TO: Life Actuarial (A) Task Force

MEMORANDUM

FROM: Reinsurance (E) Task Force

DATE: August 24, 2017

RE: Definition of “Covered Policies” under Section 5B of the Term and Universal Life Insurance Reserve Financing Model Regulation (#787)

The NAIC membership adopted the Term and Universal Life Insurance Reserve Financing Model Regulation (#787) at the 2016 Fall National Meeting on Dec. 13, 2016. At that same time, the NAIC membership also adopted revisions to Actuarial Guideline XLVIII—Actuarial Opinion and Memorandum Requirements for the Reinsurance of Policies Required to be Valued under Sections 6 and 7 of the NAIC Valuation of Life Insurance Policies Model Regulation (AG 48) to conform with the provisions of Model #787, effective Jan. 1, 2017. Model #787 establishes uniform, national standards governing reserve financing arrangements pertaining to term life and universal life insurance policies with secondary guarantees, and ensures that funds consisting of Primary Security and Other Security are held in the forms and amounts required.

At its meeting on Aug. 7, 2017, the Reinsurance (E) Task Force discussed the attached comment letter received from the Vermont Department of Financial Regulation dated July 12, 2017. Specifically, the comment letter was with respect to the exposure of a draft accreditation standard with respect to Model #787, and questioned whether the definition of “Covered Policies” in Section 5B of Model #787 (and, by extension, AG 48) is correct because it does not specifically reference “fixed premium universal life insurance policies, that contain provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period” as defined in Section 7 of the Valuation of Life Insurance Policies Model Regulation (#830). Section 5B of Model #787 provides, as follows:

B. “Covered Policies” means the following: Subject to the exemptions described in Section 4, Covered Policies are those policies, other than Grandfathered Policies, of the following policy types:

(1) Life insurance policies with guaranteed nonlevel gross premiums and/or guaranteed nonlevel benefits, except for flexible premium universal life insurance policies; or,

(2) Flexible premium universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period.

The original drafts of Model #787 and AG 48 defined “Covered Policies” as those policies valued under Section 6 and Section 7 of Model #830. However, the definition of “Covered Policies” was revised in an exposure draft dated Feb. 26, 2016, to its current version. Both Mike Boerner (TX) and Paul Graham (American Council of Life Insurers—ACLI) stated at the Aug. 7 meeting of the Reinsurance (E) Task Force that, in their opinion, the change in the definition of “Covered Policies” in Model #787 was inconsequential, and that it would not be necessary to amend Model #787 or AG 48 at this time.

Referral to Life Actuarial (A) Task Force

At its Aug. 7 meeting, the Reinsurance (E) Task Force agreed to refer this issue to the Life Actuarial (A) Task Force for further discussion and review, and ask that it confirms whether any changes to the definition of “Covered Policies” under Model #787 are necessary at this time and to report its findings back to the Reinsurance (E) Task Force.

Attachment