1. 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.
2. 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.
3. C. Interest. The maximum interest rate is specified in 13.10.14.24 NMAC.
4. 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.

5. 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.

6. 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.

7. 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.

8. 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.
9. 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.
10. 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.

[13.10.14.17 NMAC - Rp 13 NMAC 10.14.17, 10-1-03]