Current through Register 1531, September 27, 2024
Pursuant to the provisions of M.G.L. c. 175 §108, only
nongroup major medical policies are allowed to file for loss ratio guarantees.
Medicare Supplement policies subject to
211 CMR 71.00, specified
disease or specified accident insurance subject to
211 CMR
42.05(2)(e), accident only
health insurance subject to
211 CMR
42.05(2)(f), disability
income policies subject to
211 CMR
42.05(2)(g), long-term care
insurance policies subject to
211 CMR 42.05(2)(h)
or any other policy forms under which more
than 50% of the policies are issued to individuals age 65 or over, are excluded
from the provisions of 211 CMR 42.07 related to loss ratio guarantees.
(1) Definitions pertinent to 211 CMR 42.07:
Actual Loss Ratio means the loss ratio
attributable solely to Massachusetts if there are 2,000 or more policyholders
in the state on the policy form. If there are 500 or more policyholders on the
policy form in this state but less than 2,000, it is the linear interpolation
of the nationwide loss ratio and the loss ratio for this state. If there are
less than 500 policyholders in this state, it is the nationwide loss ratio for
the policy form. For example, if there are 1,200 policyholders in the state,
the actual loss ratio is:
(1,200 - 500) /(2,000 - 500) state loss ratio + (2,000 -
1,200)/(2,000 - 500) U.S. loss ratio.
If there are fewer than 2,000 policyholders nationwide, the
applicable loss ratio will be calculated using combined experience of current
calendar year and each subsequent year until the sum of policyholders in all
such calendar years adds up to 2,000.
Anticipated Durational Loss Ratio
means the ratio of incurred claims to earned premium for a given policy
duration (i.e., first year, second year,
etc.)
Anticipated Lifetime Loss Ratio means
the ratio of the present value of all past and future incurred claims to the
present value of all past and future earned premiums where the present values
are calculated at a rate of interest at least equal to the health valuation
rate of interest at the time the policy is approved and as prescribed in
Massachusetts law or regulation, or if no such rate is prescribed, at the rate
prescribed by the National Association of Insurance Commissioners.
Experience Period means the period,
ordinarily a calendar year, for which a loss ratio guarantee is
calculated.
Loss Ratio means ratio of incurred
claims to earned premium for any individual policy form.
(2)
Initial Filing of Loss Ratio
Guarantee.
(a) In addition to
the provisions of 211 CMR 42.07(2)(b), all benefits of individual major medical
policies issued subject to M.G.L. c. 175, § 108 shall be deemed to be
reasonable in relation to premium rates if the rates are filed pursuant to a
loss ratio guarantee and both the initial rates and the anticipated durational
and lifetime loss ratios in the original filing of the form have been approved
by the Commissioner.
(b) All
filings submitted under 211 CMR 42.07(2) shall have renewability provisions no
less favorable to the policyholder than conditional renewability.
(c) The initial filing of a loss ratio
guarantee shall include a specific written statement as to the detail of the
loss ratio guarantee, which shall contain at least the following:
1. the policy form number;
2. a recitation of the anticipated lifetime
and durational loss ratios contained in the actuarial memorandum filed with the
policy form when it was originally approved, and a copy of the original
actuarial memorandum. If the original actuarial memorandum did not include
anticipated durational loss ratios, these ratios shall be included in the
initial filing of the loss ratio guarantee;
3. the first calendar year in which the loss
ratio guarantee is to be effective;
4. a guarantee that the actual loss ratios
for each experience period shall meet or exceed the anticipated lifetime and
durational target loss ratios approved by the Commissioner pursuant to 211 CMR
42.07(2)(a);
5. a guarantee that
the actual loss ratio results for the experience period will be independently
audited in the form prescribed by 211 CMR 42.07(4) at the carrier's expense by
an auditor who is a certified public accountant or Member of the American
Academy of Actuaries;
6. a
guarantee that the audit shall be performed in the second calendar quarter of
the year following the end of the experience period and the audited results
shall be reported to the Commissioner no later than the end of such
quarter;
7. a guarantee that the
audit shall be done in accordance with generally accepted auditing or actuarial
standards;
8. a guarantee that
affected policyholders in Massachusetts shall be issued a proportional refund,
based on the premium earned, of the amount necessary to bring the actual
experience period loss ratio up to the anticipated durational loss ratio
approved by the Commissioner pursuant to 211 CMR 42.07(2)(a);
9. a sample calculation and illustration of
the refund methodology; and
10. the
signature of an officer of the carrier.
(3)
Subsequent Rate
Filings.
(a) Notwithstanding the
provisions of 211 CMR 42.07(2), renewal premium rates for individual major
medical policies issued subject to M.G.L. c. 175, § 108 shall be deemed to
be approved upon filing with the Commissioner, if the filing includes
sufficient evidence that it meets the standards of 211 CMR 42.07 and is
accompanied by a copy of the loss ratio guarantee filed pursuant to 211 CMR
42.07(2).
(b) The Commissioner
shall have the right to bring an administrative action should he or she deem
that the lifetime loss ratio approved pursuant to 211 CMR 42.07(2)(a) will not
be met or exceeded.
(4)
Form and Contents of the Audit. The audit required
under 211 CMR 42.07(2) shall include:
(a) the
number of policyholders in Massachusetts and the nation, on both a durational
and total basis;
(b) the incurred
claims and earned premium by policy duration period for the audited experience
period;
(c) a signed opinion by the
independent auditor that the audit has been performed in accordance with
generally accepted accounting or actuarial standards and that the audit report
presents fairly and accurately the amount of incurred claims, including
incurred but not reported claims, and earned premium, for the audited
experience period;
(d) the
durational and lifetime loss ratios guaranteed;
(e) a statement of any refunds due for the
current experience period and the refund calculation; and
(f) the currently anticipated lifetime loss
ratio on the policy block. This loss ratio shall be defined as the present
value of past and future expected incurred claims divided by the present value
of past and future expected earned premiums.
(5)
Refund
Calculation.
(a) The refund
shall be made to all policyholders in Massachusetts who are insured under the
applicable policy form for at least six months of the experience period, except
that no refund need be made to a policyholder in an amount less than ten
dollars. Refunds less than $10.00 shall be aggregated and paid prorata to the
policy holders receiving refunds.
(b) The refund shall include interest
compounded monthly at the then current variable loan interest rates for life
insurance policies established by the National Association of Insurance
Commissioners (NAIC), from the end of the experience period until the date of
payment.
(c) Payments shall be made
during the third calendar quarter of the year following the experience period
for which a refund is determined to be due. However, no refunds shall be made
until 60 days after the filing of the audit report in order that the
Commissioner has adequate time to review the report.
(d) The refund shall be subtracted from
earned premiums in the loss ratio calculation. The premium refund shall not be
considered a benefit payment.
