Current through Reg. 50, No. 13; March 28, 2025
(a) Basic reserves.
Basic reserves must be calculated as the greater of the segmented reserves and
the unitary reserves. Both the segmented reserves and the unitary reserves for
any policy must use the same valuation mortality table and selection factors.
At the option of the insurer, in calculating segmented reserves and net
premiums, either one of the two adjustments described in paragraphs (1) or (2)
of this subsection may be made.
(1) An
insurer may use the adjustments described in this paragraph.
(A) Treat the unitary reserve, if greater
than zero, applicable at the end of each segment as a pure endowment;
and
(B) 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) An insurer
may use the adjustments described in this paragraph.
(A) Treat the guaranteed cash surrender
value, if greater than zero, applicable at the end of each segment as a pure
endowment; and
(B) 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
must be calculated:
(A) on a unitary basis if
the corresponding basic reserve determined by subsection (a) of this section is
unitary;
(B) on a segmented basis
if the corresponding basic reserve determined by subsection (a) of this section
is segmented; or
(C) on the
segmented basis if the corresponding basic reserve determined by subsection (a)
of this section is equal to both the segmented reserve and the unitary
reserve.
(2) This
subsection applies 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 §
3.4505(b) of
this title (relating to General Calculation Requirements for Basic Reserves and
Premium Deficiency Reserves) and rate of interest.
(3) Deficiency reserves, if any, must 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 §
3.4505(b) of
this title (relating to General Calculation Requirements for Basic Reserves and
Premium Deficiency Reserves).
(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
must use the same valuation mortality table and interest rates as that used for
the calculation of the segmented reserves. However, if the select mortality
factors are used, they must be the ten-year select factors incorporated into
Insurance Code Chapter 425, Subchapter B. 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 must 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 must 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:
(i) the date of the next
unusual guaranteed cash surrender value, if any, that is scheduled after the
valuation date; or
(ii) 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 clause (i) of this subparagraph divided by
clause (ii) of this subparagraph as follows:
(i) 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;
(ii) the present
value, at the beginning of the n year period, of the scheduled gross premiums
payable during the n year period.
(e) Optional exemption for yearly renewable
term (YRT) 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 must never
be less than the tabular cost of insurance for the appropriate period, as
defined in subsection (c) of this section.
(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 must never be less
than the sum of the present values, at the date of valuation, of the excesses
determined in accordance with subparagraph (A) of this paragraph.
(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 regulation by the NAIC
and promulgated by regulation by the commissioner for this purpose.
(5) A reinsurance agreement will 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 will 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 approach described in this subsection 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 may never be less than the
tabular cost of insurance for the appropriate period, as defined in subsection
(c) of this section.
(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 may never be less
than the sum of the present values, at the date of valuation, of the excesses
determined in accordance with subparagraph (A) of this paragraph.
(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 regulation by the NAIC
and promulgated by regulation by the commissioner for this purpose.
(5) A policy will 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 paragraph (5) of
this subsection.
(7) If
this election is made, this approach must be applied in determining reserves
for all attained-age-based YRT life insurance policies issued on or after the
effective date of this subchapter.
(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
conditions described in paragraphs (1) - (3) of this subsection 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 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;
(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 conditions described in
paragraphs (1) - (3) of this subsection are met, based upon the initial current
premium scale at issue.
(1) At issue, the
insured is age twenty-four or younger;
(2) until the insured reaches the end of the
juvenile period, which must occur at or before age twenty-five, 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.
