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304.6-180 Deficiency reserve -- Recognition of premium deficiency reserve.
(1)
(2)
(3)
If in any contract year the gross premium charged by any life insurer on any policy
or contract, which is subject to subsection (2) of KRS 304.6-140, is less than the
valuation net premium for the policy or contract calculated by the method used in
calculating the reserve thereon, but using the minimum valuation standards of
mortality and rate of interest, the minimum reserve required for such policy or
contract shall be the greater of either the reserve calculated according to the
mortality table, rate of interest, and method actually used for such policy or
contract, or the reserve calculated by the method actually used for such policy or
contract but using the minimum standards of mortality and rate of interest and
replacing the valuation net premium by the actual gross premium in each contract
year for which the valuation net premium exceeds the actual gross premium. The
minimum valuation standards of mortality and rate of interest referred to in this
section are those standards stated in KRS 304.6-140 and 304.6-145. Provided that
for any life insurance policy issued on or after January 1, 1986, for which the gross
premium in the first policy year exceeds that of the second year and for which no
comparable additional benefit is provided in the first year for such excess and which
provides an endowment benefit or a cash surrender value or a combination thereof
in an amount greater than such excess premium, the foregoing provisions of this
section shall be applied as if the method actually used in calculating the reserve for
such policy were the method described in KRS 304.6-150, ignoring the second
subsection of that section. The minimum reserve at each policy anniversary of such
a policy shall be the greater of the minimum reserve calculated in accordance with
KRS 304.6-150, including the second subsection of that section, and the minimum
reserve calculated in accordance with this section.
When the anticipated losses, loss adjustment expenses, commissions and
acquisition costs, and maintenance costs exceed the recorded unearned premium
reserve and any future installment premiums on existing policies, a premium
deficiency reserve shall be recognized by a property and casualty insurer by
recording an additional liability for the deficiency, with a corresponding charge to
operations. Commission and other acquisition costs need not be considered in the
premium deficiency analysis to the extent they have previously been expensed. For
purposes of determining if a premium deficiency exists, insurance contracts shall be
grouped in a manner consistent with how policies are marketed, serviced, and
measured. A liability shall be recognized for each grouping where a premium
deficiency is indicated. Deficiencies shall not be offset by anticipated profits in
other policy groupings. If a premium deficiency reserve is established, disclosure of
the amount of that reserve shall be made in the financial statements. If a reporting
entity utilizes anticipated investment income as a factor in the premium deficiency
calculation, disclosure of this shall be made in the financial statements.
When the anticipated losses, loss adjustment expenses, commissions and other
acquisition costs, and maintenance costs exceed the recorded unearned premium
reserve, contingency reserve, and the estimated future renewal premium on existing
policies, a mortgage guaranty insurer shall recognize a premium deficiency reserve
(4)
by recording an additional liability for the deficiency with a corresponding charge to
operations. Commissions and other acquisition costs need not be considered in the
premium deficiency analysis to the extent they have been expensed. If a mortgage
guaranty insurer utilizes anticipated investment income as a factor in the premium
deficiency calculation, disclosure of this shall be made in the financial statements.
When the expected claims payments or incurred costs, claim adjustment expenses,
and administration costs exceed the premiums to be collected for the remainder of a
contract period, an individual or group accident and health insurer or health
maintenance organization shall recognize a premium deficiency reserve by
recording an additional liability for the deficiency, with a corresponding charge to
operations. For purposes of determining if a premium deficiency exists, contracts
shall be grouped in a manner consistent with how policies are marketed, serviced,
and measured. A liability shall be recognized for each grouping where a premium
deficiency is indicated. Deficiencies shall not be offset by anticipated profits in
other policy groupings. Such accruals shall be made for any loss contracts, even if
the contract period has not yet started.
Effective: July 13, 2004
History: Amended 2004 Ky. Acts ch. 24, sec. 17, effective July 13, 2004. -- Amended
1982 Ky. Acts ch. 263, sec. 13, effective July 15, 1982. -- Amended 1978 Ky. Acts
ch. 280, sec. 7, effective June 17, 1978. -- Created 1970 Ky. Acts ch. 301, subtit. 6,
sec. 18, effective June 18, 1970.
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