Section 3 AAC 28.570 - Premium rate schedule increases for policies subject to loss ratio limits related to original filings(a) This section applies as follows:(1) except as provided in (2) of this subsection, this section applies to a long-term care policy or certificate issued in this state on or after January 1, 2023; and(2) for certificates issued on or after effective date of 3 AAC 28.550 - 3 AAC 28.599 under a group long-term care insurance policy as defined in AS 21.53.200(3)(A), which policy was in force March 27, 2022, provisions of this section shall apply on the policy anniversary following January 1, 2023.(b) An insurer shall provide notice of a pending premium rate schedule increase, including an exceptional increase, to the director at least 45 days before the notice to the policyholders and shall include(1) information required by 3 AAC 28.556;(2) certification by a qualified actuary that;(A) if the requested premium rate schedule increase is implemented and the underlying assumptions, that reflect moderately adverse conditions, are realized, no further premium rate schedule increases are anticipated;(B) the premium rate filing is in compliance with the provisions of this section; and(C) the insurer may request a premium rate schedule increase less than what is required under this section and the director may approve a premium rate schedule increase, without submission of the certification in (A) of this paragraph, if the actuarial memorandum discloses the premium rate schedule increase necessary to make the certification required under (A) of this paragraph, the premium rate schedule increase filing satisfies all other requirements of this section, and is, in the opinion of the director, in the best interest of policyholders;(3) an actuarial memorandum justifying the rate schedule change request that include (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 assumptions that deviate from those used for pricing other forms currently available for sale; additionally, (i) annual values for the five years preceding and the three years following the valuation date shall be provided separately;(ii) the projections shall include the development of the lifetime loss ratio, unless the rate increase is an exceptional increase;(iii) the projections shall demonstrate compliance with (c) of this section; and(iv) for exceptional increases, the projected experience must be limited to the increases in claims expenses attributable to the approved reasons for the exceptional increase; and if the director determines, as provided in 3 AAC 28.599(2)(E), that offsets may exist, the insurer shall use appropriate net projected experience;(B) disclosure of how reserves have been incorporated in this rate increase whenever the rate increase will trigger contingent benefit upon lapse;(C) disclosure of the analysis performed to determine why a rate adjustment is necessary, which pricing assumptions were not realized and why, and what other actions taken by the company have been relied on by the actuary;(D) a statement that policy design, underwriting, and claims adjudication practices have been taken into consideration;(E) if it is necessary to maintain consistent premium rates for new certificates and certificates receiving a rate increase, composite rates filed by the insurer to reflect projections of new certificates; and(F) a demonstration that actual and projected costs exceed costs anticipated at the time of initial pricing under moderately adverse experience and that the composite margin specified in 3 AAC 28.557(b)(2)(D) is projected to be exhausted;(4) a statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the director; and(5) sufficient information for review and approval of the premium rate schedule increase by the director.(c) All premium rate schedule increases shall be determined in accordance with the following requirements: (1) exceptional increases shall provide that 70 percent of the present value of projected additional premiums from the exceptional increase will be returned to policyholders in benefits;(2) premium rate schedule increases shall be calculated so that the sum of the lesser of either the accumulated value of actual incurred claims, without the inclusion of active life reserves, or the accumulated value of historic expected claims, without the inclusion of active life reserves, plus the present value of the future expected incurred claims, projected 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 the greater of; (ii) the lifetime loss ratio consistent with the original filing including margins for moderately adverse experience;(B) 85 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 the greater of; (ii) the lifetime loss ratio consistent with the original filing including margins for moderately adverse experience; and(D) 85 percent of the present value of future projected premiums not in (C) of this paragraph on an earned basis;(3) expected claims shall be calculated based on the original filing assumptions assumed until new assumptions are filed as part of a rate increase; new assumptions shall be used for all periods beyond each requested effective date of a rate increase; expected claims are calculated for each calendar year based on the in-force at the beginning of the calendar year; expected claims shall include margins for moderately adverse experience; either amounts included in the claims that were used to determine the lifetime loss ratio consistent with the original filing or as modified in a rate increase filing;(4) if a policy form has both exceptional and other increases, the values in (2)(B) and (D) of this subsection will also include 70 percent for exceptional rate increase amounts; and(5) all present and accumulated values used to determine rate increases, including the lifetime loss ratio consistent with the original filing reflecting margins for moderately adverse experience, shall use the maximum valuation interest rate for contract reserves as specified in AS 21.18.110; the actuary shall disclose as part of the actuarial memorandum the use of appropriate averages.(d) For each rate increase that is implemented, the insurer shall file for review by the director, updated projections under (b)(3)(A) of this section, annually for the next three years, and include a comparison of actual results to projected values. The director may extend the period to greater than three years if actual results are not consistent with projected values from prior projections. For group insurance policies that meet the conditions in (l) of this section, the projections required by this subsection shall be provided to the policyholder instead of filing with the director.(e) If a premium rate in the revised premium rate schedule is greater than 200 percent of the comparable rate in the initial premium schedule, lifetime projections under (b)(3)(A) of this section shall be filed for review and approval by the director every five years following the end of the required period in (d) of this section. For group insurance policies that meet the conditions in (l) of this section, the projections required by this subsection shall be provided to the policyholder instead of filing with the director.(f) If the director has determined that the actual experience following a rate increase does not adequately match the projected experience, with consideration given to (b)(3)(E) of this section if applicable, and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in (c) of this section, the director may require the insurer to implement the following;(1) premium rate schedule adjustments; or(2) other measures to reduce the difference between the projected and actual experience.(g) If the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse, the insurer shall file a plan, subject to director approval, for improved administration or claims processing designed to eliminate the potential for further deterioration of the policy form requiring further premium rate schedule increases, or both, or to demonstrate that appropriate administration and claims processing have been implemented or are in effect. otherwise the director may impose the condition in (h) or (i) of this section.(h) For a rate increase filing that meets the following criteria, the director will review, for all policies included in the filing, the projected lapse rates and past lapse rates during the 12 months following each increase to determine if a significant adverse lapse has occurred or is anticipated: (1) the rate increase is not the first rate increase requested for the specific policy form or forms;(2) the rate increase is not an exceptional increase; and(3) the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse.(i) If a significant adverse lapse has 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 director may determine that a rate spiral exists. Following the determination that a rate spiral exists, the director 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. If required by the director,(1) the offer shall (A) be subject to the approval of the director; (B) be based on actuarially sound principles, but may not be based on attained age; and(C) provide that maximum benefits under a new policy accepted by an insured shall be reduced by comparable benefits already paid under the existing policy; and(2) the insurer shall maintain the experience of all the replacement insureds separate from the experience of insureds originally issued the policy forms; if a rate increase on the policy form is requested, the rate increase shall be limited to the lesser of (A) the maximum rate increase determined based on the combined experience; and(B) the maximum rate increase determined based only on the experience of the insureds originally issued the form plus 10 percent.(j) If the director determines that the insurer has exhibited a persistent practice of filing inadequate initial premium rates for long-term care insurance, the director may, in addition to the provisions of (h) and (i) of this section, prohibit the insurer from either of the following: (1) filing and marketing comparable coverage for a period of up to five years; or(2) offering all other similar coverages and limiting marketing of new applications to the products subject to recent premium rate schedule increases.(k) Subsections (a) - (j) of this section do not apply to policies for which the long-term care benefits provided by the policy are incidental if the policy complies with all of the following provisions:(1) the interest credited internally to determine cash value accumulations, including long-term care, are guaranteed not to be less than the minimum guaranteed interest rate for cash value accumulations without long-term care set out in the policy;(2) the portion of the policy that provides insurance benefits other than long-term care coverage meets the nonforfeiture requirements as applicable in the following: (3) the policy meets the disclosure requirements of AS 21 53 060;(4) the portion of the policy that provides insurance benefits other than long-term care coverage meets the requirements as applicable in the following: (A) policy illustrations as required by 3 AAC 28.800 - 3 AAC 28.849;(B) disclosure requirements in 3 AAC 26.755; and(C) disclosure requirements in 3 AAC 28.010 - 3 AAC 28.190.(5) an actuarial memorandum is filed with the division that includes (A) a description of the basis on which the long-term care rates were determined;(B) a description of the basis for the reserves;(C) a summary of the type of policy, benefits, renewability, general marketing method, and limits on ages of issuance;(D) a description and a table of each actuarial assumption used; for expenses, an insurer must include percent of premium dollars for each policy and dollars for each unit of benefits;(E) a description and a table of the anticipated policy reserves and additional reserves to be held in each future year for active lives;(F) the estimated average annual premium for each policy and the average issue age;(G) a statement as to whether underwriting is performed at the time of application; the statement shall indicate whether underwriting is used and, if used, the statement shall include a description of the type or types of underwriting used, like as medical underwriting or functional assessment understanding; with regards to a group policy, the statement shall indicate whether the enrollee or a dependent will be underwritten and when underwriting occurs; and(H) a description of the effect of the long-term care policy provision on the required premiums, nonforfeiture values, and reserves on the underlying insurance policy, both for active lives and those in long-term care claim status.(l) Subsections (f), (h), and (i) of this section do not apply to group insurance policies as fin defined in AS 21.53.200(3)(A) 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 certificate holders, pays a material portion of the premium; the material portion may not be less than 20 percent of the total premium for the group in the calender year before the year a rate increase is filed.(m) For purpose of (k) of this section, long-term case benefits are incidental if the value of the benefits provided is less than 10 percent of the total value of the benefits provided over the life of the policy. These benefits shall be measured as of the date of issue.(n) For purpose of this section, an exceptional increase is (1) only an increase filed by an insurer as exceptional for which the director determines the need for the premium rate increase is justified. (A) due to changes in laws or regulations applicable to long-term care coverage in this state; or(B) due to increased and unexpected utilization that affects the majority of insurers of similar products;(2) except as provided in this section, that is subject to the same requirements as other premium rate schedule increases;(3) for which the director may request a review by an independent actuary or a professional actuarial body of the basis for a request that an increase be considered an exceptional increase; and(4) for which the director, in determining that the necessary basis for an exceptional increase exists, will also determine potential offsets to higher claims costs. Eff. 3/27/2022, Register 241, April 2022Authority:AS 21.06.090
AS 21.18.100
AS 21.18.110
AS 21.45.300
AS 21.45.305
AS 21.53.060
AS 21.53.090
AS 21.53.200