Current through Register Vol. 50, No. 9, September 20, 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 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 adjustments described in Paragraph 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. 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 the 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
(specified in
§10909. B) and rate
of interest.
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
§
10909. 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. 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 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 10-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 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.
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 Clause
i divided by Clause 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. 110 percent of the
scheduled gross premium for that year;
b. 110 percent 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 percent of the first policy year
surrender charge, if any.
E. Optional Exemption for Yearly Renewable
Term 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.
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 above.
4. For purposes of this subsection, the
calculations use the maximum valuation interest rate and the 1980 CSO mortality
tables with or without 10-year select mortality factors, or any other table
adopted after the effective date of this regulation by the NAIC and promulgated
by regulation by the commissioner for this purpose.
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
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
§10911. 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 Subparagraph a above.
4. For purposes of this subsection, the
calculations use the maximum valuation interest rate and the 1980 CSO valuation
tables with or without 10-year select mortality factors, or any other table
adopted after the effective date of this regulation by the NAIC and promulgated
by regulation by the commissioner for this purpose.
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
above.
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 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;
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 10-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 shall 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.
AUTHORITY NOTE:
Promulgated in accordance with
R.S.22:3,
22:163,
22:168 and
the Administrative Procedure Act,
R.S.
49:950 et
seq.
