Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
304.4-010,
304.6-100
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
304.2-110 provides that the Commissioner of
Insurance may make reasonable administrative regulations necessary for or as an
aid to the effectuation of any provision of the Kentucky Insurance Code.
KRS
304.6-100 authorizes the Commissioner of
Insurance to make administrative regulations for the computing of casualty
insurance reserves. This administrative regulation permits and regulates the
discounting of loss reserves for certain types of casualty insurance.
Section 1. Definitions. As used in this
administrative regulation:
(1) "Annual or
other financial statements" means the annual statement required by
KRS
304.3-240 and all supplements thereto and any
other financial statements required by the commissioner;
(2) "Casualty insurance" has the meaning set
forth in
KRS
304.5-070;
(3) "Commissioner" means the Commissioner of
the Kentucky Office of Insurance;
(4) "Domestic insurer" has the meaning set
forth in
KRS
304.1-070(1);
(5) "Loss reserves" and "loss adjustment
expense reserves," hereinafter called "loss reserves," means the same as in the
Annual Statement Convention Blank filed with the National Association of
Insurance Commissioners;
(6)
"Medical malpractice insurance" means insurance as defined in
KRS
304.5-070(1)(j) issued to
health care providers, excess insurance issued to a medical malpractice
self-insured plan, and reinsurance of medical malpractice insurance;
(7) "Qualified actuary" means:
(a) A member of the American Academy of
Actuaries; or
(b) A person who has
demonstrated to the satisfaction of the commissioner educational background
necessary for reserving and other actuarial sciences and has not less than
seven (7) years of relevant actuarial experience;
(8) "Workers' compensation insurance" has the
meaning set forth in
KRS
304.5-070(1)(c).
Section 2. Discounting of Casualty
Insurance Loss Reserves.
(1) Domestic insurers
may discount loss reserves for medical malpractice insurance, workers'
compensation insurance, and such other kinds of casualty insurance as may be
approved by order of the commissioner.
(2) The reserves that may be discounted are
loss reserves, including reserves for incurred but not reported claims and case
reserves.
(3) All filings involving
discounting of loss reserves shall contain the information required by this
administrative regulation.
Section
3. Actuarial Statement of Opinion.
(1) All filings involving discounting of loss
reserves shall be accompanied by an actuarial statement of opinion reflecting
accurately the effect of discounting of loss reserves on the domestic insurer's
financial condition. The actuarial statement of opinion shall be by a qualified
actuary.
(2) The actuarial
statement of opinion shall include the following:
(a) An assessment of the adequacy of the
undiscounted reserve (i.e., full value reserve prior to discounting);
(b) An assessment of the appropriateness of
the assumed interest rate, considering at least the following:
1. Valuation basis of bonds (market value as
opposed to amortized value);
2.
Yield on assets;
3. Asset
maturities (i.e., do they reasonably match the maturities of the corresponding
liabilities?); and
4. Consistency
with interest rate assumptions used in pricing.
(c) An assessment of the appropriateness of
the anticipated payment schedule, considering at least the following:
1. The domestic insurer's own paid loss
development history to the extent available and credible;
2. To the extent that such history is not
available or credible, the applicability of broader based industry experience,
in particular with respect to the form of coverage (e.g., occurrence as opposed
to claims made coverage forms) and retention level; and
3. The domestic insurer's reinsurance
recoverables.
(d) A
description of the formula(s) used for discounting, including any provision for
adverse deviation;
(e) Any other
factors needed to reflect accurately the effect of discounting on the financial
condition of the domestic insurer or required by the commissioner.
Section 4. Disclosure
of Discounting of Loss Reserves in Annual and Other Financial Statements.
(1) Domestic insurers discounting loss
reserves shall disclose the discounting of loss reserves in their annual and
other financial statements in a manner which will reflect accurately the effect
of discounting of loss reserves on the domestic insurer's financial condition.
The commissioner may by order specify particular portions or schedules of the
annual or other financial statements in which a specific type of disclosure is
needed to reflect accurately the effect of discounting of loss reserves on a
domestic insurer's financial condition.
(2) Insurers discounting loss reserves shall
prepare schedule P, parts 1, 2, and 3, of the annual statement on an
undiscounted basis, with schedule P, part 4, of the annual statement providing
reconciliation between undiscounted loss reserves and discounted loss reserves.
If schedule P of the annual statement is altered or replaced, insurers
discounting loss reserves shall complete such schedules or other portions of
the annual statement to disclose the discounting of loss reserves in accordance
with the instructions of the commissioner.
Section 5. Limitations on Discounting of Loss
Reserves. In no event shall discounting of loss reserves by an insurer result
in reserves which do not meet the requirements of
KRS
304.6-100(3).
Section 6. This administrative regulation
shall apply to financial statements covering the financial condition of an
insurer on or after January 1, 1988.
STATUTORY AUTHORITY: KRS Chapter 13A, 304.2-110,
304.6-100