A. General
(1) Policies with a secondary guarantee
include:
(a) 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;
(b) 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
tables with or without ten-year select mortality factors, or any other table
adopted after the effective date of this regulation by the NAIC and promulgated
by regulation by the commissioner for this purpose; or
(c) A policy with any combination of
Subparagraph (a) and (b).
(2) 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 Subsections B and C below shall be recalculated from issue to
reflect these changes.
(3)
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.
(4) For purposes of
this section, 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.
(5) 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 Rule 19.05 B(2), (3), and (4) may not be used to calculate
the one-year valuation premiums.
(6) The one-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.
B. Basic Reserves
for the Secondary Guarantees
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 will be determined according to the
contract segmentation method as defined in Rule 19.04(B).
C. Deficiency Reserves for the Secondary
Guarantees
Deficiency reserves, if any, for the secondary guarantees
shall be calculated for the secondary guarantee period in the same manner as
described in Rule 19.06(B) with gross premiums set equal to the specified
premiums, if any, or otherwise to the minimum premiums that keep the policy in
force.
D. Minimum Reserves
The minimum reserves during the secondary guarantee period
are the greater of:
(1) The basic
reserves for the secondary guarantee plus the deficiency reserve, if any, for
the secondary guarantees; or
(2)
The minimum reserves required by other rules or regulations governing universal
life plans.
