Wisconsin Administrative Code › Office of the Commissioner of Insurance › Chapter Ins 52 - Credit For Reinsurance › Subchapter II - Credit for Reinsurance Involving Term and Universal Life Reserve Financing › Section Ins 52.23 - Actuarial method

Current through June 24, 2024
(1) 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:
(a) For covered policies described in s. Ins
				52.22(2) (a), 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 s. Ins 52.22(2) (b), the ceding insurer may elect to
				instead use par. (b) below as the actuarial method for the entire reinsurance
				agreement. Whether this paragraph or par. (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 s. Ins 52.22(2) (b), 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
				par. (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% 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 subd. 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 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. 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 [c x/ (2 *
				number of reinsurance premiums per year)] where c x 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 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.
5. It is possible for any combination of
				subds. 1. to 4. 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 100% of the risk.
6. 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 subchapter, 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
				subchapter;
(g) If a reinsurance
				treaty subject to this subchapter cedes risk on both covered and non-covered
				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
				s. Ins 52.24, shall be used to determine the reinsurance credit for the covered
				policy reserves; and,
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 subd.
				1., is held by or on behalf of the ceding insurer in accordance with ss.
				Ins
				52.02 and 52.04. 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.