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CA Department of Insurance

Bulletin 2003-05

Bulletin No. 2003 - 5
November 18, 2003

To: All Licensed Life Insurance Companies and Other Interested Persons

Subject: Recognition of the 2001 CSO Mortality Table

Recognition of the 2001 CSO Mortality Table for Use in Determining Minimum Reserve Liabilities and Non- Forfeiture Benefits


Table of Contents


Section 1. Authority

This Bulletin is issued under the authority of §§ 10489.2(a) and 10163.2(h)(6) of the California Insurance Code (CIC), and California Code of Regulations (CCR), Title 10, §§ 2542.4(a) and 2542.4(b).

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Section 2. Purpose

The purpose of this Bulletin is to recognize, permit and prescribe the use of the 2001 Commissioners Standard Ordinary (CSO) Mortality Table in accordance with CIC § 10489.2(a) of the "Standard Valuation Law" and § 10163.2(h)(6) of the "Standard Nonforfeiture Law for Life Insurance", and CCR, Title 10, §§ 2542.4(a) and 2542.4(b) of the "Valuation of Life Insurance Policies" Regulation.

Section 3. Definitions

  1. "2001 CSO Mortality Table" means that mortality table, consisting of separate rates of mortality for male and female lives, developed by the American Academy of Actuaries CSO Task Force from the Valuation Basic Mortality Table developed by the Society of Actuaries Individual Life Insurance Valuation Mortality Task Force, and adopted by the NAIC in December 2002. The 2001 CSO Mortality Table is included in the Proceedings of the NAIC (2nd Quarter 2002). Unless the context indicates otherwise, the "2001 CSO Mortality Table" includes both the ultimate form of that table and the select and ultimate form of that table and includes both the smoker and nonsmoker mortality tables and the composite mortality tables. It also includes both the age-nearest-birthday and age-last-birthday bases of the mortality tables.

  2. "2001 CSO Mortality Table (F)" means that mortality table consisting of the rates of mortality for female lives from the 2001 CSO Mortality Table.

  3. "2001 CSO Mortality Table (M)" means that mortality table consisting of the rates of mortality for male lives from the 2001 CSO Mortality Table.

  4. "Composite mortality tables" means mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers.

  5. "Smoker and nonsmoker mortality tables" means mortality tables with separate rates of mortality for smokers and nonsmokers.
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Section 4. 2001 CSO Mortality Table

  1. At the election of the company for any one or more specified plans of insurance and subject to the conditions stated in this Bulletin, the 2001 CSO Mortality Table may be used as the minimum standard for policies issued on or after January1, 2004 and before the date specified in Subsection B to which CIC §§ 10489.2(a) and 10163.2(h)(6), and CCR, Title 10,§§2542.4(a) and 2542.4(b) are applicable. If the company elects to use the 2001 CSO Mortality Table, it shall do so for both valuation and non-forfeiture purposes.

  2. Subject to the conditions stated in this Bulletin, the 2001 CSO Mortality Table shall be used in determining minimum standards for policies issued on and after January 1, 2009, to which CIC §§ 10489.2(a) and 10163.2(h)(6), and CCR, Title10, §§ 2542.4(a) and 2542.4(b) are applicable.

Note: There is no new Commissioners Extended Term (CET) Table being proposed to replace the 1980 CET Table. Therefore, the new minimum basis for the computation of values related to extended term benefits will be the 2001 CSO Mortality Table.

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Section 5. Conditions

  1. For each plan of insurance with separate rates for smokers and nonsmokers an insurer may use:

  1. Composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up non-forfeiture benefits;

  2. Smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by CIC § 10489.9 and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values and amounts of paid-up non-forfeiture benefits; or

  3. Smoker and nonsmoker mortality to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up non-forfeiture benefits.

  1. For plans of insurance without separate rates for smokers and nonsmokers the composite mortality tables shall be used.

  2. For the purpose of determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up non-forfeiture benefits, the 2001 CSO Mortality Table may, at the option of the company for each plan of insurance, be used in its ultimate or select and ultimate form, subject to the restrictions of CCR, Title 10, § 2542.5 relative to use of the select and ultimate form.

  3. Prior to January 1, 2009, when the 2001 CSO Mortality Table is the minimum reserve standard for any plan for a company, the actuarial opinion in the annual statement filed with the commissioner shall be based on an asset adequacy analysis as specified in CCR, Title 10, § 2580.4(a) of the "Actuarial Opinion and Memorandum Regulation". The Commissioner may exempt a company from this requirement if it only does business in California and in no other state.

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Section 6Applicability of the 2001 CSO Mortality Table to California Code of Regulations, Title 10, §§ 2542 to 2542.8 "Valuation of Life Insurance Policies"

  1. The 2001 CSO Mortality Table may be used in applying CCR, Title 10, §§ 2542 to 2542.8 "Valuation of Life Insurance Policies" in the following manner, subject to the transition dates for use of the 2001 CSO Mortality Table in Section 4 of this Bulletin (unless otherwise noted, the references in this section are to the CCR, Title 10, §§ 2542 to 2542.8 "Valuation of Life Insurance Policies"):
  1. Section 2542.2(a)(2)(B): The net level reserve premium is based on the ultimate mortality rates in the 2001 CSO Mortality Table.

  2. Section 2542.3(b): All calculations are made using the 2001 CSO Mortality Rate, and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in Section 6A(4) of this Bulletin. The value of "qx+k+t-1" is the valuation mortality rate for deficiency reserves in policy year k+t, but using the unmodified select mortality rates if modified select mortality rates are used in the computation of deficiency reserves.

  3. Section 2542.4(a): The 2001 CSO Mortality Table is the minimum standard for basic reserves.

  4. Section 2542.4(b): The 2001 CSO Mortality Table is the minimum standard for deficiency reserves. If select mortality rates are used, they may be multiplied by X percent for durations in the first segment, subject to the conditions specified in Sections 2542.4(b)(3)(A) to 2542.4(b)(3)(I). In demonstrating compliance with those conditions, the demonstrations may not combine the results of tests that utilize the 1980 CSO Mortality Table with those tests that utilize the 2001 CSO Mortality Table, unless the combination is explicitly required by regulation or necessary to be in compliance with relevant Actuarial Standards of Practice.

  5. Section 2542.5(c): The valuation mortality table used in determining the tabular cost of insurance shall be the ultimate mortality rates in the 2001 CSO Mortality Table.

  6. Section 2542.5(e)(4): The calculations specified in Section 2542.5(e) shall use the ultimate mortality rates in the 2001 CSO Mortality Table.

  7. Section 2542.5(f)(4): The calculations specified in Section 2542.5(f) shall use the ultimate mortality rates in the 2001 CSO Mortality Table.

  8. Section 2542.5(g)(2): The calculations specified in Section 2542.5(g) shall use the ultimate mortality rates in the 2001 CSO Mortality Table.

  9. Section 2542.6(a)(1)(B): The one-year valuation premium shall be calculated using the ultimate mortality rates in the 2001 CSO Mortality Table.

  1. Nothing in this section shall be construed to expand the applicability of CCR , Title 10, §§ 2542 to 2542.8 to include life insurance policies exempted under §2542.2(a).

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Section 7. Gender-Blended Tables

  1. For any ordinary life insurance policy delivered or issued for delivery in this state on and after January 1, 2004, that utilizes the same premium rates and charges for male and female lives or is issued in circumstances where applicable law does not permit distinctions on the basis of gender, a mortality table that is a blend of the 2001 CSO Mortality Table (M) and the 2001 CSO Mortality Table (F) may, at the option of the company for each plan of insurance, be substituted for the 2001 CSO Mortality Table for use in determining minimum cash surrender values and amounts of paid-up non-forfeiture benefits. No change in minimum valuation standards is implied by this subsection of the Bulletin.

  2. The company may choose from among the blended tables developed by the American Academy of Actuaries CSO Task Force and adopted by the NAIC in December 2002.

Section 8. Separability

If any provision of this Bulletin or its application to any person or circumstance is for any reason held to be invalid, the remainder of the Bulletin and the application of the provision to other persons or circumstances shall not be affected.

Section 9. Effective Date

The effective date of this Bulletin is January 1, 2004.

Section 10. Questions

Any questions regarding this Bulletin should be referred to:

Senior Life Actuary
Department of Insurance
300 South Spring St., South Tower
Los Angeles, CA 90013
Phone: (213) 346-6147
Fax: (213) 897-9761
E-mail: KamilA@insurance.ca.gov

__________________________

JOHN GARAMENDI

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