Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) The
minimum valuation standard for universal life insurance policies shall be the
Commissioner's Reserve Valuation Method, as described below for such policies, and
the tables and interest rates specified below. The terminal reserve for the basic
policy, and any benefits and/or riders for which premiums are not paid separately as
of any policy anniversary, shall be equal to the net level premium reserves less S
and less T, as hereinafter specified:
The net level premium reserve shall be equal to [Q - R] r where
Q, R and r are as defined below:
(1) Q is
the present value of all future guaranteed benefits at the date of
valuation;
(2) R is the quantity
(PVFB/äx) (äx+t), where:
(A) PVFB is the
present value of all benefits guaranteed at issue assuming future Guaranteed
Maturity Premiums as defined below are paid by the policyowner and taking into
account all guarantees contained in the policy or declared by the insurer;
and,
(B)
äx and äx+t are
present values of an annuity of one per year payable on policy anniversaries
beginning at ages x and x+t respectively, and continuing until the highest attained
age at which a premium may be paid under the policy;
(3) r is equal to one, unless the policy is a
flexible premium policy and the policy value is less than the Guaranteed Maturity
Fund, in which case r is the ratio of the policy value to the Guaranteed Maturity
Fund;
(4) The Guaranteed Maturity Fund
at any duration is that amount which, together with future Guaranteed Maturity
Premiums, will mature the policy based on all policy guarantees at issue;
(5) The Guaranteed Maturity Premium for flexible
premium universal life insurance policies shall be that level gross premium, paid at
issue and periodically thereafter over the period during which premiums are allowed
to be paid, which will mature the policy on the latest maturity date, if any,
permitted under the policy (otherwise at the highest age in the valuation mortality
table), for an amount which is in accordance with the policy structure. The
Guaranteed Maturity Premium is calculated at issue based on all policy guarantees at
issue (excluding guarantees linked to an external referent);
(6) The Guaranteed Maturity Premium for fixed
premium universal life insurance policies shall be the premium defined in the policy
which at issue provides the minimum policy guarantees;
(7) The maturity amount shall be the initial death
benefit where the death benefit is level over the lifetime of the policy except for
the existence of a minimum-death-benefit corridor, or, shall be the specified amount
where the death benefit equals a specified amount plus the policy value or cash
surrender value except for the existence of a minimum-death-benefit
corridor;
(8) The death benefit corridor
is defined by the minimum death benefit payable under the terms of the
policy;
(9) The Guaranteed Maturity
Premium for both flexible and fixed premium policies shall be adjusted for death
benefit corridors provided by the policy. The Guaranteed Maturity Premium may be
less than the premium necessary to pay all charges. This can especially happen in
the first year for policies with large first year expense charges;
(10) S is the quantity [(a)-(b)]x
(äx+t/äx)r where (a)-(b) is as described in Section
10489.5 of the
California Insurance Code for the plan of insurance defined at issue by the
Guaranteed Maturity Premiums and all guarantees contained in the policy or declared
by the insurer. [äx and äx+t are defined in (2) (B) above];
(11) T is the sum of any additional quantities
analogous to S which arise because of structural changes in the policy, with each
such quantity being determined on a basis consistent with that of S using the
maturity date in effect at the time of the change;
(A) Structural changes are those changes which are
separate from the automatic workings of the policy. Such changes usually would be
initiated by the policyowner and include changes in the guaranteed benefits, changes
in latest maturity date, or changes in allowable premium payment period. For fixed
premium universal life policies with redetermination of all credits and charges no
more frequently that annually, on policy anniversaries, structural changes also
include changes in guaranteed benefits, or in fixed premiums, unanticipated by the
guaranteed maturity premium for such policies at the date of issue, even if such
changes arise from automatic workings of the policy. The computation of R above, for
fixed premium universal life structural changes shall exclude from the present value
of future guaranteed benefits those guaranteed benefits which are funded by the
excess of the insurer's declared guarantees of interest, mortality and expenses,
over the guarantees contained in the policy at the date of issue.
(B) In effecting structural changes, consistent
methods shall be used to calculate reserves. Such methods may include that of
maintaining proportionality between the Guaranteed Maturity Fund and Guaranteed
Maturity Premium. Values may be calculated per dollar of face amount and multiplied
by the new face amount. This method eliminates much of the complexity involved in
other methods.
(b)
The Guaranteed Maturity Premium, the Guaranteed Maturity Fund and R above shall be
recalculated to reflect any structural changes in the policy. This recalculation
shall be done in a manner consistent with the descriptions above.
(c) Future guaranteed benefits shall be determined
by:
(1) Projecting the greater of the Guaranteed
Maturity Fund and the policy value, taking into account future Guaranteed Maturity
Premiums, if any, and using all guarantees of interest, mortality, expense
deductions, or other guarantees contained in the policy or declared by the insurer;
and,
(2) Taking into account any
benefits guaranteed in the policy or by declaration which do not depend on the
policy value.
(d) All present
values shall be determined using:
(1) The interest
rate (or rates) specified by Section
10489.4 of the
California Insurance Code for the calculation of minimum reserve values on policies
issued in the same year; and,
(2) The
statutory mortality rates specified in the policy as required by Section
10160(e)
of the California Insurance Code.
1. New section
filed 10-17-91; operative 11-18-91 (Register 92, No. 3).
2. Amendment of
subsection (d)(1), repealer of subsection (e) and amendment of NOTE filed 3-22-2016;
operative 7-1-2016 (Register 2016, No. 13).
Note: Authority cited: Sections
720,
790.10,
10489.93,
12921 and
12926, Insurance
Code. Reference: Section
10489.93,
Insurance Code.
