The NAIC Long-Term Care Actuarial (B) Working Group met on May 27, 2026 to review SOA and American Academy of Actuaries proposals that would replace the 32-year-old 1994 Group Annuity Mortality Table in VM-25 with the 2012 Individual Annuity Mortality Table, and reset an embedded lapse floor of 4 percent toward the roughly 1 percent carriers actually experience.

Both changes raise the statutory minimum reserve on newly issued policies. Neither touches the legacy blocks where the industry's losses already sit.

Key Takeaways

What VM-25 Requires Today

The floor is not a best estimate. It is the backstop examiners check, and both of its LTC inputs were set for a different product.

VM-25 fixes required reserve mortality for newly issued LTC business at the 1994 Group Annuity Mortality Table. For lapse it permits the lesser of 80 percent of the voluntary lapse rate used in gross premium calculations or 4 percent in policy years two through four, dropping from year five to the lesser of 100 percent of the pricing lapse rate or 2 percent.

The 1994 GAM was built for group annuity valuation on experience collected in the early 1990s, before statin therapy was widespread, before evidence-based stroke and cardiac care became standard, and before much of the chronic-disease management that extended survival in the populations most likely to file LTC claims. The annuity population and the LTC claimant population have different mortality dynamics to begin with, and nothing in VM-25 obliged the table to keep pace as the industry learned about the second one.

The proposed replacement, the 2012 IAM, carries eighteen additional years of observed longevity improvement with generational scales extending projections further. The SOA and AAA work group set it as the base and built LTC-specific margins on top, varying by issue age, gender, and individual versus group form, rather than importing the annuity population's dynamics wholesale.

Lower death rates cut against the reserve twice. For active lives, longer projected survival extends the window of exposure to claim incidence. For disabled lives already collecting, lower assumed mortality lengthens expected claim duration and raises the present value of benefits. Improvement between 1994 and 2012 was material precisely at ages 65 through 85, where cardiovascular survival, smoking rates, and chronic-condition management all moved together.

The Lapse Assumption Is the Larger Lever

Mortality matters. Lapse is where the floor and the experience diverge most, and where the reserve consequence compounds.

A carrier can currently reserve on lapse as high as 4 percent in years two through four, subject to the pricing cap. That reserve expects a meaningful share of the cohort to walk away, shrinking the projected in-force and the money required to cover future claims. Observed voluntary lapse runs near 1 percent a year. Across the SOA/LIMRA experience study of 22 companies covering 2000 through 2011, contributing carriers reported lapse 30 to 40 percent below the permitted floors, and the gap held across economic cycles, interest rate regimes, and policy cohorts spanning decades.

The behavior is not puzzling. A policyholder who bought at 58 and has held the contract fifteen years owns an embedded option worth several hundred thousand dollars, with trigger and elimination-period definitions locked in at a premium that would be far higher if repriced today. Surrender gets rarer as the insured approaches the utilization window, and rarer still once a policyholder has seen a rate increase request and kept the coverage anyway.

Selection compounds it. Lapsers are healthier than persisters, so lower lapse does not add average lives to the reserve base. It preferentially retains the higher-cost lives most aware of their own risk. A floor assuming 4 percent early-year lapse understates the eventual claimant count, not just the headcount.

The arithmetic is the part that reaches capital. A 3-percentage-point annual lapse overshoot compounds over 20 years into an in-force population roughly 45 percent smaller than the pricing actuary actually keeps, and every extra policyholder who survives to claim inception is a liability the old minimum never funded.

Where the updated floor lands above a carrier's own pricing, the minimum becomes binding and adds capital from policy inception, decades before earned premium and investment income offset the drain. It also moves price. LTC premiums must be certified adequate to hold rates without future increases under moderately adverse experience, so a higher floor lifts the premium required to clear that bar, and products certified on 1994 GAM may need repricing on the 2012 IAM basis. Extended and unlimited benefit period designs feel it most, because the longer the claim tail, the more the present value depends on survival and persistency at distant durations.

The Correction Reaches a Market That Has Moved

The update is aimed at standalone LTC, and standalone LTC is no longer where the new business is.

Combination life-LTC products, where a life policy delivers accelerated or extended benefits for qualifying care, are now the dominant channel for new private LTC sales, and they reserve under life frameworks, typically VM-20, with the LTC benefit riding inside the life chassis. Annuity-LTC combinations follow annuity standards. VM-25 is a health insurance reserves standard and does not govern either base policy. The one live edge case, an LTC rider separately classified as accident and health for state filing purposes, is not resolved in the working group documentation, which centers on standalone and group contracts.

What VM-25 does reach has narrowed considerably. About 5.8 million Americans held individual standalone coverage as of 2024, a count falling for a decade, against roughly $16 billion of incurred claims. The standalone market runs on about 13 active carriers, roughly two-thirds of premium, now joined in a new LIMRA, SOA Research Institute, and NAIC experience study covering 2000 through 2023.

The re-entrants are already past the problem. CareScout, the Genworth subsidiary that launched Care Assurance in roughly 40 states by early 2026, prices on lapse near 1 percent and morbidity grounded in post-2010 experience, so the distance between its pricing and the 1994 GAM floor is likely wide enough that the new tables would not bind it. The standard bites hardest on a carrier pricing close to the minimum or managing capital against the statutory floor rather than its own best estimate.

And it can move underneath a product in development. The May session was a discussion meeting, not an adoption vote, on a study transmitted in November 2021 with comment letters due July 2022. LTC product timelines from concept through state filing, actuarial opinion, and approval run 18 to 36 months. A carrier starting today on current VM-25 assumptions and finishing after adoption holds more capital than its entry models projected, on a floor that sat unchanged for 32 years and is now being reset twice in one cycle.

Further Reading

Sources