Definitions

01. Basic Reserves. Reserves calculated per Section 41-612(5), Idaho Code. (4-6-23) 02. Contract Segmentation Method. Method of dividing the period from issue to mandatory expiration of a policy into successive segments, where each segment’s length is the period from the end of the prior segment (from policy inception, for the first segment) to the end of the latest policy year as determined below. All calculations are made using the 1980 CSO Valuation Tables, and, if elected, the optional minimum mortality standard for deficiency reserves set forth in Subsection 011.02. (4-6-23) 03. Deficiency Reserves. Excess, if greater than zero (0), of (4-6-23) a. Minimum reserves calculated per Section 41-612(10), Idaho Code, over (4-6-23) b. Basic reserves. (4-6-23) 04. Guaranteed Gross Premiums. Life insurance policy premiums that are guaranteed and determined at issue. (4-6-23) 05. Maximum Valuation Interest Rates. Interest rates defined in Section 41-612(4b), Idaho Code (Computation of Minimum Standard by Calendar Year of Issue), used to determine the minimum standard for valuating life insurance policies. (4-6-23) 06. 1980 CSO Valuation Tables. Commissioners’ 1980 Standard Ordinary Mortality Table (1980 CSO Table) without “ten year select factors,” and variations of the 1980 CSO Table approved by the NAIC, such as the smoker and nonsmoker versions approved in December 1983. (4-6-23) 07. Scheduled Gross Premium. 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 Paragraph 013.01.c., if any, or else the minimum premium described in Paragraph 013.01.d. (4-6-23) 08. Segmented Reserves. (4-6-23) a. 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 policy’s mandatory expiration, where the net premiums in 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 start of the segment, the present value of the net premiums within the segment equals: (4-6-23) i. The present value of the death benefits within the segment, plus (4-6-23) ii. The present value of any unusual, guaranteed cash value (see Subsection 012.04) occurring at the end of the segment, less (4-6-23) iii. Any unusual guaranteed cash value occurring at the start of the segment, plus (4-6-23) iv. For the first segment only, the excess of the Item one (1) over Item two (2), as follows: (4-6-23) (1) 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 (1) per year payable on the first and each subsequent anniversary within the first segment on which a premium falls due. But the net level annual premium will not exceed the net level annual premium on the nineteen (19) year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one (1) year higher than the age at issue of the policy. (4-6-23) IDAHO ADMINISTRATIVE CODE IDAPA 18.07.03 - Valuation of Life Insurance Policies Idaho Department of Insurance Including the Use of Select Mortality Factors Section 011 Page 5 (2) A net one (1) year term premium for the benefits provided for in the first policy year. (4-6-23) b. Each segment’s length is determined by the “contract segmentation method.” (4-6-23) c. The interest rates in a policy’s present value calculations cannot exceed the maximum valuation interest rate, determined with a guarantee duration equal to the sum of the lengths of the policy’s segments. (4-6-23) d. For both basic reserves and deficiency reserves computed by the contract segmentation method, present values will include future benefits and net premiums in the current segment and in all subsequent segments. (4-6-23) 09. Tabular Cost of Insurance. The net single premium at the start of a policy year for one (1) year term insurance in the amount of the guaranteed death benefit in that policy year. (4-6-23) 10. Ten Year Select Factors. The factors adopted with the 1980 amendments to the NAIC Standard Valuation Law. (4-6-23) 11. Unitary Reserves. (4-6-23) a. The present value of all future guaranteed benefits less the present value of all future modified net premiums, where: (4-6-23) i. Guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy; and (4-6-23) ii. 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 Item one (1) over Item two (2), as follows: (4-6-23) (1) 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 (1) per year payable on the first and each subsequent anniversary of the policy on which a premium falls due. But the net level annual premium will not exceed the net level annual premium on the nineteen (19) year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one (1) year higher than the age at issue of the policy. (4-6-23) (2) A net one (1) year term premium for the benefits provided for in the first policy year. (4-6-23) b. The interest rates used in the present value calculations for any policy will 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. (4-6-23) 12. Universal Life Insurance Policy. Any individual life insurance policy for 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. (4-6-23) 011. GENERAL CALCULATION REQUIREMENTS FOR BASIC RESERVES AND PREMIUM DEFICIENCY RESERVES. 01. Basic Reserves. At the company’s election for any one (1) or more specified plans of life insurance, the minimum mortality standard for basic reserves may be calculated using the 1980 CSO valuation tables with select mortality factors. If select mortality factors are elected, they may be: (4-6-23) a. The “ten year select factors”; (4-6-23) b. The select mortality factors in the tables referenced in Section 002. (4-6-23) IDAHO ADMINISTRATIVE CODE IDAPA 18.07.03 - Valuation of Life Insurance Policies Idaho Department of Insurance Including the Use of Select Mortality Factors Section 011 Page 6 02. Deficiency Reserves. Deficiency reserves, if any, are calculated for each policy as the excess, if greater than zero (0), 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 company’s election, for any one or more specified plans of insurance, the quantity A and the corresponding net premiums used to determine quantity A may be based on the 1980 CSO valuation tables with select mortality factors. If select mortality factors are elected, they may be one (1) of: (4-6-23) a. The “ten year select factors”; (4-6-23) b. The select mortality factors in the tables as referenced in Section 002; (4-6-23) c. For durations in the first segment, X percent of the select mortality factors in the tables as referenced in Section 002, subject to: (4-6-23) i. X may vary by policy year, policy form, underwriting classification, issue age, or any other policy factor expected to affect mortality experience; (4-6-23) ii. X is such that, when using the valuation interest rate used for basic reserves, Item one (1) at least equals Item two (2); (4-6-23) (1) The actuarial present value of future death benefits, calculated using the mortality rates resulting from the application of X; (4-6-23) (2) The actuarial present value of future death benefits calculated using anticipated mortality experience without recognition of mortality improvement beyond the valuation date; (4-6-23) iii. 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 five (5) years after the valuation date; (4-6-23) iv. The appointed actuary will increase X at any valuation date where it is necessary to continue to meet all the requirements of Paragraph 011.02.c.; (4-6-23) v. The appointed actuary may decrease X at any valuation date if X continues to meet all requirements of Paragraph 011.02.c.; and (4-6-23) vi. The appointed actuary will specifically consider the adverse effect on expected mortality and lapsation of any anticipated or actual increase in gross premiums. (4-6-23) vii. If X is less than one hundred percent (100%) at any duration for any policy, the following requirements are to be met: (4-6-23) (1) The appointed actuary will annually prepare an actuarial opinion and memorandum for the company in conformance with the requirements of IDAPA 18.07.09, Section 022; (4-6-23) (2) The appointed actuary will disclose, in the Regulatory Asset Adequacy Issues Summary, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one (1) or more interim periods; and (4-6-23) (3) The appointed actuary will annually opine, for all policies subject to this chapter, on whether the mortality rates resulting from applying X meet the requirements of Paragraph 011.02.c. This opinion will 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. The X factors will reflect anticipated future mortality, without recognition of mortality improvement beyond the valuation date, taking into account relevant emerging experience. (4-6-23) IDAHO ADMINISTRATIVE CODE IDAPA 18.07.03 - Valuation of Life Insurance Policies Idaho Department of Insurance Including the Use of Select Mortality Factors Section 012 Page 7 03. Applicability. Subsection 011.03 applies to both basic reserves and deficiency reserves. Any set of select mortality factors may be used only for the first segment. But if the first segment is less than ten (10) years, the appropriate “ten year select factors” may be used thereafter through the tenth policy year from the date of issue. (4-6-23) 04. Gross Premiums. 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 excluded from the actual calculation of basic reserves. (4-6-23) 05. Changes in Guarantees. 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 (1) year after the date of the change will be the greatest of the following:(4-6-23) a. Reserves calculated ignoring the guarantee; (4-6-23) b. Reserves assuming the guarantee was made at issue; and (4-6-23) c. Reserves assuming that the policy was issued on the date of the guarantee. (4-6-23) 06. Reserve Adequacy. The Director 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 chapter. This documentation may include a demonstration of the extent to which aggregation with other non-specified blocks of business is relied on in forming the appointed actuary opinion pursuant to and consistent with the requirements of the Actuarial and Memorandum Rule, IDAPA 18.07.09, Section 022. (4-6-23) 012. CALCULATING MINIMUM VALUATION STANDARD FOR POLICIES WITH GUARANTEED NONLEVEL GROSS PREMIUMS OR GUARANTEED NONLEVEL BENEFITS (BESIDES UNIVERSAL LIFE POLICIES). 01. Basic Reserves. Basic reserves are calculated as the greater of the segmented reserves and the unitary reserves. Both the segmented reserves and the unitary reserves for any policy will use the same valuation mortality table and selection factors. An insurer may make either of these adjustments when calculating segmented reserves and net premiums: (4-6-23) a. Treat the unitary reserve, if greater than zero (0), applicable at the end of each segment as a pure endowment and subtract the unitary reserve, if greater than zero (0), applicable at the start of each segment from the present value of guaranteed life insurance and endowment benefits for each segment; or (4-6-23) b. Treat the guaranteed cash surrender value, if greater than zero (0), applicable at the end of each segment as a pure endowment; and subtract the guaranteed cash surrender value, if greater than zero (0), applicable at the start of each segment from the present value of guaranteed life insurance and endowment benefits for each segment. (4-6-23) 02. Deficiency Reserves. (4-6-23) a. The deficiency reserve at any duration will be calculated: (4-6-23) i. On a unitary basis if the corresponding basic reserve determined by Subsection 012.01 is unitary; (4-6-23) ii. On a segmented basis if the corresponding basic reserve determined by Subsection 012.01 is segmented; or (4-6-23) iii. On the segmented basis if the corresponding basic reserve determined by Subsection 012.01 is equal to both the segmented reserve and the unitary reserve. (4-6-23) IDAHO ADMINISTRATIVE CODE IDAPA 18.07.03 - Valuation of Life Insurance Policies Idaho Department of Insurance Including the Use of Select Mortality Factors Section 012 Page 8 b. Subsection 012.02 applies 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 Subsection 011.02 and rate of interest).(4-6-23) c. Deficiency reserves, if any, are calculated for each policy as the excess if more than zero (0), for the current and all remaining periods, of the quantity A over the basic reserve, where A is obtained as indicated in Subsection 011.02. (4-6-23) d. For deficiency reserves determined on a segmented basis, the quantity A is determined using segment lengths equal to those determined for segmented basic reserves. (4-6-23) 03. Minimum Value. Basic reserves will at least equal the tabular cost of insurance for the balance of the policy year, if mean reserves are used. Basic reserves will at least equal 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 will use the same valuation mortality table and interest rates as that used to calculate the segmented reserves. But if select mortality factors are used, they will be the “ten year select factors”. Total reserves (including basic reserves, deficiency reserves and any reserves held for supplemental benefits that would expire at contract termination) never may be less than the amount that the policyowner would receive (including the cash surrender value of the supplemental benefits, if any, referred to above), exclusive of any deduction for policy loans, when the policy terminates. (4-6-23) 04. Unusual Pattern of Guaranteed Cash Surrender Values. (4-6-23) a. For any policy with an unusual pattern of guaranteed cash surrender values, the reserves held before the first unusual guaranteed cash surrender value will at least equal 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. (4-6-23) b. The reserves held after any unusual guaranteed cash surrender value will at least equal 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: (4-6-23) i. n is the number of years from the date of the last unusual guaranteed cash surrender value before the valuation date to the earlier of: (4-6-23) (1) The date of the next unusual guaranteed cash surrender value, if any, that is scheduled after the valuation date; or (4-6-23) (2) The mandatory expiration date of the policy; and (4-6-23) ii. The net premium for a given year during the n year period equals the product of the net to gross ratio and the respective gross premium; and (4-6-23) iii. The net to gross ratio equals Item One (1) divided by Item Two (2) as follows: (4-6-23) (1) The present value, at the start of the n year period, of death benefits payable during the n year period plus the present value, at the start 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 start of the n year period. (4-6-23) (2) The present value, at the start of the n year period, of the scheduled gross premiums payable during the n year period. (4-6-23) c. For Subsection 012.04, a policy has an unusual pattern of guaranteed cash surrender values if any IDAHO ADMINISTRATIVE CODE IDAPA 18.07.03 - Valuation of Life Insurance Policies Idaho Department of Insurance Including the Use of Select Mortality Factors Section 012 Page 9 future guaranteed cash surrender value exceeds the prior year’s guaranteed cash surrender value by more than the sum of: (4-6-23) i. One hundred ten percent (110%) of the scheduled gross premium for that year; (4-6-23) ii. One hundred ten percent (110%) of one (1) 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; and (4-6-23) iii. Five percent (5%) of the first policy year surrender charge, if any. (4-6-23) 05. Optional Exemption for Yearly Renewable Term (YRT) Reinsurance. A company may opt to use this approach for reserves on YRT reinsurance: (4-6-23) a. Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year; (4-6-23) b. Basic reserves will at least equal the tabular cost of insurance for the appropriate period, as defined in Subsection 012.03; (4-6-23) c. Deficiency reserves. (4-6-23) i. For each policy year, calculate the excess, if greater than zero (0), of the valuation net premium over the respective maximum guaranteed gross premium. (4-6-23) ii. Deficiency reserves will at least equal the sum of the present values, at the date of valuation, of the excesses determined in accordance with Subparagraph 012.05.c.i.; (4-6-23) d. For Subsection 012.05, the calculations use the maximum valuation interest rate and the 1980 CSO mortality tables with or without “ten year select factors”; (4-6-23) e. A reinsurance agreement is YRT reinsurance under Subsection 012.05 if only the mortality risk is reinsured; and (4-6-23) f. If the assuming company chooses this optional exemption, the ceding company’s reinsurance reserve credit will be limited to the amount of reserve the assuming company holds for the affected policies. (4-6-23) 06. Optional Exemption for Attained-Age-Based Yearly Renewable Term Life Insurance Policies. A company may opt to use this approach for reserves for attained-age-based YRT life insurance policies: (4-6-23) a. Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year. (4-6-23) b. Basic reserves will at least equal to the tabular cost of insurance for the appropriate period, as defined in Subsection 012.03. (4-6-23) c. Deficiency reserves: (4-6-23) i. For each policy year, calculate the excess, if greater than zero (0), of the valuation net premium over the respective maximum guaranteed gross premium. (4-6-23) ii. Deficiency reserves at least equal to the sum of the present values, at the date of valuation, of the excesses determined in accordance with Subparagraph 012.06.c.i. (4-6-23) d. For Subsection 012.06, the calculations use the maximum valuation interest rate and the 1980 CSO valuation tables with or without “ten year select factors.” (4-6-23) IDAHO ADMINISTRATIVE CODE IDAPA 18.07.03 - Valuation of Life Insurance Policies Idaho Department of Insurance Including the Use of Select Mortality Factors Section 013 Page 10 e. A policy is an attained-age-based YRT life insurance policy, under Subsection 012.06, if: (4-6-23) i. The premium rates (on both the initial current premium scale and the guaranteed maximum premium scale) are based on the attained age of the insured such that the rate for any given policy at a given attained age of the insured is independent of the year the policy was issued; and (4-6-23) ii. The premium rates (on both the initial current premium scale and the guaranteed maximum premium scale) are the same as the premium rates for policies covering all insureds of the same sex, risk class, plan of insurance and attained age. (4-6-23) f. For policies that become attained-age-based YRT policies after an initial coverage period, the approach of Subsection 012.06 may be used after the initial period if: (4-6-23) i. The initial period is constant for all insureds of the same sex, risk class and plan of insurance; or (4-6-23) ii. The initial period runs to a common attained age for all insureds of the same sex, risk class, and plan of insurance; and (4-6-23) iii. After the initial period, the policy meets the conditions of Paragraph 012.06.e.; and (4-6-23) g. If this election is made, this approach will be applied to determine reserves for all attained-age- based YRT life insurance policies issued on or after this chapter’s effective date. (4-6-23) 07. Exemption from Unitary Reserves for Certain n-Year Renewable Term Life Insurance Policies. Unitary basic reserves and unitary deficiency reserves need not be calculated for a policy if the following conditions are met: (4-6-23) a. The policy consists of a series of n-year periods, including the first period and all renewal periods, where n is the same for each period, except that for the final renewal period, n may be truncated or extended to reach the expiry age, provided that this final renewal period is less than ten (10) years and less than twice the size of the earlier n-year periods, and for each period, the premium rates on both the initial current premium scale and the guaranteed maximum premium scale are level; (4-6-23) b. The guaranteed gross premiums in all n-year periods are not less than the corresponding net premiums based on the 1980 CSO Table with or without the “ten year select factors;” and (4-6-23) c. There are no cash surrender values in any policy year. (4-6-23) 08. Exemption From Unitary Reserves for Certain Juvenile Policies. Unitary basic reserves and unitary deficiency reserves need not be calculated for a policy if these conditions are met, based on the initial current premium scale at issue: (4-6-23) a. At issue, the insured is age twenty-four (24) or younger; (4-6-23) b. Until the insured reaches the end of the juvenile period, which will occur at or before age twenty- five (25), the gross premiums and death benefits are level, and there are no cash surrender values; and (4-6-23) c. After the end of the juvenile period, gross premiums are level for the remainder of the premium paying period, and death benefits are level for the remainder of the life of the policy. (4-6-23) 013. CALCULATING MINIMUM VALUATION STANDARD FOR FLEXIBLE PREMIUM AND FIXED PREMIUM UNIVERSAL LIFE INSURANCE POLICIES THAT CONTAIN PROVISIONS RESULTING IN THE ABILITY OF A POLICY OWNER TO KEEP A POLICY IN FORCE OVER A SECONDARY GUARANTEE PERIOD. 01. General. (4-6-23) IDAHO ADMINISTRATIVE CODE IDAPA 18.07.03 - Valuation of Life Insurance Policies Idaho Department of Insurance Including the Use of Select Mortality Factors Section 013 Page 11 a. Policies with a secondary guarantee include: (4-6-23) i. A policy with a guarantee that the policy will remain in force at the original schedule of benefits, subject only to paying specified premiums; (4-6-23) ii. A policy in which the minimum premium at any duration is less than the corresponding one (1) year valuation premium, calculated using the maximum valuation interest rate and the 1980 CSO valuation tables with or without “ten year select factors;” or (4-6-23) iii. A policy with any combination of Subparagraphs 013.01.a.i. and 013.01.a.ii. (4-6-23) b. A secondary guarantee period is the period for which the policy is guaranteed to remain in force subject only to a secondary guarantee. When a policy contains more than one secondary guarantee, the minimum reserve will be the greatest of the respective minimum reserves at that valuation date of each unexpired secondary guarantee, ignoring all other secondary guarantees. Secondary guarantees that the insurer unilaterally changes after issue will be considered to have been made at issue. Reserves described in Subsections 013.02 and 013.03 below will be recalculated from issue to reflect these changes. (4-6-23) c. Specified premiums mean the premiums specified in the policy, the payment of which guarantees that the policy will remain in force at the original schedule of benefits, but which otherwise would be insufficient to keep the policy in force in the absence of the guarantee if maximum mortality and expense charges and minimum interest credits were made and any applicable surrender charges were assessed. (4-6-23) d. For Section 013, the minimum premium for any policy year is the premium that, when paid into a policy with a zero (0) account value at the start of the policy year, produces a zero (0) account value at the end of the policy year. The minimum premium calculation will use the policy cost factors (including mortality charges, loads and expense charges) and the interest crediting rate, which are all guaranteed at issue. (4-6-23) e. The one (1) year valuation premium means the net one (1) year premium based on the original schedule of benefits for a given policy year. The one (1) year valuation premiums for all policy years are calculated at issue. The select mortality factors defined in Paragraphs 011.02.b., 011.02.c., and 011.02.d. cannot be used to calculate the one (1) year valuation premiums. (4-6-23) f. The one (1) year valuation premium should reflect the frequency of fund processing, and the distribution of deaths assumption employed in the calculation of the monthly mortality charges to the fund. (4-6-23) 02. Basic Reserves for Secondary Guarantees. Basic reserves for secondary guarantees will be the segmented reserves for the secondary guarantee period. In calculating the segments and the segmented reserves, the gross premiums will be set equal to the specified premiums, if any, or otherwise to the minimum premiums, that keep the policy in force and the segments will be determined according to the “contract segmentation method.” (4-6-23) 03. Deficiency Reserves for Secondary Guarantees. Any deficiency reserves for secondary guarantees will be calculated for the secondary guarantee period as described in Subsection 012.02 with gross premiums set equal to the specified premiums, if any, or otherwise to the minimum premiums that keep the policy in force. (4-6-23) 04. Minimum Reserves. The minimum reserves during the secondary guarantee period are the greater of: (4-6-23) a. The basic reserves for the secondary guarantee plus the deficiency reserve, if any, for the secondary guarantees; or (4-6-23) b. The minimum reserves prescribed by other rules or rules governing universal life plans. (4-6-23) 014. -- 999. (RESERVED)