(a) Benefits under individual long-term care insurance policies issued before new premium rate schedules are approved under Section 10236.11 shall be deemed reasonable in relation to premiums if the expected loss ratio is at least 60 percent, calculated in a manner that provides for adequate reserving of the long-term care insurance risk.

(b) (1) For individual long-term care insurance policies issued before new premium rate schedules are approved under Section 10236.11, and for which rate revisions are filed on or after January 1, 2010, benefits shall be deemed reasonable in relation to the premium if the premium rate schedules have a lifetime expected loss ratio of at least 60 percent of the premium scale in effect on December 31, 2009, plus 70 percent of premium increases filed on or after January 1, 2010, calculated in a manner that provides for adequate reserving of the long-term care insurance risk. The lifetime expected loss ratio shall be calculated using the discount rate defined in paragraph (9) of subdivision (c).

(2) However, if the premiums in any rate revision filing calculated in the manner provided in paragraph (1) produce a lifetime expected loss ratio that is less than the highest lifetime expected loss ratio for this policy form in the initial filing or that for requested premium rates in any filing made after January 1, 2013, the insurer shall reduce the premiums in the filing so that the current lifetime expected loss ratio is equal to or greater than the highest initially filed loss ratio or that for requested premium rates filed after January 1, 2013. In the determination of a lifetime expected loss ratio, a margin may reflect changes in the manner in which risks are shared between the insurer and a block of policies due to changes in this law effective January 1, 2013, and that margin shall not be increased unless the manner in which risks are shared between the insurer and the block of policies is changed further by law or regulation. The determination of the lifetime expected loss ratio shall be based on the actual distribution of policies in force at the time of the first filing after January 1, 2013, and not any prior assumed distribution.

(c) In evaluating the expected loss ratio, due consideration shall be given to all relevant factors, including the following:

(1) Statistical credibility of incurred claims experience and earned premiums.

(2) The period for which rates are computed to provide coverage.

(3) Experienced and projected trends.

(4) Concentration of experience within early policy duration.

(5) Expected claim fluctuation.

(6) Experience refunds, adjustments, or dividends.

(7) Renewability features.

(8) All appropriate expense factors.

(9) The discount rate used in the calculation of lifetime expected loss ratios. All present and accumulated values used to determine rate increases should use the maximum valuation interest rate for contract reserves. If one rate increase filing includes policy forms with different discount rates, separate projections for each discount rate should be prepared and then combined to create the total projection for the filings.

(10) Experimental nature of the coverage.

(11) Policy reserves.

(12) Mix of business by risk classification.

(13) Product features, such as long elimination periods, high deductibles, and high maximum limits.

(d) Asset investment yield rate changes may not be used to justify a rate increase unless the insurer can demonstrate that its return on investments is lower than the maximum valuation interest rate for contract reserves for those policies or the commissioner determines that a change in interest rates is justified due to changes in laws or regulations that are retroactively applicable to long-term care insurance previously sold in this state.

(e) The experience on all similar long-term care policy forms issued in this state by an insurer and its affiliates and retained within the affiliated group shall be pooled together and the combined experience shall be used as the basis for assumptions that satisfy the requirements in subdivisions (a) and (b). Those assumptions and requested rate increases may vary by policy form if actuarially appropriate. Similar long-term care policy forms shall be classified into one of the following benefit classifications: nursing facility and residential care facility only, home care only, or comprehensive long-term care benefits.

(f) Notwithstanding any other provision of this section, for rate revisions filed on or after January 1, 2010, the commissioner may approve an application for a rate revision based on less than a 70 percent loss ratio, but not less than a 60 percent loss ratio, for the portion attributable to the rate increase if an insurer can demonstrate that the rates are necessary to protect the financial condition of the insurer, including avoidance of further reductions in capital and surplus.

(g) This section applies only to long-term care insurance policies issued before the approval of rate schedules under Section 10236.11.

(Amended by Stats. 2016, Ch. 304, Sec. 14. (AB 2884) Effective January 1, 2017.)