Current through Register 1531, September 27, 2024
(1)
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 carrier,
in calculating segmented reserves and net premiums, either of the adjustments
described in 211 CMR 29.06(1)(a) or 211 CMR 29.06(1)(b) may be made:
(a) 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) 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)
Deficiency
Reserves.
(a) The deficiency
reserve at any duration shall be calculated:
1. On a unitary basis if the corresponding
basic reserve determined by 211 CMR 29.06(1) is unitary;
2. On a segmented basis if the corresponding
basic reserve determined by 211 CMR 29.06(1) is segmented; or
3. On the segmented basis if the
corresponding basic reserve determined by 211 CMR 29.06(1) is equal to both the
segmented reserve and the unitary reserve.
(b)211 CMR 29.06(2) 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
211
CMR 29.05(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
211
CMR 29.05(2).
(d) For deficiency reserves determined on a
segmented basis, the quantity A is determined using segment lengths equal to
those determined for segmented basic reserves.
(3)
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 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 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)
Unusual
Pattern of Guaranteed Cash Surrender Values.
(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 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.
(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 a. divided by b. as follows:
a. 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.
b. 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 211 CMR 29.06(4), 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:
1. 110% of the scheduled gross premium for
that year;
2.110% 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
3.5% of the first policy year surrender
charge, if any.
(5)
Optional Exemption for Yearly
Renewable Term (YRT) Reinsurance. At the option of the carrier,
the following approach for reserves on YRT 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
never be less than the tabular cost of insurance for the appropriate period, as
defined in 211 CMR 29.06(3).
(c)
Deficiency reserves.
1. For each policy year,
calculate the excess, if greater than zero, of the valuation net premium over
the respective maximum guaranteed gross premium.
2. 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 211 CMR 29.06(5)(c)1. above.
(d) For purposes of 211 CMR 29.06(5) the
calculations use the maximum valuation interest rate and the 1980 CSO mortality
tables with or without ten-year select mortality factors, or any other table
adopted after the effective date of
211 CMR 29.00 by the NAIC and
promulgated by regulation by the commissioner for this purpose.
(e) A reinsurance agreement shall be
considered YRT reinsurance for purposes of 211 CMR 29.06(5) if only the
mortality risk is reinsured.
(f) If
the assuming carrier chooses this optional exemption, the ceding carrier's
reinsurance reserve credit shall be limited to the amount of reserve held by
the assuming carrier for the affected policies.
(6)
Optional Exemption for
Attained-Age-Based Yearly Renewable Term (YRT) Life Insurance
Policies. At the option of the carrier, the following approach for
reserves for attained-age-based YRT 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
never be less than the tabular cost of insurance for the appropriate period, as
defined in 211 CMR 29.06(3).
(c)
Deficiency reserves.
1. For each policy year,
calculate the excess, if greater than zero, of the valuation net premium over
the respective maximum guaranteed gross premium.
2. 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 211 CMR 29.06(6)(c)2.
(d) For purposes of 211 CMR 29.06(6), the
calculations use the maximum valuation interest rate and the 1980 CSO valuation
tables with or without ten-year select mortality factors, or any other table
adopted after the effective date of
211 CMR 29.00 by the NAIC and
promulgated by regulation by the commissioner for this purpose.
(e) A policy shall be considered an
attained-age-based YRT life insurance policy for purposes of 211 CMR 29.06(6)
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 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
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 YRT policies after an initial period of coverage, the
approach of 211 CMR 29.06(6) 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 211 CMR
29.06(6)(e).
(g) 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 January
1, 2001.
(7)
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:
(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 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-year select mortality
factors; and
(c) There are no cash
surrender values in any policy year.
(8)
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:
(a) At issue, the insured is age 24 or
younger;
(b) 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
(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.
