Current through Register Vol. 48, No. 12, March 22, 2024
a) General Provisions
Active life reserves are required for all in force policies and
are in addition to any reserves required in connection with claims. For policy
types in subsections (b)(1)-(3) of this Section, the minimum reserve shall be
determined as specified in this Part. It should be emphasized, however, that
these are minimum standards and higher, adequate reserves shall be established
by the company in any case in which experience indicates that these minimum
standards do not place a sound value on the liabilities under the policy. For
policy types in subsection (b)(4) of this Section, the minimum reserve shall be
the gross pro rata unearned premium.
b) Types of individual accident and health
insurance policies
1) Policies that are
noncancellable or noncancellable and guaranteed renewable for life or to a
specified age, such as 60 or 65.
2)
Policies that are guaranteed renewable for life or to a specified age, such as
60 or 65, but under which the company reserves the right to change the scale of
premiums.
3) Policies in which the
company has reserved the right to cancel or refuse renewal for one or more
reasons, but has agreed implicitly or explicitly that, prior to a specified
time or age, it will not cancel or decline renewal solely because of
deterioration of health after issue; however, policies shall not be considered
of this type if the company has reserved the right to refuse renewal provided
the right is to be exercised at the same time for all policies in the same
category, unless premiums are based on the level premium principle.
4) All other individual policies.
5) Notices:
A) This subsection (b) does not classify
"franchise" as a type of policy. Such policies are frequently written under an
agreement limiting the company's right to cancel or refuse renewal. Usually the
right is reserved to refuse renewal of all policies in the group or other
categories such as those ceasing to be members of the association, and this
would place those policies, in subsection (b)(4) of this Section in accordance
with the last clause under subsection (b)(3) of this Section. However, if
premiums are based on the level premium principle or if the renewal privilege
granted to the individual insured meets the requirements for policies in
subsections (b)(1)-(3) of this Section, the franchise policy shall be so
classified for reserve purposes.
B)
"Family group accident and health insurance policies", as defined in Section
367(4) of the Code [215 ILCS
5/367(4) ], should have active life
reserves determined under this Section.
C) A policy may have guarantees qualifying it
as a policy listed in subsections (b)(1)-(3) of this Section until a specified
age or duration, after which the guarantees, or lack of guarantees, may qualify
it as a policy such as listed in subsections (b)(1)-(4) of this Section. In
such case, the policy in each period shall be considered for reserve purposes
according to the type to which it then belongs.
D) Where all of the benefits of a policy, as
provided by rider or otherwise, are not of the same type as listed in this
subsection (b), each benefit shall be considered for reserve purposes according
to the type to which it belongs.
c) Reserve standards for policies in
subsections (b)(1)-(3) of this Section.
1)
Interest. The maximum interest rate for reserves shall be 31/2% compounded
annually.
2) Mortality:
A) 1941 Commissioners Standard Ordinary
Table, or
B) 1958 Commissioners
Standard Ordinary Table, or
C) 1941
Standard Industrial Mortality Table, or
D) Commissioners 1961 Standard Industrial
Mortality Table, or
E) Such other
table as may be approved by the Director of the Department of Financial and
Professional Regulation-Division of Insurance (Director).
3) Morbidity or Other Contingency:
A) Total disability due to accident or
sickness. The minimum standard shall be the 1964 Commissioners Disability
Table.
B) Hospital Expense
Benefits. The minimum standard shall be the 1956 Inter-company Hospital
Table.
C) Surgical Expense
Benefits. The minimum standard shall be the 1956 Inter-company Surgical
Table.
D) Accidental Death
Benefits. The minimum standard shall be the 1959 Accidental Death Benefits
Table.
E) All other benefits. The
company shall adopt standards to produce reserves which place a sound value on
the liabilities under such benefit.
4) Negative Reserves. Negative reserves on
any benefit may be offset against positive reserves for other benefits in the
same policy, but the mean reserve on any policy shall never be taken as less
than one-half the valuation net premium.
5) Preliminary Term. The minimum reserve
shall be on the basis of a two-year preliminary term.
6) Reserve Method. Mean reserves diminished
by appropriate credit for valuation net deferred premiums, or, mid-terminal
reserves plus gross or net pro rata unearned premium reserves. In no event,
however, may the aggregate reserve for all policies be less than the gross pro
rata unearned premium under those policies.
7) Alternative Valuation Procedures and
Assumptions. Provided the reserve on all policies to which the method or basis
is applied is not less in the aggregate than the amount determined according to
the applicable standards specified above, the company may use any reasonable
assumptions as to the interest rate, mortality rates, or the rates of morbidity
or other contingency, and may introduce an assumption as to the voluntary
termination of policies. Also, subject to the preceding condition, the company
may employ methods other than the methods stated above in determining a sound
value of its liabilities under such policies, including but not limited to the
following:
A) Optional use of either the
level premium, the one-year preliminary term, or the two-year preliminary term
method.
B) Prospective valuation on
the basis of actual gross premiums with reasonable allowance for future
expenses.
C) The use of
approximations such as those involving age groupings, groupings of several
years of issue or average amounts of indemnity.
D) The computation of the reserve for one
policy benefit as a percentage of, or by other relation to, the aggregate
policy reserves, exclusive of the benefit or benefits so valued.
E) The use of a composite annual claim cost
for all or any combination of the benefits included in the policies
valued.
8) For statement
purposes, the net reserve liability may be shown as the excess of the mean
reserve over the amount of net unpaid and deferred premiums, or, regardless of
the underlying method of calculation, it may be divided between the gross pro
rata unearned premium reserve and a balancing item for the "additional
reserve".