Texas 2015 - 84th Regular

Texas Senate Bill SB1654 Compare Versions

Version 1 (Old)

Version 2 (New)

Old	New		Differences
1		-	By: Hancock, et al. S.B. No. 1654
2		-	(Sheets)
	1	+	S.B. No. 1654
3	2
4	3
5		-	A BILL TO BE ENTITLED
6	4		AN ACT
7	5		relating to the standard valuation for life insurance, accident and
8	6		health insurance, and annuities and the nonforfeiture requirements
9	7		of certain life insurance policies; amending provisions that may be
10	8		subject to a criminal penalty.
11	9		BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
12	10		SECTION 1. Section 425.052, Insurance Code, is amended by
13	11		amending Subsection (a) and adding Subsection (c) to read as
14	12		follows:
15	13		(a) In this subchapter:
16	14		(1) "Accident and health insurance" means contracts
17	15		that incorporate morbidity risk and provide protection against
18	16		economic loss resulting from accident, sickness, or medical
19	17		conditions and as may be specified in the valuation manual.
20	18		(2) "Appointed actuary" means a qualified actuary who
21	19		is appointed in accordance with the valuation manual to prepare the
22	20		actuarial opinion required by Section 425.0545.
23	21		(3) "Company" means an entity that:
24	22		(A) has written, issued, or reinsured life
25	23		insurance contracts, accident and health insurance contracts, or
26	24		deposit-type contracts in this state and has at least one such
27	25		policy in force or on claim; or
28	26		(B) has written, issued, or reinsured life
29	27		insurance contracts, accident and health insurance contracts, or
30	28		deposit-type contracts in any state and is required to hold a
31	29		certificate of authority to write life insurance, accident and
32	30		health insurance, or deposit-type contracts in this state.
33	31		(4) "Deposit-type contract" means a contract that does
34	32		not incorporate mortality or morbidity risk and as may be specified
35	33		in the valuation manual.
36	34		(5) "Life insurance" means contracts that incorporate
37	35		mortality risk, including annuity and pure endowment contracts, and
38	36		as may be specified in the valuation manual.
39	37		(6) "Policyholder behavior" means any action a
40	38		policyholder, a contract holder, or any other person with the right
41	39		to elect options, such as a certificate holder, may take under a
42	40		policy or contract subject to this subchapter, including lapse,
43	41		withdrawal, transfer, deposit, premium payment, loan,
44	42		annuitization, or benefit elections prescribed by the policy or
45	43		contract but excluding events of mortality or morbidity that result
46	44		in benefits prescribed in their essential aspects by the terms of
47	45		the policy or contract.
48	46		(7) "Principle-based valuation" means the valuation
49	47		described by Section 425.074.
50	48		(8) "Qualified actuary" means an individual who is
51	49		qualified to sign the applicable statement of actuarial opinion in
52	50		accordance with the American Academy of Actuaries' qualification
53	51		standards for actuaries signing such statements and who meets the
54	52		requirements specified in the valuation manual.
55	53		(9) "Reserves"[, "reserves"] means reserve
56	54		liabilities.
57	55		(10) "Tail risk" means a risk that occurs either where
58	56		the frequency of low probability events is higher than expected
59	57		under a normal probability distribution or where there are observed
60	58		events of very significant size or magnitude.
61	59		(11) "Valuation manual" means the manual of valuation
62	60		instructions adopted by the commissioner by rule.
63	61		(c) The definitions under Subsection (a) of "accident and
64	62		health insurance," "appointed actuary," "company," "deposit-type
65	63		contract," "life insurance," "policyholder behavior,"
66	64		"principle-based valuation," "qualified actuary," and "tail risk"
67	65		apply only on and after the operative date of the valuation manual.
68	66		SECTION 2. The heading to Section 425.053, Insurance Code,
69	67		is amended to read as follows:
70	68		Sec. 425.053. ANNUAL VALUATION OF RESERVES FOR POLICIES AND
71	69		CONTRACTS ISSUED BEFORE OPERATIVE DATE OF VALUATION MANUAL.
72	70		SECTION 3. Section 425.053, Insurance Code, is amended by
73	71		amending Subsections (a) and (c) and adding Subsections (d) and (e)
74	72		to read as follows:
75	73		(a) The department shall annually value or cause to be
76	74		[have] valued the reserves for all outstanding life insurance
77	75		policies and annuity and pure endowment contracts of each life
78	76		insurance company engaged in business in this state issued before
79	77		the operative date of the valuation manual. [The department may
80	78		certify the amount of those reserves, specifying the mortality
81	79		table or tables, rate or rates of interest, and methods, including
82	80		the net level premium method or another method, used in computing
83	81		those reserves.]
84	82		(c) Instead of valuing the reserves as required by
85	83		Subsection (a) for a foreign or alien company, the department may
86	84		accept any valuation made by or for the insurance supervisory
87	85		official of another state or jurisdiction if[:
88	86		[(1)] the valuation complies with the minimum standard
89	87		provided by this subchapter[; and
90	88		[(2) the official accepts as sufficient and valid for
91	89		all legal purposes a certificate of valuation made by the
92	90		department that states the valuation was made in a specified manner
93	91		according to which the aggregate reserves would be at least as large
94	92		as they would be if computed in the manner prescribed by the law of
95	93		that state or jurisdiction].
96	94		(d) Except as otherwise provided by this subchapter,
97	95		policies and contracts issued on or after the operative date of the
98	96		valuation manual are governed by Section 425.0535.
99	97		(e) The minimum standards for the valuation of policies and
100	98		contracts issued before the operative date of the valuation manual
101	99		are as provided by Sections 425.058 through 425.071 and Section
102	100		425.072(b), as applicable. Sections 425.072(a), 425.073, and
103	101		425.074 do not apply to a policy or contract described by this
104	102		subsection.
105	103		SECTION 4. Subchapter B, Chapter 425, Insurance Code, is
106	104		amended by adding Section 425.0535 to read as follows:
107	105		Sec. 425.0535. ANNUAL VALUATION OF RESERVES FOR POLICIES
108	106		AND CONTRACTS ISSUED ON OR AFTER OPERATIVE DATE OF VALUATION
109	107		MANUAL. (a) The commissioner shall annually value, or cause to be
110	108		valued, the reserves for all outstanding life insurance contracts,
111	109		annuity and pure endowment contracts, accident and health
112	110		contracts, and deposit-type contracts of each company issued on or
113	111		after the operative date of the valuation manual.
114	112		(b) In lieu of the valuation of the reserves required of a
115	113		foreign or alien company, the commissioner may accept a valuation
116	114		made, or caused to be made, by the insurance supervisory official of
117	115		another state if the valuation complies with the minimum standard
118	116		provided by this subchapter.
119	117		(c) Sections 425.072(a), 425.073, and 425.074 apply to all
120	118		policies and contracts issued on or after the operative date of the
121	119		valuation manual.
122	120		SECTION 5. The heading to Section 425.054, Insurance Code,
123	121		is amended to read as follows:
124	122		Sec. 425.054. ACTUARIAL OPINION OF RESERVES ISSUED BEFORE
125	123		OPERATIVE DATE OF VALUATION MANUAL [REQUIRED].
126	124		SECTION 6. Section 425.054, Insurance Code, is amended by
127	125		amending Subsection (a) and adding Subsections (a-1), (j), (k),
128	126		(l), (m), (n), (o), (p), and (q) to read as follows:
129	127		(a) This section applies only to an actuarial opinion of
130	128		reserves issued before the operative date of the valuation manual.
131	129		(a-1) For purposes of this section, "qualified actuary"
132	130		means:
133	131		(1) a qualified actuary, as that term is defined by
134	132		Section 802.002; or
135	133		(2) a person who, before September 1, 1993, satisfied
136	134		the requirements of the former State Board of Insurance to submit an
137	135		opinion under former Section 2A(a)(1), Article 3.28.
138	136		(j) Except as provided by Subsections (n), (o), and (p), any
139	137		document or other information in the possession or control of the
140	138		department that is a memorandum in support of the opinion or other
141	139		material provided by the company to the commissioner in connection
142	140		with a memorandum is confidential and privileged and not subject
143	141		to:
144	142		(1) disclosure under Chapter 552, Government Code;
145	143		(2) subpoena;
146	144		(3) discovery; or
147	145		(4) admissibility as evidence in a private civil
148	146		action.
149	147		(k) The commissioner or any person who receives a document
150	148		or other information described by Subsection (j) while acting under
151	149		the authority of the commissioner may not testify and may not be
152	150		compelled to testify in a private civil action concerning the
153	151		document or other information.
154	152		(l) The commissioner may:
155	153		(1) share documents or other information, including
156	154		the confidential and privileged documents or information described
157	155		by Subsection (j), with another state, federal, or international
158	156		regulatory agency, with the National Association of Insurance
159	157		Commissioners and its affiliates and subsidiaries, and with state,
160	158		federal, and international law enforcement authorities, provided
161	159		that the recipient agrees to maintain the confidentiality of the
162	160		document or information; and
163	161		(2) receive documents or other information, including
164	162		confidential and privileged documents or information, from the
165	163		National Association of Insurance Commissioners and its affiliates
166	164		and subsidiaries, and from regulatory and law enforcement officials
167	165		of other foreign or domestic jurisdictions, provided that the
168	166		commissioner shall maintain as confidential or privileged any
169	167		document or information received with notice or understanding that
170	168		it is confidential or privileged under the laws of the jurisdiction
171	169		that is the source of the document or information.
172	170		(m) Disclosing information or providing a document to the
173	171		commissioner under this section, or sharing information as
174	172		authorized under this section, does not result in a waiver of any
175	173		applicable privilege or claim of confidentiality that may apply to
176	174		the document or information.
177	175		(n) A memorandum in support of the opinion, and any other
178	176		material provided by the company to the commissioner in connection
179	177		with the memorandum, may be subject to subpoena for the purpose of
180	178		defending an action seeking damages from the actuary submitting the
181	179		memorandum by reason of an action required by this section or rules
182	180		adopted under this section.
183	181		(o) The memorandum or other material provided by the company
184	182		to the commissioner in connection with the memorandum may otherwise
185	183		be released by the commissioner with the written consent of the
186	184		company, or to the Actuarial Board for Counseling and Discipline or
187	185		its successor on receipt of a request stating that the memorandum or
188	186		other material is required for the purpose of professional
189	187		disciplinary proceedings and setting forth procedures satisfactory
190	188		to the commissioner for preserving the confidentiality and
191	189		privileged status of the memorandum or other material.
192	190		(p) The memorandum ceases to be confidential and privileged
193	191		if:
194	192		(1) any portion of the memorandum is cited by the
195	193		company in its marketing;
196	194		(2) the memorandum is cited by the company before a
197	195		government agency other than a state insurance department; or
198	196		(3) the memorandum is released by the company to the
199	197		news media.
200	198		(q) This section does not prohibit the commissioner from
201	199		using information acquired under this section in the furtherance of
202	200		a legal or regulatory action relating to the administration of this
203	201		code.
204	202		SECTION 7. Subchapter B, Chapter 425, Insurance Code, is
205	203		amended by adding Section 425.0545 to read as follows:
206	204		Sec. 425.0545. ACTUARIAL OPINION OF RESERVES AFTER
207	205		OPERATIVE DATE OF VALUATION MANUAL. (a) A company that has
208	206		outstanding life insurance contracts, accident and health
209	207		insurance contracts, or deposit-type contracts in this state and is
210	208		subject to regulation by the department shall annually submit the
211	209		opinion of the appointed actuary as to whether the reserves and
212	210		related actuarial items held in support of the policies and
213	211		contracts are computed appropriately, are based on assumptions that
214	212		satisfy contractual provisions, are consistent with prior reported
215	213		amounts, and are in compliance with applicable laws of this state.
216	214		An opinion under this section must comply with provisions of the
217	215		valuation manual, including in regard to any items necessary to its
218	216		scope.
219	217		(b) Unless exempted by the valuation manual, a company
220	218		described by Subsection (a) shall include with the opinion required
221	219		by that subsection an opinion of the same appointed actuary
222	220		concerning whether the reserves and related actuarial items held in
223	221		support of the policies and contracts specified in the valuation
224	222		manual, when considered in light of the assets held by the company
225	223		with respect to the reserves and related actuarial items, including
226	224		investment earnings on the assets and considerations anticipated to
227	225		be received and retained under the policies and contracts, make
228	226		adequate provision for the company's obligations under the policies
229	227		and contracts, including benefits under and expenses associated
230	228		with the policies and contracts.
231	229		(c) Each opinion required by this section must:
232	230		(1) be in the form and contain the substance that is
233	231		specified by the valuation manual and is acceptable to the
234	232		commissioner;
235	233		(2) be submitted with the annual statement reflecting
236	234		the valuation of reserves for each year ending on or after the
237	235		operative date of the valuation manual;
238	236		(3) apply to all policies and contracts subject to
239	237		this section, plus other actuarial liabilities specified by the
240	238		valuation manual; and
241	239		(4) be based on standards adopted from time to time by
242	240		the Actuarial Standards Board or its successor, and on any
243	241		additional standards prescribed by the valuation manual.
244	242		(d) In the case of an opinion required to be submitted by a
245	243		foreign or alien company, the commissioner may accept the opinion
246	244		filed by the company with the insurance supervisory official of
247	245		another state if the commissioner determines that the opinion
248	246		reasonably meets the requirements applicable to a company domiciled
249	247		in this state.
250	248		SECTION 8. Section 425.055(a), Insurance Code, is amended
251	249		to read as follows:
252	250		(a) A memorandum [that, in form and substance, complies with
253	251		the commissioner's rules] shall be prepared to support each
254	252		actuarial opinion required by Section 425.054 or 425.0545. The
255	253		form and substance of each supporting memorandum must comply with
256	254		the commissioner's rules for memorandums subject to Section
257	255		425.054, or the valuation manual for memorandums subject to Section
258	256		425.0545.
259	257		SECTION 9. Section 425.056(a), Insurance Code, is amended
260	258		to read as follows:
261	259		(a) Except in cases of fraud or wilful misconduct or as
262	260		provided by Subsection (b), a person who certifies an opinion under
263	261		Section 425.054 or 425.0545 is not liable for damages to a person,
264	262		other than the life insurance company covered by the opinion, for an
265	263		act, error, omission, decision, or other conduct with respect to
266	264		the person's opinion.
267	265		SECTION 10. Section 425.057, Insurance Code, is amended to
268	266		read as follows:
269	267		Sec. 425.057. DISCIPLINARY ACTION: COMPANY OR PERSON
270	268		CERTIFYING OPINION. A company or person that certifies an opinion
271	269		under Section 425.054 or 425.0545 and that violates Section
272	270		425.054, 425.0545, or 425.055 or rules adopted under those sections
273	271		is subject to disciplinary action under Chapter 82.
274	272		SECTION 11. The heading to Section 425.058, Insurance Code,
275	273		is amended to read as follows:
276	274		Sec. 425.058. COMPUTATION [VALUATION] OF MINIMUM STANDARD
277	275		[POLICY OR CONTRACT]: GENERAL RULE.
278	276		SECTION 12. The heading to Section 425.059, Insurance Code,
279	277		is amended to read as follows:
280	278		Sec. 425.059. COMPUTATION [VALUATION] OF MINIMUM STANDARD
281	279		FOR CERTAIN ANNUITIES AND PURE ENDOWMENT CONTRACTS.
282	280		SECTION 13. The heading to Section 425.064, Insurance Code,
283	281		is amended to read as follows:
284	282		Sec. 425.064. COMMISSIONERS RESERVE VALUATION METHOD FOR
285	283		LIFE INSURANCE AND ENDOWMENT BENEFITS.
286	284		SECTION 14. The heading to Section 425.065, Insurance Code,
287	285		is amended to read as follows:
288	286		Sec. 425.065. COMMISSIONERS ANNUITY RESERVE VALUATION
289	287		METHOD FOR ANNUITY AND PURE ENDOWMENT BENEFITS.
290	288		SECTION 15. Subchapter B, Chapter 425, Insurance Code, is
291	289		amended by adding Sections 425.072, 425.073, 425.074, 425.075,
292	290		425.076, and 425.077 to read as follows:
293	291		Sec. 425.072. MINIMUM STANDARD FOR ACCIDENT AND HEALTH
294	292		INSURANCE CONTRACTS. (a) The standard prescribed by the valuation
295	293		manual for accident and health insurance contracts issued on or
296	294		after the operative date of the valuation manual is the minimum
297	295		standard of valuation required under Section 425.0535.
298	296		(b) For disability, accident and sickness, and accident and
299	297		health insurance contracts issued before the operative date of the
300	298		valuation manual, the minimum standard of valuation is the standard
301	299		in existence before the operative date of the valuation manual in
302	300		addition to any requirements established by the commissioner and
303	301		adopted by rule.
304	302		Sec. 425.073. VALUATION MANUAL FOR POLICIES ISSUED ON OR
305	303		AFTER THE OPERATIVE DATE OF THE VALUATION MANUAL. (a) Except as
306	304		otherwise provided by this section, for policies issued on or after
307	305		the operative date of the valuation manual, the standard prescribed
308	306		by the valuation manual is the minimum standard of valuation
309	307		required under Section 425.0535.
310	308		(b) The commissioner by rule shall adopt a valuation manual
311	309		and determine the operative date of the valuation manual. A
312	310		valuation manual adopted by the commissioner under this section
313	311		must be substantially similar to the valuation manual approved by
314	312		the National Association of Insurance Commissioners. The operative
315	313		date must be January 1 of the first calendar year immediately
316	314		following a year in which, on or before July 1, the commissioner
317	315		determines that:
318	316		(1) the valuation manual has been adopted by the
319	317		National Association of Insurance Commissioners by an affirmative
320	318		vote of at least 42 members, or three-fourths of the members voting,
321	319		whichever is greater;
322	320		(2) the National Association of Insurance
323	321		Commissioners Standard Model Valuation Law, as amended by the
324	322		National Association of Insurance Commissioners in 2009, or
325	323		legislation including substantially similar terms and provisions,
326	324		has been enacted by states representing greater than 75 percent of
327	325		the direct premiums written as reported in the following annual
328	326		statements submitted for 2008:
329	327		(A) life insurance and accident and health annual
330	328		statements;
331	329		(B) health annual statements; or
332	330		(C) fraternal annual statements; and
333	331		(3) the National Association of Insurance
334	332		Commissioners Standard Model Valuation Law, as amended by the
335	333		National Association of Insurance Commissioners in 2009, or
336	334		legislation including substantially similar terms and provisions,
337	335		has been enacted by at least 42 of the following 55 jurisdictions:
338	336		(A) the 50 United States;
339	337		(B) American Samoa;
340	338		(C) the United States Virgin Islands;
341	339		(D) the District of Columbia;
342	340		(E) Guam; and
343	341		(F) Puerto Rico.
344	342		(c) After a valuation manual has been adopted by the
345	343		commissioner by rule, any changes to the valuation manual must be
346	344		adopted by rule and must be substantially similar to changes
347	345		adopted by the National Association of Insurance Commissioners.
348	346		Unless a change in the valuation specifies a later effective date,
349	347		the effective date for changes to the valuation manual may not be
350	348		earlier than January 1 of the year immediately following the date on
351	349		which the commissioner determines that the changes to the valuation
352	350		manual have been adopted by the National Association of Insurance
353	351		Commissioners by an affirmative vote representing:
354	352		(1) at least three-fourths of the members of the
355	353		National Association of Insurance Commissioners voting, but not
356	354		less than a majority of the total membership; and
357	355		(2) members of the National Association of Insurance
358	356		Commissioners representing jurisdictions totaling greater than 75
359	357		percent of the direct premiums written as reported in the most
360	358		recently available annual statements as provided by Subsections
361	359		(b)(2)(A)-(C).
362	360		(d) The valuation manual must specify:
363	361		(1) the minimum valuation standards for and
364	362		definitions of the policies or contracts subject to Section
365	363		425.0535, including:
366	364		(A) the commissioner's reserve valuation method
367	365		for life insurance contracts subject to Section 425.0535;
368	366		(B) the commissioner's annuity reserve valuation
369	367		method for annuity contracts subject to Section 425.0535; and
370	368		(C) the minimum reserves for all other policies
371	369		or contracts subject to Section 425.0535;
372	370		(2) the policies or contracts that are subject to the
373	371		requirements of a principle-based valuation under Section 425.074
374	372		and the minimum valuation standards consistent with those
375	373		requirements, including:
376	374		(A) the requirements for the format of reports to
377	375		the commissioner under Section 425.074(b)(3), which must include
378	376		the information necessary to determine if a valuation is
379	377		appropriate and in compliance with this subchapter;
380	378		(B) the assumptions prescribed for risks over
381	379		which the company does not have significant control or influence;
382	380		and
383	381		(C) the procedures for corporate governance and
384	382		oversight of the actuarial function, and a process for appropriate
385	383		waiver or modification of the procedures;
386	384		(3) the policies that are not subject to a
387	385		principle-based valuation under Section 425.074;
388	386		(4) the data and form of data required under Section
389	387		425.075, to whom the data must be submitted, and other desired
390	388		requirements, including requirements concerning data analyses and
391	389		reporting of analyses;
392	390		(5) other requirements, including requirements
393	391		relating to reserve methods, models for measuring risk, generation
394	392		of economic scenarios, assumptions, margins, use of company
395	393		experience, disclosure, certification, reports, actuarial opinions
396	394		and memorandums, transition rules, and internal controls; and
397	395		(6) an exemption that allows certain small companies
398	396		to value reserves based on an exception from certain requirements
399	397		of this section and Section 425.074; however, the premium
400	398		thresholds for determining whether the exemption applies shall be
401	399		as follows:
402	400		(A) less than $300 million of ordinary life
403	401		premium; and
404	402		(B) less than $600 million of combined ordinary
405	403		life premiums for a group of life insurers if the company is a
406	404		member of that group.
407	405		(e) For purposes of Subsections (d)(6)(A) and (B), an
408	406		ordinary life premium is measured as a direct premium plus
409	407		reinsurance assumed from an unaffiliated company, as reported in
410	408		the prior calendar year statement.
411	409		(f) With respect to policies that are not subject to a
412	410		principle-based valuation under Section 425.074 as described by
413	411		Subsection (d)(3), the minimum valuation standard specified in the
414	412		valuation manual must:
415	413		(1) be consistent with the minimum valuation standard
416	414		before the operative date of the valuation manual; or
417	415		(2) develop reserves that quantify the benefits and
418	416		guarantees, and the funding, associated with the contracts and
419	417		their risks at a level of conservatism that reflects conditions
420	418		that include unfavorable events that have a reasonable probability
421	419		of occurring.
422	420		(g) In the absence of a specific valuation requirement or if
423	421		a specific valuation requirement in the valuation manual does not
424	422		in the commissioner's opinion comply with this subchapter, the
425	423		company shall, with respect to the requirement, comply with minimum
426	424		valuation standards prescribed by the commissioner by rule.
427	425		(h) The commissioner may employ or contract with a qualified
428	426		actuary, at the expense of the company, to perform an actuarial
429	427		examination of the company and provide an opinion concerning the
430	428		appropriateness of any reserve assumption or method used by the
431	429		company, or to review and provide an opinion on a company's
432	430		compliance with any requirement of this subchapter. The
433	431		commissioner may rely on the opinion, regarding provisions
434	432		contained within this subchapter, of a qualified actuary engaged by
435	433		the insurance supervisory official of another state.
436	434		(i) The commissioner may require a company to change an
437	435		assumption or method as necessary in the commissioner's opinion to
438	436		comply with a requirement of the valuation manual or this
439	437		subchapter.
440	438		(j) The commissioner may take other disciplinary action as
441	439		permitted under Chapter 82.
442	440		Sec. 425.074. REQUIREMENTS OF A PRINCIPLE-BASED VALUATION.
443	441		(a) A company shall establish reserves using a principle-based
444	442		valuation that meets the conditions for policies or contracts
445	443		provided by the valuation manual. At a minimum, the valuation
446	444		shall:
447	445		(1) quantify the benefits and guarantees, and the
448	446		funding, associated with the contracts and their risks at a level of
449	447		conservatism that reflects conditions that include unfavorable
450	448		events that have a reasonable probability of occurring during the
451	449		terms of the contracts;
452	450		(2) with respect to policies and contracts with
453	451		significant tail risk, reflect conditions appropriately adverse to
454	452		quantify the tail risk;
455	453		(3) incorporate assumptions, risk analysis methods,
456	454		and financial models and management techniques that are consistent
457	455		with those used in the company's overall risk assessment process,
458	456		while recognizing potential differences in financial reporting
459	457		structures and any prescribed assumptions or methods;
460	458		(4) incorporate assumptions:
461	459		(A) prescribed by the valuation manual; or
462	460		(B) established:
463	461		(i) using the company's available
464	462		experience, to the extent that data is relevant and statistically
465	463		credible; or
466	464		(ii) to the extent that the company data is
467	465		not available, relevant, or statistically credible, using other
468	466		relevant, statistically credible experience; and
469	467		(5) provide margins for uncertainty, including
470	468		adverse deviation and estimation error, such that the greater the
471	469		uncertainty the larger the margin and resulting reserve.
472	470		(b) A company using a principle-based valuation for one or
473	471		more policies or contracts subject to this section and as specified
474	472		by the valuation manual shall:
475	473		(1) establish procedures for corporate governance and
476	474		oversight of the actuarial valuation function consistent with
477	475		procedures specified by the valuation manual;
478	476		(2) provide to the commissioner and the company's
479	477		board of directors an annual certification of the effectiveness of
480	478		the internal controls with respect to the principle-based
481	479		valuation; and
482	480		(3) develop, and file with the commissioner on
483	481		request, a principle-based valuation report that complies with
484	482		standards prescribed in the valuation manual.
485	483		(c) A company's internal controls with respect to the
486	484		principle-based valuation must be designed to ensure that all
487	485		material risks inherent in the liabilities and associated assets
488	486		subject to the valuation are included in the valuation, and that
489	487		valuations are made in accordance with the valuation manual. The
490	488		certification described by Subsection (b)(2) must be based on the
491	489		controls in place as of the end of the preceding calendar year.
492	490		(d) A principle-based valuation may include a prescribed
493	491		formulaic reserve component.
494	492		Sec. 425.075. EXPERIENCE REPORTING FOR POLICIES IN FORCE ON
495	493		OR AFTER OPERATIVE DATE OF VALUATION MANUAL. A company shall submit
496	494		mortality, morbidity, policyholder behavior, or expense experience
497	495		and other data as prescribed in the valuation manual.
498	496		Sec. 425.076. CONFIDENTIALITY. (a) In this section,
499	497		"confidential information" means:
500	498		(1) a memorandum in support of an opinion submitted
501	499		under Section 425.0545 and any other documents, materials, and
502	500		other information, including, but not limited to, all working
503	501		papers, and copies thereof, created, produced, or obtained by or
504	502		disclosed to the commissioner or any other person in connection
505	503		with such memorandum;
506	504		(2) all documents, materials, and other information,
507	505		including, but not limited to, all working papers, and copies
508	506		thereof, created, produced, or obtained by or disclosed to the
509	507		commissioner or any other person in the course of an examination
510	508		made under Section 425.073(h); provided, however, that if an
511	509		examination report or other material prepared in connection with an
512	510		examination made under Subchapter B, Chapter 401, is not held as
513	511		private and confidential information under Subchapter B, Chapter
514	512		401, an examination report or other material prepared in connection
515	513		with an examination made under Section 425.073(h) shall not be
516	514		"confidential information" to the same extent as if such
517	515		examination report or other material had been prepared under
518	516		Subchapter B, Chapter 401;
519	517		(3) any reports, documents, materials, and other
520	518		information developed by a company in support of, or in connection
521	519		with, an annual certification by the company under Section
522	520		425.074(b)(2) evaluating the effectiveness of the company's
523	521		internal controls with respect to a principle-based valuation and
524	522		any other documents, materials, and other information, including,
525	523		but not limited to, all working papers, and copies thereof,
526	524		created, produced, or obtained by or disclosed to the commissioner
527	525		or any other person in connection with such reports, documents,
528	526		materials, and other information;
529	527		(4) any principle-based valuation report developed
530	528		under Section 425.074(b)(3) and any other documents, materials, and
531	529		other information, including, but not limited to, all working
532	530		papers, and copies thereof, created, produced, or obtained by or
533	531		disclosed to the commissioner or any other person in connection
534	532		with such report; and
535	533		(5) any documents, materials, data, and other
536	534		information submitted by a company under Section 425.075
537	535		(collectively, "experience data") and any other documents,
538	536		materials, data, and other information, including, but not limited
539	537		to, all working papers, and copies thereof, created or produced in
540	538		connection with such experience data, in each case that include any
541	539		potentially company-identifying or personally identifiable
542	540		information, that is provided to or obtained by the commissioner
543	541		(together with any "experience data," the "experience materials")
544	542		and any other documents, materials, data, and other information,
545	543		including, but not limited to, all working papers, and copies
546	544		thereof, created, produced, or obtained by or disclosed to the
547	545		commissioner or any other person in connection with such experience
548	546		materials.
549	547		(b) Except as provided in this section, a company's
550	548		confidential information is confidential by law and privileged, and
551	549		shall not be subject to Chapter 552, Government Code, shall not be
552	550		subject to subpoena, and shall not be subject to discovery or
553	551		admissible in evidence in any private civil action; provided,
554	552		however, that the commissioner is authorized to use the
555	553		confidential information in the furtherance of any regulatory or
556	554		legal action brought against the company as a part of the
557	555		commissioner's official duties.
558	556		(c) Neither the commissioner nor any person who received
559	557		confidential information while acting under the authority of the
560	558		commissioner shall be permitted or required to testify in any
561	559		private civil action concerning any confidential information.
562	560		(d) In order to assist in the performance of the
563	561		commissioner's duties, the commissioner may share confidential
564	562		information (1) with other state, federal, and international
565	563		regulatory agencies and with the National Association of Insurance
566	564		Commissioners and its affiliates and subsidiaries and (2) in the
567	565		case of confidential information specified in Subsections (a)(1)
568	566		and (a)(4) only, with the Actuarial Board for Counseling and
569	567		Discipline or its successor upon request stating that the
570	568		confidential information is required for the purpose of
571	569		professional disciplinary proceedings and with state, federal, and
572	570		international law enforcement officials; in the case of (1) and
573	571		(2), provided that such recipient agrees, and has the legal
574	572		authority to agree, to maintain the confidentiality and privileged
575	573		status of such documents, materials, data, and other information in
576	574		the same manner and to the same extent as required for the
577	575		commissioner.
578	576		(e) The commissioner may receive documents, materials,
579	577		data, and other information, including otherwise confidential or
580	578		privileged documents, materials, data, or information, from the
581	579		National Association of Insurance Commissioners and its affiliates
582	580		and subsidiaries, from regulatory or law enforcement officials of
583	581		other foreign or domestic jurisdictions and from the Actuarial
584	582		Board for Counseling and Discipline or its successor and shall
585	583		maintain as confidential or privileged any document, material,
586	584		data, or other information received with notice or the
587	585		understanding that it is confidential or privileged under the laws
588	586		of the jurisdiction that is the source of the document, material,
589	587		data, or other information.
590	588		(f) The commissioner may enter into agreements governing
591	589		sharing and use of information consistent with Subsections (b)
592	590		through (k).
593	591		(g) No waiver of any applicable privilege or claim of
594	592		confidentiality in the confidential information shall occur as a
595	593		result of disclosure to the commissioner under this section or as a
596	594		result of sharing as authorized in Subsection (d).
597	595		(h) A privilege established under the law of any state or
598	596		jurisdiction that is substantially similar to the privilege
599	597		established under Subsections (b) through (k) shall be available
600	598		and enforced in any proceeding in, and in any court of, this state.
601	599		(i) In this section, a reference to a regulatory agency, law
602	600		enforcement agency, or the National Association of Insurance
603	601		Commissioners includes an employee, agent, consultant, or
604	602		contractor of the agency or association, as applicable.
605	603		(j) Notwithstanding this section, any confidential
606	604		information specified in Subsections (a)(1) and (a)(4) may be:
607	605		(1) subject to subpoena for the purpose of defending
608	606		an action seeking damages from the appointed actuary submitting the
609	607		related memorandum in support of an opinion submitted under Section
610	608		425.0545 or a principle-based valuation report developed under
611	609		Section 425.074(b)(3) by reason of an action required by this
612	610		subchapter or by rules adopted under this subchapter; and
613	611		(2) released by the commissioner with the written
614	612		consent of the company.
615	613		(k) Once any portion of a memorandum in support of an
616	614		opinion submitted under Section 425.0545 or a principle-based
617	615		valuation report developed under Section 425.074(b)(3) is cited by
618	616		the company in its marketing or is publicly volunteered to or before
619	617		a governmental agency other than a state insurance department or is
620	618		released by the company to the news media, all portions of such
621	619		memorandum or report shall no longer be confidential and
622	620		privileged.
623	621		Sec. 425.077. SINGLE STATE EXEMPTION. The commissioner may
624	622		exempt specific product forms or product lines of a domestic
625	623		company that is licensed and doing business only in this state from
626	624		the requirements of Section 425.073 if:
627	625		(1) the commissioner has issued an exemption in
628	626		writing to the company and has not subsequently revoked the
629	627		exemption in writing; and
630	628		(2) the company computes reserves using assumptions
631	629		and methods used before the operative date of the valuation manual
632	630		in addition to any requirements established by the commissioner and
633	631		adopted by rule.
634	632		SECTION 16. Subchapter A, Chapter 1105, Insurance Code, is
635	633		amended by adding Section 1105.0015 to read as follows:
636	634		Sec. 1105.0015. DEFINITION. In this chapter, "operative
637	635		date of the valuation manual" means the date, if any, on which the
638	636		valuation manual described by Subchapter B, Chapter 425 (Standard
639	637		Valuation Law), becomes operative as provided by that subchapter.
640	638		SECTION 17. Section 1105.055, Insurance Code, is amended by
641	639		amending Subsections (h) and (i) and adding Subsections (j), (k),
642	640		(l), and (m) to read as follows:
643	641		(h) For a policy issued before the operative date of the
644	642		valuation manual, any [Any] ordinary mortality table adopted after
645	643		1980 by the National Association of Insurance Commissioners that is
646	644		approved by rules adopted by the commissioner for use in
647	645		determining the minimum nonforfeiture standard may be substituted
648	646		for:
649	647		(1) the Commissioners 1980 Standard Ordinary
650	648		Mortality Table with or without Ten-Year Select Mortality Factors;
651	649		or
652	650		(2) the Commissioners 1980 Extended Term Insurance
653	651		Table.
654	652		(i) For a policy issued before the operative date of the
655	653		valuation manual, any [Any] industrial mortality table adopted
656	654		after 1980 by the National Association of Insurance Commissioners
657	655		that is approved by rules adopted by the commissioner for use in
658	656		determining the minimum nonforfeiture standard may be substituted
659	657		for:
660	658		(1) the Commissioners 1961 Standard Industrial
661	659		Mortality Table; or
662	660		(2) the Commissioners 1961 Industrial Extended Term
663	661		Insurance Table.
664	662		(j) Except as provided by Subsection (k), for a policy
665	663		described by Subsection (h) issued on or after the operative date of
666	664		the valuation manual, the valuation manual must provide the
667	665		commissioners standard ordinary mortality table for use in
668	666		determining the minimum nonforfeiture standard that may be
669	667		substituted for:
670	668		(1) the Commissioners 1980 Standard Ordinary
671	669		Mortality Table with or without Ten-Year Select Mortality Factors;
672	670		or
673	671		(2) the Commissioners 1980 Extended Term Insurance
674	672		Table.
675	673		(k) If the commissioner by rule adopts a commissioners
676	674		standard ordinary mortality table adopted by the National
677	675		Association of Insurance Commissioners for use in determining the
678	676		minimum nonforfeiture standard for policies issued on or after the
679	677		operative date of the valuation manual, the minimum nonforfeiture
680	678		standard determined in accordance with that table supersedes the
681	679		standard provided by the valuation manual.
682	680		(l) Except as provided by Subsection (m), for a policy
683	681		described by Subsection (i) issued on or after the operative date of
684	682		the valuation manual, the valuation manual must include the
685	683		commissioners standard industrial mortality table for use in
686	684		determining the minimum nonforfeiture standard that may be
687	685		substituted for:
688	686		(1) the 1961 Standard Industrial Mortality Table; or
689	687		(2) the Commissioners 1961 Industrial Extended Term
690	688		Insurance Table.
691	689		(m) If the commissioner by rule adopts a commissioners
692	690		standard industrial mortality table adopted by the National
693	691		Association of Insurance Commissioners for use in determining the
694	692		minimum nonforfeiture standard for policies issued on or after the
695	693		operative date of the valuation manual, the minimum nonforfeiture
696	694		standard determined in accordance with that table supersedes the
697	695		standard provided by the valuation manual.
698	696		SECTION 18. Section 1105.056, Insurance Code, is amended to
699	697		read as follows:
700	698		Sec. 1105.056. NONFORFEITURE INTEREST RATE. (a) For a
701	699		policy issued before the operative date of the valuation manual,
702	700		the [The] annual nonforfeiture interest rate for a policy issued in
703	701		a particular calendar year is equal to 125 percent of the calendar
704	702		year statutory valuation interest rate for that policy as defined
705	703		by Subchapter B, Chapter 425, rounded to the nearest one-fourth of
706	704		one percent, except that the rate may not be less than four percent.
707	705		(b) For a policy issued on or after the operative date of the
708	706		valuation manual, the annual nonforfeiture interest rate for any
709	707		policy issued in a particular calendar year is provided by the
710	708		valuation manual.
711	709		SECTION 19. The commissioner of insurance shall determine
712	710		whether the National Association of Insurance Commissioners and a
713	711		sufficient number of states and other jurisdictions have adopted a
714	712		valuation manual as required by Section 425.073(b), Insurance Code,
715	713		as added by this Act. As soon as practicable after the commissioner
716	714		of insurance determines that the National Association of Insurance
717	715		Commissioners and a sufficient number of states and other
718	716		jurisdictions have adopted the valuation manual as required by that
719	717		section, the commissioner of insurance shall adopt rules necessary
720	718		to implement this Act.
721	719		SECTION 20. This Act takes effect September 1, 2015.
	720	+	______________________________ ______________________________
	721	+	President of the Senate Speaker of the House
	722	+	I hereby certify that S.B. No. 1654 passed the Senate on
	723	+	April 15, 2015, by the following vote: Yeas 31, Nays 0.
	724	+	______________________________
	725	+	Secretary of the Senate
	726	+	I hereby certify that S.B. No. 1654 passed the House on
	727	+	May 19, 2015, by the following vote: Yeas 146, Nays 0, two
	728	+	present not voting.
	729	+	______________________________
	730	+	Chief Clerk of the House
	731	+	Approved:
	732	+	______________________________
	733	+	Date
	734	+	______________________________
	735	+	Governor