Iowa Administrative Code › Agency 191 - Insurance Division › Regulated Industries › Chapter 112 - Term and Universal Life Insurance Reserve Financing › Rule 191-112.6 - The Actuarial Method

Current through Register Vol. 47, No. 3, July 24, 2024
(1) The
				actuarial method that is used to establish the required level of primary
				security for each reinsurance treaty subject to this chapter 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 "1" of the definition of "covered policies," 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 paragraph "2" of the definition of
				"covered policies," the ceding insurer may elect to instead use paragraph
				112.6(1)
"b"
as the actuarial method for the entire
				reinsurance agreement. Regardless of whether paragraph
				112.6(1)
"a"
or 112.6(1)
"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 "2" of the definition of "covered policies," 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
				112.6(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 percent 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 112.6(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 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
				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, provided that the
				retained reserve of those covered policies shall 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
				[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 non-proportional reinsurance treaties, there will be no
				reduction in the required level of primary security.
It is possible for any combination of subparagraphs
				  112.6(1)
"d"
(1) to 112.6(1)
"d"
(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 shall 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.
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 this chapter, 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
				chapter.
g. If a reinsurance treaty
				subject to this chapter 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
				rule 191-112.7 (521B) shall be used to determine the reinsurance credit for the
				covered policy reserves; and
(2)
				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 112.6(1)
"g"
(1), is held by or on behalf of the
				ceding insurer in accordance with Iowa Code sections
				521B102.
				and
				521B103..
				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.