Current through Register Vol. 49, No. 13, September 23, 2024
Subpart 1.
Basic reserves.
Basic reserves are calculated as the greater of the segmented
reserves and the unitary reserves. Both the segmented reserves and the unitary
reserves for a 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 items A and 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; or
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.
Subp. 2.
Deficiency
reserves.
A. The deficiency reserve at
any duration is calculated on:
(1) a unitary
basis if the corresponding basic reserve determined by subpart
1 is unitary;
(2) a segmented basis if the corresponding
basic reserve determined by subpart
1 is segmented; or
(3) the segmented basis if the corresponding
basic reserve determined by subpart
1 is equal to both the
segmented reserve and the unitary reserve.
B. This subpart applies to a 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
part
2747.0030, subpart
2, and rate of
interest.
C. Deficiency reserves,
if any, are 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 quantity A is obtained as indicated in part
2747.0030, subpart
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.
Subp. 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 National Association of Insurance
Commissioners 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 policyowner would receive, including the cash surrender value of the
supplemental benefits, if any, exclusive of any deduction for policy loans,
upon termination of the policy.
Subp.
4.
Unusual pattern of guaranteed cash surrender
values.
A. For a policy with an unusual
pattern of guaranteed cash surrender values, the reserves actually held before
the first unusual guaranteed cash surrender value must 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 must 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 before 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;
(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 unit (a) divided by unit (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 this subpart, 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 percent of the scheduled gross
premium for that year;
(2) 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
(3) five
percent of the first policy year surrender charge, if any.
Subp. 5.
Optional exemption
for yearly renewable term reinsurance.
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 never
be less than the tabular cost of insurance for the appropriate period, as
defined in subpart
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 subitem (1).
D. For purposes of this subpart, 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 January 1, 2000, by the National Association of Insurance
Commissioners and adopted by rule by the commissioner for this
purpose.
E. A reinsurance agreement
shall be considered yearly renewable term reinsurance for purposes of this
subpart 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.
Subp. 6.
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 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 never be less than the tabular cost of insurance for the
appropriate period, as defined in subpart
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 subitem (1).
D. For purposes of this subpart, 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 January 1, 2000, by the National Association of Insurance
Commissioners and adopted by rule by the commissioner for this
purpose.
E. A policy shall be
considered an attained-age-based yearly renewable term life insurance policy
for purposes of this subpart 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 yearly renewable term policies after an initial period of
coverage, the approach of this subpart 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 item
E.
G. If this election
is made, this approach shall be applied in determining reserves for all
attained-age-based yearly renewable term life insurance policies issued on or
after January 1, 2000.
Subp.
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.
Subp. 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.
Statutory Authority: MS s
45.023;
61A.25
