(1) Policies with a secondary guarantee include:
(a) a policy with a guarantee that the policy will remain in force at the original schedule of benefits, subject only to the payment of specified premiums;
(b) a policy in which the minimum premium at any duration is less than the corresponding 1-year valuation premium, calculated using the maximum valuation interest rate and the 1980 CSO valuation tables with or without 10-year select mortality factors; or
(c) a policy with any combination of (1)(a) and (b).
(2) A secondary guarantee period is the period for which the policy is guaranteed to remain in force subject only to a secondary guarantee. When a policy contains more than one secondary guarantee, the minimum reserve shall be the greatest of the respective minimum reserves at that valuation date of each unexpired secondary guarantee, ignoring all other secondary guarantees. Secondary guarantees that are unilaterally changed by the insurer after issue shall be considered to have been made at issue. Reserves described in (7) and (8) below shall be recalculated from issue to reflect these changes.
(3) Specified premiums mean the premiums specified in the policy, the payment of which guarantees that the policy will remain in force at the original schedule of benefits, but which otherwise would be insufficient to keep the policy in force in the absence of the guarantee if maximum mortality and expense charges and minimum interest credits were made and any applicable surrender charges were assessed.
(4) For purposes of this rule, the minimum premium for any policy year is the premium that, when paid into a policy with a 0 account value at the beginning of the policy year, produces a 0 account value at the end of the policy year. The minimum premium calculation shall use the policy cost factors (including mortality charges, loads and expense charges) and the interest crediting rate, which are all guaranteed at issue.
(5) The 1-year valuation premium means the net 1-year premium based upon the original schedule of benefits for a given policy year. The 1-year valuation premiums for all policy years are calculated at issue. The select mortality factors defined in ARM 6.6.6707(2)(b) and (c) may not be used to calculate the 1-year valuation premiums.
(6) The 1-year valuation premium should reflect the frequency of fund processing, as well as the distribution of deaths assumption employed in the calculation of the monthly mortality charges to the fund.
(7) Basic reserves for the secondary guarantees shall be the segmented reserves for the secondary guarantee period. In calculating the segments and the segmented reserves, the gross premiums shall be set equal to the specified premiums, if any, or otherwise to the minimum premiums, that keep the policy in force and the segments will be determined according to the contract segmentation method as defined in ARM 6.6.6705(2).
(8) Deficiency reserves, if any, for the secondary guarantees shall be calculated for the secondary guarantee period in the same manner as described in ARM 6.6.6709(2) with gross premiums set equal to the specified premiums, if any, or otherwise to the minimum premiums that keep the policy in force.
(9) The minimum reserves during the secondary guarantee period are the greater of:
(a) the basic reserves for the secondary guarantee plus the deficiency reserve, if any, for the secondary guarantees; or
(b) the minimum reserves required by other rules or regulations governing universal life plans.