Idaho Admin. Code r. 18.07.03.012

Current through September 2, 2024

Section 18.07.03.012 - CALCULATING MINIMUM VALUATION STANDARD FOR POLICIES WITH GUARANTEED NONLEVEL GROSS PREMIUMS OR GUARANTEED NONLEVEL BENEFITS (BESIDES UNIVERSAL LIFE POLICIES)

01.Basic Reserves. Basic reserves are calculated as the greater of the segmented reserves and the unitary reserves. Both the segmented reserves and the unitary reserves for any policy will use the same valuation mortality table and selection factors. An insurer may make either of these adjustments when calculating segmented reserves and net premiums:

a. Treat the unitary reserve, if greater than zero (0), applicable at the end of each segment as a pure endowment and subtract the unitary reserve, if greater than zero (0), applicable at the start of each segment from the present value of guaranteed life insurance and endowment benefits for each segment; or

b. Treat the guaranteed cash surrender value, if greater than zero (0), applicable at the end of each segment as a pure endowment; and subtract the guaranteed cash surrender value, if greater than zero (0), applicable at the start of each segment from the present value of guaranteed life insurance and endowment benefits for each segment.

02.Deficiency Reserves.

a. The deficiency reserve at any duration will be calculated:

i. On a unitary basis if the corresponding basic reserve determined by Subsection 012.01 is unitary;

ii. On a segmented basis if the corresponding basic reserve determined by Subsection 012.01 is segmented; or

iii. On the segmented basis if the corresponding basic reserve determined by Subsection 012.01 is equal to both the segmented reserve and the unitary reserve.

b. Subsection 012.02 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 011.02 and rate of interest).

c. Deficiency reserves, if any, are calculated for each policy as the excess if more than zero (0), for the current and all remaining periods, of the quantity A over the basic reserve, where A is obtained as indicated in Subsection 011.02.

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.

03.Minimum Value. Basic reserves will at least equal the tabular cost of insurance for the balance of the policy year, if mean reserves are used. Basic reserves will at least equal 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 will use the same valuation mortality table and interest rates as that used to calculate the segmented reserves. But if select mortality factors are used, they will be the "ten year select factors". Total reserves (including basic reserves, deficiency reserves and any reserves held for supplemental benefits that would expire at contract termination) never may 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, when the policy terminates.

04.Unusual Pattern of Guaranteed Cash Surrender Values.

a. For any policy with an unusual pattern of guaranteed cash surrender values, the reserves held before the first unusual guaranteed cash surrender value will at least equal 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 held after any unusual guaranteed cash surrender value will at least equal 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:

(1) The date of the next unusual guaranteed cash surrender value, if any, that is scheduled after the valuation date; or

(2) The mandatory expiration date of the policy; and

ii. The net premium for a given year during the n year period equals the product of the net to gross ratio and the respective gross premium; and

iii. The net to gross ratio equals Item One (1) divided by Item Two (2) as follows:

(1) The present value, at the start of the n year period, of death benefits payable during the n year period plus the present value, at the start 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 start of the n year period.

(2) The present value, at the start of the n year period, of the scheduled gross premiums payable during the n year period.

c. For Subsection 012.04, a policy has 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. One hundred ten percent (110%) of the scheduled gross premium for that year;

ii. One hundred ten percent (110%) of one (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; and

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

05.Optional Exemption for Yearly Renewable Term (YRT) Reinsurance. A company may opt to use this approach for reserves on YRT reinsurance:

a. Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year;

b. Basic reserves will at least equal the tabular cost of insurance for the appropriate period, as defined in Subsection 012.03;

c. Deficiency reserves.

i. For each policy year, calculate the excess, if greater than zero (0), of the valuation net premium over the respective maximum guaranteed gross premium.

ii. Deficiency reserves will at least equal the sum of the present values, at the date of valuation, of the excesses determined in accordance with Subparagraph 012.05.c.i.;

d. For Subsection 012.05, the calculations use the maximum valuation interest rate and the 1980 CSO mortality tables with or without "ten year select factors";

e. A reinsurance agreement is YRT reinsurance under Subsection 012.05 if only the mortality risk is reinsured; and

f. If the assuming company chooses this optional exemption, the ceding company's reinsurance reserve credit will be limited to the amount of reserve the assuming company holds for the affected policies.

06.Optional Exemption for Attained-Age-Based Yearly Renewable Term Life Insurance Policies. A company may opt to use this approach for reserves for attained-age-based YRT life insurance policies:

a. Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year.

b. Basic reserves will at least equal to the tabular cost of insurance for the appropriate period, as defined in Subsection 012.03.

c. Deficiency reserves:

i. For each policy year, calculate the excess, if greater than zero (0), of the valuation net premium over the respective maximum guaranteed gross premium.

ii. Deficiency reserves at least equal to the sum of the present values, at the date of valuation, of the excesses determined in accordance with Subparagraph 012.06.c.i.

d. For Subsection 012.06, the calculations use the maximum valuation interest rate and the 1980 CSO valuation tables with or without "ten year select factors."

e. A policy is an attained-age-based YRT life insurance policy, under Subsection 012.06, if:

i. The premium rates (on both the initial current premium scale and the guaranteed maximum premium scale) are based on 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 coverage period, the approach of Subsection 012.06 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, the policy meets the conditions of Paragraph 012.06.e.; and

g. If this election is made, this approach will be applied to determine reserves for all attained-age-based YRT life insurance policies issued on or after this chapter's effective date.

07.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 (10) 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 on the 1980 CSO Table with or without the "ten year select factors;" and

c. There are no cash surrender values in any policy year.

08.Exemption From Unitary Reserves for Certain Juvenile Policies. Unitary basic reserves and unitary deficiency reserves need not be calculated for a policy if these conditions are met, based on the initial current premium scale at issue:

a. At issue, the insured is age twenty-four (24) or younger;

b. Until the insured reaches the end of the juvenile period, which will occur at or before age twenty-five (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.

Idaho Admin. Code r. 18.07.03.012

Effective April 6, 2023