28 Tex. Admin. Code § 13.101 - Establishment and Maintenance of Permissive Deficiency Reserve
(a) At the time of reinsurance of a Chapter
14 association or company:
(1) Determine on a
reasonable basis the amount of net assets of the mutual assessment company
attributable to the various blocks of life and health and accident business.
The various blocks of business to which proportionate parts of the net assets
are to be allocated includes those blocks for which a separation of accounting
for rating or other purposes has been required by the board or by the
commissioner of insurance under various reinsurance and/or merger agreements or
are otherwise required by law. In the absence of adequate records for
determining the net assets applicable to the various blocks, such allocations
may be made on a reasonable basis taking into consideration past and
prospective claim experience of such blocks.
(2) Allocate the amount of permissive
deficiency reserve in the stipulated premium company which will be applied
against the reserves for the various blocks of life and health and accident
business.
(b) After the
reinsurance has been consummated, the company will maintain sufficient data
recorded in its premium history and/or reserve valuation cards so as to make
possible calculations of reserves when required and for determining rate
increases or for reinsurance purposes, for board or commissioner approval based
on the following separate blocks of business:
(1) life policies assumed from the first
mutual assessment company reinsured;
(2) life policies issued by the stipulated
premium company;
(3) life policies
assumed by reinsurance of other mutual assessment companies;
(4) life policies assumed by partial
reinsurance of business from other stipulated premium companies if the block of
business reinsured has a deficiency reserve;
(5) accident and health policies assumed from
the first mutual assessment company reinsured;
(6) accident and health policies issued by
the stipulated premium company;
(7)
accident and health policies assumed by reinsurance of other mutual assessment
companies; and
(8) accident and
health policies assumed by partial reinsurance of business from other
stipulated premium companies if the block of business reinsured has a
deficiency reserve.
(c)
The permissive deficiency reserves for the separate blocks of business shall be
reduced annually. The required annual reduction in the amount of permissive
deficiency reserve may be accomplished by any legal plan or method acceptable
to the State Board of Insurance which produces reductions in such deficiency
not less than the reductions determined in accordance with paragraph (1) of
this subsection or the company may, at its option, elect permissive deficiency
reduction procedures in accordance with either paragraph (1) or (2) of this
subsection.
(1) Procedure 1--applicable to
each separate block of business.
(A) Upon the
determination of the amount of the initial permissive deficiency in accordance
with the applicable statutes and these sections, a deficiency ratio will be
determined by dividing the amount of the initial deficiency by the amount of
the initial reserve.
(B) The
initial deficiency ratio will be decreased in 10 equal annual reductions to 0
with the first reduction to be made at the end of the calendar year following
the year in which the initial deficiency was established.
(C) Upon the valuation each year of the
permissive deficiency, the required reserve will be calculated and the
appropriate deficiency ratio for that year as prescribed in subparagraphs (A)
and (B) of this paragraph will be applied to the calculated reserve to
determine the dollar amount of the permissive deficiency; provided, however,
that the reductions required by this paragraph shall not be less in the
aggregate than the cumulative amount of 10% per annum of the initial permissive
deficiency.
(2)
Procedure 2--applicable to each separate block of business. Following
determination of the total of the initial permissive deficiency on all policies
in accordance with the applicable statutes and these sections, the amount of
the permissive deficiency at each subsequent accounting date shall be
determined as follows:
(A) determine the sum
of the amounts of the initial permissive deficiency on each policy remaining in
force on such accounting dates;
(B)
deduct therefrom at least 10% per annum of the total of the initial permissive
deficiency, as originally determined on all policies, at each of such
subsequent accounting dates.
(d) The permissive deficiency reserve for a
block of business shall only be allowed against the aggregate reserves for that
block of business. If the company reinsures a block of business from another
stipulated premium company upon which a permissive deficiency reserve exists,
the remaining unpaid balance of the permissive deficiency reserve shall be
transferred to the assuming stipulated premium company provided that the
assuming company reduces the permissive deficiency reserve as would be required
of the original stipulated premium company subject to applicable provisions of
these sections.
(e) The board may,
in lieu of approving a rate increase, accept an application for the restoration
of a company or association's permissive deficiency reserve which has been
reduced under the provisions of subsection (c) of this section, if such company
or association can demonstrate that its rate of mortality has been in excess of
either assumed mortality or the rates of withdrawal have been less than the
assumed rates or both.
Notes
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