To revise the health reserve rules to reflect changes made by the NAIC in 2006 and to revise the Specific Minimum Standards for Morbidity, Mortality and Interest to reflect revisions made to the NAIC Accounting Practices and Procedures Manual in ...

 

DEPARTMENT OF FINANCIAL SERVICES
OIR Insurance Regulation

RULE NO: RULE TITLE
69O-154.203: Categories of Reserves
69O-154.204: Specific Minimum Standards for Morbidity, Mortality and Interest
PURPOSE AND EFFECT: To revise the health reserve rules to reflect changes made by the NAIC in 2006 and to revise the Specific Minimum Standards for Morbidity, Mortality and Interest to reflect revisions made to the NAIC Accounting Practices and Procedures Manual in 2006.
SUMMARY OF ESTIMATED REGULATORY COSTS: No Statement of Estimated Regulatory Cost was prepared.
Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.
SPECIFIC AUTHORITY: 624.308(1), 625.121(14), 625.081 FS.
LAW IMPLEMENTED: 624.307(1), 625.081, 625.121 FS.
IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE HELD AT THE TIME, DATE AND PLACE SHOWN BELOW(IF NOT REQUESTED, THIS HEARING WILL NOT BE HELD):
TIME AND DATE: July 20, 2006, 9:30 a.m.
PLACE: Room 116, Larson Building, 200 East Gaines Street, Tallahassee, Florida.
THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Kerry Krantz, Life and Health Financial Oversight, Office of Insurance Regulation, E-mail [e-mail].
Pursuant to the provisions of the Americans with Disabilities Act, any person requiring special accommodations to participate in this program, please advise the Office at least 5 calendar days before the program by contacting the person listed above.

THE FULL TEXT OF THE PROPOSED RULE IS:

69O-154.203 Categories of Reserves.

Adequacy of an insurer’s health insurance reserves shall be determined on the basis of all three categories combined. However, these standards emphasize the importance of determining appropriate reserves for each of the three categories separately.

(1) Claim Reserves.

(a) No change.

(b) Minimum Standards for Claim Reserves.

1. Disability Income.

a. No change.

b. No change.

(I) For claims incurred on or before December 31, 2006, with a duration from date of disablement of less than two years, reserves may at the option of the insurer be based on the insurer’s experience, if such experience is considered credible, or upon other assumptions designed to place a sound value on the liabilities.

(II) For individual disability income claims incurred on or after January 1, 2007, assumptions regarding claim termination rates for the period less than two years from the date of disablement may, at the option of the insurer, be based on the insurer’s experience, if such experience is considered credible, or upon other assumptions designed to place a sound value on the liabilities.

(III)(II) Alternatively, Ffor group disability income claims incurred on or before December 31, 2006, with a duration from date of disablement of more than two (2) years but less than five (5) years, reserves may at the option of the insurer, be based on the insurer’s experience for which the insurer maintains underwriting and claim administration control, and in accordance with commonly accepted actuarial practice.

(IV) For group disability income claims incurred on or after January 1, 2007.

(A) Assumptions regarding claim termination rates for the period less than two years from the date of disablement may, at the option of the insurer, be based on the insurer’s experience, if such experience is considered credible, or upon other assumptions designed to place a sound value on the liabilities.

(B) 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 Office, be based on the insurer’s experience, if such experience is considered credible, and for which the insurer maintains underwriting and claim administration control.

(V) With respect to (III) and (IV)(B) above, for experience to be considered credible, the company should be able to provide claim termination patterns over no more than six (6) years reflecting at least 5,000 claims terminations during the third through fifth claims durations on reasonably similar applicable policy forms.

(A) The request for approval of a plan of modification to the reserve basis shall include:

(i) through (iv) No change.

(v) For a company not domiciled in this state, aA copy of the approval of the proposed plan of modification by the commissioner of the state of domicile.

(vi) No change.

(B) For experience to be considered credible for purposes of (II), the company shall be able to provide claim termination patterns over no more than six (6) years reflecting at least 5,000 claims termination during the third through fifth claims durations on reasonably similar applicable policy forms.

(B)(C) For claim reserves to reflect “sound values,” and/or reasonable margins, reserve tables based on credible experience shall be adjusted regularly to maintain reasonable margins.

c.(III) Duration of Disablement. 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.

2. No change.

(2) Premium Reserves.

(a) General.

1. Except as noted in 2., uUnearned premium reserves shall be required for all contracts for the period of coverage for which premiums, other than premiums paid in advance, have been paid beyond the date of valuation.

2. Single premium credit disability insurance individual policies and group certificates, which are subject to the requirements of Section 625.121(13), F.S., are excluded from unearned premium reserve requirements of (a), (b), and (c).

3.2.a. If premiums due and unpaid are carried as an asset, the premiums shall be treated as premiums in force, subject to unearned premium reserve determination.

b. No change.

4.3. The gross premiums paid in advance for a period of coverage beginning after the next premium due date following the date of valuation may at the option of the insurer be 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.

(b) through (c) No change.

(3) Contract Reserves.

(a) No change.

(b) Minimum Standards for Contract Reserves.

1. Basis.

a. Morbidity or other Contingency.

(I) No change.

(II) Expect as provided in (a)1b, if for a policy form there is no gross premium variation by age, the valuation net premiums will nonetheless vary based on age at issue for each such contract since at issue the present value of valuation net premiums for a contract must equal the present value of tabular claim costs.

(III)(II) Contracts for which tabular morbidity standards are not specified in subsection 69O-154.204(1), F.A.C., shall be valued using tables established for reserve purposes by a qualified actuary. The morbidity tables shall contain a pattern of incurred claims cost that reflects the underlying morbidity, and shall not be constructed for the primary purpose of minimizing reserves.

(A) through (C) No change.

b. No change.

c. Termination Rates. Termination rates used in the computation of reserves shall be on the basis of a mortality table specified in rule subsection 69O-154.204(3), F.A.C., except as follows:

(I) Under contracts issued on or after January 1, 1999, 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 at the option of the insurer be used at ages and durations where these exceed specified mortality table rates, but not in excess of the lesser of:

(A) through (B) No change.

(II) through (IV) No change.

d. through f. No change.

(c) through (d) No change.

Specific Authority 624.308(1), 625.121(14), 625.081 FS. Law Implemented 624.307(1), 625.081, 625.121 FS. History–New 4-14-99, Formerly 4-154.203, Amended 3-1-04, 4-7-05, ________________.

 

69O-154.204 Specific Minimum Standards for Morbidity, Mortality and Interest.

Specific minimum standards for morbidity, mortality and interest which apply to claim reserves according to year of incurral and to contract reserves according to year of issue:

(1) through (2) No change.

(3) Mortality.

(a) through (d) No change.

(e) For single premium credit insurance using the adjusted 85 CIDA table, no separate mortality shall be assumed.

Specific Authority 624.308(1), 625.121(14), 625.081 FS. Law Implemented 624.307(1), 625.081, 625.121 FS. History–New 4-14-99, Formerly 4-154.204, Amended 3-1-04, 4-7-05,______________.

NAME OF PERSON ORIGINATING PROPOSED RULE: Kerry Krantz, Actuary, Life and Health Financial Oversight, Office of Insurance Regulation
NAME OF SUPERVISOR OR PERSON WHO APPROVED THE PROPOSED RULE: Rich Robleto, Deputy Commissioner, Office of Insurance Regulation
DATE PROPOSED RULE APPROVED BY AGENCY HEAD: 6/6/2006
DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAW: March 10, 2006