(1) Policies with a secondary guarantee include:
(A) a policy with a guarantee that the policy will remain in
force at the original schedule of benefits , subject only to the payment of
(B) a policy in which the minimum premium at any duration is
less than the corresponding one year valuation premium, calculated using the
maximum valuation interest rate and the 1980 CSO valuation tables with or
without ten-year select mortality factors, or any other table adopted after
the effective date of this regulation by the NAIC and promulgated by regulation
by the commissioner for this purpose; or
(C) a policy with any combination of subparagraphs (A) and
(B) of this paragraph.
(2) 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 shall 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 are unilaterally changed by the insurer after issue
shall be considered to have been made at issue. Reserves described in subsections
(b) and (c) of this section must be recalculated from issue to reflect these
(3) 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) For purposes of this section, the minimum premium
for any policy year is the premium that, when paid into a policy with a zero
account value at the beginning of the policy year, produces a zero account
value at the end of the policy year. The minimum premium calculation must
use the policy cost factors (including mortality charges, loads and expense
charges) and the interest crediting rate, which are all guaranteed at issue.
(5) The one-year valuation premium means the net one-year
premium based upon the original schedule of benefits for a given policy year.
The one-year valuation premiums for all policy years are calculated at issue.
The select mortality factors defined in §3.4505(b)(2),(3) and (4) of
this title (relating to General Calculation Requirements for Basic Reserves
and Premium Deficiency Reserves) may not be used to calculate the one-year
(6) The one-year valuation premium should reflect the
frequency of fund processing, as well as the distribution of deaths assumption
employed in the calculation of the monthly mortality charges to the fund.
(b) Basic Reserves for the Secondary Guarantees. Basic reserves
for the secondary guarantees shall be the segmented reserves for the secondary
guarantee period. In calculating the segments and the segmented reserves,
the gross premiums shall 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 as defined
in §3.4504 of this title (relating to Definitions).
(c) Deficiency Reserves for the Secondary Guarantees. Deficiency
reserves, if any, for the secondary guarantees shall be calculated for the
secondary guarantee period in the same manner as described in §3.4506(b)
of this title (Relating to Calculation of Minimum Valuation Standard for Policies
with Guaranteed Nonlevel Gross Premiums or Guaranteed Nonlevel Benefits (Other
Than Universal Life Policies)) with gross premiums set equal to the specified
premiums, if any, or otherwise to the minimum premiums that keep the policy
(d) Minimum Reserves. The minimum reserves during the secondary
guarantee period are the greater of:
(1) The basic reserves for the secondary guarantee plus the
deficiency reserve, if any, for the secondary guarantees; or
(2) The minimum reserves required by other rules or subchapters
governing universal life plans.