§ 26.1-35-11 — Minimum standard for accident and health insurance contracts

For an accident and health insurance contract issued on or after the operative date of the
valuation manual, the standard prescribed in the valuation manual is the minimum standard of
valuation required under subsection 2 of section 26.1-35-01. For an accident and health
insurance contract issued after June 30, 1977, and before the operative date of the valuation
manual, the minimum standard of valuation is the standard adopted by the commissioner by
rule.
26.1-35-12. Requirements of a principle-based valuation.
1. An insurer shall establish reserves using a principle-based valuation that meets the
following conditions for policies or contracts as specified in the valuation manual:
a. Quantify 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 that have a reasonable probability of occurring during

the lifetime of the contracts. For polices or contracts with significant tail risk,
reflects conditions appropriately adverse to quantify the tail risk.
b. Incorporate assumptions, risk analysis methods, and financial models and
management techniques that are consistent with, but not necessarily identical to,
those utilized within the insurer's overall risk assessment process, while
recognizing potential differences in financial reporting structures and any
prescribed assumptions or methods.
c. Incorporate assumptions that are derived in one of the following manners:
(1) The assumption is prescribed in the valuation manual.
(2) For assumptions that are not prescribed, the assumptions must:
(a) Be established utilizing the insurer's available experience, to the
extent the experience is relevant and statistically credible; or
(b) To the extent that insurer data is not available, relevant, or statistically
credible, be established utilizing other relevant, statistically credible
experience.
d. Provide margins for uncertainty, including adverse deviation and estimation error,
such that the greater the uncertainty the larger the margin and resulting reserve.
2. An insurer using a principle-based valuation for one or more policies or contracts
subject to this section as specified in the valuation manual shall:
a. Establish procedures for corporate governance and oversight of the actuarial
valuation function consistent with those described in the valuation manual.
b. Provide to the commissioner and the board of directors an annual certification of
the effectiveness of the internal controls with respect to the principle-based
valuation. The controls must be designed to assure 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.
The certification must be based on the controls in place as of the end of the
preceding calendar year.
c. Develop, and file with the commissioner upon request, a principle-based
valuation report that complies with standards prescribed in the valuation manual.
3. A principle-based valuation may include a prescribed formulaic reserve component.