Haw. Code R. § 16-187-105 - The actuarial method
(a) The actuarial
method to establish the required level of primary security for each reinsurance
treaty subject to this chapter 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:
(1) For covered
policies described in section 16-187-104, "Covered policies," subsection (1),
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 section
16-187-104, "Covered policies," subsection (2), the ceding insurer may elect to
instead use subsection (a)(2) as the actuarial method for the entire
reinsurance agreement. Whether subsection (a)(1) or (a)(2) 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.
(2) For covered policies described in section
16-187-104, "Covered policies," subsection (2), 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.
(3) Except as provided in
subsection (a)(4), 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.
(4) If the
reinsurance treaty cedes less than one hundred percent (100%) of the risk with
respect to the covered policies, then the required level of primary security
may be reduced as follows:
(A) 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 subparagraph (C), may be reduced to a pro rata
portion in accordance with the percentage of the risk ceded;
(B) If the reinsurance treaty in a nonexempt
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;
(C) 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 [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
(D) 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 nonproportional reinsurance treaties, there will be no
reduction in the required level of primary security.
(b) It is possible for any
combination of subsections (a)(4)(A), (a)(4)(B), (a)(4)(C), and (a)(4)(D) 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 one hundred percent (100%) of the risk.
(c) 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.
(d) In no event will the required level of
primary security resulting from application of the actuarial method exceed the
amount of statutory reserves ceded.
(e) If the ceding insurer cedes risks with
respect to covered policies, including any riders, in more than one reinsurance
treaty subject to this chapter, 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
chapter.
(f) If a reinsurance
treaty subject to this chapter 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
section 16-187-107 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
paragraph (1), is held by or on behalf of the ceding insurer in accordance with
section
431:4A-101
and
431:4A-102,
HRS. Any primary security used to meet the requirements of this paragraph may
not be used to satisfy the required level of primary security for the covered
policies.
Notes
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