Approval of all premium rate schedule increases shall be subject to the following requirements:

(a) (1) Premium rate schedule increases shall demonstrate that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:

(A) The accumulated value of the initial earned premium times the maximum of both of the following:

(i) 58 percent.

(ii) The lifetime expected loss ratio calculated using the initial pricing assumption, actual distribution of policies issued, and the discount rate provided by subdivision (c).

(B) Eighty-five percent of the accumulated value of prior premium rate schedule increases on an earned basis.

(C) The present value of future projected initial earned premiums times the maximum of both of the following:

(i) 58 percent.

(ii) The lifetime expected loss ratio calculated using the initial pricing assumption, actual distribution of policies issued, and the discount rate provided by subdivision (c).

(D) Eighty-five percent of the present value of future projected premiums not in subparagraph (C) on an earned basis.

(2) However, if the premiums in any rate revision filing calculated in this manner 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, the margin for moderately adverse experience shall be reflected and shall not be increased unless the manner in which risks are shared between the insurer and block of policies has been changed by this law or any future law or regulation. The determination of the lifetime expected loss ratio shall be based on the actual distribution of policies issued and not any assumed distribution prior to actual sales.

(b) In the event the commissioner determines that a premium rate increase is justified due to changes in laws or regulations that are retroactively applicable to long-term care insurance previously sold in this state, a premium rate schedule increase may be approved if the increase provides that 70 percent of the present value of projected additional premiums shall be returned to policyholders in benefits and the other requirements applicable to other premium rate schedule increases are met.

(c) 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 filing.

(d) No request for a rate increase on any policy form approved under Section 10236.11 shall be approved by the commissioner except as follows: the experience on all similar long-term care policy forms issued in this state by the insurer and its affiliates and retained by the affiliated group that have been approved either prior to approval under, or pursuant to, Section 10236.11 shall be pooled together and the combined experience shall be used as the basis for assumptions that satisfy the requirements in subdivision (a). 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. An insurer is not precluded from filing requests for premium rate schedule increases on all of its policy forms if the combined experiences after pooling all applicable policy forms satisfies the requirements of subdivision (a).

(e) Notwithstanding any other provision of this section, for applications for rate revisions filed on or after January 1, 2013, the commissioner may approve the application if an insurer demonstrates that the rates are necessary to protect the financial condition of the insurer, including avoidance of further reductions in capital and surplus.

(f) The provisions of this section are applicable to all individual and group policies issued in this state on or after July 1, 2002.

(Amended by Stats. 2016, Ch. 304, Sec. 16. (AB 2884) Effective January 1, 2017.)