Current through Reg. 50, No. 13; March 28, 2025
(a) Reserve liabilities for variable life
insurance contracts must be established under Insurance Code Chapter 425,
Subchapter B, in accordance with actuarial procedures that recognize the
variable nature of the benefits provided and any mortality
guarantees.
(b) For scheduled
premiums contracts, reserve liabilities for the guaranteed minimum death
benefit must be the reserve needed to provide for the contingency of death
occurring when the guaranteed minimum death benefit exceeds the death benefit
that would be paid in the absence of the guarantee, and be maintained in the
general account of the insurer and must not be less than the greater of the
following minimum reserve:
(1) the aggregate
total of the term costs, if any, covering a period of one full year from the
valuation date, of the guarantee on each variable life contract, assuming an
immediate one-third depreciation in the current value of the assets in the
separate account followed by a net investment return equal to the assumed
investment rate; or
(2) the
aggregate total of the "attained age level" reserves on each variable life
insurance contract. The "attained age level" reserve on each variable life
insurance contract must not be less than zero and must equal the "residue," as
described in subparagraph (A) of this paragraph, of the prior year's "attained
age level" reserve in the contract, with any such "residue," increased or
decreased by a payment computed on an attained-age basis as described in
subparagraph (B) of this paragraph.
(A) The
"residue" of the prior year's "attained age level" reserve on each variable
life insurance contract may not be less than zero and must be determined by
adding interest at the valuation interest rate to such prior year's reserve,
deducting the tabular claims based on the "excess," if any, of the guaranteed
minimum death benefit over the death benefit that would be payable in the
absence of such guarantee, and dividing the net result by the tabular
probability of survival. The "excess" referred to in the preceding sentence
must be based in the actual level of death benefits that would have been in
effect during the preceding year in the absence of the guarantee, taking
appropriate account of the reserve assumptions regarding the distribution of
death claim payments over the year.
(B) The payment referred to in this paragraph
must be computed so that the present value of a level of that amount each year
over the future premium paying period of the contract is equal to (i) minus
(iii), where:
(i) is the present value of the
future guaranteed minimum death benefits;
(ii) is the present value of the future death
benefits that would be payable in the absence of such guarantee; and
(iii) is any "residue," as described in
subparagraph (A) of this paragraph, of the prior year's "attained age level"
reserve on such variable life insurance contract. If the contract is paid up,
the payment must equal (i) minus (ii) minus (iii). The amounts of the future
death benefits referred to in clause (ii) of this paragraph must be computed
assuming a net investment return of the separate account which may differ from
the assumed investment rate and/or the valuation interest but in no event may
exceed the maximum interest rate permitted for the valuation of life
contracts.
(3) The valuation interest rate and mortality
table used in computing the two minimum reserves described in paragraph (2)(A)
and (B) of this subsection must conform to permissible standards for the
valuation of life insurance contracts. In determining such minimum reserve, the
insurer may employ suitable approximations and estimates, including, but not
limited to, groupings and averages.
(c) For flexible premium contracts, reserve
liabilities for any guaranteed minimum death benefit must be maintained in the
general account of the insurer and may not be less than the aggregate total of
the term costs, if any, covering the period provided for in the guarantee not
otherwise provided for by the reserves held in the separate account assuming an
immediate one-third depreciation in the current value of the assets of the
separate account followed by a net investment return equal to the valuation
interest rate. The valuation interest rate and mortality table used in
computing this additional reserve, if any, must conform to permissible
standards for the valuation of life insurance contracts. In determining such
minimum reserve, the insurer may employ suitable approximations and estimates,
including, but not limited to, groupings and averages.
(d) Reserve liabilities for all fixed
incidental insurance benefits and any guarantees associated with variable
incidental insurance benefits must be maintained in the general account, and
reserve liabilities for all variable aspects of the variable incidental
insurance benefits must be maintained in a separate account, in amounts
determined in accordance with the actuarial procedures appropriate to such
benefit.
