Ins 3.17(3)(r) (r) “Terminal reserve” means the reserve at the end of the contract year which is the present value of benefits expected to be incurred after that contract year minus the present value of future valuation net premiums.

Ins 3.17(3)(s) (s) “Unearned premium reserve” means that portion of the premium paid or due to the insurer which is applicable to the period of coverage extending beyond the valuation date.

Ins 3.17 Note Note: Thus if an annual premium of $120 was paid on November 1, $20 would be earned as of December 31 and the remaining $100 would be unearned. The unearned premium reserve could be on a gross basis as in this example, or on a valuation net premium basis.

Ins 3.17(3)(t) (t) “Valuation net modal premium” means the modal fraction of the valuation net annual premium that corresponds to the gross modal premium in effect on any contract to which contract reserves apply. Thus if the mode of payment in effect is quarterly, the valuation net modal premium is the quarterly equivalent of the valuation net annual premium.

Ins 3.17(4) (4) Reserves in excess of minimum reserve standards. An insurer subject to this section may determine that the adequacy of its accident and sickness reserves requires reserves in excess of the minimum standards specified in this section. The insurer shall hold and consider the excess reserves as its minimum reserves.

Ins 3.17(5) (5) Prospective gross premium valuation.

Ins 3.17(5)(a) (a) With respect to any block of contracts, or with respect to an insurer’s accident and sickness business as a whole, a prospective gross premium valuation is the ultimate test of reserve adequacy as of a given valuation date. The gross premium valuation shall take into account, for contracts in force, in a claims status, or in a continuation of benefits status on the valuation date, the present value as of the valuation date adjusted for future premium increases reasonably expected to be put into effect, of:

Ins 3.17(5)(a)1. 1. All expected benefits unpaid.

Ins 3.17(5)(a)2. 2. All expected expenses unpaid.

Ins 3.17(5)(a)3. 3. All unearned or expected premiums.

Ins 3.17(5)(b) (b) The insurer shall perform a gross premium valuation whenever a significant doubt exists as to reserve adequacy with respect to any major block of contracts, or with respect to the insurer’s accident and sickness business as a whole. In the event inadequacy is found to exist, the insurer shall make immediate loss recognition and restore the reserves to adequacy. The insurer shall hold adequate reserves, inclusive of claim, premium and contract reserves, if any, with respect to all contracts, regardless of whether contract reserves are required for the contracts under these standards.

Ins 3.17(5)(c) (c) Whenever minimum reserves, as defined in these standards, exceed reserve requirements as determined by a prospective gross premium valuation, the minimum reserves remain the minimum requirement under these standards.

Ins 3.17(6) (6) Claim reserves.

Ins 3.17(6)(a) (a) General claim reserve requirements are:

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. 1. For disability income:

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. 2. For all other benefits:

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) (bm)

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) (c) General claim reserve methods are as follows: