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31 Pa. Code § 89a.118. Premium rate schedule increases.

§ 89a.118. Premium rate schedule increases.

 (a)  This section shall apply as follows:

   (1)  Except as provided in paragraph (2), this section applies to a long-term care policy or certificate issued in this Commonwealth on or after September 16, 2002.

   (2)  For certificates issued on or after March 16, 2002, under a group long-term care insurance policy as defined in section 1103 of the act (40 P. S. §  991.1103), which policy was in force on March 16, 2002, this section shall apply on the policy anniversary following March 17, 2003.

 (b)  An insurer shall provide notice of a pending premium rate schedule increase, including an exceptional increase, to the Commissioner subject the Accident and Health Filing Reform Act (40 P. S. § §  3801—3815) prior to the notice to the policyholders and shall include all of the following:

   (1)  Information required by §  89a.108 (relating to required disclosure of rating practices to consumers).

   (2)  Certification by a qualified actuary that:

     (i)   If the requested premium rate schedule increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized, no further premium rate schedule increases are anticipated.

     (ii)   The premium rate filing is in compliance with this section.

   (3)  An actuarial memorandum justifying the rate schedule change request that includes the following:

     (i)   Lifetime projections of earned premiums and incurred claims based on the filed premium rate schedule increase; and the method and assumptions used in determining the projected values, including reflection of assumptions that deviate from those used for pricing other forms currently available for sale.

       (A)   Annual values for the 5 years preceding and the 3 years following the valuation date shall be provided separately.

       (B)   The projections shall include the development of the lifetime loss ratio, unless the rate increase is an exceptional increase.

       (C)   The projections shall demonstrate compliance with subsection (c).

       (D)   For exceptional increases, the projected experience should be limited to the increases in claims expenses attributable to the approved reasons for the exceptional increase. If the Commissioner determines as provided in §  89a.103 (relating to definitions) that offsets may exist, the insurer shall use appropriate net projected experience.

     (ii)   Disclosure of how reserves have been incorporated in this rate increase whenever the rate increase will trigger contingent benefit upon lapse.

     (iii)   Disclosure of the analysis performed to determine why a rate adjustment is necessary, which pricing assumptions were not realized and why, and what other actions taken by the company have been relied on by the actuary.

     (iv)   A statement that policy design, underwriting and claims adjudication practices have been taken into consideration.

     (v)   In the event that it is necessary to maintain consistent premium rates for new certificates and certificates receiving a rate increase, the insurer will need to file composite rates reflecting projections of new certificates.

   (4)  A statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the Commissioner.

   (5)  Sufficient information for review subject to the Accident and Health Filing Reform Act of the premium rate schedule increase by the Commissioner.

 (c)  Premium rate schedule increases shall be determined in accordance with the following requirements:

   (1)  Exceptional increases shall provide that 70% of the present value of projected additional premiums from the exceptional increase will be returned to policyholders in benefits.

   (2)  Premium rate schedule increases shall be calculated so that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:

     (i)   The accumulated value of the initial earned premium times 58%.

     (ii)   Eighty-five percent of the accumulated value of prior premium rate schedule increases on an earned basis.

     (iii)   The present value of future projected initial earned premiums times 58%.

     (iv)   Eighty-five percent of the present value of future projected premiums not in this subsection on an earned basis.

   (3)  If a policy form has both exceptional and other increases, the values in paragraph (2)(ii) and (iv) will also include 70% for exceptional rate increase amounts.

   (4)  The present and accumulated values used to determine rate increases shall use the maximum valuation interest rate for contract reserves as specified in Chapter 84a (relating to minimum reserve standards for individual and group health and accident insurance contracts). The actuary shall disclose as part of the actuarial memorandum the use of appropriate averages.

 (d)  For each rate increase that is implemented, the insurer shall file for review subject to the Accident and Health Filing Reform Act by the Commissioner, updated projections, as defined in subsection (b)(3)(i), annually for the next 3 years and include a comparison of actual results to projected values. The Commissioner may extend the period to greater than 3 years if actual results are not consistent with projected values from prior projections. For group insurance policies that meet the conditions in subsection (k), the projections required by this subsection shall be provided to the policyholder in lieu of filing with the Commissioner.

 (e)  If a premium rate in the revised premium rate schedule is greater than 200% of the comparable rate in the initial premium schedule, lifetime projections, as defined in subsection (b)(3)(i), shall be filed for review subject to the Accident and Health Filing Reform Act by the Commissioner every 5 years following the end of the required period in subsection (d). For group insurance policies that meet the conditions in subsection (k), the projections required by this subsection shall be provided to the policyholder in lieu of filing with the Commissioner.

 (f)  If the Commissioner has determined that the actual experience following a rate increase does not adequately match the projected experience and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in subsection (c), the Commissioner may require the insurer to implement premium rate schedule adjustments, or other measures to reduce the difference between the projected and actual experience. In determining whether the actual experience adequately matches the projected experience, consideration should be given to subsection (b)(3)(v), if applicable.

 (g)  If the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse, the insurer shall file the following:

   (1)  A plan, subject to Commissioner approval, for improved administration or claims processing designed to eliminate the potential for further deterioration of the policy form requiring further premium rate schedule increases, or both, or to demonstrate that appropriate administration and claims processing have been implemented or are in effect; otherwise the Commissioner may impose the condition in subsection (h).

   (2)  The original anticipated lifetime loss ratio, and the premium rate schedule increase that would have been calculated according to subsection (c) had the greater of the original anticipated lifetime loss ratio or 58% been used in the calculations described in subsection (c)(1)(i) and (iii)

 (h)  For a rate increase filing that meets the following criteria, the Commissioner will review, for all policies included in the filing, the projected lapse rates and past lapse rates during the 12 months following each increase to determine if significant adverse lapsation has occurred or is anticipated:

   (1)  The rate increase is not the first rate increase requested for the specific policy form or forms.

   (2)  The rate increase is not an exceptional increase.

   (3)  The majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse.

     (i)   If significant adverse lapsation has occurred, is anticipated in the filing or is evidenced in the actual results as presented in the updated projections provided by the insurer following the requested rate increase, the Commissioner may determine that a rate spiral exists. Following the determination that a rate spiral exists, the Commissioner may require the insurer to offer, without underwriting, to all in force insureds subject to the rate increase the option to replace existing coverage with one or more reasonably comparable products being offered by the insurer or its affiliates.

   (1)  The offer shall:

     (i)   Be subject to the approval of the Commissioner.

     (ii)   Be based on actuarially sound principles, but not be based on attained age.

     (iii)   Provide that maximum benefits under a new policy accepted by an insured shall be reduced by comparable benefits already paid under the existing policy.

   (2)  The insurer shall maintain the experience of all the replacement insureds separate from the experience of insureds originally issued the policy forms. In the event of a request for a rate increase on the policy form, the rate increase shall be limited to the lesser of:

     (i)   The maximum rate increase determined based on the combined experience.

     (ii)   The maximum rate increase determined based only on the experience of the insureds originally issued the form plus 10%.

 (j)  If the Commissioner determines that the insurer has exhibited a persistent practice of filing inadequate initial premium rates for long-term care insurance, the Commissioner may, in addition to the provisions of subsection (h), prohibit the insurer from either of the following:

   (1)  Filing and marketing comparable coverage for up to 5 years.

   (2)  Offering all other similar coverages and limiting marketing of new applications to the products subject to recent premium rate schedule increases.

 (k)  Subsections (a)—(j) do not apply to policies for which the long-term care benefits provided by the policy are incidental, as defined in §  89a.103, if the policy complies with the following conditions:

   (1)  The interest credited internally to determine cash value accumulations, including long-term care are 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)  An actuarial memorandum is filed with the Department that includes the following:

     (i)   A description of the basis on which the long-term care rates were determined.

     (ii)   A description of the basis for the reserves.

     (iii)   A summary of the type of policy, benefits, renewability, general marketing method and limits on ages of issuance.

     (iv)   A description and a table of each actuarial assumption used. For expenses, an insurer shall include percent of premium dollars per policy and dollars per unit of benefits.

     (v)   A description and a table of the anticipated policy reserves and additional reserves to be held in each future year for active lives.

     (vi)   The estimated average annual premium per policy and the average issue age.

     (vii)   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 types of underwriting used, such as medical underwriting or functional assessment underwriting. Concerning a group policy, the statement shall indicate whether the enrollee or a dependent will be underwritten and when underwriting occurs.

     (viii)   A description of the effect of the long-term care policy provision on the required premiums, nonforfeiture values and reserves on the underlying insurance policy, both for active lives and those in long-term care claim status.

 (l)  Subsections (f) and (h) do not apply to group insurance policies as defined in section 1103 of the act (40 P. S. §  991.1103) when either:

   (1)  The policies insure 250 or more persons and the policyholder has 5,000 or more eligible employees of a single employer.

   (2)  The policyholder, and not the certificateholders, pays a material portion of the premium, which may not be less than 20% of the total premium for the group in the calendar year prior to the year a rate increase is filed.

Cross References

   This section cited in 31 Pa. Code §  89a.103 (relating to definitions); and 31 Pa. Code §  89a.117 (relating to loss ratio).

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