50 Ill. Adm. Code 2012.113
Premium Rate Schedule Increases for Policies Subject to Loss Ratio Limits Related to Original Filings
Section 2012.113 Premium Rate Schedule Increases for
Policies Subject to Loss Ratio Limits Related to Original Filings
a) This Section shall apply
as follows:
1) Except
as provided in subsection (a)(2), this Section applies to any long-term care
policy or certificate issued in this State on or after July 1, 2018.
2) For
certificates issued on or after July 1, 2018, under a group long-term care
insurance policy as defined in Section 351A-1(e)(1) of the Code, which was in
force prior to July 1, 2018, the provisions of this Section shall apply on the
policy anniversary following January 1, 2019.
b) An
insurer shall provide notice of a pending premium rate schedule increase,
including an exceptional increase, to the Director at least 30 days prior to
the notice to the policyholders and shall include:
1) Information
required by Section 2012.62;
2) Certification
by a qualified actuary that:
A) 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;
B) The
premium rate filing is in compliance with the provisions of this Section;
C) The
insurer may request a premium rate schedule increase less than what is required
under this Section and the Director may approve that premium rate schedule
increase, without submission of the certification in subsection (b)(2)(A), if:
i) the
actuarial memorandum discloses the premium rate schedule increase necessary to
make the certification required under subsection (b)(2)(A);
ii) the
premium rate schedule increase filing satisfies all other requirements of this Section;
and
iii) the
premium rate schedule increase filing is, in the opinion of the Director, in
the best interest of policyholders;
3) An
actuarial memorandum justifying the rate schedule change request that includes:
A) 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 any assumptions that deviate from
those used for pricing other forms currently available for sale.
i) Annual
values for the 5 years preceding and the 3 years following the valuation date
shall be provided separately;
ii) The
projections shall include the development of the lifetime loss ratio, unless
the rate increase is an exceptional increase;
iii) The
projections shall demonstrate compliance with subsection (c); and
iv) For
exceptional increases, the projected experience should be limited to the
increases in claims expenses attributable to the approved reasons for the
exceptional increase. In the event the Director determines, as provided in the
definition of "exceptional increase" found in Section 2012.30, that
offsets may exist, the insurer shall use appropriate net projected experience;
B) Disclosure
of how reserves have been incorporated in this rate increase whenever the rate
increase will trigger contingent benefit upon lapse;
C) 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;
D) A
statement that policy design, underwriting and claims adjudication practices
have been taken into consideration;
E) In the
event that it is necessary to maintain consistent premium rates for new
certificates and certificates receiving a rate increase, composite rates, filed
by the insurer, reflecting projections of new certificates; and
F) A
demonstration that actual and projected costs exceed costs anticipated at the
time of initial pricing under moderately adverse experience and that the
composite margin specified in Section 2012.64(b)(2)(D) is projected to be
exhausted;
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 Director; and
5) Sufficient
information for review and approval of the premium rate schedule increase by
the Director.
c) All
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 such that the sum of the lesser of
the accumulated value of incurred claims, without the inclusion of active life
reserves, or the accumulated value of historic expected claims, without the
inclusion of active life reserves, plus the present value of future projected
incurred claims, projected without the inclusion of active life reserves, will
not be less than the sum of the following:
A) The
accumulated value of the initial earned premium times the greater of:
i) 58%; or
ii) the originally filed
loss ratio;
B) 85% of
the accumulated value of prior premium rate schedule increases on an earned
basis;
C) The
present value of future projected initial earned premiums times the greater of:
i) 58%; or
ii) the originally filed
loss ratio; and
D) 85% of
the present value of future projected premiums not in subsection (c)(2)(C) on
an earned basis;
3) In
the event that a policy form has both exceptional and other increases, the
values in subsections (c)(2)(B) and (D) will also include 70% for exceptional
rate increase amounts;
4) All
present and accumulated values used to determine rate increases shall use the
maximum valuation interest rate for contract reserves specified in 50 Ill. Adm.
Code 2004 (Accident and Health Reserves). The actuary shall disclose as part
of the actuarial memorandum the use of any appropriate averages; and
5) The
present value of future projected incurred claims calculated in subsection
(c)(2) shall be on a best estimate basis.
d) For
each rate increase that is implemented, the insurer shall file for review and
approval by the Director updated projections, as defined in subsection
(b)(3)(A), annually for the next 3 years and include a comparison of actual
results to projected values. The Director 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 (d) shall be
provided to the policyholder in lieu of filing with the Director.
e) If
any 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)(A), shall be filed for review and approval by the
Director 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 (e) shall be provided to the
policyholder in lieu of filing with the Director.
f) If
the Director 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 Director:
1) May
require the insurer to implement any of the following:
A) Premium
rate schedule adjustments; or
B) Other
measures to reduce the difference between the projected and actual experience.
2) Should
give consideration to subsection (b)(3)(E) when determining whether the actual
experience adequately matches the projected experience.
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 a plan, subject to Director 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 Director may impose the
condition in subsection (h).
h) Significant
Adverse Lapsation
1) For a
rate increase filing that meets the following criteria, the Director shall
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:
A) The
rate increase is not the first rate increase requested for the specific policy
form or forms;
B) The
rate increase is not an exceptional increase; and
C) The
majority of the policies or certificates to which the increase is applicable is
eligible for the contingent benefit upon lapse.
2) In
the event 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
Director may determine that a rate spiral exists. Following the determination
that a rate spiral exists, the Director 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.
A) The
offer shall:
i) Be
subject to the approval of the Director;
ii) Be
based on actuarially sound principles, but not be based on attained age; and
iii) Provide
that maximum benefits under any new policy accepted by an insured shall be
reduced by comparable benefits already paid under the existing policy.
B) 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; and
ii) The
maximum rate increase determined based only on the experience of the insureds
originally issued the form plus 10%.
i) If
the Director determines that the insurer has exhibited a persistent practice of
filing inadequate initial premium rates for long-term care insurance, the
Director may, in addition to the provisions of subsection (h), prohibit the
insurer from either of the following:
1) Filing
and marketing comparable coverage for a period of up to 5 years; or
2) Offering
all other similar coverages and limiting marketing of new applications to the products
subject to recent premium rate schedule increases.
j) Subsections
(a) through (i) shall not apply to policies for which the long-term care
benefits provided by the policy are "incidental", as defined in
Section 2012.30, if the policy complies with all of the following provisions:
1) The
interest credited internally to determine cash value accumulations, including
long-term care, if any, 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) The
portion of the policy that provides insurance benefits other than long-term
care coverage meets the nonforfeiture requirements, as applicable, in either of
the following:
A) Section
229.2 of the Code;
B) Section
229.4 of the Code;
3) The
policy meets the disclosure requirements of Sections 351A-9.1 and 351A-9.2 of
the Code;
4) The
portion of the policy that provides insurance benefits other than long-term
care coverage meets the requirements, as applicable, in the following:
A) Policy
illustrations as required by 50 Ill. Adm. Code 1406;
B) Disclosure
requirements in 50 Ill. Adm. Code 1551;
5) An
actuarial memorandum is filed with the Director that includes:
A) A
description of the basis on which the long-term care rates were determined;
B) A
description of the basis for the reserves;
C) A
summary of the type of policy, benefits, renewability, general marketing
method, and limits on ages of issuance;
D) A
description and a table of each actuarial assumption used. For expenses, an
insurer must include percent of premium dollars per policy and dollars per unit
of benefits, if any;
E) A
description and a table of the anticipated policy reserves and additional
reserves to be held in each future year for active lives;
F) The
estimated average annual premium per policy and the average issue age;
G) 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 type or types of underwriting
used, such as medical underwriting or functional assessment underwriting.
Concerning a group policy, the statement shall indicate whether the enrollee or
any dependent will be underwritten and when underwriting occurs; and
H) 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.
k) At
the request of the insurer, the Director may also consider other options that
may be made available to insureds that may mitigate the impact of the rate
increases on the insured population or alternative actuarial methodologies
relating to the rate increase. The insurer shall provide an explanation and
demonstration on how the methodology is actuarially justified and/or how the
new mitigation option may reasonably benefit insureds. No alternative
method/approach may be used until it has been accepted by the Director.
l) Subsections
(f) and (h) shall not apply to group insurance policies as defined in Section
351A-1(e)(1) of the Code if:
1) The
policies insure 250 or more persons and the policyholder has 5,000 or more
eligible employees of a single employer; or
2) The
policyholder, and not the certificateholders, pays a material portion of the
premium, which shall 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.