North Dakota Administrative Code › Title 45 - Insurance, Commissioner of › Article 45-03 - Regulation of Insurance Companies › Chapter 45-03-26 - Term and Universal Life Insurance Reserve Financing Model Regulation › Section 45-03-26-06 - The actuarial method

Current through Supplement No. 393, July, 2024
1. The actuarial
				method 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 subdivision a of subsection 2 of section 45-03-26-05, 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 such covered policies are reinsured in a
				reinsurance treaty that also contains covered policies described in subdivision
				b of subsection 2 of section 45-03-26-05, the ceding insurer may elect to
				instead use subdivision b as the actuarial method for the entire reinsurance
				agreement. Whether subdivision a or subdivision 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
				subdivision b of subsection 2 of section 45-03-26-05, 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.
c. Except as provided in
				subdivision 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 one hundred 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 paragraph 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 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 [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 stop loss, excess of loss, and other
				nonproportional reinsurance treaties, there will be no reduction in the
				required level of primary security.
(5) It is possible for any combination of
				paragraphs 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 one hundred 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 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
				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
				section 45-03-26-07 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
				paragraph 1, is held by or on behalf of the ceding insurer in accordance with
				North Dakota Century Code sections 26.1-31.2-01 and 26.1-31.2-02. Any primary
				security used to meet the requirements of this paragraph may not be used to
				satisfy the required level of primary security for the covered
				policies.