Louisiana Administrative Code
Title 37 - INSURANCE Part
Part XIII - Regulations
Chapter 183 - Regulation Number 121-Term and Universal Life Insurance Reserve Financing
Section XIII-18309 - The Actuarial Method
Universal Citation: LA Admin Code XIII-18309
Current through Register Vol. 50, No. 9, September 20, 2024
A. The actuarial method to establish the required level of primary security for each reinsurance treaty subject to this regulation shall be VM-20, applied on a treaty-by-treaty basis, including all relevant definitions, from the valuation manual as then in effect, applied as follows.
1. For covered policies described in covered
policies (a) in §18305, the actuarial method is the greater of the
deterministic reserve or the net premium reserve (NPR) regardless of whether
the criteria for exemption testing can be met. However, if the covered policies
do not meet the requirements of the stochastic reserve exclusion test in the
valuation manual, then the actuarial method is the greatest of the
deterministic reserve, the stochastic reserve, or the NPR. In addition, if such
covered policies are reinsured in a reinsurance treaty that also contains
covered policies described in covered policies (b) in §18305, the ceding
insurer may elect to instead use Paragraph 2 below as the actuarial method for
the entire reinsurance agreement. Whether Paragraph 1 or 2 are used, the
actuarial method must comply with any requirements or restrictions that the
valuation manual imposes when aggregating these policy types for purposes of
principle-based reserve calculations.
2. For covered policies described in covered
policies (b) in §18305, the actuarial method is the greatest of the
deterministic reserve, the stochastic reserve, or the NPR regardless of whether
the criteria for exemption testing can be met.
3. Except as provided in Paragraph 4 below,
the actuarial method is to be applied on a gross basis to all risks with
respect to the covered policies as originally issued or assumed by the ceding
insurer.
4. If the reinsurance
treaty cedes less than 100 percent of the risk with respect to the covered
policies then the required level of primary security may be reduced as follows.
a. If a reinsurance treaty cedes only a quota
share of some or all of the risks pertaining to the covered policies, the
required level of primary security, as well as any adjustment under
Subparagraph (c) below, may be reduced to a pro rata portion in accordance with
the percentage of the risk ceded;
b. If the reinsurance treaty in a nonexempt
arrangement cedes only the risks pertaining to a secondary guarantee, the
required level of primary security may be reduced by an amount determined by
applying the actuarial method on a gross basis to all risks, other than risks
related to the secondary guarantee, pertaining to the covered policies, except
that for covered policies for which the ceding insurer did not elect to apply
the provisions of VM-20 to establish statutory reserves, the required level of
primary security may be reduced by the statutory reserve retained by the ceding
insurer on those covered policies, where the retained reserve of those covered
policies should be reflective of any reduction pursuant to the cession of
mortality risk on a yearly renewable term basis in an exempt
arrangement;
c. If a portion of the
covered policy risk is ceded to another reinsurer on a yearly renewable term
basis in an exempt arrangement, the required level of primary security may be
reduced by the amount resulting by applying the actuarial method including the
reinsurance section of VM-20 to the portion of the covered policy risks ceded
in the exempt arrangement, except that for covered policies issued prior to
January 1, 2017, this adjustment is not to exceed [cx/2
* number of reinsurance premiums per year] where cx is
calculated using the same mortality table used in calculating the net premium
reserve; and
d. For any other
treaty ceding a portion of risk to a different reinsurer, including but not
limited to stop loss, excess of loss, and other nonproportional reinsurance
treaties, there will be no reduction in the required level of primary security.
NOTE: It is possible for any combination of Subparagraphs a, b, c, and d above to apply. Such adjustments to the required level of primary security will be done in the sequence that accurately reflects the portion of the risk ceded via the treaty. The ceding insurer should document the rationale and steps taken to accomplish the adjustments to the required level of primary security due to the cession of less than 100 percent of the risk.
The adjustments for other reinsurance will be made only with respect to reinsurance treaties entered into directly by the ceding insurer. The ceding insurer will make no adjustment as a result of a retrocession treaty entered into by the assuming insurers.
5. In no event will the required level of
primary security resulting from application of the actuarial method exceed the
amount of statutory reserves ceded.
6. If the ceding insurer cedes risks with
respect to covered policies, including any riders, in more than one reinsurance
treaty subject to this regulation, in no event will the aggregate required
level of primary security for those reinsurance treaties be less than the
required level of primary security calculated using the actuarial method as if
all risks ceded in those treaties were ceded in a single treaty subject to this
regulation.
7. If a reinsurance
treaty subject to this regulation cedes risk on both covered and noncovered
policies, credit for the ceded reserves shall be determined as follows:
a. The actuarial method shall be used to
determine the required level of primary security for the covered policies, and
§18311 shall be used to determine the
reinsurance credit for the covered policy reserves; and
b. Credit for the noncovered policy reserves
shall be granted only to the extent that security, in addition to the security
held to satisfy the requirements of Subparagraph a, is held by or on behalf of
the ceding insurer in accordance with
R.S.
22:651 and
R.S.
22:652. Any primary security used to meet the
requirements of this Subparagraph may not be used to satisfy the required level
of primary security for the covered policies.
B. For the purposes of both calculating the required level of primary security pursuant to the actuarial method and determining the amount of primary security and other security, as applicable, held by or on behalf of the ceding insurer, the following shall apply:
1. for assets, including any such assets held
in trust, that would be admitted under the NAIC Accounting Practices and
Procedures Manual if they were held by the ceding insurer, the valuations are
to be determined according to statutory accounting procedures as if such assets
were held in the ceding insurer's general account and without taking into
consideration the effect of any prescribed or permitted practices;
and
2. for all other assets, the
valuations are to be those that were assigned to the assets for the purpose of
determining the amount of reserve credit taken. In addition, the asset spread
tables and asset default cost tables required by VM-20 shall be included in the
actuarial method if adopted by the NAIC Life Actuarial (A) Task Force no later
than the December 31st on or immediately preceding the valuation date for which
the required level of primary security is being calculated. The tables of asset
spreads and asset default costs shall be incorporated into the actuarial method
in the manner specified in VM-20.
AUTHORITY NOTE: Promulgated in accordance with R.S. 22:11, 22:651, 22:652, 22:661, 22:753, and the Administrative Procedure Act, R.S. 49:950 et seq.
Disclaimer: These regulations may not be the most recent version. Louisiana may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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