis of
37a rate of interest not exceeding the nonforfeiture interest rate, as
38defined in this section, for policies issued in the immediately
39preceding calendar year.

P6    1(2) Under any paid-up nonforfeiture benefit, including any
2paid-up dividend additions, any cash surrender value available,
3whether or not required by Section 10160, shall be calculated on
4the basis of the mortality table and rate of interest used in
5determining the amount of such paid-up nonforfeiture benefit and
6paid-up dividend additions, if any.

7(3) A company may calculate the amount of any guaranteed
8paid-up nonforfeiture benefit including any paid-up additions under
9the policy on the basis of an interest rate no lower than that
10specified in the policy for calculating cash surrender values.

11(4) In calculating the present value of any paid-up term insurance
12with accompanying pure endowment, if any, offered as a
13nonforfeiture benefit, the rates of mortality assumed may be not
14more than those shown in the Commissioners 1980 Extended Term
15Insurance Table for policies of ordinary insurance and not more
16than the Commissioners 1961 Industrial Extended Term Insurance
17Table for policies of industrial insurance.

18(5) For insurance issued on a substandard basis, the calculation
19of any such adjusted premiums and present values may be based
20on appropriate modifications of the aforementioned tables.

21(6) (A) For policies issued prior to the operative date of the
22 valuation manual, anybegin delete Commissioner’send deletebegin insert Commissionersend insert Standard
23begin delete ordinaryend deletebegin insert Ordinaryend insert mortality tables, adopted after 1980 by the
24National Association of Insurance Commissioners, or its successor,
25that are approved by regulation promulgated or bulletin issued by
26the commissioner for use in determining the minimum
27nonforfeiture standard may be substituted for the Commissioners
281980 Standard Ordinary Mortality Table with or without Ten-Year
29Select Mortality Factors or for the Commissioners 1980 Extended
30Term Insurance Table.

31(B) For policies issued on or after the operative date of the
32valuation manual, the valuation manual shall provide the
33begin delete Commissioners’end deletebegin insert Commissionersend insert Standard mortality table for use
34in determining the minimum nonforfeiture standard that may be
35substituted for the Commissioners 1980 Standard Ordinary
36Mortality Table with or without Ten-year Select Mortality Factors
37or for the Commissioners 1980 Extended Term Insurance Table.
38If the commissioner approves by regulation anybegin delete Commissioners’end delete
39begin insert Commissionersend insert Standardbegin delete ordinaryend deletebegin insert Ordinaryend insert mortality table adopted
40by the National Association of Insurance Commissioners for use
P7    1in determining the minimum nonforfeiture standard for policies
2issued on or after the operative date of the valuation manual then
3that minimum nonforfeiture standard supersedes the minimum
4nonforfeiture standard provided by the valuation manual.

5(7) (A) For policies issued prior to the operative date of the
6valuation manual, anybegin delete Commissioner’send deletebegin insert Commissionersend insert Standard
7begin delete industrialend deletebegin insert Industrialend insert mortality tables, adopted after 1980 by the
8National Association of Insurance Commissioners, or its successor,
9that are approved by regulation promulgated or bulletin issued by
10the commissioner for use in determining the minimum
11nonforfeiture standard may be substituted for the Commissioners
121961 Standard Industrial Mortality Table or the Commissioners
131961 Industrial Extended Term Insurance Table.

14(B) For policies issued on or after the operative date of the
15valuation manual, the valuation manual shall provide the
16begin delete Commissioners’end deletebegin insert Commissionersend insert Standard mortality table for use
17in determining the minimum nonforfeiture standard that may be
18substituted for the Commissioners 1961 Standard Ordinary
19Mortality Table or the Commissioners 1961 Industrial Extended
20Term Insurance Table. If the commissioner approves by regulation
21anybegin delete Commissioners’end deletebegin insert Commissionersend insert Standardbegin delete ordinaryend deletebegin insert Ordinaryend insert
22 mortality table adopted by the National Association of Insurance
23Commissioners for use in determining the minimum nonforfeiture
24standard for policies issued on or after the operative date of the
25valuation manual then that minimum nonforfeiture standard
26supersedes the minimum nonforfeiture standard provided by the
27valuation manual.

28(i) The nonforfeiture interest rate.

29(1) For policies issued prior to the operative date of the valuation
30manual, the nonforfeiture interest rate per annum for any policy
31issued in a particular calendar year shall be equal to 125 percent
32of the calendar year statutory valuation interest rate for the policy
33as defined in the Standard Valuation Law, rounded to the nearer
34one-fourth of 1 percent, provided, however, that the nonforfeiture
35interest rate shall not be less than 4 percent.

36(2) For policies issued on or after the operative date of the
37valuation manual, the nonforfeiture interest rate per annum for any
38policy issued in a particular calendar year shall be provided by the
39valuation manual.

P8    1(j) Notwithstanding any other provision in this code to the
2contrary, any refiling of nonforfeiture values or their methods of
3computation for any previously approved policy form which
4involves only a change in the interest rate or mortality table used
5to compute nonforfeiture values shall not require refiling of any
6other provisions of that policy form.

7(k) After the effective date of this section, any company may
8file with the commissioner a written notice of its election to comply
9with the provision of this section after a specified date before
10 January 1, 1989, which shall be the operative date of this section
11for such company. If a company makes no such election, the
12operative date of this section for such company shall be January
131, 1989.

14

SEC. 3.  

Section 10489.1 of the Insurance Code is repealed.

15

SEC. 4.  

Section 10489.1 is added to the Insurance Code, to
16read:

17

10489.1.  

(a) This article shall be known as the Standard
18Valuation Law.

19(b) For the purposes of this article, the following definitions
20shall apply:

21(1) “Accident and health insurance” means contracts that
22incorporate morbidity risk and provide protection against economic
23loss resulting from accident, sickness, or medical conditions and
24as may be specified in the valuation manual.

begin delete

25(2) “Appointed actuary” means a qualified actuary who is
26appointed in accordance with the valuation manual to prepare the
27actuarial opinion required in subdivision (b) of Section 10489.15.

end delete
begin delete

25 28(3)

end delete

29begin insert(2)end insert “Company” means an entity, which (A) has written, issued,
30or reinsured life insurance contracts, accident and health insurance
31contracts, or deposit-type contracts in this state and has at least
32one policy in force or on claim or (B) has written, issued, or
33reinsured life insurance contracts, accident and health insurance
34contracts, or deposit-type contracts in any state and is required to
35hold a certificate of authority to write life insurance, accident and
36health insurance, or deposit-type contracts in this state.

begin delete

33 37(4)

end delete

38begin insert(3)end insert “Deposit-type contract” means contracts that do not
39incorporate mortality or morbidity risks and as may be specified
40in the valuation manual.

begin delete

36 P9    1(5)

end delete

2begin insert(4)end insert “Life insurance” means contracts that incorporate mortality
3risk, including annuity and pure endowment contracts, and as may
4be specified in the valuation manual.

begin delete

39 5(6)

end delete

6begin insert(5)end insert “NAIC” means the National Association of Insurance
7Commissioners.

begin delete

8(7) “Policyholder behavior” means any action a policyholder,
9contractholder, or any other person with the right to elect options,
10such as a certificate holder, may take under a policy or contract
11subject to this article, including, but not limited to, lapse,
12withdrawal, transfer, deposit, premium payment, loan,
13annuitization, or benefit elections prescribed by the policy or
14contract, but excluding events of mortality or morbidity that result
15in benefits prescribed in their essential aspects by the terms of the
16policy or contract.

end delete
begin delete

10 17(8)

end delete

18begin insert(6)end insert “Principle-based valuation” means a reserve valuation that
19uses one or more methods or one or more assumptions determined
20by the insurer and is required to comply with Section 10489.97,
21as specified in the valuation manual.

begin delete

22(9) “Qualified actuary” means an individual who is qualified to
23sign the applicable statement of actuarial opinion in accordance
24with the American Academy of Actuaries qualification standards
25for actuaries signing those statements and who meets the
26requirements specified in the valuation manual.

end delete
begin delete

27(10) “Tail risk” means a risk that occurs either when the
28frequency of low probability events is higher than expected under
29a normal probability distribution or when there are observed events
30of very significant size or magnitude.

end delete
begin delete

23 31(11)

end delete

32begin insert(7)end insert “Valuation manual” means the manual of valuation
33 instructions adopted by the NAIC as specified in this article or as
34subsequently amended.

begin insert

35(c) For the purposes of this article, the following definitions
36shall apply on and after the operative date of the valuation manual:

end insert
begin insert

37(1) “Appointed actuary” means a qualified actuary who is
38appointed in accordance with the valuation manual to prepare the
39actuarial opinion required in subdivision (b) of Section 10489.15.

end insert
begin insert

P10   1(2) “Policyholder behavior” means any action a policyholder,
2contractholder, or any other person with the right to elect options,
3such as a certificate holder, may take under a policy or contract
4subject to this article, including, but not limited to, lapse,
5withdrawal, transfer, deposit, premium payment, loan,
6annuitization, or benefit elections prescribed by the policy or
7contract, but excluding events of mortality or morbidity that result
8in benefits prescribed in their essential aspects by the terms of the
9policy or contract.

end insert
begin insert

10(3) “Qualified actuary” means an individual who is qualified
11to sign the applicable statement of actuarial opinion in accordance
12with the American Academy of Actuaries qualification standards
13for actuaries signing those statements and who meets the
14requirements specified in the valuation manual.

end insert
begin insert

15(4) “Tail risk” means a risk that occurs either when the
16frequency of low probability events is higher than expected under
17a normal probability distribution or when there are observed events
18of very significant size or magnitude.

end insert
begin delete

26 19(c)

end delete

20begin insert(d)end insert This article and Sections 10480, 10481, 10483, 10484, and
2110486 shall apply (1) to the valuation of policies and contracts
22subject to this article issued on or after the operative date of the
23valuation manual and (2) as provided in Section 10489.3 as to the
24valuation of benefits purchased under group annuity and pure
25endowment contracts issued prior to that operative date.

26

SEC. 5.  

Section 10489.12 is added to the Insurance Code, to
27read:

28

10489.12.  

(a) For policies and contracts issued prior to the
29operative date of the valuation manual, both of the following shall
30be satisfied:

31(1) The commissioner shall annually value, or cause to be
32valued, the reserve liabilities (hereinafter called reserves) for all
33outstanding life insurance policies and annuity and pure endowment
34contracts of every life insurance company doing business in this
35state issued prior to the operative date of the valuation manual. In
36calculating reserves, the commissioner may use group methods
37and approximate averages for fractions of a year or otherwise. In
38lieu of the valuation of the reserves required of a foreign or alien
39company, the commissioner may accept a valuation made, or
40caused to be made, by the insurance supervisory official of any
P11   1state or other jurisdiction when the valuation complies with the
2minimum standard provided in this article.

3(2) Sections 10489.2, 10489.3, 10489.4, 10489.5, 10489.6,
410489.7, 10489.8, 10489.9, 10489.93, and 10489.95 shall apply
5to all appropriate policies and contracts subject to this article and
6issued prior to the operative date of the valuation manual. Sections
710489.96 and 10489.97 shall not apply to any of those policies
8and contracts.

9(b) For policies and contracts issued on or after the operative
10date of the valuation manual, both of the following shall be
11satisfied:

12(1) The commissioner shall annually value, or cause to be
13valued, the reserves for all outstanding life insurance contracts,
14annuity and pure endowment contracts, accident and health
15contracts, and deposit-type contracts of every company issued on
16or after the operative date of the valuation manual. In lieu of the
17valuation of the reserves required of a foreign or alien company,
18the commissioner may accept a valuation made, or caused to be
19made, by the insurance supervisory official of any state or other
20jurisdiction when the valuation complies with the minimum
21standard provided in this article.

22(2) Sections 10489.96 and 10489.97 shall apply to all policies
23and contracts issued on or after the operative date of the valuation
24manual.

25

SEC. 6.  

Section 10489.15 of the Insurance Code is amended
26to read:

27

10489.15.  

(a) Each of the following shall apply prior to the
28operative date of the valuation manual:

29(1) For an actuarial opinion, every life insurance company doing
30business in this state shall annually submit the opinion of a
31qualified actuary as to whether the reserves and related actuarial
32items held in support of the policies and contracts specified by the
33commissioner by regulation are computed appropriately, are based
34on assumptions that satisfy contractual provisions, are consistent
35with prior reported amounts, and comply with applicable laws of
36this state. The commissioner shall define by regulation the specifics
37of this opinion and add any other items deemed to be necessary to
38its scope.

39(2) (A) For an actuarial analysis of reserves and assets
40supporting reserves, every life insurance company, except as
P12   1exempted by regulation, shall also annually include in the opinion
2required by paragraph (1), an opinion of the same qualified actuary
3as to whether the reserves and related actuarial items held in
4support of the policies and contracts specified by the commissioner
5by regulation, when considered in light of the assets held by the
6company with respect to the reserves and related actuarial items,
7including, but not limited to, the investment earnings on the assets
8and the considerations anticipated to be received and retained under
9the policies and contracts, make adequate provision for the
10company’s obligations under the policies and contracts, including,
11but not limited to, the benefits under and expenses associated with
12the policies and contracts.

13(B) The commissioner may provide by regulation for a transition
14period for establishing any higher reserves that the qualified actuary
15may deem necessary in order to render the opinion required by
16this section.

17(3) An opinion required by paragraph (2) shall be governed by
18the following:

19(A) A memorandum, in form and substance acceptable to the
20commissioner as specified by regulation, shall be prepared to
21support each actuarial opinion.

22(B) If the insurance company fails to provide a supporting
23memorandum at the request of the commissioner within a period
24specified by regulation, or the commissioner determines that the
25supporting memorandum provided by the insurance company fails
26to meet the standards prescribed by the regulations or is otherwise
27unacceptable to the commissioner, the commissioner may engage
28a qualified actuary at the expense of the company to review the
29opinion and the basis for the opinion and prepare the supporting
30memorandum required by the commissioner.

31(4) Every opinion required by this subdivision shall be governed
32by the following provisions:

33(A) The opinion shall be submitted with the annual statement
34reflecting the valuation of the reserve liabilities for each year
35ending on or after December 31, 1992.

36(B) The opinion shall apply to all business in force, including
37individual and group health insurance plans, in form and substance
38acceptable to the commissioner as specified by regulation.

P13   1(C) The opinion shall be based on standards adopted from time
2to time by the Actuarial Standards Board and on any additional
3standards as the commissioner may by regulation prescribe.

4(D) In the case of an opinion required to be submitted by a
5foreign or alien company, the commissioner may accept the opinion
6filed by that company with the insurance supervisory official of
7another state if the commissioner determines that the opinion
8reasonably meets the requirements applicable to a company
9domiciled in this state.

10(E) For the purposes of thisbegin delete section,end deletebegin insert paragraph,end insert “qualified
11actuary” means a member in good standing of the American
12Academy of Actuaries who meets the requirements set forth in the
13regulation.

14(F) The qualified actuary shall be liable for his or her negligence
15or other tortious conduct.

16(G) Disciplinary action by the commissioner against the
17company or the qualified actuary may be defined in regulations
18by the commissioner.

19(H) Except as provided in subparagraphs (L), (M), and (N),
20documents, materials, or other information in the possession or
21control of the Department of Insurance that are a memorandum in
22support of the opinion, and any other material provided by the
23company to the commissioner in connection with the memorandum,
24shall be confidential by law and privileged, shall not be subject to
25the California Public Records Act, shall not be subject to subpoena,
26and shall not be subject to discovery or admissible in evidence in
27any private civil action. However, the commissioner may use the
28documents, materials, or other information in the furtherance of
29any regulatory or legal action brought as a part of the
30commissioner’s official duties.

31(I) Neither the commissioner nor any person who received
32documents, materials, or other information while acting under the
33authority of the commissioner shall be permitted or required to
34testify in any private civil action concerning any confidential
35documents, materials, or information subject to subparagraph (H).

36(J) In order to assist in the performance of the commissioner’s
37duties, the commissioner may do any of the following:

38(i) Share documents, materials, or other information, including
39the confidential and privileged documents, materials, or
40information subject to subparagraph (H), with other state, federal,
P14   1and international regulatory agencies, with the National Association
2of Insurance Commissioners and its affiliates and subsidiaries, and
3with state, federal, and international law enforcement authorities,
4provided that the recipient agrees to maintain the confidentiality
5and privileged status of the document, material, or other
6information.

7(ii) Receive documents, materials, or information, including
8otherwise confidential and privileged documents, materials, or
9information, from the National Association of Insurance
10Commissioners and its affiliates and subsidiaries, and from
11regulatory and law enforcement officials of other foreign or
12domestic jurisdictions, and shall maintain as confidential or
13privileged any document, material, or information received with
14notice or the understanding that it is confidential or privileged
15under the laws of the jurisdiction that is the source of the document,
16material, or information.

17(iii) Enter into agreements governing sharing and use of
18information consistent with subparagraphs (H) to (J), inclusive.

19(K) No waiver of any applicable privilege or claim of
20confidentiality in the documents, materials, or information shall
21occur as a result of disclosure to the commissioner under this
22section or as a result of sharing as authorized in subparagraph (J).

23(L) A memorandum in support of the opinion, and any other
24material provided by the company to the commissioner in
25connection with the memorandum, may be subject to subpoena
26for the purpose of defending an action seeking damages from the
27actuary submitting the memorandum by reason of an action
28required by this section or by regulations promulgated pursuant
29to this section.

30(M) The memorandum or the other material may otherwise be
31released by the commissioner with the written consent of the
32company or to the American Academy of Actuaries upon request
33stating that the memorandum or other material is required for the
34purpose of professional disciplinary proceedings and setting forth
35procedures satisfactory to the commissioner for preserving the
36confidentiality of the memorandum or the other material.

37(N) Once any portion of the confidential memorandum is cited
38by the company in its marketing efforts or is cited before a
39governmental agency other than a state insurance department or
P15   1is released by the company to the news media, all portions of the
2confidential memorandum shall no longer be confidential.

3(b) Each of the following shall apply after the operative date of
4the valuation manual:

5(1) For an actuarial opinion, every company with outstanding
6life insurance contracts, accident and health insurance contracts,
7or deposit-type contracts in this state and subject to regulation by
8the commissioner shall annually submit the opinion of the
9appointed actuary as to whether the reserves and related actuarial
10items held in support of the policies and contracts are computed
11appropriately, are based on assumptions that satisfy contractual
12provisions, are consistent with prior reported amounts, and comply
13with applicable laws of this state. The valuation manual shall
14prescribe the specifics of this opinion including any items deemed
15to be necessary to its scope.

16(2) For an actuarial analysis of reserves and assets supporting
17reserves, every company with outstanding life insurance contracts,
18accident and health insurance contracts, or deposit-type contracts
19in this state and subject to regulation by the commissioner, except
20as exempted in the valuation manual, shall also annually include
21in the opinion required by paragraph (1) an opinion of the same
22appointed actuary as to whether the reserves and related actuarial
23items held in support of the policies and contracts specified in the
24valuation manual, when considered in light of the assets held by
25the company with respect to the reserves and related actuarial
26items, including, but not limited to, the investment earnings on the
27assets and the considerations anticipated to be received and retained
28under the policies and contracts, adequately provide for the
29company’s obligations under the policies and contracts, including,
30but not limited to, the benefits under and expenses associated with
31the policies and contracts.

32(3) Every opinion required by this subdivision shall be governed
33by both of the following provisions:

34(A) A memorandum, in form and substance as specified in the
35valuation manual, and acceptable to the commissioner, shall be
36prepared to support each actuarial opinion.

37(B) If the insurance company fails to provide a supporting
38memorandum at the request of the commissioner within a period
39specified in the valuation manual, or the commissioner determines
40that the supporting memorandum provided by the insurance
P16   1company fails to meet the standards prescribed by the valuation
2manual or is otherwise unacceptable to the commissioner, the
3commissioner may engage a qualified actuary at the expense of
4the company to review the opinion and the basis for the opinion
5and prepare the supporting memorandum required by the
6commissioner.

7(4) Every opinion subject to this subdivision shall be governed
8by the following provisions:

9(A) The opinion shall be in form and substance as specified in
10the valuation manual and acceptable to the commissioner.

11(B) The opinion shall be submitted with the annual statement
12reflecting the valuation of the reserve liabilities for each year
13ending on or after the operative date of the valuation manual.

14(C) The opinion shall apply to all policies and contracts subject
15to paragraph (2), plus other actuarial liabilities as may be specified
16in the valuation manual.

17(D) The opinion shall be based on standards adopted from time
18to time by the Actuarial Standards Board or its successor, and on
19such additional standards as may be prescribed in the valuation
20manual.

21(E) If an opinion is required to be submitted by a foreign or
22alien company, the commissioner may accept the opinion filed by
23that company with the insurance supervisory official of another
24state if the commissioner determines that the opinion reasonably
25meets the requirements applicable to a company domiciled in this
26state.

27(F) The qualified actuary shall be liable for his or her negligence
28or other tortious conduct.

29(G) Disciplinary action by the commissioner against the
30company or the appointed actuary may be defined in regulations
31by the commissioner.

32

SEC. 7.  

Section 10489.2 of the Insurance Code is amended to
33read:

34

10489.2.  

For a computation of minimum standard, except as
35provided in Sections 10489.3, 10489.4, and 10489.95, the minimum
36standard for the valuation of policies and contracts issued prior to
37the effective date of the amendments to this section shall be that
38provided by the laws in effect immediately prior to that date.
39Except as otherwise provided in Sections 10489.3, 10489.4, and
4010489.95, the minimum standard for the valuation of those policies
P17   1and contracts shall be the commissioners reserve valuation methods
2defined in Sections 10489.5, 10489.6, 10489.9, and 10489.95, 312
3 percent per annum interest, or in the case of life insurance policies
4and contracts, other than certain annuity and pure endowment
5contracts, issued on or after January 1, 1970, 4 percent per annum
6interest for policies issued prior to January 1, 1980, 512 percent
7per annum interest may be used for single premium life insurance
8policies and 412 percent per annum interest for all other policies
9issued on or after January 1, 1980, and the following tables:

10(a) For ordinary policies of life insurance issued on the standard
11basis, excluding any disability and accidental death benefits in
12those policies--the Commissioners 1941 Standard Ordinary
13Mortality Table for policies issued prior to the operative date of
14subdivision (a) of Section 10163.1, and the Commissioners 1958
15Standard Ordinary Mortality Table for policies issued on or after
16the operative date of subdivision (a) of Section 10163.1, as
17amended by Chapter 940 of the Statutes of 1982, and prior to the
18operative date of Section 10163.2, as amended by Chapter 28 of
19the Statutes of 1997, provided that for any category of policies
20issued on female risks, all modified net premiums and present
21values referred to in this article may be calculated according to an
22age not more than six years younger than the actual age of the
23insured. For policies issued on or after the original operative date
24of Section 10163.2, as amended by Chapter 28 of the Statutes of
251997, the following shall apply:

26(1) The Commissioners 1980 Standard Ordinary Mortality Table.

27(2) At the election of the company for any one or more specified
28plans of life insurance, the Commissioners 1980 Standard Ordinary
29Mortality Table with Ten-Year Select Mortality Factors.

30 (3) Any ordinary mortality table, adopted after 1980 by the
31National Association of Insurancebegin delete Commissioners,end deletebegin insert Commissioners
32(NAIC),end insert
or its successor, that is approved by regulation
33promulgated or bulletin issued by the commissioner for use in
34determining the minimum standard of valuation for such policies.

35(b) For industrial life insurance policies issued on the standard
36basis, excluding any disability and accidental death benefits in the
37policies, the 1941 Standard Industrial Mortality Table for policies
38issued prior to the operative date of subdivision (b) of Section
3910163.1, of the Standard Nonforfeiture Law for Life Insurance as
40amended, and for policies issued on or after the operative date the
P18   1Commissioners 1961 Standard Industrial Mortality Table or any
2industrial mortality table adopted after 1980 by the NAIC that is
3approved by regulation promulgated or bulletin issued by the
4commissioner for use in determining the minimum standard of
5valuation for the policies.

6(c) For individual annuity and pure endowment contracts issued
7prior to the compliance date of Section 10489.3, excluding any
8disability and accidental death benefits in the policies: 1937
9Standard Annuity Mortality Table or, at the option of the company,
10the Annuity Mortality Table for 1949, Ultimate, or any
11modification of these tables approved by the commissioner.
12However, the minimum standard for such contracts issued from
13January 1, 1968, through December 31, 1968, with commencement
14of benefits deferred not more than one year from date of issue,
15may be, at the option of the company, 4 percent per annum interest,
16and for contracts issued from January 1, 1969, to the compliance
17date of Section 10489.3, with commencement of benefits deferred
18not more than 10 years from date of issue and with premiums
19payable in one sum may be, at the option of the company, 5 percent
20per annum interest.

21(d) For group annuity and pure endowment contracts, excluding
22any disability and accidental death benefits in the policies: the
23Group Annuity Mortality Table for 1951, a modification of the
24table approved by the commissioner, or, at the option of the
25company, any of the tables or modifications of the tables specified
26for individual annuity and pure endowment contracts. However,
27the minimum standard for annuities and pure endowments
28purchased or to be purchased prior to the compliance date of
29Section 10489.3, under group annuity and pure endowment
30contracts with considerations received on or after January 1, 1968,
31through December 31, 1968, may be, at the option of the company,
324 percent per annum interest, and for annuities and pure
33endowments purchased or to be purchased prior to the compliance
34date of Section 10489.3, under group annuity and pure endowment
35contracts with considerations received from January 1, 1969, to
36the compliance date of Section 10489.3, may be at the option of
37the company, 5 percent per annum interest.

38(e) For total and permanent disability benefits in or
39supplementary to ordinary policies or contracts: for policies or
40contracts issued on or after January 1, 1966, the tables of Period
P19   12 disablement rates and the 1930 to 1950 termination rates of the
21952 Disability Study of the Society of Actuaries, with due regard
3to the type of benefit or any tables of disablement rates and
4termination rates, adopted after 1980 by the NAIC that are
5approved by regulation promulgated or bulletin issued by the
6commissioner for use in determining the minimum standard of
7valuation for those policies; for policies or contracts issued on or
8after January 1, 1961, and prior to January 1, 1966, either those
9tables or, at the option of the company, the Class (3) Disability
10Table (1926); and for policies issued prior to January 1, 1961, the
11Class (3) Disability Table (1926). Any such table shall, for active
12lives, be combined with a mortality table permitted for calculating
13the reserves for life insurance policies.

14(f) For accidental death benefits in or supplementary to policies
15issued on or after January 1, 1966: the 1959 Accidental Death
16Benefits Table or any accidental death benefits table, adopted after
171980 by the NAIC that is approved by regulation promulgated or
18bulletin issued by the commissioner for use in determining the
19minimum standard of valuation for those policies, for policies
20issued on or after January 1, 1961, and prior to January 1, 1966,
21either that table or, at the option of the company, the
22Inter-Company Double Indemnity Mortality Table; and for policies
23issued prior to January 1, 1961, the Inter-Company Double
24Indemnity Mortality Table. Either table shall be combined with a
25mortality table for calculating the reserves for life insurance
26 policies.

27(g) For group life insurance, life insurance issued on the
28substandard basis and other special benefits: tables approved by
29the commissioner.

30 (h) The commissioner may by bulletin withdraw approval to
31 use tables replaced by newly adopted tables.

32

SEC. 8.  

Section 10489.3 of the Insurance Code is amended to
33read:

34

10489.3.  

(a) Except as provided in Section 10489.4, the
35minimum standard of valuation for individual annuity and pure
36endowment contracts issued on or after the operative date of this
37section and for annuities and pure endowments purchased on or
38after that operative date under group annuity and pure endowment
39contracts, shall be the commissioners reserve valuation methods
P20   1defined in Sections 10489.5 and 10489.6 and the following tables
2and interest rates:

3(1) For individual annuity and pure endowment contracts issued
4prior to January 1, 1980, excluding any disability and accidental
5death benefits in those contracts: the 1971 Individual Annuity
6Mortality Table, or any modification of this table approved by the
7commissioner, and 6 percent per annum interest rate for all
8contracts with commencement of benefits deferred not more than
910 years from the date of issue and with premiums payable in one
10sum and 4 percent per annum interest for all other individual
11annuity and pure endowment contracts.

12(2) For individual single premium immediate annuity contracts
13issued on or after January 1, 1980, excluding any disability and
14accidental death benefits in those contracts: the 1971 Individual
15Annuity Mortality Table or any individual annuity mortality table
16adopted after 1980 by the NAIC that is approved by regulation
17promulgated or bulletin issued by the commissioner for use in
18determining the minimum standard of valuation for these contracts,
19or any modification of these tables approved by the commissioner,
20and 712 percent per annum interest.

21(3) For individual annuity and pure endowment contracts issued
22on or after January 1, 1980, other than single premium immediate
23annuity contracts, excluding any disability and accidental death
24benefits in those contracts, the 1971 Individual Annuity Mortality
25Table or any individual annuity mortality table, adopted after 1980
26by the NAIC that is approved by regulation promulgated or bulletin
27issued by the commissioner for use in determining the minimum
28standard of valuation for those contracts, or any modification of
29these tables approved by the commissioner, and 512 percent per
30annum interest for single premium deferred annuity and pure
31endowment contracts and 412 percent per annum interest for all
32other individual annuity and pure endowment contracts.

33(4) For annuities and pure endowments purchased prior to
34January 1, 1980, under group annuity and pure endowment
35contracts, excluding any disability and accidental death benefits
36purchased under those contracts: the 1971 Group Annuity Mortality
37Table or any modification of this table approved by the
38commissioner, and 6 percent per annum interest.

39(5) For annuities and pure endowments purchased on or after
40January 1, 1980, under group annuity and pure endowment
P21   1contracts, excluding any disability and accidental death benefits
2purchased under those contracts: the 1971 Group Annuity Mortality
3Table, or any group annuity mortality table adopted after 1980 by
4the NAIC that is approved by regulation promulgated or bulletin
5issued by the commissioner for use in determining the minimum
6standard of valuation for annuities and pure endowments, or any
7modification of these tables approved by the commissioner, and
8712 percent interest.

9(6) All individual annuity and pure endowment contracts entered
10into prior to January 1, 1980, and all annuities and pure
11endowments purchased prior to January 1, 1980, under group
12annuity and pure endowment contracts shall remain subject to the
13provisions of Article 3A (commencing with Section 10489.1) as
14it existed prior to January 1, 1980.

15(b) The commissioner may, by bulletin, withdraw approval to
16use tables replaced by newly adopted tables.

17

SEC. 9.  

Section 10489.4 of the Insurance Code is repealed.

18

SEC. 10.  

Section 10489.4 is added to the Insurance Code, to
19read:

20

10489.4.  

(a) The interest rates used in determining the
21minimum standard for the valuation of the following shall be the
22calendar year statutory valuation interest rates as defined in this
23section:

24(1) Life insurance policies issued in a particular calendar year,
25on or after the operative date of Section 10163.2 as amended by
26Section 28 of the Statutes of 1997.

27(2) Individual annuity and pure endowment contracts issued in
28a particular calendar year on or after January 1, 1982.

29(3) Annuities and pure endowments purchased in a particular
30calendar year on or after January 1, 1982, under group annuity and
31pure endowment contracts.

32(4) The net increase, if any, in a particular calendar year after
33January 1, 1982, in amounts held under guaranteed interest
34contracts.

35(b) (1) The calendar year statutory valuation interest rates,
36expressed in the following formulas as “I,” shall be determined as
37follows and the results rounded to the nearest one-fourth of 1
38percent:

39(A) For life insurance:

P22   8

 

I = .03 + W (R1- .03) + W2 (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.

13P22  196P22  1019P22  23

 

9(B) For single premium immediate annuities and for annuity
10benefits involving life contingencies arising from other annuities
11with cash settlement options and from guaranteed interest contracts
12with 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.

P22  196P22  1019P22  23

 

20(C) For other annuities with cash settlement options and
21guaranteed interest contracts with cash settlement options, valued
22on an issue year basis, except as stated in subparagraph (B), the
23formula for life insurance stated in subparagraph (A) shall apply
24to annuities and guaranteed interest contracts with guarantee
25durations in excess of 10 years and the formula for single premium
26immediate annuities stated in subparagraph (B) shall apply to
27annuities and guaranteed interest contracts with guarantee duration
28of 10 years or less.

29(D) For other annuities with no cash settlement options and for
30guaranteed interest contracts with no cash settlement options, the
31formula for single premium immediate annuities stated in
32subparagraph (B) shall apply.

33(E) For other annuities with cash settlement options and
34guaranteed interest contracts with cash settlement options, valued
35on a change in fund basis, the formula for single premium
36immediate annuities stated in subparagraph (B) shall apply.

37(2) However, if the calendar year statutory valuation interest
38rate for a life insurance policy issued in any calendar year
39determined without reference to this sentence differs from the
40corresponding actual rate for similar policies issued in the
P23   1immediately preceding calendar year by less than one-half of 1
2percent, the calendar year statutory valuation interest rate for the
3life insurance policies shall be equal to the corresponding actual
4rate for the immediately preceding calendar year. For purposes of
5applying the immediately preceding sentence, the calendar year
6 statutory valuation interest rate for life insurance policies issued
7in a calendar year shall be determined for 1980 (using the reference
8interest rate defined in 1979) and shall be determined for each
9subsequent calendar year regardless of when Section 10163.2, as
10amended, becomes operative.

11(c) The weighting factors referred to in the formulas stated above
12are given in the following tables:

13(1) Weighting Factors for Life Insurance:

14

 

Guarantee Duration (Years)

Weighting Factors

10 or less    

.50

More than 10, but not more than 20    

.45

More than 20    

.35

P23  19

 

20For life insurance, the guarantee duration is the maximum
21number of years the life insurance can remain in force on a basis
22guaranteed in the policy or under options to convert to plans of
23life insurance with premium rates or nonforfeiture values or both
24which are guaranteed in the original policy.

25(2) Weighting factors for single premium immediate annuities
26and for annuity benefits involving life contingencies arising from
27other annuities with cash settlement options and guaranteed interest
28contracts with cash settlement options shall be .80.

29(3) Weighting factors for other annuities and for guaranteed
30interest contracts, except as stated in paragraph (2), shall be as
31specified in subparagraphs (A), (B), and (C), according to the rules
32and definitions in subparagraphs (D), (E), and (F):

33(A) For annuities and guaranteed interest contracts valued on
34an issue year basis:

35

 

Guarantee Duration (Years)Weighting Factor for Plan Type
 ABC
5 or less:.80.60.50
More than 5, but not more than 10:.75.60.50
More than 10, but not more than 20:.65.50.45
More than 20:.45.35.35
P24   2

 

3(B) For annuities and guaranteed interest contracts valued on a
4change in fund basis, the factors shown in subparagraph (A)
5increased by:

 

Plan Type 
ABC
.15.25.05
P22  1019P22  23

 

11(C) For annuities and guaranteed interest contracts valued on
12an issue year basis, other than those with no cash settlement
13options, that do not guarantee interest on considerations received
14more than one year after issue or purchase and for annuities and
15guaranteed interest contracts valued on a change in fund basis that
16do not guarantee interest rates on considerations received more
17than 12 months beyond the valuation date, the factors shown in
18subparagraph (A) or derived in subparagraph (B) increased by:

 

Plan Type 
ABC
.05.05.05
P22  23

 

24(D) For other annuities with cash settlement options and
25guaranteed interest contracts with cash settlement options, the
26guarantee duration is the number of years for which the contract
27guarantees interest rates in excess of the calendar year statutory
28 valuation interest rate for life insurance policies with guarantee
29duration in excess of 20 years. For other annuities with no cash
30settlement options and for guaranteed interest contracts with no
31cash settlement options, the guaranteed duration is the number of
32years from the date of issue or date of purchase to the date annuity
33benefits are scheduled to commence.

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

35(i) For Plan Type A: At any time a policyholder may withdraw
36funds only (I) with an adjustment to reflect changes in interest
37rates or asset values since receipt of the funds by the insurance
38company, (II) without an adjustment but installments over five
39years or more, (III) as an immediate life annuity, or (IV) no
40withdrawal permitted.

P25   1(ii) For Plan Type B: Before expiration of the interest rate
2guarantee, a policyholder may withdraw funds only (I) with an
3adjustment to reflect changes in interest rates or asset values since
4receipt of the funds by the insurance company, (II) without an
5adjustment but in installments over five years or more, or (III) no
6withdrawal permitted. At the end of the interest rate guarantee,
7funds may be withdrawn without an adjustment in a single sum or
8installments over less than five years.

9(iii) For Plan Type C: Policyholder may withdraw funds before
10expiration of interest rate guarantee in a single sum or installments
11over less than five years either (I) without adjustment to reflect
12changes in interest rates or asset values since receipt of the funds
13by the insurance company, or (II) subject only to a fixed surrender
14charge stipulated in the contract as a percentage of the fund.

15(F) A company may elect to value guaranteed interest contracts
16with cash settlement options and annuities with cash settlement
17options on either an issue year basis or on a change in fund basis.
18Guaranteed interest contracts with no cash settlement options and
19other annuities with no cash settlement options shall be valued on
20an issue year basis. As used in this section, an issue year basis of
21valuation refers to a valuation basis under which the interest rate
22used to determine the minimum valuation standard for the entire
23duration of the annuity or guaranteed interest contract is the
24calendar year valuation interest rate for the year of issue or year
25of purchase of the annuity or guaranteed interest contract, and the
26change in fund basis of valuation refers to a valuation basis under
27which the interest rate used to determine the minimum valuation
28standard applicable to each change in the fund held under the
29annuity or guaranteed interest contract is the calendar year
30valuation interest rate for the year of the change in the fund.

31(d) The reference interest rate referred to in subdivision (b) shall
32be defined as follows:

33(1) For life insurance, the lesser of the average over a period of
3436 months and the average over a period of 12 months, ending on
35June 30 of the calendar year preceding the year of issue, of the
36monthly average of the composite yield on seasoned corporate
37bonds, as published by Moody’s Investors Service, Inc.

38(2) For single premium immediate annuities and for annuity
39benefits involving life contingencies arising from other annuities
40with cash settlement options and guaranteed interest contracts with
P26   1cash settlement options, the average over a period of 12 months,
2ending on June 30 of the calendar year of issue or year of purchase,
3of the monthly average of the composite yield on seasoned
4corporate bonds, as published by Moody’s Investors Service, Inc.

5(3) For other annuities with cash settlement options and
6guaranteed interest contracts with cash settlement options, valued
7on a year of issue basis, except as stated in subdivision (b), with
8guarantee duration in excess of 10 years, the lesser of the average
9over a period of 36 months and the average over a period of 12
10months, ending on June 30 of the calendar year of issue or
11purchase, of the monthly average of the composite yield on
12seasoned corporate bonds, as published by Moody’s Investors
13Service, Inc.

14(4) For other annuities with cash settlement options and
15guaranteed interest contracts with cash settlement options, valued
16on a year of issue basis, except as stated in subparagraph (B) of
17paragraph (1) of subdivision (c), with guarantee duration of 10
18years or less, the average over a period of 12 months, ending on
19June 30 of the calendar year of issue or purchase, of the monthly
20average of the composite yield on seasoned corporate bonds, as
21published by Moody’s Investors Service, Inc.

22(5) For other annuities with no cash settlement options and for
23guaranteed interest contracts with no cash settlement options, the
24average over a period of 12 months, ending on June 30 of the
25calendar year of issue or purchase, of the monthly average of the
26composite yield on seasoned corporate bonds, as published by
27Moody’s Investors Service, Inc.

28(6) For other annuities with cash settlement options and
29guaranteed interest contracts with cash settlement options, valued
30on a change in fund basis, except as stated in subparagraph (B) of
31paragraph (1) of subdivision (c), the average over a period of 12
32months, ending on June 30 of the calendar year of the change in
33the fund, of the monthly average of the composite yield on
34seasoned corporate bonds, as published by Moody’s Investors
35Service, Inc.

36(e) If the monthly average of the composite yield on seasoned
37corporate bonds is no longer published by Moody’s Investors
38Service, Inc., or in the event that the NAIC determines that the
39monthly average of the composite yield on seasoned corporate
40bonds as published by Moody’s Investors Service, Inc., is no longer
P27   1appropriate for the determination of the reference interest rate,
2then an alternative method for determination of the reference
3interest rate adopted by the NAIC and approved by regulation
4promulgated by the commissioner may be substituted.

5(f) This section shall apply to all certificates and contracts issued
6by a fraternal benefit society.

7

SEC. 11.  

Section 10489.5 of the Insurance Code is amended
8to read:

9

10489.5.  

(a) Except as otherwise provided in Sections 10489.6,
1010489.9, and 10489.95, reserves according to the commissioners
11reserve valuation method, for the life insurance and endowment
12benefits of policies providing for a uniform amount of insurance
13and requiring the payment of uniform premiums shall be the excess,
14if any, of the present value, at the date of valuation, of the future
15guaranteed benefits provided for by those policies, over the then
16present value of any future modified net premiums therefor. The
17modified net premiums for a policy shall be the uniform percentage
18of the respective contract premiums for the benefits such that the
19present value, at the date of issue of the policy, of all modified net
20premiums shall be equal to the sum of the then present value of
21the benefits provided for by the policy and the excess of paragraph
22(1) over paragraph (2), as follows:

23(1) A net level annual premium equal to the present value, at
24the date of issue of the benefits provided for after the first policy
25year, divided by the present value, at the date of issue, of an annuity
26of one per annum payable on the first and each subsequent
27anniversary of the policy on which a premium falls due. However,
28the net level annual premium shall not exceed the net level annual
29premium on the 19-year premium whole life plan for insurance of
30the same amount at an age one year higher than the age at issue
31of the policy.

32(2) A net one-year term premium for the benefits provided for
33in the first policy year.

34(b) For a life insurance policy issued on or after January 1, 1986,
35for which the contract premium in the first policy year exceeds
36that of the second year and for which no comparable additional
37benefit is provided in the first year for the excess and which
38provides an endowment benefit or a cash surrender value or a
39combination in an amount greater than the excess premium, the
40reserve according to the commissioners reserve valuation method
P28   1as of any policy anniversary occurring on or before the assumed
2ending date defined herein as the first policy anniversary on which
3the sum of any endowment benefit and any cash surrender value
4then available is greater than the excess premium shall, except as
5otherwise provided in Section 10489.9, be the greater of the reserve
6as of the policy anniversary calculated as described in subdivision
7(a) and the reserve as of the policy anniversary calculated as
8described in subdivision (a), but with (1) the value defined in
9paragraph (1) of subdivision (a) being reduced by 15 percent of
10the amount of the excess first year premium, (2) all present values
11of benefits and premiums being determined without reference to
12premiums or benefits provided for by the policy after the assumed
13ending date, (3) the policy being assumed to mature on that date
14as an endowment, and (4) the cash surrender value provided on
15that date being considered as an endowment benefit. In making
16the above comparison the mortality and interest bases stated in
17Sections 10489.2 and 10489.4 shall be used.

18(c) Reserves according to the commissioners reserve valuation
19method shall be calculated by a method consistent with
20subdivisions (a) and (b) for paragraphs (1) to (4), inclusive.
21 However, any extra premiums charged because of impairments or
22special hazards shall be disregarded in the determination of
23modified net premiums.

24(1) Life insurance policies providing for a varying amount of
25insurance or requiring the payment of varying premiums.

26(2) Group annuity and pure endowment contracts purchased
27under a retirement plan or plan of deferred compensation,
28established or maintained by an employer (including a partnership
29or sole proprietorship) or by an employee organization, or by both,
30other than a plan providing individual retirement accounts or
31individual retirement annuities under Section 408 of the Internal
32Revenue Code, as now or hereafter amended.

33(3) Disability and accidental death benefits in all policies and
34 contracts.

35(4) All other benefits, except life insurance and endowment
36benefits in life insurance policies and benefits provided by all other
37annuity and pure endowment contracts.

38

SEC. 12.  

Section 10489.6 of the Insurance Code is amended
39to read:

P29   1

10489.6.  

(a) This section shall apply to all annuity and pure
2endowment contracts other than group annuity and pure endowment
3contracts purchased under a retirement plan or plan of deferred
4compensation, established or maintained by an employer (including
5a partnership or sole proprietorship) or by an employee
6organization, or by both, other than a plan providing individual
7retirement accounts or individual retirement annuities under Section
8408 of the Internal Revenue Code, as now or hereafter amended.

9(b) Reserves according to the commissioners annuity reserve
10method for benefits under annuity or pure endowment contracts,
11excluding any disability and accidental death benefits in the
12contracts, shall be the greatest of the respective excesses of the
13present values, at the date of valuation, of the future guaranteed
14benefits, including guaranteed nonforfeiture benefits, provided for
15by the contracts at the end of each respective contract year, over
16the present value, at the date of valuation, of any future valuation
17considerations derived from future gross considerations, required
18by the terms of the contract, that become payable prior to the end
19of the respective contract year. The future guaranteed benefits shall
20be determined by using the mortality table, if any, and the interest
21rate, or rates, specified in the contracts for determining guaranteed
22benefits. The valuation considerations are the portions of the
23respective gross considerations applied under the terms of the
24contracts to determine nonforfeiture values.

25

SEC. 13.  

Section 10489.7 of the Insurance Code is amended
26to read:

27

10489.7.  

(a) A company’s aggregate reserves for all life
28insurance policies, excluding disability and accidental death
29benefits, shall not be less than the aggregate reserves calculated
30in accordance with the methods set forth in Sections 10489.5,
3110489.6, 10489.9, and 10489.93 and the mortality table or tables
32and rate or rates of interest used in calculating nonforfeiture
33benefits for the policies.

34(b) The aggregate reserves for all policies, contracts, and benefits
35shall not be less than the aggregate reserves determined by the
36appointed actuary to be necessary to render the opinion required
37by Section 10489.15.

38

SEC. 14.  

Section 10489.8 of the Insurance Code is amended
39to read:

P30   1

10489.8.  

(a) Reserves for any category of policies, contracts,
2or benefits established by the commissioner may be calculated, at
3the option of the company, according to any standards that produce
4greater aggregate reserves for the category than those calculated
5according to the minimum standard provided in this article, but
6the rate or rates of interest used for policies and contracts, other
7than annuity and pure endowment contracts, shall not be greater
8than the corresponding rate or rates of interest used in calculating
9any nonforfeiture benefits provided in the policies or contracts.

10(b) A company, which adopts at any time a standard of valuation
11producing greater aggregate reserves than those calculated
12according to the minimum standard provided under this article,
13may adopt a lower standard of valuation with the approval of the
14commissioner, but not lower than the minimum provided in this
15article. However, for the purposes of this section, the holding of
16additional reserves previously determined by a qualified actuary
17to be necessary to render the opinion required by Section 10489.15
18shall not be deemed to be the adoption of a higher standard of
19valuation.

20

SEC. 15.  

Section 10489.9 of the Insurance Code is amended
21to read:

22

10489.9.  

(a) If in any contract year the gross premium charged
23by any life insurer on any policy or contract is less than the
24valuation net premium for the policy or contract calculated by the
25method used in calculating the reserve thereon but using the
26minimum valuation standards of mortality and rate of interest, the
27minimum reserve required for such policy or contract shall be the
28greater of either the reserve calculated according to the mortality
29table, rate of interest, and method actually used for such policy or
30contract, or the reserve calculated by the method actually used for
31such policy or contract but using the minimum valuation standards
32of mortality and rate of interest and replacing the valuation net
33premium by the actual gross premium in each contract year for
34which the valuation net premium exceeds the actual gross premium.
35The minimum valuation standards of mortality and rate of interest
36referred to in this section are those standards stated in Sections
3710489.2, 10489.3, and 10489.4.

38(b) For a life insurance policy issued on or after January 1, 1986,
39for which the gross premium in the first policy year exceeds that
40of the second year and for which no comparable additional benefit
P31   1is provided in the first year for such excess and which provides an
2endowment benefit or a cash surrender value or a combination
3thereof in an amount greater than such excess premium, the
4foregoing provisions of this section shall be applied as if the
5method actually used in calculating the reserve for such policy
6were the method described in Section 10489.5, ignoring the second
7paragraph of Section 10489.5. The minimum reserve at each policy
8anniversary of such a policy shall be the greater of the minimum
9reserve calculated in accordance with Section 10489.5, including
10the second paragraph of that section, and the minimum reserve
11calculated in accordance with this section.

12

SEC. 16.  

Section 10489.93 of the Insurance Code is amended
13to read:

14

10489.93.  

In the case of a plan of life insurance that provides
15for future premium determination, the amounts of which are to be
16determined by the insurance company based on then estimates of
17future experience, or in the case of a plan of life insurance or
18annuity that is of a nature that the minimum reserves cannot be
19determined by the methods described in Sections 10489.5, 10489.6,
20and 10489.9, the reserves that are held under the plan shall:

21(a) Be appropriate in relation to the benefits and the pattern of
22premiums for that plan; and

23(b) Be computed by a method that is consistent with the
24principles of this Standard Valuation Law, as determined by
25regulations promulgated by the commissioner.

26

SEC. 17.  

Section 10489.94 of the Insurance Code is amended
27to read:

28

10489.94.  

(a) The commissioner may issue a bulletin to
29provide tables of select mortality factors and rules for their use,
30rules concerning a minimum standard for the valuation of plans
31with nonlevel premiums of benefits, and rules concerning a
32minimum standard for the valuation of plans with secondary
33guarantees. The bulletin authorized by this subdivision shall have
34the same force and effect, and may be enforced by the
35commissioner to the same extent and degree, as regulations issued
36by the commissioner. The commissioner may also adopt regulations
37 to implement this section.

38(b) It is the intent of the Legislature that the bulletin described
39in subdivision (a) and the superseding regulations shall contain
40the provisions of the National Association of Insurance
P32   1Commissioners Valuation of Life Insurance Policies Model
2Regulation Number 830.

3

SEC. 18.  

Section 10489.95 of the Insurance Code is repealed.

4

SEC. 19.  

Section 10489.95 is added to the Insurance Code, to
5read:

6

10489.95.  

For accident and health insurance contracts issued
7on or after the operative date of the valuation manual, the standard
8prescribed in the valuation manual is the minimum standard of
9valuation required under subdivision (b) of Section 10489.12. For
10disability and accident and health insurance contracts issued prior
11to the operative date of the valuation manual, the minimum
12standard of valuation is the standard adopted by the commissioner
13by regulation.

14

SEC. 20.  

Section 10489.96 is added to the Insurance Code, to
15read:

16

10489.96.  

(a) For policies issued on or after the operative date
17of the valuation manual, the standard prescribed in the valuation
18manual is the minimum standard of valuation required under
19subdivision (b) of Section 10489.12, except as provided under
20subdivision (e) or (g).

21(b) The operative date of the valuation manual is January 1 of
22the first calendar year following the first July 1 as of which all the
23following have occurred:

24(1) The valuation manual has been adopted by the NAIC by an
25affirmative vote of at least 42 members, or three-fourths of the
26members voting, whichever is greater.

27(2) The Standard Valuation Law, as amended by the NAIC in
282009, or legislation including substantially similar terms and
29provisions, has been enacted by states representing greater than
3075 percent of the direct premiums written as reported in the
31following annual statements submitted for 2008: life, accident,
32and health annual statements, health annual statements, or fraternal
33annual statements.

34(3) The Standard Valuation Law, as amended by the NAIC in
352009, or legislation including substantially similar terms and
36provisions, has been enacted by at least 42 of the following 55
37jurisdictions: The 50 states of the United States, American Samoa,
38the United States Virgin Islands, the District of Columbia, Guam,
39and Puerto Rico.

P33   1(c) Unless a change in the valuation manual specifies a later
2effective date, changes to the valuation manual shall be effective
3on January 1 following the date when all of the following have
4occurred:

5(1) The change to the valuation manual has been adopted by
6the NAIC by an affirmative vote representing:

7(A) At least three-fourths of the members of the NAIC voting,
8but not less than a majority of the total membership.

9(B) Members of the NAIC representing jurisdictions totaling
10greater than 75 percent of the direct premiums written as reported
11in the following annual statements most recently available prior
12to the vote in subparagraph (A): life, accident, and health annual
13statement, health annual statements, or fraternal annual statements.

14(2) The commissioner has issued an order adopting the valuation
15manual with the changes. The commissioner shall issue the order
16only if he or she finds that the conditions set forth in paragraph
17(1) have been satisfied.

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

19(1) Minimum valuation standards for and definitions of the
20policies or contracts subject to subdivision (b) of Section 10489.12.
21Those minimum valuation standards shall be:

22(A) The commissioners reserve valuation method for life
23insurance contracts, other than annuity contracts, subject to
24subdivision (b) of Section 10489.12.

25(B) The commissioners annuity reserve valuation method for
26annuity contracts subject to subdivision (b) of Section 10489.12.

27(C) Minimum reserves for all other policies or contracts subject
28to subdivision (b) of Section 10489.12.

29(2) Which policies or contracts or types of policies or contracts
30 are subject to the requirements of a principle-based valuation in
31subdivision (a) of Section 10489.97 and the minimum valuation
32standards consistent with those requirements.

33(3) For policies and contracts subject to a principle-based
34valuation under Section 10489.97:

35(A) Requirements for the format of reports to the commissioner
36under paragraph (3) of subdivision (b) of Section 10489.97, which
37shall include information necessary to determine if the valuation
38is appropriate and in compliance with this article.

39(B) Assumptions for risks over which the company does not
40have significant control or influence.

P34   1(C) Procedures for corporate governance and oversight of the
2actuarial function, and a process for appropriate waiver or
3modification of those procedures.

4(4) For policies not subject to a principle-based valuation under
5Section 10489.97, the minimum valuation standard, which shall
6either:

7(A) Be consistent with the minimum standard of valuation prior
8to the operative date of the valuation manual.

9(B) Develop reserves that quantify the benefits and guarantees,
10and the funding, associated with the contracts and their risks at a
11level of conservatism that reflects conditions that include
12unfavorable events that have a reasonable probability of occurring.

13(5) Other requirements, including, but not limited to, those
14relating to reserve methods, models for measuring risk, generation
15of economic scenarios, assumptions, margins, use of company
16experience, risk measurement, disclosure, certifications, reports,
17actuarial opinions and memorandums, transition rules, and internal
18controls.

19(6) The data and form of the data required under Section
2010489.98, with whom the data is required to be submitted, and
21may specify other requirements including data analyses and
22reporting of analyses.

23(e) In the absence of a specific valuation requirement or if a
24specific valuation requirement in the valuation manual is not, in
25the opinion of the commissioner, in compliance with, or conflicts
26with, this code, then the company shall, with respect to those
27requirements, comply with the minimum valuation standards
28prescribed by the code or by the commissioner by regulation or
29bulletin.

30(f) The commissioner may engage a qualified actuary, at the
31expense of the company, to perform an actuarial examination of
32the company and opine on the appropriateness of any reserve
33assumption or method used by the company, or to review and opine
34on a company’s compliance with any requirement set forth in this
35article. The commissioner may rely upon the opinion, regarding
36the provisions contained within this article, of a qualified actuary
37engaged by the commissioner of another state, district, or territory
38of the United States. As used in this subdivision, the term “engage”
39includes employment and contracting.

P35   1(g) The commissioner may require a company to change any
2assumption or method that in the opinion of the commissioner is
3necessary in order to comply with the requirements of the valuation
4manual or this article, and the company shall adjust the reserves
5as required by the commissioner. The commissioner may take
6other disciplinary action as permitted pursuant to all other
7applicable law.

8

SEC. 21.  

Section 10489.97 is added to the Insurance Code, to
9read:

10

10489.97.  

(a) A company shall establish reserves using a
11principle-based valuation that meets the following conditions for
12policies or contracts as specified in the valuation manual:

13(1) Quantify the benefits, guarantees, and the funding associated
14with the contracts and their risks at a level of conservatism that
15reflects conditions that include unfavorable events that have a
16reasonable probability of occurring during the lifetime of the
17contracts. For policies or contracts with significant tail risk, reflects
18conditions appropriately adverse to quantify the tail risk.

19(2) Incorporate assumptions, risk analysis methods, and financial
20models and management techniques that are consistent with, but
21not necessarily identical to, those utilized within the company’s
22overall risk assessment process, while recognizing potential
23differences in financial reporting structures and any prescribed
24assumptions or methods.

25(3) Incorporate assumptions that are derived in one of the
26following manners:

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

28(B) For assumptions that are not prescribed, the assumptions
29shall:

30(i) Be established utilizing the company’s available experience,
31to the extent it is relevant and statistically credible.

32(ii) To the extent that company data is not available, relevant,
33or statistically credible, be established utilizing other relevant,
34statistically credible experience.

35(4) Provide margins for uncertainty including adverse deviation
36and estimation error, such that the greater the uncertainty the larger
37the margin and resulting reserve.

38(b) A company using a principle-based valuation for one or
39more policies or contracts subject to this section as specified in
40the valuation manual shall do the following:

P36   1(1) Establish procedures for corporate governance and oversight
2of the actuarial valuation function consistent with those described
3in the valuation manual.

4(2) Provide to the commissioner and the board of directors of
5the company an annual certification of the effectiveness of the
6internal controls with respect to the principle-based valuation. The
7controls shall be designed to ensure that all material risks inherent
8in the liabilities and associated assets subject to such valuation are
9included in the valuation, and that valuations are made in
10accordance with the valuation manual. The certification shall be
11based on the controls in place as of the end of the preceding
12calendar year.

13(3) Develop, and file with the commissioner upon request, a
14principle-based valuation report that complies with standards
15prescribed in the valuation manual.

16(c) A principle-based valuation may include a prescribed
17formulaic reserve component.

18

SEC. 22.  

Section 10489.98 is added to the Insurance Code, to
19read:

20

10489.98.  

A company shall submit mortality, morbidity,
21policyholder behavior, or expense experience and other data as
22prescribed in the valuation manual.

23

SEC. 23.  

Section 10489.99 is added to the Insurance Code, to
24read:

25

10489.99.  

(a) For purposes of this section, “confidential
26information” shall mean:

27(1) A memorandum in support of an opinion submitted under
28Section 10489.15 and any other documents, materials, and other
29information, including, but not limited to, all working papers, and
30copies thereof, created, produced, or obtained by or disclosed to
31the commissioner or any other person in connection with the
32memorandum.

33(2) All documents, materials, and other information, including,
34but not limited to, all working papers, and copies thereof, created,
35produced, or obtained by or disclosed to the commissioner or any
36other person in the course of an examination made under
37subdivision (f) of Section 10489.96. However, if an examination
38report or other material prepared in connection with an examination
39made under Article 4 (commencing with Section 729) of Chapter
401 of Part 2 of Division 1 is not held as private and confidential
P37   1information under that article, an examination report or other
2material prepared in connection with an examination made under
3subdivision (f) of Section 10489.96 shall not be “confidential
4information” to the same extent as if the examination report or
5other material had been prepared under Article 4.

6(3) Any reports, documents, materials, and other information
7developed by a company in support of, or in connection with, an
8annual certification by the company under paragraph (2) of
9subdivision (b) of Section 10489.97 evaluating the effectiveness
10of the company’s internal controls with respect to a principle-based
11valuation and any other documents, materials, and other
12information, including, but not limited to, all working papers, and
13copies thereof, created, produced, or obtained by or disclosed to
14the commissioner or any other person in connection with those
15reports, documents, materials, and other information.

16(4) Any principle-based valuation report developed under
17paragraph (3) of subdivision (b) of Section 10489.97 and any other
18documents, materials, and other information, including, but not
19limited to, all working papers, and copies thereof, created,
20produced, or obtained by or disclosed to the commissioner or any
21other person in connection with the report.

22(5) All of the following:

23(A) Any documents, materials, data, and other information
24submitted by a company under Section 10489.98, to be known
25collectively, as “experience data.”

26(B) Experience data plus any other documents, materials, data,
27and other information, including, but not limited to, all working
28papers, and copies thereof, created or produced in connection with
29the experience data, in each case that includes any potentially
30company-identifying or personally identifiable information, that
31is provided to or obtained by the commissioner, to be known,
32collectively, as “experience materials.”

33(C) Any other documents, materials, data, and other information,
34including, but not limited to, all working papers, and copies thereof,
35 created, produced, or obtained by or disclosed to the commissioner
36or any other person in connection with the experience materials. 

37(b) (1) Except as provided in this section, a company’s
38confidential information is confidential by law and privileged, it
39shall not be subject to the California Public Records Act, and shall
40not be subject to subpoena or discovery or admissible in evidence
P38   1in any private civil action. However, the commissioner is
2authorized to use the confidential information in a regulatory or
3legal action brought against the company as a part of the
4commissioner’s official duties.

5(2) The commissioner, and any person who received confidential
6information while acting under the authority of the commissioner,
7shall not be permitted or required to testify in a private civil action
8concerning any confidential information.

9(3) In order to assist in the performance of the commissioner’s
10duties, the commissioner may share confidential information with
11the following recipients, provided that the recipient agrees, and
12has the legal authority to agree, to maintain the confidentiality and
13privileged status of the documents, materials, data, and other
14information in the same manner and to the same extent as required
15for the commissioner:

16(A) Other state, federal, and international regulatory agencies
17and with the NAIC and its affiliates and subsidiaries.

18(B) In the case of confidential information specified in
19paragraphs (1) and (4) of subdivision (a) of Section 10489.99 only,
20with the Actuarial Board for Counseling and Discipline or its
21successor upon request stating that the confidential information is
22required for the purpose of professional disciplinary proceedings
23and with state, federal, and international law enforcement officials.

24(4) The commissioner may receive documents, materials, data,
25and other information, including otherwise confidential and
26privileged documents, materials, data, or information, from the
27NAIC and its affiliates and subsidiaries, from regulatory or law
28 enforcement officials of other foreign or domestic jurisdictions,
29and from the Actuarial Board for Counseling and Discipline or its
30successor and shall maintain as confidential or privileged any
31document, material, data, or other information received with notice
32or the understanding that it is confidential or privileged under the
33laws of the jurisdiction that is the source of the document, material,
34or other information.

35(5) The commissioner may enter into agreements governing
36sharing and use of information consistent with this subdivision.

37(6) A waiver of any applicable privilege or claim of
38confidentiality in the information shall not occur as a result of
39disclosure to the commissioner under this section or as a result of
40sharing as authorized in paragraph (3).

P39   1(7) A privilege established under the law of any state or
2jurisdiction that is substantially similar to the privilege established
3under subdivision (b) shall be available and enforced in any
4proceeding in, and in any court of, this state.

5(8) For purposes of this section, “regulatory agency,” “law
6enforcement agency,” and the “NAIC” include, but are not limited
7to, their employees, agents, consultants, and contractors.

8(c) Notwithstanding subdivision (b), any confidential
9information specified in paragraphs (1) and (4) of subdivision (a):

10(1) May be subject to subpoena for the purpose of defending
11an action seeking damages from the appointed actuary submitting
12the related memorandum in support of an opinion submitted under
13Section 10489.15 or principle-based valuation report developed
14under paragraph (3) of subdivision (b) of Section 10489.97 by
15reason of an action required by this article or by regulations
16promulgated pursuant to this article.

17(2) May otherwise be released by the commissioner with the
18written consent of the company.

19(3) Once any portion of a memorandum in support of an opinion
20submitted under Section 10489.15 or a principle-based valuation
21report developed under paragraph (3) of subdivision (b) of Section
2210489.97 is cited by the company in its marketing or is publicly
23volunteered to or before a governmental agency other than a state
24insurance department or is released by the company to the news
25media, all portions of the memorandum or report shall no longer
26be confidential.

27

SEC. 24.  

Section 10489.992 is added to the Insurance Code,
28to read:

29

10489.992.  

(a) (1) The commissioner may hire and assign
30department staff, and retain nondepartment actuaries and other
31consultants, to assist the commissioner with preparing to implement
32and implementing, directly or indirectly, principle-based valuation.

33(2) The commissioner may appoint a person to serve as an expert
34in preparing to implement and implementing, directly or indirectly,
35principle-based valuation. That person may be an employee of the
36department exempt from the state civil service system within the
37meaning of Section 4 of Article VII of the California Constitution.
38The person’s salary or compensation shall be fixed by the
39commissioner and effective and payable without approval of the
P40   1Department of Human Resources, pursuant to Section 19825 of
2the Government Code.

3(b) (1) Notwithstanding any other law, the commissioner may
4annually assess allbegin delete insurersend deletebegin insert companiesend insert that are subject to this article
5to defray costs the department incurs preparing to implement and
6implementing, directly or indirectly, principle-based valuation,
7including, but not limited to, department salaries and overhead,
8and actuary and consultant fees and expenses.

9(2) The commissioner shall annually set an “aggregate
10assessment amount” and an assessment amount for each tier listed
11in paragraph (4). The aggregate assessment amount shall be the
12amount necessary to provide sufficient moneys to carry out the
13projected workload to implement, directly or indirectly,
14principle-based valuation. The annual aggregate assessment amount
15shall be no less than one million dollars ($1,000,000).

16(3) At least 90 days before finalizing the annual aggregate
17assessment amount and assessment amount for the tiers listed in
18paragraph (4), the commissioner shall provide notice of the
19commissioner’s preliminary determination of those amounts. The
20notice shall explain how the commissioner derived the amounts
21and provide no less than 45 days for interested parties to provide
22comments.

23(4) Not less than 45 days after the due date for comments
24specified in paragraph (3), the commissioner shall by bulletin
25establish the annual aggregate assessment amount according to
26thebegin delete insurer’send deletebegin insert company’send insert annual premium based on the below tiers.
27For purposes of this section, “annual premium” shall mean the
28gross annual life insurance premium written bybegin delete an insurerend deletebegin insert a
29companyend insert
in California during the immediately preceding year as
30reported in its annual statutory financial statement.begin insert The
31commissioner may adjust the initial assessment amount for each
32tier to ensure a sufficient annual aggregate assessment amount as
33defined in paragraph (2) if he or she adopts a change to the
34valuation manual pursuant to paragraph (2) of subdivision (c) of
35Section 10489.96 that warrants the adjustment, and provides an
36accounting explaining the need for the adjustment.end insert

37

 

Annual Premium

Initial Annual Assessment Perbegin delete Insurerend deletebegin insert Companyend insert

$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

 

9(5) All examinations and analyses of reserves and
10principle-based valuation methodologies performed under Section
11730 may be at the expense of the company, organization, or person
12examined, pursuant to Section 736.

13(c) Before retaining an independent actuary or consultant under
14paragraph (1) of subdivision (a), the commissioner shall require a
15written declaration by the actuary or consultant that:

16(1) The actuary shall not disclose to another party, other than
17the department, and shall protect from unauthorized use, any
18confidential information, as defined in Section 10489.99, obtained
19in the course of his or her work for the commissioner, unless
20authorized to do so by the commissioner or required by law.

21(2) The actuary or consultant shall not disclose to another party
22and shall protect from unauthorized use, all confidential
23information obtained from the department in the course of his or
24her work for the commissioner.

25(d) Before retaining an independent actuary or consultant under
26paragraph (1) of subdivision (a), the commissioner shall require a
27written declaration by the actuary or consultant that:

28(1) The actuary or consultant will not perform professional
29services involving an actual or potential conflict of interest unless
30all of the following are satisfied:

31(A) The actuary’s or consultant’s ability to perform the services
32fairly is unimpaired.

33(B) There has been disclosure of the conflict to all present, or
34known prospective, clients or employers of the actuary or
35consultant whose interests would be affected by the conflict.

36(C) All present, or known prospective, clients or employers of
37the actuary or consultant have expressly agreed to the performance
38of the services by the actuary or consultant.

P42   1(2) The actuary or actuarial firm with which the actuary is
2affiliated was not involved in developing the reserves or
3principle-based valuation methodology under consideration by the
4actuary.

5(3) The actuary or consultant has disclosed any financial interest
6in the companies whose reserves or principle-based valuation
7methodologies may be affected by the actuary’s or consultant’s
8services.

9(e) The commissioner may develop and amend regulations to
10implement or modify subdivisions (c) and (d). The initial adoption
11of the regulations shall be deemed to be an emergency and
12necessary in order to address a situation calling for immediate
13action to avoid serious harm to the public peace, health, safety, or
14general welfare. Any emergency regulation adopted or amended
15by the commissioner pursuant to this section shall be adopted or
16amended in accordance with Chapter 3.5 (commencing with
17Section 11340) of Part 1 of Division 3 of Title 2 of the Government
18Code and shall remain in effect for 180 days.

19

SEC. 25.  

The Legislature finds and declares that Section 6 of
20this act, which amends Section 10489.15 of the Insurance Code,
21imposes a limitation on the public’s right of access to the meetings
22of public bodies or the writings of public officials and agencies
23within the meaning of Section 3 of Article I of the California
24Constitution. Pursuant to that constitutional provision, the
25Legislature makes the following findings to demonstrate the interest
26protected by this limitation and the need for protecting that interest:

27In order to protect proprietary information, it is necessary to
28enact legislation to ensure that information provided pursuant to
29the Standard Valuation Law provided pursuant to this act is kept
30confidential.



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