Indiana Administrative Code › Title 760 - DEPARTMENT OF INSURANCE › Article 1 - GENERAL PROVISIONS › Rule 82 - Term and Universal Life Insurance Reserve Financing › Section 82-16 - The actuarial method

Current through July 10, 2024
Authority: IC 27-6-10.1-5
Affected: IC 27-6-10.1-2; IC 27-6-10.1-3; IC
				  27-6-10.1-5
Sec. 16.
(a) 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:
(1) For covered policies, 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 the covered policies are reinsured in a
				reinsurance treaty that also contains covered policies described in section
				4(2) of this rule, the ceding insurer may elect to instead use subdivision (2)
				as the actuarial method for the entire reinsurance agreement. Whether this
				subdivision or subdivision (2) are used, the actuarial method must comply with
				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 4(2) of this rule, 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), 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, 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 an
				adjustment under clause (C), 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 under 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.
(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.
It is possible for any combination of clauses (A) through (D)
				  to apply. 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 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 riders, in more than
				one (1) reinsurance treaty subject to this rule, 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 rule.
(7) If a reinsurance
				treaty subject to this rule 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
				section 17 of this rule shall be used to determine the reinsurance credit for
				the covered policy reserves.
(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
				clause (A), is held by or on behalf of the ceding insurer in accordance with IC
				27-6-10.1-2 and IC 27-6-10.1-3. A primary security used to meet the
				requirements of this clause may not be used to satisfy the required level of
				primary security for the covered policies.