28 Tex. Admin. Code § 13.29 - Establishment and Maintenance of Permissive Deficiency Reserves

(a) At the time of determination (effective December 31, 1965):

(1) determine on a reasonable basis the amount of net assets of the mortuary fund 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 mortuary fund balances for the various blocks, such allocations may be made on a reasonable basis taking into consideration past and prospective claim experience of such blocks;

(2) determine and allocate the amount of permissive deficiency reserve which will be applied against the reserves for the various blocks of life and health and accident business.

(b) After the initial determination of amounts of permissive deficiency reserves the company or association 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 as may be approved by the State Board of Insurance on the following blocks of business:

(1) life policies issued by the mutual assessment company;

(2) life policies assumed by reinsurance of other mutual assessment companies;

(3) life policies assumed by partial reinsurance of business from other mutual assessment companies if the block of business reinsured has a deficiency reserve;

(4) accident and health policies issued by the mutual assessment company;

(5) accident and health policies assumed by reinsurance of other mutual assessment companies;

(6) accident and health policies assumed by partial reinsurance of business from other mutual assessment 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 the permissive deficiency reserve may be accomplished by any legal plan or method approved by the State Board of Insurance upon the association's application to be submitted prior to July 1, 1966. Such plan for the annual reduction of reserve deficiencies must be such as to produce reductions not less than the reductions determined in accordance with the following procedure which shall be applicable for each separate block of business.

(1) 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.

(2) The initial deficiency ratio will be decreased in 18 equal annual reductions to 0 with the first reduction to be made as of December 31, 1966.

(3) 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 paragraphs (1) and (2) of this subsection will be applied to the calculated reserve to determine the dollar amount of the reserve deficiency provided, however, that the reductions required under this subsection shall not be less in the aggregate than the cumulative amount of one-eighteenth per annum of the initial permissive deficiency.

(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 upon which a permissive deficiency reserve exists, the remaining unpaid balance of the permissive deficiency reserve shall be transferred to the assuming company or association provided that the assuming company reduces the permissive deficiency reserve as would be required of the original mutual assessment 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 an 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 or mortality has been in excess of either assumed mortality or the rates of withdrawal have been less than the assumed rates or both.

Notes

28 Tex. Admin. Code § 13.29

The provisions of this §13.29 adopted to be effective January 1, 1976; amended to be effective April 11, 1983, 8 TexReg 1025.