Louisiana Administrative Code › Title 37 - INSURANCE › Part XIII - Regulations › Chapter 183 - Regulation Number 121-Term and Universal Life Insurance Reserve Financing › Section XIII-18309 - The Actuarial Method

Current through Register Vol. 50, No. 6, June 20, 2024
A. 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.
1. For covered policies described in covered
				policies (a) in §18305, 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 covered policies (b) in §18305, the ceding
				insurer may elect to instead use Paragraph 2 below as the actuarial method for
				the entire reinsurance agreement. Whether Paragraph 1 or 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 covered
				policies (b) in §18305, 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 Paragraph 4 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.
4. If the reinsurance
				treaty cedes less than 100 percent 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
				Subparagraph (c) below, may be reduced to a pro rata portion in accordance with
				the percentage of the risk ceded;
b. If the reinsurance treaty in a nonexempt
				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;
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 nonproportional reinsurance
				treaties, there will be no reduction in the required level of primary security.
NOTE: It is possible for any combination of Subparagraphs a,
				  b, c, 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 100 percent 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 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.
7. If a reinsurance
				treaty subject to this regulation cedes risk on both covered and noncovered
				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
				§18311 shall be used to determine the reinsurance credit for the covered policy
				reserves; and
b. Credit for the
				noncovered 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
				R.S.
				22:651 and
				R.S.
				22:652. 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.