Current through Register Vol. 41, No. 3, September 23, 2024
A. An insurer shall
request the commission's approval of a pending premium rate schedule increase,
including an exceptional increase, prior to the notice to the policyholders and
shall include:
1. Information required by
14VAC5-200-75;
2. Certification by a qualified actuary 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
section;
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;
(1)
Annual values for the five years preceding and the three years following the
valuation date shall be provided separately;
(2) The projections shall include the
development of the lifetime loss ratio, unless the rate increase is an
exceptional increase;
(3) The
projections shall demonstrate compliance with subsection B of this section;
and
(4) For exceptional increases:
(a) The projected experience should be
limited to the increases in claims expenses attributable to the approved
reasons for the exceptional increase; and
(b) In the event the commission determines as
provided in the definition of exceptional increase in
14VAC5-200-40 that offsets may
exist, the insurer shall use appropriate 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;
e. In the event that it is necessary to
maintain consistent premium rates for new policies and policies receiving a
rate increase, the insurer will need to file composite rates reflecting
projections of new policies; and
f.
A demonstration that actual and projected costs exceed costs anticipated at the
time of initial pricing under moderately adverse experience and that the
composite margin is projected to be exhausted;
4. A statement that renewal premium rate
schedules are not greater than new business premium rate schedules except for
differences attributable to benefits, unless sufficient justification is
provided to the commission; and
5.
Sufficient information for review and approval of the premium rate schedule
increase by the commission.
An insurer may request a series of scheduled rate increases
that are actuarially equivalent to a single amount requested over the lifetime
of the policy. The entire series may be approved at one time as part of the
current rate increase filing. The insurer shall be required to include
contingent benefit upon lapse at the time of each scheduled increase.
The insurer may request a premium rate schedule increase less
than what is required under this section and the commission may approve such
premium rate schedule increase, without submission of the certification in
subdivision 2 a of this subsection, if the actuarial memorandum discloses the
premium rate schedule increase necessary to make such certification required,
the premium rate schedule increase filing satisfies all other requirements of
this section, and is, in the opinion of the commission, in the best interest of
policyholders.
B. All premium rate schedule increases shall
be determined in accordance with the following requirements:
1. Exceptional increases shall provide that
70% 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 lesser of (i) the accumulated value of
actual incurred claims, without the inclusion of active life reserves, or (ii)
the accumulated value of historic expected claims without the inclusion of
active life reserves, plus the present value of the future expected incurred
claims, projected without the inclusion of actual life reserves, will not be
less than the sum of the following:
a. The
accumulated value of the initial earned premium times the greater of (i) 58%
and (ii) the lifetime loss ratio consistent with the original filing including
margins for moderately adverse experience;
b. 85% 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 the greater of (i) 58% and (ii) the lifetime loss
ratio consistent with the original filing including margins for moderately
adverse experience; and
d. 85% of
the present value of future projected premiums not in subdivision 2 c of this
subsection on an earned basis.
3. Expected claims shall be calculated based
on the original filing assumptions assumed until new assumptions are filed as
part of a rate increase. New assumptions shall be used for all periods beyond
each requested effective date of a rate increase. Expected claims are
calculated for each calendar year based on the in-force policies at the
beginning of the calendar year. Expected claims shall include margins for
moderately adverse experience; either amounts included in the claims that were
used to determine the lifetime loss ratio consistent with the original filing
or as modified in any rate increase filing;
4. In the event that a policy form has both
exceptional and other increases, the values in subdivisions 2 b and d of this
subsection will also include 70% for exceptional rate increase amounts;
and
5. All present and accumulated
values used to determine rate increases, including the lifetime loss ratio
consistent with the original filing reflecting margins for moderately adverse
experience, shall use the maximum valuation interest rate for contract reserves
as specified in § 38.2-1371 of the Code of Virginia . The actuary shall
disclose as part of the actuarial memorandum the use of any appropriate
averages.
C. For each
rate increase that is implemented, the insurer shall file for approval by the
commission updated projections, as defined in subdivision A 3 a of this
section, annually for the next three years and include a comparison of actual
results to projected values. The commission 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 subsection J of this section, the projections required by subdivision A 3 a
of this section shall be provided to the policyholder in lieu of filing with
the commission.
D. If any increased
premium rate in the revised premium rate schedule is greater than 200% of the
comparable rate in the initial premium schedule, the premiums exceeding 200%
shall be clearly identified and lifetime projections, as defined in subdivision
A 3 a of this section, shall be filed for approval by the commission every five
years following the end of the required period in subsection C of this section.
For group insurance policies that meet the conditions in subsection J of this
section, the projections required by this subsection shall be provided to the
policyholder in lieu of filing with the commission.
E.
1. If
the commission 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 subsection
B of this section, the commission may require the insurer to implement any of
the following:
a. Premium rate schedule
adjustments; or
b. 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 subsections C and D of this section, the commission
may 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.
2. In determining whether the actual
experience adequately matches the projected experience, consideration should be
given to subdivision A 3 e of this section, if applicable.
F. 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 a plan, subject to
commission approval, for improved administration or claims processing designed
to eliminate the potential for further deterioration of the policy form
requiring further premium rate schedule increases, or both, or to demonstrate
that appropriate administration and claims processing have been implemented or
are in effect; otherwise the commission may impose the condition in subsection
G of this section.
G.
1. For a rate increase filing that meets the
following criteria, the commission 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 significant adverse lapsation has
occurred or is anticipated:
a. The rate
increase is not the first rate increase requested for the specific policy form
or forms;
b. The rate increase is
not an exceptional increase; and
c.
The majority of the policies or certificates to which the increase is
applicable are eligible for the contingent benefit upon lapse.
2. In the event significant
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 commission may determine
that a rate spiral exists. Following the determination that a rate spiral
exists, the commission 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 any other long-term care insurance product being offered
by the insurer or its affiliates.
a. The
offer shall:
(1) Be subject to the approval
of the commission;
(2) Be based on
actuarially sound principles, but not be based on attained age; and
(3) Provide that maximum benefits under any
new policy accepted by an insured shall be reduced by comparable benefits
already paid under the existing policy.
b. 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:
(1) The maximum rate increase determined
based on the combined experience; or
(2) The maximum rate increase determined
based only on the experience of the insureds originally issued the form plus
10%.
H. If the commission determines that the
insurer has exhibited a persistent practice of filing inadequate initial
premium rates for long-term care insurance, the commission may, in addition to
the provisions of subsection G of this section, 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.
I. Subsections A through H of this section
shall not apply to policies for which the long-term care benefits provided by
the policy are incidental, as defined in
14VAC5-200-40, 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 not to be 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:
a. Sections 38.2-3200 through 38.2-3218 of
the Code of Virginia; or
b.
Sections 38.2-3219 through 38.2-3229 of the Code of Virginia;
3. The policy meets the disclosure
requirements of §§ 38.2-5207.1 and 38.2-5207.2 of the Code of
Virginia;
4. The portion of the
policy that provides insurance benefits other than long-term care coverage
meets the requirements as applicable in 14VAC5-20 and 14VAC5-41; and
5. An actuarial memorandum is filed with the
commission 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 shall 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.
J. Subsections E and G of this section shall
not apply to group insurance policies as defined in subsections A and C of
§ 38.2-3521.1 of the Code of Virginia 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
certificateholders, pays a material portion of the premium, which shall not be
less than 20% of the total premium for the group in the calendar year prior to
the year a rate increase is filed.
Statutory Authority: §§ 12.1-13, 38.2-223, and
38.2-5202 of the Code of Virginia.
