N.M. Admin. Code § 13.10.14.17 - BASIS FOR MINIMUM STANDARDS FOR CONTRACT RESERVES
A.
Morbidity or other
Contingency. Minimum standards with respect to morbidity are those set
forth in 13.10.14.22 and
13.10.14.23 NMAC. Valuation net
premiums used under each contract must have a structure consistent with the
gross premium structure at issue of the contract as this relates to advancing
age of insured, contract duration and period for which gross premiums have been
calculated.
B.
Unspecified
standards. Contracts for which tabular morbidity standards are not
specified in
13.10.14.22 and
13.10.14.23 NMAC shall be valued
using tables established for reserve purposes by a qualified actuary and
acceptable to the superintendent. The morbidity tables shall contain a pattern
of incurred claims cost that reflects the underlying morbidity and shall not be
constructed for the primary purpose of minimizing reserves.
C.
Interest. The maximum
interest rate is specified in
13.10.14.24 NMAC.
D.
Termination Rates.
Termination rates used in the computation of reserves shall be on the basis of
a mortality table as specified in
13.10.14.25 NMAC except as noted
in Subsection E of
13.10.14.17 NMAC.
E.
Exceeding specified rates.
(1) Under contracts for which premium rates
are not guaranteed, and where the effects of insurer underwriting are
specifically used by policy duration in the valuation morbidity standard or for
return of premium or other deferred cash benefits, total termination rates may
be used at ages and durations where these exceed specified mortality table
rates, but not in excess of the lesser of:
(a)
eighty percent of the total termination rate used in the calculation of the
gross premiums, or
(b) eight
percent.
(2) For
long-term care individual policies or group certificates issued after January
1, 1997, the contract reserve may be established on a basis of separate:
(a) mortality, as specified in
13.10.14.25 NMAC; and
(b) terminations other than mortality, where
the terminations are not to exceed (i) for policy years one through four, the
lesser of eighty percent of the voluntary lapse rate used in the calculation of
gross premiums and eight percent or (ii) for policy years five and later, the
lesser of one hundred percent of the voluntary lapse rate used in the
calculation of gross premiums and four percent.
F.
Aggregate basis. Where a
morbidity standard specified in
13.10.14.22 and
13.10.14.23 NMAC is on an
aggregate basis, such morbidity standard may be adjusted to reflect the effect
of insurer underwriting by policy duration. The adjustments must be appropriate
to the underwriting and be acceptable to the superintendent.
G.
Reserve Method.
(1) For insurance except long-term care and
return of premium or other deferred cash benefits, the minimum reserve is the
reserve calculated on the two-year full preliminary term method; that is, under
which the terminal reserve is zero at the first and also the second contract
anniversary.
(2) For long-term care
insurance, the minimum reserve is calculated as follows:
(a) for individual policies and group
certificates issued on or before December 31, 1996, reserves calculated on the
two-year full preliminary term method;
(b) for individual policies and group
certificates issued on or after January 1, 1997, reserves calculated on the
one-year full preliminary term method.
(3) For return of premium or other deferred
cash benefits, the minimum reserve is the reserve calculated as follows:
(a) on the one year preliminary term method
if such benefits are provided at any time before the twentieth
anniversary;
(b) on the two year
preliminary term method if such benefits are only provided on or after the
twentieth anniversary.
H.
Preliminary term method. The
preliminary term method may be applied only in relation to the date of issue of
a contract. Reserve adjustments introduced later, as a result of rate
increases, revisions in assumptions (e.g., projected inflation rates) or for
other reasons, are to be applied immediately as of the effective date of
adoption of the adjusted basis.
I.
Negative Reserves. Negative reserves on any benefit may be offset
against positive reserves for other benefits in the same contract, but the
total contract reserve with respect to all benefits combined may not be less
than zero.
J.
Nonforfeiture
benefits for long-term care insurance. The contract reserve on a policy
basis shall not be less than the net single premium for the nonforfeiture
benefits at the appropriate policy duration, where the net single premium is
computed according to the above specifications.
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