New York Codes, Rules and Regulations
Title 11 - INSURANCE
Chapter IV - Financial Condition Of Insurer and Reports to Superintendent
Subchapter B - Life Insurers
Part 98 - Valuation Of Life Insurance Reserves
Section 98.7 - Minimum reserves for universal life insurance policies

Universal Citation: 11 NY Comp Codes Rules and Regs ยง 98.7

Current through Register Vol. 46, No. 39, September 25, 2024

(a) General requirements.

(1) In addition to the requirements of this subdivision, the requirements of section 98.4(a)(1)(i), (2)-(3), (5), (b)(4)-(7), (c)-(d), (i) and (k)-(u) of this Part shall apply to universal life insurance policies. Variable universal life insurance policies are also subject to section 98.8 of this Part.

(2) Fixed premium universal life insurance policy means a universal life insurance policy other than a flexible premium universal life insurance policy.

(3) Flexible premium universal life insurance policy means a universal life insurance policy that permits the policyholder to vary, independently of each other, the amount or timing of one or more premium payments.

(4) Guaranteed maturity premium for flexible premium universal life insurance policies shall be that level gross premium, paid at issue and periodically thereafter over the period during which premiums are allowed to be paid, which will mature the policy on the latest maturity date, if any, permitted under the policy (otherwise at the highest age in the valuation mortality table), for an amount which is in accordance with the policy structure. The guaranteed maturity premium is calculated at issue based on all policy guarantees at issue. The guaranteed maturity premium for fixed premium universal life insurance policies shall be the premium defined in the policy which at issue provides the minimum policy guarantees.

(5) Guaranteed maturity fund at any duration is that amount which, together with future guaranteed maturity premiums, will mature the policy based on all policy guarantees at issue.

(6) Account value for purposes of this section means the amount to which interest credits and/or mortality charges and/or expense charges are made under a universal life insurance policy.

(7) Basic reserves.
(i) Basic reserves shall never be less than the greater of:
(a) net level premium reserves less the unamortized expense allowance; or

(b) the cash surrender value.

(ii) Net level premium reserves for the purpose of this subdivision shall equal (A-B)r where A, B, and r are defined in this subparagraph.
(a) A = the present value of all future guaranteed benefits at the date of valuation.

(b) B = (PVFB/ax) ax+t where:
(1) PVFB is the present value of all benefits guaranteed at issue assuming future guaranteed maturity premiums are paid by the policyholder and taking into account all guarantees contained in the policy or declared by the insurer;

(2) ax and ax+t are present values of an annuity of one per year payable on policy anniversaries beginning at ages x and x+t, respectively, and continuing until the highest attained age at which a premium may be paid under the policy;

(3) x is the issue age; and

(4) t is the duration of the policy;

(c) r = one, unless the policy is a flexible premium policy and the account value is less than the guaranteed maturity fund, in which case r is the ratio of the account value to the guaranteed maturity fund.

(iii) The unamortized expense allowance shall equal (C-D)(ax+t /ax)r where:
(a) ax+t, ax and r are as defined in subparagraph (ii) of this paragraph;

(b) C = a net level annual premium equal to the present value, at the date of issue based on the plan of insurance defined at issue by the guaranteed maturity premiums and all guarantees contained in the policy or declared by the insurer, of life insurance and endowment benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per annum payable on the first and each subsequent anniversary of such policy on which a premium is allowed to be paid; provided, however, that such net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan for insurance of the same amount at an age one year higher than the age at issue of such policy; and

(c) D = a net one-year term premium for such benefits provided for in the first policy year.

(iv) In the case of structural changes initiated by the policyholder which are separate from the automatic workings of the policy, expense allowances associated with such changes shall be amortized on a basis consistent with subparagraph (iii) of this paragraph.

(v) Future guaranteed benefits are determined by:
(a) projecting the greater of the guaranteed maturity fund and the account value, taking into account future guaranteed maturity premiums, if any, and using all guarantees of interest, mortality, and expense deductions contained in the policy or declared by the insurer; and

(b) taking into account any benefits guaranteed in the policy or by declaration which do not depend on the account value.

(vi) All present values shall be determined using:
(a) the maximum valuation interest rate based on the date of issue of the policy; and

(b) the minimum mortality standards allowable for calculating basic reserves.

(vii) In lieu of the methods described in subparagraphs (i) through (vi) of this paragraph, for policies issued prior to January 1, 2000, a company may use the mean of the cash surrender value and the account value as the basic reserve.

(8) Deficiency reserves.
(i) This paragraph shall apply to any universal life insurance policy for which the guaranteed maturity premium at any future duration is less than the corresponding valuation net premium calculated as (PVFB + C-D)/ax using the maximum allowable valuation interest rate and the minimum mortality standards allowable for calculating deficiency reserves.

(ii) Deficiency reserves shall be calculated as the excess, if any, of alternate minimum reserves as defined in subparagraph (iii) of this paragraph, over basic reserves.

(iii) Alternate minimum reserves shall be determined by calculating the basic reserves as described in subparagraphs (7)(i) through (vi) of this subdivision for the policy:
(a) using:
(1) the method described in subparagraphs (7)(i) through (vi) of this subdivision;

(2) the maximum allowable valuation interest rate; and

(3) the minimum mortality standards allowable for calculating deficiency reserves; and

(b) replacing the valuation net premium by the guaranteed maturity premium in each contract year for which the valuation net premium exceeds the guaranteed maturity premium.

(b) Additional requirements for universal life insurance policies that contain provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee.

(1) Policies with specified premiums.
(i) Secondary guarantee for purposes of this paragraph and section 98.9 of this Part means a guarantee that the policy will remain in force at the original schedule of benefits subject only to the payment of specified premiums. For policies issued prior to January 1, 2000, secondary guarantees not exceeding five years are excluded.

(ii) Secondary guarantee period for purposes of this section means the period for which the policy is guaranteed to remain in force based on a secondary guarantee, as defined in this paragraph and paragraph (2) of this subdivision. When a policy contains more than one secondary guarantee, the minimum reserve shall be the greatest of the respective minimum reserves at that valuation date of each unexpired secondary guarantee, ignoring all other secondary guarantees. Reserves for policies for which any secondary guarantee has been unilaterally changed by the insurer after issue shall be the greatest of the following:
(a) reserves calculated ignoring the after-issue guarantee;

(b) reserves assuming the after-issue guarantee was made at issue; and

(c) reserves assuming that the policy was issued on the date of the after-issue guarantee.

(iii) Specified premiums for purposes of this paragraph means the premiums specified in the policy, the payment of which guarantees that the policy will remain in force at the original schedule of benefits (or, in the case of a structural change initiated by the policyholder, the new schedule of benefits after such change) but which otherwise would be insufficient to keep the policy in force in absence of such guarantee if policy maximum mortality and expense charges and minimum guaranteed interest credits were made and any applicable surrender charges were assessed. Specified premiums may be stated directly or implied. For example, specified premiums may be implied via a guarantee that the policy will not lapse if the accumulation of premiums less withdrawals as of any given date is greater than or equal to zero or exceeds a certain dollar amount. Such accumulation may or may not reflect interest and/or deductions for cost of insurance or expense.

(iv) Basic reserves for the specified premium secondary guarantees. Basic reserves for the specified premium secondary guarantees shall be determined in accordance with sections 98.4 through 98.6 of this Part treating the policy as a policy with expiry at the end of the secondary guarantee period and using the specified premiums as the gross premiums. The minimum statutory valuation mortality and interest assumptions can be used. For universal life policies that guarantee that coverage will remain in force as long as the accumulation of premiums paid satisfies the secondary guarantee requirement, issued on or after January 1, 2015 and prior to January 1, 2017, or on or after January 1, 2015 and prior to January 1, 2020 if optionally elected under section 100.12(b) of this Title (Insurance Regulation 179), recognition of mortality improvement, as specified in section 100.12 of this Title (Insurance Regulation 179), may be applied. The specified premiums shall be used as the gross premiums for the application of the Contract Segmentation Method. Unitary reserves shall be calculated assuming the end of the secondary guarantee period is the mandatory expiry date of the policy.

(v) Deficiency reserves for the specified premium secondary guarantees. Deficiency reserves for the specified premium secondary guarantees, if any, shall be calculated for the secondary guarantee period in accordance with sections 98.4 through 98.6 of this Part treating the policy as a policy with expiry at the end of the secondary guarantee period and using the specified premiums as the gross premiums. For universal life policies that guarantee that coverage will remain in force as long as the accumulation of premiums paid satisfies the secondary guarantee requirement, issued on or after January 1, 2015 and prior to January 1, 2017, or on or after January 1, 2015 and prior to January 1, 2020 if optionally elected under section 100.12(b) of this Title (Insurance Regulation 179), recognition of mortality improvement, as specified in section 100.12 of this Title (Insurance Regulation 179), may be applied.

(vi) The minimum reserve during the secondary guarantee period shall be the greater of:
(a) the basic reserve for the specified premium secondary guarantees plus the deficiency reserve for the specified premium secondary guarantees, if any; and

(b) the minimum reserve otherwise required in accordance with this section.

(vii) This paragraph shall not apply to any secondary guarantee satisfying all of the following requirements:
(a) secondary guarantee period is five years or less;

(b) specified premium for the secondary guarantee period is not less than the net level reserve premium for the secondary guarantee period based on the 1980 CSO tables without 10-year select mortality factors and the applicable valuation interest rate; and

(c) the initial surrender charge is not less than 100 percent of the first year annualized specified premium for the secondary guarantee period.

(2) Policies with significant cost of insurance guarantees.
(i) A policy is considered as having a secondary guarantee for purposes of this paragraph if the minimum premium, at any future duration, is less than the corresponding one-year valuation premium calculated using the maximum valuation interest rate and the 1980 CSO table with or without 10-year select mortality factors. The special optional minimum mortality standards as defined in section 98.4 of this Part shall not be used for the purpose of this subparagraph. For policies issued prior to January 1, 2000, secondary guarantees not exceeding five years are excluded.

(ii) The minimum premium for purposes of this paragraph means the premium which if paid into a policy with a zero account value at the beginning of the policy year, would produce a zero account value at the end of that policy year assuming the guaranteed mortality and expense charges are assessed and assuming the guaranteed interest rate is credited. The minimum premiums for all policy years are calculated at issue, and at the time of any structural changes initiated by the policyholder which are separate from the automatic workings of the policy.

(iii) The one-year valuation premium for purposes of this paragraph means the tabular cost of insurance based on the original schedule of benefits (or, in the case of a structural change initiated by the policyholder, the new schedule of benefits after such change) for a given contract year. The one-year valuation premiums for all contract years are calculated at issue, and at the time of any structural changes initiated by the policyholder which are separate from the automatic workings of the policy.

(iv) Basic reserves for the significant cost of insurance secondary guarantees. Basic reserves for the significant cost of insurance secondary guarantees shall be determined in accordance with sections 98.4 through 98.6 of this Part using the specified premiums (as defined in paragraph [1] of this subdivision), if any, or otherwise the minimum premiums as the gross premiums. The minimum statutory valuation mortality and interest assumptions can be used. The specified premiums (as defined in paragraph [1] of this subdivision), if any, or otherwise the minimum premiums shall be used as the gross premiums for the application of the contract segmentation method.

(v) Deficiency reserves for the significant cost of insurance secondary guarantees. Deficiency reserves for the significant cost of insurance secondary guarantees, if any, shall be calculated in accordance with sections 98.4 through 98.6 of this Part using the specified premiums (as defined in paragraph [1] of this subdivision), if any, or otherwise the minimum premiums as the gross premiums.

(vi) The minimum reserve shall be the greater of:
(a) the basic reserve for the significant cost of insurance secondary guarantees plus the deficiency reserve for the significant cost of insurance secondary guarantees, if any; and

(b) the minimum reserve otherwise required in accordance with this section.

(c) Reserves for any policy that guarantees other than payment of cash surrender value at the age at the end of the applicable valuation mortality table shall be calculated, before and after the age at the end of the applicable valuation mortality table, assuming the policy endows at the age at the end of the applicable valuation mortality table for the death benefit at the age at the end of the applicable valuation mortality table. For example, the policy guarantees continuation beyond the age at the end of the applicable valuation mortality table for the full face amount so long as the cash surrender value is greater than zero at the age at the end of the applicable valuation mortality table. For purposes of this Part, the specified premiums in such case are the minimum premiums required to achieve such guarantee.

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