Cal. Code Regs. Tit. 10, § 2544.3 - Reserve Requirements

(a) The minimum valuation standard for universal life insurance policies shall be the Commissioner's Reserve Valuation Method, as described below for such policies, and the tables and interest rates specified below. The terminal reserve for the basic policy, and any benefits and/or riders for which premiums are not paid separately as of any policy anniversary, shall be equal to the net level premium reserves less S and less T, as hereinafter specified:

The net level premium reserve shall be equal to [Q - R] r where Q, R and r are as defined below:

(1) Q is the present value of all future guaranteed benefits at the date of valuation;

(2) R is the quantity (PVFB/äx) (äx+t), where:

(A) PVFB is the present value of all benefits guaranteed at issue assuming future Guaranteed Maturity Premiums as defined below are paid by the policyowner and taking into account all guarantees contained in the policy or declared by the insurer; and,

(B) äx and äx+t are present values of an annuity of one per year payable on policy anniversaries beginning at ages x and x+t respectively, and continuing until the highest attained age at which a premium may be paid under the policy;

(3) r is equal to one, unless the policy is a flexible premium policy and the policy value is less than the Guaranteed Maturity Fund, in which case r is the ratio of the policy value to the Guaranteed Maturity Fund;

(4) The Guaranteed Maturity Fund at any duration is that amount which, together with future Guaranteed Maturity Premiums, will mature the policy based on all policy guarantees at issue;

(5) The Guaranteed Maturity Premium for flexible premium universal life insurance policies shall be that level gross premium, paid at issue and periodically thereafter over the period during which premiums are allowed to be paid, which will mature the policy on the latest maturity date, if any, permitted under the policy (otherwise at the highest age in the valuation mortality table), for an amount which is in accordance with the policy structure. The Guaranteed Maturity Premium is calculated at issue based on all policy guarantees at issue (excluding guarantees linked to an external referent);

(6) The Guaranteed Maturity Premium for fixed premium universal life insurance policies shall be the premium defined in the policy which at issue provides the minimum policy guarantees;

(7) The maturity amount shall be the initial death benefit where the death benefit is level over the lifetime of the policy except for the existence of a minimum-death-benefit corridor, or, shall be the specified amount where the death benefit equals a specified amount plus the policy value or cash surrender value except for the existence of a minimum-death-benefit corridor;

(8) The death benefit corridor is defined by the minimum death benefit payable under the terms of the policy;

(9) The Guaranteed Maturity Premium for both flexible and fixed premium policies shall be adjusted for death benefit corridors provided by the policy. The Guaranteed Maturity Premium may be less than the premium necessary to pay all charges. This can especially happen in the first year for policies with large first year expense charges;

(10) S is the quantity [(a)-(b)]x (äx+t/äx)r where (a)-(b) is as described in Section 10489.5 of the California Insurance Code for the plan of insurance defined at issue by the Guaranteed Maturity Premiums and all guarantees contained in the policy or declared by the insurer. [äx and äx+t are defined in (2) (B) above];

(11) T is the sum of any additional quantities analogous to S which arise because of structural changes in the policy, with each such quantity being determined on a basis consistent with that of S using the maturity date in effect at the time of the change;

(A) Structural changes are those changes which are separate from the automatic workings of the policy. Such changes usually would be initiated by the policyowner and include changes in the guaranteed benefits, changes in latest maturity date, or changes in allowable premium payment period. For fixed premium universal life policies with redetermination of all credits and charges no more frequently that annually, on policy anniversaries, structural changes also include changes in guaranteed benefits, or in fixed premiums, unanticipated by the guaranteed maturity premium for such policies at the date of issue, even if such changes arise from automatic workings of the policy. The computation of R above, for fixed premium universal life structural changes shall exclude from the present value of future guaranteed benefits those guaranteed benefits which are funded by the excess of the insurer's declared guarantees of interest, mortality and expenses, over the guarantees contained in the policy at the date of issue.

(B) In effecting structural changes, consistent methods shall be used to calculate reserves. Such methods may include that of maintaining proportionality between the Guaranteed Maturity Fund and Guaranteed Maturity Premium. Values may be calculated per dollar of face amount and multiplied by the new face amount. This method eliminates much of the complexity involved in other methods.

(b) The Guaranteed Maturity Premium, the Guaranteed Maturity Fund and R above shall be recalculated to reflect any structural changes in the policy. This recalculation shall be done in a manner consistent with the descriptions above.

(c) Future guaranteed benefits shall be determined by:

(1) Projecting the greater of the Guaranteed Maturity Fund and the policy value, taking into account future Guaranteed Maturity Premiums, if any, and using all guarantees of interest, mortality, expense deductions, or other guarantees contained in the policy or declared by the insurer; and,

(2) Taking into account any benefits guaranteed in the policy or by declaration which do not depend on the policy value.

(d) All present values shall be determined using:

(1) The interest rate (or rates) specified by Section 10489.4 of the California Insurance Code for the calculation of minimum reserve values on policies issued in the same year; and,

(2) The statutory mortality rates specified in the policy as required by Section 10160(e) of the California Insurance Code.

Notes

Cal. Code Regs. Tit. 10, § 2544.3

1. New section filed 10-17-91; operative 11-18-91 (Register 92, No. 3).
2. Amendment of subsection (d)(1), repealer of subsection (e) and amendment of NOTE filed 3-22-2016; operative 7-1-2016 (Register 2016, No. 13).

Note: Authority cited: Sections 720, 790.10, 10489.93, 12921 and 12926, Insurance Code. Reference: Section 10489.93, Insurance Code.

1. New section filed 10-17-91; operative 11-18-91 (Register 92, No. 3).
2. Amendment of subsection (d)(1), repealer of subsection (e) and amendment of Note filed 3-22-2016; operative 7/1/2016 (Register 2016, No. 13).