§ 84c.4. Segmented and unitary reserve methods.
(a) Segmented reserves. Segmented reserves shall be calculated as follows:
(1) Segmented reserves shall equal the present value of all future guaranteed benefits less the present value of all future net premiums in the current segment and in all subsequent segments.
(2) The length of each segment is determined by the contract segmentation method, as described in subsection (b).
(3) The net premiums within 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 beginning of the segment, the present value of the net premiums within the segment equals the present value of the death benefits within the segment, plus the present value of any unusual guaranteed cash value occurring at the end of the segment, less any unusual guaranteed cash value occurring at the start of the segment, plus for the first segment only, the excess of subparagraph (i) over subparagraph (ii), as follows:
(i) 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 1 per year payable on the first and each subsequent anniversary within the first segment on which a premium falls due. However, the net level annual premium may not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age 1 year higher than the age at issue of the policy.
(ii) A net 1-year term premium for the benefits provided for in the first policy year.
(4) The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the sum of the lengths of all segments of the policy.
(b) Contract segmentation method. The contract segmentation method is the method of dividing the period from issue to mandatory expiration of a policy into successive segments. The segments shall be calculated as follows:
(1) The length of a particular contract segment shall be set equal to the minimum of the value t for which Gt is greater than Rt (if Gt never exceeds Rt the segment length is deemed to be the number of years from the beginning of the segment to the mandatory expiration date of the policy), where Gt and Rt are as follows:
(i) Rt may be increased or decreased by 1% in any policy year, at the company’s option, but Rt may not be less than 1.
(ii) If GPx+k+t is greater than 0 and GPx+k+t-1 is equal to 0, Gt shall be deemed to be 1,000. If GPx+k+t and GPx+k+t-1 are both equal to 0, Gt shall be deemed to be 0.
(2) The symbols used in paragraph (1) have the following meanings:
(i) x = original issue age.
(ii) k = the number of years from the date of issue to the beginning of the segment.
(iii) t = 1, 2, . . . ; t is reset to 1 at the beginning of each segment.
(iv) GPx+k+t-1 = Guaranteed gross premium per thousand of face amount for year t of the segment, ignoring policy fees only if level for the premium paying period of the policy.
(v) qx+k+t-1 = valuation mortality rate for deficiency reserves in policy year k+t but using the mortality of § 84c.5(b)(2) (relating to general requirements for basic reserves and premium deficiency reserves) if § 84c.5(b)(3) is elected for deficiency reserves.
(c) Unitary reserves. Unitary reserves shall be calculated as follows:
(1) Unitary reserves shall equal the present of all future guaranteed benefits less the present value of all future modified net premiums to the mandatory expiration of the policy.
(2) 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 subparagraph (i) over subparagraph (ii), as follows:
(i) 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 1 per year payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium may not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age 1 year higher than the age at issue of the policy.
(ii) A net 1-year term premium for the benefits provided for in the first policy year.
(3) The interest rates used in the present value calculations for any policy may 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.
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