Alabama Administrative Code › Title 482 - ALABAMA DEPARTMENT OF INSURANCE › Chapter 482-1-167 - TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING › Section 482-1-167-.06 - The Actuarial Method

Current through Register Vol. 42, No. 9, June 28, 2024
(1)
			 Actuarial Method. The Actuarial Method to establish the Required Level of
			 Primary Security for each reinsurance treaty subject to this regulation 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:
(a) For Covered Policies described in
			 subparagraph 1. of subparagraph (b) of Rule
			 482-1-167-.05, the Actuarial
			 Method is the greater of the Deterministic Reserve or the Net Premium Reserve
			 (NPR) 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 NPR.
			 In addition, if such Covered Policies are reinsured in a reinsurance treaty
			 that also contains Covered Policies described in subparagraph 2. of
			 subparagraph (b) of Rule
			 482-1-167-.05, the ceding insurer
			 may elect to instead use paragraph (b) as the Actuarial Method for the entire
			 reinsurance agreement. Whether subparagraph (a) or (b) is 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.
(b) For Covered Policies described in
			 subparagraph 2. of subparagraph (b) of Rule
			 482-1-167-.05, the Actuarial
			 Method is the greatest of the Deterministic Reserve, the Stochastic Reserve, or
			 the NPR regardless of whether the criteria for exemption testing can be
			 met.
(c) Except as provided in
			 subparagraph (d), 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.
(d) 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:
1. 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 3., may be reduced to a pro rata portion in
			 accordance with the percentage of the risk ceded;
2. If the reinsurance treaty in a non-exempt
			 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;
3. 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.
4. 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 non-proportional reinsurance treaties, there will be no
			 reduction in the Required Level of Primary Security.
5. It is possible for any combination of
			 subparagraphs 1., 2., 3., and 4. to apply. Such adjustments to the Required
			 Level of Primary Security will be done in the sequence that accurately reflects
			 the portion of the risk ceded via the treaty. The ceding insurer should
			 document the rationale and steps taken to accomplish the adjustments to the
			 Required Level of Primary Security due to the cession of less than one hundred
			 percent (100%) of the risk.
6. The
			 Adjustments for other reinsurance will be made only with respect to reinsurance
			 treaties entered into directly by the ceding insurer. The ceding insurer will
			 make no adjustment as a result of a retrocession treaty entered into by the
			 assuming insurers.
(e)
			 In no event will the Required Level of Primary Security resulting from
			 application of the Actuarial Method exceed the amount of statutory reserves
			 ceded.
(f) If the ceding insurer
			 cedes risks with respect to Covered Policies, including any riders, in more
			 than one reinsurance treaty subject to this Regulation, in no event will the
			 aggregate Required Level of Primary Security for those reinsurance treaties be
			 less than the Required Level of Primary Security calculated using the Actuarial
			 Method as if all risks ceded in those treaties were ceded in a single treaty
			 subject to this Regulation;
(g) If
			 a reinsurance treaty subject to this chapter cedes risk on both Covered and
			 Non-Covered Policies, credit for the ceded reserves shall be determined as
			 follows:
1. The Actuarial Method shall be
			 used to determine the Required Level of Primary Security for the Covered
			 Policies, and Rule
			 482-1-167-.07 shall be used to
			 determine the reinsurance credit for the Covered Policy reserves.
2. Credit for the Non-Covered Policy reserves
			 shall be granted only to the extent that security, in addition to the security
			 held to satisfy the requirements of subparagraph 1., is held by or on behalf of
			 the ceding insurer in accordance with Sections 27-SB-4 through 27-SB-14. Any
			 Primary Security used to meet the requirements of this subparagraph may not be
			 used to satisfy the Required Level of Primary Security for the Covered
			 Policies.