DEPARTMENT OF REGULATORY AGENCIES
Division of Insurance
3 CCR 702-4
Life, accident and health
Proposed Amended Regulation 4-1-9
VALUATION OF LIFE INSURANCE POLICIES (Including the Introduction and Use of New Select Mortality Factors) 
Section 1	Authority
Section 2	Scope and Purpose
Section 3	Applicability
Section 4	Definitions
Section 5	General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves
Section 6	Calculation of Minimum Valuation Standard for Policies with Guaranteed Nonlevel Gross Premiums or Guaranteed Nonlevel Benefits (Other Than Universal Life Policies)
Section 7	Calculation of Minimum Valuation Standard for Flexible Premium and Fixed Premium Universal Life Insurance Policies That Contain Provisions Resulting in the Ability of a Policyowner to Keep a Policy in Force Over a Secondary Guarantee Period
Section 8	Severability
Section 9	Incorporated Materials
Section 10	Enforcement
Section 11	Effective Date
Section 12	History
Appendix
Section 1	Authority
This regulation is promulgated and adopted by the Commissioner of Insurance under the authority of §§10-1-109 and 10-7-313.7, C.R.S..
Section 2	Scope and Purpose
A.	The purpose of this regulation is to clarify the provisions of the Standard Nonforfeiture and Valuation Act (Part 3, Article 7 of Title 10, C.R.S.) by providing:
1.	Tables of select mortality factors and rules for their use;
2.	Rules concerning a minimum standard for the valuation of plans with nonlevel premiums or benefits; and
3.	Rules concerning a minimum standard for the valuation of plans with secondary guarantees.
B.	The method for calculating basic reserves defined in this regulation will constitute the Commissioners’ Reserve Valuation Method for policies to which this regulation is applicable.
Section 3	Applicability
This regulation shall apply to all life insurance policies, with or without nonforfeiture values, issued on or after the effective date of this regulation, subject to the following exceptions and conditions.
A.	Exceptions
1.	This regulation shall not apply to any individual life insurance policy issued on or after the effective date of this regulation if the policy is issued in accordance with and as a result of the exercise of a reentry provision contained in the original life insurance policy of the same or greater face amount, issued before the effective date of this regulation, that guarantees the premium rates of the new policy. This regulation also shall not apply to subsequent policies issued as a result of the exercise of such a provision, or a derivation of the provision, in the new policy.
2.	This regulation shall not apply to any universal life policy that meets all of the following requirements:
a.	The secondary guarantee period, if any, is five (5) years or less;
b.	The specified premium for the secondary guarantee period is not less than the net level reserve premium for the secondary guarantee period based on the CSO valuation tables as defined in Section 4F of this regulation and the applicable valuation interest rate; and
c.	The initial surrender charge is not less than one hundred percent (100%) of the first year annualized specified premium for the secondary guarantee period.
3.	This regulation shall not apply to any variable life insurance policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts.
4.	This regulation shall not apply to any variable universal life insurance policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts.
5.	This regulation shall not apply to a group life insurance certificate unless the certificate provides for a stated or implied schedule of maximum gross premiums required in order to continue coverage in force for a period in excess of one year.
B.	Conditions
1.	Calculation of the minimum valuation standard for policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits (other than universal life policies), or both, shall be in accordance with the provisions of Section 6 of this regulation.
2.	Calculation of the minimum valuation standard for flexible premium and fixed premium universal life insurance policies, that contain provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period shall be in accordance with the provisions of Section 7 of this regulation
Section 5	General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves
A.	At the election of the company for any one or more specified plans of life insurance, the minimum mortality standard for basic reserves may be calculated using the 1980 CSO valuation tables with select mortality factors (or any other valuation mortality table adopted by the NAIC after the effective date of this regulation and promulgated by regulation by the Commissioner for this purpose). If select mortality factors are elected, they may be:
1.	The ten-year select mortality factors incorporated into the 1980 amendments to the NAIC Standard Valuation Law;
2.	The select mortality factors in the Appendix; or
3.	Any other table of select mortality factors adopted by the NAIC after the effective date of this regulation and promulgated by regulation by the Commissioner for the purpose of calculating basic reserves.
B.	Deficiency reserves, if any, are calculated for each policy as the excess, if greater than zero, of the quantity A over the basic reserve. The quantity A is obtained by recalculating the basic reserve for the policy using guaranteed gross premiums instead of net premiums when the guaranteed gross premiums are less than the corresponding net premiums. At the election of the company for any one or more specified plans of insurance, the quantity A and the corresponding net premiums used in the determination of quantity A may be based upon the 1980 CSO valuation tables with select mortality factors (or any other valuation mortality table adopted by the NAIC after the effective date of this regulation and promulgated by regulation by the Commissioner). If select mortality factors are elected, they may be:
1.	The ten-year select mortality factors incorporated into the 1980 amendments to the NAIC Standard Valuation Law;
2.	The select mortality factors in the Appendix of this regulation;
3.	For durations in the first segment, X percent of the select mortality factors in the Appendix, subject to the following:
a.	X may vary by policy year, policy form, underwriting classification, issue age, or any other policy factor expected to affect mortality experience;
b.	X shall not be less than twenty percent (20%);
c.	X shall not decrease in any successive policy years;
dc.	X is such that, when using the valuation interest rate used for basic reserves, item (1) is greater than or equal to item (2);
(1) 	The actuarial present value of future death benefits, calculated using the mortality rates resulting from the application of X;
(2) 	The actuarial present value of future death benefits calculated using anticipated mortality experience without recognition of mortality improvement beyond the valuation date;
ed.	X is such that the mortality rates resulting from the application of X are at least as great as the anticipated mortality experience, without recognition of mortality improvement beyond the valuation date, in each of the first five (5) years after the valuation date;
fe.	The appointed actuary shall increase X at any valuation date where it is necessary to continue to meet all the requirements of Subsection B(3) of this section;
gf.	The appointed actuary may decrease X at any valuation date as long as X does not decrease in any successive policy years and as long as it continues to meet all the requirements of Subsection B(3) of this section; and
hg.	The appointed actuary shall specifically take into account the adverse effect on expected morality and lapsation of any anticipated or actual increase in gross premiums
ih.	If X is less than one hundred percent (100%) at any duration for any policy, the following requirements shall be met:
(1) 	The appointed actuary shall annually prepare an actuarial opinion and memorandum for the company in conformance with the requirements of Colorado Insurance Regulation 3-1-8; and
(2)	The appointed actuary shall disclose, in the Regulatory Asset Adequacy Issues Summary, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods; and
(23)	The appointed actuary shall annually opine for all policies subject to this regulation as to whether the mortality rates resulting from the application of X meet the requirements of Subsection B(3) of this section. This opinion shall be supported by an actuarial report, subject to appropriate Actuarial Standards of Practice promulgated by the Actuarial Standards Board of the American Academy of Actuaries. The X factors shall reflect anticipated future mortality, without recognition of mortality improvement beyond the valuation date, taking into account relevant emerging experience.
4.	Any other table of select mortality factors adopted by the NAIC after the effective date of this regulation and promulgated by regulation by the Commissioner for the purpose of calculating deficiency reserves.
C.	This subsection applies to both basic reserves and deficiency reserves. Any set of select mortality factors may be used only for the first segment. However, if the first segment is less than ten (10) years, the appropriate ten-year select mortality factors incorporated into the 1980 amendments to the NAIC Standard Valuation Law may be used thereafter through the tenth policy year from the date of issue.
D.	In determining basic reserves or deficiency reserves, guaranteed gross premiums without policy fees may be used where the calculation involves the guaranteed gross premium but only if the policy fee is a level dollar amount after the first policy year. In determining deficiency reserves, policy fees may be included in guaranteed gross premiums, even if not included in the actual calculation of basic reserves.
E.	Reserves for policies that have changes to guaranteed gross premiums, guaranteed benefits, guaranteed charges, or guaranteed credits that are unilaterally made by the insurer after issue and that are effective for more than one year after the date of the change shall be the greatest of the following:
1.	Reserves calculated ignoring the guarantee,
2.	Reserves assuming the guarantee was made at issue, and
3.	Reserves assuming that the policy was issued on the date of the guarantee.
F.	The Commissioner may require that the company document the extent of the adequacy of reserve for specified blocks, including but not limited to, policies issued prior to the effective date of this regulation. This documentation may include a demonstration of the extent to which aggregation with other non-specified blocks of business is relied upon in the formation of the appointed actuary opinion pursuant to and consistent with the requirements of Colorado Insurance Regulation 3-1-8.
Section 11	Effective Date
This amended regulation is effective March 2, 2010November 1, 2010.
Section 12	History
New regulation, effective January 1, 2000.
Amended regulation effective March 2, 2010.
Amended regulation effective November 1, 2010.