CHAPTER 562

An Act to amend and reenact §§ 38.1-170, 38.1-456, as amended, 88.1-464,
88.1-465 and 38.1-466, as amended, and 38.1-467 of the Code of
Virginia, relating to the valuation of certain insurance reserves; to
minimum valuation standard for certain insurance policies; to calcu-
lation of adjusted premiums; to the use of tables for such calcula-
tion; to the use of other factors in such calculations; and to certain
exemptions from application of the foregoing sections; and to amend
the Code of Virginia by adding sections numbered 88.1-465.2 and
88.1-468.2, relating to the use of new mortality table and prescribing
an effective date for such use.

[H 614]

Approved March 31, 1962

Be it enacted by the General Assembly of Virginia:

1. That §§ 38.1-170, 38.1-456, as amended, 38.1-464, 38.1-465 and
38.1-466, as amended, and 88.1-467 of the Code of Virginia be amended
and reenacted, and the Code of Virginia be amended by adding sections
numbered 38.1-465.2 and 38.1-468.2, as follows:

§ 38.1-170. Every insurance company authorized to transact the
kinds of insurance specified in §§ 38.1-3, * 38.1-4 and 88.1-5 shall, subject
to more specific provisions of this title, maintain reserves on all of its life
insurance policies or certificates and annuity contracts in force, computed
according to the tables of mortality and rates of interest prescribed in
this title which are applicable thereto, reserves for disability benefits,
including reserves for disabled lives whether reported or unreported, and
for accidental death benefits, and also any additional reserves which may
be prescribed by the Commission as necessary on account of such policies,
certificates and contracts. For all accident and sickness insurance policies
the insurance company shall maintain an active life reserve which shall
place a sound value on its liabilities under such policies and be not less
than the reserve according to appropriate standards set forth in regula-
tions issued by the Commission and, in no event, less in the aggregate
than the pro rata gross unearned premiums for such policies.

§ 38.1-456. This section shall apply only to those policies and con-
tracts issued on or after the operative date stated in § 38.1-468, except as
hereinafter provided.

The minimum standard for the valuation of all such policies and
contracts shall be the Commissioners reserve valuation method defined in
paragraph (2) of this section, three and one-half per centum interest, 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 poli-
cies, the Commissioners 1941 Standard Ordinary Mortality Table for such
policies issued prior to the operative date of § 38.1-468.1, and the Commis-
sioners 1958 Standard Ordinary Mortality Table for such policies issued
on or after such operative date; provided that for any category of such
policies issued on female risks all modified net premiums and present
values referred to in this section may be calculated according to an age
not more than three years younger than the actual age of the insured.

(b) For all industrial life insurance policies issued on the standard
basis, excluding any disability and accidental death benefits in such poli-
cies, the 1941 Standard Industrial Mortality Table for such policies issued
prior to the operative date of § 88.1-468.2, and the Commissioners 1961
Standard Industrial Mortality Table for such policies issued on or after
such operative date.

(c) * For individual annuity and pure endowment contracts, exclud-
ing any disability and accidental death benefits in such policies—the 1987
Standard Annuity Mortality Table or, at the option of the company, the
Annuity Mortality Table for 1949. Ultimate, or any modification of these
tables approved by the Commission.

(c-1) For group annuity and pure endowment contracts, excluding
any disability and accidental death benefits in such policies—the Group
Annuity Mortality Table for 1951, any modification of such table approved
by the Commission, or, at the option of the company, any of the tables or
modifications of tables specified for individual annuity and pure endow-
ment contracts.

(d) For total and permanent disability benefits in or supplementary
to ordinary policies or contracts *—for policies or contracts issued on or
after January one, nineteen hundred sixty-six, the tables of Period 2
disablement rates and the 1980 to 1950 termination rates of the 1952
Disability Study of the Society of Actuaries, with due regard to the type
of benefit; for policies or contracts issued on or after January one, nine-
teen hundred sixty-one, and prior to January one, nineteen hundred sixty-
six, either such tables or, at the option of the company, the Class (3) Dits-
ability Table (1926); and for policies issued prior to January one, nine-
teen hundred sixty-one, the Class (3) Disability Table (1926). Any such
table shall, for active lives, be combined with a mortality table permitted
for calculating the reserves for life insurance policies.

(e) For accidental death benefits in or supplementary to policies *
—for policies issued on or after January one, nineteen hundred sixty-six,
the 1959 Accidental Death Benefits Table; for policies issued on or after
January one, nineteen hundred sixty-one, and prior to January one, nine-
teen hundred sixty-six, either such table or, at the option of the company,
the Inter-Company Double Indemnity Mortality Table; and for policies
issued prior to January one, nineteen hundred sixty-one, the Inter-Com-
pany Double Indemnity Mortality Table. Either table shall be combined
with a mortality table permitted for calculating the reserves for life
insurance policies.

(f) For group life insurance, life insurance issued on the substand-
ard basis and other special benefits, such tables as may be approved by the
Commission.

(2) Reserves according to the Commissioners reserve valuation
method, for the life insurance and endowment benefits of policies provid-
ing 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,
excluding any extra premiums charged because of impairments or special
hazards, 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 nineteenth year premium whole life plan for insurance of the same
amount at an age one year higher than the age at issue of such policy.

(B) A net one year term premium for such benefits provided for in
the first policy year.

Reserves according to the Commissioners reserve valuation method
for (a) life insurance policies providing for a varying amount of insur-
ance or requiring the payment of varying premiums, (b) annuity and
pure endowment contracts, (c) disability and accidental death benefits in
all policies and contracts, and (d) all other benefits, except life insurance
and endowment benefits in life insurance policies, shall be calculated by a
method consistent with the principles of this paragraph (2).
3) In no event shall a company’s aggregate reserves for all life
insurance policies, excluding disability and accidental death benefits, be
less than the aggregate reserves calculated in accordance with the method
set forth in paragraph (2) and the mortality table or tables and rate or
rates of interest used in calculating nonforfeiture benefits for such policies.

(4) Reserves for any category of policies, contracts or benefits as
established by the Commission may be calculated, at the option of the
company, according to any standards which produce greater aggregate
reserves for such category than those calculated according to the minimum
standard herein provided, but the rate or rates of interest used shall not
be higher than the corresponding rate or rates of interest used in calcu-
lating any nonforfeiture benefits provided for therein. But reserves for
participating life insurance policies may, with the consent of the Com-
mission, be calculated according to a rate of interest lower than the rate
of interest used in calculating the nonforfeiture benefits in such policies,
with the proviso that if such lower rate differs from the rate used in the
calculation of the nonforfeiture benefits by more than one-half per centum
the company issuing such policies shall file with the Commission a plan
providing for such equitable increases, if any, in the cash surrender values
and nonforfeiture benefits in such policies as the Commission shall
approve.

(5) If the gross premium charged by any life insurance company on
any policy or contract is less than the net premium for the policy or
contract according to the mortality table, rate of interest and method used
in calculating the reserve thereon, there shall be maintained on such policy
or contract a deficiency reserve in addition to all other reserves required
by law. For each such policy or contract the deficiency reserve shall be
the present value, according to such standard, of an annuity of the differ-
ence between the net premium and the premium charged for the policy
or contract, running for the remainder of the premium-paying period.

8 38.1-464. Except as provided in the third paragraph of this section
the adjusted premium for any policy of life insurance issued on or after
the operative date stated in § 38.1-468 shall be calculated on an annual
basis and shall be such uniform percentage of the respective premiums
specified in the policy for each policy year, excluding any extra premiums
charged because of impairments or special hazards, that the present value,
at the date of issue of the policy, of all such adjusted premiums shall be
equal to the sum of: (1) the then present value of the future guaranteed
benefits provided for by the policy; (2) two per centum of the amount of
insurance, if the insurance be uniform in amount, or of the equivalent
uniform amount, as hereinafter defined, if the amount of insurance varies
with duration of the policy; (8) forty per centum of the adjusted pre-
mium for the first policy year; (4) twenty-five per centum of either the
adjusted premium for the first policy year or the adjusted premium for a
whole life policy of the same uniform or equivalent uniform amount with
uniform premiums for the whole of life issued at the same age for the
same amount of insurance, whichever is less. Provided, however, that in
applying the percentages specified in (3) and (4) above, no adjusted
premium shall be deemed to exceed four per centum of the amount of
insurance or level amount equivalent thereto. The date of issue of a policy
for the purpose of this section shall be the date as of which the rated age
of the insured is determined.

In the case of a policy providing an amount of insurance varying
with the duration of the policy, the equivalent uniform amount thereof for
the purpose of this section shall be deemed to be the level amount of
insurance provided by an otherwise similar policy, containing the same
endowment benefit or benefits, if any, issued at the same age and for the
same term, the amount of which does not vary with duration and the
benefits under which have the same present value at the date of issue as
the benefits under the policy, provided, however, in the case of a policy
providing a varying amount of insurance issued on the life of a child
under age ten, the equivalent uniform amount may be computed as though
the amount of insurance provided by the policy prior to the attainment
of age ten were the amount provided by such policy at age ten.

The adjusted premiums for any policy providing term insurance
benefits by rider or supplemental policy provision shall be equal to (a) the
adjusted premiums for an otherwise similar policy issued at the same age
without such term benefits, increased during the period for which pre-
miums for such term insurance benefits are payable, by (b) the adjusted
premiums for such term insurance, the foregoing items (a) and (b) being
calculated separately and as specified in the first two paragraphs of this
section except that, for the purposes of (2), (3) and (4) of the first such
paragraph, the amount of insurance or equivalent uniform amount of
insurance used in the calculation of the adjusted premiums referred to
an (b) shall be equal to the excess of the corresponding amount deter-
mined for the entire policy over the amount used in the calculation of the
adjusted premiums in (a).

§ 88.1-465. Except as provided in §§ 38.1-465.1 and 38.1-465.2, all
adjusted premiums and present values referred to in §§ 38.1-461 to
38.1-464, inclusive, shall for all policies of ordinary insurance be calcu-
lated on the basis of the Commissioners 1941 Standard Ordinary Mor-
tality Table, provided that for any category of ordinary insurance issued
on female risks, adjusted premiums and present values may be calculated
according to an age not more than three years younger than the actual
age of the insured and such calculations for all policies of industrial insur-
ance shall be made on the basis of the 1941 Standard Industrial Mortality
Table. All calculations shall be made on the basis of the rate of interest,
not exceeding three and one-half per centum per annum, specified in the
policy for calculating cash surrender values and paid-up nonforfeiture
benefits. Provided, however, that in calculating the present value of any
paid-up term insurance with accompanying pure endowment, if any,
offered as a nonforfeiture benefit, the rates of mortality assumed may be
not more than one hundred and thirty per centum of the rates of mortality
according to such applicable table. Provided, further, that for insurance
issued on a substandard basis, the calculation of any such adjusted pre-
miums and present values may be based on such other table of mortality
as may be specified by the company and approved by the Commission.

§ 88.1-465.2. In the case of industrial policies issued on or after the
operative date of § 38.1-468.2, all adjusted premiums and present values
referred to in §§ 88.1-461 to 38.1-464, inclusive, shall be calculated on the
basis of the Commissioners 1961 Standard Industrial Mortality Table and
the rate of interest, not exceeding three and one-half per centum per
annum, specified in the policy for calculating cash surrender values and
paid-up nonforfeiture benefits. Provided, however, that in calculating the
present value of any paid-up term insurance with accompanying pure
endowment, if any, offered as a nonforfeiture benefit, the rates of mor-
tality assumed may be not more than those shown in the Commissioners
1961 Industrial Extended Term Insurance Table. Provided, further, that
for insurance issued on a substandard basis, the calculations of any such
adjusted premiums and present values may be based on such other table
of mortality as may be specified by the company and approved by the
Commission.

§ 38.1-466. Any cash surrender value and any paid-up nonforfeiture
benefit, available under any life insurance policy issued on or after the oper-
ative date stated in § 38.1-468 in the event of default in a premium payment
due at any time other than on the policy anniversary, shall be calculated
with allowance for the lapse of time and the payment of fractional pre-
miums beyond the last preceding policy anniversary. All values referred
to in §§ 38.1-462 to 38.1-465.*2, inclusive, may be calculated upon the
assumption that any death benefit is payable at the end of the policy year
of death. The net value of any paid-up additions, other than paid-up term
additions, shall be not less than the dividends used to provide such addi-
tions. Notwithstanding the provisions of § 38.1-462, additional benefits
payable: (1) in the event of the death or dismemberment by accident or
accidental means, (2) in the event of total and permanent disability, (3)
as reversionary annuity or deferred reversionary annuity benefits, (4) as
term insurance benefits provided by a rider or supplemental policy provi-
sion to which, if issued as a separate policy, this section would not apply,
(4-1) as term insurance on the life of a child or on the lives of children
provided in a policy on the life of a parent of the child, if such term insur-
ance expires before the child’s age is twenty-six, is uniform in amount
after the child’s age is one, and has not become paid-up by reason of the
death of a parent of the child, and (5) as other policy benefits additional
to life insurance and endowment benefits, and premiums for all such addi-
tional benefits, shall be disregarded in ascertaining cash surrender values
and nonforfeiture benefits required by §§ 38.1-461 to 38.1-468.*2, inclu-
sive, and no such additional benefits shall be required to be included in any
paid-up nonforfeiture benefits.

§ 38.1-467. §§ 38.1-461 to 38.1-466 shall not apply to:

(1) Fraternal benefit societies;

(2) Any reinsurance, group insurance, pure endowment, or rever-
sionary annuity contract;

(3) Any term policy of uniform amount or renewal thereof of fifteen
years or less expiring before age sixty-six, for which uniform premiums
are payable during the entire term of the policy;

(4) Any term policy of decreasing amount on which each adjusted
premium, calculated as specified in §§ 38.1-464 * to 38.1-465.*2, inclu-
sive, is less than the adjusted premium, so calculated, on such fifteen year
term policy issued at the same age and for the same initial amount of
insurance; or

(5) Any policy which shall be delivered outside this State through
an agent or other representative of the company issuing the policy.

§ 88.1-468.2. After July one, nineteen hundred sixty-two, any com-
pany may file with the Commission a written notice of its election to com-
ply with the provisions of § 38.1-465.2 after a specified date before Janu-
ary one, nineteen hundred sixty-eight. After the filing of such notice, then
upon such specified date (which shall be the operative date of this section
for such company), § 38.1-465.2 shall become operative with respect to
the industrial policies thereafter issued by such company. If a company
makes no such election, the operative date of § 38.1-465.2 for such com-
pany shall be January one, nineteen hundred sixty-eight.