Sec. 350.5. Adjustments to reserves

If the retrospective reserve liability calculated according to section 350.3(a)(1) of this Part is greater than the prospective reserve liability calculated according to section 350.3(a)(2) of this Part, then annually, upon a demonstration satisfactory to the superintendent, the retrospective reserve may be reduced in accordance with the priorities and conditions set forth in subdivisions (a), (b) and (c) of this section. The demonstration shall show that after such actions have been taken, the continuing care retirement community will continue to be in satisfactory actuarial balance, and the continuing care retirement community's projected invested assets will be at least equal to the requirements of section 350.6(a) of this Part for each of the next 10 projection years.

(a) If the earned surplus is negative, the retrospective reserve may be reduced by an amount not to exceed the lesser of:

(1) the excess of the retrospective reserve over the prospective reserve; and

(2) the absolute value of any negative earned surplus.

(b) If earned surplus is positive and class 4 assets are not fully amortized, the retrospective reserve may be reduced by an amount not to exceed the lesser of:

(1) the excess of the retrospective reserve over the sum of the prospective reserve plus five percent of the portion of the prospective reserve calculated pursuant to section 350.3(a)(2)(iv) of this Part; and

(2) the amount of any accelerated reduction in the value of class 4 capital assets pursuant to section 350.6(e)(1)(iv) of this Part.

(c) If earned surplus is positive and class 4 assets are fully amortized, the retrospective reserve may be reduced by an amount not to exceed one half of the excess of the retrospective reserve over the sum of the prospective reserve plus five percent of the portion of the prospective reserve calculated pursuant to section 350.3(a)(2)(iv) of this Part. There must be a reduction of scheduled fees, and/or additional services must be provided so that the sum of fee reductions plus the value of the additional services is at least as great as the reduction in the retrospective reserve under this paragraph.