Skip to Content
The 192nd General Court of the Commonwealth of Massachusetts

Section 91/2: Valuation of reserve liabilities for outstanding insurance policies and annuity and pure endowment contracts

Section 91/2. (a) As used in this section, the following words shall, unless the context clearly requires otherwise, have the following meanings:—

''Accident and health insurance'', 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.

''Appointed actuary'', a qualified actuary who is appointed in accordance with the valuation manual to prepare the actuarial opinion required by section 9B1/2.

''Company'', an entity, which: (i) has written, issued or reinsured life insurance contracts, accident and health insurance contracts or deposit-type contracts in the commonwealth and has at least 1 such policy in force or on claim; or (ii) has written, issued or reinsured life insurance contracts, accident and health insurance contracts or deposit-type contracts in any state and is required to hold a certificate of authority to write life insurance, accident and health insurance or deposit-type contracts in the commonwealth.

''Deposit-type contract'', contracts that do not incorporate mortality or morbidity risks and as may be specified in the valuation manual.

''Life insurance'', contracts that incorporate mortality risk, including annuity and pure endowment contracts and as may be specified in the valuation manual.

''Policyholder behavior'', any action a policyholder, contract holder or other person with the right to elect options, such as a certificate holder, may take pursuant to 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.

''Principle-based valuation'', a reserve valuation that uses 1 or more methods or 1 or more assumptions determined by the insurer and is required to comply with subsection (f), as specified in the valuation manual.

''Qualified actuary'', 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.

''Tail risk'', a risk that occurs either where the frequency of low probability events is higher than expected under a normal probability distribution or where there are observed events of very significant size or magnitude.

''Valuation manual'', the manual of valuation instructions adopted by the NAIC, operative as of January 1, 2017, or as subsequently amended.

(b)(1) The commissioner shall annually value, or cause to be valued, the reserve liabilities for all outstanding life insurance policies and annuity and pure endowment contracts of every life insurance company doing business in the commonwealth issued before the effective date of this section. In calculating reserve liabilities, the commissioner may use group methods and approximate averages for fractions of a year or otherwise. In lieu of the valuation of the reserve liabilities required of a foreign or alien company, the commissioner may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when the valuation complies with the minimum standard provided in this section.

(2) The minimum standard for the valuation of all policies and contracts, as appropriate, subject to this section issued before the effective date of this section shall be that provided by the laws in effect immediately before the effective date of this section. Subsections (d), (e) and (f) shall not apply to such policies and contracts.

(c)(1) The commissioner shall annually value, or cause to be valued, the reserve liabilities for all outstanding life insurance contracts, annuity and pure endowment contracts, accident and health contracts and deposit-type contracts of every company issued on or after the effective date of this section. In lieu of the valuation of the reserve liabilities required of a foreign or alien company, the commissioner may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when the valuation complies with the minimum standard provided in this section.

(2) Subsections (d), (e) and (f) shall apply to all policies and contracts issued on or after the effective date of this section. Section 9 shall not apply to policies and contracts issued on or after the effective date of this section.

(3) Notwithstanding the valuation manual, a mortality table shall only be applied to an individual or group annuity or pure endowment contract subject to this subsection on a gender-neutral or gender-blended basis in accordance with regulations promulgated by the commissioner.

(d) For accident and health insurance contracts issued on or after the effective date of this section, the standard prescribed in the valuation manual is the minimum standard of valuation required pursuant to subsection (c).

(e)(1) For policies issued on or after the effective date of this section, the standard prescribed in the valuation manual is the minimum standard of valuation required pursuant to subsection (c), except as provided pursuant to paragraphs (4) or (6).

(2) Unless a change in the valuation manual specifies a later effective date, changes to the valuation manual shall be effective on January 1 following the date that the changes are adopted by the NAIC by an affirmative vote that satisfies the following requirements:

(i) not less than 3/4 of the members of the NAIC voting, but not less than a majority of the total membership; and

(ii) members of the NAIC representing jurisdictions totaling greater than 75 per cent of the direct premiums written as reported in life, accident and health annual statements, health annual statements or fraternal annual statements most recently available before the vote in clause (i).

(3) The valuation manual shall specify the following:

(i) the minimum valuation standards for and definitions of the policies or contracts subject to subsection (c), including: (A) the commissioners reserve valuation method for life insurance contracts, other than annuity contracts, subject to subsection (c); (B) the commissioners annuity reserve valuation method for annuity contracts subject to said subsection (c); and (C) minimum reserves for all other policies or contracts subject to said subsection (c);

(ii) which policies or contracts or types of policies or contracts that are subject to the requirements of a principle-based valuation in paragraph (1) of subsection (f) and the minimum valuation standards consistent with those requirements;

(iii) for policies and contracts subject to a principle-based valuation pursuant to subsection (f): (A) requirements for the format of reports to the commissioner pursuant to clause (iii) of paragraph (2) of subsection (f) and which shall include information necessary to determine if the valuation is appropriate and in compliance with this section; (B) assumptions for risks over which the company does not have significant control or influence; and (C) procedures for corporate governance and oversight of the actuarial function and a process for appropriate waiver or modification of those procedures;

(iv) for policies not subject to a principle-based valuation pursuant to subsection (f), the minimum valuation standard shall either be consistent with the minimum standard of valuation before the operative date of the valuation manual, or develop reserves that quantify the benefits and guarantees, and the funding, associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring;

(v) other requirements including, but not limited to, those relating to reserve methods, models for measuring risk, generation of economic scenarios, assumptions, margins, use of company experience, risk measurement, disclosure, certifications, reports, actuarial opinions and memorandums, transition rules and internal controls; and

(vi) the data and form of the data required pursuant to subsection (g), and to whom the data shall be submitted and may specify other requirements including data analyses and reporting of analyses.

(4) In the absence of a specific valuation requirement or if a specific valuation requirement in the valuation manual is not, in the determination of the commissioner, in compliance with this section, then the company shall, with respect to those requirements, comply with minimum valuation standards prescribed by the commissioner through regulation.

(5) The commissioner may engage a qualified actuary, at the expense of an insurance company, to perform an actuarial examination of that company and determine the appropriateness of a reserve assumption or method used by the company or to review and determine an insurance company's compliance with the requirements of this section. The commissioner may rely upon the opinion of a qualified actuary engaged by the commissioner of another state, district or territory of the United States. For purposes of this paragraph, the term ''engage'' shall include employment and contracting.

(6) The commissioner may require a company to change an assumption or method that is determined by the commissioner to be necessary in order to comply with the requirements of the valuation manual or this section and the company shall adjust the reserves as required by the commissioner. The commissioner may take other disciplinary action as permitted pursuant to this chapter and chapter 176D.

(f)(1) A company shall establish reserves using a principle-based valuation that meets the following conditions for policies or contracts, as specified in the valuation manual:

(i) quantify the benefits and guarantees and the funding associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring during the lifetime of the contracts and, for policies or contracts with significant tail risk, a company's valuation shall reflect conditions appropriately adverse to quantify the tail risk;

(ii) incorporate assumptions, risk analysis methods and financial models and management techniques that are consistent with, but not necessarily identical to, those utilized within the company's overall risk assessment process, while recognizing potential differences in financial reporting structures and prescribed assumptions or methods;

(iii) incorporate assumptions that are derived in 1 of the following manners: (A) the assumption is prescribed in the valuation manual; or (B) for assumptions that are not prescribed, the assumptions shall: be established utilizing the company's available experience, to the extent it is relevant and statistically credible; or to the extent that company data is not available, relevant or statistically credible, be established utilizing other relevant, statistically credible experience; and

(iv) provide margins for uncertainty including adverse deviation and estimation error, such that the greater the uncertainty the larger the margin and resulting reserve.

(2) A company using a principle-based valuation for 1 or more policies or contracts subject to this section as specified in the valuation manual shall:

(i) establish procedures for corporate governance and oversight of the actuarial valuation function consistent with those described in the valuation manual;

(ii) provide to the commissioner and the board of directors of the company an annual certification of the effectiveness of the internal controls with respect to the principle-based valuation, and those controls shall be designed to ensure that all material risks inherent in the liabilities and associated assets subject to that valuation are included in the valuation, and that valuations are made in accordance with the valuation manual, and the certification shall be based on the controls in place as of the end of the preceding calendar year; and

(iii) develop and file with the commissioner upon request a principle-based valuation report that complies with standards prescribed in the valuation manual.

(3) A principle-based valuation may include a prescribed formulaic reserve component. A company shall submit mortality, morbidity, policyholder behavior or expense experience and other data as required by the valuation manual.

(g)(1) For purposes of this subsection, ''regulatory agency,'' ''law enforcement agency'' and the ''NAIC'' shall include, but not limited to, employees, agents, consultants and contractors of those entities. The term ''confidential information'' shall mean:

(i) a memorandum in support of an opinion submitted pursuant to section 9B1/2 and other documents, materials and other information including, but not limited to, all working papers and copies thereof, created, produced or obtained by or disclosed to the commissioner or other person in connection with the memorandum;

(ii) all documents, materials and other information including, but not limited to, all working papers and copies thereof, created, produced or obtained by or disclosed to the commissioner or other person in the course of an examination made pursuant to paragraph (5) of subsection (e); provided, that if an examination report or other material prepared in connection with an examination made pursuant to section 4 is not held as private and confidential information pursuant to said section 4, an examination report or other material prepared in connection with an examination made pursuant to said paragraph (5) of said subsection (e) shall not be considered confidential information to the same extent as if the examination report or other material had been prepared pursuant to said section 4;

(iii) reports, documents, materials and other information developed by a company in support of or in connection with an annual certification by the company pursuant to clause (ii) of paragraph (2) of subsection (f) evaluating the effectiveness of the company's internal controls with respect to a principle-based valuation, and any other documents, materials and other information including, but not limited to, all working papers and copies thereof, created, produced or obtained by or disclosed to the commissioner or other person in connection with the reports, documents, materials and other information;

(iv) a principle-based valuation report developed pursuant to clause (iii) of paragraph (2) of subsection (f) and other documents, materials and other information including, but not limited to, all working papers and copies thereof, created, produced or obtained by or disclosed to the commissioner or other person in connection with the report; and

(v) documents, materials, data and other information submitted by a company pursuant to paragraph (3) of subsection (f) and any other documents, materials, data and other information including, but not limited to, all working papers and copies thereof, created or produced in connection with such experience data, that includes potentially company-identifying or personally identifiable information, that is provided to or obtained by the commissioner and any other documents, materials, data and other information including, but not limited to, all working papers and copies thereof, created, produced or obtained by or disclosed to the commissioner or other person in connection with such experience materials.

(2) Except as provided in this subsection, a company's confidential information is confidential by law and privileged and shall not be subject to chapter 66 or clause Twenty-sixth of section 7 of chapter 4, shall not be subject to subpoena and shall not be subject to discovery or admissible in evidence in a private civil action. The commissioner may use confidential information in the furtherance of a regulatory or legal action brought against the company as a part of the commissioner's official duties.

Neither the commissioner nor a person who received confidential information while acting under the authority of the commissioner may testify in a private civil action concerning confidential information.

In order to assist in the performance of the commissioner's duties, the commissioner may share confidential information with: other state, federal and international regulatory agencies; the NAIC and its affiliates and subsidiaries; and, in the case of confidential information specified in clauses (i) and (iv) of paragraph (1), with the Actuarial Board for Counseling and Discipline or its successor upon request stating that the confidential information is required for the purpose of professional disciplinary proceedings, and with state, federal and international law enforcement officials; provided, however, that the recipient agrees and has the legal authority to agree to maintain the confidentiality and privileged status of the documents, materials, data and other information in the same manner and to the same extent as required for the commissioner.

The commissioner may receive documents, materials, data and other information, including otherwise confidential and privileged documents, materials, data or information, from: the NAIC and its affiliates and subsidiaries; regulatory or law enforcement officials of other foreign or domestic jurisdictions; and the Actuarial Board for Counseling and Discipline or its successor, and shall maintain as confidential or privileged any document, material, data or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or other information.

The commissioner may enter into agreements governing sharing and use of information consistent with this paragraph.

No waiver of an applicable privilege or claim of confidentiality of the confidential information shall occur as a result of disclosure to the commissioner pursuant to this section or as a result of sharing as authorized in the third paragraph of this paragraph.

A privilege established pursuant to the law of any state or jurisdiction that is substantially similar to the privilege established pursuant to this paragraph shall be available and enforced in a proceeding in and in any court of the commonwealth.

(3) Notwithstanding paragraph (2), confidential information specified in clauses (i) and (iv) of paragraph (1):

(i) may be subject to subpoena to defend an action seeking damages from the appointed actuary submitting the related memorandum in support of an opinion submitted pursuant to section 9B1/2 or principle-based valuation report developed pursuant to clause (iii) of paragraph (2) of subsection (f) by reason of an action required by this section or through regulation;

(ii) may otherwise be released by the commissioner with the written consent of the company; and

(iii) once a portion of a memorandum in support of an opinion submitted pursuant to section 9B1/2 or a principle-based valuation report developed pursuant to clause (iii) of paragraph (2) of subsection (f) is: cited by the company in its marketing; publicly volunteered to or before a governmental agency other than a state insurance department; or is released by the company to the news media, all portions of that memorandum or report shall no longer be confidential.

(h)(1) The commissioner may exempt specific product forms or product lines of a domestic company that is licensed and doing business only in the commonwealth from the requirements of subsection (e) provided that the: (i) commissioner has issued an exemption in writing to the company and has not subsequently revoked the exemption in writing; and (ii) company computes reserves using assumptions and methods used before the effective date of this section in addition to any requirements established by the commissioner and promulgated by regulation.

(2) The minimum standards for the valuation of all applicable policies and contracts provided by the laws in effect immediately before the effective date of this section shall be applicable for a company granted an exemption pursuant to this section or section 9B1/2.

(i) The commissioner may, pursuant to chapter 30A, upon notice and opportunity for all interested parties to be heard, issue rules, regulations and orders as shall be necessary to carry out this section.

(j) This section shall apply to all life insurance contracts, accident and health insurance contracts and deposit-type contracts issued on or after the effective date of this section as defined herein.