A. At the election
of the company 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 tables with select mortality factors (or any other valuation
mortality table adopted by the NAIC after the effective date of this rule and
promulgated by rule by the Superintendent for this purpose). If select
mortality factors are elected, they may be:
(1) The ten-year select mortality factors
incorporated into the 1980 amendments to the NAIC Standard Valuation
Law;
(2) The select mortality
factors in the Appendix; or
Drafting Note: The select mortality factors for
duration 1 through 15 in the Appendix of this rule reflect the Society of
Actuaries' data for the years 1983 through 1986, split by sex and smoking
status, with fifteen years of mortality improvement, based on Society of
Actuaries' Projection Scale A applied. A 50% margin was added. The factors were
then graded to the 1980 CSO Tables 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.
(3) Any other
table of select mortality factors adopted by the NAIC after the effective date
of this rule and promulgated by rule by the Superintendent for the purpose of
calculating basic reserves.
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 company 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 tables
with select mortality factors (or any other valuation mortality table adopted
by the NAIC after the effective date of this rule and promulgated by rule by
the Superintendent). If select mortality factors are elected, they may be:
(1) The ten-year select mortality factors
incorporated into the 1980 amendments to the NAIC Standard Valuation
Law;
(2) The select mortality
factors in the Appendix of this rule;
Drafting Note: The select mortality factors in the
Appendix of this rule 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 rule allows actuarial judgment to be used for deficiency
reserves.
(3) For
durations in the first segment, X percent of the select mortality factors in
the Appendix, subject to 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;
(b) X is such that, when using the valuation
interest rate used for basic reserves, Item (i) is greater than or equal to
Item (ii);
(i) The actuarial present value of
future death benefits, calculated using the mortality rates resulting from the
application of X;
(ii) The
actuarial present value of future death benefits calculated using anticipated
mortality experience without recognition of mortality improvement beyond the
valuation date;
(c) 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 five (5)
years after the valuation date;
(d)
The appointed actuary shall increase X at any valuation date where it is
necessary to continue to meet all the requirements of Subsection
(B)(3);
(e) The appointed actuary
may decrease X at any valuation date as long as X continues to meet all the
requirements of Subsection (B)(3); and
(f) 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.
(g) If X is less than 100 percent at any
duration for any policy, the following requirements shall be met:
(i) The appointed actuary shall annually
prepare an actuarial opinion and memorandum for the company in conformance with
the requirements of Rule Chapter 780;
(ii) The appointed actuary shall disclose, in
the Regulatory Asset Adequacy Issues Summary, the impact of the insufficiency
of assets to support the payment of benefits and expenses and the establishment
of statutory reserves during one or more interim periods; and
(iii) The appointed actuary shall annually
opine for all policies subject to this rule as to whether the mortality rates
resulting from the application of X meet the requirements of Subsection (B)(3).
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. The X factors shall reflect anticipated
future mortality, without recognition of mortality improvement beyond the
valuation date, taking into account relevant emerging experience.
(4) Any other table of
select mortality factors adopted by the NAIC after the effective date of this
rule and promulgated by rule by the Superintendent for the purpose of
calculating deficiency reserves.
C. This subsection 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 ten
(10) years, the appropriate ten-year select mortality factors incorporated into
the 1980 amendments to the NAIC Standard Valuation Law may be used thereafter
through the tenth policy year from the date of issue.
Drafting Note: This rule does not allow the use of
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.
Also, for policies that have reentry provisions, select mortality factors shall
not be used in segments beginning after reentry unless a new policy is actually
issued. However, this rule allows the use of the ten-year select mortality
factors incorporated into the 1980 amendments of the NAIC Standard Valuation
Law 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 ten (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, and
(3) reserves assuming that the policy was
issued on the date of the guarantee.
F. The Superintendent 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 rule. 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 Rule Chapter 780.