House Study Bill 535 - Introduced SENATE/HOUSE FILE _____ BY (PROPOSED DEPARTMENT OF COMMERCE/INSURANCE DIVISION BILL) A BILL FOR An Act relating to standard valuation and standard forfeiture 1 provisions for life insurance policies or contracts and 2 including applicability provisions. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 5218XD (8) 85 av/nh

S.F. _____ H.F. _____ Section 1. Section 508.36, Code 2014, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 01. Definitions. 3 a. As used in this section, unless the context otherwise 4 requires: 5 (1) “Accident and health insurance” means policies 6 or contracts that incorporate morbidity risk and provide 7 protection against economic loss resulting from accident, 8 sickness, or medical conditions and as may be specified in the 9 valuation manual. 10 (2) “Appointed actuary” means a qualified actuary who is 11 appointed in accordance with the valuation manual to prepare 12 the actuarial opinion required in subsection 2, paragraph “a” . 13 (3) “Company” means an entity which has done any of the 14 following: 15 (a) Written, issued, or reinsured life insurance policies 16 or contracts, accident and health insurance policies or 17 contracts, or deposit-type policies or contracts in this state 18 and has at least one such policy or contract in force or on 19 claim. 20 (b) Written, issued, or reinsured life insurance policies 21 or contracts, accident and health insurance policies or 22 contracts, or deposit-type policies or contracts in any state 23 and is required to hold a certificate of authority to write 24 life insurance, accident and health insurance, or deposit-type 25 policies or contracts in any state and is required to hold a 26 certificate of authority to write life insurance, accident and 27 health insurance, or deposit-type policies or contracts in this 28 state. 29 (4) “Deposit-type policy or contract” means policies or 30 contracts that do not incorporate mortality or morbidity risks 31 and such policies or contracts as may be specified in the 32 valuation manual. 33 (5) “Life insurance” means policies or contracts that 34 incorporate mortality risk, including annuity and pure 35 -1- LSB 5218XD (8) 85 av/nh 1/ 24

S.F. _____ H.F. _____ endowment contracts, and such policies or contracts as may be 1 specified in the valuation manual. 2 (6) “NAIC” means the national association of insurance 3 commissioners. 4 (7) “Operative date of the valuation manual” means the 5 operative date of the valuation manual as provided in 6 subsection 13. 7 (8) “Policyholder behavior” means any action a policyholder, 8 contract holder, or any other person with the right to elect 9 options, such as a certificate holder, may take under a policy 10 or contract subject to this section including but not limited 11 to lapse, withdrawal, transfer, deposit, premium payment, loan, 12 annuitization, or benefit elections prescribed by the policy or 13 contract, but excluding events of mortality or morbidity that 14 result in benefits prescribed in their essential aspects by the 15 terms of the policy or contract. 16 (9) “Principle-based valuation” means a reserve valuation 17 that uses one or more methods or one or more assumptions 18 determined by the insurer and that is required to comply with 19 subsection 14 as specified in the valuation manual. 20 (10) “Qualified actuary” means an individual who is 21 qualified to sign the applicable statement of actuarial 22 opinion in accordance with the American academy of actuaries 23 qualification standards for actuaries signing such statements 24 and who meets the requirements specified in the valuation 25 manual. 26 (11) “Tail risk” means a risk that occurs either where the 27 frequency of low probability events is higher than expected 28 under a normal probability distribution or where there are 29 observed events of very significant size or magnitude. 30 (12) “Valuation manual” means the manual of valuation 31 instructions adopted by the NAIC as specified in this section 32 or as subsequently amended. 33 b. This subsection is applicable on or after the operative 34 date of the valuation manual. 35 -2- LSB 5218XD (8) 85 av/nh 2/ 24

S.F. _____ H.F. _____ Sec. 2. Section 508.36, subsection 1, Code 2014, is amended 1 to read as follows: 2 1. Reserve valuation. 3 a. Policies and contracts issued prior to operative date of 4 valuation manual. 5 (1) The commissioner shall annually value, or cause to be 6 valued, the reserve liabilities, referred to in this section 7 as reserves, for all outstanding life insurance policies and 8 annuity and pure endowment contracts of every life insurance 9 company doing business in this state, and may certify the 10 amount of any such reserves, specifying the mortality table 11 or tables, rate or rates of interest, and the net level 12 premium method or other methods used in the calculation of 13 such reserves issued on or after July 1, 1973, and prior to 14 the operative date of the valuation manual . In calculating 15 the reserves, the commissioner may use group methods and 16 approximate averages for fractions of a year or otherwise. In 17 lieu of the valuation of the reserves required in this section 18 of any foreign or alien company, the commissioner may accept 19 any valuation made, or caused to be made, by the insurance 20 supervisory official of any state or other jurisdiction when 21 such valuation complies with the minimum standard provided 22 for in this section and if the official of such state or 23 jurisdiction accepts as sufficient and valid for all legal 24 purposes the certificate of valuation of the commissioner when 25 such certificate states the valuation to have been made in a 26 specified manner according to which the aggregate reserves 27 would be at least as large as if they had been computed in the 28 manner prescribed by the law of that state or jurisdiction . 29 (2) The provisions set forth in subsections 3 through 12 30 shall apply to all policies and contracts, as appropriate, 31 subject to this section that were issued on or after July 1, 32 1973, and prior to the operative date of the valuation manual 33 and the provisions set forth in subsections 13 and 14 shall not 34 apply to any such policies or contracts. 35 -3- LSB 5218XD (8) 85 av/nh 3/ 24

S.F. _____ H.F. _____ (3) The minimum standard for the valuation of policies and 1 contracts issued prior to July 1, 1973, shall be the standard 2 provided by the laws in effect immediately prior to that date. 3 b. Policies and contracts issued on or after operative date 4 of valuation manual. 5 (1) The commissioner shall annually value, or cause to 6 be valued, the reserve liabilities for all outstanding life 7 insurance policies or contracts, annuity and pure endowment 8 policies or contracts, accident and health insurance policies 9 or contracts, and deposit-type policies or contracts of every 10 company issued on or after the operative date of the valuation 11 manual. In lieu of the valuation of the reserves required 12 of a foreign or alien company, the commissioner may accept 13 a valuation made, or caused to be made, by the insurance 14 supervisory official of any state or other jurisdiction when 15 the valuation complies with the minimum standard provided in 16 this section. 17 (2) The provisions set forth in subsections 13 and 14 shall 18 apply to all policies or contracts issued on or after the 19 operative date of the valuation manual. 20 Sec. 3. Section 508.36, subsection 2, Code 2014, is amended 21 to read as follows: 22 2. Actuarial opinion of reserves. This subsection is 23 effective January 1, 1996. 24 a. Actuarial opinion of reserves prior to operative date of 25 valuation manual. This paragraph “a” applies to an actuarial 26 opinion of reserves submitted prior to the operative date of 27 the valuation manual. 28 a. (1) General. A life insurance company doing business 29 in this state shall annually submit the written opinion of 30 a qualified actuary as to whether the reserves and related 31 actuarial items held in support of the policies and contracts 32 specified by the commissioner by regulation are computed 33 appropriately, are based on assumptions which satisfy 34 contractual provisions, are consistent with prior reported 35 -4- LSB 5218XD (8) 85 av/nh 4/ 24

S.F. _____ H.F. _____ amounts, and are in compliance with applicable laws of this 1 state. The commissioner shall define by rule the requirements 2 and content of this opinion and add any other items deemed to 3 be necessary. 4 b. (2) Actuarial analysis of reserves and assets supporting 5 such reserves. 6 (1) (a) Unless exempted by rule, a life insurance company 7 shall also annually include in the opinion required by 8 paragraph “a” subparagraph (1) , an opinion of the same qualified 9 actuary as to whether the reserves and related actuarial items 10 held in support of policies and contracts specified by the 11 commissioner by rule, when considered with respect to in light 12 of the assets held by the company associated with respect to 13 the reserves and related actuarial items, including , but not 14 limited to , the investment earnings on the assets and the 15 considerations anticipated to be received and retained under 16 the policies and contracts, are sufficient make adequate 17 provision for the company’s obligations under the policies and 18 contracts, including but not limited to the benefits under and 19 expenses associated with the policies and contracts. 20 (2) (b) The commissioner may provide by rule for a 21 transition period for establishing any higher reserves which 22 the qualified actuary may deem necessary in order to render the 23 opinion required by this section paragraph “a” . 24 c. (3) Requirements for actuarial analysis opinions subject 25 to subparagraph (2) . An opinion required by paragraph “b” 26 subparagraph (2) shall be governed by the following provisions: 27 (1) (a) A memorandum, in form and substance acceptable to 28 the commissioner as specified by rule, shall be prepared to 29 support each actuarial opinion. 30 (2) (b) If the insurance company fails to provide a 31 supporting memorandum at the request of the commissioner within 32 a period specified by rule or the commissioner determines that 33 the supporting memorandum provided by the insurance company 34 fails to meet the standards prescribed by the rules or is 35 -5- LSB 5218XD (8) 85 av/nh 5/ 24

S.F. _____ H.F. _____ otherwise unacceptable to the commissioner, the commissioner 1 may engage a qualified actuary at the expense of the company to 2 review the opinion and the basis for the opinion and prepare 3 such supporting memorandum as is required by the commissioner. 4 d. (4) Requirement for all opinions subject to this 5 paragraph . An opinion required under this section paragraph “a” 6 is governed by the following provisions: 7 (1) (a) The opinion shall be submitted with the annual 8 statement reflecting the valuation of such reserve liabilities 9 for each year ending on or after December 31, 1995. 10 (2) (b) The opinion shall apply to all business in force, 11 including individual and group health insurance plans, in form 12 and substance acceptable to the commissioner as specified by 13 rule. 14 (3) (c) The opinion shall be based on standards adopted 15 from time to time by the actuarial standards board and on such 16 additional standards as the commissioner may by rule prescribe. 17 (4) (d) In the case of an opinion required to be submitted 18 by a foreign or alien company, the commissioner may accept the 19 opinion filed by that company with the insurance supervisory 20 official of another state if the commissioner determines that 21 the opinion reasonably meets the requirements applicable to a 22 company domiciled in this state. 23 (5) (e) For the purposes of this section paragraph “a” , 24 “qualified actuary” means a member in good standing of the 25 American academy of actuaries who meets the requirements of the 26 commissioner as specified by rule. 27 (6) (f) Except in cases of fraud or willful misconduct, 28 a qualified actuary is not liable for damages to any person, 29 other than to the insurance company and the commissioner, for 30 any act, error, omission, decision, or conduct with respect to 31 the actuary’s opinion. 32 (7) (g) Disciplinary action which may be taken by the 33 commissioner against the company or the qualified actuary shall 34 be defined in rules adopted by the commissioner. 35 -6- LSB 5218XD (8) 85 av/nh 6/ 24

S.F. _____ H.F. _____ (8) (a) (h) (i) Any memorandum in support of the 1 opinion, and any other material provided by the company to 2 the commissioner in connection with the opinion, shall be 3 kept confidential by the commissioner and shall not be made 4 public and shall not be subject to subpoena, other than for the 5 purpose of defending an action seeking damages from any person 6 by reason of any action required by this section paragraph “a” 7 or by rules adopted pursuant to this section paragraph “a” . 8 Notwithstanding this subparagraph division , the memorandum or 9 other material may be released by the commissioner if either of 10 the following applies: 11 (i) (A) The commissioner receives the written consent of 12 the company with which the opinion is associated. 13 (ii) (B) The American academy of actuaries requests that 14 the memorandum or other material is required for the purpose 15 of professional disciplinary proceedings and setting forth 16 procedures satisfactory to the commissioner for preserving the 17 confidentiality of the memorandum or other material. 18 (b) (ii) Once any portion of the confidential memorandum 19 is cited by the company in its marketing, is cited before any 20 governmental agency other than a state insurance department, or 21 is released by the company to the news media, all portions of 22 the confidential memorandum are no longer confidential. 23 b. Actuarial opinion of reserves on or after operative date 24 of valuation manual. This paragraph “b” applies to an actuarial 25 opinion of reserves submitted on or after the operative date 26 of the valuation manual. 27 (1) General. Every company with outstanding life insurance 28 policies or contracts, accident and health insurance policies 29 or contracts, or deposit-type policies or contracts in 30 this state and subject to regulation by the commissioner 31 shall annually submit the opinion of the appointed actuary 32 as to whether the reserves and related actuarial items 33 held in support of the policies and contracts are computed 34 appropriately, are based on assumptions that satisfy 35 -7- LSB 5218XD (8) 85 av/nh 7/ 24

S.F. _____ H.F. _____ contractual provisions, are consistent with prior reported 1 amounts, and comply with applicable laws of this state. The 2 valuation manual shall prescribe the specifics of this opinion 3 including any items deemed to be necessary to its scope. 4 (2) Actuarial analysis of reserves and assets supporting 5 reserves. Every company with outstanding life insurance 6 policies or contracts, accident and health insurance policies 7 or contracts, or deposit-type policies or contracts in this 8 state and subject to regulation by the commissioner, except as 9 exempted in the valuation manual, shall annually include in 10 the opinion required by subparagraph (1), an opinion of the 11 same appointed actuary as to whether the reserves and related 12 actuarial items held in support of the policies and contracts 13 specified in the valuation manual, when considered in light of 14 the assets held by the company with respect to the reserves 15 and related actuarial items, including but not limited to 16 the investment earnings on the assets and the considerations 17 anticipated to be received and retained under the policies 18 and contracts, make adequate provision for the company’s 19 obligations under the policies and contracts, including but not 20 limited to the benefits under and expenses associated with the 21 policies and contracts. 22 (3) Requirements for opinions subject to subparagraph 23 (2). An opinion required by subparagraph (2) shall be governed 24 by the following provisions: 25 (a) A memorandum, in form and substance as specified in the 26 valuation manual, and that is acceptable to the commissioner, 27 shall be prepared to support each actuarial opinion. 28 (b) If the company fails to provide a supporting memorandum 29 at the request of the commissioner within a period specified 30 in the valuation manual or the commissioner determines that 31 the supporting memorandum provided by the company fails to 32 meet the standards prescribed by the valuation manual or is 33 otherwise unacceptable to the commissioner, the commissioner 34 may engage a qualified actuary at the expense of the company to 35 -8- LSB 5218XD (8) 85 av/nh 8/ 24

S.F. _____ H.F. _____ review the opinion and the basis for the opinion and prepare 1 the supporting memorandum required by the commissioner. 2 (4) Requirements for all opinions subject to this 3 paragraph. Every opinion subject to this paragraph “b” shall be 4 governed by the following provisions: 5 (a) The opinion shall be in form and substance as specified 6 in the valuation manual and acceptable to the commissioner. 7 (b) The opinion shall be submitted with the annual statement 8 reflecting the valuation of such reserve liabilities for each 9 year ending on or after the operative date of the valuation 10 manual. 11 (c) The opinion shall apply to all policies and contracts 12 subject to subparagraph (2) plus other actuarial liabilities as 13 may be specified in the valuation manual. 14 (d) The opinion shall be based on standards adopted from 15 time to time by the actuarial standards board or its successor, 16 and on such additional standards as may be prescribed in the 17 valuation manual. 18 (e) In the case of an opinion required to be submitted by 19 a foreign or alien company, the commissioner may accept the 20 opinion filed by that company with the insurance supervisory 21 official of another state if the commissioner determines that 22 the opinion reasonably meets the requirements applicable to a 23 company domiciled in this state. 24 (f) Except in cases of fraud or willful misconduct, the 25 appointed actuary shall not be liable for damages to any 26 person, other than the company and the commissioner, for any 27 act, error, omission, decision, or conduct with respect to the 28 appointed actuary’s opinion. 29 (g) Disciplinary action by the commissioner against the 30 company or the appointed actuary shall be defined in rules 31 adopted by the commissioner pursuant to chapter 17A. 32 Sec. 4. Section 508.36, subsection 3, paragraph a, 33 unnumbered paragraph 1, Code 2014, is amended to read as 34 follows: 35 -9- LSB 5218XD (8) 85 av/nh 9/ 24

S.F. _____ H.F. _____ For all ordinary policies of life insurance issued on the 1 standard basis, excluding any disability and accidental death 2 benefits in the policies, the following: 3 Sec. 5. Section 508.36, subsection 3, paragraph a, 4 subparagraph (2), Code 2014, is amended to read as follows: 5 (2) The commissioners 1958 standard ordinary mortality 6 table for such policies issued on or after the operative date 7 of section 508.37, subsection 5 , paragraph “c” “a” , and prior to 8 the operative date of section 508.37, subsection 5, paragraph 9 “c” , provided that for any category of policies issued on female 10 risks, all modified net premiums and present values referred to 11 in this section may be calculated according to an age not more 12 than six years younger than the actual age of the insured. 13 Sec. 6. Section 508.36, subsection 6, paragraph a, 14 unnumbered paragraph 1, Code 2014, is amended to read as 15 follows: 16 Except as otherwise provided in subsections 7, 10, and 12 17 11 , reserves calculated according to the commissioner’s reserve 18 valuation method, for the life insurance and endowment benefits 19 of policies providing for a uniform amount of insurance and 20 requiring the payment of uniform premiums, shall be the excess, 21 if any, of the present value, at the date of valuation, of 22 future guaranteed benefits provided for by such policies, over 23 the present value, at the date of valuation, of any future 24 modified net premiums for such policies. The modified net 25 premiums for such policy is the uniform percentage of the 26 respective contract premiums for the benefits such that the 27 present value, at the date of issue of the policy, of all 28 modified net premiums shall be equal to the sum of the present 29 value, at the date of valuation, of such benefits provided 30 for by the policy and the excess of the amount determined in 31 subparagraph (1) over the amount determined in subparagraph 32 (2), as follows: 33 Sec. 7. Section 508.36, subsection 10, paragraph a, Code 34 2014, is amended to read as follows: 35 -10- LSB 5218XD (8) 85 av/nh 10/ 24

S.F. _____ H.F. _____ a. If in any contract year the gross premium charged by a 1 life insurance company on a policy or contract is less than the 2 valuation net premium for the policy or contract, as calculated 3 by the method used in calculating the reserve for such policy 4 or contract but using the minimum valuation standards of 5 mortality and rate of interest, the minimum reserve required 6 for such policy or contract is the greater of either the 7 reserve calculated according to the mortality table, rate of 8 interest, and method actually used for such policy or contract, 9 or the reserve calculated by the method actually used for such 10 policy or contract but using the minimum valuation standards 11 of mortality and rate of interest and replacing the valuation 12 net premium by the actual gross premium in each contract year 13 for which the valuation net premium exceeds the actual gross 14 premium. The minimum valuation standards of mortality and rate 15 of interest referred to in this section are those standards 16 established in subsections 4 and 5 . 17 Sec. 8. Section 508.36, subsection 12, Code 2014, is amended 18 to read as follows: 19 12. Minimum standards for accident and health (disability, 20 accident, and sickness) plans insurance policies or 21 contracts . The commissioner shall adopt rules containing 22 the minimum standards applicable to the valuation of health, 23 disability, and sickness and accident plans. For accident and 24 health insurance policies or contracts issued on or after the 25 operative date of the valuation manual, the standard prescribed 26 in the valuation manual is the minimum standard of valuation 27 required under subsection 1, paragraph “b” . For health, 28 disability, and sickness and accident insurance policies or 29 contracts issued on or after July 1, 1973, and prior to the 30 operative date of the valuation manual, the minimum standard of 31 valuation is the standard adopted by the commissioner by rule. 32 Sec. 9. Section 508.36, Code 2014, is amended by adding the 33 following new subsections: 34 NEW SUBSECTION . 13. Valuation manual for policies or 35 -11- LSB 5218XD (8) 85 av/nh 11/ 24

S.F. _____ H.F. _____ contracts issued on or after operative date of valuation manual. 1 a. For policies or contracts issued on or after the 2 operative date of the valuation manual, the standard prescribed 3 in the valuation manual is the minimum standard of valuation 4 required under subsection 1, paragraph “b” , except as provided 5 under paragraph “e” or “g” of this subsection. 6 b. The operative date of the valuation manual is January 7 1 of the first calendar year following the first July 1 as of 8 which all of the following have occurred: 9 (1) The valuation manual has been adopted by the NAIC 10 by an affirmative vote of at least forty-two members, or 11 three-fourths of the members voting, whichever is greater. 12 (2) The standard valuation law, as amended by the NAIC in 13 2009, or legislation including substantially similar terms and 14 provisions, has been enacted by states representing greater 15 than seventy-five percent of the direct premiums written as 16 reported in the following annual statements submitted for 2008: 17 (a) Life, accident, and health insurance annual statements. 18 (b) Health insurance annual statements. 19 (c) Fraternal benefit society annual statements. 20 (3) The standard valuation law, as amended by the NAIC in 21 2009, or legislation including substantially similar terms 22 and provisions, has been enacted by at least forty-two of the 23 following fifty-five jurisdictions: the fifty states of the 24 United States, American Samoa, the American Virgin Islands, the 25 District of Columbia, Guam, and Puerto Rico. 26 c. Unless a change in the valuation manual specifies a 27 later effective date, changes to the valuation manual shall 28 be effective on January 1 following the date when all of the 29 following have occurred: 30 (1) The changes to the valuation manual have been adopted by 31 the NAIC by an affirmative vote representing: 32 (a) At least three-fourths of the members of the NAIC 33 voting, but not less than a majority of the total membership. 34 (b) Members of the NAIC representing jurisdictions totaling 35 -12- LSB 5218XD (8) 85 av/nh 12/ 24

S.F. _____ H.F. _____ greater than seventy-five percent of the direct premiums 1 written as reported in the following annual statements most 2 recently available prior to the vote in subparagraph division 3 (a): 4 (i) Life, accident, and health insurance annual statements. 5 (ii) Health insurance annual statements. 6 (iii) Fraternal benefit society annual statements. 7 d. The valuation manual shall specify all of the following: 8 (1) Minimum valuation standards for and definitions of 9 the policies or contracts subject to subsection 1, paragraph 10 “b” . Such minimum valuation standards shall include all of the 11 following: 12 (a) The commissioner’s reserve valuation method for life 13 insurance contracts, other than annuity contracts, subject to 14 subsection 1, paragraph “b” . 15 (b) The commissioner’s annuity reserve valuation method for 16 annuity contracts subject to subsection 1, paragraph “b” . 17 (c) Minimum reserves for all other policies of contracts 18 subject to subsection 1, paragraph “b” . 19 (2) Which policies or contracts or types of policies or 20 contracts are subject to the requirements of a principle-based 21 valuation in subsection 14, paragraph “a” , and the minimum 22 valuation standards consistent with those requirements. 23 (3) For policies and contracts subject to a principle-based 24 valuation under subsection 14, specify all of the following: 25 (a) Requirements for the format of reports to the 26 commissioner under subsection 14 which shall include 27 information necessary to determine if the valuation is 28 appropriate and in compliance with this section. 29 (b) Assumptions that are prescribed for risks over which the 30 company does not have significant control or influence. 31 (c) Procedures for corporate governance and oversight of 32 the actuarial function, and a process for appropriate waiver or 33 modification of such procedures. 34 (4) For policies or contracts not subject to a 35 -13- LSB 5218XD (8) 85 av/nh 13/ 24

S.F. _____ H.F. _____ principle-based valuation under subsection 14, the minimum 1 valuation standard shall do either of the following: 2 (a) Be consistent with the minimum standard of valuation 3 prior to the operative date of the valuation manual. 4 (b) Develop reserves that quantify the benefits and 5 guarantees, and the funding, associated with the policies or 6 contracts and their risks at a level of conservatism that 7 reflects conditions that include unfavorable events that have a 8 reasonable probability of occurring. 9 (5) Other requirements, including but not limited to 10 those relating to reserve methods, models for measuring 11 risk, generation of economic scenarios, assumptions, margins, 12 use of company experience, risk measurement, disclosure, 13 certifications, reports, actuarial opinions and memorandums, 14 transition rules, and internal controls. 15 (6) The data and form of the data required under subsection 16 15, to whom the data must be submitted, and other specified 17 requirements, including data analyses and reporting of 18 analyses. 19 e. In the absence of a specific valuation requirement or 20 if a specific valuation requirement in the valuation manual 21 is not, in the opinion of the commissioner, in compliance 22 with this subsection, then the company shall, with respect to 23 such requirements, comply with minimum valuation standards 24 prescribed by the commissioner by rule. 25 f. The commissioner may engage a qualified actuary, at the 26 expense of the company, to perform an actuarial examination of 27 the company and opine on the appropriateness of any reserve 28 assumption or method used by the company, or to review and 29 opine on a company’s compliance with any requirements set forth 30 in this section. The commissioner may rely upon the opinion, 31 regarding provisions contained in this section, of a qualified 32 actuary engaged by the commissioner of another state, district, 33 or territory of the United States. As used in this paragraph, 34 “engage” includes employment of and contracting with a qualified 35 -14- LSB 5218XD (8) 85 av/nh 14/ 24

S.F. _____ H.F. _____ actuary. 1 g. The commissioner may require a company to change any 2 assumption or method that in the opinion of the commissioner 3 is necessary in order to comply with the requirements of the 4 valuation manual or this section and the company shall adjust 5 the reserves as required by the commissioner. The commissioner 6 may take other disciplinary action as authorized pursuant to 7 section 505.8. 8 NEW SUBSECTION . 14. Requirements of principle-based 9 valuation. 10 a. A company shall establish reserves using a 11 principle-based valuation that meets all of the following 12 conditions for policies or contracts as specified in the 13 valuation manual: 14 (1) Quantifies the benefits and guarantees, and the 15 funding, associated with the policies or contracts and the 16 risks of the policies or contracts at a level of conservatism 17 that reflects conditions that include unfavorable events that 18 have a reasonable probability of occurring during the lifetime 19 of the policies or contracts. For policies or contracts with 20 a significant tail risk, the valuation reflects conditions 21 appropriately adverse to quantify the tail risk. 22 (2) Incorporates assumptions, risk analysis methods, and 23 financial models and management techniques that are consistent 24 with, but not necessarily identical to, those utilized 25 within the company’s overall risk assessment process, while 26 recognizing potential differences in financial reporting 27 structures and any prescribed assumptions or methods. 28 (3) Incorporates assumptions that are derived in one of the 29 following manners: 30 (a) The assumption is prescribed in the valuation manual. 31 (b) For assumptions that are not prescribed in the valuation 32 manual, the assumptions shall meet either of the following 33 requirements: 34 (i) Be established utilizing the company’s available 35 -15- LSB 5218XD (8) 85 av/nh 15/ 24

S.F. _____ H.F. _____ experience, to the extent that the experience is relevant and 1 statistically credible. 2 (ii) To the extent that company data is not available, 3 relevant, or statistically credible, be established utilizing 4 other relevant, statistically credible experience. 5 (4) Provides margins for uncertainty including adverse 6 deviation and estimation error, such that the greater the 7 uncertainty the larger the margin and resulting reserve. 8 b. A company using a principle-based valuation for one 9 or more policies or contracts subject to this subsection 10 as specified in the valuation manual shall do all of the 11 following: 12 (1) Establish procedures for corporate governance and 13 oversight of the actuarial valuation function consistent with 14 those described in the valuation manual. 15 (2) Provide to the commissioner and the board of directors 16 an annual certification of the effectiveness of the company’s 17 internal controls with respect to the principle-based 18 valuation. Such controls shall be designed to assure that 19 all material risks inherent in the liabilities and associated 20 assets subject to such valuation are included in the valuation, 21 and that the valuation is made in accordance with the valuation 22 manual. The certification shall be based on the internal 23 controls in place as of the end of the preceding calendar year. 24 (3) Develop, and file with the commissioner upon request, a 25 principle-based valuation report that complies with standards 26 prescribed in the valuation manual. 27 c. A principle-based valuation may include a prescribed 28 formulaic reserve component. 29 NEW SUBSECTION . 15. Experience reporting for policies 30 or contracts in force on or after operative date of valuation 31 manual. A company shall submit mortality, morbidity, 32 policyholder behavior, or expense experience and other data as 33 prescribed in the valuation manual. 34 NEW SUBSECTION . 16. Confidentiality. 35 -16- LSB 5218XD (8) 85 av/nh 16/ 24

S.F. _____ H.F. _____ a. Definition. For purposes of this subsection, 1 “confidential information” means all of the following: 2 (1) A memorandum in support of an opinion submitted 3 under subsection 2 and any other documents, materials, or 4 other information, including but not limited to all working 5 papers, and copies thereof, created, produced, obtained by, or 6 disclosed to the commissioner or any other person in connection 7 with the memorandum. 8 (2) All documents, materials, or other information, 9 including but not limited to all working papers, and copies 10 thereof, created, produced, obtained by, or disclosed 11 to the commissioner or any other person in the course of 12 an examination made under subsection 13, paragraph “f” ; 13 provided, however, that if an examination report or other 14 materials prepared in connection with an examination made 15 under chapter 507 is not held as private and confidential 16 information under section 507.14, an examination report or 17 other material prepared in connection with an examination made 18 under subsection 13, paragraph “f” , shall not be “confidential 19 information” to the same extent as if such examination report or 20 other material had been prepared under chapter 507. 21 (3) Any reports, documents, materials, or other information 22 developed by a company in support of, or in connection with, 23 an annual certification by the company under subsection 14, 24 paragraph “b” , subparagraph (2), evaluating the effectiveness 25 of the company’s internal controls with respect to a 26 principle-based valuation and any other documents, materials, 27 or other information, including but not limited to all working 28 papers, and copies thereof, created, produced, obtained by, or 29 disclosed to the commissioner or any other person in connection 30 with such reports, documents, materials, or other information. 31 (4) Any principle-based valuation report developed under 32 subsection 14, paragraph “b” , subparagraph (3), and any other 33 documents, materials, or other information, including but not 34 limited to all working papers, and copies thereof, created, 35 -17- LSB 5218XD (8) 85 av/nh 17/ 24

S.F. _____ H.F. _____ produced, obtained by, or disclosed to the commissioner or any 1 other person in connection with such report. 2 (5) Any documents, materials, data, or other information 3 submitted by a company under subsection 15, collectively known 4 as “experience data” or “experience materials” , and any other 5 documents, materials, data, or other information, including 6 but not limited to all working papers, and copies thereof, 7 created or produced in connection with such experience data, 8 in each case that includes any potentially company-identifying 9 or personally identifiable information, that is provided to or 10 obtained by the commissioner, together with any “experience 11 data” or “experience materials” , and any other documents, 12 materials, data, or other information, including but not 13 limited to all working papers, and copies thereof, created, 14 produced, obtained by, or disclosed to the commissioner or 15 any other person in connection with such experience data or 16 experience materials. 17 b. Privilege for, and confidentiality of, confidential 18 information. 19 (1) Except as provided in this subsection, a company’s 20 confidential information is confidential by law and privileged, 21 and shall not be subject to chapter 22, shall not be subject 22 to subpoena, and shall not be subject to discovery or 23 admissible in evidence in any private civil action; provided, 24 however, that the commissioner is authorized to use the 25 confidential information in the furtherance of any regulatory 26 or legal action brought against the company as a part of the 27 commissioner’s official duties. 28 (2) Neither the commissioner nor any person who received 29 confidential information while acting under the authority of 30 the commissioner shall be permitted or required to testify 31 in any private civil action concerning any confidential 32 information. 33 (3) In order to assist in the performance of the 34 commissioner’s duties, the commissioner may share confidential 35 -18- LSB 5218XD (8) 85 av/nh 18/ 24