1. (1) Except as noted in paragraph (2) of this subdivision, unearned premium reserves are required for all contracts with respect to the period of coverage for which premiums, other than premiums paid in advance, have been paid beyond the date of valuation.
2. (2) Single premium credit disability insurance, both individual and group, is excluded from unearned premium reserve requirements of this section. For all credit disability contracts in the aggregate, if the premium refund reserve exceeds the aggregate recorded reserve, an additional reserve shall be established. This premium refund reserve may include consideration of commission, premium tax, and other expenses recoverable.
3. (3) If premiums due and unpaid are carried as an asset, the premiums must be treated as premiums in force, subject to unearned premium reserve determination. The value of unpaid commissions, premium taxes and the cost of collection associated with due and unpaid premiums shall be carried as an offsetting liability.

4. (4) The gross premiums paid in advance for a period of coverage commencing after the next premium due date which follows the date of valuation may be appropriately discounted to the valuation date and shall be held either as a separate liability or as an addition to the unearned premium reserve which would otherwise be required as a minimum.

   (b) Minimum standards for unearned premium reserves.

5. (1) The minimum unearned premium reserve with respect to a contract is the pro rata unearned modal premium that applies to the premium period beyond the valuation date, with the premium determined on the basis of:

   1. (i) the valuation net modal premium on the contract reserve basis applying to the contract; or
   2. (ii) the gross modal premium for the contract if no contract reserve applies.

6. (2) In no event may the sum of the unearned premium and contract reserves for all contracts of the insurer subject to contract reserve requirements be less than the gross modal unearned premium reserve on all such contracts, as of the date of valuation. The reserve shall never be less than the expected claims for the period beyond the valuation date represented by the unearned premium reserve, to the extent not provided for elsewhere.

   (c) Premium reserve methods generally.

   The insurer may employ suitable approximations and estimates, including but not limited to groupings, averages and aggregate estimation, in computing premium reserves. Approximations or estimates should be tested periodically to determine their continuing adequacy and reliability.

(a) General.