Credit Life and Accident and Health Rates

November 27, 2012 Bulletin 194 CREDIT LIFE AND ACCIDENT AND HEALTH RATES This Bulletin is directed to all insurers engaged in the business ofselling credit insurance in the state oflndiana. Pursuant to 760 IAC 1-5.1-4, benefits provided by consumer credit insurance policies must be reasonable in relation to the premium charged. A loss ratio ofnot less than 55% is regarded as reasonable. 760 IAC 1-5 .1 (the "Rule'') provided prima facie rates considered to be meet the reasonableness requirement. 760 IAC 1-5 .1-9 requires the Commissioner to review the loss ratio standards and the prima facie rates contained in the Rule on a triennial basis. In the review ofthe loss ratio standards, the Commissioner is to: (1) determine the rate ofexpected claims on a statewide basis; (2) compare such rate ofexpected claims with the rate ofactual claims for the preceding three years determined from the incun·ed claims and earned premiums at prima facie rates reported in the annual statement supplement or other available source; and (3) publish in the Indiana Register the adjusted actual statewide prima facie rates to be used by insurers during the next triennium. This Bulletin is intended to fulfill the requirements ofthe Rule. The applicable provisions of760 IAC 1-5.1 were effective January 1, 2003, and rates were reviewed in 2006 (see Bulletin 144) and 2009 (see Bulletin 173). With the conclusion ofthe calendar year 2011, there are three new years ofexperience available, and the triennial review is due. Discount Rate - Pursuant to 760 IAC 1-5.1-9, evei:y three years the distount rate is to be adjusted based on the sales ofthe three-year Treasury Notes on the last day ofthe· last three calendar years. The rates paid at the last day of2009, 2010, and 2011 are listed below: Calendar Year 3 Year Treasury Rate 2009 1.70 2010 1.02 2011 0.36 Average for 3 years 1.02 Based upon this information the_ discount rate would reduce slightly. A reduced discount rate results in larger single premiums being collected for credit insurance coverages. Conclusion The discount rates to be used are 1 .42% for life and 1.02% for accident and health. The life discount rate includes 0.4% for mortality. Life Actual Experience Based on data received from the National Association ofInsurance Commissioners, credit life insurance has generated the following loss ratios over the last three (3) calendar years: Calendar Year Loss Ratio 2009 57.1 2010 66.5 2011 65.0 Aggregate for 3 years 62.3 Adjusting the above Loss Ratios for the adjustment to prima facie rates would result in the following loss ratios. Calendar Year Loss Ratio 2009 54.9 2010 64.4 2011 61.8 Aggregate for 3 years 59.9 The loss ratio for credit life has been slightly above the 55%; therefore, an increase of 9% to the prirna facie rate is indicated. Conclusion Based on the above information, the Commissioner has determined that, pursuant to 760 IACI-5.1, the aggregate rate adjustment indicated for life prima facie is 9%. The credit life prima facie rates for monthly outstanding balance basis are therefore increased to: I) Sixty-five cents ($0.65) per month per one thousand dollars ($1,000) of outstanding insured debt on single life, and 2) One dollar ($1.09) per month per one thousand dollars ($1,000) ofoutstanding insured debt on joint life ifpremiums are payable on a monthly outstanding balance basis. 2 Accident and Health/Disability Actual Experience Based on data received from the National Association ofInsurance Commissioners, credit accident and health insurance has generated the following loss ratios over the last three calendar years: Calendar Year Loss Ratio 2009 47.7 2010 53.7 2011 61.9 Aggregate for 3 years 53.5 Adjusting the above Loss Ratios for the adjustment to prima facie rates would result in the following loss ratios. Calendar Year Loss Ratio 2009 50.5 2010 56.5 2011 64.1 Aggregate for 3 years 56.2 While the aggregate loss ratio has been slightly higher than the statutory target of55%, the indicated increase to the rates would only be 2%. The Commissioner considers this increase to be de minimus. Conclusion The rate adjustment indicated for accident and health is de minimus. Thus, the rate remains unchanged from those established by Bulletin 144 and continued by Bulletin 173 and are shown below. The credit accident and health prima facie rates are single premium rates based on type ofcoverage (14 day retro and non retro and 30 day retro and non retro) and length ofloan. 3 Original Number of Equal Monthly Installments 14 Day Retroactive Policy 14 Day Nonretroactive Policies 30 Day Retroactive Policies 30 Day Non retroactive Policies 6 1.39 0.91 0.94 0.71 12 1.85 1.29 1.27 0.95 24 2.49 1.79 1.79 1.25 36 3.07 2.35 2.32 1.68 48 3.41 2.70 2.66 1.99 60 3.70 2.98 2.95 2.26 72 3.97 3.23 3.21 2.50 84 4.20 3.47 3.44. 2.74 96 4.42 3.69 3.65 2.96 108 4.65 3.90 3.87 3.17 120 4.86 4.10 4.07 3.37 Rates other than the prima facie rates announced in this Bulletin may be used if they are filed with the Department and approved as reasonable in relation the benefits provided. Information on filing rates may be found on the Department's web site at www.in.gov/idoi. Questions regarding this Bulletin should be directed to Karl Knable, Chief Actuary, at 317.232.2416 or kknable@idoi.IN.gov. Insurance Commissioner 4