Code of Maine Rules › 02 - DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION › 031 - BUREAU OF INSURANCE › Chapter 735 - Term and Universal Life Insurance Reserve Financing › Section 031-735-5 - The Actuarial Method

Current through 2024-29, July 17, 2024
1.
Actuarial
				Method.
The Actuarial Method to establish the Required Level of
				Primary Security for each reinsurance treaty subject to this rule 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
				Paragraph 4(2)(A), 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 Covered Policies described in
				Paragraphs 4(2)(A) and (B) are reinsured in the same reinsurance treaty, the
				ceding insurer may elect to instead use Paragraph B below as the Actuarial
				Method for the entire reinsurance agreement. Whether Paragraph 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
				Paragraph 4(2)(B), 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 Paragraph 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 does not cede all 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) below, 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 before
				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
(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 nonproportional reinsurance
				treaties, the Required Level of Primary Security may not be reduced.
(5) It is possible for any combination of
				Subparagraphs (1) through (4) above to apply. Such adjustments to the Required
				Level of Primary Security shall be made in the sequence that accurately
				reflects the portion of the risk ceded under 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 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 may make no
				adjustment as a result of a retrocession treaty entered into by the assuming
				insurers.
E. In no event
				shall 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 rule, 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 treaty subject to this rule;
G. If a reinsurance treaty subject to this
				rule 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 Section 6 shall be used to determine the
				reinsurance credit for the Covered Policy reserves; and
(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 the requirements of
				24-A M.R.S. §§
												731-B(1) or (3) and the
				applicable provisions of 02-031 CMR ch. 740. No Primary Security used to secure
				Non-Covered Policy reserves under this Subparagraph may be used to satisfy the
				Required Level of Primary Security for the Covered Policies.