Current through August, 2024
(a) Basic reserves
shall be calculated as the greater of the segmented reserves and the unitary
reserves. Both the segmented reserves and the unitary reserves for any policy
shall use the same valuation mortality table and selection factors. At the
option of the insurer, in calculating segmented reserves and net premiums, the
following adjustments may be made:
(1) Treat
the unitary reserve, if greater than zero, applicable at the end of each
segment as a pure endowment, and subtract the unitary reserve, if greater than
zero, applicable at the beginning of each segment from the present value of
guaranteed life insurance and endowment benefits for each segment; or
(2) Treat the guaranteed cash surrender
value, if greater than zero, applicable at the end of each segment as a pure
endowment, and subtract the guaranteed cash surrender value, if greater than
zero, applicable at the beginning of each segment from the present value of
guaranteed life insurance and endowment benefits for each segment.
(b) Deficiency reserves.
(1) The deficiency reserve at any duration
shall be calculated:
(A) On a unitary basis if
the corresponding basic reserve determined by subsection (a) is
unitary;
(B) On a segmented basis
if the corresponding basic reserve determined by subsection (a) is segmented;
or
(C) On a segmented basis if the
corresponding basic reserve determined by subsection (a) is equal to both the
segmented reserve and the unitary reserve.
(2) This subsection shall apply to any policy
for which the guaranteed gross premium at any duration is less than the
corresponding modified net premium calculated by the method used in determining
the basic reserves, but using the minimum valuation standards of mortality as
specified in section 16-171-904(b), and rate of interest.
(3) For the current and all remaining
periods, deficiency reserves, if any, shall be calculated for each policy as
the excess, if greater than zero, of the quantity A over the basic reserve,
where A is obtained as indicated in section 16-171-904(b).
(4) For deficiency reserves determined on a
segmented basis, the quantity A is determined using segment lengths equal to
those determined for segmented basic reserves.
(c) If mean reserves are used, the minimum
value of basic reserves may not be less than the tabular cost of insurance for
the balance of the policy year. If mid-terminal reserves are used, basic
reserves may not be less than the tabular cost of insurance for the balance of
the current modal period or to the paid-to-date, if later, but not beyond the
next policy anniversary. The tabular cost of insurance shall use the same
valuation mortality table and interest rates as that used for the calculation
of the segmented reserves. If select mortality factors are used, however, they
shall be the ten-year select factors incorporated into the 1980 amendments of
the NAIC Standard Valuation Law. In no case may total reserves, including basic
reserves, deficiency reserves, and any reserves held for supplemental benefits
that would expire upon contract termination, exclusive of any deduction for
policy loans upon termination of the policy, be less than the amount that the
policy owner would receive, including the cash surrender value of the
supplemental benefits, if any, referred to in subsection (a)(2).
(d) Unusual pattern of guaranteed cash
surrender values. The requirements of this subsection are independent of both
the segmentation and the unitary process.
(1)
For any policy with an unusual pattern of guaranteed cash surrender values, the
reserves actually held prior to the first unusual guaranteed cash surrender
value shall not be less than the reserves calculated by treating the first
unusual guaranteed cash surrender value as a pure endowment and treating the
policy as an n year policy providing term insurance plus a
pure endowment equal to the unusual cash surrender value, where n
is the number of years from the date of issue to the date the unusual
cash surrender value is scheduled.
(2) The reserves actually held subsequent to
any unusual guaranteed cash surrender value shall not be less than the reserves
calculated by treating the policy as an
n year policy
providing term insurance plus a pure endowment equal to the next unusual
guaranteed cash surrender value, and treating any unusual guaranteed cash
surrender value at the end of the prior segment as a net single premium, where:
(A)
n is the number of years
from the date of the last unusual guaranteed cash surrender value prior to the
valuation date to the earlier of:
(i) The date
of the next unusual guaranteed cash surrender value, if any, that is scheduled
after the valuation date; or
(ii)
The mandatory expiration date of the policy;
(B) The net premium for a given year during
the n year period is equal to the product of the net to gross
ratio and the respective gross premium; and
(C) The net to gross ratio is equal to (i)
divided by (ii) as follows:
(i) The present
value, at the beginning of the n year period, of death
benefits payable during the n year period plus the present
value, at the beginning of the n year period, of the next
unusual guaranteed cash surrender value, if any, minus the amount of the last
unusual guaranteed cash surrender value, if any, scheduled at the beginning of
the n year period;
(ii) The present value, at the beginning of
the n year period, of the scheduled gross premiums payable
during the n year period.
(3) For purposes of this subsection, a policy
is considered to have an unusual pattern of guaranteed cash surrender values if
any future guaranteed cash surrender value exceeds the prior year's guaranteed
cash surrender value by more than the sum of:
(A) One hundred ten per cent of the scheduled
gross premium for that year;
(B)
One hundred ten per cent of one year's accrued interest on the sum of the prior
year's guaranteed cash surrender value and the scheduled gross premium using
the nonforfeiture interest rate used for calculating policy guaranteed cash
surrender values; and
(C) Five per
cent of the first policy year surrender charge, if any.
(e) Optional exemption for yearly
renewable term ("YRT") reinsurance.
At the option of the company, the following approach for
reserves on YRT reinsurance may be used:
(1) Calculate the valuation net premium for
each future policy year as the tabular cost of insurance for that future
year;
(2) Basic reserves shall
never be less than the tabular cost of insurance for the appropriate period, as
defined in subsection (c); or
(3)
Deficiency reserves.
(A) For each policy year,
calculate the excess, if greater than zero, of the valuation net premium over
the respective maximum guaranteed gross premium.
(B) Deficiency reserves shall never be less
than the sum of the present values, at the date of valuation, of the excesses
determined in accordance with subparagraph (A).
(4) For purposes of this subsection, the
calculations use the maximum valuation interest rate and the 1980 CSO mortality
tables with or without ten-year select mortality factors, or any other table
adopted.
(5) A reinsurance
agreement shall be considered YRT reinsurance for purposes of this subsection
if only the mortality risk is reinsured.
(6) If the assuming company chooses this
optional exemption, the ceding company's reinsurance reserve credit shall be
limited to the amount of reserve held by the assuming company for the affected
policies.
(f) Optional
exemption for attained-age-based YRT life insurance policies. At the option of
the company, the following approach for reserves for attained-age-based YRT
life insurance policies may be used:
(1)
Calculate the valuation net premium for each future policy year as the tabular
cost of insurance for that future year;
(2) Basic reserves shall never be less than
the tabular cost of insurance for the appropriate period, as defined in
subsection (c); or
(3) Deficiency
reserves.
(A) For each policy year, calculate
the excess, if greater than zero, of the valuation net premium over the
respective maximum guaranteed gross premium.
(B) Deficiency reserves shall never be less
than the sum of the present values, at the date of valuation, of the excesses
determined in accordance with subparagraph (A).
(4) For purposes of this subsection, the
calculations use the maximum valuation interest rate and the 1980 CSO valuation
tables with or without ten-year select mortality factors, or any other table
adopted.
(5) A policy shall be
considered an attained-age-based YRT life insurance policy for purposes of this
subsection if:
(A) The premium rates on both
the initial current premium scale and the guaranteed maximum premium scale are
based upon the attained age of the insured, such that the rate for any given
policy at a given attained age of the insured is independent of the year the
policy was issued; and
(B) The
premium rates on both the initial current premium scale and the guaranteed
maximum premium scale are the same as the premium rates for policies covering
all insureds of the same sex, risk class, plan of insurance, and attained
age.
(6) For policies
that become attained-age-based YRT policies after an initial period of
coverage, the approach of this subsection may be used after the initial period
if:
(A) The initial period is constant for all
insureds of the same sex, risk class, and plan of insurance; or
(B) The initial period runs to a common
attained age for all insureds of the same sex, risk class, and plan of
insurance; and
(C) After the
initial period of coverage, the policy meets the conditions of paragraph (5).
(7) If this election is
made, this approach shall be applied in determining reserves for all
attained-age-based YRT life insurance policies issued on or after the effective
date of this regulation.
(g) Exemption from unitary reserves for
certain n-year renewable term life insurance polices. Unitary
basic reserves and unitary deficiency reserves need not be calculated for a
policy if the following conditions are met:
(1) The policy consists of a series of
n-year periods, including the first period and all renewal
periods, where n is the same for each period, except that for
the final renewal period, n may be truncated or extended to
reach the expiry age, provided that this final renewal period is less than ten
years and less than twice the size of the earlier n-year
periods, and for each period, the premium rates on both the initial current
premium scale and the guaranteed maximum premium scale are level;
(2) The guaranteed gross premiums in all
n-year periods are not less than the corresponding net
premiums based upon the 1980 CSO Table, with or without the ten-year select
mortality factors; and
(3) There
are no cash surrender values in any policy year.
(h) Exemption from unitary reserves for
certain juvenile policies. Unitary basic reserves and unitary deficiency
reserves need not be calculated for a policy if the following conditions are
met, based upon the initial current premium scale at issue:
(1) The insured at issue is age twenty-four
or younger;
(2) Until the insured
reaches the end of the juvenile period, which shall occur at or before age
twenty-five, the gross premiums and death benefits are level and there are no
cash surrender values; and
(3)
After the end of the juvenile period, gross premiums are level for the
remainder of the premium paying period and death benefits are level for the
remainder of the life of the policy.
