What Life Insurers Are Telling the SEC About the 2017 CSO Shift

U.S. life insurers are talking about the big new life insurance mortality table shift in some of the reports they file for life insurance policies and annuities that are classified as securities.

The National Association of Insurance Commissioners (NAIC) approved the new 2017 Commissioners' Standard Ordinary (CSO) Mortality Tables — which help life insurers keep life insurance coverage in place past age 100 — two years ago,

In February 2018, the Internal Revenue Service agreed to let life insurers move to use of the 2017 tables, from the old 2001 tables.

(Related: IRS Blesses 2017 Mortality Tables)

Members of the NAIC's Life Actuarial Task Force have been looking into letting issuers of guaranteed issue business keep using the 2001 tables in calculations of "minimum nonforfeiture standard values," or calculations of what some consumers get if they drop their coverage.

But, for now, all insurers are supposed to begin using the 2017 CSO tables for all life products by Jan. 1, 2020.

Issuers of variable life and variable universal life policies and variable annuity contracts file many routine notices and reports with the U.S. Securities and Exchange Commission.

One of Lincoln Financial's life insurance company subsidiaries recently noted in a filing with state insurance regulators, for an upcoming MoneyGuard III life insurance policy, that it will offer some provisions aimed at policyholders over age 121, in part because of the shift to the 2017 CSO Mortality Tables.

Searching state insurance regulators' life insurance policy filings by keyword is difficult, but the SEC offers a keyword-based search tool that can be used to identify the term "2017 commissioners'" or "2017 CSO" in the SEC's collection of variable insurance filings. The SEC has received about 200 filings that refer to those terms.

Here's a look at three things we found when looked at a sampling of SEC filings that mention the term "2017 CSO."

1. Some mentions are purely informational.

American Fidelity Assurance Company, for example, mentions the mortality table shift briefly in a registration statement filed in April for its AFPRIMEGROWTH Variable Annuity contract.

American Fidelity notes that life insurance reserves are principally based on the 2017 CSO tables and earlier CSO tables, with interest rate assumptions ranging from 2% to 6%, and that annuity insurance reserves have interest rate assumptions ranging from 3% to 8.8%.

2. Some mentions relate to how the coverage will work.

RiverSource Life Insurance Company, an arm of Ameriprise Financial Inc., filed a registration statement that mentions the 2017 CSO tables in April.

In the prospectus included in the filing, RiverSource mentions that the RiverSource Variable Universal Life 6 Insurance policy will use the 2017 CSO Smoker and Nonsmoker Mortality Tables, Age Nearest Birthday, to set the policyholder's rates.

The company includes a special note about how it will use the 2017 tables to set rates for policyholders in Montana.

Massachusetts Mutual Life Insurance Company mentions the 2017 tables in July, in a discussion about how it will set rates, and unisex rates, in provision in the prospectus in the registration statement for its Variable Universal Life III policy.

3. Some mentions hint at possible future tax battles.

Several companies, such as American General Life Insurance Company, which is a unit of American International Group Inc., talk about 2017 CSO-related tax issues in variable product filings.

American General says, in a prospectus filed in June, for its Platinum Choice VUL 2 flexible premium variable universal life policies, that the company will keep the policyholder from making policy changes that could cause the policy to stop meeting the IRS definition of "life insurance" under Section 7702 of the Internal Revenue Code.

The company also warns that, although the policy provides an option for policyholders to extend their coverage beyond age 121, "the tax consequences of extending the maturity date beyond the age 121 termination date of the 2017 CSO Mortality Tables are unclear."

"You should consult your personal tax advisor about the effect of any change to your policy as it relates to Section 7702 and the termination date of the mortality tables," American General says.

AXA Equitable Life Insurance Company, an arm of AXA Equitable Holdings Inc., says in a prospectus filed with the SEC in May, for the Incentive Life Optimizer II policy, that this policy is using the old, 2001 mortality tables for certain IRS tax testing purposes, under an IRS safe harbor rule that lets policies sold up until Dec. 31, 2019, use the 2001 tables.

AXA Equitable intends to refuse some policyholder-requested transactions that could cause a policy to lose the ability to use the 2001 mortality tables for tax testing purposes, the company says.

— Read Lincoln's New MoneyGuard Product to Be Great for 121-Year-Olds, on ThinkAdvisor.

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