PROPOSED RULEMAKING
INSURANCE DEPARTMENT
[31 PA. CODE CH. 118]
Discounting Medical Malpractice Loss Reserves
[30 Pa.B. 1377] The Insurance Department (Department) proposes to delete Chapter 118 (relating to discounting of medical malpractice loss reserves) to read as set forth in Annex A. The statutory authority for this proposal is The Insurance Company Law of 1921 (40 P. S. §§ 341--999); The Insurance Company Act of 1921 (40 P. S. §§ 1--321); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. §§ 66, 186, 411 and 412).
Purpose
Chapter 118 was initially promulgated to establish procedural and reporting requirements and restrictions on the discounting of medical malpractice loss reserves. This proposed rulemaking deletes Chapter 118 because it is no longer necessary to assure the continued availability of medical malpractice insurance by the voluntary market at the primary level. In addition, the chapter is inconsistent with current actuarial practices and economic conditions.
Fiscal Impact
There is no fiscal impact as a result of the deletion of Chapter 118.
Paperwork
The deletion of Chapter 118 will affect all licensed medical malpractice insurers domiciled in this Commonwealth.
Effectiveness/Sunset Date
The rulemaking will become effective upon final publication in the Pennsylvania Bulletin. Because the rulemaking proposes to delete Chapter 118, no sunset date has been assigned.
Contact Person
Questions or comments regarding the proposed rulemaking may be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, Insurance Department, 1326 Strawberry Square, Harrisburg, PA 17120, within 30 days following the publication of this notice in the Pennsylvania Bulletin. Questions and comments may also be E-mailed to psalvato@ins.state.pa.us or faxed to (717) 772-1969.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on January 24, 2000, the Department submitted a copy of this proposal to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the Senate Banking and Insurance Committee and the House Insurance Committee. In addition to the submitted proposal, the Department has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Department in compliance with Executive Order 1996-1, ''Regulatory Review and Promulgation.'' A copy of that material is available to the public upon request.
If IRRC has objections to any portion of the proposed rulemaking, it will notify the Department within 10 days of the close of the Committees' review period. The notification shall specify the regulatory review criteria that have not been met by that portion. The Regulatory Review Act (71 P. S. §§ 745.1--745.14) specifies detailed procedures for the agency, the Governor and the General Assembly to review these objections before final publication of the regulations.
M. DIANE KOKEN,
Insurance CommissionerFiscal Note: 11-185. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 31. INSURANCE
PART VII. PROPERTY, FIRE AND CASUALTY INSURANCE
CHAPTER 118. DISCOUNTING OF MEDICAL MALPRACTICE LOSS RESERVES § 118.1. [Definitions] (Reserved).
[(a) The definitions utilized in Chapter 116 (relating to discounting of worker's compensation loss reserves) are incorporated for use in this chapter except that language utilizing the terms ''worker's compensation'' shall be amended for use in this chapter utilizing the terms ''medical malpractice.''
(b) For purposes of this chapter, the definition of ''insurance company'' in § 116.1 (relating to definitions) also includes the Pennsylvania Professional Liability Joint Underwriting Association, an insurance entity created under section 801 of the Health Care Services Malpractice Act (40 P. S. § 1301.801).
(c) The term ''independent actuary'' as used in § 118.4(a) (relating to actuarial certification) means a fellow or associate of the Casualty Actuarial Society with appropriate experience in responsible actuarial work, including medical malpractice, who is not an officer, director or employe of the insurer whose reserves he is certifying.]
§ 118.2. [Reporting and data collection requirements] (Reserved).
[For loss reserves established by insurance companies under sections 312--316 of The Insurance Department Act of one thousand nine hundred and twenty-one (40 P. S. §§ 111--115), a company is permitted to discount the medical malpractice reserves to their present value if the company complies with the following requirements. The insurance company shall:
(1) File an annual actuarial certification of its medical malpractice loss reserves and loss adjustment expense reserves with the Department simultaneously with the filing of the company's annual statement.
(2) Provide a written notice to the Department stating its intent to maintain separate data regarding the company's loss payment patterns for allocated loss adjustment expenses and losses. This data shall be regularly compiled and submitted to the Department upon request.
(3) Comply with existing annual statement instructions for reporting loss and loss adjustment expense reserves including completion of supplemental Schedule P, Part 4C of the annual statement.
(4) File with its annual statement a description of the underlying assumptions for the calculation of the discount to present value of its loss reserves and allocated loss adjustment expense reserves.]
§ 118.3. [Restrictions on discounting loss reserves] (Reserved).
[The discounting of loss reserves is subject to the following limitations:
(1) The loss reserves discounted to present value in accordance with this chapter may not be less than those required in accordance with section 313(b) of The Insurance Department Act of one thousand nine hundred and twenty-one (40 P. S. § 112(b)).
(2) The maximum rate of interest which an insurer may assume for purposes of discounting is 6%.
(3) An insurer may request an exception to the maximum interest rate in paragraph (2) if the insurer can demonstrate to the satisfaction of the Commissioner that its investment yield justifies a higher interest rate assumption. The Commissioner may require the insurer to submit additional documentation to support its request for approval of a higher interest rate assumption. The Commissioner will act upon requests for exceptions made under this paragraph within 90 days of the date the request is received by the Insurance Department.]
§ 118.4. [Actuarial certification] (Reserved).
[(a) The actuarial certification required in accordance with this chapter shall be prepared by an independent actuary and filed by the insurer with its annual statement.
(b) The actuarial certification shall be filed each year in which the insurer discounts its loss reserves.
(c) The actuarial certification shall include the opinion of an independent actuary with respect to the following:
(1) The adequacy of medical malpractice loss reserves on an undiscounted basis.
(2) The sufficiency of the investment yield on invested assets to fund the discount.
(3) The reasonableness of the matching of the invested assets and loss reserves attributable to the medical malpractice business to provide an adequate income stream to fund the discount.]
§ 118.5. [Reserves for loss adjustment expenses] (Reserved).
[(a) Loss adjustment expense reserves shall be calculated in accordance with the following standards:
(1) Insurance companies are not permitted to discount loss adjustment expense reserves which are not allocable to specific claims.
(2) Insurance companies are permitted to discount loss adjustment expense reserves which are allocable to specific claims if:
(i) The company demonstrates, to the satisfaction of the Commissioner, the validity of the assumptions underlying the calculation of the reserves.
(ii) The actuarial certification which includes the opinion of an independent actuary with respect to the criteria in § 118.4 (relating to actuarial certification) is applicable to the loss adjustment expense reserves as well as the loss reserves.
(b) In evaluating an insurance company's request to discount allocated loss adjustment expense reserves, the Commissioner will consider the company's specific loss adjustment expense payment pattern and the interest rate assumption.]
§ 118.6. [Increased loss reserves and loss adjustment expense reserves] (Reserved).
[Under section 316 of The Insurance Department Act of one thousand nine hundred and twenty-one (40 P. S. § 115), the Commissioner may require an insurance company to restate its loss reserves or its allocated loss adjustment expense reserves by reducing or eliminating the discount if the Commissioner determines it is necessary to insure that reserves are established at an adequate level.]
[Pa.B. Doc. No. 00-422. Filed for public inspection March 10, 2000, 9:00 a.m.]
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