08-02: Life Insurance Actuarial Issues
To: All Life Insurers
From: Linda Bohrer, Director Insurance Market Regulation Division; Fred Heese, Director Insurance Solvency & Company Regulation Division
Re: Life Insurance Actuarial Issues
Date: February 7, 2008
The purpose of this bulletin is to clarify some of the laws affecting life insurance policies issued in the State of Missouri, as well as to remind carriers of certain provisions in the law. It is important that carriers have specific, consistent guidance on these issues that are of special concern to Missouri, including those resulting from administrative and other differences among states.
1) Universal Life Interest Rates
The valuation interest rate for a life insurance policy must not exceed its nonforfeiture interest rate. (See RSMo §376.380.1(2)(f)). Nonforfeiture interest rates for universal life policies do not need to equal guaranteed cash value accumulation rates. Before changing the valuation interest rate for newly issued policies, i.e., in response to changes in maximum permissible valuation interest rates, actuaries must assure that nonforfeiture compliance is maintained, e.g., for expense allowances, surrender charges, and smoothness.
2) Reserves for Life Insurance with Limited Underwriting
The 2001 CSO Mortality Table is not generally adequate for statutory reserves for pre-need, funeral, credit, and simplified or guaranteed issue life insurance. Reserves for those types of life insurance issued based upon limited underwriting must not be based upon the 2001 CSO Mortality Table without modification unless justified by credible experience as attested by a specifically qualified actuary, i.e., a Member of the American Academy of Actuaries (MAAA), in accordance with all applicable Actuarial Standards of Practice (ASOPs) promulgated by the Actuarial Standards Board (ASB). (See RSMo §376.380.)
3) Discounts on Individual Life Policies
Discounts to list-billed, association, or commonly marketed insureds are not appropriate on individual forms. Such discounts can be appropriate on group forms.
Charging different rates for the same coverage is unfair discrimination, as an individual with the same hazard or risk factors could be charged more for the same benefits under individual coverage. Unfair discrimination under the Unfair Trade Practices Act is based upon actuarial risk classes. (See RSMo §375.936(11).)
Any questions should be addressed to:
David J. Hippen, FSA, MAAA, FLMI
Life & Health Actuary.
Missouri Department of Insurance, Financial Institutions and Professional Registration
301 West High Street, Suite 530
Jefferson City, MO 65102
573-526-4983
David.Hippen@insurance.mo.gov