760 Ind. Admin. Code 1-9-3

Current through December 12, 2024

Section 760 IAC 1-9-3 - Valuation standards

Authority: IC 27-1-3-7

Affected: IC 27-8-5-1; IC 27-8-5-3

Sec. 3.

STANDARDS OF VALUATION.

(a) Standards of valuation for policies issued January 1, 1952 to December 31, 1963. The minimum reserves on all "non-cancellable, guaranteed-renewable, fixed- or level-premium accident and health policies" issued from January 1, 1952 to December 31, 1963, inclusive, shall be continued on the same basis as prescribed by the Indiana Department of Insurance ruling dated November 19, 1951.

(b) Standards of valuation for policies of Type A, B, or C listed under II. During the period within which the renewability of the policy is guaranteed or the insurer's right to refuse renewal is limited, the minimum reserve for policies of Type A, B or C issued on or after January 1, 1964 shall be an amount computed on the basis of two-year preliminary term tabular mean reserves employing the following assumptions:

Mortality: 1958 Commissioners Standard Ordinary Table or 1941 Commissioners Standard Ordinary Table or American Men Ultimate Table.

Maximum Interest Rate-3 1/2% compounded annually

Morbidity or other Contingency:

Disability due to accident and sickness-Conference Modification of Class III Disability Table.

Hospital Expense Benefits -1956 Inter-company Hospital Table.

Surgical Expense Benefits -1956 Inter-company Surgical Table.

For accident only, major medical expense, and other benefits not specified above, each company is required to establish reserves that place a sound value on the liabilities under such benefit.

Such mean reserves shall be diminished or offset by appropriate credit for the valuation net deferred premiums. In no event, however, shall the aggregate reserves for all policies issued on or after January 1, 1964 and valued on the mean reserve basis, diminished by any credit for deferred premiums, be less than the gross pro rata unearned premiums under such policies.

Negative Reserves. The negative reserves on any benefit may be offset against positive reserves for other benefits in the same individual or family policy, but if all benefits of such policy collectively develop a negative reserve, credit shall not be taken for such amount.

(c) Standard of valuation for policies of Type D or E listed under II. For policies of Type D or E, the minimum reserve shall be the pro rata gross unearned premium.

(d) Alternative valuation procedures and assumptions. Provided the reserve on all policies to which the method or basis is applied is not less in the aggregate than the amount determined according to the applicable standards specified above, an insurer may use any reasonable assumptions as to the interest rate, mortality rates, or the rates of morbidity or other contingency, and may introduce an assumption as to the voluntary termination of policies. Also, subject to the preceding condition, the insurer may employ methods other than the methods stated above in determining a sound value of its liabilities under such policies, including but not limited to the following:

(i) the use of mid-terminal reserves in addition to either gross or net pro rata unearned premium reserves;

(ii) optional use of either the level premium, the one-year preliminary term, or the two-year preliminary term method;

(iii) prospective valuation on the basis of actual gross premiums with reasonable allowance for future expenses;

(iv) the use of approximations such as those involving age groupings, groupings of several years of issue, average amounts of indemnity;

(v) the computation of the reserve for one policy benefit as a percentage of, or by other relation to, the aggregate policy reserves, exclusive of the benefit or benefits so valued;

(vi) the use of a composite annual claim cost for all or any combination of the benefits included in the policies valued.

For statement purposes the net reserve liability for active lives may be shown as (i) the mean reserve with offsetting asset items for net unpaid and deferred premiums, (ii) the excess of the mean reserve over the amount of net unpaid and deferred premiums, or (iii) it may, regardless of the underlying method of calculation, be divided between the gross pro rata unearned premium reserve and a balancing item for the "additional reserve."

760 IAC 1-9-3

Department of Insurance; Rule 9,III; filed Feb 3, 1964, 9:40 am: Rules and Regs. 1965, p. 103; readopted filed Sep 14, 2001, 12:22 p.m.: 25 IR 531; readopted filed Nov 27, 2007, 4:01 p.m.: 20071226-IR-760070717RFA; readopted filed November 26, 2013, 3:43 p.m.: 20131225-IR-760130479RFA