Current through February 24, 2025
(a) The purpose and
intent of this section is to (i) establish uniform, national standards
governing reserve financing arrangements pertaining to (A) life insurance
policies containing (i) guaranteed nonlevel gross premiums; and (ii) guaranteed
nonlevel benefit and (B) universal life insurance policies with secondary
guarantees; and (2) ensure that, with respect to each such financing
arrangement, funds consisting of primary security and other security are held
by or on behalf of ceding insurers in the forms and amounts required under this
section (b) In general, reinsurance ceded for reserve financing purposes has
one or more of the following characteristic with respect to some or all of the
assets used to secure the reinsurance treaty or to capitalize the reinsurer:
(1) the assests are issued by the ceding
insurer or its affiliates;
(2) the
assests are not unconditionally available to satisfy the general account
obligations of the ceding insurer or
(3) the assests create a reimbursement,
indemnification or other similar obligation on the part of the ceding insurer
or any of its affiliates, other than a payment obligation under a derivative
contract acquired in the normal course and used to support and hedge
liabilities pertaining to the actual risks in the policies ceded under to-the
reinsurance treaty.
(c)
This section applies to reinsurance treaties that cede liabilities pertaining
to covered policies, as defined in
3
AAC 21.695(14), issued by a life
insurance company domiciled in this state.
(d) The actuarial method to establish the
required level of primary security for each reinsurance treaty subject to this
section is VM-20, applied on a treaty-by-treaty basis, including all relevant
definitions, from the valuation manual as then in effect, applied as follows:
(1) for covered policies described in
3
AAC 21.695(14)(A), the actuarial
method is the greater of the Deterministic Reserve or the Net P remium Reserve
(NPR) regardless of whether the criteria for exemption testing can be met
However, if the covered policies do not meet the requirements of the Stochastic
Reserve exclusion test in the valuation manual, then the actuarial method is
the greatest of the Deterministic Reserve, the Stochastic Reserve or the NPR.
In addition, if the covered policies are reinsured in a reinsurance treaty that
also contains covered policies described in
3
AAC 21.695(14)(B). the ceding insurer
may elect to instead use (2) of this subsection as the actuarial method for the
entire reinsurance agreement; Wheather this paragraph (4) or (2) of this
subsection is used the actuarial method must comply with the requirements or
restrictions that the valuation manual imposes when aggregating these policy
types for purposes of principle based reserve calculations;
(2) for covered policies described in
3
AAC 21.695(14)(B), the actuarial
method is the greatest of the Deterministic Reserve, the Stochastic Reserve, or
the NPR regardless of whether the criteria for exemption testing can be
met;
(3) except as provided in (4)
of this subsection, the actuarial method is to be applied on a gross basis to
all risks with respect to the covered policies as originally issued or assumed
by the ceding insurer;
(4) if the
reinsurance treaty cedes less than 100 percent of the risk with respect to the
covered policies the required level of primary security may be reduced as
follows:
(A) if a reinsurance treaty cedes
only a quota share of some or all of the risks pertaining to the covered
policies, the required level of primary security, as well as an adjustment
under (C) of this paragraph, may be reduced to a pro rata portion in accordance
with the percentage of the risk ceded;
(B) if the reinsurance treaty in a non-exempt
arrangement cedes only the risks pertaining to a secondary guarantee, the
required level of primary security may be reduced by an amount determined by
applying the actuarial method on a gross basis to all risks, other than risks
related to the secondary guarantee, pertaining to the covered policies, except
that for covered policies for which the ceding insurer did not elect to apply
the provisions of VM-20 to establish statutory reserves, the required level of
primary security may be reduced by the statutory reserve retained by the ceding
insurer on those covered policies, where the retained reserve of those covered
policies must be reflective of a reduction according to the cession of
mortality risk on a yearly renewable term basis in an exempt
arrangement;
(C) if a portion of
the covered policy risk is ceded to another reinsurer on a yearly renewable
term basis in an exempt arrangement, the required level of primary security may
be reduced by the amount resulting by applying the actuarial method including
the reinsurance section of VM-20 to the portion of the covered policy risks
ceded in the exempt arrangement, except that for covered policies issued before
Jan 1, 2017, this adjustment is not to exceed [ex/ (2 * number of reinsurance
premiums per year)] where ex is calculated using the same mortality table used
in calculating the NPR; and
(D) for
other treaties ceding a portion of risk to a different reinsurer, including
stop loss, excess of loss, and other non-proportional reinsurance treaties,
there will be no reduction in the required level of primary security; (5) for a
reduction of the required level of primary security under (4) of this
subsection, a combination of (4)(A)-(D) of this subsection may apply The
adjustments to the required level of primary security will be done in the
sequence that accurately reflects the portion of the risk ceded by means of the
treaty The ceding insurer must document the rationale and steps taken to
accomplish the adjustments to the required level of primary security due to the
cession of less than 100 percent of the risk The adjustments for other
reinsurance will be made only with respect to reinsurance treaties entered into
directly by the ceding insurer The ceding insurer will make no adjustment as a
result of a retrocession treaty entered into by the assuming insurer
(6) the required level of primary
security resulting from application of the actuarial method may not exceed the
amount of statutory reserves ceded;
(7) the ceding insurer cedes risks with
respect to covered policies, including riders, in more than one reinsurance
treaty subject to this section the aggregate required level of primary security
for those reinsurance treaties may not be less than the required level of
primary security calculated using the actuarial method as if all risks ceded in
those treaties were ceded in a single treaty subject to this section;
(8) a reinsurance treaty subject to this
section cedes risk on both covered and non-covered policies, credit for the
ceded reserves shall be determined as follows:
(A) the actuarial method shall be used to
determine the required level of primary security for the covered policies, and
(e) - (h) of this section shall be used to determine the reinsurance credit for
the covered policy reserves; and
(B) credit for the non-covered policy
reserves shall be granted only to the extent that security, in addition to the
security held to satisfy the requirements of (A) of this paragraph, is held by
or on behalf of the ceding insurer in accordance
AS
21.12.020(a) -(f); The
primary security used to meet the requirements of this subparagraph may not be
used to satisfy the required level of primary security for the covered
policies.
(e)
For the purposes of both calculating the required level of primary security
according to the actuarial method and determining the amount of primary
security and other security, as applicable, held by or on behalf of the ceding
insurer, the following shall apply:
(1) for
assets, including assets held in trust, that would be admitted under the
Accounting Practices and Procedures Manual of the National Association of
Insurance Commissioner if they were held by the ceding insurer, the valuations
are to be determined according to statutory accounting procedures as if the
assets were held in the ceding insurer's general account and without taking
into consideration the effect of the prescribed or permitted practices;
and
(2) for all other assets, the
valuations are to be those that were assigned to the assets for the purpose of
determining the amount of reserve credit taken In addition, the asset spread
tables and asset default cost tables required by VM-20 shall be included in the
actuarial method if adopted by the National Association of Insurance
Commisiioner (A) Task Force not later than December 31 on or immediately
preceding the valuation date for which the required level of primary security
is being calculated The tables of asset spreads and asset default costs shall
be incorporated into the actuarial method in the manner specified in
VM-20.
(f) Subject to
the exemptions described in (j) of this section, and the provisions of (g) -
(i) of this section, credit for reinsurance shall be allowed with respect to
ceded liabilities pertaining to covered policies under
AS
21.12.020(a) - (f) if, in
addition to all other requirements imposed by law or regulation, the following
requirements are met on a treaty-by-treaty basis:
(1) the ceding insurer's statutory policy
reserves with respect to the covered policies are established in full and in
accordance with the applicable requirements of
AS
21.18.110-21.18.112 and related regulations
and actuarial guidelines, and credit claimed for a reinsurance treaty subject
to this section does not exceed the proportionate share of those reserves ceded
under the contract;
(2) the ceding
insurer determines the required level of primary security with respect to each
reinsurance treaty subject to this section and provides support for its
calculation as determined to be acceptable to the director;
(3) funds consisting of primary security, in
an amount at least equal to the required level of primary security, are held by
or on behalf of the ceding insurer, as security under the reinsurance treaty
within the meaning of
AS
21.12.020(c), on a funds
withheld, trust, or modified coinsurance basis;
(4) funds consisting of other security, in an
amount at least equal to the portion of the statutory reserves as to which
primary security is not held under (3) of this subsection, are held by or on
behalf of the ceding insurer as security under the reinsurance treaty within
the meaning of
AS
21.12.020(c);
(5) a trust used to satisfy the requirements
of this subsection and (g) of this section shall comply with all of the
conditions and qualifications of
3
AAC 21.665, except that
(A) funds consisting of primary security or
other security held in trust, shall for the purposes identified in (e) of this
section, be valued according to the valuation rules set out in (e) of this
section, as applicable;
(B) there
are no affiliate investment limitations with respect to the security held in a
trust if the security is not needed to satisfy the requirements of (3) this
subsection;
(C) the reinsurance
treaty must prohibit withdrawals or substitutions of trust assets that would
leave the fair market value of the primary security within the trust, when
aggregated with primary security outside the trust that is held by or on behalf
of the ceding insurer in the manner required by (3) of this subsection, below
102 percent of the level required by (3) of this subsection at the time of the
withdrawal or substitution; and
(D)
the determination of reserve credit under
3
AAC 21.665(l) shall be determined
according to the valuation rules set out in (e) of this section, as applicable;
and
(6) the reinsurance
treaty has been approved by the director.
(g) The requirements of (f) of this section
must be satisfied as of the date that risks under covered policies are ceded
and on an ongoing basis thereafter, (A) ceding insurer may not take or consent
to an action or series of actions that would result in a deficiency under
(f)(3) or (4) of this section with respect to a reinsurance treaty under which
covered policies have been ceded, and if a ceding insurer becomes aware when a
deficiency exists, it shall use its best efforts to arrange for the deficiency
to be eliminated as expeditiously as possible.
(h) Before the due date of each quarterly or
annual statement, each life insurance company that has ceded reinsurance within
the scope of (c) of this section shall perform an analysis, on a
treaty-by-treaty basis, to determine, as to each reinsurance treaty under which
covered policies have been ceded, whether is of the end of the immediately
preceding calendar quarter the requirements of (f)(3) or (4) of this section
were satisfied. The ceding insurer shall establish a liability equal to the
excess of the credit for reinsurance taken over the amount of primary security
actually held under (f)(3) of this section, unless either
(1) the requirements of (f)(3) or (4) of this
section were fully satisfied as of the valuation date as to the reinsurance
treaty; or
(2) a deficiency has
been eliminated before the due date of the quarterly or annual statement to
which the valuation date relates through the addition of primary security or
other security, as the case may be, in the amount and in a form as would have
caused the requirements of (f)(3) or (4) of this section to be fully satisfied
as of the valuation date,
(i) Nothing in (h)(2) of this section allows
a ceding company to maintain a deficiency under(f)(3) or (4) of this section
for a period of time longer than is reasonably necessary to eliminate
it.
(j) This section does not apply
to the following situations:
(1) the
reinsurance of
(A) policies that satisfy the
criteria for exemption set out in
3
AAC 21.915(e) - (h) and that are
issued before effective date of this section;
(B) portions of policies that satisfy the
criteria for exemption set out in
3
AAC 21.915(c) and that are issued
before effective date of this section
(C) a universal life policy that meets all of
the following requirements:
(i) any secondary
guarantee period is five years or less;
(ii) specified premium for the secondary
guarantee period is not less than the net level reserve premium for the
secondary guarantee period based on the Commissioners Standard Ordinary
valuation tables and valuation interest rate applicable to the issue year of
the policy; and
(iii) the initial
surrender charge is not less than 100 percent of the first year annualized
specified premium for the secondary guarantee period;
(D) credit life insurance;
(E) a variable life insurance policy that
provides for life insurance, the amount or duration of which varies according
to the investment experience of the separate account or accounts; or
(F) a group life insurance certificate unless
the certificate provides for a stated or implied schedule of maximum gross
premiums required to continue coverage in force for a period in excess of one
year
(2) reinsurance
ceded to an assuming insurer that meets the applicable requirements of
AS
21.12.020(a)(4);
(3) reinsurance ceded to an assuming insurer
that meets the applicable requirements of
AS
21.12.020(a)(1) - (3), and
that, in addition
(A) prepares statutory
financial statements in compliance with the Accounting Practices and Procedures
Manual of the National Association Association of Insurance Commissioner (NAIC)
without departures from NAIC statutory accounting practices and procedures
pertaining to the admissibility or valuation of assets or liabilities that
increase the assuming insurer's reported surplus and are material enough that
they need to be disclosed in the financial statement of the assuming insurer
according to Statement of Statutory Accounting Principles No. 1 ("SSAP 1");
and
(B) is not in a company action
level event, regulatory action level event, authorized control level event, or
mandatory control level event as those terms are defined in AS 21.14 defined in
AS 21.14 when its risk-based capital is calculated in accordance with the life
risk-based capital report including overview and instructions for companines
National Association of Insurance Commissioner from time to time, without
deviation;
(4)
reinsurance ceded to an assuming insurer that meets the applicable requirements
of AS
21.12.020(a)(1) - (3), and
that, in additio in
(A) is not an affiliate,
as that term is defined in
AS
21.22.200, of:
(i) the insurer ceding the business to the
assuming insurer; or
(ii) an
insurer that directly or indirectly ceded the business to that ceding
insurer;
(B) prepares
statutory financial statements in compliance with the 'NAIC' Accounting
Practices and Procedures Manual;
(C) is both
(i) licensed or accredited in at least 10
states, including its state of domicile and
(ii) not licensed in a state as a captive,
special purpose vehicle, special purpose financial captive, special purpose
life reinsurance company, limited purpose subsidiary, or other similar
licensing regimes; and
(D) is not, or would not be, below 500
percent of the authorized control level risk based capital as that term is
defined in
AS
21.14.200 when its risk based capital is
calculated in accordance with the life risk based capital report including
overview and instructions for companies, as the same may be amended by the
National Association of Insurance Commissioner from time to time, without
deviation, and without recognition of departures from National Association of
Insurance Commissioner statutory accounting practices and procedures pertaining
to the admission or valuation of assets or liabilities that increase the
assuming insurer's reported surplus;
(5) reinsurance ceded to an assuming insurer
that meets the requirements of
AS
21.12.020(g)(2)(D);
or
(6) reinsurance not otherwise
exempt under paragraph (1) - (5) of this subsection if the director, after
consulting with the National Association of Insurance Commissioner Financial
Analysis Working Group (FAWG) or other group of regulators designated by the
National Association of Insurance Commissioner, applicable, determines under
all the facts and circumstances that all of the following apply:
(A) the risks are clearly outside of the
intent and purpose of this section;
(B) the risks are included within the scope
of this section only as a technicality; and
(C) the application of this section to those
risks is not necessary to provide appropriate protection to policy holders The
director shall publicly disclose a decision made under this paragraph to exempt
a reinsurance treaty from this section, as well as the general basis, including
a summary description of the treaty.
(k) An insurer that has covered policies as
to which this section applied as set out in (c) of this section may not take
any action or series of actions, or enter into any transaction or arrangement
or series of transactions or arrangements if the purpose of this action,
transaction arrangement or series is to avoid the requirements of this section,
or to circumvent its purpose and intent, as set out in (a) and (b) of this
section.
(l) any provision of this
section is held invalid, the remainder is not affected,
Authority:AS
21.06.090
AS
21.12.020
