Current through September 18, 2024
A. 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 §§
8.6(A)(1) or (2)
of this Part below may be made:
1. 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.
2. 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.
B. Deficiency Reserves
1. The deficiency reserve at any duration
shall be calculated:
a. On a unitary basis if
the corresponding basic reserve determined by §
8.6(A) of this Part is
unitary;
b. On a segmented basis if
the corresponding basic reserve determined by §
8.6(A) of this Part is
segmented; or
c. On the segmented
basis if the corresponding basic reserve determined by §
8.6(A) of this
Part is equal to both the segmented reserve and the unitary reserve.
2. 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 §
8.5(B) of this Part) and rate of
interest.
3. 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 §
8.5(B) of this
Part.
4. For deficiency reserves
determined on a segmented basis, the quantity A is determined using segment
lengths equal to those determined for segmented basic reserves.
C. 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 NAIC 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, referred to above), exclusive of
any deduction for policy loans, upon termination of the policy.
D. Unusual Pattern of Guaranteed Cash
Surrender Values
1. 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, where n is the number of years from the date of issue to the
date the unusual cash surrender value is scheduled.
2. 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, where
a. 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:
(1) The date of the next
unusual guaranteed cash surrender value, if any, that is scheduled after the
valuation date; or
(2) The
mandatory expiration date of the policy; and
b. 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
c.
The net to gross ratio is equal to Item (1) divided by Item (2) as follows:
(1) 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.
(2) The present value,
at the beginning of the n year period, of the scheduled gross premiums payable
during the n year period.
3. 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:
a. One hundred ten percent (110%) of the
scheduled gross premium for that year;
b. One hundred ten percent (110%) 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
c. Five percent (5%) of the
first policy year surrender charge, if any.
E. Optional Exemption for Yearly Renewable
Term Reinsurance. At the option of the company, the following approach for
reserves on YRT reinsurance may be used.
1.
Calculate the valuation net premium for each future policy year as the tabular
cost of insurance for that future year.
2. Basic reserves shall never be less than
the tabular cost of insurance for the appropriate period, as defined in
§
8.6(C) of this Part.
3.
Deficiency reserves.
a. For each policy year,
calculate the excess, if greater than zero, of the valuation net premium over
the respective maximum guaranteed gross premium.
b. 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 §
8.6(E)(3)(a) of this Part above.
4. 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 the effective date of this Part by the NAIC and
by the commissioner for this purpose.
5. A reinsurance agreement shall be
considered YRT reinsurance for purposes of this subsection if only the
mortality risk is reinsured.
6. 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.
F. 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 YRT life insurance
policies may be used:
1. Calculate the
valuation net premium for each future policy year as the tabular cost of
insurance for that future year.
2.
Basic reserves shall never be less than the tabular cost of insurance for the
appropriate period, as defined in §
8.6(C) of this Part.
3. Deficiency reserves.
a. For each policy year, calculate the
excess, if greater than zero, of the valuation net premium over the respective
maximum guaranteed gross premium.
b. 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 §
8.6(F)(3)(a) of this Part above.
4. 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 the effective date of this Part by the NAIC and
promulgated by the commissioner for this purpose.
5. A policy shall be considered an
attained-age-based YRT life insurance policy for purposes of this subsection
if:
a. 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
b. 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.
6. For policies that become
attained-age-based YRT policies after an initial period of coverage, the
approach of this subsection may be used after the initial period if:
a. The initial period is constant for all
insureds of the same sex, risk class and plan of insurance; or
b. The initial period runs to a common
attained age for all insureds of the same sex, risk class and plan of
insurance; and
c. After the initial
period of coverage, the policy meets the conditions of §
8.6(F)(5) of this
Part above.
7. If this
election is made, this approach shall be applied in determining reserves for
all attained-age-based YRT life insurance policies issued on or after the
effective date of this Part.
G. 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:
1. 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 10 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;
2. 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
3. There are no cash surrender values in any
policy year.
H.
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:
1. At issue, the insured is age
twenty-four (24) or younger;
2.
Until the insured reaches the end of the juvenile period, which shall occur at
or before age twenty-five (25), the gross premiums and death benefits are
level, and there are no cash surrender values; and
3. 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.
