N.J. Admin. Code § 11:4-6.10

Current through Register Vol. 56, No. 21, November 4, 2024

Section 11:4-6.10 - Contract reserves-minimum standards for contract reserves

(a) The following applies to the basis for contract reserves:

1. Minimum standards with respect to morbidity or other contingency are those set forth in 11:4-6.1 4 and 6.15. Valuation net premiums used under each contract shall 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.

i. Contracts for which tabular morbidity standards are not specified in 11:4-6.1 4 or 6.15 shall be valued using tables established for reserve purposes by a qualified actuary and acceptable to the Commissioner. 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.

2. The maximum interest rate is specified in 11:4-6.1 6.

3. Termination rates used in the computation of reserves shall be on the basis of a mortality table as specified in 11:4-6.1 7 except as noted in the following paragraph.

i. 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:

(1) Eighty percent of the total termination rate used in the calculation of the gross premiums; or

(2) Eight percent;

ii. For long-term care individual policies or group certificates issued after January 1, 2001 the contract reserve may be established on a basis of separate:

(1) Mortality (as specified in 11:4-6.1 7); and

(2) Terminations other than mortality, where the terminations are not to exceed:

(A) For policy years one through four, the lesser of 80 percent of the voluntary lapse rate used in the calculation of gross premiums and eight percent;

(B) For policy years five and later, the lesser of 100 percent of the voluntary lapse rate used in the calculation of gross premiums and four percent.

iii. Where a morbidity standard specified in 11:4-6.1 4 or 6.15 is on an aggregate basis, such morbidity standard may be adjusted to reflect the effect of insurer underwriting by policy duration. The adjustments shall be appropriate to the underwriting and be acceptable to the Commissioner.

(b) The following reserve methods apply to contract reserves:

1. For insurance other than 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 the reserve calculated as follows:

i. For individual policies and group certificates issued on or before December 31, 2000, reserves calculated on the two-year full preliminary term method;

ii. For individual policies and group certificates issued on or after January 1, 2001, reserves calculated on the one-year full preliminary term method.

3. For return of premium or other deferred cash benefits for individual policies and group certificates issued on or after January 1, 2001, the minimum reserve is the reserve calculated as follows:

i. On the one-year preliminary term method if the benefits are provided at any time before the 20th anniversary; or

ii. On the two-year preliminary term method if the benefits are only provided on or after the 20th anniversary.

4. 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 (for example, projected inflation rates) or for other reasons, are to be applied immediately as of the effective date of adoption of the adjusted basis.

(c) 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.

(d) The contract reserve on a policy basis for long-term care insurance 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.

N.J. Admin. Code § 11:4-6.10

R.1984 d.512, eff. 11/5/1984.
See: 16 New Jersey Register 2225(a), 16 New Jersey Register 3039(a).
Recodified from 6.4.