New Jersey Administrative Code
Title 11 - INSURANCE
Chapter 4 - ACTUARIAL SERVICES
Subchapter 6 - MINIMUM RESERVE STANDARDS FOR INDIVIDUAL AND GROUP HEALTH INSURANCE CONTRACTS
Section 11:4-6.10 - Contract reserves-minimum standards for contract reserves
Universal Citation: NJ Admin Code 11:4-6.10
Current through Register Vol. 56, No. 6, March 18, 2024
(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.
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