Compilation of Rules and Regulations of the State of Georgia › Department 120 - OFFICE OF COMMISSIONER OF INSURANCE, SAFETY FIRE COMMISSIONER AND INDUSTRIAL LOAN COMMISSIONER › Chapter 120-2 - RULES OF COMMISSIONER OF INSURANCE › Subject 120-2-109 - TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING REGULATION › Rule 120-2-109-.06 - The Actuarial Method

Current through Rules and Regulations filed through June 27, 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
				120-2-109-.05(2)(a)
				above, 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 120-2-109-.05(2)(b),
				the ceding insurer may elect to instead use subsection (b) below as the
				Actuarial Method for the entire reinsurance agreement. Whether subsection (a)
				or (b) 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.
(b) For Covered Policies described in
				120-2-109-.05(2)(b)
				above, 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 subsection (d) below, 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:
(i) 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 paragraph
				(iii) below, may be reduced to a pro rata portion in accordance with the
				percentage of the risk ceded;
(ii)
				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;
(iii) 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 Jan. 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
(iv) 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.
It is possible for any combination of paragraphs (i), (ii),
				  (iii), and (d) above 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.
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 Regulation cedes risk on both Covered and Non-Covered
				Policies, credit for the ceded reserves shall be determined as follows:
(i) The Actuarial Method shall be used to
				determine the Required Level of Primary Security for the Covered Policies, and
				120-2-109-.07 shall be used to
				determine the reinsurance credit for the Covered Policy reserves; and
(ii) 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 paragraph (i), is held by or on
				behalf of the ceding insurer in accordance with O.C.G.A. §
											33-7-14(a) and
				(b). 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.