Active Life Reserves.
(1)
General.
(a) Active life reserves shall be
required for all in-force policies and shall be in addition to any reserves
required in connection with claims. For policy Types A, B, and C, established
in subsection (2) of this section, the minimum reserve shall be determined as
established in subsection (3) of this section.
(b)
1.
Minimum standards shall be in accordance with
KRS
304.6-070. Higher, adequate reserves shall be
established by the insurer in any case in which experience indicates that these
minimum standards do not place a sound value on the liabilities under the
policy.
2. For policy Type D, the
minimum reserve shall be the gross pro rata unearned premium.
(2) Types of individual
health insurance policies.
(a) Type A
policies shall include policies that are guaranteed renewable for life or to a
specified age, at guaranteed premium rates.
(b) Type B policies shall include policies
that are guaranteed renewable for life or to a specified age, but under which
the insurer reserves the right to change the scale of premiums.
(c) Type C policies shall include policies in
which the insurer has reserved the right to cancel or refuse for one (1) or
more reasons, but has agreed implicitly or explicitly that, prior to a
specified time or age, it will not cancel or decline renewal solely because of
deterioration of health after issue. Policies shall not be considered of this
type if the insurer has reserved the right to refuse renewal provided the right
is to be exercised at the same time for all policies in the same category, if
premiums are graded so as to be substantially proportionate to the costs of
insurance at the various attained ages.
(d) Type D policies shall include all other
individual policies not already established in paragraphs (a) through (c) of
this subsection.
(e) A franchise
policy shall not be classified as a type of policy. Contract provisions within
a franchise policy in which the right to refuse renewal of all policies in the
group or other categories including those ceasing to be members of the
association, shall be classified as Type D. If premiums are based on the level
premium principle in which any reflection of age is on the basis of age at
issue, or if the renewal undertaking for the individual meets the requirements
for Type A, B, or C, the franchise policy shall be classified for reserve
purposes according to the type to which it belongs.
(f) A policy that has guarantees qualifying
it as Type A, B, or C until a specified age or duration after which the
guarantees, or lack of guarantees shall be considered for reserve purposes
according to the type to which it then belongs.
(g) If all of the benefits of a policy, as
established by rider or otherwise, are not of the same Type, each benefit shall
be considered for reserve purposes according to the type to which it
belongs.
(3) Reserve
standards for policies of Type A, B, or C.
(a)
Interest. The maximum interest rate for reserves shall be the greater of the
maximum rate allowed by
KRS 304.6-120 through
304.6-180
and KAR Title 806 in the valuation of:
1.
Currently issued life insurance; or
2. Life insurance issued on the same date as
the health insurance.
(b) Mortality. The mortality assumptions used
for reserves shall be according to a table allowed by
KRS 304.6-120 through
304.6-180
and KAR Title 806 in the valuation of life insurance issued on the same date as
the health insurance.
(c) Morbidity
or other contingency. Minimum standards with respect to morbidity shall be
stated in Reserve Standards for Individual Health Insurance incorporated by
reference in this administrative regulation.
(d) Negative reserves. Negative reserves on
any benefit may be offset against positive reserves for other benefits in the
same policy, but the mean reserve on any policy shall not be taken as less than
one-half (1/2) the valuation net premium.
(e) Preliminary term. The minimum reserve
shall be on the basis of two (2) years preliminary term.
(f) Reserve method. Mean reserves diminished
by appropriate credit for valuation net deferred premiums. The aggregate
reserve for all policies valued on the mean reserve basis, diminished by any
credit for deferred premiums, shall not be less than the gross pro rata
unearned premiums under policies.
(g) Alternative valuation procedures and
assumptions. If 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 established in paragraphs (a) through (f) of this
subsection, 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. The
insurer may employ methods other than the methods established in paragraphs (a)
through (f) of this subsection in determining a sound value of its liabilities
under its policies, including:
1. The use of
midterminal policy reserves in addition to either gross or net pro rata
unearned premium reserves;
2.
Optional use of either the level premium, the one (1) year preliminary term, or
the two (2) year preliminary term method;
3. Prospective valuation on the basis of
actual gross premiums with reasonable allowance for future expenses;
4. The use of approximations including those
involving age groupings, groupings of several years of issue, and average
amounts of indemnity;
5. The
computation of the reserve for one (1) policy benefit as a percentage of, or by
other relation to, the aggregate policy reserves, exclusive of the benefit or
benefits so valued; and
6. 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 may be shown as the excess of the mean reserve over the amount of net
unpaid and deferred premiums, or, regardless of the underlying method of
calculation, it may be divided between the gross pro rata unearned premium
reserve and a balancing item for the policy reverse.
(h) Gross unearned preliminary term premium.
If a preliminary term method, either with a one (1) year or two (2) year
preliminary term period, is employed, the gross pro rata unearned premium to be
used in the comparison established in paragraph (f) of this subsection shall
bear the same relationship to the net premium for the preliminary term period
on the basis of the mortality, morbidity, and interest assumptions used for
subsequent valuation as the gross premium charged bears to the net valuation
premium used in subsequent years.