(1) 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 a 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 adjustments described in Subsection
(1)(a) or (1)(b) may be made.
(a)
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.
(b) 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.
(2) Deficiency Reserves.
(a) The deficiency reserve at any duration
shall be calculated:
(i) on a unitary basis if
the corresponding basic reserve determined by Subsection (1) is
unitary;
(ii) on a segmented basis
if the corresponding basic reserve determined by Subsection (1) is segmented;
or
(iii) on the segmented basis if
the corresponding basic reserve determined by Subsection (1) is equal to both
the segmented reserve and the unitary reserve.
(b) Subsection (2) applies to any policy for
which the guaranteed gross premium at any duration is less than the
corresponding modified net premium calculated by the method used in determining
the
basic reserves, but using the minimum valuation standards of mortality,
specified in Subsection
R590-198-4(2),
and rate of interest.
(c) Any
deficiency reserves shall be calculated for each policy as the excess if
greater than zero, for the current and all remaining periods, of the quantity A
over the basic reserve, where A is obtained as indicated in Subsection
R590-198-4(2).
(d) For deficiency reserves determined on a
segmented basis, the quantity A is determined using segment lengths equal to
those determined for segmented basic reserves.
(3) 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
used for the calculation of the segmented reserves. If select mortality factors
are used, they shall be the ten-year select factors incorporated into the 1980
amendments of the NAIC Standard Valuation Law. In no case may total reserves,
including basic reserves, deficiency reserves, and any reserves held for
supplemental benefits that would expire upon contract termination, be less than
the amount that the policyowner would receive, including the cash surrender
value of the supplemental benefits, if any, referred to above, exclusive of any
deduction for policy loans, upon termination of the policy.
(4) Unusual Pattern of Guaranteed Cash
Surrender Values.
(a) For any policy with an
unusual pattern of guaranteed cash surrender values, the reserves actually held
before the first unusual guaranteed cash surrender value shall 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.
(b) The reserves actually held after any
unusual guaranteed cash surrender value shall 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, where:
(i) n is the number of years from the date of
the last unusual guaranteed cash surrender value before the valuation date to
the earlier of:
(A) the date of the next
unusual guaranteed cash surrender value, if any, that is scheduled after the
valuation date; or
(B) the
mandatory expiration date of the policy;
(ii) the net premium for a given year during
the n-year period is equal to the product of the net to gross ratio and the
respective gross premium; and
(iii)
the net to gross ratio is equal to Item (A) divided by Item (B) as follows:
(A) 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.
(B) The present
value, at the beginning of the n-year period, of the scheduled gross premiums
payable during the n-year period.
(c) For purposes of Subsection (4), 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:
(i) 110% of the scheduled gross premium for
that year;
(ii) 110% of one 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; and
(iii) 5% of the first policy year surrender
charge, if any.
(5) Optional Exemption for Yearly Renewable
Term (YRT) Reinsurance. At the option of the insurer, the following approach
for reserves on YRT reinsurance may be used:
(a) Calculate the valuation net premium for
each future policy year as the tabular cost of insurance for that future
year.
(b) Basic reserves shall
never be less than the tabular cost of insurance for the appropriate period, as
defined in Subsection (3).
(c)
Deficiency reserves.
(i) For each policy year,
calculate the excess, if greater than zero, of the valuation net premium over
the respective maximum guaranteed gross premium.
(ii) Deficiency reserves shall never be less
than the sum of the present values, at the date of valuation, of the excesses
determined in accordance with Subsection (5)(c)(i).
(d) For purposes of this subsection, the
calculations use the maximum valuation interest rate and the 1980 CSO mortality
tables with or without ten-year select mortality factors, or any other table
adopted after January 4, 2000, by the NAIC and promulgated by rule by the
commissioner for this purpose.
(e)
A reinsurance agreement shall be considered YRT reinsurance for purposes of
this subsection if only the mortality risk is reinsured.
(f) If the assuming insurer chooses this
optional exemption, the ceding insurer's reinsurance reserve credit shall be
limited to the amount of reserve held by the assuming insurer for the affected
policies.
(6) Optional
Exemption for Attained-Age-Based Yearly Renewable Term Life Insurance Policies.
At the option of the insurer, the following approach for reserves for
attained-age-based YRT life insurance policies may be used:
(a) Calculate the valuation net premium for
each future policy year as the tabular cost of insurance for that future
year.
(b) Basic reserves shall
never be less than the tabular cost of insurance for the appropriate period, as
defined in Subsection (3).
(c)
Deficiency reserves.
(i) For each policy year,
calculate the excess, if greater than zero, of the valuation net premium over
the respective maximum guaranteed gross premium.
(ii) Deficiency reserves shall never be less
than the sum of the present values, at the date of valuation, of the excesses
determined in accordance with Subsection (6)(c)(i).
(d) For purposes of this subsection, the
calculations use 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 January 4, 2000, by the NAIC and promulgated by rule by the
commissioner for this purpose.
(e)
A policy shall be considered an attained-age-based YRT life insurance policy
for purposes of this subsection if:
(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 such that
the rate for any given policy at a given attained age of the insured is
independent of the year the policy was issued; and
(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.
(f) For policies that become
attained-age-based YRT policies after an initial period of coverage, the
approach of this subsection may be used after the initial period if:
(i) the initial period is constant for all
insureds of the same sex, risk class, and plan of insurance; or
(ii) the initial period runs to a common
attained age for all insureds of the same sex, risk class, and plan of
insurance; and
(iii) after the
initial period of coverage, the policy meets the conditions of Subsection
(6)(e).
(g) If this
election is made, this approach shall be applied in determining reserves for
all attained-age-based YRT life insurance policies issued on or after January
4, 2000.
(7) Exemption
from
Unitary Reserves for Certain n-Year 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:
(a) the policy consists of a series of n-year
periods, including the first period and all renewal periods, where n is the
same for each period, except that for the final renewal period, n may be
truncated or extended to reach the expiry age, provided that this final renewal
period is less than ten years and less than twice the size of the earlier
n-year periods, and for each period, the premium rates on both the initial
current premium scale and the guaranteed maximum premium scale are
level;
(b) the guaranteed gross
premiums in all n-year periods are not less than the corresponding net premiums
based upon the 1980 CSO Table with or without the ten-year select mortality
factors; and
(c) there are no cash
surrender values in any policy year.
(8) 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:
(a) at issue, the insured is age 24 or
younger;
(b) 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; and
(c) 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.