Ohio Administrative Code
Title 3901 - Department of Insurance
Chapter 3901-6 - Life Insurance
Section 3901-6-07 - Universal life insurance
Current through all regulations passed and filed through September 16, 2024
(A) Purpose
The purpose of this rule is to supplement existing regulations on life insurance policies in order to accommodate the development and issuance of universal life insurance plans.
(B) Authority
This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041, 3903.72 to 3903.7211, 3915.05, 3915.07 to 3915.073, 3915.09, 3915.14, and 3921.16 of the Revised Code.
(C) Scope
This rule applies to all individual universal life insurance policies and group universal life insurance certificates except those policies defined under paragraph (C)(19) of rule 3901-6-08 of the Administrative Code (variable life insurance).
(D) Definitions
As used in this rule:
(E) Valuation
The minimum valuation standard for universal life insurance policies shall be the commissioners reserve valuation method, described in this paragraph for such policies, and the tables and interest rates specified in this paragraph. The terminal reserve for the basic policy and any benefits and/or riders for which premiums are not paid separately as of any policy anniversary shall be equal to the net level premium reserves less (C) and less (D), where:
Reserves by the net level premium method shall be equal to ((A)-(B))r where (A), (B) and "r" are as defined in this paragraph.
PVFB is the present value of all benefits guaranteed at issue assuming future guaranteed maturity premiums are paid by the policyowner and taking into account all guarantees contained in the policy or declared by the insurer, 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,
x is the issue age, and
t is the duration of the policy.
"r" is equal to 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.
((a)-(b)) (ax+t/ax) r where
ax+t, ax and r are as defined in this paragraph.
The guaranteed maturity premium, the guaranteed maturity fund and (B) in this paragraph shall be recalculated to reflect any structural changes in the policy. This recalculation shall be done in a manner consistent with the descriptions in this paragraph.
The recalculation of (B) in this paragraph, for fixed premium universal life structural changes, shall exclude from PVFB, the present value of future guaranteed benefits, those guaranteed benefits which are funded by the excess of the insurer's declared guarantees of interest, mortality and expenses, over the guarantees contained in the policy at the date of issue.
Future guaranteed benefits are determined by (A) in this paragraph 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, expense deductions, etc., contained in the policy or declared by the insurer; and (B) in this paragraph taking into account any benefits guaranteed in the policy or by declaration which do not depend on the account value.
All present values shall be determined using (A) in this paragraph an interest rate (or rates) specified by section 3903.723 or 3903.724 of the Revised Code, for policies issued in the same year; (B) in this paragraph the mortality rates specified by section 3903.723 of the Revised Code, for policies issued in the same year or contained in such other table as may be approved by the superintendent for this purpose; and (C) in this paragraph any other tables needed to value supplementary benefits provided by a rider which is being valued together with the policy.
The reserve shall never be less than the greater of (A) in this paragraph the amount determined by the method in this paragraph, or (B) in this paragraph the cash surrender value.
If, in any policy year, the guaranteed maturity premium on any universal life insurance policy is less than the valuation net premium for such policy, calculated by the valuation method actually used in calculating the reserve thereon but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for such contract shall be the greater of (A) or (B) in this paragraph.
For universal life insurance reserves on a net level premium basis, the valuation net premium is PVFB/ax and for reserves on a commissioners reserve valuation method, the valuation net premium is (PVFB/ax) + ((a) - (b))/ax.
(F) Nonforfeiture
Minimum cash surrender values for flexible premium universal life insurance policies shall be determined separately for the basic policy and any benefits and riders for which premiums are paid separately. The following requirements pertain to a basic policy and any benefits and riders for which premiums are not paid separately.
The minimum cash surrender value (before adjustment for indebtedness and dividend credits) available on a date as of which interest is credited to the policy shall be equal to the accumulation to that date of the premiums paid minus the accumulations to that date of:
All accumulations shall be at the actual rate or rates of interest at which interest credits have been made unconditionally to the policy (or have been made conditionally, but for which the conditions have since been met), less any unamortized unused initial and additional expense allowances.
Interest on the premiums and on all charges referred to in paragraphs (F)(1)(a) to (F)(1)(f) of this rule shall be accumulated from and to such dates as are consistent with the manner in which interest is credited in determining the account value.
The benefit charges shall include the charges made for mortality and any charges made for riders or supplementary benefits for which premiums are not paid separately. If benefit charges are substantially level by duration and develop low or no cash values, then the superintendent shall have the right to require higher cash values unless the insurer provides adequate justification that the cash values are appropriate in relation to the policy's other characteristics.
The administrative expense charges shall include charges per premium payment, charges per dollar of premium paid, periodic charges per thousand dollars of insurance, periodic per policy charges, and any other charges permitted by the policy to be imposed without regard to the policyowner's request for services.
The averaged administrative expense charges for any year shall be those which would have been imposed in that year if the charge rate or rates for each transaction or period within the year had been equal to the arithmetic average of the corresponding charge rates which the policy states will be imposed in policy years two through twenty in determining the account value.
The initial acquisition expense charges shall be the excess of the expense charges, other than service charges, actually made in the first policy year over the averaged administrative expense charges for that year. Additional acquisition expense charges shall be the excess of the expense charges, other than service charges, actually made in an insurance-increase year over the averaged administrative expense charges for that year. An insurance-increase year shall be the year beginning on the date of increase in the amount of insurance by policyowner request (or by the terms of the policy).
Service charges shall include charges permitted by the policy to be imposed as the result of a policyowner's request for a service by the insurer or of special transactions.
The initial expense allowance shall be the allowance provided by divisions (D) and (E) of section 3915.07 of the Revised Code or by divisions (D)(1) and (D)(2) of section 3915.071 of the Revised Code, as applicable, for a fixed premium, fixed benefit endowment policy with a face amount equal to the initial face amount of the flexible premium universal life insurance policy, with level premiums paid annually until the highest attained age at which a premium may be paid under the flexible premium universal life insurance policy, and maturing on the latest maturity date permitted under the policy, if any, otherwise at the highest age in the valuation mortality table. The unused initial expense allowance shall be the excess, if any, of the initial expense allowance over the initial acquisition expense charges as defined in this rule.
If the amount of insurance is subsequently increased upon request of the policyowner (or by the terms of the policy), an additional expense allowance and an unused additional expense allowance shall be determined on a basis consistent with this rule and with division (D)(4)(d) of section 3915.071 of the Revised Code, using the face amount and the latest maturity date permitted at that time under the policy.
The unamortized unused initial expense allowance during the policy year beginning on the policy anniversary at age x+t (where "x" is the same issue age) shall be the unused initial expense allowance multiplied by ax+t/ax where ax+t and ax are present values of an annuity of one per year payable on policy anniversaries beginning at ages x+t and x, respectively, and continuing until the highest attained age at which a premium may be paid under the policy, both on the mortality and interest bases guaranteed in the policy. An unamortized unused additional expense allowance shall be the unused additional expense allowance multiplied by a similar ratio of annuities, with ax replaced by an annuity beginning on the date as of which the additional expense allowance was determined.
For fixed premium universal life policies, the minimum cash surrender values shall be determined separately for the basic policy and any benefits and riders for which premiums are paid separately. The following requirements pertain to a basic policy and any benefits and riders for which premiums are not paid separately.
The minimum cash surrender value (before adjustment for indebtedness and dividend credits) available on a date as of which interest is credited to the policy shall be equal to ((A)-(B)-(C)-(D) in this paragraph), where:
Where PVFB is the present value of all benefits guaranteed at issue assuming future premiums are paid by the policyowner and all guarantees contained in the policy or declared by the insurer.
ax is the present value of an annuity of one per year payable on policy anniversaries beginning at age x and continuing until the highest attained age at which a premium may be paid under the policy.
Future guaranteed benefits are determined by (a) projecting the account value, taking into account future premiums, if any, and using all guarantees of interest, mortality, expense deductions, etc., 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.
All present values shall be determined using (a) an interest rate (or rates) specified by section 3915.07 or 3915.071 of the Revised Code for policies issued in the same year and (b) the mortality rates specified by section 3915.07 or 3915.071 of the Revised Code for policies issued in the same year or contained in such other table as may be approved by the superintendent for this purpose.
If a universal life insurance policy provides for the optional election of a paid-up nonforfeiture benefit, it shall be such that its present value shall be at least equal to the cash surrender value provided for by the policy on the effective date of the election. The present value shall be based on mortality and interest standards at least as favorable to the policyowner as (a) in the case of a flexible premium universal life insurance policy, the mortality and interest basis guaranteed in the policy for determining the account value, or (b) in the case of a fixed premium policy the mortality and interest standards permitted for paid-up nonforfeiture benefits by section 3915.07 or 3915.071 of the Revised Code. In lieu of the paid-up nonforfeiture benefit, the insurer may substitute, upon proper request not later than sixty days after the due date of the premium in default, an actuarially equivalent alternative paid-up nonforfeiture benefit which provides a greater amount or longer period of death benefits, or, if applicable, a greater amount or earlier payment of endowment benefits.
Any secondary guarantees should be taken into consideration when computing minimum paid-up nonforfeiture benefits.
To preserve equity between policies on a premium paying basis and on a paid-up basis, present values must comply with paragraph (E)(1) of this rule for flexible premium universal life insurance policies and with paragraph (F)(2) of this rule for fixed premium policies.
A charge may be made at the surrender of the policy provided that the result after the deduction of the charge is not less than the minimum cash surrender value required by this paragraph.
(G) Mandatory policy provisions
The policy shall provide the following:
The policy shall provide that the policyowner will be sent, without charge, at least annually, a report which will serve to keep such policyowner advised as to the status of the policy. The end of the current report period must be not more than three months previous to the date of the mailing of the report.
Such report shall include the following:
If, assuming guaranteed interest, mortality and expense loads and continued scheduled premium payments, the policy's net cash surrender value is such that it would not maintain insurance in force until the end of the next reporting period, a notice to this effect shall be included in the report.
If, assuming guaranteed interest, mortality and expense loads, the policy's net cash surrender value will not maintain insurance in force until the end of the next reporting period unless further premium payments are made, a notice to this effect shall be included in the report.
The policy shall provide guarantees of minimum interest credits and maximum mortality and expense charges. All values and data shown in the policy shall be based on guarantees. No figures based on nonguarantees shall be included in the policy. Minimum and maximum guarantees are in addition to any index guarantees. If "guaranteed" credits and/or charges are also the "current" credits and/or charges, such amounts may be included in the policy if clearly labeled. The maturity date is not considered a guarantee for purposes of this rule.
The policy shall contain at least a general description of the calculation of cash surrender values including the following information:
For fixed premium universal life insurance policies, a table of the cash surrender value and/or nonforfeiture benefits must be shown for the first twenty policy years or the terms of the policy, if shorter.
If the policyowner has the right to change the basic coverage, any limitation on the amount or timing of such change shall be stated in the policy. If the policyowner has the right to increase the basic coverage, the policy shall state whether a new period of contestability and/or suicide is applicable to the additional coverage.
The policy shall provide for written notice to be sent to the policyowner's last known address at least thirty days prior to termination of coverage.
A flexible premium policy shall provide for a grace period of at least one month after lapse. Unless otherwise defined in the policy, lapse shall occur on that date on which the net cash surrender value first equals zero.
A fixed premium policy shall provide for a grace period of at least one month after lapse.
If there is a misstatement of age or sex in the policy, the amount of the death benefit shall be that which would be purchased by the most recent mortality charge at the correct age or sex. The superintendent may approve other methods which are deemed satisfactory.
If a policy provides for a "maturity date," "end date," or similar date, then the policy shall also contain a statement, in close proximity to that date, that it is possible that coverage may not continue to the maturity date even if scheduled premiums are paid in a timely manner, if such is the case.
(H) Interest-indexed universal life insurance policies
The following information shall be submitted in connection with any filing of interest-indexed universal life insurance policies ("interest-indexed policies").
"I, ____________ (name), am ____________ (position or relationship to insurer) for the xyz life insurance company (the insurer) in the state of ____________________ (state of domicile of insurer).
I am a member of the "American Academy of Actuaries" and I fulfill the requirements of a qualified actuary as defined in division (B)(9) of section 3903.72 of the Revised Code.
I have considered the provisions of the policies. I have considered any reinsurance agreements pertaining to such policies, the characteristics of the identified assets and the investment policy adopted by the insurer as they affect future insurance and investment cash flows under such policies and related assets. My examination included such tests and calculations as I considered necessary to form an opinion concerning the insurance and investment cash flows arising from the policies and related assets.
I relied on the investment policy of the insurer and on projected investment cash flows.
The tests were conducted under various assumptions as to future interest rates, and particular attention was given to those provisions and characteristics that might cause future insurance and investment cash flows to vary with changes in the level of prevailing interest rates.
In my opinion, the anticipated insurance and investment cash flows referred to above make good and sufficient provision for the contractual obligations of the insurer under these insurance policies."
_____________________________ signature of actuary
If the actuary has not examined the underlying records but has relied upon listings and summaries of policies in force, an appropriate statement of such reliance should be included here.
If the actuary has not developed the investment cash flows, but has relied upon someone else, an appropriate statement of such reliance should be included with this statement.
(I) Severability
If any paragraph, term or provision of this rule is adjudged invalid for any reason, the judgment shall not affect, impair or invalidate any other paragraph, term or provision of this rule, but the remaining paragraphs, terms and provisions shall be and continue in full force and effect.
