Nevada Administrative Code
Chapter 681A - Kinds of Insurance; Reinsurance
Section 681A.Sec. 19 - NEW

Universal Citation: NV Admin Code 681A.Sec. 19

Current through September 16, 2024

1. Except as otherwise provided in this subsection, for a covered policy described in subsection 1 of section 8, the actuarial method is the greater of the deterministic reserve or the net premium reserve as set forth in the Valuation Manual, regardless of whether the criteria for exemption testing can be met. If the covered policy does not meet the requirements of the stochastic reserve exclusion test as set forth in the Valuation Manual, the actuarial method is the greatest of the deterministic reserve, the stochastic reserve or the net premium reserve, as set forth in the Valuation Manual. If a covered policy described in this subsection is reinsured in a reinsurance treaty that also contains a covered policy described in subsection 2 of section 8, the ceding insurer may elect to use the actuarial method described in subsection 2 for the entire reinsurance agreement. Any actuarial method used pursuant to this subsection must comply with the requirements and restrictions that the Valuation Manual imposes on the aggregation of different types of covered policies for purposes of principle-based reserve calculations.

2. For a covered policy described in subsection 2 of section 8, the actuarial method is the greatest of the deterministic reserve, the stochastic reserve or the net premium reserve as set forth in the Valuation Manual, regardless of whether the criteria for exemption testing can be met.

3. Except as otherwise provided in subsection 4, the actuarial method must be applied on a gross basis to all risks with respect to a covered policy as originally issued or assumed by the ceding insurer.

4. Except as otherwise provided in subsection 5, if a reinsurance treaty cedes less than 100 percent of the risk pertaining to its covered policies, 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 its covered policies, the required level of primary security, as well as any applicable adjustment made pursuant to paragraph (c), may be reduced to a pro rata portion in accordance with the percentage of the risk ceded.

(b) If a 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, except for risks related to the secondary guarantee, pertaining to its covered policies, except that for covered policies for which the ceding insurer did not elect to apply the provisions of the Valuation Manual to establish statutory reserves, the required level of primary security may be reduced by the statutory reserve retained by the ceding insurer on such covered policies, where the retained reserve of the covered policies is 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 risk associated with the covered policies in a reinsurance treaty 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 determined by applying the actuarial method, including, without limitation, the reinsurance section of the Valuation Manual, to the portion of the risks associated with the covered policies ceded in the exempt arrangement, except for the covered policies issued before January 1, 2017, for which the adjustment is not to exceed, where c x is calculated using the same mortality table used in calculating the net premium reserve.

5. If a reinsurance treaty cedes a portion of risk to a different reinsurer, including, without limitation, stop loss, excess of loss or any other nonproportional reinsurance treaty, the required level of primary security may not be reduced.

6. If more than one of the scenarios described in paragraph (a), (b) or (c) of subsection 4 or in subsection 5 applies to a reinsurance treaty, any adjustment to the required level of primary security must be done in the order that accurately reflects the portion of the risk ceded via the treaty. The ceding insurer shall 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 may not make an adjustment as a result of a retrocession treaty entered into by the assuming insurers.

7. Regardless of the actuarial method applied pursuant to this section, the required level of primary security may never exceed the amount of statutory reserves ceded.

8. If the ceding insurer cedes risks pertaining to covered policies in more than one reinsurance treaty, including, without limitation, any riders, the aggregate required level of primary security for such reinsurance treaties may not be less than the required level of primary security calculated using the actuarial method if all risks ceded in those treaties were ceded in a single reinsurance treaty.

9. If a reinsurance treaty cedes risk on both covered policies and noncovered policies, credit for the ceded reserves must be determined as follows:

(a) The actuarial method must be used to determine the required level of primary security for the covered policies and the amount of reinsurance credit for the covered policy reserves must be determined pursuant to section 20.

(b) Credit for the noncovered policy reserves must be granted only to the extent that security, in addition to security held to satisfy the requirements of paragraph (a), is held by or on behalf of the ceding insurer in accordance with NRS 681A.140 to 681A.240, inclusive, and NAC 681A.400 to 681A.520, inclusive. Any primary security used to meet the requirements of this paragraph may not be used to satisfy the required level of primary security for covered policies.

10. For the purposes of calculating the required level of primary security pursuant to this section and determining the amount of primary security and other security, as applicable, held by or on behalf of the ceding insurer, the following conditions and limitations shall apply:

(a) For assets held in trust that would be admitted under the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners if the assets were held by the ceding insurer, the valuations must be determined according to statutory accounting procedures as if the assets were held in the ceding insurer's general account and without taking into consideration the effect of any prescribed or permitted practices.

(b) For all other assets not described in paragraph (a), the valuations are those that were assigned to the assets for the purpose of determining the amount of reserve credit taken. Additionally, the asset spread tables and asset default costs tables required by the Valuation Manual must be included in the actuarial method if such tables are adopted by the Life Actuarial (A) Task Force of the National Association of Insurance Commissioners not later than December 31 of any given year on or immediately preceding the valuation date for which the required level of primary security is being calculated. The asset spread tables and asset default cost tables must be incorporated into the actuarial method in the manner specified in the Valuation Manual.

Added to NAC by Comm'r of Insurance by R187-22A, eff. 12/14/2022

NRS 679B.130, 681A.130, 681A.145

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