Current through Register Vol. XLI, No. 38, September 20, 2024
5.1. 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 select factors. At the
option of the insurer, in calculating segmented reserves and net premiums, either of
the adjustments described in subdivisions a and b of this subsection may be made:
5.1.a. 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.
5.1.b. 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.
5.2. Deficiency Reserves.
5.2.a. The deficiency reserve at any duration
shall be calculated:
5.2.a.1. On a unitary basis if
the corresponding basic reserve determined by subsection 5.1 of this rule is
unitary;
5.2.a.2. On a segmented basis
if the corresponding basic reserve determined by subsection 5.1 of this rule is
segmented; or
5.3.a.3. On a segmented
basis if the corresponding basic reserve determined by subsection 5.1 of this rule
is equal to both the segmented reserve and the unitary reserve.
5.2.b. 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
subsection 4.2 of this rule) and rate of interest.
5.2.c. 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 quantity A is
obtained as indicated in subsection 4.2 of this rule.
5.2.d. For deficiency reserves determined on a
segmented basis, the quantity A is determined using segment lengths equal to those
determined for segmented basic reserves.
5.3. 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 and referred to in W.
Va. Code §
33-7-9(d)(1)(C)(ii).
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 policy owner 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.
5.4. Unusual Pattern of Guaranteed Cash Surrender
Values.
5.4.a. 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.
5.4.b. 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, and
treating any unusual guaranteed cash surrender value at the end of the prior segment
as a net single premium, where:
5.4.b.1. 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:
5.4.b.1.A. The date of the next unusual guaranteed
cash surrender value, if any, that is scheduled after the valuation date;
or
5.4.b.2.B. The mandatory expiration
date of the policy; and
5.4.b.2. 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
5.4.b.3.
The net to gross ratio is equal to the quantity described in subparagraph A of this
paragraph divided by the quantity described in subparagraph B of this paragraph.
5.4.b.3.A. 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.
5.4.b.3.B. The present value, at the beginning of
the n-year period, of the scheduled gross premiums payable during the n-year
period.
5.4.c. For
purposes of this subsection, a policy is considered to have an unusual pattern or
guaranteed cash surrender values if any future guaranteed cash surrender value
exceeds the prior years guaranteed cash surrender value by more than the sum of:
5.4.c.1. One hundred ten percent (110%) of the
scheduled gross premium for that year; and
5.4.c.2. 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
5.4.c.3. Five percent (5%) of the first policy
year surrender charge, if any.
5.5. 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.
5.5.a.
Calculate the valuation net premium for each future policy year as the tabular cost
of insurance for that future year.
5.5.b. Basic reserves shall never be less than the
tabular cost of insurance for the appropriate period, as defined in subsection 5.3
of this rule.
5.5.c. Deficiency
reserves.
5.5.c.1. For each policy year, calculate
the excess, if greater than zero, of the valuation net premium over the respective
maximum guaranteed gross premium.
5.5.c.2. 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 paragraph 1 of this subdivision.
5.5.d. 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 rule by the NAIC and promulgated by rule by the
commissioner for this purpose.
5.5.e. A
reinsurance agreement shall be considered YRT reinsurance for purposes of this
subsection if only the mortality risk is reinsured.
5.5.f. 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.
5.6. 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:
5.6.a. Calculate the valuation net premium for
each future policy year as the tabular cost of insurance for that future
year.
5.6.b. Basic reserves shall never
be less than the tabular cost of insurance for the appropriate period, as defined in
subsection 5.3 of this rule.
5.6.c.
Deficiency reserves.
5.6.c.1. For each policy
year, calculate the excess, if greater than zero, of the valuation net premium over
the respective maximum guaranteed gross premium.
5.6.c.2. 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 paragraph 1 of this subdivision.
5.6.d. 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 rule by the NAIC and promulgated by rule by the
commissioner for this purpose.
5.6.e. A
policy shall be considered an attained-age-based YRT life insurance policy for
purposes of this subsection if:
5.6.e.1. 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
5.6.e.2. 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.
5.6.f. For policies that become
attained-age-based YRT life insurance policies after an initial period of coverage,
the approach of this subsection may be used after the initial period if:
5.6.f.1. The initial period is constant for all
insureds of the same sex, risk class and plan of insurance; or
5.6.f.2. The initial period runs to a common
attained age for all insureds of the same sex, risk class and plan of insurance;
and
5.6.f.3. After the initial period of
coverage, the policy meets the conditions of subdivision e of subsection 5.6 of this
rule.
5.6.g. 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 rule.
5.7. 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:
5.7.a.
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 ten (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;
5.7.b. 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
5.7.c. There are no cash surrender
value in any policy year.
5.8. 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:
5.8.a. At
issue, the insured is age twenty-four (24) or younger;
5.8.b. 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
5.8.c. 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.
