West Virginia Code of State Rules › Agency 114 - Insurance Commission › Title 114 - LEGISLATIVE RULE INSURANCE COMMISSIONER › Series 114-102 - Term and Universal Life Insurance Reserve Financing › Section 114-102-3 - Actuarial Method

Current through Register Vol. XLI, No. 28, July 12, 2024
3.1. Actuarial Method.
3.1.1. The actuarial method to establish the
				required level of primary security for each reinsurance treaty subject to this rule
				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:
3.1.1.a. For covered policies described in
				subsection 2.3.1 of this rule, 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 subsection
				2.3.2 of this rule, the ceding insurer may elect to instead use subdivision 3.1.1.b
				of this rule as the actuarial method for the entire reinsurance agreement. Whether
				this subdivision or subdivision 3.1.1.b of this rule 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.
3.1.1.b. For covered
				policies described in subsection 2.3.2 of this rule, 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.
3.1.1.c. Except as provided in subdivision 3.1.1.d
				of this rule, 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.
3.1.1.d. 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:
3.1.1.d.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
				3.1.1.d.3 of this rule, may be reduced to a pro rata portion in accordance with the
				percentage of the risk ceded;
3.1.1.d.2.
				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;
3.1.1.d.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 NPR; and
3.1.1.d.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.
3.1.1.e. It is possible for any combination of
				paragraphs 3.1.1.d.1, 3.1.1.d.2, 3.1.1.d.3 and 3.1.1.d.4 of this rule 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.
3.1.1.f. In no event will the required level of
				primary security resulting from application of the actuarial method exceed the
				amount of statutory reserves ceded.
3.1.1.g. 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;
3.1.1.h. 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:
3.1.1.h.1.
				The actuarial method shall be used to determine the required level of primary
				security for the covered policies, and section 4 of this rule shall be used to
				determine the reinsurance credit for the covered policy reserves; and
3.1.1.h.2. 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 paragraph 3.1.1.h.1 of this rule, is
				held by or on behalf of the ceding insurer in accordance with W. Va. Code §
												33-4-15a(b) and
				(c). 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.