Current through Register Vol. 39, No. 6, September 16, 2024
(a) This
Rule shall apply as follows:
(1) Except as
provided in Paragraph (a)(2) of this Rule, this Rule applies to any long-term
care policy or certificate issued in this state on or after February 1, 2003;
and
(2) For certificates issued on
or after August 1, 2002, under a group long-term care insurance policy as
defined in
G.S.
58-55-20(3), which policy
was in force at the time this Rule became effective, the provisions of this
Rule shall apply on the policy anniversary following August 1, 2003.
(b) An insurer shall request
approval of a pending premium rate schedule increase, including an exceptional
increase, from the Commissioner at least 90 days prior to the notice to the
policyholders and shall include:
(1)
Information required by
11 NCAC
12 .1027;
(2) Certification by an actuary who is a
member in good standing with the American Academy of Actuaries that:
(A) If the requested premium rate schedule
increase is implemented and the underlying assumptions, which reflect
moderately adverse conditions, are realized, no further premium rate schedule
increases are anticipated; and
(B)
The premium rate filing is in compliance with the provisions of this
Rule;
(3) An actuarial
memorandum justifying the rate schedule change request that includes:
(A) Lifetime projections of earned premiums
and incurred claims based on the filed premium rate schedule increase; and the
method and assumptions used in determining the projected values, including
reflection of any assumptions that deviate from those used for pricing other
forms currently available for sale:
(i) Annual
values for the five years preceding and the three years following the valuation
date shall be provided separately;
(ii) The projections shall include the
development of the lifetime loss ratio, unless the rate increase is an
exceptional increase;
(iii) The
projections shall demonstrate compliance with Paragraph (c) of this Rule;
and
(iv) For exceptional increases:
(I) The projected experience shall be limited
to the increases in claims expenses attributable to the approved reasons for
the exceptional increase; and
(II)
In the event the Commissioner determines, as provided in
11 NCAC
12 .1002 that offsets may exist, the insurer
shall use net projected experience;
(B) Disclosure of how reserves have been
incorporated in this rate increase whenever the rate increase will trigger
contingent benefit upon lapse;
(C)
Disclosure of the analysis performed to determine why a rate adjustment is
necessary, which pricing assumptions were not realized and why, and what other
actions taken by the company have been relied on by the actuary;
(D) A statement that policy design,
underwriting and claims adjudication practices have been taken into
consideration; and
(E) In the event
that it is necessary to maintain consistent premium rates for new certificates
and certificates receiving a rate increase, the insurer will need to file
composite rates reflecting projections of new certificates;
(4) A statement that renewal
premium rate schedules are not greater than new business premium rate schedules
except for differences attributable to benefits, or underwriting criteria;
and
(5) All projected premium rate
schedule increases shall be filed with the Commissioner for review and approval
under G.S. 58-51-95.
(c) All premium rate schedule
increases shall be determined in accordance with the following requirements:
(1) Exceptional increases shall provide that
70 percent of the present value of projected additional premiums from the
exceptional increase will be returned to policyholders in benefits;
(2) Premium rate schedule increases shall be
calculated such that the sum of the accumulated value of incurred claims,
without the inclusion of active life reserves, and the present value of future
projected incurred claims, without the inclusion of active life reserves, will
not be less than the sum of the following:
(A)
The accumulated value of the initial earned premium times 58 percent;
(B) 85 percent of the accumulated value of
prior premium rate schedule increases on an earned basis;
(C) The present value of future projected
initial earned premiums times 58 percent; and
(D) 85 percent of the present value of future
projected premiums not in Part (c)(2)(C) of this Rule on an earned
basis;
(3) In the event
that a policy form has both exceptional and other increases, the values in
Subparagraphs (c)(2)(B) and (D) of this Rule will also include 70 percent for
exceptional rate increase amounts; and
(4) All present and accumulated values used
to determine rate increases shall use the maximum valuation interest rate for
contract reserves as specified in
11 NCAC
11F .0207(c). The actuary
shall disclose as part of the actuarial memorandum the use of any actuarially
appropriate averages.
(d) For each rate increase that is
implemented, the insurer shall file for review and approval under
G.S.
58-51-95 by the Commissioner the updated
projections, as defined in Part (b)(3)(A) of this Rule, annually for the next
three years and include a comparison of actual results to projected values. The
Commissioner may extend the period to greater than three years if actual
results are not consistent with projected values from prior projections. For
group insurance policies that meet the conditions in Paragraph (l) of this
Rule, the projections required by this Paragraph shall be provided to the
policyholder in lieu of filing with the Commissioner.
(e) If any premium rate in the revised
premium rate schedule is greater than 200 percent of the comparable rate in the
initial premium schedule, lifetime projections, as defined in Part (b)(3)(A) of
this Rule, shall be filed for review and approval under
G.S.
58-51-95 by the Commissioner every five years
following the end of the required period in Paragraph (d) of this Rule. For
group insurance policies that meet the conditions in Paragraph (l) of this
Rule, the projections required by this Rule shall be provided to the
policyholder in lieu of filing with the Commissioner.
(f) If the commissioner has determined that
the actual experience following a rate increase does not adequately match the
projected experience and that the current projections under moderately adverse
conditions demonstrate that incurred claims will not exceed proportions of
premiums specified in Paragraph (c) of this Rule, the Commissioner may require
the insurer to implement any of the following:
(1) Premium rate schedule adjustments;
or
(2) Other measures to reduce the
difference between the projected and actual experience.
It is to be expected that the actual experience will not
exactly match the insurer's projections. During the period that projections are
monitored as described in Paragraphs (d) and (e) of this Rule, the Commissioner
shall determine that there is not an adequate match if the differences in
earned premiums and incurred claims are not in the same direction (both actual
values higher or lower than projections) or the difference as a percentage of
the projected is not of the same order. In determining whether the actual
experience adequately matches the projected experience, consideration shall be
given to Part (b)(3)(E) of this Rule, if applicable.
(g) If the majority of the
policies or certificates to which the increase is applicable are eligible for
the contingent benefit upon lapse, the insurer shall file:
(1) A plan, subject to the Commissioner's
approval under
G.S.
58-51-95 for improved administration or
claims processing, or both, designed to eliminate the potential for further
deterioration of the policy form requiring further premium rate increases;
otherwise the Commissioner may impose the condition in Paragraph (i) of this
Rule; and
(2) The original
anticipated lifetime loss ratio, and the premium rate schedule increase that
would have been calculated according to Paragraph (c) of this Rule had the
greater of the original anticipated lifetime loss ratio or 58 percent been used
in the calculations described in Parts (c)(2)(A) and (C) of this
Rule.
(h) For a rate
increase filing that meets the following criteria, the commissioner shall
review, for all policies included in the filing, the projected lapse rates and
past lapse rates during the 12 months following each increase to determine if
adverse lapsation has occurred or is anticipated:
(1) The rate increase is not the first rate
increase requested for the specific policy form or forms;
(2) The rate increase is not an exceptional
increase; and
(3) The majority of
the policies or certificates to which the increase is applicable are eligible
for the contingent benefit upon lapse.
(i) In the event adverse lapsation has
occurred, is anticipated in the filing, or is evidenced in the actual results
as presented in the updated projections provided by the insurer following the
requested rate increase, the Commissioner may determine that a rate spiral
exists. Following the determination that a rate spiral exists, the Commissioner
may require the insurer to offer, without underwriting, to all in force
insureds subject to the rate increase the option to replace existing coverage
with one or more reasonably comparable products being offered by the insurer or
its affiliates.
(1) The offer shall:
(A) Be subject to the approval under
G.S.
58-51-95 of the Commissioner;
(B) Be based on actuarially sound principles,
but not be based on attained age; and
(C) Provide that maximum benefits under any
new policy accepted by an insured shall be reduced by comparable benefits
already paid under the existing policy;
(2) The insurer shall maintain the experience
of all the replacement insureds separate from the experience of insureds
originally issued the policy forms. In the event of a request for a rate
increase on the policy form, the rate increase shall be limited to the lesser
of:
(A) The maximum rate increase determined
based on the combined experience; or
(B) The maximum rate increase determined
based only on the experience of the insureds originally issued the form plus 10
percent.
(j)
If the Commissioner determines that the insurer has exhibited a persistent
practice of filing inadequate initial premium rates for long-term care
insurance, the Commissioner may, in addition to the provisions of Paragraph (i)
of this Rule, prohibit the insurer from either of the following:
(1) Filing and marketing comparable coverage
for a period of up to five years; or
(2) Offering all other similar coverages and
limiting marketing of new applications to the products subject to recent
premium rate schedule increases.
A premium rate is inadequate if the rate is unreasonably low
for the insurance provided and the use or continued use of the rate by the
insurer has had or will have the effect of endangering the solvency of the
insurer; destroying competition; creating a monopoly; or violating actuarial
principles, practices, or soundness.
(k) Paragraphs (a) through (j) of this Rule
shall not apply to policies for which the long-term care benefits provided by
the policy are incidental, as defined in
11 NCAC
12 .1002, if the policy complies with all of
the following provisions:
(1) The interest
credited internally to determine cash value accumulations, including long-term
care, if any, are guaranteed to be not less than the minimum guaranteed
interest rate for cash value accumulations without long-term care set forth in
the policy;
(2) The portion of the
policy that provides insurance benefits other than long-term care coverage
meets the nonforfeiture requirements as applicable in any of the following:
G.S.58-58-55;
58-58-60; and
11 NCAC
12 .0436.
(3) The policy meets the disclosure
requirements of
11 NCAC
12 .1006 and
11 NCAC
12 .1206;
(4) The portion of the policy that provides
insurance benefits other than long-term care coverage meets the requirements as
applicable in the following:
(A) Policy
illustrations as required by
11 NCAC
04 .0500;
(B) Disclosure requirements in
11 NCAC
12 .1212;
(C) Disclosure requirements in
11 NCAC
12 .0420 and 12 .0422;
(D) Disclosure requirements in
G.S.
58-7-95; and
(E) Disclosure requirements in
G.S.
58-60-15;
(5) An actuarial memorandum is filed with the
Commissioner that includes:
(A) A description
of the basis on which the long-term care rates were determined;
(B) A description of the basis for the
reserves;
(C) A summary of the type
of policy, benefits, renewability, general marketing method, and limits on ages
of issuance;
(D) A description and
a table of each actuarial assumption used. For expenses, an insurer must
include percent of premium dollars per policy and dollars per unit of benefits,
if any;
(E) A description and a
table of the anticipated policy reserves and additional reserves to be held in
each future year for active lives;
(F) The estimated average annual premium per
policy and the average issue age;
(G) A statement as to whether underwriting is
performed at the time of application. The statement shall indicate whether
underwriting is used and, if used, the statement shall include a description of
the type or types of underwriting used, such as medical underwriting or
functional assessment underwriting. Concerning a group policy, the statement
shall indicate whether the enrollee or any dependent will be underwritten and
when underwriting occurs; and
(H) A
description of the effect of the long-term care policy provision on the
required premiums, nonforfeiture values and reserves on the underlying
insurance policy, both for active lives and those in long-term care claim
status.
(l)
Paragraphs (f) and (h) of this Rule shall not apply to group insurance policies
as defined in
G.S.
58-55-20(3) where:
(1) The policies insure 250 or more persons
and the policyholder has 5,000 or more eligible employees of a single employer;
or
(2) The policyholder, and not
the certificate-holders, pays a material portion of the premium, which shall
not be less than 20 percent of the total premium for the group in the calendar
year prior to the year a rate increase is filed.
Authority
G.S.
58-2-40;
58-51-95(f);
Eff. August 1, 2002;
Pursuant to
G.S.
150B-21.3A, rule is necessary without
substantive public interest Eff. May 1, 2018.
