Ohio Administrative Code
Title 3901 - Department of Insurance
Chapter 3901-3 - Acquisitions and Mergers; Insurance Holding Company Systems
Section 3901-3-13 - Health insurance reserves
Universal Citation: OH Admin Code 3901-3-13
Current through all regulations passed and filed through September 16, 2024
(A) Purpose
The purpose of this rule is to establish the minimum reserve standards for all individual and group health insurance coverages, including single premium credit disability insurance. All other credit insurance is not subject to this rule.
(B) Authority
This rule is promulgated pursuant to the authority vested in the superintendent under section 3901.041 and division (Q) of section 3903.723 of the Revised Code.
(C) Scope
(1)
These standards
establish a minimum reserve standard for all individual and group health
insurance coverages, including single premium credit disability insurance. When
an insurer determines that adequacy of its health insurance reserves requires
reserves in excess of the minimum standards specified herein, such increased
reserves shall be held and shall be considered the minimum reserves for that
insurer.
(2)
With respect to any block of contracts, or with respect
to an insurer's health business as a whole, a prospective gross premium
valuation is the ultimate test of reserve adequacy as of a given valuation
date. Such a gross premium valuation will take into account, for contracts in
force, in a claims status, or in a continuation of benefits status on the
valuation date, the present value as of the valuation date of: all expected
benefits unpaid, all expected expenses unpaid, and all unearned or expected
premiums, adjusted for future premium increases reasonably expected to be put
into effect.
(3)
Such a gross premium valuation is to be performed
whenever a significant doubt exists as to reserve adequacy with respect to any
major block of contracts, or with respect to the insurer's health business as a
whole. In the event inadequacy is found to exist, immediate loss recognition
shall be made and the reserves restored to adequacy. Adequate reserves
(inclusive of claim, premium and contract reserves, if any) shall be held with
respect to all contracts, regardless of whether contract reserves are required
for such contracts under these standards.
(4)
Whenever minimum
reserves, as defined in these standards, exceed reserve requirements as
determined by a prospective gross premium valuation, such minimum reserves
remain the minimum requirement under these standards.
(5)
This rule sets
forth minimum standards for three categories of health insurance reserves:
claim reserves, premium reserves and contract reserves. Adequacy of an
insurer's health insurance reserves is to be determined on the basis of all
three categories combined. However, these standards emphasize the importance of
determining appropriate reserves for each of these categories
separately.
(D) Definitions
(1)
"Annual claim cost" means the net annual cost per unit
of benefit before the addition of expenses, including claim settlement
expenses, and a margin for profit or contingencies. For example, the annual
claim cost for a one hundred dollar monthly disability benefit, for a maximum
disability benefit period of one year, with an elimination period of one week,
with respect to a male at age thirty-five, in a certain occupation might be
twelve dollars, while the gross premium for this benefit might be eighteen
dollars. The additional six dollars would cover expenses and profit or
contingencies.
(2)
"Claims accrued" means that portion of claims incurred
on or prior to the valuation date which result in liability of the insurer for
the payment of benefits for medical services which have been rendered on or
prior to the valuation date, and for the payment of benefits for days of
hospitalization and days of disability which have occurred on or prior to the
valuation date, which the insurer has not paid as of the valuation date, but
for which it is liable, and will have to pay after the valuation date. This
liability is sometimes referred to as a liability for "accrued" benefits. A
claim reserve, which represents an estimate of this accrued claim liability,
must be established.
(3)
"Claims reported" means a claim that has been incurred
on or prior to the valuation date and the insurer has been informed of it on or
before the valuation date. This claim is considered a reported claim for annual
statement purposes.
(4)
"Claims unaccrued" means that portion of claims
incurred on or prior to the valuation date which result in liability of the
insurer for the payment of benefits for medical services expected to be
rendered after the valuation date, and for benefits expected to be payable for
days of hospitalization and days of disability occurring after the valuation
date. This liability is sometimes referred to as a liability for unaccrued
benefits. A claim reserve, which represents an estimate of the unaccrued claim
payments expected to be made (which may or may not be discounted with
interest), must be established.
(5)
"Claims
unreported" means a claim that has been incurred on or prior to the valuation
date but the insurer has not been informed of it on or before the valuation
date. This claim is considered an unreported claim for annual statement
purposes.
(6)
"Date of disablement" means the earliest date the
insured is considered as being disabled under the definition of disability in
the contract, based on a doctor's evaluation or other evidence. Normally this
date will coincide with the start of any elimination period.
(7)
"Elimination
period" means a specified number of days, weeks, or months starting at the
beginning of each period of loss, during which no benefits are
payable.
(8)
"Gross premium" means the amount of premium charged by
the insurer. It includes the net premium (based on claim-cost) for the risk,
together with any loading for expenses, profit or
contingencies.
(9)
"Group insurance" means blanket insurance and franchise
insurance and any other forms of group insurance.
(10)
"Group long-term
disability income insurance" means any group insurance policy or rider
advertised, marketed, offered or designed to provide group disability income
coverage with a maximum benefit duration longer than two years that is based on
a group pricing structure. The term "group long-term disability income
insurance" does not include voluntary group disability income insurance
coverage that is priced on an individual risk structure and generally sold in
the workplace.
(11)
"Level premium" means a premium calculated to remain
unchanged throughout either the lifetime of the policy, or for some shorter
projected period of years. The premium need not be guaranteed; in which case,
although it is calculated to remain level, it may be changed if any of the
assumptions on which it was based are revised at a later time. Generally, the
annual claim costs are expected to increase each year and the insurer, instead
of charging premiums that correspondingly increase each year, charges a premium
calculated to remain level for a period of years or for the lifetime of the
contract. In this case the benefit portion of the premium is more than needed
to provide for the cost of benefits during the earlier years of the policy and
less than the actual cost in the later years. The building of a prospective
contract reserve is a natural result of level premiums.
(12)
"Long-term care
insurance" means any insurance policy or rider advertised, marketed, offered or
designed to provide coverage for not less than twelve consecutive months for
each covered person on an expense incurred, indemnity, prepaid or other basis;
for one or more necessary or medically necessary diagnostic, preventive,
therapeutic, rehabilitative, maintenance or personal care services, provided in
a setting other than an acute care unit of a hospital. Such term also includes
a policy or rider which provides for payment of benefits based upon cognitive
impairment or the loss of functional capacity. Long-term care insurance may be
issued by insurers; fraternal benefit societies; nonprofit health, hospital,
and medical service corporations; prepaid health plans; health maintenance
organizations or any similar organization to the extent they are otherwise
authorized to issue life or health insurance. Long-term care insurance shall
not include any insurance policy which is offered primarily to provide basic
medicare supplement coverage, basic hospital expense coverage, basic
medical-surgical expense coverage, hospital confinement indemnity coverage,
major medical expense coverage, disability income or related asset-protection
coverage, accident only coverage, specified disease or specified accident
coverage, or limited benefit health coverage.
(13)
"Modal premium"
means the premium paid on a contract based on a premium term which could be
annual, semi-annual, quarterly, monthly, or weekly. Thus if the annual premium
is one hundred dollars and if, instead, monthly premiums of nine dollars are
paid then the modal premium is nine dollars.
(14)
"Negative
reserve" means the terminal reserve where the values of the benefits are
decreasing with advancing age or duration such that it results in a negative
value, called a negative reserve. Normally the terminal reserve is a positive
value.
(15)
"Preliminary term reserve method" means the method of
valuation where the valuation net premium for each year falling within the
preliminary term period is exactly sufficient to cover the expected incurred
claims of that year, so that the terminal reserves will be zero at the end of
the year. As of the end of the preliminary term period, a new constant
valuation net premium (or stream of changing valuation premiums) becomes
applicable such that the present value of all such premiums is equal to the
present value of all claims expected to be incurred following the end of the
preliminary term period.
(16)
"Present value of amounts not yet due on claims" means
the reserve for "claims unaccrued" which may be discounted at
interest.
(17)
"Rating block" means a grouping of contracts determined
by the valuation actuary based on common characteristics filed with the
superintendent, such as a policy form or forms having similar benefit
designs.
(18)
"Reserve" means all items of benefit liability, whether
in the nature of incurred claim liability or in the nature of contract
liability relating to future periods of coverage, and whether the liability is
accrued or unaccrued. An insurer under its contracts promises benefits which
result in:
(a)
Claims which have been incurred, that is, for which the
insurer has become obligated to make payment, on or prior to the valuation
date, (on these claims, payments expected to be made after the valuation date
for accrued and unaccrued benefits are liabilities of the insurer which should
be provided for by establishing claim reserves); or
(b)
Claims which are
expected to be incurred after the valuation date, (any present liability of the
insurer for these future claims should be provided for by the establishment of
contract reserves and unearned premium reserves.)
(19)
"Terminal
reserve" means the reserve at the end of the contract year which is equal to
the present value of benefits expected to be incurred after the contract year
minus the present value of future valuation net premiums.
(20)
"Unearned
premium reserve" means that portion of the premium paid or due to the insurer
which is applicable to the period of coverage extending beyond the valuation
date. Thus if an annual premium of one hundred twenty dollars was paid on
November first, twenty dollars would be earned as of December thirty-first and
the remaining one hundred dollars would be unearned. The unearned premium
reserve could be on a gross basis as in this example, or on a valuation net
premium basis.
(21)
"Valuation manual" means the manual produced by the
"National Association of Insurance Commissioners" (NAIC) and updated annually
that contains the minimum reserve and related requirements for life, accident
and health insurance.
(22)
"Valuation net modal premium" means the modal fraction
of the valuation net annual premium that corresponds to the gross modal premium
in effect on any contract to which contract reserves apply. Thus if the mode of
payment in effect is quarterly, the valuation net modal premium is the
quarterly equivalent of the valuation net annual premium.
(23)
"Worksite
franchise disability insurance" means any insurance policy or rider advertised,
marketed, offered or designed to provide individual disability coverage that is
sold at the worksite through employer-sponsored enrollment and complies with
section
3923.11
of the Revised Code. Worksite franchise disability insurance does not include
coverage for business overhead expense, disability buyout, or key person
policies.
(24)
"Worksite individual disability insurance" means any
insurance policy or rider advertised, marketed, offered or designed to provide
personal disability coverage that is sold to an individual at the worksite, and
is not associated with employer-sponsored enrollment. Worksite individual
disability insurance does not include business overhead expense, disability
buyout, or key person policies.
(E) Claim reserves
(1)
General
(a)
Claim reserves are required for all incurred but unpaid
claims on all health insurance policies. 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.
(b)
Appropriate claim expense reserves are required with
respect to the estimated expense of settlement of all incurred but unpaid
claims.
(c)
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 statutory financial statement including
consideration of any residual unpaid liability.
(d)
For claim
reserves on policies that require contract reserves, the claim incurral date is
to be considered the "issue date" for determining the table and interest rate
to be used for claim reserves.
(e)
The maximum
interest rate for claim reserves is specified in paragraph (I) of this
rule.
(f)
With respect to claim reserves for policies issued
prior to January 1, 2017, the operative date of the valuation manual, the
requirements for claim reserves on claims incurred after that date shall be as
described in the valuation manual based on the incurred date of the
claim.
(2)
Minimum morbidity standards for individual disability
income claim reserves
(a)
For 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 paragraph (E)(2)(b) or (E)(2)(c) of this rule, applied to all open
claims. Once an insurer elects to calculate reserves for all open claims on the
standard defined in either paragraph (E)(2)(b) or (E)(2)(c) of this rule, all
future valuations must be on that basis.
(b)
For claims
incurred on or after January 1, 2005 and prior to the effective date for the
company as determined in paragraph (E)(2)(e) of this rule, the minimum
standards with respect to morbidity are those specified in paragraph (I) of
this rule, except that, at the option of the insurer, assumptions regarding
claim termination rates for the period less than two years from the date of
disablement may be based on the insurer's experience, if such experience is
considered credible, or upon other assumptions and methods designed to place a
sound value on the liabilities.
(c)
For claims
incurred on or after January 1, 2020, the minimum standards are those specified
in paragraph (I) of this rule, including (as derived in accordance with
actuarial guideline L, as included in the 2019 version of the NAIC accounting
practices and procedures manual):
(i)
The use of the insurer's own experience;
and
(ii)
An adjustment to include the insurer's own experience
measurement margin; and
(iii)
The application of a credibility
factor.
(d)
In determining the minimum reserves in accordance with
paragraph (E)(2) (c) of this rule, the provisions in paragraphs (E)(2)(c)(i) to
(E)(2)(c)(iii) of this rule are not required if:
(i)
The insurer meets
the own experience measurement exemption provided in actuarial guideline L as
included in the 2019 version of the NAIC accounting practices and procedures
manual; or
(ii)
For worksite franchise disability insurance policies
with benefit periods of up to two years, at the option of the insurer, disabled
life reserves may be based on the insurer's experience, if such experience is
considered credible, or upon other assumptions and methods designed to place a
sound value on the liabilities.
(e)
An insurer may
begin to use the minimum reserve standards in paragraph (E)(2)(c) of this rule
at a date earlier than the effective date of this rule.
(f)
An insurer may
apply the new standards in paragraph (E)(2)(c) of this rule to all open claims
regardless of incurred date. Once an insurer elects to calculate reserves for
all open claims based on paragraph (E)(2)(c) of this rule, all future
valuations must be on that basis.
(3)
Minimum morbidity
standards for group disability income claim reserves
(a)
For 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 paragraph (E)(3)(b) of this
rule, applied to all open group long-term disability income insurance claims;
or
(iii)
The standards as defined in paragraph (E)(3)(c) of this
rule, applied to all open group disability income insurance claims.
Once an insurer elects to calculate reserves for all open claims on a more recent standard, then all future valuations must be on that basis.
(b)
For group
long-term disability income insurance claims incurred on or after January 1,
2005, but before the effective date in paragraph (E)(3)(c) of this rule, and
group disability income insurance claims incurred on or after January 1, 2005,
that are not group long-term disability income, the minimum standards with
respect to morbidity are those specified in paragraph (I) of this rule, except
that, at the option of the insurer:
(i)
Assumptions regarding claim termination rates for the
period less than two years from the date of disablement may be based on the
insurer's experience, if the experience is considered credible, or upon other
assumptions and methods designed to place a sound value on the
liabilities.
(ii)
Assumptions regarding claim termination rates for the
period two or more years but less than five years from the date of disablement
may, with the approval of the superintendent, be based on 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:
(a)
An analysis of the credibility of the
experience;
(b)
A description of how all of the insurer's experience is
proposed to be used in setting reserves;
(c)
A description and quantification of the margins to be
included;
(d)
A summary of the financial impact that the proposed plan of
modification would have had on the insurer's last filed annual
statement;
(e)
A copy of the approval of the proposed plan of modification
by the insurance regulatory agency of the insurer's state of domicile;
and
(f)
Any other information deemed necessary by the
superintendent.
(iii)
Each insurer
may elect which of the following to use as the minimum morbidity standard for
group long-term disability income insurance claim reserves:
(a)
The minimum morbidity standard in effect for claim reserves
as of the date the claim was incurred, or
(b)
The standards as defined in paragraph (E)(3)(c) of this
rule, applied to all open claims.
Once an insurer elects to calculate reserves for all open claims on a more recent standard, then all future valuations must be on that basis.
(c)
For group
long-term disability income insurance claims incurred on or after January 1,
2020, the minimum standards with respect to morbidity shall be based on the
2012 GLTD termination table in accordance with actuarial guideline XLVII, as
included in the 2019 version of the NAIC accounting practices and procedures
manual with considerations of:
(i)
The use of the insurer's own experience;
and
(ii)
An adjustment to include the insurer's own experience
measurement margin; and
(iii)
The application of a credibility
factor.
(d)
An insurer may begin to use the minimum reserve
standards in paragraph (E)(3)(c) of this rule at a date earlier than the
effective date of this rule. An insurer may apply the standards in paragraph
(E)(3)(c) of this rule to all open claims incurred prior to the effective date
of paragraph (E)(3)(c) of this rule for the insurer. Once an insurer elects to
calculate reserves for all open claims based on paragraph (E)(3)(c) of this
rule, all future valuations must be on that basis.
(4)
Minimum morbidity
or other contingency standard for other health insurance claim reserves
The reserve must be based on the insurer's experience, if the experience is considered credible, or upon other assumptions and methods designed to place a sound value on the liabilities.
(5)
Claim reserve methods generally
A generally accepted actuarial reserving method or other reasonable method, based on information and data describing the proposed method, or a combination of methods may be used to estimate all claim liabilities if approved by the superintendent prior to the statement date. 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.
(F) Premium reserves
(1)
General
(a)
Unearned premium reserves are required for all
contracts, except individual and group single premium credit disability
insurance, with respect to the period of coverage for which premiums, other
than premiums paid in advance, have been paid beyond the date of
valuation.
(b)
If premiums due and unpaid are carried as an asset,
such premiums must be treated as premiums in force, subject to unearned premium
reserve determination. The value of unpaid commissions, premium taxes and the
cost of collection associated with due and unpaid premiums shall be carried as
an offsetting liability.
(c)
The gross premiums paid in advance for a period of
coverage commencing after the next premium due date which follows the date of
valuation may be appropriately discounted to the valuation date and shall be
held either as a separate liability or as an addition to the unearned premium
reserve which would otherwise be required as a minimum.
(2)
Minimum standards for unearned premium reserves
(a)
The minimum
unearned premium reserve with respect to any contract is the pro rata unearned
modal premium that applies to the premium period beyond the valuation date,
with such premium determined on the basis of:
(i)
The valuation net
modal premium on the contract reserve basis applying to the contract;
or
(ii)
The gross modal premium for the contract if no contract
reserve applies.
(b)
In no event may
the sum of the unearned premium and contract reserves for all contracts of the
insurer subject to contract reserve requirements be less than the gross modal
unearned premium reserve on all such contracts, as of the date of valuation.
Such reserve shall never be less than the expected claims for the period beyond
the valuation date represented by such unearned premium reserve, to the extent
not provided for elsewhere.
(3)
Premium reserve
methods generally
The insurer may employ suitable approximations and estimates; including, but not limited to groupings, averages and aggregate estimation; in computing premium reserves. Such approximations or estimates should be tested periodically to determine their continuing adequacy and reliability.
(G) Contract reserves
(1)
General
(a)
Contract reserves are required, unless otherwise
specified in paragraph (G) (1)(b) of this rule for:
(i)
All individual
and group contracts with which level premiums are used; or
(ii)
All individual
and group contracts with respect to which, due to the gross premium pricing
structure at issue, the value of the future benefits at any time exceeds the
value of any appropriate future valuation net premiums at that time. This
evaluation may be applied on a rating block basis if the total premiums for the
block were developed to support the total risk assumed and expected expenses
for the block each year, and a qualified actuary certifies the premium
development. The actuary should state in the certification that premiums for
the rating block were developed such that each year's premium was intended to
cover that year's costs without any prefunding. If the premium is also intended
to recover costs for any prior years, the actuary should also disclose the
reasons for and magnitude of such recovery. The values specified in paragraph
(G) (1)(a)(ii) of this rule shall be determined on the basis specified in
paragraph (G)(2) of this rule.
(b)
Contracts not
requiring a contract reserve are:
(i)
Contracts which cannot be continued after one year from
issue; or
(ii)
Contracts already in force on the effective date of
this rule for which no contract reserve was required under the immediately
preceding standards.
(c)
The contract
reserve is in addition to claim reserves and premium reserves.
(d)
The methods and
procedures for contract reserves should be consistent with those for claim
reserves for any contract, or else appropriate adjustment must be made when
necessary to assure provision for the aggregate liability. The definition of
the date of incurral must be the same in both determinations.
(e)
The contract
reserves for single premium credit disability insurance shall never be less
than the expected claims for the period beyond the valuation
date.
(f)
The total contract reserve established shall
incorporate provisions for moderately adverse deviations.
(2)
Minimum standards for contract reserves
(a)
Basis
(i)
Morbidity or
other contingency. Minimum standards with respect to morbidity are those set
forth in paragraph (I) of this rule. Valuation net premiums used under each
contract must have a structure consistent with the gross premium structure at
issue of the contract as this relates to advancing age of insured, contract
duration and period for which gross premiums have been calculated.
Contracts for which tabular morbidity standards are not specified in paragraph (I) of this rule shall be valued using tables established for reserve purposes by a qualified actuary and acceptable to the superintendent. The morbidity tables shall contain a pattern for incurred claims cost that reflects the underlying morbidity and shall not be constructed for the primary purpose of minimizing reserves.
(a)
In determining the morbidity assumptions, the actuary shall
use assumptions that represent the best estimate of anticipated future
experience, but shall not incorporate any expectation of future morbidity
improvement. Morbidity improvement is a change, in the combined effect of claim
frequency and the present value of future expected claim payments given that a
claim has occurred, from the current morbidity tables or experience that will
result in a reduction to reserves. It is not the intent of this provision to
restrict the ability of the actuary to reflect the morbidity impact for a
specific known event that has occurred and that is able to be evaluated and
quantified.
(b)
Business in force as of the effective date of paragraph
(G)(2)(a)(iii)(c) of this rule may be permitted to retain the original reserve
basis which may not meet the provisions of paragraph
(G)(2)(a)(i)(a) of this rule, subject to the acceptability of
the superintendent.
(ii)
Interest. The
maximum interest rate is specified in paragraph (I) of this
rule.
(iii)
Termination rates. Termination rates used in the
computation of reserves shall be on the basis of a mortality table as specified
in paragraph (I) of this rule except as noted in paragraphs
(G)(2)(a)(iii)(a), (G)(2)(a)(iii)(b), and
(G)(2)(a)(iii)(c) of this rule.
(a)
Under contracts for which premium rates are not guaranteed,
and where the effects of insurer underwriting are specifically used by policy
duration in the valuation morbidity standard or for return of premium or other
deferred cash benefits, total termination rates may be used at ages and
durations where these exceed specified mortality table rates, but not in excess
of the lesser of:
(i)
Eighty per cent of the total termination rate used in
the calculation of the gross premiums, or
(ii)
Eight per
cent.
(b)
For long-term care individual policies or group certificates
issued after December 31, 2003, the contract reserve may be established on a
basis of separate:
(i)
Mortality (as specified in paragraph (I) of this rule);
and
(ii)
Terminations other than mortality, where the
terminations are not to exceed:
(A)
For policy years one through four, the lesser of eighty per
cent of the voluntary lapse rate used in the calculation of gross premiums and
eight per cent;
(B)
For policy years five and later, the lesser of one hundred
per cent of the voluntary lapse rate used in the calculation of gross premiums
and four per cent.
(c)
For long-term care individual policies or group certificates
issued on or after January 1, 2011, the contract reserve may be established on
a basis of separate:
(i)
Mortality (as specified in paragraph (I) of this rule);
and
(ii)
Terminations other than mortality, where the
terminations are not to exceed;
(i)
For policy year one, the lesser of eighty per cent of
the voluntary lapse rate used in the calculation of gross premiums and six per
cent;
(ii)
For policy year two through four, the lesser of eighty
per cent of the voluntary lapse rate used in the calculation of gross premiums
and four per cent;
(iii)
For policy year five and later, the lesser of one
hundred per cent of the voluntary lapse rate used in the calculation of gross
premiums and two per cent, except for group long-term care insurance as defined
in section
3923.41
of the Revised Code where the two per cent shall be three per
cent.
(d)
Where a morbidity standard specified in paragraph (I) of
this rule is on an aggregate basis, such morbidity standard may be adjusted to
reflect the effect of insurer underwriting by policy duration. The adjustments
must be appropriate to the underwriting and be acceptable to the
superintendent.
(b)
Reserve
method
(i)
The
preliminary term method may be applied only in relation to the date of issue of
a contract. Reserve adjustments introduced later, as a result of rate
increases, revisions in assumptions (e.g., projected inflation rates) or for
other reasons, are to be applied immediately as of the effective date of
adoption of the adjusted basis.
(ii)
For insurance
except long-term care and return of premium or other deferred cash benefits,
the minimum reserve is the reserve calculated on the two-year full preliminary
term method; that is, under which the terminal reserve is zero at the first and
also the second contract anniversary.
(iii)
For long-term
care insurance, the minimum reserve is the reserve calculated as follows:
(a)
For individual policies and group certificates issued on or
before December 31, 1996, reserves calculated on the two-year full preliminary
term method;
(b)
For individual policies and group certificates issued on or
after January 1, 1997, reserves calculated on the one-year full preliminary
term method.
(iv)
For return of premium or other deferred cash benefits,
the minimum reserve is the reserve calculated as follows:
(a)
On the one year preliminary term method if such benefits are
provided at any time before the twentieth anniversary;
(b)
On the two year preliminary term method if such benefits are
only provided on or after the twentieth anniversary.
(c)
Negative reserves. Negative reserves on any benefit may be
offset against positive reserves for other benefits in the same contract, but
the total contract reserve with respect to all benefits combined may not be
less than zero.
(d)
Nonforfeiture benefits for long-term care insurance.
The contract reserve on a policy basis shall not be less than the net single
premium for the nonforfeiture benefits at the appropriate policy duration,
where the net single premium is computed according to the listed
specifications.
(3)
Alternative
valuation methods and assumptions generally
Provided the contract reserve on all contracts to which an alternative method or basis is applied is not less in the aggregate than the amount determined according to the applicable standards specified above; an insurer may use any reasonable assumptions as to interest rates, termination and mortality rates, and rates of morbidity or other contingency. Also, subject to the preceding condition, the insurer may employ methods other than the methods stated above in determining a sound value of its liabilities under such contracts, including, but not limited to the following: the net level premium method; the one-year full preliminary term method; prospective valuation on the basis of actual gross premiums with reasonable allowance for future expenses; the use of approximations such as those involving age groupings, groupings of several years of issue, average amounts of indemnity, grouping of similar contract forms; the computation of the reserve for one contract benefit as a percentage of, or by other relation to, the aggregate contract reserves exclusive of the benefit or benefits so valued; and the use of a composite annual claim cost for all or any combination of the benefits included in the contracts valued.
(4)
Tests for
adequacy and reasonableness of contract reserves
Annually, an appropriate review shall be made of the insurer's prospective contract liabilities on contracts valued by tabular reserves, to determine the continuing adequacy and reasonableness of the tabular reserves giving consideration to future gross premiums. The insurer shall make appropriate increments to such tabular reserves if such tests indicate that the basis of such reserves is no longer adequate; subject, however, to the minimum standards of paragraph (G)(2) of this rule.
In the event a company has a contract or a group of related similar contracts, for which future gross premiums will be restricted by contract, or is otherwise restricted by law, such that the future gross premiums reduced by expenses for administration, commissions, and taxes will be insufficient to cover future claims, the company shall establish contract reserves for such shortfall in the aggregate.
(H) Reinsurance
Increases to, or credits against reserves carried, arising because of reinsurance assumed or reinsurance ceded, must be determined in a manner consistent with these minimum reserve standards and with all applicable provisions of the reinsurance contracts which affect the insurer's liabilities.
(I) Specific standards for morbidity, interest and mortality
(1)
Morbidity
(a)
Minimum morbidity
standards for valuation of specified individual contract health insurance
benefits are as follows:
(i)
Disability income insurance benefits due to accident or
sickness.
(a)
Contract reserves:
(i)
Contracts issued
on or after January 1, 1965 and prior to January 1, 1992:
The 1964 commissioners disability table (64CDT).
(ii)
Contracts issued on or after January 1, 1992 and prior
to January 1, 2020:
(A)
The 1985 commissioners individual disability tables A
(85CIDA); or
(B)
The 1985 commissioners individual disability tables B
(85CIDB).
(iii)
Contracts issued during 1987 to 1991:
(A)
Optional use of either the 1964 table or the 1985 tables;
and
(B)
Each insurer shall elect, with respect to all
individual contracts issued in any one statement year, whether it will use
tables A or tables B as the minimum standard. The insurer may, however, elect
to use the other tables with respect to any subsequent statement
year.
(iv)
Contracts issued on or after January 1, 2020:
(A)
The 2013 IDI valuation table with modifiers as described in
actuarial guideline L as included in the 2019 version of the NAIC accounting
practices and procedures manual; and
(B)
An insurer may begin to use the 2013 IDI valuation table
with modifiers at a date earlier than the effective date of this
rule.
(v)
Once an insurer begins to use the 2013 IDI valuation
table the insurer may elect to apply that morbidity standard for all policies
issued subject to other valuation tables. This may be done if the following
conditions are met:
(A)
The insurer must apply the morbidity standard to all
in-force policies and incurred claims;
(B)
The insurer elects or has elected to apply the 2013 IDI
valuation table to all claims incurred regardless of incurred
date;
(C)
The insurer maintains adequate policy records on
policies issued prior to 2020 that allow the insurer to apply the 2013 IDI
valuation table appropriately; and
(D)
Once an insurer elects to calculate reserves for all
in-force policies based on the current morbidity standard, all future
valuations must be on that basis.
(b)
Claim reserves:
(i)
For claims
incurred prior to January 1, 2004:
Each insurer may elect which of the following to use as the minimum standard for claims incurred prior to January 1, 2004:
(A)
The minimum morbidity standard in effect for contract
reserves on currently issued contracts, as of the date the claim is incurred;
or
(B)
The standard as defined in paragraph
(I)(1)(a)(i)(b)(ii) or
(I)(1)(a)(i)(b)(iii) of this rule, applied to
all open non-worksite claims provided the insurer maintains adequate claim
records to allow the insurer to apply the standard defined in paragraph
(I)(1)(a)(i)(b)(ii) or
(I)(1)(a)(i)(b)(iii) of this rule
appropriately; and
(C)
Once an insurer elects to calculate reserves for all open
claims on the standard defined in paragraph
(I)(1)(a)(i)(b)(ii) or
(I)(1)(a)(i)(b)(iii) of this rule, all future
valuations must be on that basis. This option, with respect to paragraph
(I)(1)(a)(i)(b)(iii) of this rule, may be
selected only if the insurer maintains adequate claim records for all claims
incurred to use the 2013 IDI valuation table appropriately.
(ii)
For
claims incurred on or after January 1, 2004 and prior to January 1, 2020:
The 1985 commissioners individual disability table A (85CIDA) with claim termination rates multiplied by the following adjustment factors:
|
Duration |
Adjustment Factor |
Adjusted Termination Rates* |
|
Week 1 |
0.366 |
0.04831 |
|
2 |
0.366 |
0.04172 |
|
3 |
0.366 |
0.04063 |
|
4 |
0.366 |
0.04355 |
|
5 |
0.365 |
0.04088 |
|
6 |
0.365 |
0.04271 |
|
7 |
0.365 |
0.04380 |
|
8 |
0.365 |
0.04344 |
|
9 |
0.370 |
0.04292 |
|
10 |
0.370 |
0.04107 |
|
11 |
0.370 |
0.03848 |
|
12 |
0.370 |
0.03478 |
|
13 |
0.370 |
0.03034 |
|
Month 4 |
0.391 |
0.08758 |
|
5 |
0.371 |
0.07346 |
|
6 |
0.435 |
0.07531 |
|
7 |
0.500 |
0.07245 |
|
8 |
0.564 |
0.06655 |
|
9 |
0.613 |
0.05520 |
|
10 |
0.663 |
0.04705 |
|
11 |
0.712 |
0.04486 |
|
12 |
0.756 |
0.04309 |
|
13 |
0.800 |
0.04080 |
|
14 |
0.844 |
0.03882 |
|
15 |
0.888 |
0.03730 |
|
16 |
0.932 |
0.03448 |
|
17 |
0.976 |
0.03026 |
|
18 |
1.020 |
0.02856 |
|
19 |
1.049 |
0.02518 |
|
20 |
1.078 |
0.02264 |
|
21 |
1.107 |
0.02104 |
|
22 |
1.136 |
0.01932 |
|
23 |
1.165 |
0.01865 |
|
24 |
1.195 |
0.01792 |
|
Year 3 |
1.369 |
0.16839 |
|
4 |
1.204 |
0.10114 |
|
5 |
1.199 |
0.07434 |
|
6 and later |
1.000 |
** |
*The adjusted termination rates derived from the application of the adjustment factors to the DTS valuation table termination rates shown in exhibits 3a, 3b, 3c, 4, and 5 (transactions of the society of actuaries (TSA) XXXVII, pages 457 to 463) is displayed. The adjustment factors for age, elimination period, class, sex, and cause displayed in exhibits 3a, 3b, 3c, and 4 should be applied to the adjusted termination rates shown in this table.
**Applicable DTS valuation table duration rate from exhibits 3c and 4 (TSA XXXVII, pages 462 to 463).
The 85CIDA table so adjusted for the computation of claim reserves shall be known as 85CIDC (the 1985 commissioners individual disability table C).
(iii)
For claims
incurred on or after January 1, 2020, the 2013 IDI valuation table with
modifiers and adjustments for company experience as prescribed in actuarial
guideline L, as included in the 2019 version of the NAIC accounting practices
and procedures manual, except for worksite disability insurance policies with
benefit periods of twenty-four months or less.
For worksite franchise disability insurance policies with benefit periods of twenty-four months or less, claim reserves may be calculated using claim run-out analysis or claim triangles, or other methods that place a sound value on the reserves that are appropriate for the business and risks involved.
(ii)
Hospital
benefits, surgical benefits and maternity benefits (scheduled benefits or fixed
time period benefits only).
(a)
Contract reserves:
(i)
Contracts issued on or after January 1, 1955, and prior to
January 1, 1982:
The 1956 intercompany hospital-surgical tables.
(ii)
Contracts issued on or after January 1, 1982:
The 1974 medical expense tables, table A, TSA XXX, page 63. Refer to the paper (in the same volume, page 9) to which this table is appended, including its discussions, for methods of adjustment for benefits not directly valued in table A: development of the 1974 medical expense benefits, Houghton and Wolf.
(b)
Claim reserves:
Standards are based on paragraphs (E)(4) and (E)(5) of this rule.
(iii)
Cancer expense
benefits:
(a)
Contract reserves:
(i)
Contract issued on or after January 1, 1986 and prior to
January 1, 2019:
The 1985 NAIC cancer claim cost tables (1985 CCCT).
(ii)
Contracts issued on or after January 1, 2019:
(A)
For first occurrence and hospitalization benefits:
The 2016 NAIC cancer claim cost valuation tables (2016 CCCVT);
(B)
For all other benefits:
Assumptions based on company experience, relevant industry experience, and actuarial judgement. Such assumptions should be appropriate for valuation which considers a margin for adverse experience.
(b)
Claim reserves:
No specific standard. See paragraph (I)(1)(a)(vi) of this rule.
(iv)
Accidental death
benefits.
(a)
Contract reserves:
Contracts issued on or after January 1, 1965:
The 1959 accidental death benefits table.
(b)
Claim reserves:
Actual amount incurred.
(v)
Single premium credit disability.
(a)
Contract reserves:
(i)
For contracts issued prior to January 1, 2004, each insurer may elect either
paragraph (I)(1)(a)(v)(a)(i)(A) or
(I)(1)(a)(v)(a)(i)(B) of this rule to use as the minimum
standard. Once an insurer elects to calculate reserves for all contracts on the
standard defined in paragraph (I)(1) (a) (v)(a)(i) of this
rule, all future valuations must be on that basis.
(A)
The minimum morbidity standard in effect for contract
reserves on currently issued contracts, as of the date the contract was issued;
or
(B)
The standard as defined in paragraph
(I)(1)(a)(v)(a)(ii) of this rule, applied to all contracts.
(ii)
For contracts issued on or after January 1, 2004:
(A)
For plans having less than a thirty day elimination period,
the 1985 commissioners individual disability table A (85CIDA) with claim
incidence rates increased by twelve per cent.
(B)
For plans having a thirty day and greater elimination
period, the 85CIDA for a fourteen day elimination period with claim incidence
rates increased by twelve per cent.
(b)
Claim reserves:
Claim reserves are to be determined as provided in (paragraphs (E)(4) and (E)(5) of this rule.
(vi)
Other
individual contract benefits.
(a)
Contract reserves:
For all other individual contract benefits, morbidity assumptions are to be determined as provided in the reserve standards.
(b)
Claim reserves:
For all benefits other than disability income insurance, claim reserves are to be determined as provided in the standards.
(b)
Minimum morbidity
standards for valuation of specified group contract health insurance benefits
are as follows:
(i)
Disability income insurance benefits due to accident or
sickness, where this rule references this paragraph (I)(1)(b)(i) of this rule,
paragraphs (I)(1)(b)(i)(a) and (I)(1)(b)(i)(b) of this rule apply; otherwise
actuarial guideline XLVII, as included in the 2019 version of the NAIC
accounting practices and procedures manual.
(a)
Contract reserves:
(i)
Contracts issued prior to January 1, 1992:
The same basis, if any, as that employed by the insurer as of January 1, 1992.
(ii)
Contracts issued on or after January 1, 1992:
The 1987 commissioners group disability income table (87CGDT).
(b)
Claim reserves:
(i)
For claims incurred on or after January 1, 1992:
The 1987 commissioners group disability income table (87CGDT).
(ii)
For claims incurred prior to January 1, 1992:
Use of the 87CGDT is optional.
(ii)
Single premium
credit disability
(a)
Contract reserves:
(i)
For contracts issued prior to January 1, 2004, each insurer
may elect either paragraph (I)(1)(b)(ii)(a)(i)(A) or (I)
(1)(b)(ii)(a)(i)(B) of this rule to use as the minimum
standard. Once an insurer elects to calculate reserves for all contracts on the
standard defined in paragraph (I)(1)(b)(ii)(a)(ii) of this
rule, all future valuations must be on that basis.
(A)
The minimum morbidity standard in effect for contract
reserves on currently issued contracts, as of the date the contract was issued;
or
(B)
The standard as defined in paragraph
(I)(1)(b)(ii)(a)(ii) of this rule, applied to all
contracts.
(ii)
For contracts issued on or after January 1, 2004:
(A)
For plans having less than a thirty day elimination period,
the 1985 commissioners individual disability table A (85CIDA) with claim
incidence rates increased by twelve per cent.
(B)
For plans having a thirty day and greater elimination
period, the 85CIDA for a fourteen day elimination period with the adjustment in
paragraph (I)(1)(b)(ii)(a)(i)(A) of this rule.
(b)
Claim reserves:
Claim reserves are to be determined as provided in paragraphs (E)(4) and (E)(5) of this rule.
(iii)
Other group contract benefits.
(a)
Contract reserves:
For all other group contract benefits, morbidity assumptions are to be determined as provided in the reserve standards.
(b)
Claim reserves:
For all benefits other than disability income insurance, claim reserves are to be determined as provided in the standards.
(2)
Interest
(a)
For contract
reserves the maximum interest rate is the maximum rate permitted by law in the
valuation of whole life insurance issued on the same date as the health
insurance contract.
(b)
For claim reserves on policies that require contract
reserves, the maximum interest rate is the maximum rate permitted by law in the
valuation of whole life insurance issued on the same date as the claim incurral
date.
(c)
For claim reserves on policies not requiring contract
reserves, the maximum interest rate is the maximum rate permitted by law in the
valuation of single premium immediate annuities issued on the same date as the
claim incurral date, reduced by one hundred basis points.
(3)
Mortality
(a)
Except as provided in paragraphs (I)(3)(b) and
(I)(3)(c) of this rule, the mortality basis used for all policies, except
long-term care individual policies and group certificates and for long-term
care individual policies or group certificates issued prior to January 1, 2004
shall be according to a table (but without use of selection factors) permitted
by law for the valuation of whole life insurance issued on the same date as the
health insurance contract. For long-term care insurance individual policies or
group certificates issued on or after January 1, 2004, the mortality basis used
shall be the 1983 group annuity mortality table without projection. For
long-term care insurance individual policies or group certificates issued on or
after January 1, 2011, the mortality basis used shall be the 1994 group annuity
mortality static table.
(b)
Other mortality tables adopted by the NAIC and
promulgated by the superintendent may be used in the calculation of the minimum
reserves if appropriate for the type of benefits and if approved by the
superintendent. The request for such approval must include the proposed
mortality table and the reason that the standard specified in paragraph
(I)(3)(a) of this rule is inappropriate.
(c)
For single
premium credit insurance using the 85CIDA table, no separate mortality shall be
assumed.
(J) Reserves for waiver of premium
(1)
Waiver of premium reserves involve several special
considerations. First, the disability valuation tables promulgated by the NAIC
are based on exposures that include contracts on premium waiver as in-force
contracts. Hence, contract reserves based on these tables are not reserves on
active lives but rather reserves on contracts in force. This is true for the
1964 CDT and for both the 1985 CIDA and CIDB tables.
(2)
Accordingly,
tabular reserves using any of these tables should value reserves on the
following basis:
(a)
Claim reserves should include reserves for premiums
expected to be waived, valuing as a minimum the valuation net premium being
waived;
(b)
Premium reserves should include contracts on premium
waiver as inforce contracts, valuing as a minimum the unearned modal valuation
net premium being waived; and
(c)
Contract reserves
should include recognition of the waiver of premium benefit in addition to
other contract benefits provided for, valuing as a minimum the valuation net
premium to be waived.
(3)
If an insurer is,
instead, valuing reserves on what is truly an active life table, or if a
specific valuation table is not being used but the insurer's gross premiums are
calculated on a basis that includes in the projected exposure only those
contracts for which premiums are being paid, then it may not be necessary to
provide specifically for waiver of premium reserves. Any insurer using such a
true active life basis should carefully consider, however, whether or not
additional liability should be recognized on account of premiums waived during
periods of disability or during claim continuation.
(K) Severability
If any paragraph, term or provision of this rule is adjudged invalid for any reason, the judgment shall not affect, impair or invalidate any other paragraph, term or provision of this rule, but the remaining paragraphs, terms, and provisions shall continue in full force and effect.
Replaces: 3901-3-13
Disclaimer: These regulations may not be the most recent version. Ohio may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
