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Life Bureau Filing Guidance Note
Guidance Date: May 2, 2017

Use of the 2017 CSO Mortality Table for Nonforfeiture and Reserve Calculations for Policies subject to Section 4221(n-1) of the New York State Insurance Law and Policies Subject to Regulation 77

Pursuant to Regulations 147 and 179, life insurers may elect to use the 2017 CSO Mortality Table as the minimum mortality standard for calculating nonforfeiture values and reserves for policies issued between January 1, 2017 and December 31, 2019. The 2017 CSO Mortality Table must be used as the minimum mortality standard for policies issued on or after January 1, 2020. Regulation 179 was promulgated in accordance with section 4221(k)(9)(B)(vi) of the New York State Insurance Law, which provides:

"Any ordinary mortality tables, adopted after nineteen hundred eighty by the National Association of Insurance Commissioners (or any modifications thereof for any specified class or classes of risks), that are approved by the superintendent for use in determining the minimum nonforfeiture standard may be substituted for the Commissioners 1980 Standard Ordinary Mortality Table with or without Ten-Year Select Mortality Factors or for the Commissioners 1980 Extended Term Insurance Table."
  1. Any life insurance policy that credits additional amounts pursuant to section 4232 of the New York State Insurance Law must comply with the nonforfeiture requirements of section 4221(n-1).

    A policy subject to section 4232 of the insurance law must provide cash surrender values that meet the requirements of either section 4221(n-1)(3)(A) or 4221(n-1)(3)(B).

    There are four areas where the mortality table is operative.

    1. In order for the cash surrender values to meet the requirements of section 4221(n-1)(3)(A), the maximum annual charges may not exceed the limits contained in section 4221(n-1)(3)(A)(iv). This section includes a provision that:
      "Maximum charges may also be based on any other table (or modification thereof for the specified class of risk) approved by the superintendent pursuant to item (vi) of subparagraph (B) of paragraph nine of subsection (k) of this section."

      Pursuant to Regulation 179, an insurer that has chosen to comply with section 4221(n-1)(3)(A) may elect to have the maximum cost of insurance charges limited by the 2017 CSO Mortality Table as of January 1, 2017, but must limit them to the 2017 CSO Mortality Table by January 1, 2020.

    2. The mortality table affects the calculation of the net level whole life annual premium both at issue and upon an increase in the amount of insurance. The net level whole life annual premium is referenced in both paragraphs (A) and (B) of section 4221(n-1)(3), although in different ways. The mortality table used in the calculation is required to be the table on which the maximum annual cost of insurance charges are based. The mortality charges imposed may not be in excess of those based on the table(s) referenced in section 4221(n-1)(3)(A)(iv).

      As indicated previously, section 4221(n-1)(3)(A)(iv) is subject to the discretion granted in section 4221(k)(9)(B)(vi).

    3. Section 4221(n-1)(3)(C) applies to policies which base cash surrender values on either section 4221(n-1)(3)(A) or 4221(n-1)(3)(B). Section 4221(n-1)(3)(C) provides:
      "The surrender charge in policy years after the first shall not exceed the maximum initial surrender charge permitted under this subsection multiplied by the ratio of (i) the value of a life annuity due of one dollar per year for the balance of the amortization period to (ii) the corresponding annuity value at issue, based on the mortality table and interest rate used in calculating the net level whole life annual premiums. For all policies the maximum amortization period is twenty years."

      As noted above, the net level whole life annual premium is affected by the mortality table used.

    4. Section 4221(n-1)(3)(B)(iii) requires that the policyholder be given the right at least once each year to purchase guaranteed paid-up life insurance. This section specifies that the purchase rates for this paid-up coverage must be at least as favorable as those based on the mortality basis specified for an insured not medically underwritten in section 4221(n-1)(3)(A)(iv) and 4.00% interest.
  2. Any variable life insurance policy subject to Regulation 77 must comply with the nonforfeiture requirements of section 54.7 of Regulation 77.

    Section 54.7 of Regulation 77 allows for nonforfeiture compliance under either section 54.7(a) or 54.7(b). This discussion is limited to compliance under section 54.7(b), which allows cash surrender values to be determined under either section 54.7(b)(2)(i) or 54.7(b)(2)(ii).

    There are four areas where the mortality table is operative.

    1. Section 54.7(b)(4) provides:
      "In the case of standard medically underwritten lives, the mortality charges for life insurance on any insured under the policy may not exceed, prior to the operative date of subsection (k) of section 4221 of the Insurance Law, the 1958 CSO table; and on or after such operative date, the 1980 CSO with or without 10-year select mortality factors or any other table approved by regulation promulgated by the superintendent, in accordance with section 4221(k)(9)(B)(vi) as substitutes for such tables."

      For variable life products, the 2017 CSO Mortality Table may be used in determining maximum mortality charges for policies issued between January 1, 2017 and December 31, 2019. The 2017 CSO Mortality Table must be used for policies issued on or after January 1, 2020. This applies to policies subject to either subparagraph (i) or (ii) of section 54.7(b)(2).

    2. The mortality table affects the calculation of the net level whole life annual premium both at issue and upon an increase in the amount of insurance. Sections 54.7(b)(2)(i) and 54.7(b)(2)(ii) use the net level whole life annual premium, although in different ways. The mortality table used for the calculation is required to be the table on which the maximum annual cost of insurance charges are based, pursuant to sections 54.7(b)(1)(ix) and 54.7(b)(1)(x) of Regulation 77.
    3. Section 54.7(b)(3) of Regulation 77 provides:
      "Any surrender charge in paragraph (2) of this subdivision must be such that during any policy year it does not exceed the maximum initial surrender charge that would be allowed multiplied by the ratio of a life annuity due for age x+t for 20-t years to a life annuity due for age x for 20 years based on the mortality table and interest rate used in calculating the net level whole life annual premiums."

      As noted above, the net level whole life annual premiums are affected by the mortality table used.

    4. Section 54.7(b)(5)(iii) states that at least once every 5 years for a private placement variable life insurance policy, and at least once each year for any other variable life insurance policy, the policyholder has the right to transfer all separate account funds to the general account and apply the policy's cash surrender value to purchase a guaranteed fixed paid-up benefit.

      Section 54.7(b)(5)(iv) then goes on to provide:

      "Any amount of paid-up whole life insurance provided under subparagraph (iii) of this paragraph shall be at least as great as that computed using the mortality table on which the maximum mortality charges have been calculated and the interest rate guaranteed in the policy. Any period of extended term insurance provided under subparagraph (iii) shall be at least as long as that using an extended term insurance mortality table appropriate to the mortality table for the maximum mortality charges and the interest rate guaranteed in the policy."

      Once the 2017 CSO Mortality Table is used for the maximum mortality charges it must also be used if a fixed paid-up benefit was provided as an option under section 54.7(b)(5)(iii).

Pursuant to Regulation 179, together with section 4221(k)(9)(B)(vi), insurers may elect to use the 2017 CSO Mortality Table as the minimum mortality standard for policies issued between January 1, 2017 and December 31, 2019. The 2017 CSO Mortality Table is the required minimum mortality standard for all policies issued on or after January 1, 2020. The election of the 2017 CSO Mortality Table may only be done on a prospective basis, since the forms must reflect that the nonforfeiture values are based on the 2017 CSO Mortality Table.

Please note Regulation 179 requires that the 2017 CSO Mortality Table be used for both reserve and nonforfeiture purposes. Election of the 2017 CSO Mortality Table for reserving purposes may only be done on a retrospective basis in any given year for products with no nonforfeiture values and where the reserve basis is not specified in the policy form.

Updated 05/02/2017

 

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