The following definitions shall apply for purposes of this Chapter:

1. (a) Basic reserves. Reserves calculated in accordance with Section 27-36A-8, Code of Ala. 1975.

2. (b) Contract segmentation method. The method of dividing the period from issue to mandatory expiration of a policy into successive segments, with the length of each segment being defined as the period from the end of the prior segment (from policy inception, for the first segment) to the end of the latest policy year as determined below. All calculations are made using the 1980 CSO valuation tables, as defined in Subparagraph (f) of this rule, (or any other valuation mortality table adopted by the National Association of Insurance Commissioners (NAIC) after the effective date of this chapter and promulgated by regulation of the Commissioner for this purpose), and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in Paragraph (2) of Rule 482-1-120-.05.

   The length of a particular contract segment shall be set equal to the minimum of the value t for which G_t is greater than R_t (if G_t never exceeds R_t the segment length is deemed to be the number of years from the beginning of the segment to the mandatory expiration date of the policy), where G_t and R_t are defined as follows:

   Gt=GPx+k+tGPx+k+t-1

   where:

   x = original issue age;

   k = the number of years from the date of issue to the beginning of the segment;

   t = 1, 2, ...; t is reset to 1 at the beginning of each segment;

   GP_x+k+t-1 = Guaranteed gross premium per thousand of face amount for year t of the segment, ignoring policy fees only if level for the premium paying period of the policy.

   Rt=qx+k+tqx+k+t-1, However, R_t may be increased or decreased by one percent in any policy year, at the company’s option, but R_t shall not be less than one;

   where:

   x, k and t are as defined above, and

   q_x+k+t-1 = valuation mortality rate for deficiency reserves in policy year k+t but using the mortality of Subparagraph (b) of Paragraph (2) of Rule 482-1-120-.05 if Subparagraph (c) of Paragraph (2) of Rule 482-1-120-.05 is elected for deficiency reserves.

   However, if GP_x+k+t is greater than 0 and GP_x+k+t-1 is equal to 0, G_t shall be deemed to be 1000. If GP_x+k+t and GP_x+k+t-1 are both equal to 0, G_t shall be deemed to be 0.

3. (c) Deficiency reserves. The excess, if greater than zero, of

   1. 1. Minimum reserves calculated in accordance with Section 27-36A-12, Code of Ala. 1975, over
   2. 2. Basic reserves.
4. (d) Guaranteed gross premiums. The premiums under a policy of life insurance that are guaranteed and determined at issue.
5. (e) Maximum valuation interest rates. The interest rates defined in Section 27-36A-7, Code of Ala. 1975 (Computation of Minimum Standard by Calendar Year of Issue), that are to be used in determining the minimum standard for the valuation of life insurance policies.
6. (f) 1980 CSO valuation tables. The Commissioners’ 1980 Standard Ordinary Mortality Table (1980 CSO Table) without ten-year selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law, and variations of the 1980 CSO Table approved by the NAIC, such as the smoker and nonsmoker versions approved in December 1983.

7. (g) Scheduled gross premium. The smallest illustrated gross premium at issue for other than universal life insurance policies. For universal life insurance policies, scheduled gross premium means the smallest specified premium described in Subparagraph (c) of Paragraph (1) of Rule 482-1-120-.07, if any, or else the minimum premium described in Subparagraph (d) of Paragraph (1) of Rule 482-1-120-.07.

   1. (i) The present value of the death benefits within the segment, plus
   2. (ii) The present value of any unusual guaranteed cash value (see Paragraph (4) of Rule 482-1-120-.06) occurring at the end of the segment, less
   3. (iii) Any unusual guaranteed cash value occurring at the start of the segment, plus

   4. (iv) For the first segment only, the excess of the Subparagraph (I) over Subparagraph (II), as follows:

      1. (I) A net level annual premium equal to the present value, at the date of issue, of the benefits provided for in the first segment after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary within the first segment on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the nineteen-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
      2. (II) A net one year term premium for the benefits provided for in the first policy year.
   5. 2. The length of each segment is determined by the “contract segmentation method,” as defined in this rule.
   6. 3. The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the sum of the lengths of all segments of the policy.
   7. 4. For both basic reserves and deficiency reserves computed by the segmented method, present values shall include future benefits and net premiums in the current segment and in all subsequent segments.

   (h)1. Segmented reserves. Reserves, calculated using segments produced by the contract segmentation method, equal to the present value of all future guaranteed benefits less the present value of all future net premiums to the mandatory expiration of a policy, where the net premiums within each segment are a uniform percentage of the respective guaranteed gross premiums within the segment. The uniform percentage for each segment is such that, at the beginning of the segment, the present value of the net premiums within the segment equals:

8. (i) Tabular cost of insurance. The net single premium at the beginning of a policy year for one-year term insurance in the amount of the guaranteed death benefit in that policy year.

9. (j) Ten-year select factors. The select factors adopted with the 1980 amendments to the NAIC Standard Valuation Law.

   1. (i) Guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy.

   2. (ii) Modified net premiums are a uniform percentage of the respective guaranteed gross premiums, where the uniform percentage is such that, at issue, the present value of the net premiums equals the present value of all death benefits and pure endowments, plus the excess of Subparagraph (I) over Subparagraph (II), as follows:

      1. (I) A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the nineteen-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.
      2. (II) A net one year term premium for the benefits provided for in the first policy year.
   3. 2. The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the length from issue to the mandatory expiration of the policy.

   (k)1. Unitary reserves. The present value of all future guaranteed benefits less the present value of all future modified net premiums, where both of the following are true:

10. (l) Universal life insurance policy. Any individual life insurance policy under the provisions of which separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds, or other supplementary accounts) and mortality or expense charges are made to the policy.

Author: Reyn Norman, Associate Counsel

Statutory Authority: Code of Ala. 1975, §§27-2-17; 27-36A-1 - 27-36A-20.

History: New Rule: February 18, 2000; effective March 1, 2000. Filed for codification in the Alabama Administrative Code by the Department of Insurance on January 17, 2003, pursuant to the Code of Ala. 1975, §27-7-43. Amended: Published June 28, 2024; effective July 1, 2024. Published with LSA June 28, 2024. This rule is not subject to the Alabama Administrative Procedure Act.