where:
x = original issue age;
k = the number of years from the date of issue to the beginning of the segment;
t = the number of years from the beginning of the segment
= 1, 2, ...; t is reset to 1 at the beginning of each segment;
GPx+k+t-1 = Guaranteed gross premium per thousand of face amount, ignoring policy fees only if level for the premium paying period of the policy, for year t of the segment.
However, if GPx+k+t is greater than 0 and GP
x+k+t-1 is equal to 0, Gt shall be deemed to be 1000. If GPx+k+t and GPx+k+t-1 are both equal to 0, Gt shall be deemed to be 0.
however, Rt may be increased or decreased by one percent in any policy year, at the insurer's option, but Rt may not be less than one;
where:
x, k and t are as defined above, and
qx+k+t-1 = valuation mortality rate for deficiency reserves in policy year k+t but using the mortality of sub. (4) (b) 2. if sub. (4) (b) 3. is elected for deficiency reserves.
Ins 2.80 Note
Note: The purpose of the one percent tolerance in the R factor is to prevent irrational segment lengths due to such things as premium rounding. For example, consider a plan in which gross premiums are designed at some point to be a ratio times the underlying ultimate mortality rates, where the ratio varies by issue age. The resulting segments may be greater than one year, because the gross premiums are not expressed in fractional cents. The tolerance factor allows the creation of one-year segments for a plan in which premiums parallel the underlying valuation mortality table.
Ins 2.80(3)(c)
(c) “Deficiency reserves" means the excess, if greater than zero, of minimum reserves calculated in accordance with the principles of s.
623.06 (7), Stats., over basic reserves.
Ins 2.80(3)(d)
(d) “Guaranteed gross premiums" means the premiums under a policy of life insurance that are guaranteed and determined at issue.
Ins 2.80(3)(e)
(e) “Maximum valuation interest rates" means the interest rates defined in s.
623.06 (2m), Stats., that are to be used in determining the minimum standard for the valuation of life insurance policies.
Ins 2.80(3)(f)
(f) “1980 CSO valuation table" means the commissioner's' 1980 standard ordinary mortality table without 10-year select mortality factors, incorporated into the 1980 amendments to the national association of insurance commissioner's standard valuation law, as provided in s.
623.06 (2) (am), Stats., and variations of the 1980 CSO valuation table approved by the national association of insurance commissioners, such as the unisex and smoker and non-smoker versions approved in December 1983 and adopted by ss.
Ins 2.20 and
2.35.
Ins 2.80 Note
Note: This paragraph defines the 1980 CSO valuation table without the existing 10 year select mortality factors to assure that, if select mortality factors are elected, only one set of factors may be applied to the base valuation mortality table.
Ins 2.80(3)(g)
(g) “Scheduled gross premium" means the smallest illustrated gross premium at issue for other than universal life insurance policies. For universal life insurance policies, “scheduled gross premium" means the smallest specified premium described in sub.
(6) (c), if any, or else the minimum prescribed in sub.
(6) (d).
Ins 2.80(3)(h)
(h) “Segmented reserves" means reserves, calculated using segments produced by the contract segmentation method, equal to the present value of all future guaranteed benefits less the present value of all future net premiums to the mandatory expiration of a policy, where the net premiums within each segment are a uniform percentage of the respective guaranteed gross premiums within the segment. The uniform percentage for each segment is such that, at the beginning of the segment, the present value of the net premiums within the segment is calculated in the following manner:
Ins 2.80(3)(h)1.
1. The present value of the death benefits within the segment, plus
Ins 2.80(3)(h)2.
2. The present value of any unusual guaranteed cash value, as provided in sub.
(5) (g), occurring at the end of the segment, less
Ins 2.80(3)(h)3.
3. Any usual guaranteed cash value occurring at the start of the segment, plus
Ins 2.80(3)(h)4.a.
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for in the first segment after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary within the first segment on which a premium falls due. However, the net level annual premium may not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
Ins 2.80(3)(h)4.b.
b. A net one-year term premium for the benefits provided for in the first policy year.
Ins 2.80(3)(h)5.
5. The length of each segment is determined by the contract segmentation method.
Ins 2.80(3)(h)6.
6. The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the sum of the length of all segments of the policy.
Ins 2.80(3)(h)7.
7. For both basic reserves and deficiency reserves computed by the contract segmentation method, present values shall include future benefits and net premiums in the current segment and in all subsequent segments.
Ins 2.80 Note
Note: The segmentation requirement should not be limited to plans with no cash surrender values; otherwise companies could avoid segmentation entirely by designing policies with minimal (positive) cash values. Segmentation for plans with cash surrender values should be based solely upon gross premium levels. Basing segmentation upon the level of cash surrender values introduces complications because of the interrelationship between minimum cash surrender values and gross premium patterns. The requirements of this section relating to reserves or plans with unusual cash values and to reserves if cash values exceed calculated reserves serve to link required reserves and cash surrender values. The calculation of segmented reserves shall not be linked to the occurrence of a positive unitary terminal reserve at the end of a segment. The requirement of this section to hold the greater of the segmented reserve or the unitary reserve eliminates the need for any linkage.
Ins 2.80(3)(i)
(i) “Tabular cost of insurance" means the net single premium at the beginning of a policy year for one-year term insurance in the amount of the guaranteed death benefit in that policy year.
Ins 2.80(3)(j)
(j) “Ten-year select factors" means the select factors adopted with the 1980 amendments to the national association of insurance commissioner's standard valuation law as provided in s.
623.06 (2) (am), Stats.
Ins 2.80(3)(k)
(k) “Unitary reserves" means the present value of all future guaranteed benefits less the present value of all future modified net premiums, where all of the following occur:
Ins 2.80(3)(k)1.
1. Guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy.
Ins 2.80(3)(k)2.
2. Modified net premiums are a uniform percentage of the respective guaranteed gross premiums, where the uniform percentage is such that, at issue, the present value of the net premiums equals the present value of all death benefits and pure endowments, plus the excess of:
Ins 2.80(3)(k)2.a.
a. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one year payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium may not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy, over
Ins 2.80(3)(k)2.b.
b. A net one-year term premium for the benefits provided for the first policy year.
Ins 2.80(3)(k)3.
3. The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the length from issue to the mandatory expiration of the policy.
Ins 2.80 Note
Note: The purpose of this paragraph is to define as specifically as possible what has become commonly called the unitary method. The national association of insurance commissioners standard valuation law does not define the term “unitary" for policies with nonlevel premiums or benefits; its requirements for reserves “computed by a method that is consistent with the principles of the national association of insurance commissioners standard valuation law" has not been uniformly interpreted.
Ins 2.80(3)(L)
(L) “Universal life insurance policy" means any individual life insurance policy under the provisions of which separately identified interest credits, other than in connection with dividend accumulations, premium deposit funds, or other supplementary accounts, and mortality or expense charges are made to the policy.
Ins 2.80(4)
(4) General calculation requirements for basic reserves and premium deficiency reserves. Ins 2.80(4)(a)
(a) At the election of the insurer for any one or more specified plans of life insurance, the minimum mortality standard for basic reserves may be calculated using the 1980 CSO valuation table with select mortality factors. If select mortality factors are elected, they may be any of the following:
Ins 2.80(4)(a)1.
1. The 10-year select mortality factors incorporated into the 1980 amendments to the national association of insurance commissioners standard valuation law, as provided in s.
623.06 (2) (am), Stats.
Ins 2.80(4)(a)2.
2. The select mortality factors in the tables at pages 18 through 35 of the national association of insurance commissioners valuation of life insurance policies model regulation updated and published by the national association of insurance commissioners model regulation service in april 1999.
Ins 2.80 Note
Note: The select mortality factors for durations 1 through 15 in the tables at pages 18 through 35 of the national association of insurance commissioners valuation of life insurance policies model regulation updated and published by the national association of insurance commissioners model regulation service in april 1999 reflect the society of actuaries' data for the years 1983 through 1986 (designated as “83-86 SOA inter-company experience" in the tables), split by sex and smoking status, with fifteen years of select mortality improvement, based on the society of actuaries' projection scale A applied. A 50% margin was added. The factors were then graded to the 1980 CSO valuation table over the next five durations. A 50% margin was deemed appropriate to provide a reasonable margin, with little likelihood that actual experience for significant blocks of business would exceed it.
Ins 2.80(4)(b)
(b) Deficiency reserves, if any, are calculated for each policy as the excess, if greater than zero, of the quantity A over the basic reserve. The quantity A is obtained by recalculating the basic reserve for the policy using guaranteed gross premiums instead of net premiums when the guaranteed gross premiums are less than the corresponding net premiums. At the election of the insurer for any one or more specified plans of insurance, the quantity A and the corresponding net premiums used in the determination of quantity A may be based upon the 1980 CSO valuation table with select mortality factors. If select mortality factors are elected, they may be any of the following:
Ins 2.80(4)(b)1.
1. The 10-year select mortality factors incorporated into 1980 amendments to the national association of insurance commissioners standard valuation law.
Ins 2.80(4)(b)2.
2. The select mortality factors in the tables at pages 18 through 35 of the national association of insurance commissioners valuation of life insurance policies model regulation updated and published by the national association of insurance commissioners model regulation service in april 1999.
Ins 2.80 Note
Note: The select mortality factors in the tables at pages 18 through 35 of the national association of insurance commissioners valuation of life insurance policies model regulation updated and published by the national association of insurance commissioners model regulation service in April 1999 do not reflect the underwriting risk classes that have evolved since the period of the underlying experience. In light of this consideration, and the recent recognition of the regulatory value of actuarial opinions, this section allows actuarial judgement to be used for deficiency reserves.
Ins 2.80(4)(b)3.
3. For durations in the first segment, X % of the select mortality factors in the tables at pages 18 through 35 of the national association of insurance commissioners valuation of life insurance policies model regulation updated and published by the national association of insurance commissioners model regulation service in April 1999, subject to all of the following:
Ins 2.80(4)(b)3.a.
a. X may vary by policy year, policy form, underwriting classification, issue age, or any other policy factor expected to affect mortality experience.
Ins 2.80(4)(b)3.d.
d. X is such that, when using the valuation interest rate used for basic reserves, the actuarial present value of future death benefits calculated using the mortality rates resulting from the application of X is greater than or equal to the actuarial present value of future death benefits calculated using anticipated mortality experience without recognition of mortality improvement beyond the valuation date.
Ins 2.80(4)(b)3.e.
e. X is such that the mortality rates resulting from the application of X are at least as great as the anticipated mortality experience, without recognition of mortality improvement beyond the valuation date, in each of the first 5 years after the valuation date.
Ins 2.80(4)(b)3.f.
f. The appointed actuary shall increase X at any valuation date where it is necessary to continue to meet all the requirements of this subdivision.
Ins 2.80(4)(b)3.g.
g. The appointed actuary may decrease X at any valuation date as long as X continues to meet all the requirements of this subdivision.
Ins 2.80(4)(b)3.h.
h. The appointed actuary shall specifically take into account the adverse effect on expected mortality and lapsation of any anticipated or actual increase in gross premiums.
Ins 2.80(4)(b)3.i.
i. If X is less than 100% at any duration for any policy, the appointed actuary shall annually prepare an actuarial opinion and memorandum for the company in conformance with the requirements of s.
Ins 50.78; the appointed actuary shall disclose in the regulatory asset adequacy issues summary the impact of any insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods; and the appointed actuary shall annually offer an opinion for all policies subject to this section as to whether the mortality rates resulting from the application of X meet the requirements of this subdivision. This opinion shall be supported by an actuarial report, subject to appropriate actuarial standards of practice promulgated by the actuarial standards board of the American academy of actuaries. It shall reflect anticipated future mortality, without recognition of mortality improvement beyond the valuation date, taking into account relevant emerging experience.
Ins 2.80(4)(c)
(c) This paragraph applies to both basic reserves and deficiency reserves. Any set of select mortality factors may be used only for the first segment. However, if the first segment is less than 10 years, the appropriate 10-year select mortality factors incorporated into the 1980 amendments to the national association of insurance commissioners standard valuation law, as provided in s.
623.06 (2) (am), Stats., may be used thereafter through the 10th policy year from the date of issue.
Ins 2.80 Note
Note: This section does not allow the use of the select mortality factors beyond the first segment. The rationale is that the result of a premium increase that is sufficient to require a new segment will be increased lapsation, leading to mortality deterioration after the increase. However, this section allows the use of the ten-year select mortality factors incorporated into the 1980 amendments to the national association of insurance commissioners standard valuation law, see s.
623.06 (2) (am), Stats., beyond the first segment (but in no case beyond the tenth policy year) in recognition that the mortality deterioration is unlikely to occur to a significant degree within the first 10 years.
Ins 2.80(4)(d)
(d) In determining basic reserves or deficiency reserves, guaranteed gross premiums without policy fees may be used where the calculation involves the guaranteed gross premium but only if the policy fee is a level dollar amount after the first policy year. In determining deficiency reserves, policy fees may be included in guaranteed gross premiums even if not included in the actual calculation of basic reserves.
Ins 2.80(4)(e)
(e) Reserves for policies that have changes to guaranteed gross premiums, guaranteed benefits, guaranteed charges, or guaranteed credits that are unilaterally made by the insurer after issue and that are effective for more than one year after the date of the change shall be the greatest of the following:
Ins 2.80(4)(e)3.
3. Reserves assuming that the policy was issued on the date of the guarantee.
Ins 2.80(4)(f)
(f) The commissioner may require that the company document the extent of the adequacy of reserves for specified blocks, including but not limited to policies issued prior to the effective date of this regulation. This documentation may include a demonstration of the extent to which aggregation with other non-specified blocks of business is relied upon in the formation of the appointed actuary opinion pursuant to and consistent with the requirements of s.
Ins 50.78.
Ins 2.80(5)
(5) Calculation of minimum valuation standard for policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits, other than universal life policies. Ins 2.80(5)(a)(a) Basic reserves shall be calculated as the greater of the segmented reserves and the unitary reserves. Both the segmented reserves and the unitary reserves for any policy shall use the same 1980 CSO valuation table and the same select mortality factors. At the option of the insurer, in calculating segmented reserves and net premiums, either of the following adjustments may be made:
Ins 2.80(5)(a)1.
1. Treat the unitary reserve, if greater than zero, applicable at the end of each segment as a pure endowment and subtract the unitary reserve, if greater than zero, applicable at the beginning of each segment from the present value of guaranteed life insurance and endowment benefits for each segment.
Ins 2.80(5)(a)2.
2. Treat the guaranteed cash surrender value, if greater than zero, applicable at the end of each segment as a pure endowment and subtract the guaranteed cash surrender value, if greater than zero, applicable at the beginning of each segment from the present value of guaranteed life insurance and endowment benefits for each segment.
Ins 2.80(5)(b)
(b) The deficiency reserve at any duration shall be calculated as follows:
Ins 2.80(5)(b)1.
1. Using unitary reserves if the corresponding basic reserve determined by par.
(a) is unitary.
Ins 2.80(5)(b)2.
2. Using segmented reserves if the corresponding basic reserve determined by par.
(a) is segmented.
Ins 2.80(5)(b)3.
3. Using segmented reserves if the corresponding basic reserve determined by par.
(a) is equal to both the segmented reserve and the unitary reserve.
Ins 2.80(5)(c)
(c) Paragraphs
(b),
(d), and
(e) shall apply to any policy for which the guaranteed gross premium at any duration is less than the corresponding modified net premium calculated by the method used in determining the basic reserves, but using the minimum valuation standards of mortality specified in sub.
(4) (b) and rate of interest.
Ins 2.80(5)(d)
(d) Deficiency reserves, if any, shall be calculated for each policy as the excess, if greater than zero, for the current and all remaining periods, of the quantity A over the basic reserve, where A is obtained as indicated in sub.
(4) (b).
Ins 2.80(5)(e)
(e) For deficiency reserves determined on a contract segmentation method, the quantity A is determined using segment lengths equal to those determined for segmented basic reserves.
Ins 2.80(5)(f)
(f) Basic reserves may not be less than the tabular cost of insurance for the balance of the policy year, if mean reserves are used. Basic reserves may not be less than the tabular cost of insurance for the balance of the current modal period or to the paid-to-date, if later, but not beyond the next policy anniversary, if mid-terminal reserves are used. The tabular cost of insurance shall use the same valuation mortality table and interest rates as that used for the calculation of the segmented reserves. However, if select mortality factors are used, they shall be the ten-year select factors incorporated into the 1980 amendments of the national association of insurance commissioners standard valuation law. In no case may total reserves, including basic reserves, deficiency reserves and any reserves held for supplemental benefits that would expire upon contract termination, be less than the amount that the policyowner would receive (including the cash surrender value of the supplemental benefits, if any) exclusive of any deduction for policy loans, upon termination of the policy.
Ins 2.80(5)(g)
(g) For any policy with an unusual pattern of guaranteed cash surrender values, the reserves actually held prior to the first unusual guaranteed cash surrender value may not be less than the reserves calculated by treating the first unusual guaranteed cash surrender value as a pure endowment and treating the policy as an n-year policy providing term insurance plus a pure endowment equal to the unusual cash surrender value, where n is the number of years from the date of issue to the date the unusual cash surrender value is scheduled.
Ins 2.80 Note
Note: This requirement is independent of both the segmentation process and the unitary process. After the greater of the segmented or the unitary reserve has been determined, then pars. (g), (h), and (i) impose an additional floor of the ultimate reserve. The purpose of pars. (g), (h) and (i) is to assure adequate funding of significant increases in guaranteed cash surrender values.
Ins 2.80(5)(h)
(h) The reserves actually held subsequent to any unusual guaranteed cash surrender value may not be less than the reserves calculated by treating the policy as an n-year policy providing term insurance plus a pure endowment equal to the next unusual guaranteed cash surrender value, and treating any unusual guaranteed cash surrender value at the end of the prior segment as a net single premium, where all of the following apply:
Ins 2.80(5)(h)1.
1. n is the number of years from the date of the last unusual guaranteed cash surrender value prior to the valuation date to the earlier of the date of the next unusual guaranteed cash surrender value, if any, that is scheduled after the valuation date or the mandatory expiration date of the policy.
Ins 2.80(5)(h)2.
2. The net premium for a given year during the n-year period is equal to the product of the net-to-gross ratio and the respective gross premium.
Ins 2.80(5)(h)3.
3. The net-to-gross ratio is equal to the present value, at the beginning of the n-year period, of death benefits payable during the n-year period plus the present value, at the beginning of the n-year period, of the next unusual guaranteed cash surrender value, if any, minus the amount of the last unusual guaranteed cash surrender value, if any, scheduled at the beginning of the n-year period divided by the present value, at the beginning of the n-year period, of the scheduled gross premiums payable during the n-year period.
Ins 2.80(5)(i)
(i) For purposes of pars.
(g) and
(h), a policy is considered to have an unusual pattern of guaranteed cash surrender values if any future guaranteed cash surrender value exceeds the prior year's guaranteed cash surrender value by more than the sum of all of the following:
Ins 2.80(5)(i)1.
1. One hundred ten percent of the scheduled gross premium for that year.
Ins 2.80(5)(i)2.
2. One hundred ten percent of one year's accrued interest on the sum of the prior year's guaranteed cash surrender value and the scheduled gross premium using the nonforfeiture interest rate used for calculating policy guaranteed cash surrender values.
Ins 2.80(5)(i)3.
3. Five percent of the first policy year surrender charge, if any.
Ins 2.80(5)(j)
(j) At the option of the insurer, the following approach for reserves on yearly renewable term reinsurance may be used:
Ins 2.80(5)(j)1.
1. Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year.
