# Title 26.1 — Insurance

## Chapter 26.1-35 — Standard Valuation Law

### § 26.1-35-00.1. Definitions.

In this chapter, the following definitions apply on or after the operative date of the valuation
manual:
1. "Accident and health insurance" means a contract that incorporates morbidity risk and
provides protection against economic loss resulting from accident, sickness, or
medical conditions and as may be specified in the valuation manual.
2. "Appointed actuary" means a qualified actuary who is appointed in accordance with
the valuation manual to prepare the actuarial opinion required in subsection 2 of
section 26.1-35-01.1.
3. "Deposit-type contract" means a contract that does not incorporate mortality or
morbidity risks and as may be specified in the valuation manual.
4. "Insurer" means an entity that has written, issued, or reinsured life insurance contracts,
accident and health insurance contracts, or deposit-type contracts in this state:
a. And has at least one such policy in force or on claim; or
b. Is required to hold a certificate of authority to write life insurance, accident and
health insurance, or deposit-type contracts in this state.
5. "Life insurance" means a contract that incorporates mortality risk, including annuity
and pure endowment contracts, and as may be specified in the valuation manual.
6. "Policyholder behavior" means any action a policyholder, contract holder, or any other
person with the right to elect options, such as a certificate holder, may take under a
policy or contract subject to this chapter, including lapse, withdrawal, transfer, deposit,
premium payment, loan, annuitization, or benefit elections prescribed by the policy or
contract. The term does not include events of mortality or morbidity that result in
benefits prescribed in their essential aspects by the terms of the policy or contract.
7. "Principle-based valuation" means a reserve valuation that uses one or more methods
or one or more assumptions determined by the insurer and is required to comply with
section 26.1-35-12 as specified in the valuation manual.
8. "Qualified actuary" means an individual who is qualified to sign the applicable
statement of actuarial opinion in accordance with the American academy of actuaries
qualification standards for actuaries signing such statements and who meets the
requirements specified in the valuation manual.
9. "Tail risk" means a risk that occurs either when the frequency of low probability events
is higher than expected under a normal probability distribution or when there are
observed events of very significant size or magnitude.
10. "Valuation manual" means the manual of valuation instructions adopted by the national
association of insurance commissioners and approved by the commissioner as
specified in this chapter.
### § 26.1-35-00.2. Application of valuation manual - Changes to valuation manual -

Requirements of valuation manual.
1. Except as provided under subsections 4 or 6 of section 26.1-35-00.2, for policies
issued on or after the operative date of the valuation manual, the standard prescribed
in the valuation manual is the minimum standard of valuation required under
subsection 2 of section 26.1-35-01.
2. Unless the commissioner or a change in the valuation manual specifies a later
effective date, changes to the valuation manual become effective on January first
following the date the commissioner adopts the changes. The commissioner may
adopt changes to the valuation manual if the valuation manual has been adopted by
the national association of insurance commissioners by an affirmative vote
representing:
a. At least three-fourths of the members of the national association of insurance
commissioners voting, but not less than a majority of the total membership; and

b. Members of the national association of insurance commissioners representing
jurisdictions totaling greater than seventy-five percent of the direct premiums
written as reported in the following annual statements most recently available
before the vote in paragraph a: life, accident and health annual statements;
health annual statements; or fraternal annual statements.
3. The valuation manual must specify all of the following:
a. Minimum valuation standards for and definitions of the policies or contracts
subject to subsection 2 of section 26.1-35-01. The minimum valuation standards
must be:
(1) The commissioners reserve valuation method for life insurance contracts,
other than annuity contracts, subject to subsection 2 of section 26.1-35-01;
(2) The commissioners annuity reserve valuation method for annuity contracts
subject to subsection 2 of section 26.1-35-01; and
(3) Minimum reserves for all other policies or contracts subject to subsection 2
of section 25.1-35-01.
b. Which policies or contracts or types of policies or contracts that are subject to the
requirements of a principle-based valuation in subsection 1 of section 26.1-35-12
and the minimum valuation standards consistent with those requirements.
c. For policies and contracts subject to a principle-based valuation under section
26.1-35-12.
(1) Requirements for the format of reports to the commissioner under
subdivision c of subsection 2 of section 26.1-35-12 and which must include
information necessary to determine if the valuation is appropriate and in
compliance with this chapter;
(2) Assumptions must be prescribed for risks over which the insurer does not
have significant control or influence; and
(3) Procedures for corporate governance and oversight of the actuarial function,
and a process for appropriate waiver or modification of such procedures.
d. For policies not subject to a principle-based valuation under section 26.1-35-12,
the minimum valuation standard must:
(1) Be consistent with the minimum standard of valuation before the operative
date of the valuation manual; or
(2) Develop reserves that quantify the benefits and guarantees, and the
funding, associated with the contracts and their risks at a level of
conservatism that reflects conditions that include unfavorable events that
have a reasonable probability of occurring.
e. Other requirements, including those relating to reserve methods, models for
measuring risk, generation of economic scenarios, assumptions, margins, use of
insurer experience, risk measurement, disclosure, certifications, reports, actuarial
opinions and memorandums, transition rules, and internal controls.
f. The data and form of the data required under section 26.1-35-13, with whom the
data must be submitted, and may specify other requirements including data
analyses and reporting of analyses.
4. In the absence of a specific valuation requirement or if a specific valuation requirement
in the valuation manual is not, in the opinion of the commissioner, in compliance with
this chapter, with respect to such requirements, the insurer shall comply with minimum
valuation standards prescribed by the commissioner by rule.
5. The commissioner may employ or contract with a qualified actuary, at the expense of
the insurer, to perform an actuarial examination of the insurer and opine on the
appropriateness of any reserve assumption or method used by the insurer, or to
review and opine on an insurer's compliance with any requirement set forth in this
chapter. The commissioner may rely upon the opinion regarding provisions contained
within this chapter, of a qualified actuary engaged by the commissioner of another
state, district, or territory of the United States.
6. The commissioner may require an insurer to change any assumption or method that,
in the opinion of the commissioner, is necessary in order to comply with the

requirements of the valuation manual or this chapter; and the insurer shall adjust the
reserves as required by the commissioner. The commissioner may take other
disciplinary action as permitted under this title.
### § 26.1-35-01. Reserve valuation.

1. The following apply to policies and contracts issued before the operative date of the
valuation manual:
a. The commissioner shall annually value, or cause to be valued, the reserve
liabilities, in this chapter referred to as reserves, for all outstanding life insurance
policies and annuity and pure endowment contracts of every life insurer doing
business in this state issued after June 30, 1977, and before the operative date of
the valuation manual. In calculating the reserves, the commissioner may use
group methods and approximate averages for fractions of a year or otherwise. In
lieu of the valuation of the reserves required of a foreign or alien insurer, the
commissioner may accept a valuation made, or caused to be made, by the
insurance supervisory official of any state or other jurisdiction when the valuation
complies with the minimum standards provided in this chapter.
b. Except sections 26.1-35-00.2 and 26.1-35-12, this chapter applies to all policies
and contracts, as appropriate, subject to this chapter issued after June 30, 1977,
and before the operative date of the valuation manual; however, sections
c. The minimum standard for the valuation of policies and contracts issued before
July 1, 1977, are the standards provided by the laws in effect immediately before
that date.
2. The following apply to policies and contracts issued on or after the operative date of
the valuation manual:
a. Annually, the commissioner shall value, or cause to be valued, the reserve
liabilities, in this chapter referred to as reserves, for all outstanding life insurance
contracts, annuity and pure endowment contracts, accident and health contracts,
and deposit-type contracts of every insurer issued on or after the operative date
of the valuation manual. In lieu of the valuation of the reserves required of a
foreign or alien insurer, the commissioner may accept a valuation made, or
caused to be made, by the insurance supervisory official of any state or other
jurisdiction when the valuation complies with the minimum standard provided in
this chapter.
b. The provisions set forth in sections 26.1-35-00.2 and 26.1-35-12 apply to all
policies and contracts issued on or after the operative date of the valuation
manual.
### § 26.1-35-01.1. Actuarial opinion of reserves.

1. The following apply to the actuarial opinions issued before the operative date of the
valuation manual:
a. Every life insurer doing business in this state shall annually submit the opinion of
a qualified actuary as to whether the reserves and related actuarial items held in
support of the policies and contracts specified by the commissioner by rule are
computed appropriately, are based on assumptions which satisfy contractual
provisions, are consistent with prior reported amounts, and comply with
applicable laws of this state. The commissioner by rule shall define the specifics
of this opinion and add any other items deemed to be necessary to its scope.
b. Actuarial analysis of reserves and assets supporting such reserves.
(1) Every life insurer, except as exempted by or pursuant to rule, shall also
annually include in the opinion required by subsection 1, an opinion of the
same qualified actuary as to whether the reserves and related actuarial
items held in support of the policies and contracts specified by the
commissioner by rule, when considered in light of the assets held by the
insurer with respect to the reserves and related actuarial items, including the

investment earnings on the assets and the considerations anticipated to be
received and retained under the policies and contracts, make adequate
provision for the insurer's obligations under the policies and contracts,
including the benefits under and expenses associated with the policies and
contracts.
(2) The commissioner may provide by rule for a transition period for
establishing any higher reserves which the qualified actuary may deem
necessary in order to render the opinion required by this section.
c. Requirement for opinion under subdivision b. Each opinion required by
subdivision b must be governed by the following provisions:
(1) A memorandum, in form and substance acceptable to the commissioner as
specified by rule, must be prepared to support each actuarial opinion.
(2) If the insurer fails to provide a supporting memorandum at the request of the
commissioner within a period specified by rule or the commissioner
determines that the supporting memorandum provided by the insurer fails to
meet the standards prescribed by rule or is otherwise unacceptable to the
commissioner, the commissioner may engage a qualified actuary at the
expense of the insurer to review the opinion and the basis for the opinion
and prepare the supporting memorandum required by the commissioner.
d. Requirement for all opinions subject to subsection 1. Every opinion subject to
subsection 1 must be governed by the following provisions:
(1) The opinion must be submitted with the annual statement reflecting the
valuation of such reserve liabilities for each year ending on or after
December 31, 1994.
(2) The opinion must apply to all business in force, including individual and
group health insurance plans, in form and substance acceptable to the
commissioner as specified by rule.
(3) The opinion must be based on standards adopted from time to time by the
actuarial standards board and on such additional standards as the
commissioner may by rule prescribe.
(4) In the case of an opinion required to be submitted by a foreign or alien
insurer, the commissioner may accept the opinion filed by that insurer with
the insurance supervisory official of another state if the commissioner
determines that the opinion reasonably meets the requirements applicable
to an insurer domiciled in this state.
(5) For the purposes of this section, "qualified actuary" means a member in
good standing of the American academy of actuaries who meets the
requirements set forth in the rule.
(6) Except in cases of fraud or willful misconduct, the qualified actuary is not
liable for damages to any person, other than the insurer and the
commissioner, for any act, error, omission, decision, or conduct with respect
to the actuary's opinion.
(7) Disciplinary action by the commissioner against the insurer or the qualified
actuary must be defined in rules by the commissioner.
(8) Except as provided in paragraphs 12, 13, and 14, documents, materials, or
other information in the possession or control of the insurance department
that are a memorandum in support of the opinion, and any other material
provided by the insurer to the commissioner in connection with the
memorandum, are confidential records not subject to section 44-04-18 and
are privileged, are not subject to subpoena, and are not subject to discovery
or admissible in evidence in any private civil action. However, the
commissioner may use the documents, materials, or other information in the
furtherance of any regulatory or legal action brought as a part of the
commissioner's official duties.
(9) Neither the commissioner nor any person who received documents,
materials, or other information while acting under the authority of the

commissioner is permitted or required to testify in any private civil action
concerning any confidential documents, materials, or information subject to
paragraph 8.
(10) In order to assist in the performance of the commissioner's duties, the
commissioner:
(a) May share documents, materials, or other information including the
confidential and privileged documents, materials, or information
subject to paragraph 8 with other state, federal, and international
regulatory agencies; with the national association of insurance
commissioners and its affiliates and subsidiaries; and with state,
federal, and international law enforcement authorities, if the recipient
agrees to maintain the confidentiality and privileged status of the
document, material, or other information;
(b) May receive documents, materials, or information, including otherwise
confidential and privileged documents, materials, or information, from
the national association of insurance commissioners and its affiliates
and subsidiaries, and from regulatory and law enforcement officials of
other foreign or domestic jurisdictions, and shall maintain as
confidential or privileged any document, material, or information
received with notice or the understanding that it is confidential or
privileged under the laws of the jurisdiction that is the source of the
document, material, or information; and
(c) May enter agreements governing sharing and use of information
consistent with paragraphs 8, 9, and 10.
(11) A waiver of any applicable privilege or claim of confidentiality in the
documents, materials, or information may not occur as a result of disclosure
to the commissioner under this section or as a result of sharing as
authorized in paragraph 10.
(12) A memorandum in support of the opinion, and any other material provided
by the insurer to the commissioner in connection with the memorandum,
may be subject to subpoena for the purpose of defending an action seeking
damages from the actuary submitting the memorandum by reason of an
action required by this section or by rules adopted under this section.
(13) The memorandum or other material may otherwise be released by the
commissioner with the written consent of the insurer or to the American
academy of actuaries upon request stating that the memorandum or other
material is required for the purpose of professional disciplinary proceedings
and setting forth procedures satisfactory to the commissioner for preserving
the confidentiality of the memorandum or other material.
(14) Once any portion of the confidential memorandum is cited by the insurer in
its marketing or is cited before any governmental agency other than a state
insurance department or is released by the insurer to the news media, all
portions of the confidential memorandum are no longer confidential.
2. The following apply to actuarial opinions of reserves issued after the operative date of
the valuation manual:
a. Every insurer with outstanding life insurance contracts, accident and health
insurance contracts, or deposit-type contracts in this state and subject to
regulation by the commissioner annually shall submit the opinion of the appointed
actuary as to whether the reserves and related actuarial items held in support of
the policies and contracts are computed appropriately, are based on assumptions
that satisfy contractual provisions, are consistent with prior reported amounts,
and comply with applicable laws of this state. The valuation manual prescribes
the specifics of this opinion, including any items deemed to be necessary to its
scope.
b. Every insurer with outstanding life insurance contracts, accident and health
insurance contracts, or deposit-type contracts in this state and subject to

regulation by the commissioner, except as exempted in the valuation manual,
also annually shall include in the opinion required by subdivision a an opinion of
the same appointed actuary as to whether the reserves and related actuarial
items held in support of the policies and contracts specified in the valuation
manual, when considered in light of the assets held by the insurer with respect to
the reserves and related actuarial items, including the investment earnings on the
assets and the considerations anticipated to be received and retained under the
policies and contracts, make adequate provision for the insurer's obligations
under the policies and contracts, including the benefits under and expenses
associated with the policies and contracts.
c. Each opinion required by this subsection is governed by the following provisions:
(1) A memorandum, in form and substance as specified in the valuation
manual, and acceptable to the commissioner, must be prepared to support
each actuarial opinion.
(2) If the insurer fails to provide a supporting memorandum at the request of the
commissioner within a period specified in the valuation manual or the
commissioner determines that the supporting memorandum provided by the
insurer fails to meet the standards prescribed by the valuation manual or is
otherwise unacceptable to the commissioner, the commissioner may
engage a qualified actuary at the expense of the insurer to review the
opinion and the basis for the opinion and prepare the supporting
memorandum required by the commissioner.
d. Under this subsection, every opinion is governed by the following provisions:
(1) The opinion must be in a form and substance as specified in the valuation
manual and acceptable to the commissioner.
(2) The opinion must be submitted with the annual statement reflecting the
valuation of such reserve liabilities for each year ending on or after the
operative date of the valuation manual.
(3) The opinion must apply to all policies and contracts subject to subdivision b,
plus other actuarial liabilities as may be specified in the valuation manual.
(4) The opinion must be based on standards adopted by the actuarial standards
board or its successor and approved by the commissioner and on such
additional standards as may be prescribed in the valuation manual.
(5) In the case of an opinion required to be submitted by a foreign or alien
insurer, the commissioner may accept the opinion filed by that insurer with
the insurance supervisory official of another state if the commissioner
determines that the opinion reasonably meets the requirements applicable
to an insurer domiciled in this state.
(6) Except in cases of fraud or willful misconduct, the appointed actuary is not
liable for damages to any person, other than the insurer and the
commissioner, for any act, error, omission, decision, or conduct with respect
to the appointed actuary's opinion.
(7) Disciplinary action by the commissioner against the insurer or the appointed
actuary must be defined in rules adopted by the commissioner.
### § 26.1-35-02. Computation of minimum standard.

Except as provided in sections 26.1-35-03, 26.1-35-04, and 26.1-35-11, the minimum
standard for the valuation of all life or accident insurance policies and contracts issued prior to
July 1, 1977, are those provided by sections 26-03-33, 26-03-34, and 26-10-01 as they existed
on June 30, 1977. Except as otherwise provided in sections 26.1-35-03, 26.1-35-04, and
26.1-35-11, the minimum standard for the valuation of all life or accident insurance policies and
contracts issued after June 30, 1977, is the commissioners reserve valuation methods defined
in sections 26.1-35-05, 26.1-35-06, 26.1-35-09, and 26.1-35-11, five and one-half percent
interest for single premium life insurance policies and four and one-half percent interest for all
other such policies and contracts issued after June 30, 1977, other than annuity and pure
endowment contracts, and the following tables:

1. For ordinary policies of life insurance issued on the standard basis, excluding any
disability and accidental death benefits in the policies, the commissioners 1941
standard ordinary mortality table for policies issued before the operative date of
section 26.1-33-22, the commissioners 1958 standard ordinary mortality table for
policies issued on or after the operative date of section 26.1-33-22 and prior to the
earlier of a specified date filed by an insurer with the commissioner in a written notice
of the insurer's election to comply with this chapter or January 1, 1989, provided that
for any category of policies issued on female risks, all modified net premiums and
present values referred to in this chapter may be calculated according to an age not
more than six years younger than the actual age of the insured; and for policies issued
on or after the earlier of a specified date filed by an insurer with the commissioner in a
written notice of the insurer's election to comply with this chapter or January 1, 1989:
a. The commissioners 1980 standard ordinary mortality table;
b. At the election of the insurer for any one or more specified plans of life insurance,
the commissioners 1980 standard ordinary mortality table with ten-year select
mortality factors; or
c. Any ordinary mortality table, adopted after 1980 by the national association of
insurance commissioners, that is approved by rule adopted by the commissioner
for use in determining the minimum standard of valuation for the policies.
2. For industrial life insurance policies issued on the standard basis, excluding any
disability and accidental death benefits in the policies, the 1941 standard industrial
mortality table for policies issued before the operative date of section 26.1-33-23, and
for policies issued on or after the operative date of section 26.1-33-23, the
commissioners 1961 standard industrial mortality table or any industrial mortality table,
adopted after 1980 by the national association of insurance commissioners, that is
approved by rule adopted by the commissioner for use in determining the minimum
standard of valuation for the policies.
3. For individual annuity and pure endowment contracts, excluding any disability and
accidental death benefits in the policies, the 1937 standard annuity mortality table, or
at the option of the insurer, the annuity mortality table for 1949, ultimate, or any
modification of either of these tables approved by the commissioner.
4. For group annuity and pure endowment contracts, excluding any disability and
accidental death benefits in the policies, the group annuity mortality table for 1951, a
modification of the table approved by the commissioner, or at the option of the insurer,
any of the tables or modifications of tables specified for individual annuity and pure
endowment contracts.
5. For total and permanent disability benefits in or supplementary to policies or contracts,
for policies or contracts issued after December 31, 1965, the tables of period 2
disablement rates and the 1930 to 1950 termination rates of the 1952 disability study
of the society of actuaries, with due regard to the type of benefit or any tables of
disablement rates and termination rates, adopted after 1980 by the national
association of insurance commissioners, that are approved by rule adopted by the
commissioner for use in determining the minimum standard of valuation for those
policies; for policies or contracts issued after December 31, 1960, and before
January 1, 1966, either those tables or, at the option of the insurer, the class (3)
disability table (1926); and for policies issued before January 1, 1961, the class (3)
disability table (1926). The table must, for active lives, be combined with a mortality
table permitted for calculating the reserves for life insurance policies.
6. For accidental death benefits in or supplementary to policies issued after December
31, 1965, the 1959 accidental death benefits table or any accidental death benefits
table, adopted after 1980 by the national association of insurance commissioners, that
is approved by rule adopted by the commissioner for use in determining the minimum
standard of valuation for the policies; for policies issued after December 31, 1960, and
before January 1, 1966, either that table or, at the option of the insurer, the
intercompany double indemnity mortality table; and for policies issued before January

1, 1961, the intercompany double indemnity mortality table. Either table must be
combined with a mortality table for calculating the reserves for life insurance policies.
7. For group life insurance, life insurance issued on the substandard basis and other
special benefits, any tables approved by the commissioner.
### § 26.1-35-03. Computation of minimum standard for annuities.

1. Except as provided in section 26.1-35-04, the minimum standard of valuation for
individual annuity and pure endowment contracts issued on or after the operative date
of this section, and for annuities and pure endowments purchased on or after the
operative date under group annuity and pure endowment contracts, must be the
commissioners reserve valuation methods defined in sections 26.1-35-05 and
a. For individual annuity and pure endowment contracts issued before July 1, 1977,
excluding any disability and accidental death benefits in those contracts, the 1971
individual annuity mortality table, or any modification of this table approved by the
commissioner, and six percent interest for single premium immediate annuity
contracts and four percent interest for all other individual annuity and pure
endowment contracts.
b. For individual single premium immediate annuity contracts issued after June 30,
1977, excluding any disability and accidental death benefits in those contracts,
the 1971 individual annuity mortality table or any individual annuity mortality table,
adopted after 1980 by the national association of insurance commissioners, that
is approved by rule adopted by the commissioner for use in determining the
minimum standard of valuation for the contracts, or any modification of these
tables approved by the commissioner, and seven and one-half percent interest.
c. For individual annuity and pure endowment contracts issued after June 30, 1977,
other than single premium immediate annuity contracts, excluding any disability
and accidental death benefits in the contracts, the 1971 individual annuity
mortality table or any individual annuity mortality table adopted after 1980 by the
national association of insurance commissioners, that is approved by rule
adopted by the commissioner for use in determining the minimum standard of
valuation for the contracts, or any modification of these tables approved by the
commissioner, and five and one-half percent interest for single premium deferred
annuity and pure endowment contracts and four and one-half percent interest for
all other individual annuity and pure endowment contracts.
d. For annuities and pure endowments purchased prior to July 1, 1977, under group
annuity and pure endowment contracts, excluding any disability and accidental
death benefits purchased under those contracts, the 1971 group annuity mortality
table or any modification of this table approved by the commissioner, and six
percent interest.
e. For annuities and pure endowments purchased after June 30, 1977, under group
annuity and pure endowment contracts, excluding any disability and accidental
death benefits purchased under these contracts, the 1971 group annuity mortality
table or any group annuity mortality table adopted after 1980 by the national
association of insurance commissioners, that is approved by rule adopted by the
commissioner for use in determining the minimum standard of valuation for
annuities and pure endowments, or any modification of these tables approved by
the commissioner, and seven and one-half percent interest.
2. After June 30, 1977, any insurer may file with the commissioner a written notice of its
election to comply with the provisions of this section after a specified date before
January 1, 1979, which must be the operative date of this section for that insurer. If an
insurer makes no election, the operative date of this section for that insurer must be
January 1, 1979.

### § 26.1-35-04. Computation of minimum standard by calendar year of issue.

1. The interest rates used in determining the minimum standard for the valuation of the
following are the calendar year statutory valuation interest rates as defined in this
section:
a. Life insurance policies issued in a particular calendar year, on or after the earlier
of a specified date filed by an insurer with the commissioner in a written notice of
the insurer's election to comply with this chapter or January 1, 1989.
b. Individual annuity and pure endowment contracts issued in a particular calendar
year on or after January 1, 1984.
c. Annuities and pure endowments purchased in a particular calendar year on or
after January 1, 1984, under group annuity and pure endowment contracts.
d. The net increase, if any, in a particular calendar year after January 1, 1984, in
amounts held under guaranteed interest contracts.
2. The calendar year statutory valuation interest rates, I, must be determined as follows
and the results rounded to the nearer one-quarter of one percent:
a. For life insurance:
1 2
b. 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:
where R is the lesser of R and .09, R is the greater of R and .09, R is the
1 2
reference interest rate defined in this section, and W is the weighting factor
defined in this section.
c. For other annuities with cash settlement options and guaranteed interest
contracts with cash settlement options, valued on an issue year basis, except as
stated in subdivision b, the formula for life insurance stated in subdivision a
applies to annuities and guaranteed interest contracts with guarantee durations in
excess of ten years and the formula for single premium immediate annuities
stated in subdivision b applies to annuities and guaranteed interest contracts with
guarantee duration of ten years or less.
d. For other annuities with no cash settlement options and for guaranteed interest
contracts with no cash settlement options, the formula for single premium
immediate annuities stated in subdivision b applies.
e. For other annuities with cash settlement options and guaranteed interest
contracts with cash settlement options, valued on a change in fund basis, the
formula for single premium immediate annuities stated in subdivision b applies.
However, if the calendar year statutory valuation interest rate for a life insurance policy
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 one-half of one percent, the calendar year statutory
valuation interest rate for the life insurance policies must equal the corresponding
actual rate for the immediately preceding calendar year. For purposes of applying the
preceding sentence, the calendar year statutory valuation interest rate for life
insurance policies issued in a calendar year must be determined for 1980 by using the
reference interest rate defined for 1979, and must be determined for each subsequent
calendar year regardless of when section 26.1-33-24 becomes operative.
3. The weighting factors referred to in the formulas in subsection 2 are given in the
following tables:
a. The weighting factors for life insurance are:
Guarantee Duration Weighting Factors
10 years or less .50
More than 10 years, but not more than 20 years .45
More than 20 years .35

For life insurance, the guarantee duration is the maximum number of years the
life insurance can remain in force on a basis guaranteed in the policy or under
options to convert to plans of life insurance with premium rates or nonforfeiture
values or both which are guaranteed in the original policy.
b. The weighting factor for single premium immediate annuities and for annuity
benefits involving life contingencies arising from other annuities with cash
settlement options and guaranteed interest contracts with cash settlement options
is eighty hundredths.
c. The weighting factors for other annuities and for guaranteed interest contracts,
except as stated in subdivision b, are as specified in paragraphs 1, 2, and 3,
according to the requirements and definitions in paragraphs 4, 5, and 6:
(1) For annuities and guaranteed interest contracts valued on an issue year
basis:
Guarantee Weighting Factor
Duration for Plan Type
5 years or less .80 .60 .50
More than 5 years, but not more than 10 years .75 .60 .50
More than 10 years, but not more than 20 years .65 .50 .45
More than 20 years .45 .35 .35
(2) For annuities and guaranteed interest
contracts valued on a change in fund basis,
the factors shown in paragraph 1 increased by .15 .25 .05
(3) For annuities and guaranteed interest
contracts valued on an issue year basis,
other than those with no cash settlement
options, which do not guarantee interest on
considerations received more than one year
after issue or purchase and for annuities and
guaranteed interest contracts valued on a
change in fund basis which do not guarantee
interest rates on considerations received
more than twelve months beyond the valuation
date, the factors shown in paragraph 1 or
derived in paragraph 2 increased by .05 .05 .05
(4) For other annuities with cash settlement options and guaranteed interest
contracts with cash settlement options, the guarantee duration is the
number of years for which the contract guarantees interest rates in excess
of the calendar year statutory valuation interest rate for life insurance
policies with guarantee duration in excess of twenty years. For other
annuities with no cash settlement options and for guaranteed interest
contracts with no cash settlement options, the guaranteed duration is the
number of years from the date of issue or date of purchase to the date
annuity benefits are scheduled to commence.
(5) The plan type as used in the tables in this subsection is defined as follows:
(a) 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, without such adjustment but in
installments over five years or more, as an immediate life annuity, or
no withdrawal permitted.
(b) Plan type B: 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, without an adjustment but in installments over five years or
more, or no withdrawal permitted. At the end of the interest rate

guarantee, funds may be withdrawn without an adjustment in a single
sum or installments over less than five years.
(c) Plan type C: The policyholder may withdraw funds before expiration of
the interest rate guarantee in a single sum or installments over less
than five 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.
(6) An insurer may elect to value guaranteed interest contracts with cash
settlement options and annuities with cash settlement options on either an
issue year basis or on a change in fund basis. Guaranteed interest contracts
with no cash settlement options and other annuities with no cash settlement
options must be valued on an issue year basis. As used in this section, 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 interest rate for the year of issue or year of purchase of the
annuity or guaranteed interest contract. A 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.
4. The reference interest rate referred to in subsection 2 is defined as follows:
a. For life insurance, the lesser of the average over a period of thirty-six months and
the average over a period of twelve months, ending on June thirtieth of the
calendar year next preceding the year of issue, the monthly average of the
composite yield on seasoned corporate bonds, as published by Moody's
investors service, incorporated.
b. For single premium immediate annuities and for annuity benefits involving life
contingencies arising from other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, the average over a
period of twelve months, ending on June thirtieth of the calendar year of issue or
year of purchase, the monthly average of the composite yield on seasoned
corporate bonds, as published by Moody's investors service, incorporated.
c. 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 subdivision b with guarantee duration in excess of ten years, the lesser
of the average over a period of thirty-six months and the average over a period of
twelve months, ending on June thirtieth of the calendar year of issue or purchase,
of the monthly average of the composite yield on seasoned corporate bonds, as
published by Moody's investors service, incorporated.
d. 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 subdivision b with guaranteed duration of ten years or less, the average
over a period of twelve months, ending on June thirtieth of the calendar year of
issue or purchase, of the monthly average of the composite yield on seasoned
corporate bonds, as published by Moody's investors service, incorporated.
e. For other annuities with no cash settlement options and for guaranteed interest
contracts with no cash settlement options, the average over a period of twelve
months, ending on June thirtieth of the calendar year of issue or purchase, of the
monthly average of the composite yield on seasoned corporate bonds, as
published by Moody's investors service, incorporated.
f. 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 subdivision b the average over a period of twelve months, ending on
June thirtieth of the calendar year of the change in the fund, of the monthly

average of the composite yield on seasoned corporate bonds, as published by
Moody's investors service, incorporated.
5. If the monthly average of the composite yield on seasoned corporate bonds is no
longer published by Moody's investors service, incorporated, or if the national
association of insurance commissioners determines that the monthly average of the
composite yield on seasoned corporate bonds as published by Moody's investors
service, incorporated, is no longer appropriate for the determination of the reference
interest rate, then an alternative method for determination of the reference interest rate
adopted by the national association of insurance commissioners and approved by rule
adopted by the commissioner, may be substituted.
### § 26.1-35-05. Reserve valuation method - Life insurance and endowment benefits.

1. Except as otherwise provided in sections 26.1-35-06, 26.1-35-09, and 26.1-35-11,
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, must be the excess, if any,
of the present value, at the date of valuation, of the future guaranteed benefits
provided for by those policies, over the then present value of any future modified net
premiums for the policies. The modified net premiums for a policy must be the uniform
percentage of the respective contract premiums for the benefits that the present value,
at the date of issue of the policy, of all the modified net premiums equals the sum of
the present value of the benefits provided by the policy and the excess of subdivision a
over subdivision b as follows:
a. A net level annual premium equal to the present value, at the date of issue, of the
benefits provided for after the first policy year, divided by the present value, at the
date of issue, of an annuity of one per year payable on the first and each
subsequent anniversary of the policy on which a premium falls due. However, the
net level annual premium may not exceed the net level annual premium on the
nineteen-year premium whole life plan for insurance of the same amount at an
age one year higher than the age at issue of the policy.
b. A net one-year term premium for the benefits provided in the first policy year.
2. For a life insurance policy issued after December 31, 1986, 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 the excess and which
provides an endowment benefit or a cash surrender value or a combination thereof in
an amount greater than the excess premium, the reserve according to the
commissioners reserve valuation method as of any policy anniversary occurring on or
before the assumed ending date, which is defined as the first policy anniversary on
which the sum of any endowment benefit and any cash surrender value then available
is greater than the excess premium, except as otherwise provided in section
26.1-35-09, must be the greater of the reserve as of the policy anniversary calculated
as described in this section and the reserve as of the policy anniversary calculated as
described in this section, but with the value defined in subsection 1 being reduced by
fifteen percent of the amount of such excess first year premium; all present values of
benefits and premiums being determined without reference to premiums or benefits
provided for by the policy after the assumed ending date; the policy being assumed to
mature on such date as an endowment; and the cash surrender value provided on that
date being considered as an endowment benefit. In making the above comparison, the
mortality and interest bases stated in sections 26.1-35-02 and 26.1-35-04 must be
used.
3. Reserves according to the commissioners reserve valuation method must be
calculated by a method consistent with the principles as described in this section for:
a. Life insurance policies providing a varying amount of insurance or requiring the
payment of varying premiums;
b. 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, limited liability company, or sole proprietorship, or by an
employee organization, or by both, other than a plan providing individual
retirement accounts or individual retirement annuities under section 408 of the
federal Internal Revenue Code, as amended;
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 and benefits provided by all other annuity and pure endowment contracts.
### § 26.1-35-06. Reserve valuation - Annuity and pure endowment benefits method.

1. This section applies 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 section 408 of the federal Internal Revenue Code of 1954, as amended.
2. Reserves according to the commissioner annuity reserve method for benefits under
annuity or pure endowment contracts, excluding any disability and accidental death
benefits in the contracts, must 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 the 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 the contracts, that become payable prior to the end of the respective contract
year. The future guaranteed benefits must be determined by using the mortality tables,
if any, and the interest rate, or rates, specified in the contracts for determining
guaranteed benefits. The valuation considerations are the portions of the respective
gross considerations applied under the terms of the contracts to determine
nonforfeiture values.
### § 26.1-35-07. Minimum reserves.

1. An insurer's aggregate reserves for all life insurance policies, excluding disability and
accidental death benefits, issued after June 30, 1977, may not be less than the
aggregate reserves calculated in accordance with the methods set forth in sections
26.1-35-05, 26.1-35-06, 26.1-35-09, and 26.1-35-10 and the mortality table or tables
and rate or rates of interest used in calculating nonforfeiture benefits for the policies.
2. The aggregate reserves for all policies, contracts, and benefits may not be less than
the aggregate reserves determined by the qualified actuary to be necessary to render
the opinion required by section 26.1-35-01.1.
### § 26.1-35-08. Optional reserve calculation.

1. Reserves for all policies and contracts issued prior to July 1, 1977, may be calculated,
at the option of the insurer, according to any standards which produce greater
aggregate reserves for the policies and contracts than the minimum reserves required
by the laws in effect on June 30, 1977.
2. Reserves for any category of policies, contracts, or benefits, as established by the
commissioner, issued on or after July 1, 1977, may be calculated, at the option of the
insurer, according to any standards which produce greater aggregate reserves for the
category than those calculated according to the minimum standard provided in this
chapter, but the rate or rates of interest used for policies and contracts, other than
annuity and pure endowment contracts, may not be greater than the corresponding
rate or rates of interest used in calculating any nonforfeiture benefits provided in the
policies and contracts.
3. An insurer that has adopted any standard of valuation producing greater aggregate
reserves than those calculated according to the minimum standard provided in this
chapter may, with the approval of the commissioner, adopt any lower standard of

valuation, but not lower than the minimum provided in this chapter; provided, however,
that for the purposes of this section, the holding of additional reserves previously
determined by the appointed actuary to be necessary to render the opinion required by
section 26.1-35-01.1 may not be deemed to be the adoption of a higher standard of
valuation.
### § 26.1-35-09. Reserve calculation - Valuation net premium exceeding the gross

premium charged.
1. If in any contract year the gross premium charged by an 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 but using the minimum valuation standards
of mortality and rate of interest, the minimum reserve required for the policy or contract
is the greater of either the reserve calculated according to the mortality table, rate of
interest, and method actually used for the policy or contract, or the reserve calculated
by the method actually used for the policy or contract but using the minimum valuation
standards of mortality and rate of interest and replacing the valuation net premium by
the actual gross premium in each contract year for which the valuation net premium
exceeds the actual gross premium. The minimum valuation standards of mortality and
rate of interest referred to in this section are those standards stated in sections
2. For a life insurance policy issued after December 31, 1986, 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 the excess and which
provides an endowment benefit or a cash surrender value or a combination thereof in
an amount greater than the excess premium, the provisions of this section must be
applied as if the method actually used in calculating the reserve for the policy was the
method described in section 26.1-35-05, ignoring subsection 2 of that section. The
minimum reserve at each policy anniversary must be the greater of the minimum
reserve calculated in accordance with section 26.1-35-05, including subsection 2 of
that section, and the minimum reserve calculated in accordance with this section.
### § 26.1-35-10. Reserve calculation - Indeterminate premium plans.

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 in the case of any plan of life insurance or annuity which is of such a nature that
the minimum reserves cannot be determined by the methods described in sections 26.1-35-05,
26.1-35-06, and 26.1-35-09, the reserves which are held under the plan must be appropriate in
relation to the benefits and the pattern of premiums for that plan, and must be computed by a
method that is consistent with the principles of this chapter, as determined by rules adopted by
the commissioner.
### § 26.1-35-11. Minimum standard for accident and health insurance contracts.

For an accident and health insurance contract issued on or after the operative date of the
valuation manual, the standard prescribed in the valuation manual is the minimum standard of
valuation required under subsection 2 of section 26.1-35-01. For an accident and health
insurance contract issued after June 30, 1977, and before the operative date of the valuation
manual, the minimum standard of valuation is the standard adopted by the commissioner by
rule.
### § 26.1-35-12. Requirements of a principle-based valuation.

1. An insurer shall establish reserves using a principle-based valuation that meets the
following conditions for policies or contracts as specified in the valuation manual:
a. Quantify the benefits and guarantees and the funding associated with the
contracts and their risks at a level of conservatism that reflects conditions that
include unfavorable events that have a reasonable probability of occurring during

the lifetime of the contracts. For polices or contracts with significant tail risk,
reflects conditions appropriately adverse to quantify the tail risk.
b. Incorporate assumptions, risk analysis methods, and financial models and
management techniques that are consistent with, but not necessarily identical to,
those utilized within the insurer's overall risk assessment process, while
recognizing potential differences in financial reporting structures and any
prescribed assumptions or methods.
c. Incorporate assumptions that are derived in one of the following manners:
(1) The assumption is prescribed in the valuation manual.
(2) For assumptions that are not prescribed, the assumptions must:
(a) Be established utilizing the insurer's available experience, to the
extent the experience is relevant and statistically credible; or
(b) To the extent that insurer data is not available, relevant, or statistically
credible, be established utilizing other relevant, statistically credible
experience.
d. Provide margins for uncertainty, including adverse deviation and estimation error,
such that the greater the uncertainty the larger the margin and resulting reserve.
2. An insurer using a principle-based valuation for one or more policies or contracts
subject to this section as specified in the valuation manual shall:
a. Establish procedures for corporate governance and oversight of the actuarial
valuation function consistent with those described in the valuation manual.
b. Provide to the commissioner and the board of directors an annual certification of
the effectiveness of the internal controls with respect to the principle-based
valuation. The controls must be designed to assure that all material risks inherent
in the liabilities and associated assets subject to the valuation are included in the
valuation, and that valuations are made in accordance with the valuation manual.
The certification must be based on the controls in place as of the end of the
preceding calendar year.
c. Develop, and file with the commissioner upon request, a principle-based
valuation report that complies with standards prescribed in the valuation manual.
3. A principle-based valuation may include a prescribed formulaic reserve component.
### § 26.1-35-13. Experience reporting for policies in force on or after the operative date of

the valuation manual.
An insurer shall submit mortality, morbidity, policyholder behavior, and expense experience
and other data as prescribed in the valuation manual.
### § 26.1-35-14. Confidentiality.

1. For purposes of this section, "confidential information" means:
a. A memorandum in support of an opinion submitted under section 26.1-35-01.1
and any other documents, materials, and other information, including all working
papers, and copies thereof, created, produced, or obtained by or disclosed to the
commissioner or any other person in connection with such memorandum;
b. All documents, materials, and other information, including all working papers and
copies of working papers, created, produced, or obtained by or disclosed to the
commissioner or any other person in the course of an examination made under
subsection 5 of section 26.1-35-00.2. However, if an examination report or other
material prepared in connection with an examination made under chapter 26.1-03
is not held as private and confidential information under chapter 26.1-03, an
examination report or other material prepared in connection with an examination
made under subsection 5 of section 26.1-35-00.2 may not be confidential
information to the same extent as if such examination report or other material had
been prepared under chapter 26.1-03;
c. Any reports, documents, materials, and other information developed by an insurer
in support of, or in connection with, an annual certification by the insurer under
subdivision b of subsection 2 of section 26.1-35-12 evaluating the effectiveness

of the insurer's internal controls with respect to a principle-based valuation and
any other documents, materials, and other information, including all working
papers and copies of working papers created, produced, or obtained by or
disclosed to the commissioner or any other person in connection with such
reports, documents, materials, and other information;
d. Any principle-based valuation report developed under subdivision c of
subsection 2 of section 26.1-35-12 and any other documents, materials, and
other information, including all working papers and copies of working papers
created, produced, or obtained by or disclosed to the commissioner or any other
person in connection with such report; and
e. Any documents, materials, data, and other information submitted by an insurer
under section 26.1-35-13, collectively referred to as experience data, and any
other documents, materials, data, and other information, including all working
papers and copies of working papers created or produced in connection with
such experience data, in each case that include any potentially insurer-identifying
or personally identifiable information, that is provided to or obtained by the
commissioner, together with any experience data, the experience materials, and
any other documents, materials, data, and other information, including all working
papers and copies of working papers created, produced, or obtained by or
disclosed to the commissioner or any other person in connection with such
experience materials.
2. a. Except as provided in this section, an insurer's confidential information is
confidential and privileged, and is not subject to section 44-04-18, is not subject
to subpoena, and is not subject to discovery or admissible in evidence in any
private civil action. However, the commissioner may use the confidential
information in the furtherance of any regulatory or legal action brought against the
insurer as a part of the commissioner's official duties.
b. Neither the commissioner nor any person that received confidential information
while acting under the authority of the commissioner is permitted or required to
testify in any private civil action concerning any confidential information.
c. In order to assist in the performance of the commissioner's duties, the
commissioner may share confidential information with other state, federal, and
international regulatory agencies and with the national association of insurance
commissioners and its affiliates and subsidiaries, and in the case of confidential
information specified in subdivisions a and d of subsection 1 only, with the
actuarial board for counseling and discipline or its successor upon request stating
that the confidential information is required for the purpose of professional
disciplinary proceedings and with state, federal, and international law
enforcement officials, provided that such recipient agrees, and has the legal
authority to agree, to maintain the confidentiality and privileged status of such
documents, materials, data, and other information in the same manner and to the
same extent as required for the commissioner.
d. The commissioner may receive documents, materials, data, and other
information, including otherwise confidential and privileged documents, materials,
data, or information, from the national association of insurance commissioners
and its affiliates and subsidiaries, from regulatory or law enforcement officials of
other foreign or domestic jurisdictions, and from the actuarial board for counseling
and discipline or its successor and shall maintain as confidential or privileged any
document, material, data, or other information received with notice or the
understanding that it is confidential or privileged under the laws of the jurisdiction
that is the source of the document, material, or other information.
e. The commissioner may enter agreements governing sharing and use of
information consistent with this subsection.
f. A waiver of any applicable privilege or claim of confidentiality in the confidential
information may not occur as a result of disclosure to the commissioner under
this section or as a result of sharing as authorized in subdivision c.

g. A privilege established under the law of any state or jurisdiction which is
substantially similar to the privilege established under this subsection is available
and must be enforced in any proceeding in and in any court of this state.
h. In this section, reference to regulatory agency, law enforcement agency, and the
national association of insurance commissioners, includes the employees,
agents, consultants, and contractors of these entities.
3. Notwithstanding subsection 2, any confidential information specified in subdivisions a
and d of subsection 1:
a. May be subject to subpoena for the purpose of defending an action seeking
damages from the appointed actuary submitting the related memorandum in
support of an opinion submitted under section 26.1-35-01.1 or principle-based
valuation report developed under subdivision c of subsection 2 of section
under this chapter;
b. May otherwise be released by the commissioner with the written consent of the
insurer; and
c. Once any portion of a memorandum in support of an opinion submitted under
section 26.1-35-01.1 or a principle-based valuation report developed under
subdivision c of subsection 2 of section 26.1-35-12 is cited by the insurer in its
marketing or is publicly volunteered to or before a governmental agency other
than a state insurance department or is released by the insurer to the news
media, all portions of such memorandum or report are no longer confidential.
