Hawaii Administrative Rules › Title 16 - DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS › Chapter 187 - TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING › Section 16-187-105 - The actuarial method

Current through June, 2024
(a) The actuarial
			 method to establish the required level of primary security for each reinsurance
			 treaty subject to this chapter shall be VM-20, applied on a treaty-by-treaty
			 basis, including all relevant definitions, from the valuation manual as then in
			 effect, applied as follows:
(1) For covered
			 policies described in section 16-187-104, "Covered policies," subsection (1),
			 the actuarial method is the greater of the deterministic reserve or the net
			 premium reserve regardless of whether the criteria for exemption testing can be
			 met. However, if the covered policies do not meet the requirements of the
			 stochastic reserve exclusion test in the valuation manual, then the actuarial
			 method is the greatest of the deterministic reserve, the stochastic reserve, or
			 the net premium reserve. In addition, if such covered policies are reinsured in
			 a reinsurance treaty that also contains covered policies described in section
			 16-187-104, "Covered policies," subsection (2), the ceding insurer may elect to
			 instead use subsection (a)(2) as the actuarial method for the entire
			 reinsurance agreement. Whether subsection (a)(1) or (a)(2) are used, the
			 actuarial method must comply with any requirements or restrictions that the
			 valuation manual imposes when aggregating these policy types for purposes of
			 principle-based reserve calculations.
(2) For covered policies described in section
			 16-187-104, "Covered policies," subsection (2), the actuarial method is the
			 greatest of the deterministic reserve, the stochastic reserve, or the net
			 premium reserve regardless of whether the criteria for exemption testing can be
			 met.
(3) Except as provided in
			 subsection (a)(4), the actuarial method is to be applied on a gross basis to
			 all risks with respect to the covered policies as originally issued or assumed
			 by the ceding insurer.
(4) If the
			 reinsurance treaty cedes less than one hundred percent (100%) of the risk with
			 respect to the covered policies, then the required level of primary security
			 may be reduced as follows:
(A) If a
			 reinsurance treaty cedes only a quota share of some or all of the risks
			 pertaining to the covered policies, the required level of primary security, as
			 well as any adjustment under subparagraph (C), may be reduced to a pro rata
			 portion in accordance with the percentage of the risk ceded;
(B) If the reinsurance treaty in a nonexempt
			 arrangement cedes only the risks pertaining to a secondary guarantee, the
			 required level of primary security may be reduced by an amount determined by
			 applying the actuarial method on a gross basis to all risks, other than risks
			 related to the secondary guarantee, pertaining to the covered policies, except
			 that for covered policies for which the ceding insurer did not elect to apply
			 the provisions of VM- 20 to establish statutory reserves, the required level of
			 primary security may be reduced by the statutory reserve retained by the ceding
			 insurer on those covered policies, where the retained reserve of those covered
			 policies should be reflective of any reduction pursuant to the cession of
			 mortality risk on a yearly renewable term basis in an exempt
			 arrangement;
(C) If a portion of
			 the covered policy risk is ceded to another reinsurer on a yearly renewable
			 term basis in an exempt arrangement, the required level of primary security may
			 be reduced by the amount resulting by applying the actuarial method including
			 the reinsurance section of VM-20 to the portion of the covered policy risks
			 ceded in the exempt arrangement, except that for covered policies issued prior
			 to January 1, 2017, this adjustment is not to exceed [cx/ (2 * number of
			 reinsurance premiums per year)] where cx is calculated using the same mortality
			 table used in calculating the net premium reserve; and
(D) For any other treaty ceding a portion of
			 risk to a different reinsurer, including but not limited to stop loss, excess
			 of loss and other nonproportional reinsurance treaties, there will be no
			 reduction in the required level of primary security.