Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) General
(1) Policies with a secondary guarantee include:
(A) A policy with a guarantee that the policy will
remain in force at the original schedule of benefits, subject only to the payment of
specified premiums;
(B) A policy in
which the minimum premium at any duration is less than the corresponding one year
valuation premium, calculated using the Maximum Valuation Interest Rates and the
1980 CSO Valuation Tables with or without Ten-year Select Factors, or any other
table adopted by the NAIC after July 1, 2000 and approved by regulation promulgated
or bulletin issued by the commissioner for this purpose; or
(C) A policy with any combination of Subparagraphs
(a)(1)(A) and (a)(1)(B) above.
(2) A secondary guarantee period is the period for
which the policy is guaranteed to remain in force subject only to a secondary
guarantee. When a policy contains more than one secondary guarantee, the minimum
reserve shall be the greatest of the respective minimum reserves at that valuation
date of each unexpired secondary guarantee, ignoring all other secondary guarantees.
Secondary guarantees that are unilaterally changed by the insurer after issue shall
be considered to have been made at issue. Reserves described in Subdivisions (b) and
(c) below shall be recalculated from issue to reflect these changes.
(3) Specified premiums are the premiums specified
in the policy, the payment of which guarantees that the policy will remain in force
for a secondary guarantee period at the original schedule of benefits, but which
otherwise would be insufficient to keep the policy in force in the absence of the
guarantee if maximum mortality and expense charges and minimum interest credits were
made and any applicable surrender charges were assessed. Specified premiums may be
stated directly or implied. For example, specified premiums may be implied via a
guarantee that the policy will not lapse if the accumulation of premiums less
withdrawals as of any given date exceeds a certain dollar amount. Such accumulation
may or may not reflect interest and/or deductions for cost of insurance or
expense.
(4) For purposes of this
Section 2542.6, the minimum premium for any
policy year is the premium that, when paid into a policy with a zero account value
at the beginning of the policy year, produces a zero account value at the end of the
policy year. The minimum premium calculation shall use the policy cost factors
(including mortality charges, loads and expense charges) and the interest crediting
rate which are all guaranteed at issue.
(5) The one-year valuation premium is the net
one-year premium based upon the original schedule of benefits for a given policy
year. The one-year valuation premiums for all policy years are calculated at issue.
The select mortality factors defined in Paragraphs (b)(2), (b)(3) or (b)(4) of
Section 2542.4 may not be used to calculate the
one-year valuation premiums.
(6) The
one-year valuation premium should reflect the frequency of fund processing, as well
as the distribution of deaths assumption employed in the calculation of the monthly
mortality charges to the fund.
(b) Basic Reserves for the Secondary Guarantees.
Basic Reserves for the secondary guarantees shall be the Segmented Reserves for the
secondary guarantee period. In calculating the segments and the Segmented Reserves,
the gross premiums shall be set equal to the specified premiums, if any, or
otherwise to the minimum premiums, that keep the policy in force and the segments
will be determined according to the Contract Segmentation Method as defined in
Section 2542.3(b). Any
contract provision guaranteeing that the death benefit will be kept in force even
when the policy account or cash value is zero must be valued consistently with the
principles underlying this article.
(c)
Deficiency Reserves for the Secondary Guarantees. Deficiency Reserves, if any, for
the secondary guarantees shall be calculated for the secondary guarantee period in
the same manner as described in Section
2542.5(b) with gross
premiums set equal to the specified premiums, if any, or otherwise to the minimum
premiums that keep the policy in force.
(d) Recognition of Actual Premiums Paid. If the
accumulation of actual premiums paid up through the valuation date is a factor in
determining the amount of future premiums necessary to satisfy the secondary
guarantee requirement, then the Basic and Deficiency Reserves must be adjusted to
reflect this factor.
(e) Minimum
Reserves. The minimum reserves during the secondary guarantee period are the greater
of:
(1) The Basic Reserves for the secondary
guarantee plus the deficiency reserve, if any, for the secondary guarantees;
or
(2) The minimum reserves required by
other rules or regulations governing universal life plans.
1. New section
filed 11-19-2002; operative 1-1-2003 (Register 2002, No.
47).
Note: Authority cited: Section
10489.94,
Insurance Code. Reference: Sections
790.03,
10489.15,
10489.2,
10489.4,
10489.5,
10489.7 and
10489.94,
Insurance Code.
