Code of Massachusetts Regulations
211 CMR - DIVISION OF INSURANCE
Title 211 CMR 59.00 - Term and Universal Life Insurance Reserve Financing
Section 59.05 - The Actuarial Method

(a) For Covered Policies that are life insurance policies with guaranteed non-level gross premiums and/or guaranteed non-level gross benefits, except for flexible premium universal life insurance, 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 that are flexible premium universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee, the ceding insurer may elect to instead use 211 CMR 59.05(1)(b) as the Actuarial Method for the entire reinsurance agreement. Whether 211 CMR 59.05(1)(a) or (b) 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.

(b) For Covered Policies that are flexible premium universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period, 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.

(c) Except as provided in 211 CMR 59.05(1)(d), 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.

(d) If the reinsurance treaty cedes less than 100% of the risk with respect to the Covered Policies then the Required Level of Primary Security may be reduced as follows:

(e) In no event will the Required Level of Primary Security resulting from application of the Actuarial Method exceed the amount of statutory reserves ceded.

(f) If the ceding insurer cedes risks with respect to Covered Policies, including any riders, in more than one reinsurance treaty subject to 211 CMR 59.00, 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 211 CMR 59.00;

(g) If a reinsurance treaty subject to 211 CMR 59.00 cedes risk on both Covered and NonCovered Policies, credit for the ceded reserves shall be determined as follows:

(a) 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

(b) 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's 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.