BEFORE THE STATE AUDITOR AND COMMISSIONER OF INSURANCE

OF THE STATE OF MONTANA

TO: All Concerned Persons

1. On November 21, 2007, the State Auditor and Commissioner of Insurance published MAR Notice No. 6-170 regarding the public hearing on the proposed adoption of the above-stated rules at page 1844 of the 2007 Montana Administrative Register, issue number 22.

2. On December 12, 2007, the State Auditor and Commissioner of Insurance held a public hearing to consider the proposed adoption of the above-stated rules. Comments were heard at the hearing, and a written comment was received before the comment deadline.

3. The State Auditor and Commissioner of Insurance has adopted NEW RULE I (ARM 6.6.7101) AUTHORITY, NEW RULE II (ARM 6.6.7102) PURPOSE, NEW RULE IV (ARM 6.6.7105) PREFERRED CLASS STRUCTURE TABLE, and NEW RULE VI (ARM 6.6.7109) SEPARABILITY, exactly as proposed.

4. The department is amending the following rules as proposed with the following changes from the original proposal. New matter is underlined. Matter to be deleted is interlined.

NEW RULE III (ARM 6.6.7103) DEFINITIONS For the purposes of [New Rules I through VI]: ARM 6.6.7101, 6.6.7102, 6.6.7103, 6.6.7105, 6.6.7107, and 6.6.7109:

(1) through (2) remain as proposed.

(3) "Statistical agent" means an entity with proven systems for protecting the confidentiality of individual insured and insurer information; demonstrated resources for, and history of ongoing electronic communications and data transfer ensuring data integrity with insurers, which are its members or subscribers; and a history of, and means for aggregation of data and accurate promulgation of the experience modifications in a timely manner.

NEW RULE V (ARM 6.6.7107) CONDITIONS (1) remains as proposed.

(a) the present value of death benefits over the next ten years after the valuation date, using the anticipated mortality experience without recognition of morality mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the valuation basic table corresponding to the valuation table being used for that class; and

(b) and (2) remain as proposed.

(a) the present value of death benefits over the next ten years after the valuation date, using the anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the preferred smoker valuation basis basic table corresponding to the valuation table being used for that class; and

(b) and (3) remain as proposed.

5. The department has thoroughly considered all commentary received. The comments received and the department's response to each follows:

COMMENT 1: Jacqueline T. Lenmark of American Council of Life Insurers commented that the ACLI stands in strong support of the adoption of the rules as noticed, and noted that the rules substantially follow the pertinent NAIC Model Regulation.

RESPONSE 1: The department thanks the ACLI for its support.

COMMENT 2: Jacqueline T. Lenmark commented that New Rule IV (ARM 6.6.7105) proposes to implement the preferred mortality tables effective on or after April 1, 2008. The ACLI requests that the implementation date be January 1, 2007, or at minimum January 1, 2008. She stated that approximately 40 states have adopted a similar rule applicable to contracts issued on or after January 1, 2007, by the end of 2007. Also stated is that it is administratively most efficient to have the table available for an entire calendar year of issue, and for a company using the tables it is important to have on valuation basis for a policy or block of policies. Also stated is that it is costly to provide one value to most states, then compute a second value to report to one or a few states, and that it adds no value to the process of financial reporting or solvency oversight. Since most other states have adopted January 1, 2007, in the interest of uniformity, ACLI members request that Montana also adopt a policy of uniform application to contracts back to January 1, 2007. Ms. Lenmark believes that such implementation can be incorporated without offending applicable implementation guidelines.

Ms. Lenmark stated that if the department is not comfortable with that approach, ACLI strongly urges the department, again in the interest of uniformity, to adopt a January 1, 2008, effective date and allow for issues in 2007 with the commissioner's approval.

Ms. Lenmark suggested the following amendment to accomplish the latter suggestion:

At the election of the company, for each calendar year of issue, for any one or more specified plans of insurance, the 2001 CSO Preferred Class Structure Mortality Table may be substituted.....as the minimum valuation standard for policies issued on or after January 1, 2008, or on or after January 1 through December 31, 2007, with the commissioner's approval. No such election shall be made.

Such an amendment would allow a company to present appropriate information to the department's actuary and examiner and preserve the desired uniformity with all other jurisdictions that have adopted the NAIC regulation or similar rule. In addition to providing this written comment, ACLI would be willing to provide additional information the department may desire with respect to the concern it has noted.

RESPONSE 2: The department agrees that it is most effective to begin the implementation at the start of the calendar year but has concerns about having an effective date of January 1, 2007, to implement the 2001 CSO Preferred Class Structure Mortality Table. The annual statements for the life insurance companies would already be filed and have the reserves set. As such, the department is not comfortable with that approach. The department appreciates Ms. Lenmark's idea, in the alternative, of using January 1, 2008, as an effective date, but allowing the use of the minimum valuation standard for policies issued between January 1 through December 31, 2007, with the commissioner's approval. The effective date will be beyond January 1, 2008, but these rules will be applied retroactively back to January 1, 2008. Since the rules are only retroactive to January 1, 2008, the department will not adopt Ms. Lenmark's suggestion of commissioner approval on policies issued in 2007. Furthermore, as noted above, the annual statements for the life insurance companies would already be filed and have the reserves set. The department will strike "April 1" and replace with "January 1." These rules will be applied retroactively to January 1, 2008.

COMMENT 3: Ms. Lenmark made the suggestion that the "(1)" earmark in New Rule I (ARM 6.6.7101), New Rule II (ARM 6.6.7102), New Rule IV (ARM 6.6.7105), and New Rule VI (ARM 6.6.7109) be stricken, as there are no other sections in these rules.

RESPONSE 3: The department is unable to make this change, as it is a formatting requirement by the Secretary of State ARM Bureau.

COMMENT 4: Ms. Lenmark suggested that in New Rule III (ARM 6.6.7103) Definitions, section (3), that the comma after "and a history of" in the last sentence be stricken.

RESPONSE 4: The department agrees, and the comma has been stricken.

COMMENT 5: Ms. Lenmark pointed out that in New Rule V (ARM 6.6.7107(1)(a)), that the word "morality" should instead be "mortality." Also pointed out in (2)(a), the word "basis" should be "basic."

RESPONSE 5: The department agrees, and thanks Ms. Lenmark for pointing out these errors.

6. The department intends to apply New Rule I (ARM 6.6.7101), New Rule II (ARM 6.6.7102), New Rule III (ARM 6.6.7103), New Rule IV (ARM 6.6.7105), New Rule V (ARM 6.6.7107), and New Rule VI (ARM 6.6.7109) retroactively to January 1, 2008.

/s/ Christina L. Goe             /s/ Janice S. VanRiper

Christina L. Goe                Janice S. Vanriper

Rule Reviewer                   Deputy Insurance Commissioner

                                       State Auditor/Commissioner of Insurance

Certified to the Secretary of State January 22, 2008.