Mississippi Administrative Code › Title 19 - Department of Insurance › Part 2 - Life Insurance › Chapter 20 - Term and Universal Life Insurance Reserve Financing Model Regulation › Rule 19-2-20.06 - The Actuarial Method

Current through June 25, 2024
A. Actuarial
				Method
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 Rule 20.05(B)(1) above, 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 Rule 20.05(B)(2) above, 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 Rule 20.05(B)(2) above, 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 one hundred percent (100%) 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 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 VM20 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 Jan 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. 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 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.
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 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 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 Non-Covered
				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
				Rule 20.07 shall be used to determine the reinsurance credit for the Covered
				Policy reserves; and
(b) 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
				Subparagraph (a), is held by or on behalf of the ceding insurer in accordance
				with
Miss. Code Ann
. §§
											83-19-151 and  83-19-153. 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.