California Code of Regulations
Title 10 - Investment
Chapter 5 - Insurance Commissioner
Subchapter 3 - Insurers
Article 3.5 - Minimum Reserve Standards for Valuation of Disability Insurance Contracts
Section 2310 - General Rule

(a) Applicability

These standards apply to all individual and group disability insurance except credit insurance and disability waiver of premium, disability income, and accidental death benefit riders that are supplementary to ordinary life insurance policies or contracts.

(b) Reserve Adequacy

With respect to any block of contracts, or with respect to an insurer's disability business as a whole, a prospective gross premium valuation is a valuable test of reserve adequacy as of a given valuation date. Such a gross premiums valuation will take into account, for contracts in force, in a claims status, or in a continuation of benefits status on the valuation date, the present value as of the valuation date of: all expected benefits unpaid, all expected expenses unpaid, and all unearned or expected premiums, adjusted for future premium increases reasonably expected to be put into effect.

Such a gross premium valuation shall be performed whenever a significant doubt exists as to reserve adequacy with respect to any major block of contracts, or with respect to the insurer's disability business as a whole. In the event inadequacy is found to exist, immediate recognition shall be made and the reserves restored to adequacy. Adequate reserves (inclusive of claim, premium and contract reserves, if any) shall be held with respect to all contracts, regardless of whether contract reserves are required for such contracts under these standards.

Whenever minimum reserves, as defined in this article, exceed reserve requirements as determined by a prospective gross premium valuation, such minimum reserves remain the minimum requirement under this article.

When an insurer determines that adequacy of its disability insurance reserves requires reserves in excess of the minimum standards specified herein, such increased reserves shall be held and shall be considered the minimum reserves for that insurer.

Adequacy of an insurer's disability insurance reserves shall be determined on the basis of the following three categories: claim reserves, premium reserves and contract reserves. Adequate reserves for each of the three categories shall be separately determined.