ARSD 20:06:30:05 – Table of risk categories.

The following is a table of risk categories that are considered to be significant for purposes of considering the transfer of risk. The categories of risk are as follows:

(1) Morbidity;
(2) Mortality;
(3) Lapse - The risk that a policy will voluntarily terminate before the recoupment of a statutory surplus strain experienced at issue of the policy;
(4) Credit quality (C1) - The risk that invested assets supporting the reinsured business will decrease in value. The main hazards are that assets will default or that there will be a decrease in earning power. It excludes market value declines due to changes in interest rate;
(5) Reinvestment (C3) - The risk that interest rates will fall and funds reinvested, coupon payments or monies received upon asset maturity or call, will therefore earn less than expected. If asset durations are less than liability durations, the mismatch will increase;
(6) Disintermediation (C3) - The risk that interest rates rise and policy loans and surrenders increase or maturing contracts do not renew at anticipated rates of renewal. If asset durations are greater than the liability durations, the mismatch will increase. Policyholders will move their funds into new products offering higher rates. The company may have to sell assets at a loss to provide for these withdrawals.
TABLE OF RISK CATEGORIES
+ = Significant 0 = Insignificant
1
2
3
4
5
6
Health insurance - other than LTC/LTD*
+
0
+
0
0
0
Health insurance - LTC/LTD*
+
0
+
+
+
0
Immediate annuities
0
+
0
+
+
0
Single premium deferred annuities
0
0
+
+
+
+
Flexible premium deferred annuities
0
0
+
+
+
+
Guaranteed interest contracts
0
0
0
+
+
+
Other annuity deposit business
0
0
+
+
+
+
Single premium whole life
0
+
+
+
+
+
Traditional nonpar permanent
0
+
+
+
+
+
Traditional nonpar term
0
+
+
0
0
0
Traditional par permanent
0
+
+
+
+
+
Traditional par term
0
+
+
0
0
0
Adjustable premium permanent
0
+
+
+
+
+
Indeterminate premium permanent
0
+
+
+
+
+
Universal life flexible premium
0
+
+
+
+
+
Universal life fixed premium
0
+
+
+
+
+
Universal life fixed premium - dump
0
+
+
+
+
+
in premiums allowed
*LTC = long term care insurance
*LTD = long term disability insurance

Source: 22 SDR 52, effective October 25, 1995.

General Authority: SDCL 58-14-17.

Law Implemented: SDCL 58-14-17.