Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) General
Rules
(1) Claim reserves are required for all
incurred but unpaid claims (these include all claims accrued and unaccrued, reported
and unreported) on all disability insurance policies as defined in §
2310(a).
(2) Appropriate claim expense reserves are
required with respect to the estimated expense of settlement of all incurred but
unpaid claims.
(3) 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 financial statement as
required by Insurance Code §§
900 and
923 including
consideration of any residual unpaid liability.
(b) Minimum Standards for Claim Reserves
(1) Disability Income
(A) Interest. The maximum interest rate for claim
reserves is specified in §
2315.
(B) Morbidity. Minimum standards with respect to
morbidity are those specified in §
2315; except that, at the option of the
insurer:
1. For individual disability income claims
incurred on or after January 1, 2005, 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 credible, or upon other assumptions
designed to place a sound value on the liabilities.
2. For group disability income claims incurred on
or after January 1, 2005:
(i) 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.
(ii) Assumptions
regarding claim termination rates for the period of 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 upon 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 qualification 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; and
VI. Any other information requested by the
Commissioner.
3. For
disability income claims incurred prior to January 1, 2005 each insurer may elect
which of the following to use as the minimum morbidity standard for claim reserves:
(i) The minimum morbidity standard in effect for
claim reserves as of the date the claim was incurred, or
(ii) The standards as defined in Items 1. and 2.,
applied to all open claims. Once an insurer elects to calculate reserves for all
open claims on the standard defined in Items 1. and 2., all future valuations must
be on that basis.
(C) Duration of Disablement. 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.
(2) All Other Benefits
(A) Interest. The maximum interest rate for claim
reserves is specified in §
2315.
(B) Morbidity or other Contingency. The reserve
shall 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)
Claim Reserve Methods Generally
Any generally accepted or reasonable actuarial method or
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.
1. New section
filed 11-4-94; operative 12-5-94 (Register 94, No. 44).
2. Amendment
filed 12-13-2005; operative 12-13-2005 pursuant to Government Code section
11343.4
(Register 2005, No. 50).
Note: Authority cited: Sections
997(a)
and
10489.95,
Insurance Code. Reference: Sections
985,
997 and
10489.15(a),
Insurance Code.
