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Section 5) over the difference between the aggregate net premium reserve and any deferred premium asset held on account of those policies. B.

The company may elect to exclude one or more groups of policies from the stochastic reserve calculation and the deterministic reserve calculation if the exclusion tests determined pursuant to section 6 are passed. If the company elects this alternative, the minimum reserve is the sum of the following: 1.

For the group of policies that pass both the stochastic exclusion and the deterministic exclusion test: the aggregate net premium reserve for those policies.

2.

For the group of policies that pass the stochastic exclusion test but fail the deterministic exclusion test: The aggregate net premium reserve plus, the excess, if any, of the deterministic reserve determined pursuant to Section 4 over the difference between the aggregate net premium reserve for those policies and any deferred premium asset held on account of those policies.

3.

For the group of policies that fail the stochastic exclusion test, and for the group of policies not subject to the exclusion tests: The aggregate net premium reserve plus, the excess, if any, of the greater of the deterministic reserve determined pursuant to Section 4 and the stochastic reserve determined pursuant to Section 5 over the difference between the aggregate net premium reserve for those policies and any deferred premium asset held on account of those policies.

C.

For purposes of this Section, the aggregate net premium reserve for a group of policies is the sum of the net premium reserve pursuant to Section 3 for each of the policies of the group less any credit for reinsurance ceded pursuant to Section 8 for the same group of policies.

D.

The minimum reserve for each policy is equal to the net premium reserve for each policy calculated as specified in Section 3 less the policy’s portion of any credit for reinsurance ceded as specified in Section 8 plus the policy’s allocated portion of any deterministic reserve excess plus the policy’s allocated portion of any stochastic reserve excess.

Drafting Note: It is the intent of this section to prescribe a method to allocate the minimum reserve back to the individual policy that gave rise to the reserve. The allocation to individual policies is needed, among other reasons, to allocate assets under the Life and Health Insurance Guaranty Association Model Act. Further work is needed to determine the method to allocate the excess of the deterministic reserve and the stochastic reserve over the aggregate net premium reserve. E.

If the company elects to perform the stochastic and deterministic exclusion tests in Section 6 pursuant to section 2.B above, then: 1.

Stochastic reserves must be calculated for each group of policies that fail the stochastic exclusion test in Section 6.

2.

Deterministic reserves must be calculated for each group of policies that fail either the deterministic exclusion or stochastic exclusion tests in Section 6.

3.

If a company elects to calculate stochastic reserves for one or more groups of policies, the company is not required to perform the exclusion tests in Section 6 for those policies.

4.

A group of policies for which neither deterministic nor stochastic reserves are required or calculated are not principle-based valuation reserves as defined under the Standard Valuation Law.

F.

The company may calculate the deterministic reserve and the stochastic reserve as of a date no earlier than 3 months before the valuation date, using relevant company data, provided an appropriate method is used to adjust those reserves to the valuation date. Company data used for experience studies to determine prudent estimate assumptions are not subject to this 3-month limitation.

G.

If a company has separate account business, the company shall allocate the minimum reserve between the general and separate accounts subject to the following:

© 2010 National Association of Insurance Commissioners

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VM-20_APF_form_5-18-11  

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