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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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