California Code of Regulations › Title 10 - Investment › Chapter 5 - Insurance Commissioner › Subchapter 3 - Insurers › Article 3 - Annual Statements › Premiums in Course of Collection › Section 2303.26 - Term and Universal Life Insurance Reserve Financing, Actuarial Method

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) The Actuarial
					 Method that is used to establish the Required Level of Primary Security for
					 each reinsurance treaty subject to Sections
					 2303.23 through
					 2303.28 of this article 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
					 2303.2(i)1. of
					 this article, 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 Section
					 2303.2(i)2. of
					 this article, the ceding insurer may elect to instead use subdivision (a)2. of
					 this Section as the Actuarial Method for the entire reinsurance agreement.
					 Regardless of whether subdivision (a)1. or subdivision (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
					 2303.2(i)2. of
					 this article, 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.
3. Except as provided in subdivision (a)4. of
					 this Section, 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 subdivision (a)4.C. of this Section, may be reduced to a pro
					 rata portion in accordance with the percentage of the risk ceded;
B. 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, provided that the retained reserve of those
					 Covered Policies shall 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 non-proportional reinsurance treaties, there will be no
					 reduction in the Required Level of Primary Security.
It is possible for any combination of subdivision
						(a)4.A., subdivision (a)4.B., subdivision (a)4.C., and subdivision (a)4.D. of
						this Section 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 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 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.
5. In no
					 event will the Required Level of Primary Security resulting from application of
					 the Actuarial Method exceed the amount of statutory reserves ceded.
6. If the ceding insurer cedes risks with
					 respect to Covered Policies, including any riders, in more than one reinsurance
					 treaty subject to Sections
					 2303.23 through
					 2303.28 of this article, 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 Sections
					 2303.23 through
					 2303.28 of this article;
7. If a reinsurance treaty subject to
					 Sections 2303.23 through
					 2303.28 of this article cedes risk
					 on both Covered 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
					 2303.27 of this article 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., is held by
					 or on behalf of the ceding insurer in accordance with Code Sections
					 922.4 and
					 922.5. 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.