(1) PURPOSE.
(a) This section establishes minimum
standards under ch. 623, Stats., for life insurance policy reserves by
providing tables of select mortality factors, establishing rules concerning a
minimum standard for the valuation of plans with non-level premiums or
benefits, and establishing rules concerning a minimum standard for the
valuation of plans with secondary guarantees.
(b) The method for calculating basic reserves
defined in this section constitutes the commissioner's reserve valuation method
for policies to which this section is applicable.
(2) SCOPE. This section applies to all life
insurance policies, wherever sold, with or without nonforfeiture values, issued
on or after January 1, 2000, subject to the following exceptions and
conditions:
(a) This section does not apply to
any individual life insurance policy issued on or after January 1, 2000, if the
policy is issued in accordance with and as a result of the exercise of a
reentry provision contained in the original life insurance policy of the same
or greater face amount that was issued before January 1, 2000 that guarantees
the premium rates of the new policy. This section also does not apply to
subsequent policies issued as a result of the exercise of such a provision in
the new policy.
(b) This section
does not apply to any of the following:
1. Any
universal life policy that meets all the following requirements:
a. The secondary guarantee period, if any, is
5 years or less.
b. The specified
premium for the secondary guarantee period is not less than the net level
reserve premium for the secondary guarantee period based on the CSO valuation
tables as defined in sub. (3) (f) and the applicable valuation interest
rate.
c. The initial surrender
charge is not less than 100% of the first year annualized specified premium for
the secondary guarantee period.
2. Any variable life insurance policy that
provides for life insurance, the amount or duration of which varies according
to the investment experience of any separate account or accounts.
3. Any variable universal life insurance
policy that provides for life insurance, the amount or duration of which varies
according to the investment experience of any separate account or
accounts.
4. Group life insurance
certificates, unless the certificates provide for a stated or implied schedule
of maximum gross premiums required in order to continue coverage in force for a
period in excess of one year.
(c) Calculation of the minimum valuation
standard for policies with guaranteed nonlevel gross premiums or guaranteed
nonlevel benefits, other than universal life policies, or both, shall be in
accordance with the provisions of sub. (5).
(d) Calculation of the minimum valuation
standard for flexible premium and fixed premium universal life insurance
policies, that contain provisions resulting in the ability of a policyholder to
keep a policy in force over a secondary guarantee period shall be in accordance
with the provisions of sub. (6).
(e) This section applies to policies that are
subject to s.
Ins 2.81 in the manner specified in that
section.
(3)
DEFINITIONS. In this section:
(a) Basic
reserves" means reserves calculated in accordance with the principles of s.
623.06(3),
Stats.
(b) Contract segmentation
method" means the method of dividing the period from issue to mandatory
expiration of a policy into successive segments, with the length of each
segment being defined as the period from the end of the prior segment, or from
policy inception for the first segment, to the end of the latest policy year as
determined below. All calculations are made using the 1980 CSO valuation table
and, if elected, the optional minimum mortality standard for deficiency
reserves in sub. (4) (b). The length of a particular contract segment shall be
set equal to the minimum of the value t for which Gt is greater than Rt. If Gt
never exceeds Rt the segment length is deemed to be the number of years from
the beginning of the segment to the mandatory expiration date of the policy. Gt
and Rt are defined as follows:
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where:
x = original issue age;
k = the number of years from the date of issue to the beginning
of the segment;
t = the number of years from the beginning of the
segment
= 1, 2, ...; t is reset to 1 at the beginning of each
segment;
GPx+k+t-1 = Guaranteed gross premium per
thousand of face amount, ignoring policy fees only if level for the premium
paying period of the policy, for year t of the segment.
However, if GPx+k+t is greater than 0
and GP x+k+t-1 is equal to 0, Gt
shall be deemed to be 1000. If GPx+k+t and
GPx+k+t-1 are both equal to 0, Gt
shall be deemed to be 0.
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however, Rt may be increased or
decreased by one percent in any policy year, at the insurer's option, but
Rt may not be less than one;
where:
x, k and t are as defined above, and
qx+k+t-1 = valuation mortality rate for deficiency reserves in
policy year k+t but using the mortality of sub. (4) (b) 2. if sub. (4) (b) 3.
is elected for deficiency reserves.
Note: The purpose of the one percent tolerance in
the R factor is to prevent irrational segment lengths due to such things as
premium rounding. For example, consider a plan in which gross premiums are
designed at some point to be a ratio times the underlying ultimate mortality
rates, where the ratio varies by issue age. The resulting segments may be
greater than one year, because the gross premiums are not expressed in
fractional cents. The tolerance factor allows the creation of one-year segments
for a plan in which premiums parallel the underlying valuation mortality
table.
(c) "Deficiency
reserves" means the excess, if greater than zero, of minimum reserves
calculated in accordance with the principles of s.
623.06(7),
Stats., over basic reserves.
(d)
"Guaranteed gross premiums" means the premiums under a policy of life insurance
that are guaranteed and determined at issue.
(e) "Maximum valuation interest rates" means
the interest rates defined in s.
623.06(2m),
Stats., that are to be used in determining the minimum standard for the
valuation of life insurance policies.
(f) "1980 CSO valuation table" means the
commissioner's 1980 standard ordinary mortality table without 10-year select
mortality factors, incorporated into the 1980 amendments to the national
association of insurance commissioner's standard valuation law, as provided in
s.
623.06(2) (am), Stats., and variations of the 1980 CSO
valuation table approved by the national association of insurance
commissioners, such as the unisex and smoker and non-smoker versions approved
in December 1983 and adopted by ss.
Ins 2.20 and 2.35.
Note: This paragraph defines the 1980 CSO
valuation table without the existing 10 year select mortality factors to assure
that, if select mortality factors are elected, only one set of factors may be
applied to the base valuation mortality table.
(g) "Scheduled gross premium" means the
smallest illustrated gross premium at issue for other than universal life
insurance policies. For universal life insurance policies, scheduled gross
premium" means the smallest specified premium described in sub. (6) (c), if
any, or else the minimum prescribed in sub. (6) (d).
(h) "Segmented reserves" means reserves,
calculated using segments produced by the contract segmentation method, equal
to the present value of all future guaranteed benefits less the present value
of all future net premiums to the mandatory expiration of a policy, where the
net premiums within each segment are a uniform percentage of the respective
guaranteed gross premiums within the segment. The uniform percentage for each
segment is such that, at the beginning of the segment, the present value of the
net premiums within the segment is calculated in the following manner:
1. The present value of the death benefits
within the segment, plus
2. The
present value of any unusual guaranteed cash value, as provided in sub. (5)
(g), occurring at the end of the segment, less
3. Any usual guaranteed cash value occurring
at the start of the segment, plus
4. For the first segment only, the excess of
subd. 4. a. over subd. 4. b., as follows:
a. A
net level annual premium equal to the present value, at the date of issue, of
the benefits provided for in the first segment after the first policy year,
divided by the present value, at the date of issue, of an annuity of one per
year payable on the first and each subsequent anniversary within the first
segment on which a premium falls due. However, the net level annual premium may
not exceed the net level annual premium on the 19-year premium whole life plan
of insurance of the same renewal year equivalent level amount at an age one
year higher than the age at issue of the policy.
b. A net one-year term premium for the
benefits provided for in the first policy year.
5. The length of each segment is determined
by the contract segmentation method.
6. The interest rates used in the present
value calculations for any policy may not exceed the maximum valuation interest
rate, determined with a guarantee duration equal to the sum of the length of
all segments of the policy.
7. For
both basic reserves and deficiency reserves computed by the contract
segmentation method, present values shall include future benefits and net
premiums in the current segment and in all subsequent segments.
Note: The segmentation requirement should not be
limited to plans with no cash surrender values; otherwise companies could avoid
segmentation entirely by designing policies with minimal (positive) cash
values. Segmentation for plans with cash surrender values should be based
solely upon gross premium levels. Basing segmentation upon the level of cash
surrender values introduces complications because of the interrelationship
between minimum cash surrender values and gross premium patterns. The
requirements of this section relating to reserves or plans with unusual cash
values and to reserves if cash values exceed calculated reserves serve to link
required reserves and cash surrender values. The calculation of segmented
reserves shall not be linked to the occurrence of a positive unitary terminal
reserve at the end of a segment. The requirement of this section to hold the
greater of the segmented reserve or the unitary reserve eliminates the need for
any linkage.
(i)
"Tabular cost of insurance" means the net single premium at the beginning of a
policy year for one-year term insurance in the amount of the guaranteed death
benefit in that policy year.
(j)
"Ten-year select factors" means the select factors adopted with the 1980
amendments to the national association of insurance commissioner's standard
valuation law as provided in s.
623.06(2) (am), Stats.
(k) "Unitary reserves" means the present
value of all future guaranteed benefits less the present value of all future
modified net premiums, where all of the following occur:
1. Guaranteed benefits and modified net
premiums are considered to the mandatory expiration of the policy.
2. Modified net premiums are a uniform
percentage of the respective guaranteed gross premiums, where the uniform
percentage is such that, at issue, the present value of the net premiums equals
the present value of all death benefits and pure endowments, plus the excess
of:
a. A net level annual premium equal to the
present value, at the date of issue, of the benefits provided for after the
first policy year, divided by the present value, at the date of issue, of an
annuity of one year payable on the first and each subsequent anniversary of the
policy on which a premium falls due. However, the net level annual premium may
not exceed the net level annual premium on the 19-year premium whole life plan
of insurance of the same renewal year equivalent level amount at an age one
year higher than the age at issue of the policy, over
b. A net one-year term premium for the
benefits provided for the first policy year.
3. The interest rates used in the present
value calculations for any policy may not exceed the maximum valuation interest
rate, determined with a guarantee duration equal to the length from issue to
the mandatory expiration of the policy.
Note: The purpose of this paragraph is to define
as specifically as possible what has become commonly called the unitary method.
The national association of insurance commissioners standard valuation law does
not define the term unitary" for policies with nonlevel premiums or benefits;
its requirements for reserves computed by a method that is consistent with the
principles of the national association of insurance commissioners standard
valuation law" has not been uniformly interpreted.
(L) "Universal life insurance policy" means
any individual life insurance policy under the provisions of which separately
identified interest credits, other than in connection with dividend
accumulations, premium deposit funds, or other supplementary accounts, and
mortality or expense charges are made to the policy.
(4) GENERAL CALCULATION REQUIREMENTS FOR
BASIC RESERVES AND PREMIUM DEFICIENCY RESERVES.
(a) At the election of the insurer for any
one or more specified plans of life insurance, the minimum mortality standard
for basic reserves may be calculated using the 1980 CSO valuation table with
select mortality factors. If select mortality factors are elected, they may be
any of the following:
1. The 10-year select
mortality factors incorporated into the 1980 amendments to the national
association of insurance commissioners standard valuation law, as provided in
s.
623.06(2) (am), Stats.
2. The select mortality factors in the tables
at pages 18 through 35 of the national association of insurance commissioners
valuation of life insurance policies model regulation updated and published by
the national association of insurance commissioners model regulation service in
april 1999.
Note: The select mortality factors for durations 1
through 15 in the tables at pages 18 through 35 of the national association of
insurance commissioners valuation of life insurance policies model regulation
updated and published by the national association of insurance commissioners
model regulation service in april 1999 reflect the society of actuaries' data
for the years 1983 through 1986 (designated as 83-86 SOA inter-company
experience" in the tables), split by sex and smoking status, with fifteen years
of select mortality improvement, based on the society of actuaries' projection
scale A applied. A 50% margin was added. The factors were then graded to the
1980 CSO valuation table over the next five durations. A 50% margin was deemed
appropriate to provide a reasonable margin, with little likelihood that actual
experience for significant blocks of business would exceed it.
(b) Deficiency reserves,
if any, are calculated for each policy as the excess, if greater than zero, of
the quantity A over the basic reserve. The quantity A is obtained by
recalculating the basic reserve for the policy using guaranteed gross premiums
instead of net premiums when the guaranteed gross premiums are less than the
corresponding net premiums. At the election of the insurer for any one or more
specified plans of insurance, the quantity A and the corresponding net premiums
used in the determination of quantity A may be based upon the 1980 CSO
valuation table with select mortality factors. If select mortality factors are
elected, they may be any of the following:
1.
The 10-year select mortality factors incorporated into 1980 amendments to the
national association of insurance commissioners standard valuation
law.
2. The select mortality
factors in the tables at pages 18 through 35 of the national association of
insurance commissioners valuation of life insurance policies model regulation
updated and published by the national association of insurance commissioners
model regulation service in april 1999.
Note: The select mortality factors in the tables
at pages 18 through 35 of the national association of insurance commissioners
valuation of life insurance policies model regulation updated and published by
the national association of insurance commissioners model regulation service in
April 1999 do not reflect the underwriting risk classes that have evolved since
the period of the underlying experience. In light of this consideration, and
the recent recognition of the regulatory value of actuarial opinions, this
section allows actuarial judgement to be used for deficiency reserves.
3. For durations in the first
segment, X % of the select mortality factors in the tables at pages 18 through
35 of the national association of insurance commissioners valuation of life
insurance policies model regulation updated and published by the national
association of insurance commissioners model regulation service in April 1999,
subject to all of the following:
a. X may vary
by policy year, policy form, underwriting classification, issue age, or any
other policy factor expected to affect mortality experience.
d. X is such that, when using the valuation
interest rate used for basic reserves, the actuarial present value of future
death benefits calculated using the mortality rates resulting from the
application of X is greater than or equal to the actuarial present value of
future death benefits calculated using anticipated mortality experience without
recognition of mortality improvement beyond the valuation date.
e. X is such that the mortality rates
resulting from the application of X are at least as great as the anticipated
mortality experience, without recognition of mortality improvement beyond the
valuation date, in each of the first 5 years after the valuation
date.
f. The appointed actuary
shall increase X at any valuation date where it is necessary to continue to
meet all the requirements of this subdivision.
g. The appointed actuary may decrease X at
any valuation date as long as X continues to meet all the requirements of this
subdivision.
h. The appointed
actuary shall specifically take into account the adverse effect on expected
mortality and lapsation of any anticipated or actual increase in gross
premiums.
i. If X is less than 100%
at any duration for any policy, the appointed actuary shall annually prepare an
actuarial opinion and memorandum for the company in conformance with the
requirements of s.
Ins 50.78; the appointed actuary shall disclose in the
regulatory asset adequacy issues summary the impact of any insufficiency of
assets to support the payment of benefits and expenses and the establishment of
statutory reserves during one or more interim periods; and the appointed
actuary shall annually offer an opinion for all policies subject to this
section as to whether the mortality rates resulting from the application of X
meet the requirements of this subdivision. This opinion shall be supported by
an actuarial report, subject to appropriate actuarial standards of practice
promulgated by the actuarial standards board of the American academy of
actuaries. It shall reflect anticipated future mortality, without recognition
of mortality improvement beyond the valuation date, taking into account
relevant emerging experience.
(c) This paragraph applies to both basic
reserves and deficiency reserves. Any set of select mortality factors may be
used only for the first segment. However, if the first segment is less than 10
years, the appropriate 10-year select mortality factors incorporated into the
1980 amendments to the national association of insurance commissioners standard
valuation law, as provided in s.
623.06(2) (am), Stats., may be used thereafter through
the 10th policy year from the date of issue.
Note: This section does not allow the use of the
select mortality factors beyond the first segment. The rationale is that the
result of a premium increase that is sufficient to require a new segment will
be increased lapsation, leading to mortality deterioration after the increase.
However, this section allows the use of the ten-year select mortality factors
incorporated into the 1980 amendments to the national association of insurance
commissioners standard valuation law, see s.
623.06(2) (am), Stats., beyond the first segment (but
in no case beyond the tenth policy year) in recognition that the mortality
deterioration is unlikely to occur to a significant degree within the first 10
years.
(d) In determining
basic reserves or deficiency reserves, guaranteed gross premiums without policy
fees may be used where the calculation involves the guaranteed gross premium
but only if the policy fee is a level dollar amount after the first policy
year. In determining deficiency reserves, policy fees may be included in
guaranteed gross premiums even if not included in the actual calculation of
basic reserves.
(e) Reserves for
policies that have changes to guaranteed gross premiums, guaranteed benefits,
guaranteed charges, or guaranteed credits that are unilaterally made by the
insurer after issue and that are effective for more than one year after the
date of the change shall be the greatest of the following:
1. Reserves calculated ignoring the
guarantee.
2. Reserves assuming the
guarantee was made at issue.
3.
Reserves assuming that the policy was issued on the date of the
guarantee.
(f) The
commissioner may require that the company document the extent of the adequacy
of reserves for specified blocks, including but not limited to policies issued
prior to the effective date of this regulation. This documentation may include
a demonstration of the extent to which aggregation with other non-specified
blocks of business is relied upon in the formation of the appointed actuary
opinion pursuant to and consistent with the requirements of s.
Ins 50.78.
(5) CALCULATION OF MINIMUM VALUATION STANDARD
FOR POLICIES WITH GUARANTEED NONLEVEL GROSS PREMIUMS OR GUARANTEED NONLEVEL
BENEFITS, OTHER THAN UNIVERSAL LIFE POLICIES.
(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 1980 CSO
valuation table and the same select mortality factors. At the option of the
insurer, in calculating segmented reserves and net premiums, either of the
following adjustments may be made:
1. 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.
2. 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.
(b) The deficiency reserve at any
duration shall be calculated as follows:
1.
Using unitary reserves if the corresponding basic reserve determined by par.
(a) is unitary.
2. Using segmented
reserves if the corresponding basic reserve determined by par. (a) is
segmented.
3. Using segmented
reserves if the corresponding basic reserve determined by par. (a) is equal to
both the segmented reserve and the unitary reserve.
(c) Paragraphs (b), (d), and (e) 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 sub. (4) (b) and rate of interest.
(d) 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 A is
obtained as indicated in sub. (4) (b).
(e) For deficiency reserves determined on a
contract segmentation method, the quantity A is determined using segment
lengths equal to those determined for segmented basic reserves.
(f) 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 national
association of insurance commissioners standard valuation law. 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) exclusive of any
deduction for policy loans, upon termination of the policy.
(g) 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 may 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.
Note: This requirement is independent of both the
segmentation process and the unitary process. After the greater of the
segmented or the unitary reserve has been determined, then pars. (g), (h), and
(i) impose an additional floor of the ultimate reserve. The purpose of pars.
(g), (h) and (i) is to assure adequate funding of significant increases in
guaranteed cash surrender values.
(h) The reserves actually held subsequent to
any unusual guaranteed cash surrender value may 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 all of the following apply:
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 the date of the next unusual guaranteed cash surrender value, if
any, that is scheduled after the valuation date or the mandatory expiration
date of the policy.
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.
3. The net-to-gross ratio is equal to 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 divided by the present value, at the
beginning of the n-year period, of the scheduled gross premiums payable during
the n-year period.
(i)
For purposes of pars. (g) and (h), 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 all of the following:
1.
One hundred ten percent of the scheduled gross premium for that year.
2. One hundred ten percent 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.
3. Five percent of the first policy year
surrender charge, if any.
(j) At the option of the insurer, the
following approach for reserves on yearly renewable term 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 may not be
less than the tabular cost of insurance for the appropriate period, as defined
in par. (f).
3. For deficiency
reserves for each policy year, calculate the excess, if greater than zero, of
the valuation net premium over the respective maximum guaranteed gross premium.
Deficiency reserves may not be less than the sum of the present values, at the
date of valuation, of the excesses determined in accordance with this
subdivision.
4. For purposes of
this paragraph, the calculations use the maximum valuation interest rate and
the 1980 CSO valuation table with or without 10-year select mortality
factors.
5. A reinsurance agreement
shall be considered yearly renewable term reinsurance for purposes of this
paragraph if only the mortality risk is reinsured.
6. If the assuming company chooses this
optional exemption, The ceding company's reserve credit shall be limited to the
amount of reserve held by the assuming company for the affected policies.
Note: Traditional reserves for yearly renewable
term reinsurance, the calculations of which par. (j) describes, are already
adequate and sufficient. However, without this option, yearly renewable term
reinsurance would be subject to the more complex segmentation
calculations.
(k)
At the option of the insurer, the following approach for reserves for
attained-age-based yearly renewable term 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 not be
less than the tabular cost of insurance for the appropriate period, as defined
in par. (f).
3. For deficiency
reserves for each policy year, calculate the excess, if greater than zero, of
the valuation net premium over the respective maximum guaranteed gross premium.
Deficiency reserves may not be less than the sum of the present values, at the
date of valuation, of the excesses determined in accordance with this
subdivision.
4. For purposes of
this paragraph, the calculations use the maximum valuation interest rate and
the 1980 CSO valuation table with or without 10-year select mortality
factors.
5. A policy shall be
considered an attained-age-based yearly renewable term life insurance policy
for purposes of this paragraph if both of the following apply:
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.
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 yearly renewable term policies after an initial period of
coverage, the approach of this paragraph may be used after the initial period
if both the following apply:
a. The initial
period is either constant or runs to a common attained age for all insureds of
the same sex, risk class and plan of insurance.
b. After the initial period of coverage, the
policy meets the conditions of subd. 5.
7. If the election in this paragraph is made,
this approach shall be applied in determining reserves for all
attained-age-based yearly renewable term life insurance policies issued on or
after the effective date of this section.
Note: Traditional reserves for attained-age-based
yearly renewable term policies, the calculations of which this paragraph
describes, are already adequate and sufficient. However, without this option,
these policies would be subject to the more complex segmentation
calculations.
(L)
Unitary basic reserves and unitary deficiency reserves need not be calculated
for a policy if all of 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 valuation table with or without the 10-year select mortality
factors.
3. There is no cash
surrender value in any policy year.
Note: Without this exemption, companies issuing
certain n-year renewable term policies could be forced to hold reserves higher
than n-year term reserves, even though in many cases gross premiums are well
above valuation mortality rates.
(m) Unitary basic reserves and unitary
deficiency reserves need not be calculated for a juvenile policy if, based upon
the initial current premium scale at issue, all of the following conditions are
met:
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.
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.
Note: The jumping juvenile policy described has
traditionally been valued in two segments. This exemption will allow that
practice to continue without requiring the calculation of reserves on a unitary
basis. However, within each segment, both basic and deficiency reserves shall
comply with the segmented reserve
requirements.
(6) CALCULATION OF MINIMUM VALUATION STANDARD
FOR FLEXIBLE PREMIUM AND FIXED PREMIUM UNIVERSAL LIFE INSURANCE POLICIES THAT
CONTAIN PROVISIONS RESULTING IN THE ABILITY OF A POLICYOWNER TO KEEP A POLICY
IN FORCE OVER A SECONDARY GUARANTEE PERIOD.
(a) Policies with a secondary guarantee
include any of the following:
1. A policy
with a guarantee that the policy will remain in force at the original schedule
of benefits subject only to the payment of specified premiums.
2. A policy in which the minimum premium at
any duration is less than the corresponding one-year valuation premium,
calculated using the maximum valuation interest rate and the 1980 CSO valuation
table with or without 10-year select mortality factors.
3. A policy with any combination of the
features described in subds. 1. and 2.
(b) A secondary guarantee period is the
period for which the policy is guaranteed to remain in force subject only to a
secondary guarantee. When a policy contains more than one secondary guarantee,
the minimum reserve shall be the greatest of the respective minimum reserves at
that valuation date of each unexpired secondary guarantee, ignoring all other
secondary guarantees. Secondary guarantees that are unilaterally changed by the
insurer after issue shall be considered to have been made at issue. Reserves
described in pars. (g) and (h) shall be recalculated from issue to reflect
these changes.
(c) Specified
premiums mean the premiums specified in the policy, the payment of which
guarantees that the policy will remain in force at the original schedule of
benefits, but which otherwise would be insufficient to keep the policy in force
in the absence of the guarantee if maximum mortality and expense charges and
minimum interest credits were made and any applicable surrender charges were
assessed.
(d) For purposes of this
subsection, the minimum premium for any policy year is the premium that, when
paid into a policy with a zero account value at the beginning of the policy
year, produces a zero account value at the end of the policy year. The minimum
premium calculation shall use the policy cost factors, including mortality
charges, loads and expense charges, and the interest crediting rate, which are
all guaranteed at issue.
(e) The
one-year valuation premium means the net one-year premium based upon the
original schedule of benefits for a given policy year. The one-year valuation
premiums for all policy years are calculated at issue. The select mortality
factors defined in sub. (4) (a) 2. and sub. (4) (b) 2. and 3. may not be used
to calculate the one-year valuation premiums.
(f) The 1-year valuation premium should
reflect the frequency of fund processing, as well as the distribution of deaths
assumption employed in the calculation of the monthly mortality charges to the
fund.
(g) Basic reserves for the
secondary guarantees shall be the segmented reserves for the secondary
guarantee period. In calculating the segments and the segmented reserves, the
gross premiums shall be set equal to the specified premiums, if any, or
otherwise to the minimum premiums, that keep the policy in force and the
segments shall be determined according to the contract segmentation
method.
(h) Deficiency reserves, if
any, for the secondary guarantees shall be calculated for the secondary
guarantee period in the same manner as described in sub. (5) (b), (c), (d), and
(e) with gross premiums set equal to the specified premiums, if any, or
otherwise to the minimum premiums that keep the policy in force.
(i) The minimum reserves during the secondary
guarantee period are the greater of the following:
1. The basic reserves for the secondary
guarantee plus the deficiency reserve, if any, for the secondary
guarantees.
2. The minimum reserves
required by other rules governing universal life plans.
Note: The tables at pages 21 through 43 of the
national association of insurance commissioners valuation of life insurance
policies model regulation updated and published by the national association of
insurance commissioners model regulation service in April 1999 contains tables
of select mortality factors that are the bases to which the respective
percentage of sub. (4) (a) 2., (b) 2., and 3. are applied. The 6 tables of
select mortality factors include:
(1)
male aggregate,
(2) male
nonsmoker,
(3) male
smoker,
(4) female
aggregate,
(5) female nonsmoker,
and
(6) female smoker. These tables
apply to both age last birthday and age nearest birthday mortality tables.
For sex-blended mortality tables, compute select mortality
factors in the same proportion as the underlying mortality. For example, for
the 1980 CSO-B Table, the calculated select mortality factors are 80% of the
appropriate male table in the tables at pages 18 through 35 of the national
association of insurance commissioners valuation of life insurance policies
model regulation updated and published by the national association of insurance
commissioners model regulation service in April 1999, plus 20% of the
appropriate female table in the tables at pages 18 through 35 of the national
association of insurance commissioners valuation of life insurance policies
model regulation updated and published by the national association of insurance
commissioners model regulation service in April 1999.
Section
Ins
2.20 allows the use of sex-blended mortality table for
the purposes of determining nonforfeiture values, but sex-blended tables are
not allowed for the purposes of valuing minimum reserve liabilities under s.
Ins 2.80 or s.
623.06,
Stats.
Copies of the tables at pages 21 through 43 of the national
association of insurance commissioners valuation of life insurance policies
model regulation updated and published by the national association of insurance
commissioners model regulation service in April 1999 for use with s. Ins 2.80,
Wis. Adm. Code, are available from the Office of the Commissioner of Insurance,
P.O. Box 1768, Madison WI 53707-7873 or from the OCI website:
http://oci.wi.gov, at information for companies, OCI rule-making
information.
