Ala. Admin. Code r. 482-1-134-.02
Current through Register Vol. 43, No. 1, October 31, 2024
Section 482-1-134-.02 - Claim Reserves(1) General. (a) Claim reserves are required for all incurred but unpaid claims on all health insurance policies. 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.(b) Appropriate claim expense reserves are required with respect to the estimated expense of settlement of all incurred but unpaid claims.(c) 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.(d) For claim reserves on policies that require contract reserves, the claim incurral date is to be considered the "issue date" for determining the table and interest rate to be used for claim reserves.(e) The maximum interest rate for claim reserves is specified in Appendix A.(f) With respect to claim reserves for policies issued before the operative date of the Valuation Manual, the requirements for claim reserves on claims incurred after that date shall be as described in the Valuation Manual based on the incurred date of the claim.(2) Minimum Morbidity Standards for Individual Disability Income Claim Reserves. (a) For claims incurred prior to January 1, 2005, each insurer may elect either of the following to use as the minimum morbidity standard for claim reserves:1. The minimum morbidity standard in effect for claim reserves as of the date the claim was incurred.2. The standards as defined in subparagraph (b) or (c) applied to all open claims. Once an insurer elects to calculate reserves for all open claims on the standard defined in either subparagraph (b) or (c), all future valuations must be on that basis.(b) For claims incurred on or after January 1, 2005, and prior to the effective date for the company as determined in subparagraph (e), the minimum standards with respect to morbidity are those specified in Appendix A, except that, at the option of the insurer, assumptions regarding claim termination rates for the period less than two (2) 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.(c) For claims incurred on or after January l, 2020, the minimum standards are those specified in Appendix A, including (as derived in accordance with Actuarial Guideline L): 1. The use of the insurer's own experience.2. An adjustment to include an own experience measurement margin.3. The application of a credibility factor.(d) In determining the minimum reserves in accordance with subparagraph (c), the provisions of subparagraphs 1., 2., and 3. are not required if either: 1. The insurer meets the Own Experience Measurement Exemption provided in Actuarial Guideline L.2. For worksite disability policies with benefit periods of up to two years, at the option of the insurer, disabled life reserves may be based on the insurer's experience, if such experience is considered credible, or upon other assumptions and methods designed to place a sound value on the liabilities.(e) An insurer may begin to use the minimum reserve standards in subparagraph (c) at a date earlier than January 1, 2020, but not prior to January 1, 2017.(f) An insurer may, within three years of January 1, 2020 (or such earlier date it elects under subparagraph (e)), apply the new standards in subparagraph (c) to all open claims incurred prior to the effective date for subparagraph (c) for the insurer. Once an insurer elects to calculate reserves for all open claims based on subparagraph (c), all future valuations must be on that basis.(3) Minimum Morbidity Standards for Group Disability Income Claim Reserves.(a) For claims incurred prior to January 1, 2005, each insurer may elect any of the following to use as the minimum morbidity standard for claim reserves: 1. The minimum morbidity standard in effect for claim reserves as of the date the claim was incurred.2. After the effective date selected by the company in Section 2C (2), the standards as defined in subparagraph (b), applied to all open group long term disability income claims.3. The standards as defined in subparagraph (c), applied to all open group disability income claims.(b) For group long-term disability income claims incurred on or after January 1, 2005, but before the effective date selected by the company in subparagraph (c), and group disability income claims incurred on or after January 1, 2005, that are not group long-term disability income, the minimum standards with respect to morbidity are those specified in Appendix A except that, at the option of the insurer: 1. Assumptions regarding claim termination rates for the period less than two (2) 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.2. Assumptions regarding claim termination rates for the period two (2) or more years but less than five (5) 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: (i) An analysis of the credibility of the experience.(ii) A description of how all of the insurer's experience is proposed to be used in setting reserves.(iii) A description and quantification of the margins to be included.(iv) A summary of the financial impact that the proposed plan of modification would have had on the insurer's last filed annual statement.(v) A copy of the approval of the proposed plan of modification by the commissioner of the state of domicile.(vi) Any other information deemed necessary by the commissioner.3.(i) Each insurer may elect either of the following to use as the minimum morbidity standard for long-term disability income claim reserves: (I) The minimum morbidity standard in effect for claim reserves as of the date the claim was incurred.(II) The standards as defined in subparagraph 4., applied to all open claims.(ii) Once an insurer elects to calculate reserves for all open claims on a more recent standard, then all future valuations must be on that basis.(c) For group long-term disability income claims incurred on or after January 1, 2017, the minimum standards with respect to morbidity shall be based on the 2012 GLTD termination table or subsequent table with considerations of:1. The insurer's own experience computed in accordance with Actuarial Guideline XLVII, as included in the most current version of the NAIC Accounting Practices and Procedures Manual.2. An adjustment to include an own experience measurement margin derived in accordance with Actuarial Guideline XLVII, as included in the most current version of the NAIC Accounting Practices and Procedures Manual.3. A credibility factor derived in accordance with Actuarial Guideline XLVII, as included in the most current version of the NAIC Accounting Practices and Procedures Manual.(d) An insurer may begin to use the minimum reserve standards in subparagraph (c) at a date earlier than January 1, 2017, but not prior to October 1, 2014. An insurer may apply the standards in subparagraph (c) to all open claims incurred prior to the effective date for subparagraph (c) for the insurer. Once an insurer elects to calculate reserves for all open claims based on subparagraph (c), all future valuations must be on that basis.(4) Minimum Morbidity Standard for Other Health Insurance Claim Reserves. The reserve should 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.(5) Claim Reserve Methods Generally. A generally accepted actuarial reserving method or other reasonable method, if, after a public hearing, the method is approved by the commissioner prior to the statement date, or a 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.Ala. Admin. Code r. 482-1-134-.02
New Rule: July 14, 2005; effective July 28, 2005. Filed with LRS July 18, 2005. Rule is not subject to the Alabama Administrative Procedure Act.Amended by Alabama Administrative Monthly Volume XXXIX, Issue No. 09, June 30, 2021, eff. 6/20/2021.Author: Commissioner of Insurance
Statutory Authority:Code of Ala. 1975, §§ 27-2-17, 27-36A-1, et al.