31.09.02.05

.05 Reserve Liabilities for Variable Life Insurance.

A. Reserve liabilities for variable life insurance policies shall be established under Insurance Article, Title 5, Subtitle 3, Annotated Code of Maryland, in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.

B. Reserve liabilities for the guaranteed minimum death benefit shall be the reserve needed to provide for the contingency of death occurring when the guaranteed minimum death benefit exceeds the death benefit that would be paid in the absence of the guarantee, and shall be maintained in the general account of the insurer, and shall be not less than the greater of the following minimum reserves:

(1) The aggregate total of the term costs, if any, covering a period of 1 full year from the valuation date of the guarantee on each variable life insurance contract, assuming an immediate one-third depreciation in the current value of the assets of the separate account followed by a net investment return equal to the assumed investment rate.

(2) The aggregate total of the attained age level reserves on each variable life insurance contract. The attained age level reserve on each variable life insurance contract may not be less than zero and shall equal the residue, as described in §B(2)(a) of this regulation of the prior year's attained age level reserve on the contract, with any such residue increased or decreased by a payment computed on an attained age basis as described in §B(2)(b) of this regulation.

(a) The residue of the prior year's attained age level reserve on each variable life insurance contract may not be less than zero and shall be determined by adding interest at the valuation interest rate to the prior year's reserve, deducting the tabular claims based on the excess, if any, of the guaranteed minimum death benefit over the death benefit that would be payable in the absence of the guarantee, and dividing the net result by the tabular probability of survival. The excess referred to in the preceding sentence shall be based on the actual level of death benefits that would have been in effect during the preceding year in the absence of the guarantee, taking appropriate account of the reserve assumptions regarding the distribution of death claim payments over the year.

(b) The payment referred to in §B(2) of this regulation shall be computed so that the present value of a level payment of that amount each year over the future premium paying period of the contract is equal to (A) minus (B) minus (C), when (A) is the present value of the future guaranteed minimum death benefit, (B) is the present value of the future death benefits that would be payable in the absence of the guarantee, and (C) is any residue, as described in §B(2)(a) of this regulation of the prior year's attained age level reserve on the variable life insurance contract. If the contract is paid up, the payment shall equal (A) minus (B) minus (C). The amounts of future death benefits referred to in (B) shall be computed assuming a net investment return of the separate account which may differ from the assumed investment rate or the valuation interest rate, or both, but may not exceed the maximum interest rate permitted for the valuation of life insurance contracts.

(3) The valuation interest rate and mortality table used in computing the two minimum reserves described in §B(1) and (2) of this regulation shall conform to permissible standards for the valuation of life insurance contracts. In determining the minimum reserve, the company may employ suitable approximations and estimates, including but not limited to groupings and averages.

C. Reserve liabilities for all fixed incidental insurance benefits shall be maintained in the general account in amounts determined in accordance with the actuarial procedures appropriate to these benefits.