Chapter 625 Section 1212 - 2024 Florida Statutes

2024 Florida Statutes

Title XXXVII INSURANCE

Chapter 625 ACCOUNTING, INVESTMENTS, AND DEPOSITS BY INSURERS

SECTION 1212Valuation of policies and contracts issued on or after the operative date of the valuation manual.

625.1212 Valuation of policies and contracts issued on or after the operative date of the valuation manual.—

(1) APPLICABILITY.—This section applies to life insurance contracts, accident and health insurance contracts, and deposit-type contracts issued on or after the operative date of the valuation manual unless the manual requires or permits an insurer to determine reserves according to the standards in effect before the operative date of the manual and rules adopted by the commission as provided under s. 625.121. Subsections (5) and (6) do not apply to policies and contracts subject to s. 625.121.

(2) DEFINITIONS.—As used in this section, the term:

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

(b) “Appointed actuary” means a qualified actuary who is appointed in accordance with the valuation manual to prepare the actuarial opinion required in subsection (4).

(c) “Deposit-type contract” means contracts that do not incorporate mortality or morbidity risks and as may be specified in the valuation manual.

(d) “Insurer” means a person engaged as an indemnitor, surety, or contractor in the business of entering into contracts of insurance or reinsurance.

(e) “Life insurance” means policies or contracts that incorporate mortality risk, including annuity and pure endowment contracts, and as may be specified in the valuation manual.

(f) “Operative date of the valuation manual” means the later of January 1, 2017, or the January 1 immediately following the July 1 that the Commissioner of the Office of Insurance Regulation certifies to the Financial Services Commission in writing that the following conditions occurred on or before July 1:

1. The valuation manual is adopted by the NAIC by an affirmative vote of at least 42 members of the NAIC or 75 percent of members voting, whichever is greater;

2. The Standard Valuation Law, as amended by the NAIC in 2009, or substantially similar legislation, is enacted in states representing more than 75 percent of the direct premiums written as reported in the 2008 annual statements for life, accident and health, health, or fraternal society insurance; and

3. The Standard Valuation Law as amended by the NAIC in 2009, or substantially similar legislation, is enacted in at least 42 of the following 55 jurisdictions: the 50 states of the United States, the District of Columbia, American Samoa, the American Virgin Islands, Guam, and Puerto Rico.

(g) “Policyholder behavior” means an action a policyholder, contract holder, or other person who has the right to elect options, such as a certificateholder, may take under a policy or contract subject to this section including, but not limited to, lapse, withdrawal, transfer, deposit, premium payment, loan, annuitization, or benefit elections prescribed by the policy or contract but excluding events of mortality or morbidity that result in benefits prescribed in their essential aspects by the terms of the policy or contract.

(h) “Principle-based valuation” means a reserve valuation that uses one or more methods or assumptions determined by the insurer and must comply with subsection (6) as specified in the valuation manual.

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

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

(k) “Valuation manual” means the manual of valuation instructions adopted by the NAIC, or as subsequently amended.

(3) RESERVE VALUATION.—The office shall annually value, or cause to be valued, insurer reserves for all outstanding life insurance contracts, accident and health contracts, and deposit-type contracts in this state. Insurers are subject to subsections (5) and (6) when calculating the reserves. In lieu of the reserve valuation for a foreign or alien insurer, the office may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction if the valuation complies with the minimum standard required in this section.

(4) ACTUARIAL OPINION OF RESERVES.—

(a) Each insurer that has outstanding life insurance contracts, accident and health insurance contracts, or deposit-type contracts in this state which are subject to regulation by the office must 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 are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts, and comply with applicable state law. The specifics of the opinion, including any items deemed necessary to its scope, must be as prescribed by the valuation manual.

(b) Except as exempted in the valuation manual, each insurer that has outstanding life insurance contracts, accident and health insurance contracts, or deposit-type contracts in this state shall also annually include an opinion by the same appointed actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified in the valuation manual, when considered in light of the assets held by the insurer with respect to the reserves and related actuarial items, including, but not limited to, the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision for the insurer’s obligations under the policies and contracts, including, but not limited to, the benefits under and expenses associated with the policies and contracts.

(c) The insurer shall prepare a memorandum to support each actuarial opinion in such form and substance as specified in the valuation manual and acceptable to the office. If the insurer fails to provide a supporting memorandum within the period specified in the valuation manual, or if the office determines that the supporting memorandum fails to meet the standards required by the manual or is otherwise unacceptable to the office, the office may engage a qualified actuary at the expense of the insurer to review the opinion and the basis for the opinion and to prepare the supporting memorandum.

(d) Each opinion subject to this subsection must be submitted with the annual statement in such form and substance as specified in the valuation manual and acceptable to the office, must reflect the valuation of the reserve liabilities for each year ending on or after the operative date of the valuation manual, and must apply to all policies and contracts subject to paragraph (b), plus other actuarial liabilities as may be specified in the valuation manual. The opinion must be based on standards adopted by the Actuarial Standards Board or its successor, and on such additional standards as may be prescribed in the valuation manual. For a foreign or alien insurer, the office may accept an opinion filed by the insurer with the insurance supervisory official of another state if the office determines that the opinion reasonably meets the requirements applicable to an insurer domiciled in this state.

(e) Disciplinary action by the office against the insurer or the appointed actuary shall be in accordance with the laws of this state and related rules adopted by the commission.

(5) MINIMUM STANDARD OF VALUATION.—

(a) In accordance with this subsection and subsection (6), an insurer must apply the standard prescribed in the valuation manual as the minimum standard of valuation for contracts issued on or after the operative date of the valuation manual, except:

1. For specific product forms or product lines exempted pursuant to paragraph (f); or

2. That an insurer domiciled in a state that does not require the insurer to apply the standards prescribed in the valuation manual as the minimum standard of valuation, including the principle-based valuation of reserves, may not apply such standards in this state.

(b) If, in the opinion of the office, there is no specific valuation requirement or a specific valuation requirement in the valuation manual is not in compliance with this section, the insurer shall comply with the minimum valuation standards prescribed by the commission by rule.

(c) The office may engage a qualified actuary, at the insurer’s expense, to perform an actuarial examination of the insurer and to render an opinion as to the appropriateness of any reserve assumption or method, or computer model or modeling software used by the insurer, or to review and provide an opinion on the insurer’s compliance with the requirements of this section. In calculating and establishing reserves under this section, the insurer may rely on the modeling software and tools of a third-party vendor only if the vendor contractually agrees to allow the insurer to provide the office with access to the software or tools as necessary to replicate the results of the software or tools for the purpose of evaluating and validating reserve valuations. The office may rely upon the opinion of a qualified actuary employed by or under contract with the commissioner of another state, district, or territory of the United States with respect to this section.

(d) The office may require an insurer to change any assumption or method that, in the opinion of the office, is necessary to comply with the valuation manual or this section. The insurer shall adjust the reserves as required by the office. The office may take other disciplinary action pursuant to applicable state law and rules.

(e) The commission may adopt subsequent amendments to the valuation manual by rule if the methodology and standards remain substantially consistent with the valuation manual then in effect.

(f) A domestic insurer licensed and doing business only in this state may exempt specific product forms or product lines from the requirements of this subsection and subsection (6) if the insurer computes reserves for the specific product forms or product lines using assumptions and methods used before the operative date of the valuation manual, and the amount of insurance subject to the stochastic or deterministic reserve requirement is immaterial. The requirements of s. 625.121 apply to specific product forms and product lines exempted under this paragraph.

(g) An insurer that adopted a standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard provided under this section may, with the approval of the office, adopt a lower standard of valuation, but such standard may not be lower than the minimum provided in this subsection. For purposes of this subsection, holding additional reserves previously determined by an appointed actuary to be necessary to render the opinion required by subsection (4) may not be deemed to be the adoption of a higher standard of valuation.

(6) REQUIREMENTS OF A PRINCIPLE-BASED VALUATION OF RESERVES.—

(a) Insurers required to use a principle-based valuation of reserves for specified product forms and product lines and associated policies and contracts, pursuant to subparagraph (5)(a)2., must:

1. Quantify the benefits and guarantees, and the funding associated with the policies or contracts and their risks at a level of conservatism that reflects conditions that:

a. Include unfavorable events that have a reasonable probability of occurring during the lifetime of the policies or contracts; and

b. Are appropriately adverse to quantifying the tail risk.

2. Incorporate assumptions, risk analysis methods, and financial models and management techniques that are consistent with, but not necessarily identical to, those used within the insurer’s overall risk assessment process while recognizing potential differences in financial reporting structures and any prescribed assumptions or methods.

3. Incorporate assumptions that are derived in one of the following manners:

a. The assumption is prescribed in the valuation manual.

b. For assumptions that are not prescribed, the assumptions must:

(I) Be established using the insurer’s available experience, to the extent that it is relevant and statistically credible; or

(II) To the extent that insurer data is not available, relevant, or statistically credible, be established using other relevant, statistically credible experience.

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

(b) An insurer using a principle-based valuation for one or more policies or contracts subject to this section as specified in the valuation manual shall:

1. Establish procedures for corporate governance and oversight of the actuarial valuation function consistent with those prescribed in the valuation manual.

2. Submit an annual certification to the office and the insurer’s board of directors of the effectiveness of internal controls on the principle-based valuation. The internal controls must be designed to assure that all material risks inherent in the liabilities and associated assets subject to the valuation are included in the valuation, and that valuations are made in accordance with the valuation manual. The certification must be based on controls in place as of the end of the preceding calendar year.

3. Upon request, develop and file with the office a principle-based valuation report that complies with standards prescribed in the valuation manual.

(7) EXPERIENCE REPORTING.—An insurer subject to the requirements of paragraph (5)(d) shall submit mortality, morbidity, policyholder behavior, or expense experience and other data as prescribed in the valuation manual to the office.

(8) RULE ADOPTION.—The commission may adopt rules as necessary to administer this section, including rules requiring the use of the NAIC 2009 Standard Valuation Law and the NAIC 2012 Valuation Manual. The adoption of such rules is not subject to s. 120.541(3), and the rules do not take effect until the operative date of the valuation manual.

History.—s. 7, ch. 2014-101; s. 76, ch. 2015-2.