Section R20-6-1014. Loss Ratio

A.      This Section applies to policies and certificates issued any time prior to May 10, 2005.

B.       Benefits under an individual long-term care insurance policy is deemed reasonable in relation to premiums if the expected loss ratio is at least 60% calculated in a manner that provides for adequate reserving of the long-term care insurance risk. In evaluating the expected loss ratio, the director shall consider to all relevant factors, including:

1.        Statistical credibility of incurred claims experience and earned premiums;

2.        The period for which rates are computed to provide cov- erage;

3.        Experienced and projected trends;

4.        Concentration of experience within early policy duration;

5.        Expected claim fluctuation;

6.        Experience refunds, adjustments, or dividends;

7.        Renewability features;

8.        All appropriate expense factors;

9.        Interest;

10.     Experimental nature of the coverage;

11.     Policy reserves;

12.     Mix of business by risk classification; and

13.     Product features such as long elimination periods, high deductibles, and high maximum limits.

C.      Subsection (B) does not apply to life insurance policies that accelerate benefits for long-term care. A life insurance policy that funds long-term care benefits entirely by accelerating the death benefit is deemed to provide reasonable benefits in rela- tion to premiums paid, if the policy complies with all of the following:

1.        The interest credited internally to determine cash value accumulations, including long-term care, if any, is guar- anteed not to be less than the minimum guaranteed inter- est rate for cash value accumulations without long-term care set forth in the policy.

2.        The portion of the policy that provides life insurance ben- efits  complies  with  the  nonforfeiture  requirements  of

A.R.S. § 20-1231;

3.        The policy complies with the disclosure requirements of

A.R.S. § 20-1691.06(A) through (E);

4.        At the time of making a filing under A.R.S. § 20-1691.08, the insurer files an actuarial memorandum that includes the following information:

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, renew- ability, general marketing method, and limits  on ages of issuance;

d.        A description and a table of each actuarial assump- tion used; for expenses, an insurer shall include per- cent 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 per- formed, including:

i.         Time of underwriting;

ii.        A description of the type of underwriting used, such as medical underwriting or functional assessment underwriting; and

iii.      For a group policy, whether an enrollee’s dependents are subject to underwriting; and

h.        A description of the effect of the long-term care pol- icy provisions on the required premiums, nonforfei- ture values, and reserves on the underlying life insurance policy, both for active lives and those in long-term care status.

Historical Note

Adopted effective August 10, 1992 (Supp. 92-3). R20-6- 1014 recodified from R4-14-1014 (Supp. 95-1). Section repealed; R20-6-1014 renumbered from R20-6-1011 and amended by final rulemaking at 10 A.A.R. 4661, effec- tive January 3, 2005 (Supp. 04-4).