Ill. Admin. Code tit. 50, § 2012.110 - Loss Ratio
a) This Section
shall apply to all long-term care insurance policies or certificates, except
those covered under Sections
2012.64,
2012.112
and 2012.113.
b) Notice of Rate
Schedule Increase
1) An insurer shall provide
notice of a pending premium rate schedule increase, including an exceptional
increase, to the Director at least 30 days prior to the notice to the
policyholders. The notice shall include:
A) An
actuarial memorandum documenting that benefits under the long-term care
insurance policies are reasonable in relation to premiums by demonstrating that
the expected loss ratio meets the requirements in subsection (c), calculated in
a manner that provides for adequate reserving of the long-term care insurance.
In evaluating the expected loss ratio, due consideration shall be given to all
relevant factors, including:
i) Statistical
credibility of incurred claims experience and earned premiums;
ii) The period for which rates are computed
to provide coverage;
iii)
Experienced and projected trends;
iv) Concentration of experience within early
policy duration;
v) Expected claim
fluctuation;
vi) Experience
refunds, adjustments or dividends;
vii) Renewability features;
viii) Interest;
ix) Experimental nature of the
coverage;
x) Product features such
as long elimination periods (period between when the claim arises and insured
is eligible to receive benefits), high deductibles and high maximum
limits.
B) A statement
that, upon approval of the requested amount, the insurer agrees to not
implement future rate increases on each subject policy for 3 years from the
date of implementation of a single rate increase for each policy
form.
C) In lieu of a single
increase, the insurer may request a series of scheduled rate increases that are
actuarially equivalent to the single amount requested by the insurer over the
lifetime of the policy. The entire series would be reviewed and considered at
one time as part of the current rate increase filing. After implementation of
the first increase, the insurer is subject to the 3-year monitoring provision
in Section
2012.112(d),
but the Director is allowed to require modification of later increases that
were not appropriate based on the experience following the initial rate
increase. When determining the rate comparison for new business, forms subject
to a series of increases shall not be included.
D) A statement indicating whether the
increase or series of scheduled increases triggers the offering of a contingent
benefit upon lapse. The insurer shall offer a contingent benefit upon lapse for
any increase, whether a single increase or a series of scheduled increases,
that would trigger the offering of the contingent benefit upon lapse as defined
in Section
2012.127(d).
The insurer shall notify policyholders and certificate holders of the
contingent benefit upon lapse, in conjunction with the implementation of a rate
increase. If the rate increase is approved as a series of scheduled increases
and the sum of all scheduled increases would ultimately trigger the offering of
the contingent benefit upon lapse, the insurer will be required to include the
contingent benefit upon lapse and the notification at the time of each
scheduled increase.
E) The premium
increase notification letter to policyholders at the time of the premium rate
increase for informational purposes. The insurer shall clearly disclose to
policyholders the following elements:
i) The
amount of the premium rate increase requested and implementation schedule
(e.g., single premium increase applied or phased in through a series of premium
increases);
ii) Available benefit
reduction/rate increase mitigation actions;
iii) Clear disclosure addressing the
guaranteed renewable nature of the policy/coverage and that the insured should
understand that premium rates may increase again in the future; and
iv) Offer of contingent benefit upon lapse,
if applicable.
2) At the request of the insurer, the
Director may also consider other options that may be made available to insureds
that may mitigate the impact of the rate increases on the insured population or
alternative actuarial methodologies relating to the rate increase. The insurer
shall provide an explanation and demonstration on how the methodology is
actuarially justified and/or how the new mitigation option may reasonably
benefit insureds. No alternative method/approach may be used until it has been
accepted by the Director.
c) Loss Ratio
1) The expected loss ratio shall be at least:
A) the greater of 60% or the lifetime loss
ratio used in the original pricing, applied to the current rate schedule on
July 1, 2018; plus
B) Either:
i) 80% applied to any premium increase that
is filed after that date on an individual policy form; or
ii) 75% applied to any premium increase that
is filed on a group policy form.
2) All present and accumulated values used to
determine rate increases shall use the maximum valuation interest rate for
contract reserves as specified in 50 Ill. Adm. Code 2004 (Accident and Health
Reserves). The actuary shall disclose as part of the actuarial memorandum the
use of any appropriate averages.
d) Subsections (b) and (c) shall not apply to
life insurance policies that accelerate benefits for long-term care. A life
insurance policy that funds long-term care benefits entirely by accelerating
the death benefit is considered to provide reasonable benefits in relation to
premiums paid, if the policy complies with all of the following provisions:
1) The interest credited internally to
determine cash value accumulations, including long-term care, if any, is
guaranteed not to be less than the minimum guaranteed interest rate for cash
value accumulations without long-term care set forth in the policy;
2) The portion of the policy that provides
life insurance benefits meets the nonforfeiture requirements of Section 229.2
of the Code;
3) The policy meets
the disclosure requirements of Sections 351A-9.1 and 351A-9.2 of the
Code;
4) Any policy illustration
that meets the applicable requirements of 50 Ill. Adm. Code 1406;
5) An actuarial memorandum is filed with the
Department 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 per policy and dollars per unit of benefits, if
any;
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 per 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, such as medical
underwriting or functional assessment underwriting. Concerning a group policy,
the statement shall indicate whether the enrollee or any 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 life insurance policy, both for active lives and
those in long-term care claim status.
Notes
Amended at 32 Ill. Reg. 7600, effective May 5, 2008
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