760 IAC 1-64-4 - Calculation of minimum valuation standard for policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits (other than universal life policies)
Authority: IC 27-1-12-10.5
Affected: IC 27-1-12-10; IC 27-1-12.8-21
Sec. 4.
(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 insurer, in calculating segmented reserves and net premiums,
either of the adjustments described as follows may be made:
(1) Treat the unitary reserve, if greater
than zero (0), applicable at the end of each segment as a pure endowment and
subtract the unitary reserve, if greater than zero (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 zero (0), applicable at the end of each segment as a
pure endowment, and subtract the guaranteed cash surrender value, if greater
than zero (0), applicable at the beginning of each segment from the present
value of guaranteed life insurance and endowment benefits for each
segment.
(b) Requirements
for deficiency reserves shall be as follows:
(1) The deficiency reserve at any duration
shall be calculated:
(A) on a unitary basis if
the corresponding basic reserve determined by subsection (a) is
unitary;
(B) on a segmented basis
if the corresponding basic reserve determined by subsection (a) is segmented;
or
(C) on a segmented basis if the
corresponding basic reserve determined by subsection (a) is equal to both the
segmented reserve and the unitary reserve.
(2) This subsection applies 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 section 3(b) of this rule and rate of interest.
(3) Deficiency reserves, if any, shall be
calculated for each policy as the excess if greater than zero (0), for the
current and all remaining periods, of the quantity A over the basic reserve,
where A is obtained as indicated in section 3(b) of this rule.
(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 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. 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 in this subsection), exclusive of any deduction for policy
loans, upon termination of the policy.
(d) The following requirements apply to an
unusual pattern of guaranteed cash surrender values:
(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:
(i) the date
of the next unusual guaranteed cash surrender value, if any, that is scheduled
after the valuation date; or
(ii)
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:
(i) 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
(ii) 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) One hundred ten percent (110%) of the
scheduled gross premium for that year.
(B) One hundred ten percent (110%) of one (1)
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.
(C) Five percent (5%) of
the first policy year surrender charge, if any.
(e) At the option of the company, 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 shall
never be less than the tabular cost of insurance for the appropriate period, as
defined in subsection (c).
(3)
Deficiency reserves:
(A) for each policy
year, calculate the excess, if greater than zero (0), of the valuation net
premium over the respective maximum guaranteed gross premium; and
(B) shall never be less than the sum of the
present values, at the date of valuation, of the excesses determined in
accordance with clause (A).
(4) 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 of the department of insurance (commissioner) for this
purpose.
(5) A reinsurance
agreement shall be considered yearly renewable term reinsurance for purposes of
this subsection if only the mortality risk is reinsured.
(6) If the assuming company chooses the
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) At the
option of the company, 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 shall
never be less than the tabular cost of insurance for the appropriate period, as
defined in subsection (c).
(3)
Deficiency reserves:
(A) for each policy year,
calculate the excess, if greater than zero (0), of the valuation net premium
over the respective maximum guaranteed gross premium; and
(B) shall never be less than the sum of the
present values, at the date of valuation, of the excesses determined in
accordance with clause (A).
(4) 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) A policy shall be considered an
attained-age-based yearly renewable term 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 yearly renewable term 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 the initial period runs to a common attained age for all insureds of the
same sex, risk class, and plan of insurance; and
(B) after the initial period of coverage, the
policy meets the conditions of subdivision (5).
(7) If this election 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 rule.
(g) 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 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.
(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 ten-year select
mortality factors.
(3) There are no
cash surrender values in any policy year.
(h) 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) The insured is twenty-four (24) years of
age or younger.
(2) Until the
insured reaches the end of the juvenile period, which shall occur at or before
twenty-five (25) years of age, 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.
Notes
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