(a) Calculation of minimum reserve.--The following shall apply:

(1) If in any contract year the gross premium charged by a company on a policy or contract is less than the valuation net premium for the policy or contract calculated by the method used in calculating the reserve but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for the policy or contract shall be the greater of:

(i) The reserve calculated according to the mortality table, rate of interest and method actually used for the policy or contract.

(ii) The reserve calculated by the method actually used for the policy or contract but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the actual gross premium in each contract year for which the valuation net premium exceeds the actual gross premium.

(2) The minimum valuation standards of mortality and rate of interest referred to in this subsection are those standards stated in sections 7115 (relating to computation of minimum standard) and 7117 (relating to computation of minimum standard by calendar year of issue).

(b) How to apply this section for certain policies.--The following shall apply:

(1) For a life insurance policy issued on or after January 1, 1985, for which the gross premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for the excess and which provides an endowment benefit or a cash surrender value or a combination in an amount greater than the excess premium, the provisions of this section shall be applied as if the method actually used in calculating the reserve for the policy were the method described in section 7118 (relating to reserve valuation method for life insurance and endowment benefits), ignoring section 7118(b).

(2) The minimum reserve at each policy anniversary of the policy under paragraph (1) shall be the greater of the minimum reserve calculated in accordance with section 7118, including section 7118(b), and the minimum reserve calculated in accordance with this section.

Cross References. Section 7122 is referred to in sections 7103, 7115, 7118, 7120, 7123 of this title.