Current through Register Vol. 43, No. 02, November 27, 2024
(1) General.
(a) Claim reserves are required for all
incurred but unpaid claims on all health insurance policies. For contracts with
an elimination period, the duration of disablement shall be measured as dating
from the time that benefits would have begun to accrue had there been no
elimination period.
(b) Appropriate
claim expense reserves are required with respect to the estimated expense of
settlement of all incurred but unpaid claims.
(c) All such reserves for prior valuation
years are to be tested for adequacy and reasonableness along the lines of claim
runoff schedules in accordance with the statutory financial statement including
consideration of any residual unpaid liability.
(d) For claim reserves on policies that
require contract reserves, the claim incurral date is to be considered the
"issue date" for determining the table and interest rate to be used for claim
reserves.
(e) The maximum interest
rate for claim reserves is specified in Appendix A.
(f) With respect to claim reserves for
policies issued before the operative date of the Valuation Manual, the
requirements for claim reserves on claims incurred after that date shall be as
described in the Valuation Manual based on the incurred date of the
claim.
(2) Minimum
Morbidity Standards for Individual Disability Income Claim Reserves.
(a) For claims incurred prior to January 1,
2005, each insurer may elect either of the following to use as the minimum
morbidity standard for claim reserves:
1. The
minimum morbidity standard in effect for claim reserves as of the date the
claim was incurred.
2. The
standards as defined in subparagraph (b) or (c) applied to all open claims.
Once an insurer elects to calculate reserves for all open claims on the
standard defined in either subparagraph (b) or (c), all future valuations must
be on that basis.
(b)
For claims incurred on or after January 1, 2005, and prior to the effective
date for the company as determined in subparagraph (e), the minimum standards
with respect to morbidity are those specified in Appendix A, except that, at
the option of the insurer
, assumptions regarding claim termination
rates for the period less than two (2) years from the date of disablement may
be based on the insurer's experience, if such experience is considered
credible, or upon other assumptions designed to place a sound value on the
liabilities.
(c) For claims
incurred on or after January l, 2020, the minimum standards are those specified
in Appendix A, including (as derived in accordance with Actuarial Guideline L):
1. The use of the insurer's own
experience.
2. An adjustment to
include an own experience measurement margin.
3. The application of a credibility
factor.
(d) In
determining the minimum reserves in accordance with subparagraph (c), the
provisions of subparagraphs 1., 2., and 3. are not required if either:
1. The insurer meets the Own Experience
Measurement Exemption provided in Actuarial Guideline L.
2. For worksite disability policies with
benefit periods of up to two years, at the option of the insurer, disabled life
reserves may be based on the insurer's experience, if such experience is
considered credible, or upon other assumptions and methods designed to place a
sound value on the liabilities.
(e) An insurer may begin to use the minimum
reserve standards in subparagraph (c) at a date earlier than January 1, 2020,
but not prior to January 1, 2017.
(f) An insurer may, within three years of
January 1, 2020 (or such earlier date it elects under subparagraph (e)), apply
the new standards in subparagraph (c) to all open claims incurred prior to the
effective date for subparagraph (c) for the insurer. Once an insurer elects to
calculate reserves for all open claims based on subparagraph (c), all future
valuations must be on that basis.
(3) Minimum Morbidity Standards for Group
Disability Income Claim Reserves.
(a) For
claims incurred prior to January 1, 2005, each insurer may elect any of the
following to use as the minimum morbidity standard for claim reserves:
1. The minimum morbidity standard in effect
for claim reserves as of the date the claim was incurred.
2. After the effective date selected by the
company in Section 2C (2), the standards as defined in subparagraph (b),
applied to all open group long term disability income claims.
3. The standards as defined in subparagraph
(c), applied to all open group disability income claims.
(b) For group long-term disability income
claims incurred on or after January 1, 2005, but before the effective date
selected by the company in subparagraph (c), and group disability income claims
incurred on or after January 1, 2005, that are not group long-term disability
income, the minimum standards with respect to morbidity are those specified in
Appendix A except that, at the option of the insurer:
1. Assumptions regarding claim termination
rates for the period less than two (2) years from the date of disablement may
be based on the insurer's experience, if the experience is considered credible,
or upon other assumptions designed to place a sound value on the
liabilities.
2. Assumptions
regarding claim termination rates for the period two (2) or more years but less
than five (5) years from the date of disablement may, with the approval of the
commissioner, be based on the insurer's experience for which the insurer
maintains underwriting and claim administration control. The request for such
approval of a plan of modification to the reserve basis must include:
(i) An analysis of the credibility of the
experience.
(ii) A description of
how all of the insurer's experience is proposed to be used in setting
reserves.
(iii) A description and
quantification of the margins to be included.
(iv) A summary of the financial impact that
the proposed plan of modification would have had on the insurer's last filed
annual statement.
(v) A copy of the
approval of the proposed plan of modification by the commissioner of the state
of domicile.
(vi) Any other
information deemed necessary by the commissioner.
3.
(i) Each
insurer may elect either of the following to use as the minimum morbidity
standard for long-term disability income claim reserves:
(I) The minimum morbidity standard in effect
for claim reserves as of the date the claim was incurred.
(II) The standards as defined in subparagraph
4., applied to all open claims.
(ii) Once an insurer elects to calculate
reserves for all open claims on a more recent standard, then all future
valuations must be on that basis.
(c) For group long-term disability income
claims incurred on or after January 1, 2017, the minimum standards with respect
to morbidity shall be based on the 2012 GLTD termination table or subsequent
table with considerations of:
1. The insurer's
own experience computed in accordance with Actuarial Guideline XLVII, as
included in the most current version of the NAIC
Accounting Practices
and Procedures Manual.
2.
An adjustment to include an own experience measurement margin derived in
accordance with Actuarial Guideline XLVII, as included in the most current
version of the NAIC
Accounting Practices and Procedures
Manual.
3. A credibility
factor derived in accordance with Actuarial Guideline XLVII, as included in the
most current version of the NAIC
Accounting Practices and Procedures
Manual.
(d) An
insurer may begin to use the minimum reserve standards in subparagraph (c) at a
date earlier than January 1, 2017, but not prior to October 1, 2014. An insurer
may apply the standards in subparagraph (c) to all open claims incurred prior
to the effective date for subparagraph (c) for the insurer. Once an insurer
elects to calculate reserves for all open claims based on subparagraph (c), all
future valuations must be on that basis.
(4) Minimum Morbidity Standard for Other
Health Insurance Claim Reserves. The reserve should be based on the insurer's
experience, if the experience is considered credible, or upon other assumptions
designed to place a sound value on the liabilities.
(5) Claim Reserve Methods Generally. A
generally accepted actuarial reserving method or other reasonable method, if,
after a public hearing, the method is approved by the commissioner prior to the
statement date, or a combination of methods may be used to estimate all claim
liabilities. The methods used for estimating liabilities generally may be
aggregate methods, or various reserve items may be separately valued.
Approximations based on groupings and averages may also be employed. Adequacy
of the claim reserves, however, shall be determined in the aggregate.