Illinois Administrative Code
Title 50 - INSURANCE
Part 1103 - LIFE REINSURANCE AGREEMENTS
Exhibit A - Risk Category

a) Morbidity

b) Mortality

c) Lapse

This is the risk that a policy will voluntarily terminate prior to the recoupment of a statutory surplus strain experienced at issue of the policy.

d) Credit Quality (C1)

This is the risk that invested assets supporting the reinsured business will decrease in value. The main hazards are that assets will default or that there will be a decrease in earning power. It excludes market value declines due to changes in interest rate.

e) Reinvestment (C3)

This is the risk that interest rates will fall and funds reinvested (coupon payments or monies received upon asset maturity or call) will, therefore, earn less than expected. If asset durations are less than liability durations, the mismatch will increase.

f) Disintermediation (C3)

This is the risk that interest rates rise and policy loans and surrenders increase or maturing contracts do not renew at anticipated rates of renewal. If asset durations are greater than the liability durations, the mismatch will increase. Policyholders will move their funds into new products offering higher rates. The company may have to sell assets at a loss to provide for these withdrawals.

+ = Significant

0 = Insignificant

LTC = Long-Term Care Insurance

LTD = Long-Term Disability Insurance