Current through August 31, 2023
01.
Basic
Reserves. Basic reserves are calculated as the greater of the segmented
reserves and the unitary reserves. Both the segmented reserves and the unitary
reserves for any policy will use the same valuation mortality table and
selection factors. An insurer may make either of these adjustments when
calculating segmented reserves and net premiums: (4-6-23)
a. Treat the unitary reserve, if greater than
zero (0), applicable at the end of each segment as a pure endowment and
subtract the unitary reserve, if greater than zero (0), applicable at the start
of each segment from the present value of guaranteed life insurance and
endowment benefits for each segment; or (4-6-23)
b. Treat the guaranteed cash surrender value,
if greater than zero (0), applicable at the end of each segment as a pure
endowment; and subtract the guaranteed cash surrender value, if greater than
zero (0), applicable at the start of each segment from the present value of
guaranteed life insurance and endowment benefits for each segment.
(4-6-23)
02.
Deficiency Reserves. (4-6-23)
a.
The deficiency reserve at any duration will be calculated: (4-6-23)
i. On a unitary basis if the corresponding
basic reserve determined by Subsection
012.01 is unitary;
(4-6-23)
ii. On a segmented basis
if the corresponding basic reserve determined by Subsection
012.01 is segmented; or
(4-6-23)
iii. On the segmented
basis if the corresponding basic reserve determined by Subsection
012.01 is equal to both the
segmented reserve and the unitary reserve. (4-6-23)
b. Subsection
012.02 applies 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
(specified in Subsection
011.02 and rate of
interest).(4-6-23)
c. Deficiency
reserves, if any, are calculated for each policy as the excess if more than
zero (0), for the current and all remaining periods, of the quantity A over the
basic reserve, where A is obtained as indicated in Subsection
011.02. (4-6-23)
d. For deficiency reserves determined on a
segmented basis, the quantity A is determined using segment lengths equal to
those determined for segmented basic reserves. (4-6-23)
03.
Minimum Value. Basic
reserves will at least equal the tabular cost of insurance for the balance of
the policy year, if mean reserves are used. Basic reserves will at least equal
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, if
midterminal reserves are used. The tabular cost of insurance will use the same
valuation mortality table and interest rates as that used to calculate the
segmented reserves. But if select mortality factors are used, they will be the
"ten year select factors". Total reserves (including basic reserves, deficiency
reserves and any reserves held for supplemental benefits that would expire at
contract termination) never may be less than the amount that the policyowner
would receive (including the cash surrender value of the supplemental benefits,
if any, referred to above), exclusive of any deduction for policy loans, when
the policy terminates. (4-6-23)
04.
Unusual Pattern of Guaranteed Cash Surrender Values. (4-6-23)
a. For any policy with an unusual pattern of
guaranteed cash surrender values, the reserves held before the first unusual
guaranteed cash surrender value will at least equal 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. (4-6-23)
b. The reserves
held after any unusual guaranteed cash surrender value will at least equal 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: (4-6-23)
i.
n is the number of years
from the date of the last unusual guaranteed cash surrender value before the
valuation date to the earlier of: (4-6-23)
(1)
The date of the next unusual guaranteed cash surrender value, if any, that is
scheduled after the valuation date; or (4-6-23)
(2) The mandatory expiration date of the
policy; and (4-6-23)
ii.
The net premium for a given year during the n year period
equals the product of the net to gross ratio and the respective gross premium;
and (4-6-23)
iii. The net to gross
ratio equals Item One (1) divided by Item Two (2) as follows: (4-6-23)
(1) The present value, at the start of the
n year period, of death benefits payable during the
n year period plus the present value, at the start 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 start of the n year period.
(4-6-23)
(2) The present value, at
the start of the n year period, of the scheduled gross
premiums payable during the n year period.
(4-6-23)
c. For
Subsection 012.04, a policy has 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: (4-6-23)
i. One hundred
ten percent (110%) of the scheduled gross premium for that year;
(4-6-23)
ii. One hundred ten
percent (110%) of one (1) 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 (4-6-23)
iii.
Five percent (5%) of the first policy year surrender charge, if any.
(4-6-23)
05.
Optional Exemption for Yearly Renewable Term (YRT) Reinsurance. A
company may opt to use this approach for reserves on YRT reinsurance: (4-6-23)
a. Calculate the valuation net premium for
each future policy year as the tabular cost of insurance for that future year;
(4-6-23)
b. Basic reserves will at
least equal the tabular cost of insurance for the appropriate period, as
defined in Subsection
012.03; (4-6-23)
c. Deficiency reserves. (4-6-23)
i. For each policy year, calculate the
excess, if greater than zero (0), of the valuation net premium over the
respective maximum guaranteed gross premium. (4-6-23)
ii. Deficiency reserves will at least equal
the sum of the present values, at the date of valuation, of the excesses
determined in accordance with Subparagraph 012.05.c.i.;
(4-6-23)
d. For
Subsection 012.05, the calculations use the
maximum valuation interest rate and the 1980 CSO mortality tables with or
without "ten year select factors"; (4-6-23)
e. A reinsurance agreement is YRT reinsurance
under Subsection 012.05 if
only the mortality risk is reinsured; and (4-6-23)
f. If the assuming company chooses this
optional exemption, the ceding company's reinsurance reserve credit will be
limited to the amount of reserve the assuming company holds for the affected
policies. (4-6-23)
06.
Optional Exemption for Attained-Age-Based Yearly Renewable Term Life
Insurance Policies. A company may opt to use this approach for reserves
for attained-age-based YRT life insurance policies: (4-6-23)
a. Calculate the valuation net premium for
each future policy year as the tabular cost of insurance for that future year.
(4-6-23)
b. Basic reserves will at
least equal to the tabular cost of insurance for the appropriate period, as
defined in Subsection
012.03. (4-6-23)
c. Deficiency reserves: (4-6-23)
i. For each policy year, calculate the
excess, if greater than zero (0), of the valuation net premium over the
respective maximum guaranteed gross premium. (4-6-23)
ii. Deficiency reserves at least equal to the
sum of the present values, at the date of valuation, of the excesses determined
in accordance with Subparagraph 012.06.c.i. (4-6-23)
d. For Subsection
012.06, the calculations use the
maximum valuation interest rate and the 1980 CSO valuation tables with or
without "ten year select factors." (4-6-23)
e. A policy is an attained-age-based YRT life
insurance policy, under Subsection
012.06, if: (4-6-23)
i. The premium rates (on both the initial
current premium scale and the guaranteed maximum premium scale) are based on
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 (4-6-23)
ii. 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.
(4-6-23)
f. For policies
that become attained-age-based YRT policies after an initial coverage period,
the approach of Subsection
012.06 may be used after the
initial period if: (4-6-23)
i. The initial
period is constant for all insureds of the same sex, risk class and plan of
insurance; or (4-6-23)
ii. The
initial period runs to a common attained age for all insureds of the same sex,
risk class, and plan of insurance; and (4-6-23)
iii. After the initial period, the policy
meets the conditions of Paragraph 012.06.e.; and (4-6-23)
g. If this election is made, this approach
will be applied to determine reserves for all attained-age- based YRT life
insurance policies issued on or after this chapter's effective date.
(4-6-23)
07.
Exemption from Unitary Reserves for Certain n-Year Renewable Term Life
Insurance Policies. Unitary basic reserves and unitary deficiency
reserves need not be calculated for a policy if the following conditions are
met: (4-6-23)
a. 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 (10) 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; (4-6-23)
b. The guaranteed
gross premiums in all n-year periods are not less than the corresponding net
premiums based on the 1980 CSO Table with or without the "ten year select
factors;" and (4-6-23)
c. There are
no cash surrender values in any policy year. (4-6-23)
08.
Exemption From Unitary Reserves for
Certain Juvenile Policies. Unitary basic reserves and unitary deficiency
reserves need not be calculated for a policy if these conditions are met, based
on the initial current premium scale at issue: (4-6-23)
a. At issue, the insured is age twenty-four
(24) or younger; (4-6-23)
b. Until
the insured reaches the end of the juvenile period, which will occur at or
before age twenty-five (25), the gross premiums and death benefits are level,
and there are no cash surrender values; and (4-6-23)
c. 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.
(4-6-23)
