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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 by recording an additional liability for the deficiency
(4)
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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