Current through Register Vol. 41, No. 3, September 23, 2024
A.
The actuarial method to establish the required level of primary security for
each reinsurance treaty subject to this chapter shall be VM-20, applied on a
treaty-by-treaty basis, including all relevant definitions, from the Valuation
Manual as then in effect, applied as follows:
1. For covered policies as provided in
subdivision 1 of the definition of "covered policy" in 14VAC5-318-30, the
actuarial method is the greater of the deterministic reserve or the net premium
reserve (NPR) regardless of whether the criteria for exemption testing can be
met. However, if the covered policies do not meet the requirements of the
stochastic reserve exclusion test in the valuation manual, then the actuarial
method is the greatest of the deterministic reserve, the stochastic reserve, or
the NPR. In addition, if such covered policies are reinsured in a reinsurance
treaty that also contains covered policies as provided in subdivision 2 of the
definition of "covered policy" in 14VAC5-318-30, the ceding insurer may elect
to instead use subdivision 2 of this subsection as the actuarial method for the
entire reinsurance agreement. Whether subdivision 1 or 2 of this subsection is
used, the actuarial method must comply with any requirements or restrictions
that the valuation manual imposes when aggregating these policy types for
purposes of principle-based reserve calculations.
2. For covered policies, as that term is
defined in subdivision 2 of the definition of "covered policy" of
14VAC5-318-30, the actuarial method is the greatest of the deterministic
reserve, the stochastic reserve, or the NPR regardless of whether the criteria
for exemption testing can be met.
3. Except as provided in subdivision 4 of
this subsection, the actuarial method is to be applied on a gross basis to all
risks with respect to the covered policies as originally issued or assumed by
the ceding insurer.
4. If the
reinsurance treaty cedes less than 100% of the risk with respect to the covered
policies then the required level of primary security may be reduced as follows:
a. If a reinsurance treaty cedes only a quota
share of some or all of the risks pertaining to the covered policies, the
required level of primary security, as well as any adjustment under subdivision
A 4 c of this section, may be reduced to a pro rata portion in accordance with
the percentage of the risk ceded;
b. If the reinsurance treaty in a nonexempt
arrangement cedes only the risks pertaining to a secondary guarantee, the
required level of primary security may be reduced by an amount determined by
applying the actuarial method on a gross basis to all risks, other than risks
related to the secondary guarantee, pertaining to the covered policies, except
that for covered policies for which the ceding insurer did not elect to apply
the provisions of VM-20 to establish statutory reserves, the required level of
primary security may be reduced by the statutory reserve retained by the ceding
insurer on those covered policies, where the retained reserve of those covered
policies should be reflective of any reduction pursuant to the cession of
mortality risk on a yearly renewable term basis in an exempt
arrangement;
c. If a portion of the
covered policy risk is ceded to another reinsurer on a yearly renewable term
basis in an exempt arrangement, the required level of primary security may be
reduced by the amount resulting by applying the actuarial method including the
reinsurance section of VM-20 to the portion of the covered policy risks ceded
in the exempt arrangement, except that for covered policies issued prior to
January 1, 2017, this adjustment is not to exceed:
|
cx
|
|
2(number of reinsurance premiums per year)
|
where cx is calculated using the same
assumptions used in calculating the NPR; and
d. For any other treaty ceding a portion of
risk to a different reinsurer, including stop loss, excess of loss, and other
nonproportional reinsurance treaties, there will be no reduction in the
required level of primary security.
It is possible for any combination of subdivisions A 4 a, b,
c, and d of this section to apply. Such adjustments to the required level of
primary security will be done in the sequence that accurately reflects the
portion of the risk ceded via the treaty. The ceding insurer should document
the rationale and steps taken to accomplish the adjustments to the required
level of primary security due to the cession of less than 100% of the
risk.
The adjustments for other reinsurance will be made only with
respect to reinsurance treaties entered into directly by the ceding insurer.
The ceding insurer will make no adjustment as a result of a retrocession treaty
entered into by the assuming insurers.
5. In no event will the required level of
primary security resulting from application of the actuarial method exceed the
amount of statutory reserves ceded.
6. If the ceding insurer cedes risks with
respect to covered policies, including any riders, in more than one reinsurance
treaty subject to this chapter, in no event will the aggregate required level
of primary security for those reinsurance treaties be less than the required
level of primary security calculated using the actuarial method as if all risks
ceded in those treaties were ceded in a single treaty subject to this
chapter.
7. If a reinsurance treaty
subject to this chapter cedes risk on both covered and noncovered policies,
credit for the ceded reserves shall be determined as follows:
a. The actuarial method shall be used to
determine the required level of primary security for the covered policies, and
14VAC5-318-60 shall be used to determine the reinsurance credit for the covered
policy reserves; and
b. Credit for
the noncovered policy reserves shall be granted only to the extent that
security, in addition to the security held to satisfy the requirements of
subdivision A 7 a of this section, is held by or on behalf of the ceding
insurer in accordance with §§
38.2-1316.2 and
38.2-1316.4 of the Code of
Virginia, 14VAC5-300-90 C,
14VAC5-300-100, and
14VAC5-300-150 B and C. Any
primary security used to meet the requirements of this subdivision may not be
used to satisfy the required level of primary security for the covered
policies.
B.
For the purposes of both calculating the required level of primary security
pursuant to the actuarial method and determining the amount of primary security
and other security, as applicable, held by or on behalf of the ceding insurer,
the following shall apply:
1. For assets,
including any such assets held in trust, that would be admitted under the NAIC
Accounting Practices and Procedures Manual if they were held by the ceding
insurer, the valuations are to be determined according to statutory accounting
procedures as if such assets were held in the ceding insurer's general account
and without taking into consideration the effect of any prescribed or permitted
practices; and
2. For all other
assets, the valuations are to be those that were assigned to the assets for the
purpose of determining the amount of reserve credit taken. In addition, the
asset spread tables and asset default cost tables required by VM-20 shall be
included in the actuarial method if adopted by the NAIC Life Actuarial (A) Task
Force no later than the December 31st on or immediately preceding the valuation
date for which the required level of primary security is being calculated. The
tables of asset spreads and asset default costs shall be incorporated into the
actuarial method in the manner specified in VM-20.
Statutory Authority: §§
12.1-13,
38.2-223, and
38.2-1316.7 of the Code of
Virginia.
