Section 21.18.082. Policy reserves for health insurance.

   (a) Except as provided in (b) of this section, policy reserves are required for all individual and group health insurance policies or groups of policies
        (1) with level premiums or with a gross premium pricing structure at time of issue that results in future benefits exceeding the corresponding future valuation net premiums at any time; or
        (2) for which gross premiums are restricted by contract, regulation, or another reason that results in future gross premiums, reduced by expenses for administration, commissions, and taxes, being insufficient to cover future claims.
   (b) Policy reserves are not required for health insurance policies that cannot be continued after one year from the date of issue.
   (c) The structure of valuation net premiums used under a health insurance policy must be consistent with the structure of gross premiums on the date the policy is issued.
   (d) For return of premium benefits, deferred cash benefits, policies with premium rates that are not guaranteed, and where the effects of insurer underwriting by policy duration are specifically used in the valuation morbidity standard, termination rates that exceed the mortality rates in the tables required in (g)(2) of this section may be used but may not exceed the lesser of
        (1) 80 percent of the total termination rate used in the calculation of gross premiums; or
        (2) eight percent.
   (e) The methods and procedures used to determine health insurance policy reserves must be consistent with the methods and procedures used to determine claim reserves for a health insurance policy.
   (f) Negative reserves on a benefit may be offset against positive reserves for other benefits in the same policy, but the total policy reserve with respect to all benefits combined may not be less than zero.
   (g) Except as provided in (d) and (h) - (k) of this section, policy reserves for policies issued after July 1, 1997, must be determined based on
        (1) a maximum interest rate equal to the maximum interest rate allowed under AS 21.18.110 for the valuation of whole life insurance issued on the same date as the health insurance policy;
        (2) a termination assumption equal to the mortality table allowed under AS 21.18.110 for the valuation of whole life insurance issued on the same date as the health insurance policy or equal to a mortality table approved by the director for use in determining the policy reserves;
        (3) for long-term care policies issued after July 1, 1997,
             (A) a mortality assumption equal to the 1983 Group Annuity Mortality Table without projection;
             (B) a lapse assumption for policy durations one through four equal to the lesser of 80 percent of the voluntary lapse rate used in the calculation of gross premiums or eight percent; and
             (C) a lapse assumption for policy durations five and later of 100 percent of the voluntary lapse rate used in the calculation of the gross premiums or four percent;
        (4) a two-year full preliminary term method under which the terminal reserve is zero on the first and second policy anniversary dates;
        (5) a morbidity assumption for
             (A) individual disability income insurance issued (i) after December 31, 1997, equal to Tables A or B of the 1985 Commissioners' Individual Disability Tables for policies; and (ii) before January 1, 1998, equal to the 1964 or 1985 Commissioners' Individual Disability Tables; the insurer shall indicate which morbidity table the insurer will use for all individual disability income policies issued in a calendar year;
             (B) group disability income insurance issued
                  (i) after December 31, 1997, equal to the 1987 Commissioners' Group Disability Table; and
                  (ii) before January 1, 1998, equal to the morbidity assumption in use by the insurer before January 1, 1998;
             (C) scheduled or fixed time period hospital, surgical, or maternity benefit policies issued
                  (i) after December 31, 1997, equal to the 1974 Medical Expense Table A from the Transactions of the Society of Actuaries, Volume XXX; and
                  (ii) before January 1, 1998, equal to the morbidity assumption in use by the insurer before January 1, 1998;
             (D) cancer expense benefits for policies issued
                  (i) after December 31, 1997, equal to the 1985 National Association of Insurance Commissioners Cancer Claim Cost Tables; and
                  (ii) before January 1, 1998, equal to the morbidity assumption in use by the insurer before January 1, 1998;
             (E) accidental death benefits for policies issued
                  (i) after December 31, 1997, equal to the 1959 accidental death benefit table; and
                  (ii) before January 1, 1998, equal to the morbidity assumption in use by the insurer before January 1, 1998; or
             (F) all other individual or group policy benefits equal to a morbidity table established for reserve determination by an actuary qualified to determine the morbidity table and approved by the director; the morbidity table must contain a pattern of incurred claims cost that reflects the underlying morbidity and may not be constructed for the primary purpose of minimizing reserves.
   (h) The reserve method for return of premium or other deferred cash benefits must be a preliminary term method that is applied only in relation to the issue date of the policy and is a
        (1) one-year preliminary term method if benefits are provided before the 20th policy anniversary; or
        (2) two-year preliminary term method if the benefits are provided only on or after the 20th policy anniversary.
   (i) The reserve method for long-term care insurance must be calculated on a
        (1) two-year full preliminary term method for a policy or certificate issued on or before July 1, 1997; and
        (2) one-year full preliminary term method for a policy or certificate issued after July 1, 1997.
   (j) Reserve adjustments due to rate changes, revised assumptions, or other reasons for return of premium or other deferred cash benefits must be applied on the effective date of the adoption of the reserve adjustment.
   (k) An alternative method or basis of determining policy reserves may be used if the aggregate policy reserve is not less than the aggregate policy reserves determined under (c) - (j) of this section.
   (l) An insurer shall annually review prospective policy liabilities on policies valued by tabular reserves to determine the continuing adequacy and reasonableness of the tabular reserves given future gross premiums. The insurer shall make adjustments to the tabular reserves if the tests indicate that the basis of the reserves is no longer adequate.
   (m) Policy reserves that are valued based on the 1964 or 1985 Commissioners Individual Disability Tables must include a provision for a waiver of premium benefit with the minimum reserve for the benefit equal to the valuation net premium to be waived.
   (n) Policy reserves for long-term care insurance may not be less than the net single premium for any nonforfeiture benefits provided by the policy or certificate.

Authorities

21.18.080;21.18.084

Notes

Implemented As

3 AAC 21.810

References

AS 21.18.080 Reserve standards for health insurance.
AS 21.18.084 Claim reserves for health insurance.

History

(Sec. 17 ch 81 SLA 1997)