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1993, and required that AIG and petitioner agree to several
provisions under the insurance policies relating to the
following: Claim Stabilization Reserve, Cost of Insurance Rates,
Expense Caps, Surrender Fee, Interest Rate on Unborrowed Funds,
and the Loan Interest Spread.
The PTO generally provided that AIG would establish on
behalf of petitioner a claims stabilization reserve (CSR) for the
policies. Petitioner could not withdraw or borrow against the
amounts credited to the CSR. The maximum level of the CSR at the
end of each year was generally determined to be the higher of the
annualized "cost of insurance"24 (COI) charges actually collected
in any one of 3 preceding policy years or the highest amount of
death benefits actually incurred in any one of 3 policy years.
COI charges were deducted from the premium that was paid and used
to fund the CSR. The CSR was generally held available by AIG to
pay death claims under the COLI policies.
24"Cost of Insurance" was defined in the policy document.
The COI was calculated on each monthly processing date.
Generally, the COI was calculated under the following formula:
COI = (Proceeds - Account Value) x (Value from Table of
1,000 Maximum Insurance Rates)
Proceeds were defined as the benefits due to petitioner as
the beneficiary. Account Value on the policy date was defined as
the initial net premium less an annual expense charge.
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