2017 New Mexico Statutes
Chapter 59A - Insurance Code
Article 8A - Standard Valuation
Section 59A-8A-9 - Requirements of a principle-based valuation. (Contingent effective date. See note.)

59A-8A-9. Requirements of a principle-based valuation. (Contingent effective date. See note.)

A. For policies and contracts that the valuation manual indicates are subject to this section, a company shall establish reserves using a principle-based valuation that:

(1) quantifies the benefits and guarantees and the funding associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events with a reasonable probability of occurring during the lifetime of the contracts and, for a policy or contract with significant tail risk, reflects conditions appropriately adverse to quantify the tail risk;

(2) incorporates assumptions, risk analysis methods, financial models and management techniques that are consistent with, but not necessarily identical to, those used in the company's overall risk assessment process and that recognize potential differences in financial reporting structures and prescribed assumptions or methods;

(3) incorporates assumptions that:

(a) derive from the valuation manual; or

(b) do not derive from the valuation manual, but: 1) are established using the company's available experience and are relevant and statistically credible; or 2) if company data is not available, relevant or statistically credible, are established utilizing other relevant, statistically credible experience; and

(4) provides margins for uncertainty, including adverse deviation and estimation error, whose sizes vary in proportion to the margin and resulting reserve.

B. A company using a principle-based valuation for policies and contracts that the valuation manual indicates are subject to this section shall:

(1) establish procedures for corporate governance and oversight of the actuarial valuation function that are consistent with those provided for in the valuation manual;

(2) design its internal controls of principle-based valuation to ensure that all material risks inherent in the liabilities and associated assets subject to the valuation are included in the valuation and that valuations are made in accordance with the valuation manual;

(3) each year, provide to the superintendent and to the company's board of directors a certification of effectiveness of the internal controls of the company's principle-based valuation that are in place at the end of the preceding calendar year; and

(4) develop and, upon the request of the superintendent, file a principle-based valuation report that complies with the standards prescribed in the valuation manual.

C. A principle-based valuation may include a prescribed formulaic reserve component.

History: 1978 Comp., 59A-8A-9, enacted by Laws 2014, ch. 59, 23.