IRC § 7702 Revisions Resource Page

• Important Reminder for Guaranteed Issue Life Products and the Mortality Basis for Nonforfeiture (9/16/21)
• Guaranteed Issue Life Products and the Mortality Basis for Nonforfeiture (6/25/21)
• Nonforfeiture Interest Rates for Term Life Products (6/2/21)
• Cash Value Accumulation Test (CVAT) & Guideline Premium Test (GPT) Changes (1/21/21)
• Making Changes to Interest Rates for Life Insurance Nonforfeiture Values (1/14/21)
• Filing Information Notice 2020-1 Issued (11/19/20)
• Individual Term Reprices (9/17/20

• FIN 2020-1: New, Amended and Refiled Product Filings due to Changes in Interest Rates for Nonforfeiture Values in Life Insurance Products
• FIN 2017-1: Process for Revisions to Forms and Supporting Documentation in Compact Filings

Yes, the Compact Office has processes for expedited review and for updates to Supporting Documentation that maintain prior approval of all filings when static form language is not changing. Updates that affect only variable items and/or the actuarial memoranda can be submitted in accordance with FIN 2017-1.

The Expedited Review Program is available for any type of filing made in relation to life insurance nonforfeiture revisions. If you are unsure whether your company or filing qualifies for the program, we encourage you to submit a request so that the Compact Office can evaluate whether to loosen the criteria. See the 3/4/20 weekly tip. The expedited review queue is frequently expanded to more than four filings for the individual life insurance product line and for filings that do not meet at least one of the eligibility criteria. 

The approach a company may take depends on whether the nonforfeiture interest rate is on the specification page, whether the rate was filed as a bracketed variable item and/or range of values, and whether any revisions to form provisions are intended. FIN 2020-1 walks through several scenarios for updating products previously approved by the Compact.

Yes, the actuary must demonstrate that the guaranteed cash values are at least as great as the Standard Nonforfeiture Law (SNFL) minimum values computed per the requirements of Valuation Manual VM-02.  The nonforfeiture interest rate used to determine the guaranteed cash values may vary by premium paying period within the same whole life policy form as long as the rate is a variable on the specifications page, specifically addressed in the statement of variability, and the actuarial memorandum demonstrates that the guaranteed cash values for each premium paying period comply with the SNFL minimum values.

Yes, the nonforfeiture interest rate may vary by policy duration if the resulting cash values are at least as great as the SNFL minimum nonforfeiture values at each duration. 

Yes, in accordance with the Valuation Manual, VM-02 Section 4A(3). However, VM-02 Section 4A(2) states: “b.  The 2017 CSO Preferred Structure Tables shall not be used to determine the minimum nonforfeiture standard.”

The Compact Office recommends consideration of these points:

• Would the company file an endorsement for use with Compact approved forms, or would the company reissue the specifications pages, i.e., is the nonforfeiture rate a variable on the specification page?
• The company would need to file an updated actuarial memo demonstrating compliance at the new nonforfeiture rate for all previously approved products.
• The actuary would need to confirm that the new values available on in force policies are at least as great as the values provided at issue for all previously approved products for all durations.
• The company would need to consider policies issued and already surrendered.  In other words, should the owner have received a higher cash value at the time of surrender and how would the company ensure surrendered policies are not treated differently than in-force policies?
   

Other than the requirement that the table of death benefit factors be provided, the Compact does not review or approve information regarding a product’s qualification as life insurance under Section 7702. If bracketed in a previously approved filing, CVAT/GPT factors may be changed without a new filing pursuant to the Variability of Information provision in the policy Uniform Standards permitting product specifications to be changed without prior notice, as long as the Statement of Variability presents reasonable and realistic ranges for the item being changed, or a descriptive statement as described in Answer 8 below. For Universal Life insurance policies, the Variability of Information provision is IIPRC-L-09-I, Section 1C(5).

If not bracketed in a previously approved filing, a new filing using the Supporting Documentation Update filing type may be used to make non-variable items variable in accordance with FIN 2017-1, Section II.C.2.  The factors may be explained in the SOV by either (1) including a range for the factors, or (2) a statement describing how the factors may vary, such as by gender, issue age, risk class or due to changes in federal requirements. The SOV need not include both a range and a descriptive statement.

No, a company is not required to submit a revised actuarial memorandum if a previously approved actuarial memorandum included CVAT/GPT details that have changed.

No, there is no change to the rate shown in the incidental value test, because Appendix A of the Additional Standards for Accelerated Death Benefits codifies the 6% rate.

Companies do not need to submit a new actuarial memo for a previously approved UL/VUL product if the approved nonforfeiture demonstration is more conservative than what would result by using the updated nonforfeiture rate of 3.75%.  More conservative means the previously approved demonstration produced lower maximum surrender charges than would result at 3.75%.  If companies would like to document the applicable filings, the filer may provide a Note to Reviewer in each filing stating that the product continues to comply based on the 2021 nonforfeiture rate and that the company is not changing the guaranteed maximum expense charges and surrender charges.  For example, the note could include a statement similar to the following: “This demonstration of compliance with nonforfeiture values under section 6A of the NAIC Universal Life Insurance Regulation, Model #585 uses a 4% interest rate in the calculation of the initial expense allowance which is more conservative than the 3.75% nonforfeiture interest rate to be used effective 1/1/22.  In addition, the guaranteed maximum expense and surrender charges will not change.  Therefore, the nonforfeiture values for this product remain in compliance with the applicable Uniform Standards requirement.”