Chapter Ins 3

Ins 3.17(7)(c) (c) General premium reserve methods are as follows:

Ins 3.17(7)(c)1. 1. In computing premium reserves, the insurer may employ suitable approximations and estimates; including, but not limited to, groupings, averages and aggregate estimation.

Ins 3.17(7)(c)2. 2. The insurer shall periodically test the approximations or estimates to determine their continuing adequacy and reliability.

Ins 3.17(8) (8) Contract reserves.

Ins 3.17(8)(a) (a) General contract reserve requirements are:

Ins 3.17(8)(a)1. 1. Contract reserves are required, unless otherwise specified in subd. 2. for:

Ins 3.17(8)(a)1.a. a. All individual and group contracts with which level premiums are used; or

Ins 3.17(8)(a)1.b. b. All individual and group contracts with respect to which, due to the gross premium pricing structure at issue, the value of the future benefits at any time exceeds the value of any appropriate future valuation net premiums at that time. The insurer shall determine the values specified in this subparagraph on the basis specified in par. (b);

Ins 3.17(8)(a)2. 2. Contracts not requiring a contract reserve are:

Ins 3.17(8)(a)2.a. a. Contracts which cannot be continued after one year from issue; or

Ins 3.17(8)(a)2.b. b. Contracts already in force on the effective date of these standards for which no contract reserve was required under the immediately preceding standards;

Ins 3.17(8)(a)3. 3. The contract reserve is in addition to claim reserves and premium reserves; and

Ins 3.17(8)(a)4. 4. The insurer shall use methods and procedures for contract reserves that are consistent with those for claim reserves for any contract, or else shall make appropriate adjustment when necessary to assure provision for the aggregate liability. The insurer shall use the same definition of the date of incurral in both determinations.

Ins 3.17(8)(b) (b) Except as provided in par. (bm), the basis for determining minimum standards for contract reserves are as follows:

Ins 3.17(8)(b)1. 1. Minimum standards with respect to morbidity are those set forth in Appendix A. Valuation net premiums used under each contract shall have a structure consistent with the gross premium structure at issue of the contract as this relates to advancing age of insured, contract duration and period for which gross premiums have been calculated. The insurer shall value contracts for which tabular morbidity standards are not specified in Appendix A using tables established for reserve purposes by a qualified actuary meeting the requirements of s. Ins 6.12 and acceptable to the commissioner;

Ins 3.17 Note Note: The consistency between the gross premium structure and the valuation net premium is required only at issue, because the impact on the consistency after issue of regulatory restrictions on premium rate increases is still under study.

Ins 3.17(8)(b)2. 2. The maximum interest rate is specified in Appendix A;

Ins 3.17(8)(b)3. 3. The insurer shall use termination rates in the computation of reserves on the basis of a mortality table as specified in Appendix A except as noted in the following paragraph.

Ins 3.17(8)(b)3m. 3m. Under contracts for which premium rates are not guaranteed, and where the effects of insurer underwriting are specifically used by policy duration in the valuation morbidity standard, the insurer may use total termination rates at ages and durations where these exceed specified mortality table rates, but not in excess of the lesser of:

Ins 3.17(8)(b)3m.a. a. Eighty percent of the total termination rate used in the calculation of the gross premiums, or

Ins 3.17(8)(b)3m.b. b. Eight percent.

Ins 3.17(8)(b)3s. 3s. Where a morbidity standard specified in Appendix A is on an aggregate basis, the insurer may adjust the morbidity standard to reflect the effect of insurer underwriting by policy duration. The adjustments shall be appropriate to the underwriting and acceptable to the commissioner;

Ins 3.17(8)(b)4. 4. The minimum reserve is the reserve calculated on the two-year full preliminary term method; that is, under which the terminal reserve is zero at the first and also the second contract anniversary. The insurer may apply the two-year preliminary term method only in relation to the date of issue of a contract. The insurer shall apply reserve adjustments introduced later, as a result of rate increases, revisions in assumptions or for other reasons, immediately as of the effective date of adoption of the adjusted basis;

Ins 3.17(8)(b)5. 5. The insurer may offset negative reserves on any benefit against positive reserves for other benefits in the same contract, but the total contract reserve with respect to all benefits combined may not be less than zero.

Ins 3.17(8)(bm) (bm)

Ins 3.17(8)(bm)1. 1. The minimum contract reserve standards for accident and sickness contracts issued prior to January 1, 2017, at the option of the insurer, shall be either the reserving requirements as set forth in par. (b), or the reserving requirements set forth in the National Association of Insurance Commissioners Accounting Practices and Procedures Manual, Appendix A-010.

Ins 3.17(8)(bm)2. 2. The minimum contract reserve standards for contracts issued on or after January 1, 2017, shall be the standards set forth in the National Association of Insurance Commissioners Valuation Manual as defined in s. 623.06 (1) (j), Stats.

Ins 3.17(8)(c) (c) Provided the contract reserve on all contracts to which an alternative method or basis is applied is not less in the aggregate than the amount determined according to the applicable standards specified in this section; an insurer may use any reasonable assumptions as to interest rates, termination or mortality rates or both, and rates of morbidity or other contingency. Also, subject to the preceding sentence, the insurer may employ methods other than the methods stated in this section in determining a sound value of its liabilities under the contracts, including, but not limited to the following:

Ins 3.17(8)(c)1. 1. The net level premium method;

Ins 3.17(8)(c)2. 2. The one-year full preliminary term method;

Ins 3.17(8)(c)3. 3. Prospective valuation on the basis of actual gross premiums with reasonable allowance for future expenses;

Ins 3.17(8)(c)4. 4. The use of approximations such as those involving age groupings, groupings of several years of issue, average amounts of indemnity, grouping of similar contract forms;

Ins 3.17(8)(c)5. 5. The computation of the reserve for one contract benefit as a percentage of, or by other relation to, the aggregate contract reserves exclusive of the benefit or benefits so valued; and

Ins 3.17(8)(c)6. 6. The use of a composite annual claim cost for all or any combination of the benefits included in the contracts valued.

Ins 3.17(8)(d) (d)

Ins 3.17(8)(d)1. 1. Annually, the insurer shall make an appropriate review of the insurer’s prospective contract liabilities on contracts valued by tabular reserves, to determine the continuing adequacy and reasonableness of the tabular reserves giving consideration to future gross premiums. The insurer shall make appropriate increments to the tabular reserves if the tests indicate that the basis of the reserves is no longer adequate. Any appropriate increments to tabular reserves made by the insurer under this paragraph shall comply with the minimum standards of par. (b).

Ins 3.17(8)(d)2. 2. If an insurer has a contract or a group of related similar contracts, for which future gross premiums will be restricted by the commissioner, the contract, or some other reason, such that the future gross premiums reduced by expenses for administration, commissions, and taxes will be insufficient to cover future claims, the insurer shall establish contract reserves for the shortfall in the aggregate.

Ins 3.17(9) (9) Determination of adequacy. The insurer shall determine the adequacy of its accident and health insurance reserves on the basis of the claim reserves, premium reserves, and contract reserves combined. However, the standards established in this section emphasize the importance of determining appropriate reserves for each of these three reserve categories separately.

Ins 3.17(10) (10) Reinsurance. The insurer shall determine, in a manner consistent with these minimum reserve standards and with all applicable provisions of the reinsurance contracts which affect the insurer’s liabilities, increases to, or credits against reserves carried, arising because of reinsurance assumed or reinsurance ceded.

Ins 3.17 History History: Cr. Register, April, 1959, No. 40, eff. 5-1-59; am. (2) (a) and (b), Register, June, 1960, No. 54, eff. 7-1-60; am. (3) (a) and Table 1, Register, October, 1960, No. 58, eff. 11-1-60; r. and recr., Register, January, 1967, No. 133, eff. 2-1-67; emerg. am. to (1) to (6), eff. 6-22-76; am. (1), (2), (3) (intro.), (3) (a), 4. and 5., (3) (e), (4) (intro.), (4) (a), (5) and (6), Register, September, 1976, No. 249, eff. 10-1-76; am. (2), (3) and (5), Register, March, 1979, No. 279, eff. 4-1-79; am. (3) (intro.), (a) 4. and 5. (4) (intro.), (5) (intro.) and (6) (intro.), Register, September, 1986, No. 369, eff. 10-1-86; r. and recr. Register, November, 1989, No. 407, eff. 12-1-89.; correction in (8) (b) made under s. 13.93 (2m) (b) 1., Stats., Register, April, 1992, No. 436; CR 19-142: am. (6) (b) (intro.), cr. (6) (bm), am. (8) (b) (intro.), cr. (8) (bm) Register July 2020 No. 775, eff. 8-1-20.

Ins 3.17 APPENDIX A

SPECIFIC STANDARDS FOR MORBIDITY, INTEREST AND MORTALITY

- See PDF for table

Ins 3.17 Note Note: The tables referenced in this Appendix may be found as follows:

Ins 3.17 Note The 1964 Commissioners Disability Table, 1965 Proceedings of the National Association of Insurance Commissioners, Vol. I, pgs. 78-80.

Ins 3.17 Note The 1985 Commissioners Individual Disability Tables A, 1986 Proceedings of the National Association of Insurance Commissioners, Vol. I, pgs. 574-589.

Ins 3.17 Note The 1985 Commissioners Individual Disability Tables B, 1985 Proceedings of the National Association of Insurance Commissioners, Vol. I, pgs. 486-540.

Ins 3.17 Note The 1956 Intercompany Hospital-Surgical Tables, 1957 Proceedings of the National Association of Insurance Commissioners, Vol. I, pgs. 83-85.

Ins 3.17 Note The 1985 NAIC Cancer Claim Cost Tables, 1986 Proceedings of the National Association of Insurance Commissioners, Vol. I, pgs. 609-623.

Ins 3.17 Note The 1959 Accidental Death Benefits Table, Transactions of the Society of Actuaries, Vol. XI, pg. 754.

Ins 3.17 Note The 1987 Commissioners Group Disability Income Table, 1987 Proceedings of the National Association of Insurance Commissioners, Vol. II, pgs. 557-619.

Ins 3.17 Note Note: Reserves for waiver of premium. Waiver of premium reserves involve several special considerations. First, the disability valuation tables promulgated by the NAIC are based on exposures that include contracts on premium waiver as in-force contracts. Therefore, contract reserves based on these tables are not reserves on “active lives,” but rather reserves on contracts “in force.” This is true for the 1964 CDT and for both the 1985 CIDA and CIDB tables.

Ins 3.17 Note Accordingly, tabular reserves using any of these tables should value reserves on the following basis:

Ins 3.17 Note Claim reserves should include reserves for premiums expected to be waived, valuing as a minimum the valuation net premium being waived.

Ins 3.17 Note Premium reserves should include contracts on premium waiver as in-force contracts, valuing as a minimum the unearned modal valuation net premium being waived.

Ins 3.17 Note Contract reserves should include recognition of the waiver of premium benefit in addition to other contract benefits provided for, valuing as a minimum the valuation net premium to be waived.

Ins 3.17 Note If an insurer is, instead, valuing reserves on what is truly an active life table, or if a specific valuation table is not being used but the insurer’s gross premiums are calculated on a basis that includes in the projected exposure only those contracts for which premiums are being paid, then it may not be necessary to provide specifically for waiver of premium reserves. Any insurer using the true “active life” basis should carefully consider, however, whether or not additional liability should be recognized on account of premiums waived during periods of disability or during claim continuation.

Ins 3.18 Ins 3.18 Total consideration for accident and sickness insurance policies. The total consideration charged for accident and sickness insurance policies must include policy and other fees. Such total consideration charged must be stated in the policy, and shall be subject to the reserve requirements of ch. 623, Stats., and s. Ins 3.17, and must be the basis for computing the amount to be refunded in the event of cancellation of the policy.

Ins 3.18 History History: Cr. Register, May, 1959, No. 41, eff. 6-1-59; emerg. am. eff. 6-22-76; am. Register, September, 1976, No. 249, eff. 10-1-76.

Ins 3.19 Ins 3.19 Group accident and sickness insurance insuring debtors of a creditor.

Ins 3.19(1) (1) This rule implements and interprets ss. 204.321 (1) (d) and 206.60 (2), 1973 Stats., with regard to issuance of a group policy of accident and sickness insurance issued to a creditor to insure debtors of a creditor.

Ins 3.19(2) (2) A group accident and sickness insurance policy may be issued to a creditor to insure debtors of the creditor if the class or classes of insured debtors meet the requirements of s. 206.60 (2) (a) and (c), 1973 Stats., and such a policy shall be subject to the requirements of such paragraphs in addition to other requirements applicable to group accident and sickness insurance policies.

Ins 3.19 History History: Cr. Register, November, 1959, No. 47, eff. 12-1-59; am. Register, September, 1963, No. 93, eff. 10-1-63; r. (3), Register, February, 1973, No. 206, eff. 3-1-73; emerg. am. (1) and (2), eff. 6-22-76; am. (1) and (2), Register, September, 1976, No. 249, eff. 10-1-76.

Ins 3.20 Ins 3.20 Substandard risk automobile physical damage insurance for financed vehicles.

Ins 3.20(1) (1) Purpose. In accordance with s. 625.34, Stats., this rule is to accomplish the purpose and enforce the provisions of ch. 625, Stats., in relation to automobile physical damage insurance for substandard risks.

Ins 3.20(2) (2) Scope. This rule applies to any automobile physical damage insurance policy procured or delivered by a finance company.

Ins 3.20(3) (3) Definitions.

Ins 3.20(3)(a) (a) “Substandard risk” means an applicant for insurance who presents a greater exposure to loss than that contemplated by commonly used rate classifications as evidenced by one or more of the following conditions:

Ins 3.20(3)(a)1. 1. Record of traffic accidents.

Ins 3.20(3)(a)2. 2. Record of traffic law violations.

Ins 3.20(3)(a)3. 3. Undesirable occupational circumstances.

Ins 3.20(3)(a)4. 4. Undesirable moral characteristics.

Ins 3.20(3)(b) (b) “Substandard risk rate” means a rate or premium charge that reflects the greater than normal exposure to loss which is assumed by an insurer writing insurance for a substandard risk.

Ins 3.20(4) (4) Rates for substandard risks.

Ins 3.20(4)(a) (a) Any increased rate charged for substandard risks shall not be excessive, inadequate, or unfairly discriminatory.

Ins 3.20(4)(b) (b) It shall be unfairly discriminatory to charge a rate or premium that does not reasonably measure the variation between risks and each risk’s exposure to loss.

Ins 3.20(4)(c) (c) Classification rates filed for substandard risks may not exceed 150% of the rate level generally in use for normal risks unless the filing also provides for the modification of classification rates in accordance with a schedule which establishes standards for measuring variation in hazards or expense provisions or both.

Ins 3.20(5) (5) Insurance coverage.

Ins 3.20(5)(a) (a) The automobile physical damage insurance afforded shall be substantially that customarily in use for normal business.

Ins 3.20(5)(b) (b) The applicant shall not be required to purchase more coverage than is customarily necessary to protect the interests of the mortgagee. The issuance of a policy shall not be made contingent on the acceptance by the applicant of unwanted or excessively broad coverages.

Ins 3.20(5)(c) (c) Single interest coverage may be issued only when double interest coverage is not obtainable. The applicant must be given the opportunity to procure insurance, and if he or she can procure same within 25 days there shall be no charge for the single interest coverage.

Ins 3.20(6) (6) Policy forms. The purchaser must be furnished with a complete policy form clearly setting forth the nature and extent of all coverages and premiums charged therefor.

Ins 3.20(7) (7) Rating statement. No policy written on the basis of a sub-standard risk rate schedule shall be issued unless it contains a statement printed in bold-faced type, preferably in a contrasting color, reading substantially as follows: This policy has been rated in accordance with a special rating schedule filed with the commissioner of insurance providing for higher premium charges than those generally applicable for average risks. If the coverage or premium is not satisfactory, you may secure your own insurance.

Ins 3.20 History History: Cr. Register, March, 1960, No. 51, eff. 4-1-60; emerg. am. (1), eff. 6-22-76; am. (1), Register, September, 1976, No. 249, eff. 10-1-76; correction in (1) and (5) (c) made under s. 13.93 (2m) (b) 5. and 7., Stats., Register, April, 1992, No. 436.

Ins 3.23 Ins 3.23 Franchise accident and sickness insurance.

Ins 3.23(1) (1) Franchise group headquarters. A franchise group described in s. 600.03 (22), Stats., need not have its headquarters or other executive offices domiciled in Wisconsin.

Ins 3.23(2) (2) Accounting. All premiums paid in connection with franchise accident and sickness insurance on Wisconsin residents shall be reported for annual statement purposes as Wisconsin business and shall be subject to the applicable Wisconsin premium tax.

Ins 3.23 History History: Cr. Register, May, 1964, No. 101, eff. 6-1-64; emerg. am. (1) eff. 6-22-76; am. (1), Register, September, 1976, No. 249, eff. 10-1-76; correction in (1) made under s. 13.93 (2m) (b) 7., Stats., Register, April, 1992, No. 436.

Ins 3.25 Ins 3.25 Credit life insurance and credit accident and sickness insurance.