qx+k+t-1 = valuation mortality rate for deficiency reserves in policy year k+t but using the mortality of sub. (4) (b) 2. if sub. (4) (b) 3. is elected for deficiency reserves.

Ins 2.80 Note Note: The purpose of the one percent tolerance in the R factor is to prevent irrational segment lengths due to such things as premium rounding. For example, consider a plan in which gross premiums are designed at some point to be a ratio times the underlying ultimate mortality rates, where the ratio varies by issue age. The resulting segments may be greater than one year, because the gross premiums are not expressed in fractional cents. The tolerance factor allows the creation of one-year segments for a plan in which premiums parallel the underlying valuation mortality table.

Ins 2.80(3)(c) (c) “Deficiency reserves” means the excess, if greater than zero, of minimum reserves calculated in accordance with the principles of s. 623.06 (7), Stats., over basic reserves.

Ins 2.80(3)(d) (d) “Guaranteed gross premiums” means the premiums under a policy of life insurance that are guaranteed and determined at issue.

Ins 2.80(3)(e) (e) “Maximum valuation interest rates” means the interest rates defined in s. 623.06 (2m), Stats., that are to be used in determining the minimum standard for the valuation of life insurance policies.

Ins 2.80(3)(f) (f) “1980 CSO valuation table” means the commissioner’s’ 1980 standard ordinary mortality table without 10-year select mortality factors, incorporated into the 1980 amendments to the national association of insurance commissioner’s standard valuation law, as provided in s. 623.06 (2) (am), Stats., and variations of the 1980 CSO valuation table approved by the national association of insurance commissioners, such as the unisex and smoker and non-smoker versions approved in December 1983 and adopted by ss. Ins 2.20 and 2.35.

Ins 2.80 Note Note: This paragraph defines the 1980 CSO valuation table without the existing 10 year select mortality factors to assure that, if select mortality factors are elected, only one set of factors may be applied to the base valuation mortality table.

Ins 2.80(3)(g) (g) “Scheduled gross premium” means the 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 sub. (6) (c), if any, or else the minimum prescribed in sub. (6) (d).

Ins 2.80(3)(h) (h) “Segmented reserves” means 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 mandatory expiration of a policy, where 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 is calculated in the following manner:

Ins 2.80(3)(h)1. 1. The present value of the death benefits within the segment, plus

Ins 2.80(3)(h)2. 2. The present value of any unusual guaranteed cash value, as provided in sub. (5) (g), occurring at the end of the segment, less

Ins 2.80(3)(h)3. 3. Any usual guaranteed cash value occurring at the start of the segment, plus

Ins 2.80(3)(h)4. 4. For the first segment only, the excess of subd. 4. a. over subd. 4. b., as follows:

Ins 2.80(3)(h)4.a. a. 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 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 one year higher than the age at issue of the policy.

Ins 2.80(3)(h)4.b. b. A net one-year term premium for the benefits provided for in the first policy year.

Ins 2.80(3)(h)5. 5. The length of each segment is determined by the contract segmentation method.

Ins 2.80(3)(h)6. 6. 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 length of all segments of the policy.

Ins 2.80(3)(h)7. 7. For both basic reserves and deficiency reserves computed by the contract segmentation method, present values shall include future benefits and net premiums in the current segment and in all subsequent segments.

Ins 2.80 Note Note: The segmentation requirement should not be limited to plans with no cash surrender values; otherwise companies could avoid segmentation entirely by designing policies with minimal (positive) cash values. Segmentation for plans with cash surrender values should be based solely upon gross premium levels. Basing segmentation upon the level of cash surrender values introduces complications because of the interrelationship between minimum cash surrender values and gross premium patterns. The requirements of this section relating to reserves or plans with unusual cash values and to reserves if cash values exceed calculated reserves serve to link required reserves and cash surrender values. The calculation of segmented reserves shall not be linked to the occurrence of a positive unitary terminal reserve at the end of a segment. The requirement of this section to hold the greater of the segmented reserve or the unitary reserve eliminates the need for any linkage.

Ins 2.80(3)(i) (i) “Tabular cost of insurance” means the net single premium at the beginning of a policy year for one-year term insurance in the amount of the guaranteed death benefit in that policy year.

Ins 2.80(3)(j) (j) “Ten-year select factors” means the select factors adopted with the 1980 amendments to the national association of insurance commissioner’s standard valuation law as provided in s. 623.06 (2) (am), Stats.

Ins 2.80(3)(k) (k) “Unitary reserves” means the present value of all future guaranteed benefits less the present value of all future modified net premiums, where all of the following occur:

Ins 2.80(3)(k)1. 1. Guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy.

Ins 2.80(3)(k)2. 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:

Ins 2.80(3)(k)2.a. a. 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 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 one year higher than the age at issue of the policy, over

Ins 2.80(3)(k)2.b. b. A net one-year term premium for the benefits provided for the first policy year.

Ins 2.80(3)(k)3. 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.

Ins 2.80 Note Note: The purpose of this paragraph is to define as specifically as possible what has become commonly called the unitary method. The national association of insurance commissioners standard valuation law does not define the term “unitary” for policies with nonlevel premiums or benefits; its requirements for reserves “computed by a method that is consistent with the principles of the national association of insurance commissioners standard valuation law” has not been uniformly interpreted.

Ins 2.80(3)(L) (L) “Universal life insurance policy” means any individual life insurance policy under the provisions of 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.