02- 031 C.M.R. ch. 130, § 5 - Claim Reserves

A. General

(1) Claim reserves are required for all incurred but unpaid claims on all health insurance policies.

(2) Appropriate claim expense reserves are required with respect to the estimated expense of settlement of all incurred but unpaid claims.

(3) 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.

B. Minimum Standards for Claim Reserves

(1) Disability Income

(a) Interest. The maximum interest rate for claim reserves is specified in Appendix A.

(b) Morbidity. Minimum standards with respect to morbidity are those specified in Appendix A; except that, at the option of the insurer:

(i) 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 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 group disability income claims incurred on or after January 1, 2007:

(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 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 commissioner, 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: An analysis of the credibility of the experience. For experience to be considered credible for purposes of this provision, the insurer must be able to provide claim termination patterns over no more than six years reflecting at least 5,000 claims terminations during the third through fifth claims durations on reasonably similar applicable policy forms; A description of how all of the insurer's experience is proposed to be used in setting reserves; and A description and quantification of the margins to be included. A summary of the financial impact that the proposed plan of modification would have had on the insurer's last filed annual statement; A copy of the approval of the proposed plan of modification by the commissioner of the state of domicile; and Any other information deemed necessary by the commissioner.

(iii) For disability income claims incurred prior to January 1, 2007, 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 Items (i) and (ii), applied to all open claims. Once an insurer elects to calculate reserves for all open claims on the standard defined in Items (i) and (ii), all future valuations must be on that basis.

(iv) For claim reserves to reflect sound values and reasonable margins, reserve tables based on credible experience should be adjusted regularly to maintain reasonable margins. Demonstrations may be required by the Superintendent based on published literature.

(c) Duration of Disablement. For contracts with an elimination period, the duration of disablement should be measured as dating from the time that benefits would have begun to accrue had there been no elimination period.

(2) All Other Benefits

(a) Interest. The maximum interest rate for claim reserves is specified in Appendix A.

(b) Morbidity or other Contingency. The reserve should 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.

C. Claim Reserve Methods Generally

Any generally accepted or reasonable actuarial method or combination of methods may be used to estimate all claim liabilities. 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.

Notes

02- 031 C.M.R. ch. 130, § 5