N.M. Admin. Code § 13.9.21.9

Current through Register Vol. 35, No. 17, September 10, 2024

Section 13.9.21.9 - THE ACTUARIAL METHOD

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.

E. In no event will the required level of primary security resulting from application of the actuarial method exceed the amount of statutory reserves ceded.

F. If the ceding insurer cedes risks with respect to covered policies, including any riders, in more than one reinsurance treaty subject to this regulation, in no event will the aggregate required level of primary security for those reinsurance treaties be less than the required level of primary security calculated using the actuarial method as if all risks ceded in those treaties were ceded in a single treaty subject to this regulation;

G. If a reinsurance treaty subject to this regulation cedes risk on both covered and non-covered policies, credit for the ceded reserves shall be determined as follows:

(1) The actuarial method shall be used to determine the required level of primary security for the covered policies, and 13.9.21.11 NMAC shall be used to determine the reinsurance credit for the covered policy reserves; and

(2) credit for the non-covered policy reserves shall be granted only to the extent that security, in addition to the security held to satisfy the requirements of Paragraph (1) of Subsection G of 13.9.21.9 NMAC, is held by or on behalf of the ceding insurer in accordance with Sections 59A-12E-3 through 16, NMSA 1978 (2022). Any primary security used to meet the requirements of this subparagraph may not be used to satisfy the required level of primary security for the covered policies.

N.M. Admin. Code § 13.9.21.9

Adopted by New Mexico Register, Volume XXXIV, Issue 18, September 26, 2023, eff. 11/1/2023