Connecticut Administrative Code › Title 38a - Insurance Department › 88 - Credit for Reinsurance › Section 38a-88-15 - The Actuarial Method

Current through July 10, 2024
(a)
Actuarial
			 Method.
The actuarial method to establish the required level of primary
			 security for each reinsurance contract subject to sections 38a-88-13 to
			 38a-88-19, inclusive, of the Regulations of Connecticut State Agencies shall be
			 VM-20, applied on a contract-by-contract basis including all relevant
			 definitions from the valuation manual as then in effect, applied as follows:
(1) For covered policies described in section
			 38a-88-14(3)(A) of the Regulations of Connecticut State Agencies, 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 contract that also contains covered policies described in section
			 38a-88-14(3)(B) of the Regulations of Connecticut State Agencies, the ceding
			 insurer may elect to instead use subdivision (2) of this subsection as the
			 actuarial method for the entire reinsurance agreement. Whether this subdivision
			 or subdivision (2) of this subsection is used, the actuarial method must comply
			 with any requirements or restrictions that the valuation manual imposes when
			 aggregating these policy types for the purposes of principle-based reserve
			 calculations.
(2) For covered
			 policies described in section 38a-88-14(3)(B) of the Regulations of Connecticut
			 State Agencies, 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 subdivision (4) of
			 this subsection, 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 contract 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 the
			 reinsurance contract 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) of this subdivision, may be
			 reduced to a pro rata portion in accordance with the percentage of the risk
			 ceded;
(B) If the reinsurance
			 contract 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
			 any 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
			 where cx is calculated using the same mortality table
			 used in calculating the net premium reserve; and
(D) For any other contract 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 shall be
			 no reduction in the required level of primary security.
(5) It is possible for any combination of
			 subparagraphs (A), (B), (C) and (D) of subdivision (4) of this subsection to
			 apply Such adjustments to the required level of primary security shall be done
			 in the sequence that accurately reflects the portion of the risk ceded via the
			 contract. The ceding insurer shall 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 shall be made only with respect to reinsurance treaties
			 entered into directly by the ceding insurer. The ceding insurer shall make no
			 adjustments as a result of a retrocession contract entered into by the assuming
			 insurers.
(6) In no event shall the
			 required level of primary security resulting from application of the actuarial
			 method be required to exceed the amount of statutory reserves ceded.
(7) If the ceding insurer cedes risks with
			 respect to covered policies, including any riders, in more than one reinsurance
			 contract subject to sections 38a-88-13 to 38a-88-19, inclusive, of the
			 Regulations of Connecticut State Agencies, in no event shall 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 contract subject to
			 sections 38a-88-13 to 38a-88-19, inclusive, of the Regulations of Connecticut
			 State Agencies.
(8) If a
			 reinsurance contract subject to sections 38a-88-13 to 38a-88-19, inclusive, of
			 the Regulations of Connecticut State Agencies cedes risk on both covered
			 policies and non-covered policies, credit for the ceded reserves shall be
			 determined as follows:
(A) The actuarial
			 method shall be used to determine the required level of primary security for
			 the covered policies, and section 38a-88-16 of the Regulations of Connecticut
			 State Agencies shall be used to determine the reinsurance credit for the
			 covered policy reserves; and
(B)
			 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 (A) of this subdivision, is held by or on behalf of the ceding
			 insurer in accordance with sections 38a-85 and 38a-86 of the Connecticut
			 General Statutes. 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.