Ins 3.17(6)(a)1.1. Claim reserves are required for all incurred but unpaid claims on all accident and sickness insurance policies; Ins 3.17(6)(a)2.2. Appropriate claim expense reserves are required with respect to the estimated expense of settlement of all incurred but unpaid claims; and Ins 3.17(6)(a)3.3. The insurer shall test reserves for prior valuation years for adequacy and reasonableness along the lines of claim run-off schedules in accordance with the statutory financial statement including consideration of any residual unpaid liability. Ins 3.17(6)(b)(b) Except as provided in par. (bm), minimum standards for claim reserves are as follows: Ins 3.17(6)(b)1.a.a. The maximum interest rate for claim reserves is specified in Appendix A; Ins 3.17(6)(b)1.b.b. Minimum standards with respect to morbidity are those specified in Appendix A; except that, at the option of the insurer, for claims with a duration from date of disablement of less than two years, the insurer may base the reserves on the insurer’s experience, if the experience is considered credible, or upon other assumptions designed to place a sound value on the liabilities; Ins 3.17(6)(b)1.c.c. For contracts with an elimination period, the insurer shall measure the duration of disablement as dating from the time that benefits would have begun to accrue had there been no elimination period. Ins 3.17(6)(b)2.a.a. The maximum interest rate for claim reserves is specified in Appendix A; Ins 3.17(6)(b)2.b.b. The insurer shall base the reserve on the insurer’s experience, if this experience is considered credible, or upon other assumptions designed to place a sound value on the liabilities; Ins 3.17(6)(bm)1.1. The minimum claim reserve standards for 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(6)(bm)2.2. The minimum claim 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(6)(c)1.1. The insurer may use any generally accepted or reasonable actuarial method or combination of methods to estimate all claim liabilities. Ins 3.17(6)(c)2.2. The methods used for estimating liabilities generally may be aggregate methods, or various reserve items may be separately valued. The insurer may also employ approximations based on groupings and averages. The insurer shall, however, determine adequacy of the claim reserves in the aggregate. Ins 3.17(7)(a)1.1. Unearned premium reserves are required for all contracts with respect to the period of coverage for which premiums, other than premiums paid in advance, have been paid beyond the date of valuation; Ins 3.17(7)(a)2.2. If premiums due and unpaid are carried as an asset, the insurer shall treat the premiums as premiums in force, subject to unearned premium reserve determination. The insurer shall carry as an offsetting liability the value of unpaid commissions, premium taxes, and the cost of collection associated with due and unpaid premiums; and Ins 3.17(7)(a)3.3. Insurers may appropriately discount to the valuation date the gross premiums paid in advance for a period of coverage commencing after the next premium due date which follows the date of valuation. The insurer shall hold this discounted premium either as a separate liability or as an addition to the unearned premium reserve which would otherwise be required as a minimum. Ins 3.17(7)(b)(b) Minimum standards for unearned premium reserves are as follows: Ins 3.17(7)(b)1.1. The minimum unearned premium reserve with respect to any contract is the pro rata unearned modal premium that applies to the premium period beyond the valuation date, with the premium determined on the basis of: Ins 3.17(7)(b)1.a.a. The valuation net modal premium on the contract reserve basis applying to the contract; or Ins 3.17(7)(b)1.b.b. The gross modal premium for the contract if no contract reserve applies. Ins 3.17(7)(b)2.2. However, the sum of the unearned premium and contract reserves for all contracts of the insurer subject to contract reserve requirements may not be less than the gross modal unearned premium reserve on all of the contracts, as of the date of valuation. To the extent not provided for elsewhere in this section, this reserve may not be less than the expected claims for the period beyond the valuation date represented by the unearned premium reserve. 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)(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.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 NoteNote: 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)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)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)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)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)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 HistoryHistory: 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
Ins 3.17 NoteNote: The tables referenced in this Appendix may be found as follows:
Ins 3.17 NoteThe 1964 Commissioners Disability Table, 1965 Proceedings of the National Association of Insurance Commissioners, Vol. I, pgs. 78-80.
Ins 3.17 NoteThe 1985 Commissioners Individual Disability Tables A, 1986 Proceedings of the National Association of Insurance Commissioners, Vol. I, pgs. 574-589.
Ins 3.17 NoteThe 1985 Commissioners Individual Disability Tables B, 1985 Proceedings of the National Association of Insurance Commissioners, Vol. I, pgs. 486-540.
Ins 3.17 NoteThe 1956 Intercompany Hospital-Surgical Tables, 1957 Proceedings of the National Association of Insurance Commissioners, Vol. I, pgs. 83-85.
Ins 3.17 NoteThe 1985 NAIC Cancer Claim Cost Tables, 1986 Proceedings of the National Association of Insurance Commissioners, Vol. I, pgs. 609-623.
Ins 3.17 NoteThe 1959 Accidental Death Benefits Table, Transactions of the Society of Actuaries, Vol. XI, pg. 754.
Ins 3.17 NoteThe 1987 Commissioners Group Disability Income Table, 1987 Proceedings of the National Association of Insurance Commissioners, Vol. II, pgs. 557-619.
Ins 3.17 NoteNote: 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 NoteAccordingly, tabular reserves using any of these tables should value reserves on the following basis:
Ins 3.17 NoteClaim reserves should include reserves for premiums expected to be waived, valuing as a minimum the valuation net premium being waived.
Ins 3.17 NotePremium 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 NoteContract 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 NoteIf 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 3.18Ins 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 HistoryHistory: 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 3.19Ins 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.
