Neonatology Associates, P.A., et al - Page 22




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            beginning with the month of conversion.14  C-group conversion UL                           
            policyholders may borrow against their policies up to the net                              
            loan value (i.e., cash value less any prior outstanding loans),                            
            and, after the fourth year, any loans are at the same interest                             
            rate as is credited to the conversion credit balance.                                      
                  Statutory reserves are maintained for the C-group term                               
            policies in an amount that equals the greater of:  (1) The                                 
            minimum statutory reserve for group term life insurance, which                             
            excludes consideration of the conversion benefits, or (2) the                              
            present value of expected future payments under the policies                               
            (including both death benefits and applied conversion credits)                             
            less the present value of expected future premiums.15  Present                             
            values are calculated using best-estimate assumptions as to                                
            interest, mortality, lapses, and expenses.  Inter-American and                             
            Commonwealth reinsured with a third party certain amounts of the                           
            risk associated with the C-group product.                                                  
                  The C-group term policy provides an annual experience refund                         
            to the policyholder.  Interest of 4.5 percent per annum is                                 

                  14 An insurance company usually imposes a surrender charge                           
            upon a policyholder who surrenders his or her policy before the                            
            insurance company recovers its costs as to that policy.  The C-                            
            group conversion UL policy was generally designed without                                  
            surrender charges by treating portions of the conversion credit                            
            balance as earned and unearned, depending on the number of months                          
            that the policy was held.  A policyholder forfeits the unearned                            
            portion upon surrender of the policy.                                                      
                  15 Statutory reserves were maintained separately for the C-                          
            group conversion UL policies.                                                              





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