Current through Register Vol. 48, No. 12, March 22, 2024
a)
Basic Reserves.
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 must use the same valuation mortality table
and selection factors. At the option of the insurer, in calculating segmented
reserves and net premiums, either of the adjustments described in subsection
(a)(1) or (2) below 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.
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) This subsection (b) 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
(specified in subsection (b) of this Part) and rate of interest.
2) The deficiency reserve at any duration
shall be calculated:
A) On a unitary basis if
the corresponding basic reserve determined by subsection (a) above is
unitary;
B) On a segmented basis if
the corresponding basic reserve determined by subsection (a) above is
segmented; or
C) On the segmented
basis if the corresponding basic reserve determined by subsection (a) above is
equal to both the segmented reserve and the unitary reserve.
3) Deficiency reserves, if any,
shall be calculated for each policy as the excess if greater than zero, for the
current and all remaining periods, of the quantity A over the basic reserve,
where A is obtained as indicated in subsection (b) of Section
1409.40
of this Part.
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) Minimum
Value.
Basic reserves may not be less than the tabular cost of
insurance for the balance of the policy year, if mean 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, if mid-terminal reserves are used. The tabular cost of
insurance must use the same valuation mortality table and interest rates as
that used for the calculation of the segmented reserves. However, if select
mortality factors are used, 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) 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, upon
termination of the policy.
d) Unusual Pattern of Guaranteed Cash
Surrender Values.
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; and
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 (d)(2)(C)(i) divided by (d)(2)(C)(ii).
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 (d), 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) 110% of the scheduled gross premium for
that year;
B) 110% 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) 5% 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) of this Section.
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 subsection (e)(3)(A) of this Section.
4) For purposes of this subsection
(e), the calculations use the maximum valuation interest rate and the 1980 CSO
mortality tables with or without ten-year select mortality factors.
5) A reinsurance agreement shall be
considered YRT reinsurance for purposes of this subsection (e) 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
Yearly Renewable Term 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).
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 subsection (f)(3)(A) above.
4) For purposes of this subsection (f), the
calculations use the maximum valuation interest rate and the 1980 CSO valuation
tables with or without ten-year select mortality factors.
5) A policy shall be considered an
attained-age-based YRT life insurance policy for purposes of this subsection
(f) 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 (f) 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 the
initial period runs to a common attained age for all insureds of the same sex,
risk class and plan of insurance; and
B) After the initial period of coverage, the
policy meets the conditions of subsection (f)(5) above.
7) If this election is made, this approach
must be applied in determining reserves for all attained-age-based YRT life
insurance policies issued on or after the effective date of this
Part.
g) 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:
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, n may be truncated or
extended to reach the expiry age, provided that this final renewal period is
less than 10 years and less than twice the size of the earlier n-year period,
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) At issue, the insured is age 24 or
younger;
2) Until the insured
reaches the end of the juvenile period, which must occur at or before age 25,
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.