Bill Text: IL SB2764 | 2013-2014 | 98th General Assembly | Amended

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Bill Title: Amends the Illinois Insurance Code. Makes a technical change in a Section concerning the standard non-forfeiture law for life insurance.

Sponsorship: Partisan Bill (Democrat 1)

Status: (Failed) 2015-01-13 - Session Sine Die [SB2764 Detail]

Download: Illinois-2013-SB2764-Amended.html

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Sen. William R. Haine

Filed: 4/2/2014

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AMENDMENT TO SENATE BILL 2764
AMENDMENT NO. ______. Amend Senate Bill 2764, AS AMENDED,
by replacing everything after the enacting clause with the
following:
"Section 5. The Illinois Insurance Code is amended by
changing Sections 223 and 229.2 as follows:
(215 ILCS 5/223) (from Ch. 73, par. 835)
Sec. 223. Director to value policies - Legal standard of
valuation.
(1) For policies and contracts issued prior to the
operative date of the Valuation Manual, the The Director shall
annually value, or cause to be valued, the reserve liabilities
(hereinafter called reserves) for all outstanding life
insurance policies and annuity and pure endowment contracts of
every life insurance company doing business in this State,
except that in the case of an alien company, such valuation

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shall be limited to its United States business, and may certify
the amount of any such reserves, specifying the mortality table
or tables, rate or rates of interest, and methods (net level
premium method or other) used in the calculation of such
reserves. Other assumptions may be incorporated into the
reserve calculation to the extent permitted by the National
Association of Insurance Commissioners' Accounting Practices
and Procedures Manual. In calculating such reserves, he may use
group methods and approximate averages for fractions of a year
or otherwise. In lieu of the valuation of the reserves herein
required of any foreign or alien company, he may accept any
valuation made, or caused to be made, by the insurance
supervisory official of any state or other jurisdiction when
such valuation complies with the minimum standard herein
provided in this Section.
The provisions set forth in this subsection (1) and in
subsections (2), (3), (4), (5), (6), and (7) of this Section
shall apply to all policies and contracts, as appropriate,
subject to this Section issued prior to the operative date of
the Valuation Manual. The provisions set forth in subsections
(8) and (9) of this Section shall not apply to any such
policies and contracts.
For policies and contracts issued on or after the operative
date of the Valuation Manual, the Director shall annually
value, or cause to be valued, the reserve liabilities
(reserves) for all outstanding life insurance contracts,

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annuity and pure endowment contracts, accident and health
contracts, and deposit-type contracts of every company issued
on or after the operative date of the Valuation Manual. In lieu
of the valuation of the reserves required of a foreign or alien
company, the Director 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.
The provisions set forth in subsections (8) and (9) of this
Section shall apply to all policies and contracts issued on or
after the operative date of the Valuation Manual. and if the
official of such state or jurisdiction accepts as sufficient
and valid for all legal purposes the certificate of valuation
of the Director when such certificate states the valuation to
have been made in a specified manner according to which the
aggregate reserves would be at least as large as if they had
been computed in the manner prescribed by the law of that state
or jurisdiction.
Any such company which adopts at any time a has adopted any
standard of valuation producing greater aggregate reserves
than those calculated according to the minimum standard herein
provided under this Section may adopt a lower standard of
valuation, with the approval of the Director, adopt any lower
standard of valuation, but not lower than the minimum herein
provided, however, that, for the purposes of this subsection,
the holding of additional reserves previously determined by the

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appointed a qualified actuary to be necessary to render the
opinion required by subsection (1a) shall not be deemed to be
the adoption of a higher standard of valuation. In the
valuation of policies the Director shall give no consideration
to, nor make any deduction because of, the existence or the
possession by the company of
(a) policy liens created by any agreement given or
assented to by any assured subsequent to July 1, 1937, for
which liens such assured has not received cash or other
consideration equal in value to the amount of such liens,
or
(b) policy liens created by any agreement entered into
in violation of Section 232 unless the agreement imposing
or creating such liens has been approved by a Court in a
proceeding under Article XIII, or in the case of a foreign
or alien company has been approved by a court in a
rehabilitation or liquidation proceeding or by the
insurance official of its domiciliary state or country, in
accordance with the laws thereof.
(1a) This subsection shall become operative at the end of
the first full calendar year following the effective date of
this amendatory Act of 1991.
(A) General.
(1) Prior to the operative date of the Valuation
Manual, every Every life insurance company doing
business in this State shall annually submit the

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opinion of a qualified actuary as to whether the
reserves and related actuarial items held in support of
the policies and contracts specified by the Director by
regulation are computed appropriately, are based on
assumptions that satisfy contractual provisions, are
consistent with prior reported amounts and comply with
applicable laws of this State. The Director by
regulation shall define the specifics of this opinion
and add any other items deemed to be necessary to its
scope.
(2) The opinion shall be submitted with the annual
statement reflecting the valuation of reserve
liabilities for each year ending on or after December
31, 1992.
(3) The opinion shall apply to all business in
force including individual and group health insurance
plans, in form and substance acceptable to the Director
as specified by regulation.
(4) The opinion shall be based on standards adopted
from time to time by the Actuarial Standards Board and
on additional standards as the Director may by
regulation prescribe.
(5) In the case of an opinion required to be
submitted by a foreign or alien company, the Director
may accept the opinion filed by that company with the
insurance supervisory official of another state if the

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Director determines that the opinion reasonably meets
the requirements applicable to a company domiciled in
this State.
(6) For the purpose of this Section, "qualified
actuary" means a member in good standing of the
American Academy of Actuaries who meets the
requirements set forth in its regulations.
(7) Except in cases of fraud or willful misconduct,
the qualified actuary shall not be liable for damages
to any person (other than the insurance company and the
Director) for any act, error, omission, decision or
conduct with respect to the actuary's opinion.
(8) Disciplinary action by the Director against
the company or the qualified actuary shall be defined
in regulations by the Director.
(9) A memorandum, in form and substance acceptable
to the Director as specified by regulation, shall be
prepared to support each actuarial opinion.
(10) If the insurance company fails to provide a
supporting memorandum at the request of the Director
within a period specified by regulation or the Director
determines that the supporting memorandum provided by
the insurance company fails to meet the standards
prescribed by the regulations or is otherwise
unacceptable to the Director, the Director may engage a
qualified actuary at the expense of the company to

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review the opinion and the basis for the opinion and
prepare the supporting memorandum as is required by the
Director.
(11) Any memorandum in support of the opinion, and
any other material provided by the company to the
Director in connection therewith, shall be kept
confidential by the Director and shall not be made
public and shall not be subject to subpoena, other than
for the purpose of defending an action seeking damages
from any person by reason of any action required by
this Section or by regulations promulgated hereunder;
provided, however, that the memorandum or other
material may otherwise be released by the Director (a)
with the written consent of the company or (b) to the
American Academy of Actuaries upon request stating
that the memorandum or other material is required for
the purpose of professional disciplinary proceedings
and setting forth procedures satisfactory to the
Director for preserving the confidentiality of the
memorandum or other material. Once any portion of the
confidential memorandum is cited by the company in its
marketing or is cited before any governmental agency
other than a state insurance department or is released
by the company to the news media, all portions of the
confidential memorandum shall be no longer
confidential.

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(B) Actuarial analysis of reserves and assets
supporting those reserves.
(1) Every life insurance company, except as
exempted by or under regulation, shall also annually
include in the opinion required by paragraph (A)(1) of
this subsection (1a), an opinion of the same qualified
actuary as to whether the reserves and related
actuarial items held in support of the policies and
contracts specified by the Director by regulation,
when considered in light of the assets held by the
company 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 company's obligations under the
policies and contracts including, but not limited to,
the benefits under and expenses associated with the
policies and contracts.
(2) The Director may provide by regulation for a
transition period for establishing any higher reserves
which the qualified actuary may deem necessary in order
to render the opinion required by this Section.
(1b) Actuarial Opinion of Reserves after the Operative Date
of the Valuation Manual.
(A) General.

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(1) Every company with outstanding life insurance
contracts, accident and health insurance contracts, or
deposit-type contracts in this State and subject to
regulation by the Director shall annually submit the
opinion of the appointed 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 laws of this State.
The Valuation Manual shall prescribe the specifics of
this opinion, including any items deemed to be
necessary to its scope.
(2) The opinion shall be submitted with the annual
statement reflecting the valuation of such reserve
liabilities for each year ending on or after the
operative date of the Valuation Manual.
(3) The opinion shall apply to all policies and
contracts subject to paragraph (B) of this subsection
(1b), plus other actuarial liabilities as may be
specified in the Valuation Manual.
(4) The opinion shall be based on standards adopted
from time to time by the Actuarial Standards Board or
its successor and on additional standards as may be
prescribed in the Valuation Manual.
(5) In the case of an opinion required to be

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submitted by a foreign or alien company, the Director
may accept the opinion filed by that company with the
insurance supervisory official of another state if the
Director determines that the opinion reasonably meets
the requirements applicable to a company domiciled in
this State.
(6) Except in cases of fraud or willful misconduct,
the appointed actuary shall not be liable for damages
to any person (other than the insurance company and the
Director) for any act, error, omission, decision, or
conduct with respect to the appointed actuary's
opinion.
(7) A memorandum, in a form and substance as
specified in the Valuation Manual and acceptable to the
Director, shall be prepared to support each actuarial
opinion.
(8) If the insurance company fails to provide a
supporting memorandum at the request of the Director
within a period specified in the Valuation Manual or
the Director determines that the supporting memorandum
provided by the insurance company fails to meet the
standards prescribed by the Valuation Manual or is
otherwise unacceptable to the Director, the Director
may engage a qualified actuary at the expense of the
company to review the opinion and the basis for the
opinion and prepare the supporting memorandum as is

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required by the Director.
(B) Every company with outstanding life insurance
contracts, accident and health insurance contracts, or
deposit-type contracts in this state and subject to
regulation by the Director, except as exempted in the
Valuation Manual, shall also annually include in the
opinion required by subparagraph (1) of paragraph (A) of
this subsection (1b), an opinion of 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 company 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 company's obligations under the policies and
contracts, including, but not limited to, the benefits
under and expenses associated with the policies and
contracts.
(2) This subsection shall apply to only those policies and
contracts issued prior to the operative date of Section 229.2
(the Standard Non-forfeiture Law).
(a) Except as otherwise in this Article provided, the
legal minimum standard for valuation of contracts issued
before January 1, 1908, shall be the Actuaries or Combined

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Experience Table of Mortality with interest at 4% per annum
and for valuation of contracts issued on or after that date
shall be the American Experience Table of Mortality with
either Craig's or Buttolph's Extension for ages under 10
and with interest at 3 1/2% per annum. The legal minimum
standard for the valuation of group insurance policies
under which premium rates are not guaranteed for a period
in excess of 5 years shall be the American Men Ultimate
Table of Mortality with interest at 3 1/2% per annum. Any
life company may, at its option, value its insurance
contracts issued on or after January 1, 1938, in accordance
with their terms on the basis of the American Men Ultimate
Table of Mortality with interest not higher than 3 1/2% per
annum.
(b) Policies issued prior to January 1, 1908, may
continue to be valued according to a method producing
reserves not less than those produced by the full
preliminary term method. Policies issued on and after
January 1, 1908, may be valued according to a method
producing reserves not less than those produced by the
modified preliminary term method hereinafter described in
paragraph (c). Policies issued on and after January 1,
1938, may be valued either according to a method producing
reserves not less than those produced by such modified
preliminary term method or by the select and ultimate
method on the basis that the rate of mortality during the

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first 5 years after the issuance of such contracts
respectively shall be calculated according to the
following percentages of rates shown by the American
Experience Table of Mortality:
(i) first insurance year 50% thereof;
(ii) second insurance year 65% thereof;
(iii) third insurance year 75% thereof;
(iv) fourth insurance year 85% thereof;
(v) fifth insurance year 95% thereof.
(c) If the premium charged for the first policy year
under a limited payment life preliminary term policy
providing for the payment of all premiums thereon in less
than 20 years from the date of the policy or under an
endowment preliminary term policy, exceeds that charged
for the first policy year under 20 payment life preliminary
term policies of the same company, the reserve thereon at
the end of any year, including the first, shall not be less
than the reserve on a 20 payment life preliminary term
policy issued in the same year at the same age, together
with an amount which shall be equivalent to the
accumulation of a net level premium sufficient to provide
for a pure endowment at the end of the premium payment
period, equal to the difference between the value at the
end of such period of such a 20 payment life preliminary
term policy and the full net level premium reserve at such
time of such a limited payment life or endowment policy.

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The premium payment period is the period during which
premiums are concurrently payable under such 20 payment
life preliminary term policy and such limited payment life
or endowment policy.
(d) The legal minimum standard for the valuations of
annuities issued on and after January 1, 1938, shall be the
American Annuitant's Table with interest not higher than 3
3/4% per annum, and all annuities issued before that date
shall be valued on a basis not lower than that used for the
annual statement of the year 1937; but annuities deferred
10 or more years and written in connection with life
insurance shall be valued on the same basis as that used in
computing the consideration or premiums therefor, or upon
any higher standard at the option of the company.
(e) The Director may vary the standards of interest and
mortality as to contracts issued in countries other than
the United States and may vary standards of mortality in
particular cases of invalid lives and other extra hazards.
(f) The legal minimum standard for valuation of waiver
of premium disability benefits or waiver of premium and
income disability benefits issued on and after January 1,
1938, shall be the Class (3) Disability Table (1926)
modified to conform to the contractual waiting period, with
interest at not more than 3 1/2% per annum; but in no event
shall the values be less than those produced by the basis
used in computing premiums for such benefits. The legal

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minimum standard for the valuation of such benefits issued
prior to January 1, 1938, shall be such as to place an
adequate value, as determined by sound insurance
practices, on the liabilities thereunder and shall be such
that the value of the benefits under each and every policy
shall in no case be less than the value placed upon the
future premiums.
(g) The legal minimum standard for the valuation of
industrial policies issued on or after January 1, 1938,
shall be the American Experience Table of Mortality or the
Standard Industrial Mortality Table or the Substandard
Industrial Mortality Table with interest at 3 1/2% per
annum by the net level premium method, or in accordance
with their terms by the modified preliminary term method
hereinabove described.
(h) Reserves for all such policies and contracts may be
calculated, at the option of the company, according to any
standards which produce greater aggregate reserves for all
such policies and contracts than the minimum reserves
required by this subsection.
(3) This subsection shall apply to only those policies and
contracts issued on or after January 1, 1948 or such earlier
operative date of Section 229.2 (the Standard Non-forfeiture
Law) as shall have been elected by the insurance company
issuing such policies or contracts.
(a) Except as otherwise provided in subsections (4),

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(6), and (7), the minimum standard for the valuation of all
such policies and contracts shall be the Commissioners
Reserve valuation method defined in paragraphs (b) and (f)
of this subsection and in subsection 5, 3 1/2% interest for
such policies issued prior to September 8, 1977, 5 1/2%
interest for single premium life insurance policies and 4
1/2% interest for all other such policies issued on or
after September 8, 1977, and the following tables:
(i) The Commissioners 1941 Standard Ordinary
Mortality Table for all Ordinary policies of life
insurance issued on the standard basis, excluding any
disability and accidental death benefits in such
policies, for such policies issued prior to the
operative date of subsection (4a) of Section 229.2
(Standard Non-forfeiture Law); and the Commissioners
1958 Standard Ordinary Mortality Table for such
policies issued on or after such operative date but
prior to the operative date of subsection (4c) of
Section 229.2 provided that for any category of such
policies issued on female risks all modified net
premiums and present values referred to in this Section
Act may, prior to September 8, 1977, be calculated
according to an age not more than 3 years younger than
the actual age of the insured and, after September 8,
1977, calculated according to an age not more than 6
years younger than the actual age of the insured; and

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for such policies issued on or after the operative date
of subsection (4c) of Section 229.2, (i) the
Commissioners 1980 Standard Ordinary Mortality Table,
or (ii) at the election of the company for any one or
more specified plans of life insurance, the
Commissioners 1980 Standard Ordinary Mortality Table
with Ten-Year Select Mortality Factors, or (iii) any
ordinary mortality table adopted after 1980 by the NAIC
National Association of Insurance Commissioners and
approved by regulations promulgated by the Director
for use in determining the minimum standard of
valuation for such policies.
(ii) For all Industrial Life Insurance policies
issued on the standard basis, excluding any disability
and accidental death benefits in such policies--the
1941 Standard Industrial Mortality Table for such
policies issued prior to the operative date of
subsection 4 (b) of Section 229.2 (Standard
Non-forfeiture Law); and for such policies issued on or
after such operative date the Commissioners 1961
Standard Industrial Mortality Table or any industrial
mortality table adopted after 1980 by the NAIC National
Association of Insurance Commissioners and approved by
regulations promulgated by the Director for use in
determining the minimum standard of valuation for such
policies.

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(iii) For Individual Annuity and Pure Endowment
contracts, excluding any disability and accidental
death benefits in such policies--the 1937 Standard
Annuity Mortality Table--or, at the option of the
company, the Annuity Mortality Table for 1949,
Ultimate, or any modification of either of these tables
approved by the Director.
(iv) For Group Annuity and Pure Endowment
contracts, excluding any disability and accidental
death benefits in such policies--the Group Annuity
Mortality Table for 1951, any modification of such
table approved by the Director, or, at the option of
the company, any of the tables or modifications of
tables specified for Individual Annuity and Pure
Endowment contracts.
(v) For Total and Permanent Disability Benefits in
or supplementary to Ordinary policies or contracts for
policies or contracts issued on or after January 1,
1966, the tables of Period 2 disablement rates and the
1930 to 1950 termination rates of the 1952 Disability
Study of the Society of Actuaries, with due regard to
the type of benefit, or any tables of disablement rates
and termination rates adopted after 1980 by the NAIC
National Association of Insurance Commissioners and
approved by regulations promulgated by the Director
for use in determining the minimum standard of

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valuation for such policies; for policies or contracts
issued on or after January 1, 1961, and prior to
January 1, 1966, either such tables or, at the option
of the company, the Class (3) Disability Table (1926);
and for policies issued prior to January 1, 1961, the
Class (3) Disability Table (1926). Any such table
shall, for active lives, be combined with a mortality
table permitted for calculating the reserves for life
insurance policies.
(vi) For Accidental Death benefits in or
supplementary to policies--for policies issued on or
after January 1, 1966, the 1959 Accidental Death
Benefits Table or any accidental death benefits table
adopted after 1980 by the NAIC National Association of
Insurance Commissioners and approved by regulations
promulgated by the Director for use in determining the
minimum standard of valuation for such policies; for
policies issued on or after January 1, 1961, and prior
to January 1, 1966, any of such tables or, at the
option of the company, the Inter-Company Double
Indemnity Mortality Table; and for policies issued
prior to January 1, 1961, the Inter-Company Double
Indemnity Mortality Table. Either table shall be
combined with a mortality table permitted for
calculating the reserves for life insurance policies.
(vii) For Group Life Insurance, life insurance

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issued on the substandard basis and other special
benefits--such tables as may be approved by the
Director.
(b) Except as otherwise provided in paragraph (f) of
subsection (3), subsection (5), and subsection (7)
reserves according to the Commissioners reserve valuation
method, for the life insurance and endowment benefits of
policies providing for a uniform amount of insurance and
requiring the payment of uniform premiums shall be the
excess, if any, of the present value, at the date of
valuation, of such future guaranteed benefits provided for
by such policies, over the then present value of any future
modified net premiums therefor. The modified net premiums
for any such policy shall be such uniform percentage of the
respective contract premiums for such benefits that the
present value, at the date of issue of the policy, of all
such modified net premiums shall be equal to the sum of the
then present value of such benefits provided for by the
policy and the excess of (A) over (B), as follows:
(A) A net level annual premium equal to the present
value, at the date of issue, of such benefits provided
for after the first policy year, divided by the present
value, at the date of issue, of an annuity of one per
annum payable on the first and each subsequent
anniversary of such policy on which a premium falls
due; provided, however, that such net level annual

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premium shall not exceed the net level annual premium
on the 19 year premium whole life plan for insurance of
the same amount at an age one year higher than the age
at issue of such policy.
(B) A net one year term premium for such benefits
provided for in the first policy year.
For any life insurance policy issued on or after
January 1, 1987, for which the contract premium in the
first policy year exceeds that of the second year with no
comparable additional benefit being provided in that first
year, which policy provides an endowment benefit or a cash
surrender value or a combination thereof in an amount
greater than such excess premium, the reserve according to
the Commissioners reserve valuation method as of any policy
anniversary occurring on or before the assumed ending date,
defined herein as the first policy anniversary on which the
sum of any endowment benefit and any cash surrender value
then available is greater than such excess premium, shall,
except as otherwise provided in paragraph (f) of subsection
(3), be the greater of the reserve as of such policy
anniversary calculated as described in the preceding part
of this paragraph (b) and the reserve as of such policy
anniversary calculated as described in the preceding part
of this paragraph (b) with (i) the value defined in subpart
A of the preceding part of this paragraph (b) being reduced
by 15% of the amount of such excess first year premium,

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(ii) all present values of benefits and premiums being
determined without reference to premiums or benefits
provided for by the policy after the assumed ending date,
(iii) the policy being assumed to mature on such date as an
endowment, and (iv) the cash surrender value provided on
such date being considered as an endowment benefit. In
making the above comparison, the mortality and interest
bases stated in paragraph (a) of subsection (3) and in
subsection (6) shall be used.
Reserves according to the Commissioners reserve
valuation method for (i) life insurance policies providing
for a varying amount of insurance or requiring the payment
of varying premiums, (ii) group annuity and pure endowment
contracts purchased under a retirement plan or plan of
deferred compensation, established or maintained by an
employer (including a partnership or sole proprietorship)
or by an employee organization, or by both, other than a
plan providing individual retirement accounts or
individual retirement annuities under Section 408 of the
Internal Revenue Code, as now or hereafter amended, (iii)
disability and accidental death benefits in all policies
and contracts, and (iv) all other benefits, except life
insurance and endowment benefits in life insurance
policies and benefits provided by all other annuity and
pure endowment contracts, shall be calculated by a method
consistent with the principles of this paragraph (b),

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except that any extra premiums charged because of
impairments or special hazards shall be disregarded in the
determination of modified net premiums.
(c) In no event shall a company's aggregate reserves
for all life insurance policies, excluding disability and
accidental death benefits be less than the aggregate
reserves calculated in accordance with the methods set
forth in paragraphs (b), (f), and (g) of subsection (3) and
in subsection (5) and the mortality table or tables and
rate or rates of interest used in calculating
non-forfeiture benefits for such policies.
(d) In no event shall the aggregate reserves for all
policies, contracts, and benefits be less than the
aggregate reserves determined by the appointed qualified
actuary to be necessary to render the opinion required by
subsection (1a).
(e) Reserves for any category of policies, contracts or
benefits as established by the Director, may be calculated,
at the option of the company, according to any standards
which produce greater aggregate reserves for such category
than those calculated according to the minimum standard
herein provided, but the rate or rates of interest used for
policies and contracts, other than annuity and pure
endowment contracts, shall not be higher than the
corresponding rate or rates of interest used in calculating
any nonforfeiture benefits provided for therein.

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(f) If in any contract year the gross premium charged
by any life insurance company on any policy or contract is
less than the valuation net premium for the policy or
contract calculated by the method used in calculating the
reserve thereon but using the minimum valuation standards
of mortality and rate of interest, the minimum reserve
required for such policy or contract shall be the greater
of either the reserve calculated according to the mortality
table, rate of interest, and method actually used for such
policy or contract, or the reserve calculated by the method
actually used for such policy or contract but using the
minimum standards of mortality and rate of interest and
replacing the valuation net premium by the actual gross
premium in each contract year for which the valuation net
premium exceeds the actual gross premium. The minimum
valuation standards of mortality and rate of interest
referred to in this paragraph (f) are those standards
stated in subsection (6) and paragraph (a) of subsection
(3).
For any life insurance policy issued on or after
January 1, 1987, for which the gross premium in the first
policy year exceeds that of the second year with no
comparable additional benefit provided in that first year,
which policy provides an endowment benefit or a cash
surrender value or a combination thereof in an amount
greater than such excess premium, the foregoing provisions

09800SB2764sam002 - 25 - LRB098 19432 RPM 57973 a
of this paragraph (f) shall be applied as if the method
actually used in calculating the reserve for such policy
were the method described in paragraph (b) of subsection
(3), ignoring the second paragraph of said paragraph (b).
The minimum reserve at each policy anniversary of such a
policy shall be the greater of the minimum reserve
calculated in accordance with paragraph (b) of subsection
(3), including the second paragraph of said paragraph (b),
and the minimum reserve calculated in accordance with this
paragraph (f).
(g) In the case of any plan of life insurance which
provides for future premium determination, the amounts of
which are to be determined by the insurance company based
on then estimates of future experience, or in the case of
any plan of life insurance or annuity which is of such a
nature that the minimum reserves cannot be determined by
the methods described in paragraphs (b) and (f) of
subsection (3) and subsection (5), the reserves which are
held under any such plan shall:
(i) be appropriate in relation to the benefits and
the pattern of premiums for that plan, and
(ii) be computed by a method which is consistent
with the principles of this Standard Valuation Law, as
determined by regulations promulgated by the Director.
(4) Except as provided in subsection (6), the minimum
standard of for the valuation for of all individual annuity and

09800SB2764sam002 - 26 - LRB098 19432 RPM 57973 a
pure endowment contracts issued on or after the operative date
of this subsection, as defined herein, and for all annuities
and pure endowments purchased on or after such operative date
under group annuity and pure endowment contracts shall be the
Commissioners Reserve valuation methods defined in paragraph
(b) of subsection (3) and subsection (5) and the following
tables and interest rates:
(a) For individual single premium immediate annuity
contracts, excluding any disability and accidental death
benefits in such contracts, the 1971 Individual Annuity
Mortality Table, any individual annuity mortality table
adopted after 1980 by the NAIC National Association of
Insurance Commissioners and approved by regulations
promulgated by the Director for use in determining the
minimum standard of valuation for such contracts, or any
modification of those tables approved by the Director, and
7 1/2% interest.
(b) For individual and pure endowment contracts other
than single premium annuity contracts, excluding any
disability and accidental death benefits in such
contracts, the 1971 Individual Annuity Mortality Table,
any individual annuity mortality table adopted after 1980
by the NAIC National Association of Insurance
Commissioners and approved by regulations promulgated by
the Director for use in determining the minimum standard of
valuation for such contracts, or any modification of those

09800SB2764sam002 - 27 - LRB098 19432 RPM 57973 a
tables approved by the Director, and 5 1/2% interest for
single premium deferred annuity and pure endowment
contracts and 4 1/2% interest for all other such individual
annuity and pure endowment contracts.
(c) For all annuities and pure endowments purchased
under group annuity and pure endowment contracts,
excluding any disability and accidental death benefits
purchased under such contracts, the 1971 Group Annuity
Mortality Table, any group annuity mortality table adopted
after 1980 by the NAIC National Association of Insurance
Commissioners and approved by regulations promulgated by
the Director for use in determining the minimum standard of
valuation for such annuities and pure endowments, or any
modification of those tables approved by the Director, and
7 1/2% interest.
After September 8, 1977, any company may file with the
Director a written notice of its election to comply with the
provisions of this subsection after a specified date before
January 1, 1979, which shall be the operative date of this
subsection for such company; provided, a company may elect a
different operative date for individual annuity and pure
endowment contracts from that elected for group annuity and
pure endowment contracts. If a company makes no election, the
operative date of this subsection for such company shall be
January 1, 1979.
(5) This subsection shall apply to all annuity and pure

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endowment contracts other than group annuity and pure endowment
contracts purchased under a retirement plan or plan of deferred
compensation, established or maintained by an employer
(including a partnership or sole proprietorship) or by an
employee organization, or by both, other than a plan providing
individual retirement accounts or individual retirement
annuities under Section 408 of the Internal Revenue Code, as
now or hereafter amended.
Reserves according to the Commissioners annuity reserve
method for benefits under annuity or pure endowment contracts,
excluding any disability and accidental death benefits in such
contracts, shall be the greatest of the respective excesses of
the present values, at the date of valuation, of the future
guaranteed benefits, including guaranteed nonforfeiture
benefits, provided for by such contracts at the end of each
respective contract year, over the present value, at the date
of valuation, of any future valuation considerations derived
from future gross considerations, required by the terms of such
contract, that become payable prior to the end of such
respective contract year. The future guaranteed benefits shall
be determined by using the mortality table, if any, and the
interest rate, or rates, specified in such contracts for
determining guaranteed benefits. The valuation considerations
are the portions of the respective gross considerations applied
under the terms of such contracts to determine nonforfeiture
values.

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(6)(a) Applicability of this subsection. The interest
rates used in determining the minimum standard for the
valuation of
(A) all life insurance policies issued in a particular
calendar year, on or after the operative date of subsection
(4c) of Section 229.2 (Standard Nonforfeiture Law),
(B) all individual annuity and pure endowment
contracts issued in a particular calendar year ending on or
after December 31, 1983,
(C) all annuities and pure endowments purchased in a
particular calendar year ending on or after December 31,
1983, under group annuity and pure endowment contracts, and
(D) the net increase in a particular calendar year
ending after December 31, 1983, in amounts held under
guaranteed interest contracts
shall be the calendar year statutory valuation interest rates,
as defined in this subsection.
(b) Calendar Year Statutory Valuation Interest Rates.
(i) The calendar year statutory valuation interest
rates shall be determined according to the following
formulae, rounding "I" to the nearest .25%.
(A) For life insurance,
I = .03 + W (R1 - .03) + W/2 (R2 - .09).
(B) For single premium immediate annuities and
annuity benefits involving life contingencies
arising from other annuities with cash settlement

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options and from guaranteed interest contracts
with cash settlement options,
I = .03 + W (R - .03) or with prior
approval of the Director I = .03 + W (Rq -
.03).
For the purposes of this subparagraph (i), "I"
equals the calendar year statutory valuation interest
rate, "R" is the reference interest rate defined in
this subsection, "R1" is the lesser of R and .09, "R2"
is the greater of R and .09, "Rq" is the quarterly
reference interest rate defined in this subsection,
and "W" is the weighting factor defined in this
subsection.
(C) For other annuities with cash settlement
options and guaranteed interest contracts with
cash settlement options, valued on an issue year
basis, except as stated in (B), the formula for
life insurance stated in (A) applies to annuities
and guaranteed interest contracts with guarantee
durations in excess of 10 years, and the formula
for single premium immediate annuities stated in
(B) above applies to annuities and guaranteed
interest contracts with guarantee durations of 10
years or less.
(D) For other annuities with no cash
settlement options and for guaranteed interest

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contracts with no cash settlement options, the
formula for single premium immediate annuities
stated in (B) applies.
(E) For other annuities with cash settlement
options and guaranteed interest contracts with
cash settlement options, valued on a change in fund
basis, the formula for single premium immediate
annuities stated in (B) applies.
(ii) If the calendar year statutory valuation
interest rate for any life insurance policy issued in
any calendar year determined without reference to this
subparagraph differs from the corresponding actual
rate for similar policies issued in the immediately
preceding calendar year by less than .5%, the calendar
year statutory valuation interest rate for such life
insurance policy shall be the corresponding actual
rate for the immediately preceding calendar year. For
purposes of applying this subparagraph, the calendar
year statutory valuation interest rate for life
insurance policies issued in a calendar year shall be
determined for 1980, using the reference interest rate
defined for 1979, and shall be determined for each
subsequent calendar year regardless of when subsection
(4c) of Section 229.2 (Standard Nonforfeiture Law)
becomes operative.
(c) Weighting Factors.

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(i) The weighting factors referred to in the
formulae stated in paragraph (b) are given in the
following tables.
(A) Weighting Factors for Life Insurance.
Guarantee Weighting
Duration Factors
(Years)
10 or less .50
More than 10, but not more than 20 .45
More than 20 .35
For life insurance, the guarantee duration is
the maximum number of years the life insurance can
remain in force on a basis guaranteed in the policy
or under options to convert to plans of life
insurance with premium rates or nonforfeiture
values or both which are guaranteed in the original
policy.
(B) The weighting factor for single premium
immediate annuities and for annuity benefits
involving life contingencies arising from other
annuities with cash settlement options and
guaranteed interest contracts with cash settlement
options is .80.
(C) The weighting factors for other annuities
and for guaranteed interest contracts, except as
stated in (B) of this subparagraph (i), shall be as

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specified in tables (1), (2), and (3) of this
subpart (C), according to the rules and
definitions in (4), (5) and (6) of this subpart
(C).
(1) For annuities and guaranteed interest
contracts valued on an issue year basis.
Guarantee Weighting Factor
Duration for Plan Type
(Years) A B C
5 or less..................................... .80 .60 .50
More than 5, but not
more than 10.................................. .75 .60 .50
More than 10, but not
more than 20.................................. .65 .50 .45
More than 20.................................. .45 .35 .35
(2) For annuities and guaranteed interest
contracts valued on a change in fund basis, the
factors shown in (1) for Plan Types A, B and C
are increased by .15, .25 and .05,
respectively.
(3) For annuities and guaranteed interest
contracts valued on an issue year basis, other
than those with no cash settlement options,
which do not guarantee interest on
considerations received more than one year
after issue or purchase, and for annuities and

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guaranteed interest contracts valued on a
change in fund basis which do not guarantee
interest rates on considerations received more
than 12 months beyond the valuation date, the
factors shown in (1), or derived in (2), for
Plan Types A, B and C are increased by .05.
(4) For other annuities with cash
settlement options and guaranteed interest
contracts with cash settlement options, the
guarantee duration is the number of years for
which the contract guarantees interest rates
in excess of the calendar year statutory
valuation interest rate for life insurance
policies with guarantee durations in excess of
20 years. For other annuities with no cash
settlement options, and for guaranteed
interest contracts with no cash settlement
options, the guarantee duration is the number
of years from the date of issue or date of
purchase to the date annuity benefits are
scheduled to commence.
(5) The plan types used in the above tables
are defined as follows.
Plan Type A is a plan under which the
policyholder may not withdraw funds, or may
withdraw funds at any time but only (a) with an

09800SB2764sam002 - 35 - LRB098 19432 RPM 57973 a
adjustment to reflect changes in interest
rates or asset values since receipt of the
funds by the insurance company, (b) without
such an adjustment but in installments over 5
years or more, or (c) as an immediate life
annuity.
Plan Type B is a plan under which the
policyholder may not withdraw funds before
expiration of the interest rate guarantee, or
may withdraw funds before such expiration but
only (a) with an adjustment to reflect changes
in interest rates or asset values since receipt
of the funds by the insurance company, or (b)
without such adjustment but in installments
over 5 years or more. At the end of the
interest rate guarantee, funds may be
withdrawn without such adjustment in a single
sum or installments over less than 5 years.
Plan Type C is a plan under which the
policyholder may withdraw funds before
expiration of the interest rate guarantee in a
single sum or installments over less than 5
years either (a) without adjustment to reflect
changes in interest rates or asset values since
receipt of the funds by the insurance company,
or (b) subject only to a fixed surrender charge

09800SB2764sam002 - 36 - LRB098 19432 RPM 57973 a
stipulated in the contract as a percentage of
the fund.
(6) A company may elect to value
guaranteed interest contracts with cash
settlement options and annuities with cash
settlement options on either an issue year
basis or on a change in fund basis. Guaranteed
interest contracts with no cash settlement
options and other annuities with no cash
settlement options shall be valued on an issue
year basis. As used in this Section, "issue
year basis of valuation" refers to a valuation
basis under which the interest rate used to
determine the minimum valuation standard for
the entire duration of the annuity or
guaranteed interest contract is the calendar
year valuation interest rate for the year of
issue or year of purchase of the annuity or
guaranteed interest contract. "Change in fund
basis of valuation", as used in this Section,
refers to a valuation basis under which the
interest rate used to determine the minimum
valuation standard applicable to each change
in the fund held under the annuity or
guaranteed interest contract is the calendar
year valuation interest rate for the year of

09800SB2764sam002 - 37 - LRB098 19432 RPM 57973 a
the change in the fund.
(d) Reference Interest Rate. The reference interest
rate referred to in paragraph (b) of this subsection is
defined as follows.
(A) For all life insurance, the reference interest
rate is the lesser of the average over a period of 36
months, and the average over a period of 12 months,
with both periods ending on June 30, or with prior
approval of the Director ending on December 31, of the
calendar year next preceding the year of issue, of
Moody's Corporate Bond Yield Average - Monthly Average
Corporates, as published by Moody's Investors Service,
Inc.
(B) For single premium immediate annuities and for
annuity benefits involving life contingencies arising
from other annuities with cash settlement options and
guaranteed interest contracts with cash settlement
options, the reference interest rate is the average
over a period of 12 months, ending on June 30, or with
prior approval of the Director ending on December 31,
of the calendar year of issue or year of purchase, of
Moody's Corporate Bond Yield Average - Monthly Average
Corporates, as published by Moody's Investors Service,
Inc.
(C) For annuities with cash settlement options and
guaranteed interest contracts with cash settlement

09800SB2764sam002 - 38 - LRB098 19432 RPM 57973 a
options, valued on a year of issue basis, except those
described in (B), with guarantee durations in excess of
10 years, the reference interest rate is the lesser of
the average over a period of 36 months and the average
over a period of 12 months, ending on June 30, or with
prior approval of the Director ending on December 31,
of the calendar year of issue or purchase, of Moody's
Corporate Bond Yield Average-Monthly Average
Corporates, as published by Moody's Investors Service,
Inc.
(D) For other annuities with cash settlement
options and guaranteed interest contracts with cash
settlement options, valued on a year of issue basis,
except those described in (B), with guarantee
durations of 10 years or less, the reference interest
rate is the average over a period of 12 months, ending
on June 30, or with prior approval of the Director
ending on December 31, of the calendar year of issue or
purchase, of Moody's Corporate Bond Yield
Average-Monthly Average Corporates, as published by
Moody's Investors Service, Inc.
(E) For annuities with no cash settlement options
and for guaranteed interest contracts with no cash
settlement options, the reference interest rate is the
average over a period of 12 months, ending on June 30,
or with prior approval of the Director ending on

09800SB2764sam002 - 39 - LRB098 19432 RPM 57973 a
December 31, of the calendar year of issue or purchase,
of Moody's Corporate Bond Yield Average-Monthly
Average Corporates, as published by Moody's Investors
Service, Inc.
(F) For annuities with cash settlement options and
guaranteed interest contracts with cash settlement
options, valued on a change in fund basis, except those
described in (B), the reference interest rate is the
average over a period of 12 months, ending on June 30,
or with prior approval of the Director ending on
December 31, of the calendar year of the change in the
fund, of Moody's Corporate Bond Yield Average-Monthly
Average Corporates, as published by Moody's Investors
Service, Inc.
(G) For annuities valued by a formula based on Rq,
the quarterly reference interest rate is, with the
prior approval of the Director, the average within each
of the 4 consecutive calendar year quarters ending on
March 31, June 30, September 30 and December 31 of the
calendar year of issue or year of purchase of Moody's
Corporate Bond Yield Average-Monthly Average
Corporates, as published by Moody's Investors Service,
Inc.
(e) Alternative Method for Determining Reference
Interest Rates. In the event that the Moody's Corporate
Bond Yield Average-Monthly Average Corporates is no longer

09800SB2764sam002 - 40 - LRB098 19432 RPM 57973 a
published by Moody's Investors Services, Inc., or in the
event that the NAIC National Association of Insurance
Commissioners determines that Moody's Corporate Bond Yield
Average-Monthly Average Corporates as published by Moody's
Investors Service, Inc. is no longer appropriate for the
determination of the reference interest rate, then an
alternative method for determination of the reference
interest rate, which is adopted by the NAIC National
Association of Insurance Commissioners and approved by
regulations promulgated by the Director, may be
substituted.
(7) Minimum Standards for Accident and Health (Disability,
Accident and Sickness) Insurance Contracts Plans. The Director
shall promulgate a regulation containing the minimum standards
applicable to the valuation of health (disability, sickness and
accident) plans which are issued prior to the operative date of
the Valuation Manual. For accident and health (disability,
accident and sickness) insurance contracts issued on or after
the operative date of the Valuation Manual, the standard
prescribed in the Valuation Manual is the minimum standard of
valuation required under subsection (1).
(8) Valuation Manual for Policies Issued On or After the
Operative Date of the Valuation Manual.
(a) For policies issued on or after the operative date
of the Valuation Manual, the standard prescribed in the
Valuation Manual is the minimum standard of valuation

09800SB2764sam002 - 41 - LRB098 19432 RPM 57973 a
required under subsection (1), except as provided under
paragraphs (e) or (g) of this subsection (8).
(b) The operative date of the Valuation Manual is
January 1 of the first calendar year following the first
July 1 when all of the following have occurred:
(i) The Valuation Manual has been adopted by the
NAIC by an affirmative vote of at least 42 members, or
three-fourths of the members voting, whichever is
greater.
(ii) The Standard Valuation Law, as amended by the
NAIC in 2009, or legislation including substantially
similar terms and provisions, has been enacted by
states representing greater than 75% of the direct
premiums written as reported in the following annual
statements submitted for 2008: life, accident and
health annual statements; health annual statements; or
fraternal annual statements.
(iii) The Standard Valuation Law, as amended by the
NAIC in 2009, or legislation including substantially
similar terms and provisions, has been enacted by at
least 42 of the following 55 jurisdictions: the 50
states of the United States, American Samoa, the
American Virgin Islands, the District of Columbia,
Guam, and Puerto Rico.
(c) Unless a change in the Valuation Manual specifies a
later effective date, changes to the Valuation Manual shall

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be effective on January 1 following the date when the
change to the Valuation Manual has been adopted by the NAIC
by an affirmative vote representing:
(i) at least three-fourths 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% of the direct
premiums written as reported in the following annual
statements most recently available prior to the vote in
subparagraph (i) of this paragraph (c): life, accident
and health annual statements; health annual
statements; or fraternal annual statements.
(d) The Valuation Manual must specify all of the
following:
(i) Minimum valuation standards for and
definitions of the policies or contracts subject to
subsection (1). Such minimum valuation standards shall
be:
(A) the Commissioners reserve valuation method
for life insurance contracts, other than annuity
contracts, subject to subsection (1);
(B) the Commissioners annuity reserve
valuation method for annuity contracts subject to
subsection (1); and
(C) minimum reserves for all other policies or

09800SB2764sam002 - 43 - LRB098 19432 RPM 57973 a
contracts subject to subsection (1).
(ii) Which policies or contracts or types of
policies or contracts are subject to the requirements
of a principle-based valuation in paragraph (a) of
subsection (9) and the minimum valuation standards
consistent with those requirements.
(iii) For policies and contracts subject to a
principle-based valuation under subsection (9):
(A) Requirements for the format of reports to
the Director under subparagraph (iii) of paragraph
(b) of subsection (9), and which shall include
information necessary to determine if the
valuation is appropriate and in compliance with
this Section.
(B) Assumptions shall be prescribed for risks
over which the company does not have significant
control or influence.
(C) Procedures for corporate governance and
oversight of the actuarial function, and a process
for appropriate waiver or modification of such
procedures.
(iv) For policies not subject to a principle-based
valuation under subsection (9), the minimum valuation
standard shall either:
(A) be consistent with the minimum standard of
valuation prior to the operative date of the

09800SB2764sam002 - 44 - LRB098 19432 RPM 57973 a
Valuation Manual; or
(B) 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.
(vi) The data and form of the data required under
subsection (10) of this Section, with whom the data
must be submitted, and may specify other requirements,
including data analyses and the reporting of analyses.
(e) In the absence of a specific valuation requirement
or if a specific valuation requirement in the Valuation
Manual is not, in the opinion of the Director, in
compliance with this Section, then the company shall, with
respect to such requirements, comply with minimum
valuation standards prescribed by the Director by rule.
(f) The Director may engage a qualified actuary, at the
expense of the company, to perform an actuarial examination

09800SB2764sam002 - 45 - LRB098 19432 RPM 57973 a
of the company and opine on the appropriateness of any
reserve assumption or method used by the company, or to
review and opine on a company's compliance with any
requirement set forth in this Section. The Director may
rely upon the opinion regarding provisions contained
within this Section of a qualified actuary engaged by the
Director of another state, district, or territory of the
United States. As used in this paragraph, "engage" includes
employment and contracting.
(g) The Director may require a company to change any
assumption or method that in the opinion of the Director is
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 Director. The
Director may take other disciplinary action as permitted
pursuant to law.
(9) Requirements of a Principle-Based Valuation.
(a) A company must 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

09800SB2764sam002 - 46 - LRB098 19432 RPM 57973 a
contracts. For policies or contracts with significant
tail risk, 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 any prescribed assumptions or
methods.
(iii) 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 shall:
(1) be established utilizing the company's
available experience, to the extent it is
relevant and statistically credible; or
(2) to the extent that company data is not
available, relevant, or statistically
credible, be established utilizing other
relevant, statistically credible experience.
(iv) Provide margins for uncertainty, including
adverse deviation and estimation error, such that the

09800SB2764sam002 - 47 - LRB098 19432 RPM 57973 a
greater the uncertainty, the larger the margin and
resulting reserve.
(b) A company using a principle-based valuation for one
or more policies or contracts subject to this subsection 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 Director and the board of
directors an annual certification of the effectiveness
of the internal controls with respect to the
principle-based valuation. Such controls shall be
designed to ensure that all material risks inherent in
the liabilities and associated assets subject to such
valuation are included in the valuation, and that
valuations are made in accordance with the Valuation
Manual. The certification shall be based on the
controls in place as of the end of the preceding
calendar year.
(iii) Develop and file with the Director upon
request a principle-based valuation report that
complies with standards prescribed in the Valuation
Manual.
(c) A principle-based valuation may include a
prescribed formulaic reserve component.

09800SB2764sam002 - 48 - LRB098 19432 RPM 57973 a
(10) Experience Reporting for Policies In Force On or After
the Operative Date of the Valuation Manual. A company shall
submit mortality, morbidity, policyholder behavior, or expense
experience and other data as prescribed in the Valuation
Manual.
(11) Confidentiality.
(a) For the purposes of this subsection (11),
"confidential information" means any of the following:
(i) A memorandum in support of an opinion submitted
under subsection (1) of this Section 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 Director or any 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 Director or any
other person in the course of an examination made under
paragraph (f) of subsection (8) of this Section.
(iii) Any reports, documents, materials, and other
information developed by a company in support of, or in
connection with, an annual certification by the
company under subparagraph (ii) of paragraph (b) of
subsection (9) of this Section evaluating the

09800SB2764sam002 - 49 - LRB098 19432 RPM 57973 a
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 Director or any other person in
connection with such reports, documents, materials,
and other information.
(iv) Any principle-based valuation report
developed under subparagraph (iii) of paragraph (b) of
subsection (9) of this Section 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
Director or any other person in connection with such
report.
(v) Any documents, materials, data, and other
information submitted by a company under subsection
(10) of this Section (collectively, "experience data")
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, in
each case that include any potentially
company-identifying or personally identifiable
information, that is provided to or obtained by the

09800SB2764sam002 - 50 - LRB098 19432 RPM 57973 a
Director (together with any experience data, the
"experience materials") 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
Director or any other person in connection with such
experience materials.
(b) Privilege for and Confidentiality of Confidential
Information.
(i) Except as provided in this subsection (11), a
company's confidential information is confidential by
law and privileged, and shall not be subject to the
Freedom of Information Act, subpoena, or discovery or
admissible as evidence in any private civil action;
however, the Director is authorized to use the
confidential information in the furtherance of any
regulatory or legal action brought against the company
as a part of the Director's official duties.
(ii) Neither the Director nor any person who
received confidential information while acting under
the authority of the Director shall be permitted or
required to testify in any private civil action
concerning any confidential information.
(iii) In order to assist in the performance of the
Director's duties, the Director may share confidential
information (A) with other state, federal, and

09800SB2764sam002 - 51 - LRB098 19432 RPM 57973 a
international regulatory agencies and with the NAIC
and its affiliates and subsidiaries and (B) in the case
of confidential information specified in subparagraphs
(i) and (iv) of paragraph (a) of subsection (11) only,
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; in the case of (A) and (B), provided that
such recipient agrees and has the legal authority to
agree, to maintain the confidentiality and privileged
status of such documents, materials, data, and other
information in the same manner and to the same extent
as required for the Director.
(iv) The Director 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, from regulatory or law
enforcement officials of other foreign or domestic
jurisdictions, and from 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

09800SB2764sam002 - 52 - LRB098 19432 RPM 57973 a
privileged under the laws of the jurisdiction that is
the source of the document, material, or other
information.
(v) The Director may enter into agreements
governing the sharing and use of information
consistent with paragraph (b) of this subsection (11).
(vi) No waiver of any applicable privilege or claim
of confidentiality in the confidential information
shall occur as a result of disclosure to the Director
under this subsection (11) or as a result of sharing as
authorized in subparagraph (iii) of paragraph (b) of
this subsection (11).
(vii) A privilege established under the law of any
state or jurisdiction that is substantially similar to
the privilege established under paragraph (b) of this
subsection (11), shall be available and enforced in any
proceeding in and in any court of this State.
(viii) In this subsection (11) "regulatory
agency", "law enforcement agency", and "NAIC" include,
but are not limited to, their employees, agents,
consultants, and contractors.
(c) Notwithstanding paragraph (b) of this subsection
(11), any confidential information specified in
subparagraphs (i) and (iv) of paragraph (a) of this
subsection (11):
(i) may be subject to subpoena for the purpose of

09800SB2764sam002 - 53 - LRB098 19432 RPM 57973 a
defending an action seeking damages from the appointed
actuary submitting the related memorandum in support
of an opinion submitted under subsection (1) of this
Section or principle-based valuation report developed
under subparagraph (iii) of paragraph (b) of
subsection (9) of this Section by reason of an action
required by this Section or by regulations promulgated
under this Section;
(ii) may otherwise be released by the Director with
the written consent of the company; and
(iii) once any portion of a memorandum in support
of an opinion submitted under subsection (1) of this
Section or a principle-based valuation report
developed under subparagraph (iii) of paragraph (b) of
subsection (9) of this Section is cited by the company
in its marketing or is 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 such memorandum or
report shall no longer be confidential.
(12) Exemptions.
(a) The Director may exempt specific product forms or
product lines of a domestic company that is licensed and
doing business only in Illinois from the requirements of
subsection (8) of this Section, provided that:
(i) the Director has issued an exemption in writing

09800SB2764sam002 - 54 - LRB098 19432 RPM 57973 a
to the company and has not subsequently revoked the
exemption in writing; and
(ii) the company computes reserves using
assumptions and methods used prior to the operative
date of the Valuation Manual in addition to any
requirements established by the Director and adopted
by rule.
(b) A domestic company that has less than $300,000,000
of ordinary life premiums and that is licensed and doing
business in Illinois is exempt from the requirements of
subsection (8), provided that:
(i) if the company is a member of a group of life
insurers, the group has combined ordinary life
premiums of less than $1,000,000,000;
(ii) the company has an RBC ratio of at least 450%
of authorized control level RBC;
(iii) the appointed actuary has provided an
unqualified opinion on the reserves in accordance with
subsection (1) of this Section; and
(iv) the company has provided a certification by a
qualified actuary that any universal life policy with a
secondary guarantee issued by the company after the
operative date of the Valuation Manual is not subject
to material interest rate risk or asset return
volatility risk, as defined in the Valuation Manual.
(c) For purposes of paragraph (b) of this subsection

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(12), ordinary life premiums are measured as direct plus
reinsurance assumed from an unaffiliated company, not
reduced by reinsurance ceded, from the prior calendar year
annual statement.
(d) For any company granted an exemption under this
subsection, subsections (1), (2), (3), (4), (5), (6), and
(7) shall be applicable. With respect to any company
applying this exemption, any reference to subsection (8)
found in subsections (1), (2), (3), (4), (5), (6), and (7)
shall not be applicable.
(13) Definitions. For the purposes of this Section, the
following definitions shall apply beginning on the operative
date of the Valuation Manual:
"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.
"Appointed actuary" means a qualified actuary who is
appointed in accordance with the Valuation Manual to prepare
the actuarial opinion required in paragraph (b) of subsection
(1) of this Section.
"Company" means an entity that (a) has written, issued, or
reinsured life insurance contracts, accident and health
insurance contracts, or deposit-type contracts in this State
and has at least one such policy in force or on claim or (b) has
written, issued, or reinsured life insurance contracts,

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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 this State.
"Deposit-type contract" means contracts that do not
incorporate mortality or morbidity risks and as may be
specified in the Valuation Manual.
"Life insurance" means contracts that incorporate
mortality risk, including annuity and pure endowment
contracts, and as may be specified in the Valuation Manual.
"NAIC" means the National Association of Insurance
Commissioners.
"Policyholder behavior" means any action a policyholder,
contract holder, or any other person with the right to elect
options, such as a certificate holder, 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.
"Principle-based valuation" means a reserve valuation that
uses one or more methods or one or more assumptions determined
by the insurer and is required to comply with subsection (9) of
this Section as specified in the Valuation Manual.
"Qualified actuary" means an individual who is qualified to

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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" means 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" means the manual of valuation
instructions adopted by the NAIC as specified in this Section
or as subsequently amended.
(Source: P.A. 95-86, eff. 9-25-07 (changed from 1-1-08 by P.A.
95-632); 95-876, eff. 8-21-08.)
(215 ILCS 5/229.2) (from Ch. 73, par. 841.2)
Sec. 229.2. Standard Non-forfeiture Law for Life
Insurance.
(1) No policy of life insurance, except as stated in
subsection (8), shall be delivered or issued for delivery in
this State unless it contains in substance the following
provisions or corresponding provisions which in the opinion of
the Director are at least as favorable to the defaulting or
surrendering policyholder and are essentially in compliance
with subsection (7) of this law:
(i) That, in the event of default in any premium payment,

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the company will grant, upon proper request not later than 60
days after the due date of the premium in default, a paid-up
nonforfeiture benefit on a plan stipulated in the policy,
effective as of such due date, of such amount as may be
hereinafter specified. In lieu of such stipulated paid-up
nonforfeiture benefit, the company may substitute, upon proper
request not later than 60 days after the due date of the
premium in default, an actuarially equivalent alternative
paid-up nonforfeiture benefit which provides a greater amount
or longer period of death benefits or, if applicable, a greater
amount or earlier payment of endowment benefits.
(ii) That, upon surrender of the policy within 60 days
after the due date of any premium payment in default after
premiums have been paid for at least 3 full years in the case
of Ordinary insurance or 5 full years in the case of Industrial
insurance, the company will pay, in lieu of any paid-up
nonforfeiture benefit, a cash surrender value of such amount as
may be hereinafter specified.
(iii) That a specified paid-up nonforfeiture benefit shall
become effective as specified in the policy unless the person
entitled to make such election elects another available option
not later than 60 days after the due date of the premium in
default.
(iv) That, if the policy shall have become paid-up by
completion of all premium payments or if it is continued under
any paid-up nonforfeiture benefit which became effective on or

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after the third policy anniversary in the case of Ordinary
insurance or the fifth policy anniversary in the case of
Industrial insurance, the company will pay, upon surrender of
the policy within 30 days after any policy anniversary, a cash
surrender value of such amount as may be hereinafter specified.
(v) In the case of policies which cause on a basis
guaranteed in the policy unscheduled changes in benefits or
premiums, or which provide an option for changes in benefits or
premiums other than a change to a new policy, a statement of
the mortality table, interest rate, and method used in
calculating cash surrender values and the paid-up
nonforfeiture benefits available under the policy. In the case
of all other policies, a statement of the mortality table and
interest rate used in calculating the cash surrender values and
the paid-up nonforfeiture benefits available under the policy,
together with a table showing the cash surrender value, if any,
and paid-up nonforfeiture benefit, if any, available under the
policy on each policy anniversary either during the first 20
policy years or during the term of the policy, whichever is
shorter, such values and benefits to be calculated upon the
assumption that there are no dividends or paid-up additions
credited to the policy and that there is no indebtedness to the
company on the policy.
(vi) A statement that the cash surrender values and the
paid-up nonforfeiture benefits available under the policy are
not less than the minimum values and benefits required by or

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pursuant to the insurance law of the state in which the policy
is delivered; an explanation of the manner in which the cash
surrender values and the paid-up nonforfeiture benefits are
altered by the existence of any paid-up additions credited to
the policy or any indebtedness to the company on the policy; if
a detailed statement of the method of computation of the values
and benefits shown in the policy is not stated therein, a
statement that such method of computation has been filed with
the insurance supervisory official of the state in which the
policy is delivered; and a statement of the method to be used
in calculating the cash surrender value and paid-up
nonforfeiture benefit available under the policy on any policy
anniversary beyond the last anniversary for which such values
and benefits are consecutively shown in the policy.
Any of the foregoing provisions or portions thereof not
applicable by reason of the plan of insurance may, to the
extent inapplicable, be omitted from the policy.
The company shall reserve the right to defer the payment of
any cash surrender value for a period of 6 months after demand
therefor with surrender of the policy.
(2) (i) Any cash surrender value available under the policy
in the event of default in a premium payment due on any policy
anniversary, whether or not required by subsection (1), shall
be an amount not less than the excess, if any, of the present
value, on such anniversary, of the future guaranteed benefits
which would have been provided for by the policy, including any

09800SB2764sam002 - 61 - LRB098 19432 RPM 57973 a
existing paid-up additions, if there had been no default, over
the sum of (i) the then present value of the adjusted premiums
as defined in subsections 4, 4(a), 4(b) and 4(c), corresponding
to premiums which would have fallen due on and after such
anniversary, and (ii) the amount of any indebtedness to the
company on the policy.
(ii) For any policy issued on or after the operative date
of subsection 4(c), which provides supplemental life insurance
or annuity benefits at the option of the insured for an
identifiable additional premium by rider or supplemental
policy provision, the cash surrender value shall be an amount
not less than the sum of the cash surrender value as determined
in paragraph (i) for an otherwise similar policy issued at the
same age without such rider or supplemental policy provision
and the cash surrender value as determined in such paragraph
for a policy which provides only the benefits otherwise
provided by such rider or supplemental policy provision.
(iii) For any family policy issued on or after the
operative date of subsection 4(c), which defines a primary
insured and provides term insurance on the life of the spouse
of the primary insured expiring before the spouse attains age
71, the cash surrender value shall be an amount not less than
the sum of the cash surrender value as determined in paragraph
(i) for an otherwise similar policy issued at the same age
without such term insurance on the life of the spouse and the
cash surrender value as determined in such paragraph for a

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policy which provides only the benefits otherwise provided by
such term insurance on the life of the spouse.
(iv) Any cash surrender value available within 30 days
after any policy anniversary under any policy paid up by
completion of all premium payments or any policy continued
under any paid-up nonforfeiture benefit, whether or not
required by subsection (1), shall be an amount not less than
the present value, on such anniversary, of the future
guaranteed benefits provided for by the policy, including any
existing paid-up additions, decreased by any indebtedness to
the company on the policy.
(3) Any paid-up nonforfeiture benefit available under the
policy in the event of default in a premium payment due on any
policy anniversary shall be such that its present value as of
such anniversary shall be at least equal to the cash surrender
value then provided for by the policy, or if none is provided
for, that cash surrender value which would have been required
by this section in the absence of the condition that premiums
shall have been paid for at least a specified period.
(4) This subsection (4) shall not apply to policies issued
on or after the operative date of subsection (4c). Except as
provided in the third paragraph of this subsection, the
adjusted premiums for any policy shall be calculated on an
annual basis and shall be such uniform percentage of the
respective premium specified in the policy for each policy
year, excluding any extra premiums charged because of

09800SB2764sam002 - 63 - LRB098 19432 RPM 57973 a
impairments or special hazards, that the present value, at the
date of issue of the policy, of all such adjusted premiums
shall be equal to the sum of (i) the then present value of the
future guaranteed benefits provided for by the policy; (ii) 2%
of the amount of insurance, if the insurance be uniform in
amount, or of the equivalent uniform amount, as hereinafter
defined, if the amount of insurance varies with duration of the
policy; (iii) 40% of the adjusted premium for the first policy
year; (iv) 25% of either the adjusted premium for the first
policy year or the adjusted premium for a whole life policy of
the same uniform or equivalent uniform amount with uniform
premiums for the whole of life issued at the same age for the
same amount of insurance, whichever is less. Provided, however,
that in applying the percentages specified in (iii) and (iv)
above, no adjusted premium shall be deemed to exceed 4% of the
amount of insurance or uniform amount equivalent thereto. The
date of issue of a policy for the purpose of this subsection
shall be the date as of which the rated age of the insured is
determined.
In the case of a policy providing an amount of insurance
varying with duration of the policy, the equivalent uniform
amount thereof for the purpose of this subsection shall be
deemed to be the level amount of insurance, provided by an
otherwise similar policy, containing the same endowment
benefit or benefits, if any, issued at the same age and for the
same term, the amount of which does not vary with duration and

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the benefits under which have the same present value at the
inception of the insurance as the benefits under the policy;
provided, however, that in the case of a policy providing a
varying amount of insurance issued on the life of a child under
age 10, the equivalent uniform amount may be computed as though
the amount of insurance provided by the policy prior to the
attainment of age 10 were the amount provided by such policy at
age 10.
The adjusted premiums for any policy providing term
insurance benefits by rider or supplemental policy provision
shall be equal to (a) the adjusted premiums for an otherwise
similar policy issued at the same age without such term
insurance benefits, increased, during the period for which
premiums for such term insurance benefits are payable, by (b)
the adjusted premiums for such term insurance, the foregoing
items (a) and (b) being calculated separately and as specified
in the first 2 paragraphs of this subsection except that, for
the purposes of (ii), (iii) and (iv) of the first such
paragraph, the amount of insurance or equivalent uniform amount
of insurance used in the calculation of the adjusted premiums
referred to in (b) shall be equal to the excess of the
corresponding amount determined for the entire policy over the
amount used in the calculation of the adjusted premiums in (a).
Except as otherwise provided in subsections (4a) and (4b),
all adjusted premiums and present values referred to in this
section shall for all policies of Ordinary insurance be

09800SB2764sam002 - 65 - LRB098 19432 RPM 57973 a
calculated on the basis of the Commissioners 1941 Standard
Ordinary Mortality Table, provided that for any category of
Ordinary insurance issued on female risks adjusted premiums and
present values may be calculated according to an age not more
than 3 years younger than the actual age of the insured, and
such calculations for all policies of Industrial insurance
shall be made on the basis of the 1941 Standard Industrial
Mortality Table. All calculations shall be made on the basis of
the rate of interest, not exceeding 3 1/2% per annum, specified
in the policy for calculating cash surrender values and paid-up
nonforfeiture benefits. Provided, however, that in calculating
the present value of any paid-up term insurance with
accompanying pure endowment, if any, offered as a nonforfeiture
benefit, the rates of mortality assumed may be not more than
130% of the rates of mortality according to such applicable
table. Provided, further, that for insurance issued on a
substandard basis, the calculation of any such adjusted
premiums and present values may be based on such other table of
mortality as may be specified by the company and approved by
the Director.
(4a) This subsection (4a) shall not apply to Ordinary
policies issued on or after the operative date of subsection
(4c). In the case of Ordinary policies issued on or after the
operative date of this subsection (4a) as defined herein, all
adjusted premiums and present values referred to in this
Section shall be calculated on the basis of the Commissioners

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1958 Standard Ordinary Mortality Table and the rate of interest
specified in the policy for calculating cash surrender values
and paid-up nonforfeiture benefits, provided that such rate of
interest shall not exceed 3 1/2% per annum except that a rate
of interest not exceeding 5 1/2% per annum may be used for
policies issued on or after September 8, 1977, except that for
any single premium whole life or endowment insurance policy a
rate of interest not exceeding 6 1/2% per annum may be used and
provided that for any category of Ordinary insurance issued on
female risks, adjusted premiums and present values may be
calculated according to an age not more than 6 years younger
than the actual age of the insured. Provided, however, that in
calculating the present value of any paid-up term insurance
with accompanying pure endowment, if any, offered as a
nonforfeiture benefit, the rates of mortality assumed may be
not more than those shown in the Commissioners 1958 Extended
Term Insurance Table. Provided, however, that for insurance
issued on a substandard basis, the calculation for any such
adjusted premiums and present values may be based on such other
table of mortality as may be specified by the company and
approved by the Director. After the effective date of this
subsection (4a), any company may file with the Director written
notice of its election to comply with the provisions of this
subsection after a specified date before January 1, 1966. After
the filing of such notice, then upon such specified date (which
shall be the operative date of this subsection for such

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company), this subsection shall become operative with respect
to the Ordinary policies thereafter issued by such company. If
a company makes no such election, the operative date of this
subsection for such company shall be January 1, 1966.
(4b) This subsection (4b) shall not apply to Industrial
policies issued on or after the operative date of subsection
(4c). In the case of Industrial policies issued on or after the
operative date of this subsection (4b) as defined herein, all
adjusted premiums and present values referred to in this
Section shall be calculated on the basis of the Commissioners
1961 Standard Industrial Mortality Table and the rate of
interest specified in the policy for calculating cash surrender
values and paid-up nonforfeiture benefits, provided that such
rate of interest shall not exceed 3 1/2% per annum except that
a rate of interest not exceeding 5 1/2% per annum may be used
for policies issued on or after September 8, 1977, except that
for any single premium whole life or endowment insurance policy
a rate of interest not exceeding 6 1/2% per annum may be used.
Provided, however, that in calculating the present value of any
paid-up term insurance with accompanying pure endowment, if
any, offered as a nonforfeiture benefit, the rates of mortality
assumed may be not more than those shown in the Commissioners
1961 Industrial Extended Term Insurance Table. Provided,
further, that for insurance issued on a substandard basis, the
calculations of any such adjusted premiums and present values
may be based on such other table of mortality as may be

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specified by the company and approved by the Director. After
the effective date of this subsection (4b), any company may
file with the Director a written notice of its election to
comply with the provisions of this subsection after a specified
date before January 1, 1968. After the filing of such notice,
then upon such specified date (which shall be the operative
date of this subsection for such company), this subsection
shall become operative with respect to the Industrial policies
thereafter issued by such company. If a company makes no such
election, the operative date of this subsection for such
company shall be January 1, 1968.
(4c)(a) This subsection shall apply to all policies issued
on or after its operative date. Except as provided in paragraph
(g), the adjusted premiums for any policy shall be calculated
on an annual basis and shall be such uniform percentage of the
respective premiums specified in the policy for each policy
year, excluding amounts payable as extra premiums to cover
impairments or special hazards and any uniform annual contract
charge or policy fee specified in the policy in a statement of
the method to be used in calculating the cash surrender value
and paid-up nonforfeiture benefits of the policy, that the
present value, at the date of issue of the policy, of all
adjusted premiums shall be equal to the sum of (i) the then
present value of the future guaranteed benefits provided for by
the policy; (ii) 1% of either the amount of insurance, if the
insurance is uniform in amount, or the average amount of

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insurance at the beginning of each of the first 10 policy
years; and (iii) 125% of the nonforfeiture net level premium as
hereinafter defined. In applying the percentage specified in
(iii), however, no nonforfeiture net level premium shall exceed
4% of either the amount of insurance, if the insurance is
uniform in amount, or the average amount of insurance at the
beginning of each of the first 10 policy years. The date of
issue of a policy for the purpose of this subsection is the
date as of which the rated age of the insured is determined.
(b) The nonforfeiture net level premium equals the present
value, at the date of issue of the policy, of the guaranteed
benefits provided for by the policy divided by the present
value, at the date of issue of the policy, of an annuity of one
per annum payable on the date of issue of the policy and on
each anniversary of such policy on which a premium falls due.
(c) In the case of a policy which causes, on a basis
guaranteed in such policy, unscheduled changes in benefits or
premiums, or which provides an option for changes in benefits
or premiums other than a change to a new policy, adjusted
premiums and present values shall initially be calculated on
the assumption that future benefits and premiums do not change
from those stipulated at the date of issue of such policy. At
the time of any such change in the benefits or premiums, the
future adjusted premiums, nonforfeiture net level premiums and
present values shall be recalculated on the assumption that
future benefits and premiums do not change from those

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stipulated by such policy immediately after the change.
(d) Except as otherwise provided in paragraph (g), the
recalculated future adjusted premiums for any policy shall be
such uniform percentage of the respective future premiums
specified in the policy for each policy year, excluding amounts
payable as extra premiums to cover impairments and special
hazards and any uniform annual contract charge or policy fee
specified in the policy in a statement of the method to be used
in calculating the cash surrender values and paid-up
nonforfeiture benefits, that the present value, at the time of
change to the newly defined benefits or premiums, of all such
future adjusted premiums shall be equal to the excess of (A)
the sum of (i) the then present value of the then future
guaranteed benefits provided for by the policy and (ii) the
additional expense allowance, if any, over (B) the then cash
surrender value, if any, or present value of any paid-up
nonforfeiture benefit under the policy.
(e) The additional expense allowance at the time of the
change to the newly defined benefits or premiums shall be the
sum of (i) 1% of the excess, if positive, of the average amount
of insurance at the beginning of each of the first 10 policy
years subsequent to the change over the average amount of
insurance prior to the change at the beginning of each of the
first 10 policy years subsequent to the time of the most recent
previous change, or, if there has been no previous change, the
date of issue of the policy; and (ii) 125% of the increase, if

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positive, in the nonforfeiture net level premium.
(f) The recalculated nonforfeiture net level premium
equals the result obtained by dividing X by Y, where
(i) X equals the sum of
(A) the nonforfeiture net level premium applicable prior to
the change times the present value of an annuity of one per
annum payable on each anniversary of the policy on or
subsequent to the date of the change on which a premium would
have fallen due had the change not occurred, and
(B) the present value of the increase in future guaranteed
benefits provided for by the policy; and
(ii) Y equals the present value of an annuity of one per
annum payable on each anniversary of the policy on or
subsequent to the date of change on which a premium falls due.
(g) Notwithstanding any other provisions of this
subsection to the contrary, in the case of a policy issued on a
substandard basis which provides reduced graded amounts of
insurance so that, in each policy year, such policy has the
same tabular mortality cost as an otherwise similar policy
issued on the standard basis which provides higher uniform
amounts of insurance, adjusted premiums and present values for
such substandard policy may be calculated as if it were issued
to provide such higher uniform amounts of insurance on the
standard basis.
(h) All adjusted premiums and present values referred to in
this Section shall for all policies of ordinary insurance be

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calculated on the basis of the Commissioners 1980 Standard
Ordinary Mortality Table or, at the election of the company for
any one or more specified plans of life insurance, the
Commissioners 1980 Standard Ordinary Mortality Table with
Ten-Year Select Mortality Factors. All adjusted premiums and
present values referred to in this Section shall for all
policies of Industrial insurance be calculated on the basis of
the Commissioners 1961 Standard Industrial Mortality Table.
All adjusted premiums and present values referred to in this
Section for all policies issued in a particular calendar year
shall be calculated on the basis of a rate of interest not
exceeding the nonforfeiture interest rate as defined in this
subsection for policies issued in that calendar year. The
provisions of this paragraph are subject to the provisions set
forth in subparagraphs (i) through (vii).
(i) At the option of the company, calculations for all
policies issued in a particular calendar year may be made on
the basis of a rate of interest not exceeding the nonforfeiture
interest rate, as defined in this subsection, for policies
issued in the immediately preceding calendar year.
(ii) Under any paid-up nonforfeiture benefit, including
any paid-up dividend additions, any cash surrender value
available, whether or not required by subsection (1), shall be
calculated on the basis of the mortality table and rate of
interest used in determining the amount of such paid-up
nonforfeiture benefit and paid-up dividend additions, if any.

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(iii) A company may calculate the amount of any guaranteed
paid-up nonforfeiture benefit, including any paid-up additions
under the policy, on the basis of an interest rate no lower
than that specified in the policy for calculating cash
surrender values.
(iv) In calculating the present value of any paid-up term
insurance with an accompanying pure endowment, if any, offered
as a nonforfeiture benefit, the rates of mortality assumed may
be not more than those shown in the Commissioners 1980 Extended
Term Insurance Table for policies of ordinary insurance and not
more than the Commissioner 1961 Industrial Extended Term
Insurance Table for policies of industrial insurance.
(v) For insurance issued on a substandard basis, the
calculation of any such adjusted premiums and present values
may be based on appropriated modifications of the
aforementioned tables.
(vi) For policies issued prior to the operative date of the
Valuation Manual, any commissioner's standard Any ordinary
mortality tables adopted after 1980 by the National Association
of Insurance Commissioners and approved by regulations
promulgated by the Director for use in determining the minimum
nonforfeiture standard may be substituted for the
Commissioners 1980 Standard Ordinary Mortality Table with or
without Ten-Year Select Mortality Factors or for the
Commissioners 1980 Extended Term Insurance Table.
For policies issued on or after the operative date of the

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Valuation Manual, the Valuation Manual shall provide the
Commissioners Standard mortality table for use in determining
the minimum nonforfeiture standard that may be substituted for
the Commissioners 1980 Standard Ordinary Mortality Table with
or without Ten-Year Select Mortality Factors or for the
Commissioners 1980 Extended Term Insurance Table. If the
Director approves by regulation any Commissioner's Standard
ordinary mortality table adopted by the National Association of
Insurance Commissioners for use in determining the minimum
nonforfeiture standard for policies issued on or after the
operative date of the Valuation Manual, then that minimum
nonforfeiture standard supersedes the minimum nonforfeiture
standard provided by the Valuation Manual.
(vii) For policies issued prior to the operative date of
the Valuation Manual, any Commissioner's Standard Any
industrial mortality tables adopted after 1980 by the National
Association of Insurance Commissioners and approved by
regulations promulgated by the Director for use in determining
the minimum nonforfeiture standard may be substituted for the
Commissioners 1961 Standard Industrial Mortality Table or the
Commissioners 1961 Industrial Extended Term Insurance Table.
For policies issued on or after the operative date of the
Valuation Manual, the Valuation Manual shall provide the
Commissioner's Standard mortality table for use in determining
the minimum nonforfeiture standard that may be substituted for
the Commissioners 1961 Standard Industrial Mortality Table or

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the Commissioners 1961 Industrial Extended Term Insurance
Table. If the Director approves by regulation any
Commissioner's Standard industrial mortality table adopted by
the National Association of Insurance Commissioners for use in
determining the minimum nonforfeiture standard for policies
issued on or after the operative date of the Valuation Manual,
then that minimum nonforfeiture standard supersedes the
minimum nonforfeiture standard provided by the Valuation
Manual.
(i) The nonforfeiture interest rate is defined as follows:
(i) For policies issued prior to the operative date of
the Valuation Manual, The nonforfeiture interest rate per
annum for any policy issued in a particular calendar year
shall be equal to 125% of the calendar year statutory
valuation interest rate for such policy, as defined in the
Standard Valuation Law, rounded to the nearest .25%,
provided, however, that the nonforfeiture interest rate
shall not be less than 4.00%.
(ii) For policies issued on and after the operative
date of the Valuation Manual, the nonforfeiture interest
rate per annum for any policy issued in a particular
calendar year shall be provided by the Valuation Manual.
(j) Notwithstanding any other provision in this Code to the
contrary, any refiling of nonforfeiture values or their methods
of computation for any previously approved policy form which
involves only a change in the interest rate or mortality table

09800SB2764sam002 - 76 - LRB098 19432 RPM 57973 a
used to compute nonforfeiture values shall not require refiling
of any other provisions of that policy form.
(k) After the effective date of this subsection, any
company may, with respect to any category of insurance, file
with the Director a written notice of its election to comply
with the provisions of this subsection after a specified date
before January 1, 1989. That date shall be the operative date
of this subsection for that category of insurance for such
company. If a company makes no such election, the operative
date of this subsection for that category of insurance issued
by such company shall be January 1, 1989.
(5) In the case of any plan of life insurance which
provides for future premium determination, the amounts of which
are to be determined by the insurance company based on then
estimates of future experience, or in the case of any plan of
life insurance which is of such a nature that minimum values
cannot be determined by the methods described in subsections
(1), (2), (3), (4), (4a), (4b) or (4c), then
(a) the Director shall satisfy himself that the benefits
provided under such plan are substantially as favorable to
policyholders and insured parties as the minimum benefits
otherwise required by subsections (1), (2), (3), (4), (4a),
(4b) or (4c);
(b) the Director shall satisfy himself that the benefits
and the pattern of premiums of that plan are not such as to
mislead prospective policyholders or insured parties; and

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(c) the cash surrender values and paid-up nonforfeiture
benefits provided by such plan shall not be less than the
minimum values and benefits computed by a method consistent
with the principles of this Standard Nonforfeiture law for Life
Insurance, as determined by regulations promulgated by the
Director.
(6) Any cash surrender value and any paid-up nonforfeiture
benefit, available under the policy in the event of default in
a premium payment due at any time other than on the policy
anniversary, shall be calculated with allowance for the lapse
of time and the payment of fractional premiums beyond the last
preceding policy anniversary. All values referred to in
subsections (2), (3), (4), (4a), (4b) and (4c) may be
calculated upon the assumption that any death benefit is
payable at the end of the policy year of death. The net value
of any paid-up additions, other than paid-up term additions,
shall be not less than the amounts used to provide such
additions. Notwithstanding the provisions of subsection (2),
additional benefits payable (i) in the event of death or
dismemberment by accident or accidental means, (ii) in the
event of total and permanent disability, (iii) as reversionary
annuity or deferred reversionary annuity benefits, (iv) as term
insurance benefits provided by a rider or supplemental policy
provision to which, if issued as a separate policy, this
section would not apply, (v) as term insurance on the life of a
child or on the lives of children provided in a policy on the

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life of a parent of the child, if such term insurance expires
before the child's age is 26, is uniform in amount after the
child's age is one, and has not become paid-up by reason of the
death of a parent of the child, and (vi) as other policy
benefits additional to life insurance and endowment benefits,
and premiums for all such additional benefits, shall be
disregarded in ascertaining cash surrender values and
nonforfeiture benefits required by this section, and no such
additional benefits shall be required to be included in any
paid-up nonforfeiture benefits.
(7) This subsection shall apply to all policies issued on
or after January 1, 1987. Any cash surrender value available
under the policy in the event of default in a premium payment
due on any policy anniversary shall be in an amount which does
not differ by more than .2% of either the amount of insurance
if the insurance is uniform in amount, or the average amount of
insurance at the beginning of each of the first 10 policy
years, from the sum of (a) the greater of zero and the basic
cash value hereinafter specified and (b) the present value of
any existing paid-up additions less the amount of any
indebtedness to the company under the policy.
The basic cash value equals the present value, on such
anniversary, of the future guaranteed benefits which would have
been provided for by the policy, excluding any existing paid-up
additions and before deduction of any indebtedness to the
company, if there had been no default, less the then present

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value of the nonforfeiture factors, as hereinafter defined,
corresponding to premiums which would have fallen due on and
after such anniversary. The effects on the basic cash value of
supplemental life insurance or annuity benefits or of family
coverage, as described in subsection (2) or (4), whichever is
applicable, shall, however, be the same as are the effects
specified in subsection (2) or (4), whichever is applicable, on
the cash surrender values defined in that subsection.
The nonforfeiture factor for each policy year equals a
percentage of the adjusted premium for the policy year, as
defined in subsection (4) or (4c), whichever is applicable.
Except as is required by the next succeeding sentence of this
paragraph, such percentage
(a) shall be the same percentage for each policy year
between the second policy anniversary and the later of (i) the
fifth policy anniversary and (ii) the first policy anniversary
at which there is available under the policy a cash surrender
value in an amount, before including any paid-up additions and
before deducting any indebtedness, of at least .2% of either
the amount of insurance, if the insurance is uniform in amount,
or the average amount of insurance at the beginning of each of
the first 10 policy years; and
(b) shall be such that no percentage after the later of the
2 policy anniversaries specified in the preceding item (a) may
apply to fewer than 5 consecutive policy years.
No basic cash value may be less than the value which would

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be obtained if the adjusted premiums for the policy, as defined
in subsection (4) or (4c), whichever is applicable, were
substituted for the nonforfeiture factors in the calculation of
the basic cash value.
All adjusted premiums and present values referred to in
this subsection shall for a particular policy be calculated on
the same mortality and interest bases as those used in
accordance with the other subsections of this law. The cash
surrender values referred to in this subsection shall include
any endowment benefits provided for by the policy.
Any cash surrender value available other than in the event
of default in a premium payment due on a policy anniversary,
and the amount of any paid-up nonforfeiture benefit available
under the policy in the event of default in a premium payment
shall be determined in manners consistent with the manners
specified for determining the analogous minimum amounts in
subsections 1, 2, 3, 4c, and 6. The amounts of any cash
surrender values and of any paid-up nonforfeiture benefits
granted in connection with additional benefits such as those
listed as items (i) through (vi) in subsection (6) shall
conform with the principles of this subsection (7).
(8) This Section shall not apply to any of the following:
(a) reinsurance,
(b) group insurance,
(c) a pure endowment,
(d) an annuity or reversionary annuity contract,

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(e) a term policy of uniform amount, which provides no
guaranteed nonforfeiture or endowment benefits, or renewal
thereof, of 20 years or less expiring before age 71, for which
uniform premiums are payable during the entire term of the
policy,
(f) a term policy of decreasing amount, which provides no
guaranteed nonforfeiture or endowment benefits, on which each
adjusted premium, calculated as specified in subsections (4),
(4a), (4b) and (4c), is less than the adjusted premium so
calculated, on a term policy of uniform amount, or renewal
thereof, which provides no guaranteed nonforfeiture or
endowment benefits, issued at the same age and for the same
initial amount of insurance and for a term of 20 years or less
expiring before age 71, for which uniform premiums are payable
during the entire term of the policy,
(g) a policy, which provides no guaranteed nonforfeiture or
endowment benefits, for which no cash surrender value, if any,
or present value of any paid-up nonforfeiture benefit, at the
beginning of any policy year, calculated as specified in
subsections (2), (3), (4), (4a), (4b) and (4c), exceeds 2.5% of
the amount of insurance at the beginning of the same policy
year,
(h) any policy which shall be delivered outside this State
through an agent or other representative of the company issuing
the policy.
For purposes of determining the applicability of this

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Section, the age of expiry for a joint term life insurance
policy shall be the age of expiry of the oldest life.
(9) For the purposes of this Section:
"Operative date of the Valuation Manual" means the January
1 of the first calendar year that the Valuation Manual is
effective.
"Valuation Manual" has the same meaning as set forth in
Section 223 of this Code.
(Source: P.A. 83-1465.)".