Current through Register Vol. 41, No. 3, September 23, 2024
A.
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 company, in calculating segmented reserves and net
premiums, either of the adjustments described in subdivision 1 or 2 of this
subsection may be made:
1. Treat the unitary
reserve, if greater than 0, applicable at the end of each segment as a pure
endowment and subtract the unitary reserve, if greater than 0, 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 0, applicable at the end of each segment as a pure endowment;
and subtract the guaranteed cash surrender value, if greater than 0, applicable
at the beginning of each segment from the present value of guaranteed life
insurance and endowment benefits for each segment.
B. Deficiency reserves are subject to the
following:
1. The deficiency reserve at any
duration shall 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 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 rate of
interest and minimum valuation standards of mortality (specified in
14VAC5-319-40 B).
3. Deficiency reserves, if any, shall be
calculated for each policy as the excess if greater than 0, for the current and
all remaining periods, of the quantity A over the basic reserve, where A is
obtained as indicated in
14VAC5-319-40 B.
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. 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 used for the calculation of the segmented reserves. However,
if select mortality factors are used, they shall be the 10-year select factors
incorporated into the 1980 amendments of the NAIC Standard Valuation Law. In no
case shall 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 follow:
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;
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 subdivision (1) divided by subdivision (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. 110% of the scheduled gross premium for
that year;
b. 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. 5.0% of the first policy year surrender
charge, if any.
E. There is an 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 subsection C of this section.
3. Deficiency reserves are subject to the
following:
a. For each policy year, calculate
the excess, if greater than 0, 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 subdivision 3 a of this subsection.
4. For purposes of this
subsection, the calculations use the maximum valuation interest rate and the
1980 CSO mortality tables with or without 10-year select mortality factors, or
any other table adopted on or after January 1, 2000, by the NAIC and
promulgated by regulation by the commission 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. There is an optional exemption for
attained-age-based yearly renewable term (YRT) 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 subsection C of this section.
3. Deficiency reserves.
a. For each policy year, calculate the
excess, if greater than 0, 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 subdivision 3 a of this subsection.
4. For purposes of this
subsection, the calculations use the maximum valuation interest rate and the
1980 CSO valuation tables with or without 10-year select mortality factors, or
any other table adopted on or after January 1, 2000, by the NAIC and
promulgated by regulation by the commission 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 subdivision F 5 of this
section.
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 January
1, 2000.
G. There is an
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 10-year select mortality factors;
and
3. There are no cash surrender
values in any policy year.
H. There is an 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 24 or
younger;
2. Until the insured
reaches the end of the juvenile period, which shall occur at or before age 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.
Statutory Authority
§§ 12.1-13 and 38.2-223 of the Code of Virginia.
