02-031 C.M.R. ch. 425, § 20 - Premium Rate Increase Procedures

Current through 2022-14, April 6, 2022

A. This section shall apply as follows:

(1) Except as provided in Section 20(A)(2), this section applies to any long-term care policy or certificate delivered or issued for delivery in this state on or after October 1, 2004.

(2) For certificates issued under a group long-term care policy issued to an employee group as defined in 24-A M.R.S.A. §2804, a labor union group as defined in 24-A M.R.S.A. §2805, or a trustee group as defined in 24-A M.R.S.A. §2806, which policy is in force on or after the effective date of this rule, the provisions of this section shall apply on or after the first policy anniversary following April 1, 2005.

B. An insurer shall request approval from the superintendent for a premium rate increase. The request, which must be made at least 30 days before the insurer gives notice of an increase to the policyholders and certificateholders, shall include:

(1) The information required under Section 9;

(2) Certification by a qualified actuary that:

(a) If the requested rate increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized, no further increase is anticipated; and

(b) The premium rate filing is in compliance with this section;

(3) An actuarial memorandum justifying the rate schedule changes 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.

(i) Annual values for the five years preceding and the three years following the valuation date shall be separately stated;

(ii) The projections shall include the development of the lifetime loss ratio, unless the rate increase is an exceptional increase; and

(iii) The projections shall comply with Section 20(C).

(b) Disclosures of how reserves have been incorporated in the rate increase whenever the increase will trigger contingent benefit upon lapse;

(c) Disclosure of the analysis used to determine why a rate adjustment is necessary, which pricing assumptions were not realized and the reasons therefore, and what other carrier actions the actuary relied on;

(d) A statement that policy design, underwriting and claims adjudication practices have been taken into consideration; and

(e) In the event it is necessary to maintain consistent premium rates for any new certificate and for certificates receiving a rate increase, the insurer shall file composite rates reflecting projections of new certificates;

(4) A statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless the insurer provides sufficient justification to the superintendent; and

(5) Sufficient information for the superintendent's review and approval.

C. All premium rate schedule increases shall be determined in accordance with the following requirements:

(1) Except as provided in this section, exceptional increases are subject to the same requirements as other premium rate schedule increases;

(2) Exceptional increases shall provide that 70% of the present value of projected additional premiums from the exceptional increase will be returned to the policyholders or certificateholders in benefits;

(3) The superintendent may request that an independent actuary or professional actuarial body review an insurer's request that an increase be considered as exceptional;

(4) In determining whether an exceptional increase is justified, the superintendent also shall consider any potential offset to higher claim costs;

(5) For exceptional increases, the projected experience must be limited to increases in claims expense attributable to the approved reasons for the exceptional increase, and, if the superintendent allows offsets as described in paragraph 4 of this subsection, the insurer shall use appropriate net projected experience;

(6) Premium rate schedule increases shall be calculated such that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:

(a) The accumulated value of the initial earned premium times 58%;

(b) Eighty-five percent 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 58%; and

(d) Eighty-five percent of the present value of future projected premiums which are not in Section 20(C)(6)(c) on an earned basis;

(7) In the event a policy form has both exceptional and other increases, the values in Sections 20(C)(6)(b) and (d) additionally will include 70% for exceptional rate increase amounts; and

(8) All present and accumulated values used to determine rate increases shall use the maximum value interest rate for contract reserves as specified in Bureau of Insurance Rule Chapter 130. The actuary shall disclose as part of the actuarial memorandum the use of any appropriate averages.

D. For each rate increase that is implemented, annually for the next three years after the date of implementation, the insurer shall file with the superintendent a request for approval of updated projections, as defined in Section 20(B)(3)(a). The annual filing shall include a comparison of actual results to projected values. The superintendent may extend the period to more than three years if actual results are not consistent with values from earlier projections. For group policies that satisfy the conditions in Section 20(K), the insurer shall transmit the projections required in this paragraph to the policyholder in lieu of filing with the superintendent.

E. If any premium rate in the revised premium schedule is greater than 200% of the comparable rate in the initial premium schedule, lifetime projections, as defined in Section 20(B)(3)(a), shall be filed for approval by the superintendent every five years following the end of the period described in Section 20(D). For group policies that satisfy either of the conditions of Section 20(K), the insurer shall transmit the projections required in this paragraph to the policyholder in lieu of filing with the superintendent.

F.

(1) If the superintendent determines 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 Section 20(C), the superintendent may require the insurer to take the following actions:

(a) Make adjustments in the premium rate schedule; or

(b) Implement other appropriate measures to reduce the difference between the projected and actual experiences.

(2) In determining whether the actual experience adequately matches the projected experience, the superintendent should consider Section 20(B)(3)(e), if applicable.

G. If the majority of policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse, the insurer shall file:

(1) A plan, subject to the superintendent's prior approval, for improved administration of claims processing designed to eliminate the potential for further deterioration of the policy form or further rate increase requests, or to demonstrate that appropriate administration and claims processing are in effect. The superintendent may impose the criteria in Section 20(H) before giving approval to the insurer's plan; and

(2) The original anticipated loss ratio, with a rate increase in accordance with Section 20(C) that would have been arrived at by using, in the calculation described in Section 20(C), the greater of the original anticipated lifetime loss ratio or 58%.

H.

(1) For a rate filing that meets the following criteria, the superintendent shall review for all policies included in the filing the projected lapse rates and past lapse rates during the 12 months following each rate increase to determine whether or not significant lapses have occurred or are anticipated:

(a) The rate increase is not the first increase requested for the policy form;

(b) The requested 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 lapses have 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 superintendent may determine that a rate spiral exists. Following the determination that a rate spiral exists, the superintendent 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 one or more reasonably comparable products being offered by the insurer or its affiliates.

(a) The offer shall:

(i) Be subject to the approval of the superintendent;

(ii) Be based on actuarially sound principles, but not be based on attained age; and

(iii) 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. If the insurer seeks a rate increase for the form, such increase is limited to the lesser of :

(i) The maximum rate increase based on the combined experience; or

(ii) The maximum rate increase based only on the experience of the insureds who originally were issued the form plus 10%.

I. If the superintendent determines that the insurer has exhibited a persistent practice of filing inadequate initial premium rates for long-term care insurance, the superintendent may, in addition to the provisions of Subsection H of this section, prohibit the insurer from either of the following:

(1) Filing and marketing comparable coverage for a period of up to five (5) years; or

(2) Offering all other similar coverages and limiting marketing of new applications to the products subject to recent premium rate schedule increases.

J. Sections 20(A) through (I) shall not apply to policies for which the long-term care benefits under the policy are incidental, as defined in Section 4(G), if the policy complies with all of the following requirements:

(1) The interest credited internally to determine cash value accumulations, including long-term care, if any, is guaranteed to be not less than the minimum guaranteed interest rate for cash value accumulations without long-term care benefits in the policy;

(2) The portion of the policy covering other than long-term care meets this state's nonforfeiture requirements applicable to life insurance, individual deferred annuities or variable annuities;

(3) The policy satisfies the disclosure requirements of 24-A M.R.S.A. §5074;

(4) The portion of the policy covering other than long-term care meets this state's requirements for life insurance illustrations, annuity disclosures or variable disclosures;

(5) The insurer files an actuarial memorandum that includes:

(a) A description of the bases for the long-term care premium rates and reserves, together with a summary of the policy type, benefits, renewability, marketing methods and any age limit on issuance;

(b) A description and a table of each actuarial assumption; for expenses there must be a stated percent of premium dollars per policy and dollars per unit of benefits, if any;

(c) A description and a table of the anticipated policy reserves and additional reserves to be held in each future year for active lives;

(d) The estimated average annual premium per policy and the average issue age;

(e) A statement whether underwriting is performed at the time of application. The statement shall describe the kind of any underwriting used, such as medical or functional assessment testing. For group policies, the statement shall note if and when the enrollee or any dependent will be underwritten; and

(f) A description of the effect on the underlying policy of the long-term care coverage on required premiums, nonforfeiture values and reserves, both for active lives and those in long-term care claim status.

K. Sections 20(F) and (H) shall not apply to employee groups as defined in 24-A M.R.S.A. §2804, labor union groups as defined in 24-A M.R.S.A. §2805, or trustee groups as defined in 24-A M.R.S.A. §2806 if:

(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 is defined as not less than 20% of the total premium for the group in the calendar year prior to the year a rate increase is approved.

Notes

02-031 C.M.R. ch. 425, § 20