Oregon Administrative Rules › Chapter 836 - DEPARTMENT OF CONSUMER AND BUSINESS SERVICES, INSURANCE REGULATION › Division 12 - CREDIT FOR REINSURANCE › Section 836-012-0250 - The Actuarial Method

Current through Register Vol. 63, No. 7, July 1, 2024
(1) 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 applied as follows:
(a) For Covered
			 Policies described in OAR 836-012-0210 (2)(a), the Actuarial Method is the
			 greater of the deterministic reserve or the net premium reserve (as those terms
			 are defined in the Valuation Manual) 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 OAR 836-012-0210 (2)(b), the ceding insurer may elect to
			 instead use OAR 836-012-0250 (1)(b)  below as the Actuarial Method for the
			 entire reinsurance agreement. Whether OAR 836-012-0250 (1)(a)  or OAR
			 836-012-0250 (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 OAR 836-012-0210 (2)(b), the Actuarial Method is the
			 greatest of the deterministic reserve, the stochastic reserve, or the net
			 premium reserve (as those terms are defined in the Valuation Manual) regardless
			 of whether the criteria for exemption testing can be met.
(c) Except as provided in OAR 836-012-0250 (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:
(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 OAR 836-012-0250 (1)(d)(C), 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 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;
(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 January 1, 2017, this adjustment is not to exceed [Cx divided by (2
			 multiplied by the 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 non-proportional reinsurance
			 treaties, there will be no reduction in the Required Level of Primary Security.
			 It is possible for any combination of OAR 836-012-0250 (1)(d)(A), (B), (C), and
			 (D)  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 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 rule, 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 rule;
(g) If a reinsurance treaty subject to this
			 rule 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 OAR 836-012-0260  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 OAR 836-012-0250 (1)(g)(A), is held
			 by or on behalf of the ceding insurer in accordance with OAR 836-012-0031  and
			 OAR 836-012-0060. 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.