Virginia Administrative Code › Title 14 - INSURANCE › Agency 5 - STATE CORPORATION COMMISSION, BUREAU OF INSURANCE › Chapter 318 - RULES GOVERNING TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING › Section 14VAC5-318-50 - The actuarial method

Current through Register Vol. 40, No. 24, July 15, 2024
A.
				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:
1. For covered policies as provided in
				subdivision 1 of the definition of "covered policy" in 14VAC5-318-30, 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 as provided in subdivision 2 of the
				definition of "covered policy" in 14VAC5-318-30, the ceding insurer may elect
				to instead use subdivision 2 of this subsection as the actuarial method for the
				entire reinsurance agreement. Whether subdivision 1 or 2 of this subsection 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.
2. For covered policies, as that term is
				defined in subdivision 2 of the definition of "covered policy" of
				14VAC5-318-30, 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 subdivision 4 of
				this subsection, 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 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 subdivision
				A 4 c of this section, may be reduced to a pro rata portion in accordance with
				the percentage of the risk ceded;
b. 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;
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
2(number of reinsurance premiums per year)
where cx is calculated using the same
				  assumptions used in calculating the NPR; and
d. 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.
It is possible for any combination of subdivisions A 4 a, b,
				  c, and d of this section 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.
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 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.
7. 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:
a. The actuarial method shall be used to
				determine the required level of primary security for the covered policies, and
				14VAC5-318-60 shall be used to determine the reinsurance credit for the covered
				policy reserves; and
b. 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
				subdivision A 7 a of this section, is held by or on behalf of the ceding
				insurer in accordance with §§
											38.2-1316.2 and
				38.2-1316.4 of the Code of
				Virginia, 14VAC5-300-90 C,
				14VAC5-300-100, and
				14VAC5-300-150 B and C. Any
				primary security used to meet the requirements of this subdivision may not be
				used to satisfy the required level of primary security for the covered
				policies.