§ 27-4.3-5 - Calculations of adjusted premiums by the nonforfeiture net level premium method. - Rhode Island Statutes

SECTION 27-4.3-5

   § 27-4.3-5  Calculations of adjustedpremiums by the nonforfeiture net level premium method. – (a) This section shall apply to all policies issued on or after January 1,1994. Except as provided in subsection (g) of this section, the adjustedpremiums for any policy shall be calculated on an annual basis and shall be auniform percentage of the premiums specified in the policy for each policyyear, excluding amounts payable as extra premiums to cover impairments orspecial hazards, and also excluding any uniform annual contract charge orpolicy fee specified in the policy in a statement of the method to be used incalculating the cash surrender values and paid up nonforfeiture benefits, sothat the present value, at the date of issue of the policy, of all adjustedpremiums shall be equal to the sum of: (1) the then present value of the futureguaranteed benefits provided for by the policy; (2) one percent (1%) of eitherthe amount of insurance, if the insurance is uniform in amount, or the averageamount of insurance at the beginning of each of the first ten (10) policyyears; and (3) one hundred twenty-five percent (125%) of the nonforfeiture netlevel premium as defined in subsection (b); provided, that in applying thepercentage specified in subdivision (a)(3), no nonforfeiture net level premiumshall be deemed to exceed four percent (4%) of either the amount of insurance,if the insurance is uniform in amount, or the average amount of insurance atthe beginning of each of the first ten (10) policy years. The date of issue ofa policy for the purpose of this section shall be the date as of which therated age of the insured is determined.

   (b) The nonforfeiture net level premium shall be equal to thepresent value, at the date of issue of the policy, of the guaranteed benefitsprovided for by the policy divided by the present value, at the date of issueof the policy, of an annuity of one per annum payable on the date of issue ofthe policy and on each anniversary of the policy on which a premium falls due.

   (c) In the case of policies which cause on a basis guaranteedin the policy unscheduled changes in benefits or premiums, or which provide anoption for changes in benefits or premiums, other than a change to a newpolicy, the adjusted premiums and present values shall initially be calculatedon the assumption that future benefits and premiums do not change from thosestipulated at the date of issue of the policy. At the time of any change in thebenefits or premiums the future adjusted premiums, nonforfeiture net levelpremiums, and present values shall be recalculated on the assumption thatfuture benefits and premiums do not change from those stipulated by the policyimmediately after the change.

   (d) Except as provided in subsection (g), the recalculatedfuture adjusted premiums for any policy shall be a uniform percentage of thefuture premiums specified in the policy for each policy year, excluding amountspayable as extra premiums to cover impairments and special hazards, and alsoexcluding any uniform annual contract charge or policy fee specified in thepolicy in a statement of the method to be used in calculating the cashsurrender values and paid up nonforfeiture benefits, so that the present value,at the time of change to the newly defined benefits or premiums, of all futureadjusted premiums shall be equal to the excess of: (1) the sum of: (i) the thenpresent value of the then future guaranteed benefits provided for by the policyand (ii) the additional expense allowance, if any, over (2) the then cashsurrender value, if any, or present value of any paid up nonforfeiture benefitunder this policy.

   (e) The additional expense allowance, at the time of thechange to the newly defined benefits or premiums, shall be the sum of: (1) onepercent (1%) of the excess, if positive, of the average amount of insurance atthe beginning of each of the first ten (10) policy years subsequent to thechange over the average amount of insurance prior to the change at thebeginning of each of the first ten (10) policy years subsequent to the time ofthe most recent previous change, or, if there has been no previous change, thedate of issue of the policy; and (2) one hundred twenty-five percent (125%) ofthe increase, if positive, in the nonforfeiture net level premium.

   (f) The recalculated nonforfeiture net level premium shall beequal to the result obtained by dividing subdivision (f)(1) by subdivision(f)(2) where:

   (1) Equals the sum of:

   (i) The nonforfeiture net level premium applicable prior tothe change multiplied by the present value of an annuity of one per annumpayable on each anniversary of the policy on or subsequent to the date of thechange on which a premium would have fallen due had the change not occurred, and

   (ii) The present value of the increase in future guaranteedbenefits provided for by the policy; and

   (2) Equals the present value of an annuity of one per annumpayable on each anniversary of the policy on or subsequent to the date ofchange on which a premium falls due.

   (g) Notwithstanding any other provisions of this section tothe contrary, in the case of a policy issued on a substandard basis whichprovides reduced graded amounts of insurance so that, in each policy year, thepolicy has the same tabular mortality cost as a similar policy issued on thestandard basis which provides for a higher uniform amount of insurance,adjusted premiums and present values for the substandard policy may becalculated as if it were issued to provide the higher uniform amounts ofinsurance on the standard basis.

   (h) All adjusted premiums and present values referred to inthis chapter shall for all policies of ordinary insurance be calculated on thebasis of the commissioners 1980 standard ordinary mortality table or, at theelection of the insurance company for any one or more specified plans of lifeinsurance, the commissioners 1980 standard ordinary mortality table with ten(10) year select mortality factors; adjusted premiums and present values shallfor all policies of industrial insurance be calculated on the basis of thecommissioners 1961 standard industrial mortality table; and adjusted premiumsand present values shall for all policies issued in a particular calendar yearbe calculated on the basis of a rate of interest not exceeding thenonforfeiture interest rate as defined in this section, for policies issued inthat calendar year; provided, that:

   (1) At the option of the insurance company, calculations forall policies issued in a particular calendar year may be made on the basis of arate of interest not exceeding the nonforfeiture interest rate, as defined inthis section, for policies issued in the immediately preceding calendar year;

   (2) Under any paid-up nonforfeiture benefit, including anypaid-up dividend additions, any cash surrender value available, whether or notrequired by § 27-4.3-2, shall be calculated on the basis of the mortalitytable and rate of interest used in determining the amount of any paid-upnonforfeiture benefit and paid-up dividend additions, if any;

   (3) An insurance company may calculate the amount of anyguaranteed paid-up nonforfeiture benefit including any paid-up additions underthe policy on the basis of an interest rate no lower than that specified in thepolicy for calculating cash surrender values;

   (4) In calculating the present value of any paid-up terminsurance with accompanying pure endowment, if any, offered as a nonforfeiturebenefit, the rates of mortality assumed may be not more than those shown in thecommissioners 1980 extended term insurance table for policies of ordinaryinsurance and not more than the commissioners 1961 industrial extended terminsurance table for policies of industrial insurance;

   (5) For insurance issued on a substandard basis, thecalculation of any adjusted premiums and present values may be based onappropriate modifications of the tables mentioned in this subsection;

   (6) Any ordinary mortality tables, adopted after 1980 by theNational Association of Insurance Commissioners, that are approved byregulation promulgated by the commissioner of insurance for use in determiningthe minimum nonforfeiture standard, may be substituted for the commissioners1980 standard ordinary mortality table with or without ten (10) year selectmortality factors or for the commissioners 1980 extended term insurance table;and

   (7) Any industrial mortality tables, adopted after 1980 bythe National Association of Insurance Commissioners, that are approved byregulation promulgated by the commissioner of insurance for use in determiningthe minimum nonforfeiture standard, may be substituted for the commissioners1961 standard industrial mortality table or the commissioners 1961 industrialextended term insurance table.

   (i) The nonforfeiture interest rate per annum for any policyissued in a particular calendar year shall be equal to one hundred andtwenty-five percent (125%) of the calendar year statutory valuation interestrate for the policy as defined in chapter 4.5 of this title, rounded to thenearer one-quarter of one percent (.25%).

   (j) Notwithstanding any other provision in this title to thecontrary, any re-filing of nonforfeiture values or their methods of computationfor any previously approved policy form which involves only a change in theinterest rate or mortality table used to compute nonforfeiture values shall notrequire re-filing of any other provisions of that policy form.