Code of Massachusetts Regulations › 211 CMR - DIVISION OF INSURANCE › Title 211 CMR 59.00 - Term and Universal Life Insurance Reserve Financing › Section 59.05 - The Actuarial Method

Current through Register 1525, July 5, 2024
(1)
Actuarial Method
. The Actuarial Method to establish
			 the Required Level of Primary Security for each reinsurance treaty subject to
			 211 CMR
			 59.00 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 that are life insurance policies with guaranteed non-level gross
			 premiums and/or guaranteed non-level gross benefits, except for flexible
			 premium universal life insurance, 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 that are flexible premium universal life insurance policies
			 with provisions resulting in the ability of a policyholder to keep a policy in
			 force over a secondary guarantee, the ceding insurer may elect to instead use
			 211
			 CMR 59.05(1)(b)  as the
			 Actuarial Method for the entire reinsurance agreement. Whether
			 211
			 CMR 59.05(1)(a) or (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 that are flexible
			 premium universal life insurance policies with provisions resulting in the
			 ability of a policyholder to keep a policy in force over a secondary guarantee
			 period, 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
			 211
			 CMR 59.05(1)(d), 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:
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
			 211
			 CMR 59.05(1)(d)3., 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 prior to January 1, 2017, this adjustment is not to exceed [c%/ (2 *
			 number of reinsurance premiums per year)] where c% 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 non-proportional reinsurance treaties, there will be no
			 reduction in the Required Level of Primary Security.
It is possible for any combination of
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				CMR 59.05(1)(d)1., 2., 3.
				and 4. 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.
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.
(e) In no event will 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
			 211 CMR
			 59.00, 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
			 211 CMR
			 59.00;
(g)
			 If a reinsurance treaty subject to
			 211 CMR
			 59.00 cedes risk on both Covered and NonCovered
			 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
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			 CMR 59.06 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
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			 CMR 59.05(1)(g)1., is held
			 by or on behalf of the ceding insurer in accordance with M.G.L. c. 175, §
			 20A(1) and (2). Any Primary Security used to meet the requirements of
			 211
			 CMR 59.05(1)(g)2. may not be
			 used to satisfy the Required Level of Primary Security for the Covered
			 Policies.