New Mexico Administrative Code › Title 13 - INSURANCE › Chapter 9 - LIFE INSURANCE AND ANNUITIES › Part 21 - TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING › Section 13.9.21.9 - THE ACTUARIAL METHOD

Current through Register Vol. 35, No. 13, July 16, 2024
The actuarial method to establish the required level of
				  primary security for each reinsurance treaty subject to this regulation shall
				  be VM-20, applied on a treaty-by-treaty basis, including all relevant
				  definitions, from the Valuation Manual as then in effect, applied as
				  follows:
A. For covered policies
				described in Paragraph (1) of Subsection B of
				13.9.21.7 NMAC, the actuarial
				method is the greater of the deterministic reserve or the net premium reserve
				(NPR) regardless of whether the criteria for exemption testing can be met.
				However, if the covered policies do not meet the requirements of the stochastic
				reserve exclusion test in the Valuation Manual, then the actuarial method is
				the greatest of the deterministic reserve, the stochastic reserve, or the NPR.
				In addition, if such covered policies are reinsured in a reinsurance treaty
				that also contains covered policies described in Paragraph (2) of Subsection B
				of 13.9.21.7 NMAC, the ceding insurer
				may elect to instead use Subsection B of
				13.9.21.9 NMAC as the actuarial
				method for the entire reinsurance agreement. Whether this subsection or
				Subsection B of
				13.9.21.9 NMAC are used, the
				actuarial method must comply with any requirements or restrictions that the
				Valuation Manual imposes when aggregating these policy types for purposes of
				principle-based reserve calculations.
B. For covered policies described in
				Paragraph (2) of Subsection B of
				13.9.21.7 NMAC, the actuarial
				method is the greatest of the deterministic reserve, the stochastic reserve, or
				the NPR regardless of whether the criteria for exemption testing can be
				met.
C. Except as provided in
				Subsection D of
				13.9.21.9 NMAC, the actuarial
				method is to be applied on a gross basis to all risks with respect to the
				covered policies as originally issued or assumed by the ceding
				insurer.
D. If the reinsurance
				treaty cedes less than one hundred percent of the risk with respect to the
				covered policies then the required level of primary security may be reduced as
				follows:
(1) If a reinsurance treaty cedes
				only a quota share of some or all of the risks pertaining to the covered
				policies, the required level of primary security, as well as any adjustment
				under Paragraph (3) of Subsection D of
				13.9.21.9 NMAC, may be reduced to
				a pro rata portion in accordance with the percentage of the risk
				ceded;
(2) If the reinsurance
				treaty in a non-exempt arrangement cedes only the risks pertaining to a
				secondary guarantee, the required level of primary security may be reduced by
				an amount determined by applying the actuarial method on a gross basis to all
				risks, other than risks related to the secondary guarantee, pertaining to the
				covered policies, except that for covered policies for which the ceding insurer
				did not elect to apply the provisions of VM-20 to establish statutory reserves,
				the required level of primary security may be reduced by the statutory reserve
				retained by the ceding insurer on those covered policies, where the retained
				reserve of those covered policies should be reflective of any reduction
				pursuant to the cession of mortality risk on a yearly renewable term basis in
				an exempt arrangement;
(3) If a
				portion of the covered policy risk is ceded to another reinsurer on a yearly
				renewable term basis in an exempt arrangement, the required level of primary
				security may be reduced by the amount resulting by applying the actuarial
				method including the reinsurance section of VM-20 to the portion of the covered
				policy risks ceded in the exempt arrangement, except that for covered policies
				issued prior to Jan 1, 2017, this adjustment is not to exceed where cx is
				calculated using the same mortality table used in calculating the net premium
				reserve; and
(4) For any other
				treaty ceding a portion of risk to a different reinsurer, including but not
				limited to stop loss, excess of loss and other non-proportional reinsurance
				treaties, there will be no reduction in the required level of primary security.
				It is possible for any combination of Paragraphs (1) through (4) of Subsection
				D of 13.9.21.9 NMAC to apply. Such
				adjustments to the required level of primary security will be done in the
				sequence that accurately reflects the portion of the risk ceded via the treaty.
				The ceding insurer should document the rationale and steps taken to accomplish
				the adjustments to the required level of primary security due to the cession of
				less than one hundred percent of the risk. The adjustments for other
				reinsurance will be made only with respect to reinsurance treaties entered into
				directly by the ceding insurer. The ceding insurer will make no adjustment as a
				result of a retrocession treaty entered into by the assuming
				insurers.