Section 3.21.905. Basic reserves and premium deficiency reserves.

	(a)  An insurer,  
		(1) for policies issued before January 1, 2009, may elect to use the 1980 CSO valuation tables with select mortality factors or other valuation mortality tables under 3 AAC 28.600 - 3 AAC 28.690 as the minimum mortality standard for basic reserves for one or more specified types of life insurance policies;  
		(2) for policies issued on or after January 1, 2009, shall use valuation mortality tables under 3 AAC 28.600 - 3 AAC 28.690, as required under 3 AAC 28.620(c), as the minimum mortality standard for basic reserves for one or more specified types of life insurance policies.  
	(b)  Except as provided in (c) of this section, an insurer may not use select mortality factors to determine basic reserves or deficiency reserves beyond the first segment.  
	(c)  In determining basic reserves or deficiency reserves, an insurer may use  
		(1) any select mortality factors in the first segment; and   
		(2) if the first segment is less than 10 years, the 10-year select mortality factors incorporated into the 1980 CSO valuation tables after the end of the first segment through the 10th policy year from the date of issue.  
	(d)  If an insurer elects to use the select mortality factors to determine basic reserves as allowed under (a)(1) of this section, the factors must be  
		(1) the 10-year select mortality factors incorporated into the 1980 CSO valuation tables; or  
		(2) the select mortality factors in Appendix A of this section.  
	(e)  An insurer shall calculate deficiency reserves for each policy to equal the larger of the following amounts:  
		(1) zero;  
		(2) the basic reserve calculated using guaranteed gross premiums instead of net premiums when guaranteed gross premiums are less than the corresponding net premiums minus the basic reserve.  
	(f)  An insurer,  
		(1) for policies issued before January 1, 2009, may elect to use the 1980 CSO valuation tables with select mortality factors or other valuation mortality tables under 3 AAC 28.600 - 3 AAC 28.690 to determine deficiency reserves under (e) of this section for one or more specified types of life insurance policies;  
		(2) for policies issued on or after January 1, 2009, shall use valuation mortality tables under 3 AAC 28.600 - 3 AAC 28.690, as required under 3 AAC 28.620(c), as the minimum mortality standard to determine deficiency reserves under (e) of this section for one or more specified types of life insurance policies.  
	(g)  If an insurer elects to use the select mortality factors under (f)(1) of this section, the factors must be  
		(1) the 10-year select mortality factors incorporated into the 1980 CSO valuation tables;  
		(2) the select mortality factors in Appendix A of this section; or  
		(3) during the first segment, X percent of the select mortality factors in Appendix A of this section, subject to the following:  
			(A) X may vary by policy year, policy form, underwriting classification, issue age, or any other policy factor expected to affect mortality experience;  
			(B) X must be determined so that using the valuation interest rate required under AS 21.18.110 for basic reserves, the actuarial present value of future death benefits calculated using the mortality rates resulting from application of X is greater than or equal to the actuarial present value of future death benefits calculated using the anticipated mortality experience without recognition of mortality improvement beyond the valuation date;  
			(C) X must be determined so that the mortality rates resulting from the application of X are greater than or equal to the anticipated mortality experience without recognition of mortality improvement beyond the date of valuation in each of the first five years after the valuation date;  
			(D) the appointed actuary shall increase X at a valuation date if needed in order to meet the requirements of this subsection;  
			(E) the appointed actuary may decrease X at a valuation date if X continues to meet all the requirements of this subsection;  
			(F) the appointed actuary shall specifically take into account the adverse effect on expected mortality and lapse of any anticipated or actual increase in gross premiums;   
			(G) if X is less than 100 percent at any duration for a policy,   
				(i) the appointed actuary shall annually prepare an actuarial opinion and memorandum for the company in compliance with 3 AAC 21.800 - 3 AAC 21.845;   
				(ii) the appointed actuary shall disclose, in the regulatory asset adequacy issues summary required under 3 AAC 21.835(g), the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods;  
				(iii) the X factors must reflect anticipated future mortality, without recognition of mortality improvement beyond the valuation date, taking into account relevant emerging experience; and  
				(iv) the appointed actuary shall annually opine on whether the mortality rates resulting from the application of X meet the requirements of this subsection; the opinion must be supported by an actuarial report consistent with appropriate actuarial standards of practice as adopted by the Actuarial Standards Board.   
	(h)  Guaranteed gross premiums without policy fees may be used to determine basic or deficiency reserves that use guaranteed gross premium only if the policy fee is a level dollar amount after the first policy year.  
	(i)  Guaranteed gross premiums with policy fees may be used to determine deficiency reserves even if guaranteed gross premiums without policy fees are used to determine the basic reserves.  
	(j)  For policies in which guaranteed gross premiums, guaranteed benefits, guaranteed charges, or guaranteed credits are changed unilaterally by the insurer after issue and for which the changes are effective for more than one year after the date of the change, reserves must be calculated as the largest of  
		(1) reserves calculated ignoring the guarantee;  
		(2) reserves assuming the guarantee was made at issue; or  
		(3) reserves assuming that the policy was issued on the date of the guarantee.  
	(k)  The director may require a company to file documentation of the adequacy of reserves for specified blocks of insurance, including policies issued before January 1, 2011.  
	(l)  Documentation under (k) of this section may include a demonstration of the extent to which aggregation with other blocks of business were relied upon in developing the actuarial opinion under 3 AAC 21.800 - 3 AAC 21.845.   
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Authorities

21.06.090;21.18.110;21.18.160

Notes

Reference

3 AAC 21.910
3 AAC 21.915
3 AAC 21.920
3 AAC 21.925
3 AAC 28.620
3 AAC 28.635

Authority

AS 21.06.090 AS 21.18.110 AS 21.18.160

History

Eff. 1/1/2011, Register 196; am 12/7/2011, Register 200