Administrative Rules of Montana › Department 6 - STATE AUDITOR › Chapter 6.6 - INSURANCE DEPARTMENT › Subchapter 6.6.67 - Valuation of Life Insurance Policies › Rule 6.6.6724 - THE ACTUARIAL METHOD

Current through Register Vol. 13, July 5, 2024
(1) The actuarial
				method to establish the required level of primary security for each reinsurance
				treaty subject to ARM 6.6.6720 through 6.6.6727 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 ARM
				6.6.6723(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 such covered policies are
				reinsured in a reinsurance treaty that also contains covered policies described
				in ARM 6.6.6723(2)(b), the ceding insurer may elect to instead use (1)(b) below
				as the actuarial method for the entire reinsurance agreement. Whether (1)(a) or
				(1)(b) 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.
(b) For covered policies described in ARM
				6.6.6723(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 (a), 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 cedes less than 100% of the risk with respect to the covered policies
				then the required level of primary security may be reduced as follows:
(i) 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 (iii)
				below, may be reduced to a pro rata portion in accordance with the percentage
				of the risk ceded;
(ii) 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;
(iii) 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
(iv) 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.
(e) It is possible for any
				combination of (d)(i), (ii), (iii), and (iv) 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% of the risk.
(f) 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.
(g) If a
				reinsurance treaty subject to ARM 6.6.6720 through 6.6.6727 cedes risk on both
				covered and non-covered policies, credit for the ceded reserves shall be
				determined as follows:
(i) The actuarial
				method shall be used to determine the required level of primary security for
				the covered policies, and ARM 6.6.6725 shall be used to determine the
				reinsurance credit for the covered policy reserves; and
(ii) 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 (i) above, is held by or on behalf
				of the ceding insurer in accordance with
				33-2-1216
				and
				33-2-1217,
				MCA. Any primary security used to meet the requirements of this subsection may
				not be used to satisfy the required level of primary security for the covered
				policies.
(h) In no
				event will the required level of primary security resulting from application of
				the actuarial method exceed the amount of statutory reserves ceded.
(i) If the ceding insurer cedes risks with
				respect to covered policies, including any riders, in more than one reinsurance
				treaty subject to ARM 6.6.6720 through 6.6.6727, 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
				ARM 6.6.6720 through 6.6.6727.