Credit life insurance benefits provided in connection with
forms filed in accordance with Title 24-A M.R.S.A., Section2858, and this Rule
shall be deemed prima facie reasonable in relation to the premiums charged if
the schedule of premium rates filed with such forms does not exceed the premium
rate standard set forth below.
A. In
the absence of an approved rate deviation, the prima facie single life monthly
premium rate per $1,000 of outstanding balance is $.50 and the prima facie
joint life monthly premium rate per $1,000 of outstanding balance is
$.84.
B. Prima facie single premium
rates per dollar of total note for monthly payment indebtedness which are the
actuarial equivalents of the prima facie monthly rate shall be computed by the
following formula:
SPn = Click here to view
Image(OP) (Fn)
where: SPn is the credit life single premium rate per $1.00
of total note;
n is the number of monthly payments;
i is the monthly finance rate;
a Click
here to view Image
Click here to view
Image
OP is the monthly credit life rate per $1.00 of insured
amount; and
Fn = discount factor for interest and mortality
= Click
here to view Image
(1) When
an upward or downward deviation applies, single premium and single charge rates
equivalent to the deviated rate are to be computed with the deviated rate
substituted for the prima facie rate of $.50 or $.84.
(2) Prima facie single premium rates for
one-payment indebtedness shall be computed by the following formula:
bSPn = (a
Click here to view
Image)(OP) (bFn)
where:
bSPn is the credit life single premium
rate per $1.00 of a single payment in n months;
bFn =
Click here to view
Image; and
a Click here to view
Image and OP are as defined above.
(3) Prima facie single premium rates for
monthly payment indebtedness where coverage is to be provided for a period
shorter than the full term of indebtedness (truncated coverage) shall be
computed by the following formula:
Click
here to view Image
where: SPm,n is the credit life single premium rate per $1.00
of total note;
m is the number of months for which coverage is to be
provided; and
n, a Click here to view
Image , i, OP, and Fn are as defined above.
(4) Prima facie single premium rates per
dollar of amount financed for monthly payment indebtedness shall be computed as
follows:
a. Rates which are the actuarial
equivalent of the prima facie monthly rate shall be computed by the following
formula:
SP'n =
Click here to view
Image (OP) (Fn)
where SP'n is the credit life single premium rate per $1.00
of outstanding principal balance and all other terms are as defined above.
b. At the insurer's
option, the following approximation may be used for an account instead of the
rates which result from the formula in (a) above:
SP'n =
Click here to view
Image
(5) Prima facie single premium rates for
other variations shall be actuarially consistent with the above rates.
C. Alternative methods of
converting monthly premium rates to single premium rates may be approved if it
can be demonstrated that:
(1) In the
aggregate, the premium for any case, as defined in Section 13, will not be
greater than if the methods specified in subsection A and B above were used,
and
(2) The method is not unfairly
discriminatory.
D.
Deviations
(1) The total deviated rate for a
specified plan of benefits shall be the appropriate promulgated prima facie
premium rate increased or decreased by the additional rate produced by the
following formula:
Credibility Factor x (Actual/Expected Ratio
-
(1) x Prima Facie Claim
Cost
where: The Actual/Expected Ratio is the ratio of actual
incurred losses to expected losses for single life and joint life plans
combined;
Expected losses are Earned Premiums at the prima facie rate
multiplied by the ratio of the prima facie claim cost to the prima facie rate;
and
The prima facie claim is .315 for single life and .63 for
joint life.
(2) The
application of this formula is illustrated by the following examples:
CREDIT LIFE
UPWARD DEVIATION
|
Single
|
Joint
|
Total
|
| A. Earned Premium At Prima Facie Rate |
200,000 |
20,000 |
220,000 |
| B. Incurred Losses |
170,000 |
19,000 |
189,000 |
| C. Number Of Life Years Covered |
28,000 |
2,000 |
30,000 |
| D. Credibility Factor (from table) |
xxx |
xxx |
90% |
| E. Prima Facie Rate |
.50 |
.84 |
xxx |
| F. Prima Facie Claim Cost |
.315 |
.63 |
xxx |
| G. Expected Losses [A x F/E] |
126,000 |
15,000 |
141,000 |
| H. Actual /Expected Ratio (B/G) |
xxx |
xxx |
1.340 |
| I. Deviation [D X (H-1) x F] |
.096 |
.193 |
xxx |
| J. Deviated Rate [E + I] |
.596 |
1.033 |
xxx |
CREDIT LIFE
DOWNWARD DEVIATION
|
Single
|
Joint
|
Total
|
| A. Earned Premium At Prima Facie Rate |
200,000 |
20,000 |
220,000 |
| B. Incurred Losses |
91,500 |
12,000 |
103,500 |
| C. Number Of Claims Incurred |
125 |
15 |
140 |
| D. Credibility Factor (from table) |
xxx |
xxx |
90% |
| E. Prima Facie Rate |
.50 |
.84 |
xxx |
| F. Prima Facie Claim Cost |
.315 |
.63 |
xxx |
| G. Expected Losses [A X F/E] |
126,000 |
15,000 |
141,000 |
| H. Actual /Expected Ratio [B/G] |
xxx |
xxx |
.734 |
| I. Deviation [D X (H-1) X F] |
-0.075 |
- 1.51 |
xxx |
| J. Deviated Rate [ E= I] |
.425 |
.689 |
xxx |
(3)
The credit life insurance earned premium at the prima facie level will be the
product of the prima facie monthly outstanding balance rate of $.00050 for
single life, or $.00084 for joint life, times the insured balance for each of
the three policy years. The insured balance for each year shall be either (1)
the sum of the actual monthly outstanding insured balances during the year or
(2) 12 times the average monthly outstanding insured balance for the year. In
either case, the outstanding insured balance must be calculated according to
the definition in Section 7.
(4)
The credibility factor is to be taken from the table in Section 13 and is to be
based on single life and joint life plans combined.
(5) If the indicated rate exceeds the current
rate by less than 10 percent, the current rate shall continue in effect. If the
indicated rate is less than the current rate by less than 10 percent, the
current rate may continue in effect.
(6) If the indicated rate exceeds the current
rate by more than 10 percent but the current rate will have been in effect for
less than three years as of the date the deviated rate would otherwise take
effect, the current rate shall continue in effect. If the indicated rate is
less than the current rate by more than 10 percent but the current rate will
have been in effect for less than three years as of the date the deviated rate
would otherwise take effect, the current rate may continue in effect.
(7) Experience for the most recent three
policy years must be used. If the three-year experience cannot be determined
because experience of the prior insurer cannot be obtained, the current rate
for the plan shall be continued until three years of experience is developed,
except:
a. If the prior insurer had scheduled
a downward deviation, the new insurer must implement it; and
b. If an insurer has a large account and it
has credible experience for a period of less than three years, the account's
experience may be used as the basis for a downward deviation.
(8) Deviations from the prima
facie rates other than those indicated by paragraphs (1) through (7) above may
be approved under the provisions of Title 24-A M.R.S.A., Section2858. However,
in the absence of an approved deviation under this provision, any downward
deviation indicated by paragraphs (1) through (6) must be
implemented.
(9) Upward deviations
shall not be applied to debtors with closed-end loans whose coverage is already
in force on the effective date of the deviation. Downward deviations need not
be applied to debtors with closed-end loans whose coverage is already in force
on the effective date of the deviation.
E. The premium rate standards set forth above
are applicable to the type of credit life insurance contract customarily
offered for sale. This is assumed to be the usual broad form of death benefits
which contain no exceptions, limitations or exclusions, except for suicide and
incontestability, and is offered to all debtors regardless of age or to all
debtors not older than sixty-five at the scheduled maturity date of the
transaction.
If the credit life insurance requires evidence of individual
insurability, a 10% reduction in the prima facie rate is required unless
deviated rates based on experience are in use. No reduction is required if the
death benefit exceeds $25,000. The Bureau may consider a different reduction if
the insurer can provide support for the difference.
An insurer may file other forms of credit life insurance
which meet the requirements of 24-A M.R.S.A., Section2858. Premium rate
standards for these contracts must be consistent with the above standards.
Premium rates for use with forms which are more restrictive than those set
forth above must reflect these variations to the extent that there is a
measurable difference in the cost of the coverage provided.
