| (ii) licensed in at least 10 states, and licensed or
accredited in a total of at least 35 states; or
(6) reinsurance not otherwise exempt under paragraphs
(1) - (5) of this subsection if the Commissioner, after consulting
with the NAIC Financial Analysis Working Group or other group of regulators
designated by the NAIC, as applicable, determines under all the facts
and circumstances that:
(A) the risks are clearly outside the intent and purpose
of this section;
(B) the risks are included within the scope of this
section only as a technicality; and
(C) the application of this section to those risks
is not necessary to provide appropriate protection to policyholders.
(7) The Commissioner will publicly disclose any decision
made under this subsection to exempt a reinsurance agreement from
this section. The disclosure will include the general basis for the
decision and a summary description of the reinsurance agreement.
(d) The actuarial method.
(1) Requirements generally. The actuarial method to
establish the required level of primary security for each reinsurance
agreement subject to this section is VM-20, applied on a reinsurance
agreement-by-reinsurance agreement basis, including all relevant definitions,
from the valuation manual as then in effect, applied as follows:
(A) For covered policies described in subsection (a)(2)(A)
of this section, 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, except:
(i) 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; and
(ii) if the covered policies are reinsured in a reinsurance
agreement that contains covered policies described in subsection (a)(2)(B)
of this section, in addition to those described in subsection (a)(2)(A)
of this section, the ceding insurer may elect to use the method set
out in subparagraph (B) of this paragraph as the actuarial method
for the entire reinsurance agreement. Whether the method set out in
subparagraph (A) or (B) of this paragraph 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 subsection (a)(2)(B)
of this section, 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 subparagraph (D) of this
paragraph, the actuarial method must be applied on a gross basis to
all risks related to the covered policies as originally issued or
assumed by the ceding insurer.
(D) If the reinsurance agreement cedes less than 100%
of the risk related to the covered policies, the required level of
primary security may be reduced as follows:
(i) if a reinsurance agreement cedes only a quota share
of some or all of the risks related to the covered policies, the required
level of primary security and any adjustment under clause (iii) of
this subparagraph may be reduced to a pro rata portion in accordance
with the percentage of the risk ceded;
(ii) if the reinsurance agreement in a nonexempt arrangement
cedes only the risks related 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
reflect any reduction under the cession of mortality risk on a yearly
renewable term basis in an exempt arrangement;
(iii) 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 determined 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 before January 1, 2017, this adjustment may not exceed {cx/
(2 * number of reinsurance premiums per year)} where cx is calculated
using the same mortality table used in calculating the net premium
reserve; and
(iv) for any other reinsurance agreement ceding a portion
of risk to a different reinsurer, including stop loss, excess of loss,
and other nonproportional reinsurance agreements, the required level
of primary security may not be reduced.
(v) if any combination of clauses (i), (ii), (iii),
and (iv) of this subparagraph applies, the adjustments to the required
level of primary security must be made in the sequence that accurately
reflects the portion of the risk ceded under the reinsurance agreement.
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.
(vi) the adjustments for other reinsurance may be made
with respect only to reinsurance agreements that the ceding insurer
directly entered into. The ceding insurer may make no adjustment as
a result of a retrocession treaty that the assuming insurers enter
into.
(E) The required level of primary security resulting
from application of the actuarial method may never 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
agreement subject to this section, the aggregate required level of
primary security for those reinsurance agreements may not be less
than the required level of primary security calculated using the actuarial
method as if all risks ceded in those reinsurance agreements were
ceded in a single agreement subject to this section.
(G) If a reinsurance agreement subject to this section
cedes risks on both covered and non-covered policies, credit for the
ceded reserves will be determined as follows:
(i) the actuarial method must be used to determine
the required level of primary security for the covered policies, and
subsection (e) of this section must be used to determine the reinsurance
credit for the covered policy reserves; and
(ii) credit for the non-covered policy reserves will
be granted only to the extent that security, in addition to the security
held to satisfy the requirements of clause (i) of this subparagraph,
is held by or on behalf of the ceding insurer in accordance with Insurance
Code §§493.102, 493.104, and 493.108, as well as §493.1033,
concerning Credit Allowed for Certain Certified Reinsurers; §493.1034,
concerning, concerning Certain Associations May Be Certified Reinsurers; §493.1035,
concerning Qualified Jurisdictions, §493.1036, concerning Requirements
for Certified Reinsurer; §493.1037, concerning Certification
by National Association of Insurance Commissioners; and §493.1038,
concerning Suspension or Revocation of Accreditation or Certification;
Inactive Status. Any primary security used to meet the requirements
of this clause may not be used to satisfy the required level of primary
security for the covered policies.
(2) Valuation used for purposes of calculations. For
calculating the required level of primary security under the actuarial
method and determining the amount of primary security and other security,
as applicable, held by or on behalf of the ceding insurer, the following
valuations apply:
(A) for assets, including assets held in trust, that
would be admitted under the NAIC Accounting Practices and Procedures
Manual if the ceding insurer held the assets, the valuations are to
be determined according to statutory accounting procedures as if the
assets were held in the ceding insurer's general account and without
taking into consideration the effect of any prescribed or permitted
practices; and
(B) for all other assets, the valuations are those
assigned to the assets for determining the amount of reserve credit
taken. In addition, the asset spread tables and asset default cost
tables required by VM-20 must be included in the actuarial method
if the tables are adopted by the NAIC's Life Actuarial (A) Task Force
not later than the December 31st on or immediately preceding the valuation
date for which the required level of primary security is being calculated.
The tables of asset spreads and asset default costs must be incorporated
into the actuarial method in accordance with VM-20.
Cont'd... |
