§ 84a.4. Claim reserves.
(a) General requirements.
(1) Claim reserves are required for incurred but unpaid claims on health and accident insurance contracts. When reserving for contracts with an elimination period, the duration of disablement commences on the date that benefits would have begun to accrue had there been no elimination period.
(2) Appropriate claim expense reserves are required with respect to the estimated expense of settlement of incurred but unpaid claims.
(3) The 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 residual unpaid liability.
(4) For claim reserves on policies that require contract reserves, the claim incurral date constitutes the ‘‘issue date’’ for determining the table and interest rate for claim reserves.
(5) The maximum interest rate for claim reserves is specified in Appendix A (relating to specific standards for morbidity, interest and mortality).
(6) The requirements for claims reserves on all claims incurred on or after January 1, 2017, will be as described in the Valuation Manual based on the incurred date of the claim.
(b) Minimum morbidity standards for claim reserves of individual disability income benefits, excluding single premium credit health and accident insurance.
(1) For claims incurred prior to January 1, 2007, each insurer may elect any of the following standards to use as the minimum morbidity standard for 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 paragraphs (2) or (3) applied to all open claims. Once an insurer elects to calculate reserves for all open claims on the standard defined in either paragraph (2) or (3), all future valuations must be on that basis.
(2) For claims incurred on or after January 1, 2007, and prior to the effective date for the company as determined in paragraph (5), 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 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.
(3) For claims incurred on or after January 1, 2020, the minimum standards with respect to morbidity are those specified in Appendix A, including all of the following (as derived in accordance with Actuarial Guideline L):
(i) The use of the insurer’s own experience.
(ii) An adjustment to include an own experience measurement margin.
(iii) The application of a credibility factor.
(4) In determining the minimum reserves in accordance with paragraph (3), the provisions in paragraph (3)(i)—(iii) are not applicable to any of the following circumstances:
(i) Where the insurer meets the Own Experience Measurement Exemption provided in Actuarial Guideline L.
(ii) Where, for worksite disability policies with benefit periods of up to 2 years, the insurer chooses to base its disabled life reserves on the insurer’s experience, if such experience is considered credible, or on other assumptions and methods designed to place a sound value on the liabilities.
(5) An insurer may begin to use the minimum reserve standards in paragraph (3) at a date earlier than January 1, 2020, but not prior to January 1, 2017.
(6) An insurer may, within 3 years of January 1, 2020, or an earlier date the insurer elects under paragraph (5), apply the new standards in paragraph (3) to all open claims incurred prior to the effective date for paragraph (3) for the insurer. Once an insurer elects to calculate reserves for all open claims based on paragraph (3), all future valuations must be on that basis.
(c) Minimum morbidity standards for claim reserves of group disability income benefits, excluding single premium credit health and accident insurance.
(1) For claims incurred prior to January 1, 2007, each insurer may elect any of the following standards to use as the minimum morbidity standard for claim reserves:
(i) The minimum morbidity standard in effect for claim reserves as of the date the claim was incurred.
(ii) After the effective date selected by the company in paragraph (2), the standards as defined in paragraph (2), applied to all open group long term disability income claims. Once an insurer elects to calculate reserves for all open claims on a more recent standard, all future valuations must be based on that more recent standard.
(iii) The standards as defined in paragraph (3), applied to all open group disability income claims. Once an insurer elects to calculate reserves for all open claims on a more recent standard, all future valuations must be based on that more recent standard.
(2) For group long-term disability income claims incurred on or after January 1, 2007, but before the effective date selected by the company in paragraph (4), and group disability income claims incurred on or after January 1, 2007, 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:
(i) Assumptions regarding claim termination rates for the period less than 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.
(ii) Assumptions regarding claim termination rates for the period 2 or more years but less than 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:
(A) An analysis of the credibility of experience.
(B) A description of how all of the insurer’s experience is proposed to be used in setting reserves.
(C) A description and quantification of the margins to be included.
(D) A summary of the financial impact that the proposed plan of modification would have had on the insurer’s last filed annual statement.
(E) A copy of the approval of the proposed plan of modification by the Commissioner of the state of domicile.
(F) Any other information the Commissioner deems necessary to review the plan of modification.
(iii) Each insurer may elect any of the following standards to use as the minimum morbidity standard for group long term disability income claim reserves:
(A) The minimum morbidity standard in effect for claim reserves as of the date the claim was incurred.
(B) The standards as defined in paragraph (3), applied to all open claims. Once an insurer elects to calculate reserves for all open claims on a more recent standard, all future valuations must be on that basis.
(3) For group long-term disability income claims incurred on or after January 1, 2017, the minimum standards with respect to morbidity must be based on the 2012 GLTD termination table or subsequent table with consideration of all of the following:
(i) 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.
(ii) 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.
(iii) 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.
(4) An insurer may begin to use the minimum reserve standards in paragraph (3) for dates earlier than January 1, 2017, but not prior to October 1, 2014. The date the insurer selects between January 1, 2017, and October 1, 2014, to begin to use the minimum reserve standards in paragraph (3) will be considered the effective date.
(5) An insurer may apply the standards in paragraph (3) to all open claims incurred prior to the effective date of paragraph (3) for the insurer. Once an insurer elects to calculate reserves for all open claims based on paragraph (3), all future valuations must be on that basis.
(d) Minimum morbidity standards for other health insurance claim reserves, including single premium credit health and accident insurance. The minimum standards with respect to morbidity and other contingencies must 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.
(e) Claim reserve methods. An insurer may use a generally accepted actuarial reserving method or combination of methods to estimate claim liabilities.
(1) Methods used for estimating liabilities generally may be aggregate methods or various reserve items may be separately valued.
(2) Approximations may be based on groupings and averages.
(3) Adequacy of the claim reserves shall be determined in the aggregate.
Authority The provisions of this § 84a.4 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 301.1 and 311.1 of The Insurance Department Act of 1921 (40 P.S. § § 71.1 and 93); and 40 Pa.C.S. § 7124(c)(1) and (2).
Source The provisions of this § 84a.4 amended September 17, 1999, effective September 18, 1999, 29 Pa.B. 4864; amended July 14, 2006, effective January 1, 2007, 36 Pa.B. 3367; amended October 22, 2021, effective October 23, 2021, 51 Pa.B. 6600. Immediately preceding text appears at serial pages (320426) to (320428).
Cross References This section cited in 31 Pa. Code Ch. 84a Appendix A (relating to specific standards for morbidity, interest and mortality).
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