California Code of Regulations › Title 10 - Investment › Chapter 5 - Insurance Commissioner › Subchapter 3 - Insurers › Article 12.4 - Valuation of Universal Life Insurance Policies › Section 2544.3 - Reserve Requirements

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a)
				  The minimum valuation standard for universal life insurance policies shall be
				  the Commissioner's Reserve Valuation Method, as described below for such
				  policies, and the tables and interest rates specified below. The terminal
				  reserve for the basic policy, and any benefits and/or riders for which premiums
				  are not paid separately as of any policy anniversary, shall be equal to the net
				  level premium reserves less S and less T, as hereinafter specified:
The net level premium reserve shall be equal to [Q - R] r
					 where Q, R and r are as defined below:
(1) Q is the present value of all future
				  guaranteed benefits at the date of valuation;
(2) R is the quantity (PVFB/äx)
				  (äx+t), where:
(A) PVFB is the present
				  value of all benefits guaranteed at issue assuming future Guaranteed Maturity
				  Premiums as defined below are paid by the policyowner and taking into account
				  all guarantees contained in the policy or declared by the insurer;
				  and,
(B)
												äx and äx+t are
				  present values of an annuity of one per year payable on policy anniversaries
				  beginning at ages x and x+t respectively, and continuing until the highest
				  attained age at which a premium may be paid under the
				  policy;
(3) r is equal to
				  one, unless the policy is a flexible premium policy and the policy value is
				  less than the Guaranteed Maturity Fund, in which case r is the ratio of the
				  policy value to the Guaranteed Maturity Fund;
(4) The Guaranteed Maturity Fund at any
				  duration is that amount which, together with future Guaranteed Maturity
				  Premiums, will mature the policy based on all policy guarantees at
				  issue;
(5) The Guaranteed Maturity
				  Premium for flexible premium universal life insurance policies shall be that
				  level gross premium, paid at issue and periodically thereafter over the period
				  during which premiums are allowed to be paid, which will mature the policy on
				  the latest maturity date, if any, permitted under the policy (otherwise at the
				  highest age in the valuation mortality table), for an amount which is in
				  accordance with the policy structure. The Guaranteed Maturity Premium is
				  calculated at issue based on all policy guarantees at issue (excluding
				  guarantees linked to an external referent);
(6) The Guaranteed Maturity Premium for fixed
				  premium universal life insurance policies shall be the premium defined in the
				  policy which at issue provides the minimum policy guarantees;
(7) The maturity amount shall be the initial
				  death benefit where the death benefit is level over the lifetime of the policy
				  except for the existence of a minimum-death-benefit corridor, or, shall be the
				  specified amount where the death benefit equals a specified amount plus the
				  policy value or cash surrender value except for the existence of a
				  minimum-death-benefit corridor;
(8)
				  The death benefit corridor is defined by the minimum death benefit payable
				  under the terms of the policy;
(9)
				  The Guaranteed Maturity Premium for both flexible and fixed premium policies
				  shall be adjusted for death benefit corridors provided by the policy. The
				  Guaranteed Maturity Premium may be less than the premium necessary to pay all
				  charges. This can especially happen in the first year for policies with large
				  first year expense charges;
(10) S
				  is the quantity [(a)-(b)]x (äx+t/äx)r where (a)-(b) is as described
				  in Section
				  10489.5 of
				  the California Insurance Code for the plan of insurance defined at issue by the
				  Guaranteed Maturity Premiums and all guarantees contained in the policy or
				  declared by the insurer. [äx and äx+t are defined in (2) (B)
				  above];
(11) T is the sum of any
				  additional quantities analogous to S which arise because of structural changes
				  in the policy, with each such quantity being determined on a basis consistent
				  with that of S using the maturity date in effect at the time of the change;
(A) Structural changes are those changes
				  which are separate from the automatic workings of the policy. Such changes
				  usually would be initiated by the policyowner and include changes in the
				  guaranteed benefits, changes in latest maturity date, or changes in allowable
				  premium payment period. For fixed premium universal life policies with
				  redetermination of all credits and charges no more frequently that annually, on
				  policy anniversaries, structural changes also include changes in guaranteed
				  benefits, or in fixed premiums, unanticipated by the guaranteed maturity
				  premium for such policies at the date of issue, even if such changes arise from
				  automatic workings of the policy. The computation of R above, for fixed premium
				  universal life structural changes shall exclude from the present value of
				  future guaranteed benefits those guaranteed benefits which are funded by the
				  excess of the insurer's declared guarantees of interest, mortality and
				  expenses, over the guarantees contained in the policy at the date of
				  issue.
(B) In effecting structural
				  changes, consistent methods shall be used to calculate reserves. Such methods
				  may include that of maintaining proportionality between the Guaranteed Maturity
				  Fund and Guaranteed Maturity Premium. Values may be calculated per dollar of
				  face amount and multiplied by the new face amount. This method eliminates much
				  of the complexity involved in other methods.