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Chapter 284-84 WAC

Last Update: 12/20/85

FIXED PREMIUM UNIVERSAL LIFE INSURANCE

WAC Sections

HTMLPDF284-84-010Scope.
HTMLPDF284-84-020Definitions.
HTMLPDF284-84-030Commissioner's reserve valuation method.
HTMLPDF284-84-040Alternate minimum reserves.
HTMLPDF284-84-050Reserves, adjusting and testing.
HTMLPDF284-84-060Minimum cash surrender values for fixed premium universal life insurance policies.
HTMLPDF284-84-070Mandatory policy provisions.
HTMLPDF284-84-080Disclosure requirements.
HTMLPDF284-84-090Periodic disclosure to policyowner.
HTMLPDF284-84-100Unfair practices.
HTMLPDF284-84-110Filing requirements.


PDF284-84-010

Scope.

(1) This chapter applies to all insurers and to every individual fixed premium universal life insurance policy form, as defined in this regulation, whether solicited on an individual or mass-marketing basis, filed for approval after August 31, 1986.
(2) The approval of individual fixed premium universal life insurance policy forms approved, whether affirmatively approved or deemed approved, prior to September 1, 1986, and which are not in compliance with the provisions of this regulation on January 1, 1987, is hereby withdrawn as of January 1, 1987, and such forms shall not thereafter be delivered or issued for delivery in this state.
(3) This chapter defines unfair practices and disclosure requirements in connection with the separate accumulation of policy values granted in a rider and attached to, granted in a separate policy provision or incorporated in fixed premium universal life insurance policy forms. This chapter does not define minimum nonforfeiture provisions for the separate accumulation of funds or policy values attached to, separately granted or incorporated in fixed premium universal life insurance policy forms.
(4) This chapter does not apply to universal life insurance policies where the interest credits are linked to an external referent.
(5) This chapter does not apply to policy forms defined under chapter 48.18A RCW.
[Statutory Authority: RCW 48.02.060. WSR 86-02-011 (Order R 85-5), § 284-84-010, filed 12/20/85.]



PDF284-84-020

Definitions.

As used in this regulation:
(1) "Universal life insurance policy" means any individual life insurance policy having provisions for separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds, or other supplementary accounts) and mortality and expense charges. A universal life insurance policy may provide for other credits and charges, such as charges for the cost of benefits provided by rider.
(2) "Flexible premium universal life insurance policy" means a universal life insurance policy which permits the policyowner to vary the amount or timing of one or more premium payments or the amount of insurance, independently of each other.
(3) "Fixed premium universal life insurance policy" means a universal life insurance policy other than a flexible premium universal life insurance policy. These policies typically schedule a guaranteed maximum premium at the beginning of each policy year for the premium paying period.
(4) "Cash surrender value" means the amount available in cash to the policyowner upon surrender of the policy, in the absence of any indebtedness.
(5) "Net cash surrender value" means the cash surrender value less any indebtedness under the policy.
(6) "Policy value" means the amount, developed within the main structure of the policy or provided in a separate policy provision, to which separately identified interest credits and mortality, morbidity, expense or other charges are made under a fixed premium universal life insurance policy. The policy owner may or may not have a right to the entire policy value because of built in surrender charges imposed by the insurer.
(7) "Substandard class of insureds" is one whose mortality rates are assumed to be higher than the mortality rates employed with standard issues according to the insurer's classification of risks.
(8) "Death benefit corridor" defines a minimum policy benefit payable in addition to its cash value in the event of the death of the insured.
[Statutory Authority: RCW 48.02.060. WSR 86-02-011 (Order R 85-5), § 284-84-020, filed 12/20/85.]



PDF284-84-030

Commissioner's reserve valuation method.

The minimum valuation standard for universal life insurance policies shall be the commissioners reserve valuation method, as hereinafter described for such policies, and the tables and interest rates hereinafter specified. The terminal reserve for the basic policy and any benefits and/or riders for which premiums are not paid separately as of any policy anniversary shall be equal to the net level premium reserves less (C) and less (D), where:
(1) Reserves by the net level premium method shall be equal to ((A)-(B))r where:
(a) (A) is the present value of all future guaranteed benefits at the date of valuation.
(b) (B) is the quantity PVFB•äx+tx, where PVFB is the present value of all benefits guaranteed at issue assuming future guaranteed maturity premiums are paid by the policyowner and taking into account all guarantees contained in the policy or declared by the insurer.
(c) äx and äx+t are present values of an annuity of one per year payable on policy anniversaries beginning at ages x and x+t, respectively, and continuing until the highest attained age at which a premium may be paid under the policy. (x) is defined as the issue age and (t) is defined as the duration of the policy.
(d) The guaranteed maturity premium for fixed premium universal life insurance policies shall be the premium defined in the policy which at issue provides the minimum policy guarantees.
(e) The guaranteed maturity premium for fixed premium policies shall be adjusted for death benefit corridors provided by the policy.
(f) r is equal to one.
(g) The guaranteed maturity fund at any duration is that amount which, together with future guaranteed maturity premiums, will mature the policy based on all policy guarantees at issue.
(2) (C) is the quantity ((a)-(b))•äx+t•r/äx, where (a)-(b) is as described in RCW 48.74.040(1) for the plan of insurance defined at issue by the guaranteed maturity premiums and all guarantees contained in the policy or declared by the insurer. The definition of äx+t and äx is set forth in subsection (1)(c) of this section.
(3) (D) is the sum of any additional quantities analogous to (C) which arise because of structural changes in the policy, with each such quantity being determined on a basis consistent with that of (C) using the maturity date in effect at the time of the change.
(a) Structural changes are those changes which are separate from the automatic workings of the policy. Such changes usually would be initiated by the policyowner and include changes in the guaranteed benefits, changes in latest maturity date, or changes in allowable premium payment period.
(b) In effecting structural changes, consistent methods are prescribed when calculating reserves. Several such methods are possible, but perhaps the simplest such method would be that of maintaining proportionality between the guaranteed maturity fund and guaranteed maturity premium values and the current face amount. In applying this method, guaranteed maturity fund and guaranteed maturity premium values could be calculated per dollar of face amount and simply multiplied by the new face amount. This would eliminate much of the complexity involved in other methods.
(c) The guaranteed maturity premium, the guaranteed maturity fund and (B) shall be recalculated to reflect any structural changes in the policy. This recalculation shall be done in a manner consistent with the foregoing descriptions.
(4) Future guaranteed benefits are determined by (a) projecting the greater of the guaranteed maturity fund and the policy value, taking into account future guaranteed maturity premiums, if any, and using all guarantees of interest, mortality, expense deductions, etc., contained in the policy or declared by the insurer; and (b) taking into account any benefits guaranteed in the policy or by declaration which do not depend on the policy value.
(5) All present values shall be determined using (a) an interest rate (or rates) specified by RCW 48.74.030 for policies issued in the same year; (b) the mortality rates specified by RCW 48.74.030 for policies issued in the same year or contained in such other table as may be approved by the commissioner for this purpose; and (c) any other tables needed to value supplementary benefits provided by a rider which is being valued together with the policy.
(6) To the extent that the insurer declares guarantees more favorable than those in the policy (contractual guarantees), such declared guarantees shall be applicable to the determination of future guaranteed benefits.
(7) The mortality and interest bases for calculating present values are those assumptions defined in the Standard Valuation Law for the calculation of minimum policy reserves.
(8) RCW 48.74.030 (1)(g) permits valuation calculations on the basis of substandard mortality. While such provisions have been used infrequently in the past, it is anticipated that substandard mortality will be more frequently utilized in universal life insurance, given its flexible nature, to reflect the mortality classification assigned to the policy by the insurer.
[Statutory Authority: RCW 48.02.060. WSR 86-02-011 (Order R 85-5), § 284-84-030, filed 12/20/85.]



PDF284-84-040

Alternate minimum reserves.

(1) If, in any policy year, the guaranteed maturity premium on any universal life insurance policy is less than the valuation net premium for such policy, calculated by the valuation method actually used in calculating the reserve thereon but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for such contract shall be the greater of (a) or (b) of this subsection:
(a) The reserve calculated according to the method, the mortality table, and the rate of interest actually used.
(b) The reserve calculated according to the method actually used but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the guaranteed maturity premium in each policy year for which the valuation net premium exceeds the guaranteed maturity premium.
(2) For universal life insurance reserves on a net level premium basis, the valuation net premium is PVFB/äx and for reserves on a commissioners reserve valuation method, the valuation net premium is PVFB/äx + ((a)-(b))/äx.
[Statutory Authority: RCW 48.02.060. WSR 86-02-011 (Order R 85-5), § 284-84-040, filed 12/20/85.]



PDF284-84-050

Reserves, adjusting and testing.

(1) Reserves, as calculated without regard to this section, may, under some circumstances, be less than the cash surrender value or the policy value. In such instances, the reserves shall be increased to be equal to the largest of the cash surrender value, the reserve for the policy value less the surrender charges or the policy reserve. The policy value, to the extent it is guaranteed in the present and future years, shall be prefunded in accordance with the principles of the commissioner's reserve valuation method. The policy reserve shall be calculated by the commissioner's reserve valuation method for the fixed premium fixed benefit plan with all present values based on the most conservative of the mortality and interest assumptions defined by the policy guarantees for the purpose of defining benefits, or for the purpose of valuation.
(2) For testing to see if the basic policy reserves calculation pursuant to WAC 284-84-030 is sufficient to cover a scale of cash surrender values, some of which exceed the CRVM basic policy reserves calculation in such section, or for testing a scale of gross premium rates, some or all of which may be less than the basic policy reserve valuation net premium, the mortality table and interest rates applicable at the actual date of issue for the calculation of minimum policy reserves may be used. Should such testing indicate the need for increased reserves, the reserves as calculated under the assumptions in WAC 284-84-040 would be carried.
(3) Reserves for policies where the policy value is developed within the structure of their main benefits shall employ the greater of the cash surrender value or the reserve for the policy value less the surrender charges in the testing pursuant to subsection (2) of this section. Alternatively, a separate reserve may be entered on page 3, line 11 of the statutory statement for the excess of the policy value over the guaranteed cash value.
(4) Reserves for policies where the policy value is provided in a separate policy provision shall employ the cash surrender value in the testing of such value pursuant to subsection (2) of this section and reserve for the policy value separately.
[Statutory Authority: RCW 48.02.060. WSR 86-02-011 (Order R 85-5), § 284-84-050, filed 12/20/85.]



PDF284-84-060

Minimum cash surrender values for fixed premium universal life insurance policies.

(1) The minimum cash surrender values shall be determined separately for the basic policy and any benefits and riders for which premiums are paid separately. The following requirements pertain to a basic policy and any benefits and riders for which premiums are not paid separately.
(a) The minimum cash surrender value (before adjustment for indebtedness and dividend credits) available on a date as of which interest is credited to the policy shall be equal to ((A)-(B)-(C)-(D)), where:
(i) (A) is the present value of all future guaranteed benefits.
(ii) (B) is the present value of future adjusted premiums. The adjusted premiums are calculated as described in RCW 48.76.050 (1) and (2), or in (4)(a), as applicable. If RCW 48.76.050 (4)(a) is applicable, the nonforfeiture net level premium is equal to the quantity PVFB/äx where PVFB is the present value of all benefits guaranteed at issue assuming future premiums are paid by the policyowner and all guarantees contained in the policy or declared by the insurer, and where äx is the present value of an annuity of one per year payable on policy anniversaries beginning at age x and continuing until the highest attained age at which a premium may be paid under the policy.
(iii) (C) is the present value of any quantities analogous to the nonforfeiture net level premium which arise because of guarantees declared by the insurer after the issue date of the policy. äx shall be replaced by an annuity beginning on the date as of which the declaration became effective and payable until the end of the period covered by the declaration.
(iv) (D) is the sum of any quantities analogous to (B) which arise because of structural changes in the policy.
(v) Structural changes are those changes which are separate from the automatic workings of the policy. Such changes usually would be initiated by the policyowner and include changes in the guaranteed benefits, changes in latest maturity date, or changes in allowable premium payment period.
(vi) In effecting structural changes, consistent methods are prescribed when calculating nonforfeiture values. Several such methods are possible, but perhaps the simplest such method would be that of maintaining proportionality between the guaranteed maturity fund and guaranteed maturity premium values and the current face amount. In applying this method, guaranteed maturity fund and guaranteed maturity premium values could be calculated per dollar of face amount and simply multiplied by the new face amount. This would eliminate much of the complexity involved in other methods.
(b) Future guaranteed benefits are determined by (i) projecting the policy value, taking into account future premiums, if any, and using all guarantees of interest, mortality, expense deduction, etc., contained in the policy or declared by the insurer; and (ii) taking into account any benefits guaranteed in the policy or by declaration which do not depend on the policy value.
(c) All present values shall be determined using (i) an interest rate (or rates) specified in chapter 48.76 RCW for policies issued in the same year and (ii) the mortality rates specified for policies issued in the same year or contained in such other table as may be approved by the commissioner for this purpose.
(2) Minimum paid-up nonforfeiture benefits. If a universal life insurance policy provides for the optional election of a paid-up nonforfeiture benefit, it shall be such that its present value shall be at least equal to the cash surrender value provided for by the policy on the effective date of the election. The present value shall be based on mortality and interest standards at least as favorable to the policyowner as the mortality and interest standards permitted for paid-up nonforfeiture benefits by chapter 48.76 RCW. In lieu of the paid-up nonforfeiture benefit, the insurer may provide actuarially equivalent alternatives, calculated on a guaranteed or more favorable basis defined in the policy, which provide a greater amount or longer period of death benefits, or, if applicable, a greater amount of earlier payment of endowment benefits. Such alternative paid-up nonforfeiture benefits must be available for election by the policyowner for at least sixty days after the due date of the premium in default.
(3) Nonforfeiture benefits for substandard issues. The cash and nonforfeiture values of a substandard issue shall be calculated according to the same principles and formulas as the standard issues affording equitable treatment of the several classes of insureds.
[Statutory Authority: RCW 48.02.060. WSR 86-02-011 (Order R 85-5), § 284-84-060, filed 12/20/85.]



PDF284-84-070

Mandatory policy provisions.

The policy shall, in addition to compliance with RCW 48.23.020, provide or comply with the following:
(1) The policy shall provide that the policyowner will be sent, without charge, at least annually, a report which will serve to keep such policyowner advised as to the status of the policy including the rights to the values and benefits. The report shall also specify the conditions, if any, that the policyowner must fulfill in order to obtain these ownerships. The end of the current report period must be no more than three months prior to the date of the mailing of the report. Specific requirements of this report are detailed in WAC 284-84-090.
(2) The policy shall provide for an illustrative report which shall be sent to the policyowner upon request. Minimum requirements of such report are set forth in WAC 284-84-080. The insurer may charge the policyowner a reasonable fee for providing the report. The amount of this fee shall be disclosed on the policy specifications page.
(3) Policy guarantees. The policy shall contain:
(a) A table of guaranteed cash surrender and nonforfeiture values and a description of the basis of their calculation.
(b) All values and data shown in the policy shall be based on the minimum guaranteed interest rate(s) and the maximum guaranteed mortality and expense charges.
(4) The policy shall contain a description of the calculation of cash surrender values deriving from the accumulation of a policy value including the following information:
(a) The guaranteed maximum expense charges and loads;
(b) The guaranteed minimum rate or rates of interest;
(c) The guaranteed maximum mortality charges;
(d) The guaranteed morbidity charges, if any;
(e) Any other guaranteed charges; and
(f) Any surrender or partial withdrawal charges.
(5) Expense charges and loads, interest credits, mortality and morbidity charges, other current charges, current surrender or partial withdrawal charges shall not remain conditional for a period longer than twelve months.
(6) If the policyowner has the right to change the basic coverage, any limitation on the amount or timing of such change shall be stated in the policy. If the policyowner has the right to increase the basic coverage, the policy shall state whether a new period of contestability and/or suicide is applicable to the additional coverage.
(7) If there is a misstatement of age or sex in the policy, the amount of the death benefit shall be that which would be purchased by the most recent mortality charge at the correct age or sex. The commissioner may approve other methods which are deemed satisfactory.
(8) The scheduled guaranteed premium shall be sufficient to fund the coverage to the termination date, if any, and to provide for the endowment, if any.
(9) If the "current" premiums are not guaranteed, they may be included in the policy if clearly labelled and identified.
(10) If the contract provides for current premiums, then it shall also disclose the duration of the insurance provided if the current premiums are paid at each policy anniversary. This disclosure shall be in close proximity to the amount of the current premium shown on the policy specifications page. The duration shall be calculated using the guaranteed policy assumptions.
(11) The policy specifications page shall contain a statement, in close proximity to the statement of the current interest to be credited the policy value, if any, that the current interest and savings in the mortality or expense charges may not be fully reflected in the policy benefits.
(12) Substandard issues. If a policy is issued to an insured in a substandard premium class, the policy must be identified as a substandard issue on the policy specifications page, along with the guaranteed and current extra premiums and an explanation of how the mortality charge applied to the policy value will be determined.
(13) The policy shall define the class of insureds in terms of each applicable pricing variable and its initial set of "current" premiums as of the date of issue.
(14) The policy shall include a provision whereby changes in the current premium and any charges or credits may only be made with respect to the entire class of insureds.
(15) The brief description on the face page shall contain the words "universal life insurance."
[Statutory Authority: RCW 48.02.060. WSR 86-02-011 (Order R 85-5), § 284-84-070, filed 12/20/85.]



PDF284-84-080

Disclosure requirements.

In connection with any advertising, solicitation, negotiation, or procurement of a fixed premium universal life insurance policy:
(1) Any statement of policy cost factors or benefits shall contain:
(a) The corresponding guaranteed policy cost factors or benefits, clearly identified;
(b) A statement explaining any nonguaranteed nature of the current premiums, interest rates, charges, or other fees applied to the policy, including the insurer's rights to alter any of these factors; and
(c) Any limitations on the crediting of interest, including identification of those portions of the policy value to which a specified interest rate shall be credited.
(2) Any illustration of the policy value shall be accompanied by the corresponding cash surrender value.
(3) Any statement regarding the crediting of a specific current interest rate shall also contain the frequency and timing by which such rate is determined.
(4) Any illustration of the policy benefits based upon nonguaranteed interest, mortality, morbidity, expense charges and loads, other current charges, current surrender or partial withdrawal charges shall be accompanied by a prominent statement indicating that these benefits are not guaranteed.
[Statutory Authority: RCW 48.02.060. WSR 86-02-011 (Order R 85-5), § 284-84-080, filed 12/20/85.]



PDF284-84-090

Periodic disclosure to policyowner.

The policy shall provide that the policyowner will be sent, without charge, at least annually, a report which will serve to keep such policyowner advised of the status of the policy, and any riders attached, including the rights to the values and benefits. The report shall also specify the conditions, if any, that the policyowner must fulfill in order to obtain these ownerships. The end of the current report period shall be no more than three months prior to the date of the mailing of the report.
Such report shall include the following:
(1) The beginning and ending dates of the current report period;
(2) The policy value at the end of the previous report period and at the end of the current report period;
(3) The rate of interest applied to the policy value and the total amounts which have been credited or debited to the policy value during the current report period, identifying each by type (for example, interest, mortality, expense and riders);
(4) The current death benefit at the end of the current report period on each life covered by the policy;
(5) The cash surrender value and the net cash surrender value of the policy as of the end of the current report period; and
(6) The amount of outstanding loans, if any, as of the end of the current report period; and
(7) If, assuming guaranteed interest, mortality and expense loads and continued scheduled premium payments, the policy's net cash surrender value is such that it would not maintain insurance in force until the end of the next reporting period, a notice to this effect shall be included in the report.
[Statutory Authority: RCW 48.02.060. WSR 86-02-011 (Order R 85-5), § 284-84-090, filed 12/20/85.]



PDF284-84-100

Unfair practices.

Pursuant to RCW 48.30.010, it shall be an unfair practice to:
(1) Contrive to set the premiums at the time of repricing so as to reduce, postpone or avoid cash values.
(2) Recoup past losses or distribute past gains when repricing the policies, when defining the current interest to be credited, or when determining mortality, morbidity or expenses to be charged.
(3) Increase the interest credited to present a more competitive rate while at the same time increasing the mortality, morbidity, expense or other charge or to adjust these and other rates in a similar manner, unless justified by actual company experience.
(4) Review less than all pricing assumptions at repricing or setting of the current credits and charges, thereby upsetting the consistent and equitable treatment of the policyholders.
(5) Add additional pricing variables to the definition of a class of insureds after issue, without the prior written approval of the commissioner.
(6) Separate one class of insureds into two or more classes after issue, without the prior written approval of the commissioner.
(7) Adjust premiums, interest credits, expenses and loads other than with respect to an entire class of insureds.
(8) Treat renewing policyholders in a manner inconsistent or inequitably with new policyholders.
(9) Have one class of insureds support, or be supported by, another class.
[Statutory Authority: RCW 48.02.060. WSR 86-02-011 (Order R 85-5), § 284-84-100, filed 12/20/85.]



PDF284-84-110

Filing requirements.

(1) The actuarial memorandum which accompanies the policy filing shall list, among other things, the basis or modification of each table of maximum mortality charge to be used by the company; for example, male, female, and nonsmoker, smoker, etc. It shall also include sufficient numerical data and other information employed by the company to identify the standard and substandard classes of insureds.
(2) For substandard issues, the commissioner must be supplied with a sample of the appropriate policy pages completed through each type of rating used by the company; for example, percentage of standard class premium, extra premium, temporary or permanent flat charge per thousand.
[Statutory Authority: RCW 48.02.060. WSR 86-02-011 (Order R 85-5), § 284-84-110, filed 12/20/85.]