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Old 11-27-2018, 12:43 PM
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Question Multiple of CSO for Guaranteed COIs

Traditionally, guaranteed COIs have been set to 100% of the CSO table that is used for the non-forfeiture basis. Does anyone know if there are any restrictions which would prevent the use of or cause problems by setting guaranteed COIs at a multiple above the CSO? If it is allowed, is there any cap? 100% of the table would still be used for non-forfeiture and 7702/7702A calculations.

The product would be filed via the Compact. In reading their rules, we have not seen anything that would prevent us. We have also seen some articles, such as 2017 CSO Implementation: Product Implications and Considerations" in the July 2016 issue of Product Matters that would seem to imply one could use a multiple greater than 100%. Alas, the traditional approach mentioned earlier, has us being cautious. Pointing me to any sort of documentation or article would be greatly appreciated.

Finally, what would the reserve implications be? Would this force us to hold reserves according to the multiple of the table, instead of using 100% of the table?
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Old 11-28-2018, 12:21 AM
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Some UL companies used various COI tables before 7702/7702A. That law made it too hard to prove that any policy with non-CSO COIs is life insurance. Prepare well for a difficult tax demonstration.
GMPs would be calculated using guaranteed COIs. UL reserves would depend upon the level of funding for each policy, but cashflow testing could give other results. That depends on how policyowners pay.
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Old 11-30-2018, 02:48 PM
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We would be using 100% of the 2017 CSO for our 7702/7702A calculations. The guaranteed COIs also don't come into play directly in those calculations either, so I don't see it being a tax issue there. There could be other implications with tax reserves, but that is a later issue.

We would use the guaranteed COIs in calculating the GMP and GMF. We have seen guaranteed COIs greater that the 2001 CSO on UL riders on the base insured, and only PA and NJ prevented that in filing the rider, just still not sure if allowable in the base COIs.
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Old 12-12-2018, 04:21 PM
StuK01 StuK01 is offline
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Exclamation Use of Multiple of CSO Table

I wouldn't go there. I reviewed many SERFF filings and found only one company that tried to do this for 2017 CSO (and they are missing two big state approvals, as I understand it). I'm aware that NYS would not allow it, and there is at least one other state that would have an issue with this - can't recall which state, I think it was Texas. One other thing. Florida has the smoothness test requirement, and you'll probably have difficulty complying, even though it is an awkward and nonsensical test. Also, California has a test that compares the Guaranteed Cash Surrender Value with the SNFL Minimum Cash Value test. Good luck with that test when the guaranteed rates differ from that used with SNFL. It makes no sense to me to limit t0 100% of (2017) CSO, but that's besides the point. I would suggest use of face amount loads, etc. In other words, move some of the expenses and mortality costs to a face amount load or other policy load. It's not great, but that's what the 2017 CSO seems to require. Good luck.
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Old 01-03-2019, 09:09 AM
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"awkward and nonsensical test"

And that is putting it kindly. It is the most ridiculous busy-work I have ever done in my 20+ year career. It's just an exercise in algebraic manipulation for a UL product.

I don't remember the exact context, but we called FL and asked them if we could leave out the test, explaining that it didn't make any difference to the product. She didn't respond to our arguments at all, just said, you need to show that you comply with that regulation. What a bubble these regulators live in sometimes.
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