# 31 Pa. Code § 84c.6 - Minimum valuation standard for policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits (other than universal life policies)

(a)

*Basic reserves.*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 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)

*Deficiency reserves.*The deficiency reserve at any duration shall be calculated as follows:(1) On a unitary basis if the
corresponding basic reserve is unitary.

(2) On a segmented basis if the corresponding
basic reserve is segmented. The segment lengths shall equal those determined
for segmented basic reserves.

(3)
On the segmented basis if the corresponding basic reserve is equal to both the
segmented reserve and the unitary reserve. The segment lengths shall equal
those determined for segmented basic reserves.

(c)

*Minimum value.*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 10-year select factors. Total reserves (including basic reserves, deficiency reserves and any reserves held for supplemental benefits that would expire upon contract termination) may not be less than the amount that the policyowner would receive (including the cash surrender value of the supplemental benefits, if any, referred to in this section), exclusive of any deduction for policy loans, upon termination of the policy.(d)

*Unusual pattern of guaranteed cash surrender values.*The following requirement applies to any policy with an unusual pattern of guaranteed cash surrender values. This calculation is independent of the segmented and unitary reserves.(1) 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.(2) 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.*n*shall equal 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. The net premium for a given year during the*n*year period shall equal the product of the net to gross ratio and the respective gross premium where the net to gross ratio is subparagraph (i) divided by subparagraph (ii) as follows:(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.(ii) The present value, at the beginning of
the

*n*year period, of the scheduled gross premiums payable during the*n*year period.(3) 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 the following:

(i) 110%
of the scheduled gross premium for that year.

(ii) 110% of 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.

(iii) 5% of the first policy year surrender
charge, if any.

(e)

*Optional exemption for yearly renewable term reinsurance.*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 shall never be less than the sum of the present values, at
the date of valuation, of the excess in each policy year of the valuation net
premium over the respective maximum guaranteed gross premium. The excess for
each policy year may not be less than zero.

(4) The calculations use the maximum
valuation interest rate and the 1980 CSO valuation tables with or without
10-year select mortality factors, or any other table adopted after May 6, 2000,
by the NAIC and promulgated by regulation by the Commissioner for the purpose
of calculating basic and deficiency reserves.

(5) A reinsurance agreement shall be
considered yearly renewable term reinsurance for purposes of subsection (e) if
only the mortality risk is reinsured.

(6) If the assuming company chooses this
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)

*Optional exemption for attained-age-based yearly renewable term life insurance policies.*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 shall never be less
than the sum of the present values, at the date of valuation, of the excess in
each policy year of the valuation net premium over the respective maximum
guaranteed gross premium. The excess for each year may not be less than
zero.

(4) The calculations use the
maximum valuation interest rate and the 1980 CSO valuation tables with or
without 10-year select mortality factors, or any other table adopted after May
6, 2000, by the NAIC and promulgated by regulation by the Commissioner for the
purpose of calculating basic and deficiency reserves.

(5) A policy shall be considered an
attained-age-based yearly renewable term life insurance policy for purposes of
subsection (f) if both of the following apply:

(i) 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 so that the rate for any given policy at a
given attained age of the insured is independent of the year the policy was
issued.

(ii) 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 and meet the conditions in
paragraph (5) after an initial period of coverage, the approach of subsection
(f) may be used after the initial period if the initial period is constant for
all insureds of the same sex, risk class and plan of insurance or if the
initial period runs to a common attained age for all insureds of the same sex,
risk class and plan of insurance.

(7) If the approach in subsection (f) is
elected, the approach shall be applied in determining reserves for all
attained-age-based yearly renewable term life insurance policies issued on or
after May 6, 2000.

(g)

*Exemption from unitary reserves for certain renewable term life insurance policies.*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
periods where the length of the period is the same for each period, except that
for the final renewal period the length 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 length of the earlier 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
periods are not less than the corresponding net premiums based upon the 1980
CSO valuation tables with or without the 10-year select mortality
factors.

(3) There are no cash
surrender values in any policy year.

(h)

*Exemption from unitary reserves for certain juvenile policies.*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) 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.

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