Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
304.2-290, 304.6-130-304.6-180,
304.15-410
NECESSITY, FUNCTION, AND CONFORMITY: EO 2004-731, signed July
9, 2004, created the Office of Insurance.
KRS
304.2-110 authorizes the Commissioner of
Insurance to promulgate reasonable administrative regulations necessary for or
as an aid to the effectuation of the Kentucky Insurance Code as defined in
KRS
304.1-010.
KRS
304.6-130 requires the commissioner to
annually value the reserve liabilities for all outstanding life insurance
policies and annuity and pure endowment contracts, as shown in the National
Association of Insurance Commissioners Life and Accident and Health Annual
Statement Form whether or not itemized in Exhibit 5 of that statement. This
administrative regulation establishes the use of new select mortality factors,
mortality tables, and minimum reserving requirements for life insurance
policies with nonlevel premiums and benefits or secondary guarantees. The new
select mortality factors, mortality tables, and minimum reserving requirements
are necessary to ensure that insurers maintain adequate reserves for nonlevel
premium and benefit policies and policies with secondary guarantees.
Section 1. Definitions.
(1) "1980 CSO valuation tables" means the
Commissioners 1980 Standard Ordinary Mortality Table (1980 CSO Table) without
ten (10) year selection factors, incorporated into the 1980 amendments to the
NAIC Standard Valuation Law, and variations of the 1980 CSO Table approved by
the NAIC, such as the smoker and nonsmoker versions approved in December
1983.
(2) "2001 CSO Mortality
Table" means a mortality table, consisting of separate rates of mortality for
male and female lives, developed by the American Academy of Actuaries CSO Task
Force from the Valuation Basic Mortality Table developed by the Society of
Actuaries Individual Life Insurance Valuation Mortality Task Force, and adopted
by the NAIC in December 2002.
(3)
"Basic reserves" means reserves calculated in accordance with
KRS
304.6-150.
(4) "Contract segmentation method" means the
method of dividing the period from issue to mandatory expiration of a policy
into successive segments, with the length of each segment being defined as the
period from the end of the prior segment to the end of the latest policy year
as determined by section 2(1)
(5)
"Deficiency reserves" means the excess, if greater than zero, of minimum
reserves calculated in accordance with
KRS
304.6-180 over basic reserves.
(6) "Guaranteed gross premiums" means the
premiums under a policy of life insurance that are guaranteed and determined at
issue.
(7) "Maximum valuation
interest rates" means the interest rates defined in
KRS
304.6-145 that are to be used in determining
the minimum standard for the valuation of life insurance policies.
(8) "Scheduled gross premium" means the
smallest illustrated gross premium set forth at issue for each policy
year.
(9) "Segmented reserves"
means reserves, calculated pursuant to Section 2(2).
(10) "Tabular cost of insurance" means the
net single premium at the beginning of a policy year for one (1) year term
insurance in the amount of the guaranteed death benefit in that policy
year.
(11) "Ten (10) year select
factors" means the select factors adopted with the 1980 amendments to the NAIC
Standard Valuation Law.
(12)
"Unitary reserves" means the reserves calculated pursuant to Section
2(3).
(13) "Universal life
insurance policy" means any individual life insurance policy under the
provisions of which separately identified interest credits, other than in
connection with dividend accumulations, premium deposit funds, or other
supplementary accounts, and mortality or expense charges are made to the
policy.
Section 2.
Calculations
(1) Calculations for contract
segmentation method: All calculations shall be made using the 1980 CSO
valuation tables, or any other valuation mortality table adopted by the
National Association of Insurance Commissioners after the effective date of
this administrative regulation and promulgated by administrative regulation by
the commissioner for this purpose, and, if elected, the optional minimum
mortality standard for deficiency reserves stipulated in Section 5(2). The
length of a particular contract segment shall be set equal to the minimum of
the value "t" for which Gt is greater than Rt. If Gt never exceeds Rt the
segment length shall be deemed to be the number of years from the beginning of
the segment to the mandatory expiration date of the policy. Gt and Rt shall be
defined as follows:
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where:
x = original issue age;
k = the number of years from the date of issue to the beginning
of the segment;
t = 1, 2,...; t is reset to 1 at the beginning of each
segment;
GPx+k+t-1 = Guaranteed gross premium
per thousand of face amount for year "t" of the segment, ignoring policy fees
only if level for the premium paying period of the policy.
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However, Rt may be increased or
decreased by one (1) percent in any policy year, at the company's option, but
Rt shall not be less than one (1); where:
x, k and t are as defined above; and
qx+k+t-1 = valuation mortality rate for
deficiency reserves in policy year k+t but using the mortality of Section
5(2)(b) if Section 5(2)(c) of this administrative regulation is elected for
deficiency reserves. However, if GPx+k+t is greater than
0 and GPx+k+t-1 is equal to 0, Gt shall be deemed to be
1000. If GPx+k+t and GPx+k+t-1
are both equal to 0, Gt shall be deemed to be
0.
(2)
(a) Segmented reserves shall be calculated
using segments produced by the contract segmentation method, equal to the
present value of all future guaranteed benefits less the present value of all
future net premiums to the mandatory expiration of a policy, where the net
premiums within each segment are a uniform percentage of the respective
guaranteed gross premiums within the segment. The uniform percentage for each
segment shall be, at the beginning of the segment, the present value of the net
premiums within the segment equals the present value of the death benefits
within the segment, plus the present value of any unusual guaranteed cash value
as described in Section 6(4) of this administrative regulation occurring at the
end of the segment, less any unusual guaranteed cash value occurring at the
start of the segment, plus for the first segment only, the excess of the net
level annual premium over a net one (1) year term premium for the benefits
provided for in the first policy year. The net level annual premium shall be
equal to the present value, at the date of issue, of the benefits provided for
in the first segment after the first policy year, divided by the present value,
at the date of issue, of an annuity of one (1) per year payable on the first
and each subsequent anniversary within the first segment on which a premium
falls due. However, the net level annual premium shall not exceed the net level
annual premium on the nineteen (19) year premium whole life plan of insurance
of the same renewal year equivalent level amount at an age one (1) year higher
than the age at issue of the policy.
(b) The length of each segment shall be
determined by the contract segmentation method.
(c) The interest rates used in the present
value calculations for any policy shall not exceed the maximum valuation
interest rate, determined with a guarantee duration equal to the sum of the
lengths of all segments of the policy.
(d) For both basic reserves and deficiency
reserves computed by the segmented method, present values shall include future
benefits and net premiums in the current segment and in all subsequent
segments.
(3) The
Unitary reserves shall be the present value of all future guaranteed benefits
less the present value of all future modified net premiums where guaranteed
benefits and modified net premiums are considered to the mandatory expiration
of the policy. Modified net premiums are a uniform percentage of the respective
guaranteed gross premiums, where the uniform percentage is, at issue, the
present value of the net premiums equals the present value of all death
benefits and pure endowments, plus the excess of the net level annual premium
over a net one (1) year term premium for the benefits provided for in the first
policy year. The net level annual premium is equal to the present value, at the
date of issue, of the benefits provided for after the first policy year,
divided by the present value, at the date of issue, of an annuity of one (1)
per year payable on the first and each subsequent anniversary of the policy on
which a premium falls due. However, the net level annual premium shall not
exceed the net level annual premium on the nineteen (19) year premium whole
life plan of insurance of the same renewal year equivalent level amount at an
age one (1) year higher than the age at issue of the policy. The interest rates
used in the present value calculations for any policy shall not exceed the
maximum valuation interest rate, determined with a guarantee duration equal to
the length from issue to the mandatory expiration of the
policy.
Section 3.
Applicability.
(1) This administrative
regulation shall apply to all life insurance policies, with or without
nonforfeiture values, issued on or after August 14, 2000, subject to the
following exceptions and conditions.
(2) This administrative regulation shall not
apply to any individual life insurance policy issued on or after August 14,
2000 if the policy is issued in accordance with and as a result of the exercise
of a reentry provision contained in the original life insurance policy of the
same or greater face amount, issued before the effective date of this
administrative regulation, that guarantees the premium rates of the new policy.
This administrative regulation also shall not apply to subsequent policies
issued as a result of the exercise of a reentry provision, or a derivation of
the provision, in the new policy.
(3) This administrative regulation shall not
apply to any universal life policy that meets the following requirements:
(a) Secondary guarantee period, if any, of
five (5) years or less;
(b)
Specified premium for the secondary guarantee period is not less than the net
level reserve premium for the secondary guarantee period based on the 1980 CSO
valuation tables and the applicable valuation interest rate; and
(c) The initial surrender charge is not less
than 100 percent of the first year annualized specified premium for the
secondary guarantee period.
(4) This administrative regulation shall not
apply to any variable life insurance policy that provides for life insurance,
the amount or duration of which varies according to the investment experience
of any separate account or accounts.
(5) This administrative regulation shall not
apply to any variable universal life insurance policy that provides for life
insurance, the amount or duration of which varies according to the investment
experience of any separate account or accounts.
(6) This administrative regulation shall not
apply to a group life insurance certificate unless the certificate provides for
a stated or implied schedule of maximum gross premiums required in order to
continue coverage in force for a period in excess of one (1) year.
(7) Exception for universal life insurance
policies. Scheduled gross premium shall be the smallest specified premium for
each policy year described in Section 7(1)(e), if any, or else the minimum
premium described in Section 7(1)(f) of this administrative regulation set
forth at issue.
Section
4. Conditions.
(1) Calculation of
the minimum valuation standard for policies, other than universal life
policies, with guaranteed nonlevel gross premiums or guaranteed nonlevel
benefits, or both, shall be in accordance with the provisions of Section
6.
(2) Calculation of the minimum
valuation standard for flexible premium and fixed premium universal life
insurance policies that contain provisions resulting in the ability of a
policyholder to keep a policy in force over a secondary guarantee period shall
be in accordance with the provisions of Section 7.
Section 5. General Calculation Requirements
for Basic Reserves and Premium Deficiency Reserves.
(1) At the election of the company for any
one (1) or more specified plans of life insurance, the minimum mortality
standard for basic reserves may be calculated using the 1980 CSO valuation
tables with select mortality factors, or any other valuation mortality table
approved by the commissioner and promulgated by administrative regulation for
this purpose. If select mortality factors are elected, they may be the
following:
(a) The ten (10) year select
mortality factors incorporated into the 1980 amendments to the NAIC Standard
Valuation Law;
(b) The select
mortality factors incorporated by reference by this administrative regulation;
or
(c) Any other table of select
mortality factors adopted by the NAIC, approved by the commissioner, and
promulgated by administrative regulation for the purpose of calculating basic
reserves.
(2) 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. The quantity A shall be
obtained by recalculating the basic reserve for the policy using guaranteed
gross premiums instead of net premiums when the guaranteed gross premiums are
less than the corresponding net premiums. At the election of the company for
any one (1) or more specified plans of insurance, the quantity A and the
corresponding net premiums used in the determination of quantity A may be based
upon the 1980 CSO valuation tables with select mortality factors, or any other
valuation mortality table adopted by the NAIC, approved by the commissioner,
and promulgated by administrative regulation. If select mortality factors are
elected, they may be the following:
(a) The
ten (10) year select mortality factors incorporated into the 1980 amendments to
the NAIC Standard Valuation Law;
(b) The select mortality factors incorporated
by reference by this administrative regulation;
(c) For durations in the first segment, X
percent of the select mortality factors incorporated by reference by this
administrative regulation, subject to the following:
1. X may vary by policy year, policy form,
underwriting classification, issue age, or any other policy factor expected to
affect mortality experience;
2. X
shall not be less than twenty (20) percent;
3. X shall not decrease in any successive
policy years;
4. When using the
valuation interest rate used for basic reserves, the actuarial present value of
future death benefits, calculated using the mortality rates resulting from the
application of X, is greater than or equal to the actuarial present value of
future death benefits calculated using anticipated mortality experience without
recognition of mortality improvement beyond the valuation date;
5. The mortality rates resulting from the
application of X are at least as great as the anticipated mortality experience,
without recognition of mortality improvement beyond the valuation date, in each
of the first five (5) years after the valuation date;
6. The appointed actuary shall increase X at
any valuation date where it is necessary to continue to meet all the
requirements of this subsection;
7.
The appointed actuary may decrease X at any valuation date if X does not
decrease in any successive policy years and as long as it continues to meet all
the requirements of this Section 5(2)(c) of this administrative
regulation;
8. The appointed
actuary shall specifically take into account the adverse effect on expected
mortality and lapsation of any anticipated or actual increase in gross
premiums; and
9. If X is less than
100 percent at any duration for any policy, then the appointed actuary shall
annually prepare an actuarial opinion and memorandum for the company in
conformance with the requirements of
KRS
304.6-171 and
806 KAR
6:100, Section 6, and the appointed actuary shall
annually opine for all policies subject to this administrative regulation as to
whether the mortality rates resulting from the application of X meet the
requirements of this subsection. This opinion shall be supported by an
actuarial report, subject to appropriate Actuarial Standards of Practice
promulgated by the Actuarial Standards Board of the American Academy of
Actuaries. The X factors shall reflect anticipated future mortality, without
recognition of mortality improvement beyond the valuation date, taking into
account relevant emerging experience; or
(d) Any other table of select mortality
factors adopted by the National Association of Insurance Commissioners approved
by the commissioner, and promulgated by administrative regulation for the
purpose of calculating deficiency reserves.
(3) Any set of select mortality factors may
be used only for the first segment. This applies to both basic reserves and
deficiency reserves. However, if the first segment is less than ten (10) years,
the appropriate ten (10) year select mortality factors incorporated into the
1980 amendments to the NAIC Standard Valuation Law may be used thereafter
through the tenth policy year from the date of issue.
(4) In determining basic reserves or
deficiency reserves, guaranteed gross premiums without policy fees may be used
where the calculation involves the guaranteed gross premium but only if the
policy fee is a level dollar amount after the first policy year. In determining
deficiency reserves, policy fees may be included in guaranteed gross premiums,
even if not included in the actual calculation of basic reserves.
(5) Reserves for policies that have changes
to guaranteed gross premiums, guaranteed benefits, guaranteed charges, or
guaranteed credits that are unilaterally made by the insurer after issue and
that are effective for more than one (1) year after the date of the change
shall be the greatest of the following:
(a)
Reserves calculated ignoring the guarantee;
(b) Reserves assuming the guarantee was made
at issue; or
(c) Reserves assuming
that the policy was issued on the date of the guarantee.
(6) The commissioner may require that the
company document the extent of the adequacy of reserves for specific blocks,
including policies issued prior to the effective date of this administrative
regulation. This documentation may include a demonstration of the extent to
which aggregation with other nonspecified blocks of business is relied upon in
the formation of the appointed actuary opinion pursuant to and consistent with
the requirements of
KRS
304.6-171 and
806 KAR
6:100, Section 6.
Section 6. Calculation of Minimum Valuation
Standard for Policies with Guaranteed Non-level Gross Premiums or Guaranteed
Nonlevel Benefits that are Not Universal Life Policies.
(1) 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, either of the following
adjustments may be made:
(a) The insurer may
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.
(b) The insurer may 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.
(2)
(a) The deficiency reserve at any duration
shall be calculated as follows:
1. On a
unitary basis if the corresponding basic reserve determined by subsection (1)
of this section is unitary;
2. On a
segmented basis if the corresponding basic reserve determined by subsection (1)
of this section is segmented; or
3.
On the segmented basis if the corresponding basic reserve determined by
subsection (1) of this section is equal to both the segmented reserve and the
unitary reserve.
(b)
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 specified in Section 5(2) and rate of
interest.
(c) 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 Section 5(2).
(d) For deficiency reserves determined on a
segmented basis, the quantity A shall be determined using segment lengths equal
to those determined for segmented basic reserves.
(3) Basic reserves shall not be less than the
tabular cost of insurance for the balance of the policy year, if mean reserves
are used. Basic reserves shall 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 midterminal reserves are used.
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.
However, if select mortality factors are used, they shall be the ten (10) year
select factors incorporated into the 1980 amendments of the NAIC Standard
Valuation Law. Total reserves, including basic reserves, deficiency reserves
and any reserves held for supplemental benefits that would expire upon contract
termination, shall not be less than the amount that the policy owner 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.
(4)
(a) 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 "m" year policy providing term
insurance plus a pure endowment equal to the unusual cash surrender value,
where "m" is the number of years from the date of issue to the date the unusual
cash surrender value is scheduled.
(b) 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:
1. "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:
a. The date of the next
unusual guaranteed cash surrender value, if any, that is scheduled after the
valuation date; or
b. The mandatory
expiration date of the policy; and
2. 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
3.
The net to gross ratio is equal to 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, divided by, the present value, at the beginning of the "n" year
period, of the scheduled gross premiums payable during the "n" year
period.
(c) For purposes
of this subsection, a policy shall be 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 the following:
1. 110 percent of the
scheduled gross premium for that year;
2. 110 percent 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
3. Five (5) percent of the first policy year
surrender charge, if any.
(5) At the option of the company, the
following approach for reserves on yearly renewable term reinsurance may be
used:
(a) Calculate the valuation net premium
for each future policy year as the tabular cost of insurance for that future
year.
(b) Basic reserves shall not
be less than the tabular cost of insurance for the appropriate period, as
calculated in subsection (3) of this section.
(c) Deficiency reserves may be determined by
calculating for each policy year, the excess, if greater than zero, of the
valuation net premium over the respective maximum guaranteed gross premium.
Deficiency reserves shall never be less than the sum of the present values, at
the date of valuation, of the excesses.
(d) For purposes of this subsection, the
calculations use the maximum valuation interest rate and the 1980 CSO mortality
tables with or without ten (10) year select mortality factors, or any other
table adopted by the National Association of Insurance Commissioners and
approved by the commissioner for this purpose.
(e) A reinsurance agreement shall be
considered yearly renewable term reinsurance for purposes of this subsection if
only the mortality risk is reinsured.
(f) 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.
(6) At the
option of the company, the following approach for reserves for
attained-age-based yearly renewable term life insurance policies may be used:
(a) Calculate the valuation net premium for
each future policy year as the tabular cost of insurance for that future
year.
(b) Basic reserves shall not
be less than the tabular cost of insurance for the appropriate period, as
defined in subsection (3) of this section.
(c) To calculate deficiency reserves,
calculate the excess for each policy year, if greater than zero, of the
valuation net premium over the respective maximum guaranteed gross premium.
Deficiency reserves shall not be less than the sum of the present values, at
the date of valuation, of the excesses.
(d) For purposes of Section 5(6) of this
administrative regulation, the calculations shall use the maximum valuation
interest rate and the 1980 CSO valuation tables with or without ten (10) year
select mortality factors, or any other table adopted by the National
Association of Insurance Commissioners, approved by the commissioner, and
promulgated by administrative regulation for this purpose.
(e) A policy shall be considered an
attained-age-based yearly renewable term life insurance policy for purposes of
subsection (6) of this section if:
1. 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 so 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
2. 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.
(f) For policies that become
attained-age-based yearly renewable term policies after an initial period of
coverage, the approach of this subsection may be used after the initial period
if:
1. The initial period is constant for all
insureds of the same sex, risk class, and plan of insurance; or
2. The initial period runs to a common
attained age for all insureds of the same sex, risk class and plan of
insurance; and
3. After the initial
period of coverage, the policy meets the conditions of paragraph (e) of this
subsection.
(g) If an
insurer elects this optional exemption under this subsection, the approach
herein shall be applied in determining reserves for all attained-age-based
yearly renewable term life insurance policies issued on or after August 14,
2004.
(7) Unitary basic
reserves and unitary deficiency reserves for a yearly renewable term life
insurance policy shall not be required to be calculated if the following
conditions are met:
(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;
(b) 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 (10) year select mortality factors;
and
(c) There are no cash surrender
values in any policy year.
(8) Unitary basic reserves and unitary
deficiency reserves shall not be required to be calculated for a policy if the
following conditions are met, based upon the initial current premium scale at
issue:
(a) At issue, the insured is age
twenty-four (24) or younger;
(b)
Until the insured reaches the end of the juvenile period, which shall occur at
or before age twenty-five (25), the gross premiums and death benefits are
level, and there are no cash surrender values; and
(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.
Section 7. Calculation
of Minimum Valuation Standard for Flexible Premium and Fixed Premium Universal
Life Insurance Policies that Contain Provisions Resulting in the Ability of a
Policy Owner to Keep a Policy in Force Over a Secondary Guarantee Period.
(1)
(a)
Policies with a secondary guarantee shall include, the following:
1. A policy with a guarantee that the policy
will remain in force at the original schedule of benefits, subject only to the
payment of specified premiums;
2. A
policy in which the minimum premium at any duration is less than the
corresponding one (1) year valuation premium, calculated using the maximum
valuation interest rate and the 1980 CSO valuation tables with or without ten
(10) year select mortality factors, or any other table adopted by the National
Association of Insurance Commissioners, approved by the commissioner, and
promulgated by administrative regulation for this purpose; and
3. A policy with any combination of
paragraphs (a) and (b) of this subsection.
(b) A secondary guarantee period shall be the
period for which the policy is guaranteed to remain in force subject only to a
secondary guarantee. If a policy contains more than one (1) secondary
guarantee, the minimum reserve shall be the greatest of the respective minimum
reserves at that valuation date of each unexpired secondary guarantee, ignoring
all other secondary guarantees. Secondary guarantees that are unilaterally
changed by the insurer after issue shall be considered to have been made at
issue. Reserves described in subsections (2) and (3) of this section shall be
recalculated from issue to reflect these changes.
(c) Specified premiums shall mean the
premiums specified in the policy or imputable by the terms of the policy, the
payment of which guarantees that the policy will remain in force at the
original schedule of benefits, but which otherwise would be insufficient to
keep the policy in force in the absence of the guarantee if maximum mortality
and expense charges and minimum interest credits were made and any applicable
surrender charges were assessed.
(d) For purposes of this subsection, the
minimum premium for any policy year shall be the premium that, when paid into a
policy with a zero account value at the beginning of the policy year, produces
a zero account value at the end of the policy year. The minimum premium
calculation shall use the policy cost factors, including mortality charges,
loads and expense charges, and the interest crediting rate, which are all
guaranteed at issue.
(e) The one
(1) year valuation premium shall mean the net one (1) year premium based upon
the original schedule of benefits for a given policy year. The one (1) year
valuation premiums for all policy years are calculated at issue. The select
mortality factors defined in Section 5 (2)(b), (c), and (d) not be used to
calculate the one (1) year valuation premiums.
(f) The one (1) year valuation premium shall
reflect the frequency of fund processing, as well as the distribution of deaths
assumption employed in the calculation of the monthly mortality charges to the
fund.
(2) Basic reserves
for the secondary guarantees shall be the segmented reserves for the secondary
guarantee period. In calculating the segments and the segmented reserves, the
gross premiums shall be set equal to the specified premiums, if any, or
otherwise to the minimum premiums, that keep the policy in force and the
segments shall be determined according to the contract segmentation method as
defined in Section 2(1).
(3)
Deficiency reserves, if any, for the secondary guarantees shall be calculated
for the secondary guarantee period in the same manner as described in Section
6(2) with gross premiums set equal to the specified premiums, if any, or
otherwise to the minimum premiums that keep the policy in force.
(4) The minimum reserves during the secondary
guarantee period shall be the greater of the following:
(a) The basic reserves for the secondary
guarantee plus the deficiency reserve, if any, for the secondary guarantees;
or
(b) The minimum reserves
required by other rules or administrative regulations governing universal life
plans.
Section
8. Applicability of the 2001 CSO Mortality Table.
(1) The 2001 CSO Mortality Table may be used
in the following manner, subject to the transition dates for use of the 2001
CSO Mortality Table:
(a) Section 3,
subsection(3)(b): The net level reserve premium shall be based on the ultimate
mortality rates in the 2001 CSO Mortality Table.
(b) Section 2, subsection (2): All
calculations shall be made using the 2001 CSO Mortality Rate, and, if elected,
the optional minimum mortality standard for deficiency reserves stipulated in
Section 8, Subsection (1)(d) of this administrative regulation. The value of
"qx+k+t-1" shall be the valuation mortality rate for deficiency reserves in
policy year k+t, but using the unmodified select mortality rates if modified
select mortality rates are used in the computation of deficiency
reserves.
(c) Section 5, subsection
(1): The 2001 CSO Mortality Table shall be the minimum standard for basic
reserves.
(d) Section 5, subsection
(2): The 2001 CSO Mortality Table shall be the minimum standard for deficiency
reserves. If select mortality rates are used, they may be multiplied by X
percent for durations in the first segment, subject to the conditions specified
in Subsection (2)(c)(1 - 9) of Section 5. In demonstrating compliance with
those conditions, the demonstrations shall not combine the results of tests
that utilize the 1980 CSO Mortality Table with those tests that utilize the
2001 CSO Mortality Table, unless the combination is explicitly required by
administrative regulation or necessary to be in compliance with relevant
Actuarial Standards of Practice.
(e) Section 6, subsection (3): The valuation
mortality table used in determining the tabular cost of insurance shall be the
ultimate mortality rates in the 2001 CSO Mortality Table.
(f) Section 6, subsection (5): The
calculations specified in Subsection (5)(d) of Section 6 shall use the ultimate
mortality rates in the 2001 CSO Mortality Table.
(g) Section 6, subsection (6): The
calculations specified in Subsection (6)(d) of Section 6 shall use the ultimate
mortality rates in the 2001 CSO Mortality Table.
(h) Section 5, subsection (7): The
calculations specified in Subsection (7)(b) of Section 6 shall use the ultimate
mortality rates in the 2001 CSO Mortality Table.
(i) Section 7, subsection (1)(b): The one (1)
year valuation premium shall be calculated using the ultimate mortality rates
in the 2001 CSO Mortality Table.
(2) This section shall not be construed to
expand the applicability of this administrative regulation to include life
insurance policies exempted under Sections 2 and 3 of this administrative
regulation.
Section 9.
Incorporation by Reference.
(1) The following
material is incorporated by reference:
(a)
"Select Mortality Factors, Male Aggregate," (4th Quarter, 1998 Edition),
National Association of Insurance Commissioners;
(b) "Select Mortality Factors, Male
Nonsmoker," (4th Quarter, 1998 Edition), National Association of Insurance
Commissioners;
(c) "Select
Mortality Factors, Male Smoker," (4th Quarter, 1998 Edition), National
Association of Insurance Commissioners;
(d) "Select Mortality Factors, Female
Aggregate," (4th Quarter, 1998 Edition), National Association of Insurance
Commissioners;
(e) "Select
Mortality Factors, Female Nonsmoker," (4th Quarter, 1998 Edition), National
Association of Insurance Commissioners;
(f) "Select Mortality Factors, Female
Smoker," (4th Quarter, 1998 Edition), National Association of Insurance
Commissioners; and
(g) "2001 CSO
Mortality Table (2001)."
(2) This material may be inspected, copied,
or obtained, subject to applicable copyright law, at the Kentucky Office of
Insurance, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8
a.m. to 4:30 p.m. This material is also available on the Web site at:
http://doi.ppr.ky.gov/kentucky/.
STATUTORY AUTHORITY:
KRS
304.2-110,
304.6-130