West Virginia Code of State Rules
Agency 114 - Insurance Commission
Title 114 - LEGISLATIVE RULE INSURANCE COMMISSIONER
Series 114-44 - Minimum Reserve Standards For Individual And Group Health Insurance Contracts
Section 114-44-8 - Contract Reserves
Universal Citation: 114 WV Code of State Rules 114-44-8
Current through Register Vol. XLI, No. 38, September 20, 2024
8.1. General.
a. Contract reserves are required, unless
otherwise specified in paragraph b of this subsection for:
A. All individual and group contracts with which
level premiums are used; or
B. 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. The values
specified in this subparagraph shall be determined on the basis specified in
subsection 8.2 of this rule.
b. Contracts not requiring a contract reserve are:
A. Contracts which cannot be continued after one
year from issue; or
B. Contracts already
in force on the effective date of this rule for which no contract reserve was
previously required.
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.
8.2. Minimum Standards for Contract Reserves.
a. Basis
A. Morbidity or other Contingency. The minimum
standards with respect to morbidity are those set forth in Appendix A 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 the insured, contract duration and the period for which gross
premiums have been calculated. Contracts for which tabular morbidity standards are
not specified in Appendix A of this rule shall be valued using tables established
for reserve purposes by a qualified actuary and acceptable to the
commissioner.
B. Interest. The maximum
interest rate is specified in Appendix A of this rule.
C. Termination Rates. Termination rates used in
the computation of reserves shall be on the basis of a mortality table as specified
in Appendix A of this rule except as noted in the following part.
(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 the rates exceed specified mortality table rates, but not in excess
of the lesser of:
(A). Eighty percent of the total
termination rate used in the calculation of the gross premiums, or
(B). Eight percent.
(b). Where a morbidity standard specified in
Appendix A of this rule is on an aggregate basis, the 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
commissioner.
D. Reserve
Method.
(a). 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.
(b). For long-term care
insurance, the minimum reserve is the reserve calculated on the one-year full
preliminary term method.
(c). 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 the benefits are provided at any time before the
twentieth anniversary;
(B). On the two
year preliminary term method if the benefits are only provided on or after the
twentieth anniversary.
(C). 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.
E.
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.
8.3. Alternative Valuation Methods and Assumptions Generally.
a. 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 in subsection 8.2 of this rule; an insurer may use any
reasonable assumptions as to interest rates, termination and/or 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 in subsection 8.2 of
this rule in determining a sound value of its liabilities under the 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.
8.4. Tests For Adequacy and Reasonableness of Contract Reserves.
a. Annually, the insurer shall
make an appropriate review 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 the tabular reserves if
the tests indicate that the basis of the reserves is no longer adequate; subject,
however, to the minimum standards of subsection 8.2 of this rule.
b. 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, Insurance Commissioner's rules, or for other reasons, 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 the shortfall in the aggregate.
Disclaimer: These regulations may not be the most recent version. West Virginia 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.
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