F.S ACCOUNTING, INVESTMENTS, AND DEPOSITS BY INSURERS Ch.625

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1 F.S. 987 ACCOUNTING, INVESTMENTS, AND DEPOSITS BY INSURERS Ch The controlling or controlled person has not provided to the insurer and the insurer has not maintained in its possession an unexpired, clean irrevocable letter of credit, payable to the insurer, issued for a term of not less than year and in conformity with the requirements set forth in this subparagraph, the amount of which equals or exceeds the liability of the controlling or controlled person to the insurer, at all times during the period which the letter of credit is in effect, for premiums collected by the controlling or controlled person. The requirements are that such letter of credit be issued under arrangements satisfactory to the department and that the letter be issued by a banking institution which is a member of the Federal Reserve System and which has a financial standing satisfactory to the department; 3. The controlling or controlled person has not provided to the insurer and the insurer maintained in its possession evidence that the controlling or controlled person has purchased and has currently in effect a financial guaranty bond, payable to the insurer, issued for a term of not less than year and which is in conformity with the requirements set forth in this subparagraph, the amount of which equals or exceeds the liability of the controlling or controlled person to the insurer, at all times during which the financial guaranty bond is in effect, for the premiums collected by the controlling or controlled person. The requirements are that such a financial guaranty bond shall be issued under an arrangement satisfactory to the department and that the financial guaranty bond be issued by an insurer authorized to transact such business in Florida and which has a financial standing satisfactory to the department and which is neither controlled nor controlling in relation to either the insurer or the person for whom the bond is purchased; or 4. A financial evaluation indicates that the controlling or controlled person is unlikely to have the ability to pay such premiums as they become due. The financial evaluation shall be based on a review of the books and records of the controlling or controlled person. (b) For the purpose of this subsection:. "Controlling person" means any person owning, directly or indirectly, 25 percent or more of the voting securities of the insurer. 2. "Controlled person" means any person that is, directly or indirectly, owned or controlled by a controlling person. 3. "Controlling" or "controlled person" means any person that individually or in combination with other such persons owes to the insurer an amount that exceeds 50 percent of the insurer's total premiums in course of collection as stated on the insurer's financial statement. (c) The department shall disapprove any trust agreement filed pursuant to paragraph (a) which does not assure the safety of the premiums collected. (6) Installment premiums other than life insurance premiums to the extent of the unearned premium reserve carried on the policy to which such premiums apply. (7) Notes and like written obligations not past due, taken for premiums other than life insurance premiums, on policies permitted to be issued on such basis, to the 45 extent of the unearned premium reserves carried thereon. (8) The full amount of reinsurance recoverable by a ceding insurer from a solvent reinsurer and which reinsurance is authorized under s (9) Amounts receivable by an assuming insurer representing funds withheld by a solvent ceding insurer under a reinsurance treaty. ( 0) Deposits or equities recoverable from underwriting associations, syndicates, and reinsurance funds, or from any suspended banking institution, to the extent deemed by the department available for the payment of losses and claims and at values to be determined by it. () Electronic and mechanical machines, including computer-operating software equipment constituting a data processing and accounting system, if the cost of such system is at least $25,000, which cost shall be amortized in full over a period not to exceed 7 calendar years. (2) Other assets, not inconsistent with the provisions of this section, deemed by the department to be available for the payment of losses and claims, at values to be determined by it. History.-s. 09, ch ; ss. 3, 35, ch ; s. 3, ch ; s., ch ; ss. 2, 3, ch. 8-38; ss. 87, 98, 809(st), ch ; s. 28, ch ; s., ch Note.-Expi res October, 99, pursuant to s. 809(st), ch , and is Assets not allowed.-ln addition to assets impliedly excluded by the provisions of s , the following expressly shall not be allowed as assets in any determination of the financial condition of an insurer: () Good will, trade names, and other like intangible assets. (2) Advances (other than policy loans) to officers, directors, and controlling stockholders, whether secured or not, and advances to employees, agents, and other persons on personal security only. (3) Stock of such insurer, owned by it, or any material equity therein or loans secured thereby, or any material proportionate interest in such stock acquired or held through the ownership by such insurer of an interest in another firm, corporation, or business unit. (4) Furniture, fixtures, furnishings, safes, vehicles, libraries, stationery, literature, and supplies, other than data processing and accounting systems authorized under s ( ), except in the case of title insurers such materials and plants as the insurer is expressly authorized to invest in under s and except, in the case of any insurer, such personal property as the insurer is permitted to hold pursuant to part II of this chapter, or which is acquired through foreclosure of chattel mortgages acquired pursuant to s , or which is reasonably necessary for the maintenance and operation of real estate lawfully acquired and held by the insurer other than real estate used by it for home office, branch office, and similar purposes. (5) The amount, if any, by which the aggregate book value of investments as carried in the ledger assets of the insurer exceeds the aggregate value thereof as determined under this code. (6) Bonds, notes, or other evidences of indebtedness which are secured by mortgages or deeds of trust

2 Ch.625 ACCOUNTING, INVESTMENTS, AND DEPOSITS BY INSURERS F.S. 987 which are in default. History.-s., ch ; s. 3, ch ; s., ch ; ss. 2, 3, ch. 8-38; ss. 89, 98, 809(st), ch Note.-Expires October, 99, pursuant to s. 809(st), ch , and is Liabilities, in general.-ln any determination of the financial condition of an insurer, capital stock and liabilities to be charged against its assets shall include: () The amount of its capital stock outstanding, if any. (2) The amount, estimated consistent with the provisions of this code, necessary to pay all of its unpaid losses and claims incurred on or prior to the date of statement, whether reported or unreported, together with the expenses of adjustment or settlement thereof. (3) With reference to life and health insurance and annuity contracts: (a) The amount of reserves on life insurance policies and annuity contracts in force, valued according to the tables of mortality, rates of interest, and methods adopted pursuant to this code which are applicable thereto. (b) Reserves for disability benefits, for both active and disabled lives. (c) Reserves for accidental death benefits. (d) Any additional reserves which may be required by the department consistent with practice formulated or approved by the National Association of Insurance Commissioners or its successor organization, on account of such insurance. (4) With reference to insurance other than specified in subsection (3), and other than title insurance, the amount of reserves equal to the unearned portions of the gross premiums charged on policies in force, computed in accordance with this part. (5) Taxes, expenses, and other obligations due or accrued at the date of the statement. History.-s. 2, ch ; ss. 3, 35, ch ; s. 3, ch ; s., ch ; ss. 2, 3, ch. 8-38; ss. 90, 98, 809(st), ch 'Note.-Expires October, 99, pursuant to s. 809(st), ch , and is Unearned premium reserve.- ( ) As to insurance against loss or damage to property, except as provided in s , and as to all general casualty insurance and surety insurance, every insurer shall maintain an unearned premium reserve on all policies in force. (2) The department may require that such reserves be equal to the unearned portions of the gross premiums in force after deducting applicable reinsurance in solvent insurers as computed on each respective risk from the policy's date of issue. If the department does not so require, the portions of the gross premium in force, less applicable reinsurance in solvent insurers, to be held as an unearned premium reserve, shall be computed according to the following table: Term for which policy was written Reserve for unearned premium year or less /2 2 years st year-3/4 2nd year-/4 3 years st year- 5 /s 452 2nd year-/2 3rd year- /s 4 years st year- 7 /s 2nd year- 5 /s 3rd year- 3 /s 4th year- /s 5 years st year-s/0 2nd year- 7 / o 3rd year- j2 4th year- 3 / 0 5th year- /0 Over 5 years pro rata (3) In lieu of computation according to the foregoing table, the insurer at its option may compute all of such reserves on a monthly or more frequent pro rata basis. (4) After adopting a method for computing such reserve, an insurer shall not change methods without approval of the public insurance supervisory official of the state of domicile. (5) This section does not apply to title insurance. Hlstory.-s. 3, ch ; ss. 3, 35, ch ; s. 3, ch ; s., ch ; ss. 2, 3, ch. 8-38; ss. 98, 809( st), ch Note.-Repealed effective October, 99, by s. 809( st), ch , and Unearned premium reserve for marine and transportation insurance.-as to marine and transportation insurance, the entire amount of premiums on trip risks not terminated shall be deemed unearned; and the department may require the insurer to carry a reserve equal to 00 percent of premiums on trip risks written during the month ended as of the date of statement. History.-s. 4, ch ; ss. 3, 35, ch ; s. 3, ch , s., ch ; ss. 2, 3, ch. 8-38; ss. 98, 809(st), ch Note.-Repealed effective October, 99, by s. 809( st), ch , and scheduled for review pursuant to s..6 in advance of that date Special reserve for bail and judicial bonds. - In lieu of the unearned premium reserve required on surety bonds under s , the department may require any surety insurer or limited surety insurer to set up and maintain a reserve on all bail bonds or other single-premium bonds without definite expiration date, furnished in judicial proceedings, equal to 25 percent of the total consideration charged for such bonds as are outstanding as of the date of any current financial statement of the insurer. History.-s. t5, ch ; ss. 3, 35, ch ; s. 3, ch ; s., ch ; ss. 2, 3, ch. 8-38; ss. 98, 809(st), ch Note.-Repealed effective October, 99, by s. 809(st), ch , and Reserve for health insurance.-for all health insurance policies, the insurer shall maintain an active life reserve which places a sound value on the insurer's liabilities under such policies; is not less than the reserve according to appropriate standards set forth in rules issued by the department; and, in no event, is less in the aggregate than the pro rata gross unearned premiums for such policies. History.- s. 6, ch ; ss. 3, 35, ch ; s. 3, ch ; s., ch ; ss. 2, 3, ch. 8-38; ss. 9, 98, 809(st), ch Note.-Expires October, 99, pursuant to s. 809( st), ch , and is scheduled for review pursuant to s..6 in advance of that date Loss reserves: liability insurance and workers' compensation.-when called for by the form of annual statement required of the insurer, the reserve

3 F.S. 987 ACCOUNTING, INVESTMENTS, AND DEPOSITS BY INSURERS Ch. 625 for outstanding losses under insurance against loss or damage from accident to or injuries suffered by an employee or other person and for which the insured is liable shall be computed as follows: ( ) For all liability suits being defended under the insurer's policies, the reserve shall be in accordance with the form of the annual statement as required in s (2) For all liability policies written during the 3 years immediately preceding the date as of which the statement is made, the reserve shall be 60 percent of the earned liability premiums of each of such 3 years less all losses and expense payments made under liability policies written in the corresponding years; but in any event, such reserve shall, for the first of such 3 years, be not less than $750 for each outstanding liability suit on such year's policies. (3) For all workers' compensation claims under policies written more than 3 years prior to the date as of which the statement is made, the reserve shall be the present value at 4 percent interest of the determined and the estimated future payments. (4) For all workers' compensation claims under policies written in the 3 years immediately preceding the date as of which the statement is made, such reserve shall be 65 percent of the earned compensation premiums of each of such 3 years, less all loss and loss expense payments made in connection with such claims under policies written in the corresponding years. But in any event in the case of the first year of any such 3-year period, such reserve shall be not less than the present value at 4 percent interest of the determined and the estimated unpaid compensation claims under policies written during such year. History.-s. 7, ch ; s. 3, ch ; s., ch ; s. 86, ch ; ss. 2, 3, ch. 8-38; ss. 92, 98, 809(st), ch Note.-Expires October, 99, pursuant to s. 809(st), ch , and is scheduled for review pursuant to s..6 in advance of that date Increase of inadequate loss reserves.-lf loss experience shows that an insurer's loss reserves, however computed or estimated, are inadequate, the department shall require the insurer to maintain loss reserves in such additional amount as is needed to make them adequate. This section does not apply as to life insurance. History.-s. 8, ch ; ss. 3, 35, ch ; s. 3, ch ; s., ch ; ss. 2, 3. ch. 8-38; ss. 98, 809(st), ch 'Note.-Repealed effective October, 99, by s. 809(st), ch , and scheduled for review pursuant to s..6 in advance of that date Title insurance reserve.-ln addition to an adequate reserve as to outstanding losses, as required under s , a title insurer shall establish, segregate, and maintain a guaranty fund or unearned premium reserve as hereinafter provided. The sums hereinafter required to be reserved for unearned premiums on title guarantees and policies at all times and for all purposes shall be considered and constitute unearned portions of the original premiums and shall be charged as a reserve liability of such insurer in determining its financial condition. While such sums are so reserved, they shall be withdrawn from the use of the insurer for its general purposes, impressed with a trust in favor of the holders of title guarantees and policies, and held available for reinsurance of the title guarantees and policies in the event of the insolvency of the insurer. Nothing herein contained shall preclude such insurer from investing such reserve in investments authorized by law for such an insurer, and the income from such invested reserve shall be included in the general income of the insurer to be used by such insurer for any lawful purpose. This unearned premium reserve shall consist of not less than an amount computed as follows: () With respect to any policy of title insurance, except a policy issued by a business trust title insurer before January, 983: (a) Ten percent of the total amount of risk premiums written in the calendar year for title insurance contracts shall be assigned originally to the reserve. (b) During each of the 20 years next following the year in which the title insurance contract was issued, the reserve applicable to the contract shall be reduced by 5 percent of the original amount of such reserve. In the event that any title insurer has not reduced the amount of any unearned premium reserve heretofore established pursuant to any prior law by 5 percent of the amount originally assigned to the reserve for each year subsequent to the issuance of the title insurance contract, then such title insurer shall, in this calendar year, reduce the amount of its reserve applicable to the contract by 5 percent of the amount originally assigned to the reserve for each year in which no reduction was made and thereafter shall continue to reduce its reserve as required by this subsection. (2) With respect to any policy of title insurance issued by a business trust title insurer before January, 983, the insurer shall maintain at all times a reserve of not less than 30 cents per $,000 of the face amount of all title guarantees and policies issued during the last preceding 0 years. Such sums, herein required to be reserved for unearned premiums on title guarantees and policies, shall at all times and for all purposes be considered and constitute unearned portions of the original premiums and shall be charged as a reserve liability of such insurer in determining its financial condition. While such sums are so reserved they shall be: (a) Withdrawn from the use of the insurer for its general purposes, (b) Impressed with a trust in favor of the holders of title guarantees and policies, and (c) Held available for reinsurance of the title guarantees and policies in the event of insolvency of the insurer. 453 That portion of the unearned premium reserve established in respect of a title guarantee or policy issued more than 0 years previously shall be released and shall no longer constitute part of the unearned premium reserve and may be used for any purpose by the insurer. History.-s. 9, ch ; s. 2, ch ; s., ch ; s. 3. ch ; s., ch ; ss. 2, 3, ch. 8-38; ss. 93, 98, 809(st), ch 'Note.-Expires October, 99, pursuant to s. 809(st), ch , and is scheduled for review pursuant to s..6 in advance of that date Standard Valuation Law; life insurance. () SHORT TITLE.- This section shall be known as the "Standard Valuation Law. "

4 Ch.625 ACCOUNTING, INVESTMENTS, AND DEPOSITS BY INSURERS F.S. 987 (2) ANNUAL VALUATION.- The department 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 insurer doing business in this state, 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 others, used in the calculation of such reserves. In the case of an alien insurer, such valuation shall be limited to its insurance transactions in the United States. In calculating such reserves, the department may use group methods and approximate averages for fractions of a year or otherwise. It may accept in its discretion the insurer's calculation of such reserves. In lieu of the valuation of the reserves herein required of any foreign or alien insurer, it 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 and if the official of such state or jurisdiction accepts as sufficient and valid for all legal purposes the certificate of valuation of the department 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. When any such valuation is made by the department, it may use the actuary of the department or employ an actuary for the purpose; and the reasonable compensation of the actuary, at a rate approved by the department, and reimbursement of traveling expenses pursuant to s upon demand by the department, supported by an itemized statement of such compensation and expenses, shall be paid by the insurer. When a domestic insurer furnishes the department with a valuation of its outstanding policies as computed by its own actuary or by an actuary deemed satisfactory for the purpose by the department, the valuation shall be verified by the actuary of the department without cost to the insurer. (3) MINIMUM STANDARD FOR VALUATION OF POLICIES AND CONTRACTS ISSUED BEFORE OPERA TIVE DATE OF STANDARD NONFORFEITURE LAW. The minimum standard for the valuation of all such policies and contracts issued prior to the operative date of s (Standard Nonforfeiture Law) shall be any basis satisfactory to the commissioner. Any basis satisfactory to the commissioner on the effective date of this code shall be deemed to meet such minimum standards. (4) MINIMUM STANDARD FOR VALUATION OF POLICIES AND CONTRACTS ISSUED ON OR AFTER OPERATIVE DATE OF STANDARD NONFORFEITURE LAW.-Except as otherwise provided in paragraph (h) and subsection (5), the minimum standard for the valuation of all such policies and contracts issued on or after the operative date of s (Standard Nonforfeiture Law for Life Insurance) shall be the commissioners ' reserve valuation method defined in subsection (6); 5 percent interest for group annuity and pure endowment contracts and 3.5 percent interest for all other such policies and contracts, or in the case of policies and contracts, other than annuity and pure endowment contracts, issued on or after July, 973, 4 percent interest for such policies issued prior to October, 979, and 4.5 percent interest for such policies issued on or after October, 979; and the following tables: (a) For all ordinary policies of life insurance issued on the standard basis, excluding any disability and accidental death benefits in such policies:. For policies issued prior to the operative date of s (9), the commissioners' 958 Standard Ordinary Mortality Table; except that, for any category of such policies issued on female risks, modified net premiums and present values, referred to in subsection (6), may be calculated according to an age not more than 6 years younger than the actual age of the insured; and 2. For policies issued on or after the operative date of s (9), the commissioners' 980 Standard Ordinary Mortality Table or, at the election of the insurer for any one or more specified plans of life insurance, the commissioners' 980 Standard Ordinary Mortality Table with Ten-Year Select Mortality Factors. (b) For all industrial life insurance policies issued on the standard basis, excluding any disability and accidental death benefits in such policies:. For policies issued prior to the first date to which the commissioners' 96 Standard Industrial Mortality Table is applicable according to s , the 94 Standard Industrial Mortality Table; and 2. For such policies issued on or after that date, the commissioners' 96 Standard Industrial Mortality Table. 454 (c) For individual annuity and pure endowment contracts, excluding any disability and accidental death benefits in such policies, the 937 Standard Annuity Mortality Table or, at the option of the insurer, the Annuity Mortality Table for 949, Ultimate, or any modification of either of these tables approved by the department. (d) For group annuity and pure endowment contracts, excluding any disability and accidental death benefits in such policies, the Group Annuity Mortality Table for 95 ; any modification of such table approved by the department; or, at the option of the insurer, any of the tables or modifications of tables specified for individual annuity and pure endowment contracts. (e) For total and permanent disability benefits in or supplementary to ordinary policies or contracts:. For policies or contracts issued on or after January, 966, the tables of period 2 disablement rates and the 930 to 950 termination rates of the 952 disability study of the Society of Actuaries, with due regard to the type of benefit; 2. For policies or contracts issued on or after January, 96, and prior to January, 966, either those tables or, at the option of the insurer, the class three disability table (926); and 3. For policies issued prior to January, 96, the class three disability table (926). Any such table for active lives shall be combined with a mortality table permitted for calculating the reserves for life insurance policies. (f) For accidental death benefits in or supplementary to policies:

5 F.S. 987 ACCOUNTING, INVESTMENTS, AND DEPOSITS BY INSURERS Ch.625. For policies issued on or after January, 966, the 959 Accidental Death Benefits Table; 2. For policies issued on or after January, 96, and prior to January, 966, either that table or, at the option of the insurer, the Intercompany Double Indemnity Mortality Table; and 3. For policies issued prior to January, 96, the Intercompany Double Indemnity Mortality Table. Either table shall be combined with a mortality table permitted for calculating the reserves for life insurance policies. (g) For group life insurance, life insurance issued on the substandard basis, and other special benefits, such tables as may be approved by the department as being sufficient with relation to the benefits provided by such policies. (h) The minimum standard for the valuation of all individual annuity and pure endowment contracts issued on or after the operative date of this paragraph 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 method defined in subsection (6) and the following tables and interest rates:. For individual annuity and pure endowment contracts issued prior to October, 979, excluding any disability and accidental death benefits in such contracts, the 97 Individual Annuity Mortality Table, or any modification of this table approved by the department, and 6 percent interest for single-premium immediate annuity contracts and 4 percent interest for all other individual annuity and pure endowment contracts. 2. For individual single-premium immediate annuity contracts issued on or after October, 979, excluding any disability and accidental death benefits in such contracts, the 97ndividual Annuity Mortality Table, or any modification of this table approved by the department, and 7.5 percent interest. 3. For individual annuity and pure endowment contracts issued on or after October, 979, other than single-premium immediate annuity contracts, excluding any disability and accidental death benefits in such contracts, the 97ndividual Annuity Mortality Table, or any modification of this table approved by the department, and 5.5 percent interest for single-premium deferred annuity and pure endowment contracts and 4.5 percent interest for all other such individual annuity and pure endowment contracts. 4. For all annuities and pure endowments purchased prior to October, 979, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under such contracts, the 97 Group Annuity Mortality Table, or any modification of this table approved by the department, and 6 percent interest. 5. For all annuities and pure endowments purchased on or after October, 979, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under such contracts, the 97 Group Annuity Mortality Table, or any modification of this table approved by the department, and 7.5 percent interest. 455 After July, 973, any insurer may file with the department a written notice of its election to comply with the provisions of this paragraph after a specified date before January, 979, which shall be the operative date of this paragraph for such insurer. However, an insurer may elect a different operative date for individual annuity and pure endowment contracts from that elected for group annuity and pure endowment contracts. If an insurer makes no such election, the operative date of this paragraph for such insurer shall be January, 979. (5) MINIMUM STANDARD OF VALUATION.- (a) The interest rates used in determining the minimum standard for the valuation of:. All life insurance policies issued in a particular calendar year on or after the operative date of s (9); 2. All individual annuity and pure endowment contracts issued in a particular calendar year on or after January, 982; 3. All annuities and pure endowments purchased in a particular calendar year on or after January, 982, under group annuity and pure endowment contracts; and 4. The net increase, if any, in a particular calendar year after January, 982, in amounts held under guaranteed interest contracts, shall be the calendar year statutory valuation interest rates for the year-of-issue purchase or increase as defined in this subsection. (b) The calendar year statutory valuation interest rates I shall be determined as follows, and the results rounded to the nearest 0.25 percent:. For life insurance: I= W(R-0.03) + (W72)(R2-0.09). For purposes of this subparagraph, "R" is the lesser of R and.09; "R2" is the greater of Rand.09; "R" is the reference interest rate defined in this subsection; and "W" is the weighting factor defined in this subsection. 2. For single-premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and from guaranteed interest contracts with cash settlement options: I = W(R-0.03). For purposes of this subparagraph, "R" is the reference interest rate defined in this subsection, and "W" is the weighting factor defined in this subsection. 3. 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 subparagraph 2., the formula for life insurance stated in subparagraph. shall apply to annuities and guaranteed interest contracts with guarantee durations in excess of 0 years, and the formula for single-premium immediate annuities stated in subparagraph 2. shall apply to annuities and guaranteed interest contracts with guarantee durations of 0 years or less. 4. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash

6 Ch.625 ACCOUNTING, INVESTMENTS, AND DEPOSITS BY INSURERS F.S. 987 settlement options, the formula for single-premium immediate annuities stated in subparagraph 2. shall apply. 5. 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 subparagraph 2. shall apply. However, if the calendar year statutory valuation interest rate for any life insurance policies issued in any calendar year determined without reference to this sentence differs from the corresponding actual rate for similar policies issued in the immediately preceding calendar year by less than 0.5 percent, the calendar year statutory valuation interest rate for such life insurance policies shall be equal to the corresponding actual rate for the immediately preceding calendar year. For purposes of applying the immediately preceding sentence, the calendar year statutory valuation interest rate for life insurance policies issued in a calendar year shall be determined for 980, the reference interest rate defined for 979 being used, and shall be determined for each subsequent calendar year regardless of when s (9) becomes operative. (c) The weighting factors referred to in the formulas stated in paragraph (b) are given in the following tables:. Weighting factors for life insurance: Guarantee Duration (Years) Weighting Factors 0 or less: More than 0, but not more than 20: More than 20: 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. 2. 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: Weighting factors for other annuities and for guaranteed interest contracts, except as stated in subparagraph 2., shall be as specified in subsubparagraphs a., b., and c., according to the rules and definitions in sub-subparagraphs d., e., and f. and in paragraph (f): a. For annuities and guaranteed interest contracts valued on an issue-year basis: Guarantee Duration (Years) Weighting Factor for Plan Type 5 or less: A C-0.50 More than 5, but not more than 0:... A-0.75 B-0.60 C-0.50 More than 0, but not more than 20:... A C-0.45 More than 20: A C-0.35 b. For annuities and guaranteed interest contracts valued on a change-in-fund basis, the factors shown in sub-subparagraph a. increased by: 0.5 for Plan Type A; 0.25 for Plan Type B; 0.05 for Plan Type C. c. 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 year after issue or purchase and for annuities and guaranteed interest contracts valued on a change-in-fund basis which do not guarantee interest rates on considerations received more than 2 months beyond the valuation date, the factors shown in sub-subparagraph a. or derived in sub-subparagraph b. increased by: 0.05 for Plan Type A; 0.05 for Plan Type 8; 0.05 for Plan Type C. d. 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 duration 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. e. "Plan type," as used in the tables above, is defined as follows: (I) Plan Type A: At any time, the policyholder may withdraw funds only with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurer; the policyholder may withdraw funds only without such adjustment but in installments over 5 years or more; the policyholder may withdraw funds only as an immediate life annuity; or no withdrawal is permitted. (II) Plan Type 8: Before expiration of the interest rate guarantee, the policyholder may withdraw funds only with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurer; the policyholder may withdraw funds only without such adjustment but in installments over 5 years or more; or no withdrawal is permitted. At the end of interest rate guarantee, funds may be withdrawn without such adjustment in a single sum or installments over less than 5 years. (Ill) Plan Type C: The policyholder may withdraw funds before expiration of interest rate guarantee in a single sum or installments over less than 5 years either without adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurer or subject only to a fixed surrender charge stipulated in the contract as a percentage of the fund. f. An insurer may elect to value guaranteed interest contracts with cash settlement options and annuities with cash settlement options on either an issue-year ba-

7 F.S. 987 ACCOUNTING, INVESTMENTS, AND DEPOSITS BY INSURERS Ch.625 sis or on a change-in-fund basis. Guaranteed interest contracts with no cash settlement options and other annuities with no cash settlement options must be valued on an issue-year basis. (d) The "reference interest rate" referred to in paragraph (b) is defined as follows:. For all life insurance, the lesser of the average over a period of 36 months and the average over a period of 2 months, ending on June 30 of the calendar year next preceding the year of issue, of the interest rate index. 2. 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 average over a period of 2 months, ending on June 30 of the calendar year of issue or year of purchase, of the interest rate index. 3. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year-of-issue basis, except as stated in subparagraph 2., with guarantee duration in excess of 0 years, the lesser of the average over a period of 36 months and the average over a period of 2 months, ending on June 30 of the calendar year of issue or purchase, of the interest rate index. 4. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year-of-issue basis, except as stated in subparagraph 2., with guarantee duration of 0 years or less, the average over a period of 2 months, ending on June 30 of the calendar year of issue or purchase, of the interest rate index. 5. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the average over a period of 2 months, ending on June 30 of the calendar year of issue or purchase, of the interest rate index. 6. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change-in-fund basis, except as stated in subparagraph 2., the average over a period of 2 months, ending on June 30 of the calendar year of the change in the fund, of the interest rate index. (e) The interest rate index shall be the Moody's Corporate Bond Yield Average-Monthly Average Corporales as published by Moody's Investors Service, Inc., as long as this index is calculated by using substantially the same methodology as used by it on January, 98. If Moody's corporate bond yield average ceases to be calculated in this manner, the interest rate index shall be the index approved by rule promulgated by the department. The methodology used in determining the index approved by rule shall be substantially the same as the methodology employed on January, 98, for determining Moody's Corporate Bond Yield Average-Monthly Average Corporales as published by Moody's Investors Services, Inc. 457 (f) As used in this subsection, an "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 interes! rate for the year of purchase of the annuity or guaranteed interest contract; and the "change-in-fund" basis of valuation 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 the change in the fund. (6) COMMISSIONERS ' RESERVE VALUATION METHOD.- (a). Except as otherwise provided in this subsection, 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 premium shall not exceed the net-level annual premium on the 9-year premium whole life plan for insurance of the same amount at an age year higher than the age at issue of such policy. b. A net--year-term premium for such benefits provided for in the first policy year. 2. For any life insurance policy which is issued on or after January, 985, for which the contract premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for such excess, and which provides an endowment benefit, 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 subsection (0), be the greater of the reserve as of such policy anniversary calculated as described in subparagraph. and the reserve as of such policy anniversary calculated as described in subparagraph. but with: a. The value defined in subparagraph. being reduced by 5 percent of the amount of such excess first year premium; b. All present values of benefits and premiums being determined without reference to prenliums or bene-

8 Ch.625 ACCOUNTING, INVESTMENTS, AND DEPOSITS BY INSURERS F.S. 987 fits provided for by the policy after the assumed ending date; c. The policy being assumed to mature on such date as an endowment; and d. 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 subsections (4) and (5) shall be used. (b) Reserves according to the commissioners' reserve valuation method for:. Life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums; 2. 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 s. 408 of the Internal Revenue Code, as now or hereafter amended ; 3. Disability and accidental death benefits in all policies and contracts; and 4. 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 which is consistent with and yields results consistent with the principles of paragraph (a), except that any extra premiums charged because of impairments, nonrecurring expense factors, or special hazards shall be disregarded in the determination of modified net premiums. (c) This subsection shall apply to all annuity and pure 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 s. 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 458 terms of such contracts to determine nonforfeiture values. (7) MINIMUM AGGREGATE RESERVES.-In no event shall an insurer's aggregate reserves for all life insurance policies, excluding disability and accidental death benefits, issued on or after the operative date of s , be less than the aggregate reserves calculated in accordance with the methods set forth in subsections (6) and () and the mortality table or tables and rate or rates of interest used in calculating nonforfeiture benefits for such policies. (8) OPTIONAL RESERVE BASIS.- (a) Reserves for all policies and contracts issued prior to the operative date of s may be calculated, at the option of the insurer, according to any standards which produce greater aggregate reserves for all such policies and contracts than the minimum reserves required by the laws in effect immediately prior to such date. (b) For any category of policies, contracts, or benefits specified in subsections (4) and (5), issued on or after the operative date of s (the Standard Nonforfeiture Law for Life Insurance), reserves may be calculated, at the option of the insurer, according to any standard or 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!herein. (9) LOWER VALUATIONS.-An insurer which at any time had adopted any standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard herein provided may, with the approval of the department, adopt any lower standard of valuation, but not lower than the minimum herein provided. (0) DEFICIENCY RESERVE.-If in any contract year the gross premium charged by any life insurer 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, there shall be maintained on such policy or contract a deficiency reserve in addition to the reserve defined by subsections (6) and ( ). For each such policy or contract, the deficiency reserve shall be the present value, according to the minimum valuation standards of mortality and rate of interest, of the differences between all such valuation net premiums and the corresponding premiums charged for such policy or contract during the remainder of the premium-paying period. As regards renewable term life insurance, the policy reserve and foregoing deficiency reserve shall be calculated using the current term period only. For any category of policies, contracts, or benefits specified in subsections (4) and (5), issued on or after the operative date of s (the Standard Nonforfeiture Law for Life Insurance), the aggregate deficiency reserves may be reduced by the amount, if any, by which the aggregate reserves actually calculated in accordance with subsection (8) exceed the

9 F.S. 987 ACCOUNTING, INVESTMENTS, AND DEPOSITS BY INSURERS Ch.625 minimum aggregate reserves prescribed by subsection (7). The minimum valuation standards of mortality and rate of interest referred to in this subsection are those standards stated in subsections (4) and (5). However, for any life insurance policy which is issued on or after January, 985, for which the gross premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for such excess, and which provides an endowment benefit, a cash surrender value, or a combination thereof in an amount greater than such excess premium, the foregoing provisions of this subsection shall be applied as if the method actually used in calculating the reserve for such policy were the method described in subsection (6), the provisions of subparagraph (6)(a)2. beng gnored. The amount of the deficiency reserve, if any, at each policy anniversary of such a policy shall be the excess, f any, of the amount determined by the foregoing provsons of this subsection plus the reserve calculated by the method described in subsection (6), the provsons of subparagraph (6)(a)2. being ignored, over the reserve actually calculated by the method described in subsection (6), the provisions of subparagraph (6)(a)2. beng taken nto account. () ALTERNATE METHOD FOR DETERMINING RE SERVES IN CERTAIN CASES.-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 insurer based on then estimates of future experience, or n 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 subsection (6), the reserves which are held under any such plan shall: (a) Be appropriate in relation to the benefits and the pattern of premiums for that plan; and (b) Be computed by a method which is consistent with the principles of this section, as determined by rules promulgated by the department. (2) APPLICABILITY TO CREDIT LIFE INSURANCE POLICIES.-This section does not apply as to those credit life insurance policies for which reserves are computed and maintained as required under s History.-s. 20, ch ; ss., 2, ch. 6-06; s. 7, ch ; s., ch. 65- ; ss. 3, 35, ch ; ss., 2, ch ; s. 3, ch ; s., ch ; ~~: ~ 2 : ~~ : ; ss., 6, ch ; ss. 2, 3, ch. 8-38; ss. 98, 809(st), 80, 2 'Note.-Repealed ehective October, 99, by s. 809( st), ch , and scheduled for revtew pursuant to s..6 in advance of that date Credit life and disability policies, special reserve bases.- () The minimum reserve for single-premium credit disability insurance, monthly premium credit life insurance and monthly premium credit disability insurance shall be the unearned gross premium. (2) As to single-premium credit life insurance policies, the insurer shall establish and maintain reserves which are not less than the value, at the valuation date, of the risk for the unexpired portion of the period for which the premium has been paid as computed on the basis of the commissioners' 980 Standard Ordinary Mortality Table and 3.5 percent interest. At the discretion of the department, the insurer may make a reasonable assumption as to the ages at which net premiums 459 are to be determined. In lieu of the foregoing basis, reserves based upon unearned gross premiums may be used at the option of the insurer. History.-s. 2, ch ; ss. 3, 35, ch ; s., ch ; s. 3, ch ; s., ch ; ss. 2, 3, ch. 8-38; ss. 94, 98, 809(st), ch Note.-Expires October, 99, pursuant to s. 809(st), ch , and is scheduled for review pursuant to s..6 in advance of that date Valuation of bonds.- () All bonds or other evidences of debt having a fixed term and rate of interest held by an insurer may, if amply secured and not in default as to principal or interest, be valued as follows: (a) If purchased at par, at the par value. (b) If purchased above or below par, on the basis of the purchase price adjusted so as to bring the value to par at maturity and so as to yield in the meantime the effective rate of interest at which the purchase was made, or in lieu of such method, according to such accepted method of valuation as is approved by the department. (c) Purchase price shall in no case be taken at a higher figure than the actual market value at the time of purchase, plus actual brokerage, transfer, postage, or express charges paid in the acquisition of such securities. (2) The department shall have full discretion in determining the method of calculating values according to the rules set forth in this section, but no such method or valuation shall be inconsistent with the method formulated or approved by the National Association of Insurance Commissioners or its successor organization and set forth in the 982 edition of its publication "Valuation of Securities." History.-s. 22, ch ; ss. 3, 35, ch ; s. 3, ch ; s., ch ; ss. 2, 3, ch. 8-38; ss. 95, 98, 809(st), ch Note.-Expires October, 99. pursuant to s. 809(st), ch , and is Valuation of other securities.- () Securities, other than those referred to in s , held by an insurer shall be valued, in the discretion of the department, at their market value, or at their appraised value, or at prices determined by it as representing their fair market value. (2) Preferred or guaranteed stocks or shares while paying full dividends may be carried at a fixed value in lieu of market value, at the discretion of the department and in accordance with such method of valuation as it may approve. (3) Stock of a subsidiary corporation of an insurer shall not be valued at an amount in excess of the net value thereof as based upon those assets only of the subsidiary which would be eligible under part II for investment of the funds of the insurer direct. (4) No valuations under this section shall be inconsistent with any applicable valuation or method contained in the 982 edition of the publication "Valuation of Securities" published by the National Association of Insurance Commissioners or its successor organization. History.-s. 23, ch ; ss. 3, 35, ch ; s. 3, ch ; s., ch ; ss. 2, 3, ch. 8-38; ss. 96, 98, 809(st), ch Note.-Expires October, 99, pursuant to s. 809(st), ch , and is Valuation of property.- () Real property acquired pursuant to a mortgage