1. (1)(a) "Credit Quality (C1)" means the risk that invested assets supporting the reinsured business will decrease in value due to:

   1. (i) default; or

      1. (ii) a decrease in earning power.
   2. (b) Credit Quality (C1) does not include a change in interest rate.

2. (2) "Disintermediation (C3)" means the risk that interest rates rise and policy loans and surrenders increase, or that maturing contracts do not renew at anticipated rates of renewal where:

   1. (i) there will be an increasing mismatch due to asset durations being greater than liability durations;

      1. (ii) policyholders will move their funds into new products offering higher rates; and
      2. (iii) the company may have to sell assets at a loss to provide for these withdrawals.
3. (3) "Lapse" means the risk that a policy will voluntarily terminate before the recoupment of a statutory surplus strain experienced at issue of the policy.
4. (4) "Reinvestment (C3)" means 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 and there will be an increasing mismatch if asset durations are less than liability durations.

Terms used in this rule are defined in Section 31A-1-301. Additional terms are defined as follows:

KEY: insurance law

Date of Last Change: March 16, 2022

Notice of Continuation: December 13, 2021

Authorizing, and Implemented or Interpreted Law: 31A-2-201