Current through Supplement No. 394, October, 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 insurer, in calculating segmented reserves and net
premiums, either of the adjustments described in subdivision a or 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 subsection 1 is unitary;
(2) On a segmented basis if the
corresponding basic reserve determined by subsection 1 is segmented; or
(3) On the segmented basis if the
corresponding basic reserve determined by subsection 1 is equal to both the
segmented reserve and the unitary reserve.
b. This subsection 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 subsection 2 of section
45-04-12-03, 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 subsection 2 of section
45-04-12-03.
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 midterminal 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 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, when 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, when:
(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;
(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 subparagraph a divided by subparagraph 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 subsection, 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) One hundred ten
percent of the scheduled gross premium for that year;
(2) One hundred ten 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.
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
determined under subsection 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 paragraph 1.
d. For purposes of this subsection, 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 promulgated by rule by the commissioner for this purpose.
e. A reinsurance agreement shall
be considered yearly renewable term reinsurance for purposes of this subsection
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.
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 paragraph 3 of subdivision f.
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 paragraph 1.
d. For purposes of this subsection, 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 Janaury 1, 2000, by the national association of insurance
commissioners and promulgated 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 subsection 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 subsection 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 subdivision 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.
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 valuation 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
twenty-four or younger;
b. Until
the insured reaches the end of the juvenile period, which shall occur at or
before age twenty-five, 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.
General Authority: NDCC 28-32-02
Law Implemented: NDCC
26.1-35
