California Code of Regulations › Title 10 - Investment › Chapter 5 - Insurance Commissioner › Subchapter 3 - Insurers › Article 3.5 - Minimum Reserve Standards for Valuation of Disability Insurance Contracts › Section 2311 - Definitions

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
For purposes of this article, the following definitions
					 apply:
(a) "Annual Claim Cost" is the
				  net annual cost per unit of benefit before the addition of expenses, including
				  claim settlement expenses, and a margin for profit or contingencies. For
				  example, the annual claim cost for a $100 monthly disability benefit, for a
				  maximum disability benefit period of one year, with an elimination period of
				  one week, with respect to a male at age 35, in a certain occupation might be
				  $12, while the gross premium for this benefit might be $18. The additional $6
				  would cover expenses and profit or contingencies.
(b) "Claims Accrued" means that portion of
				  claims incurred on or prior to the valuation date which result in liability of
				  the insurer for the payment of benefits for medical services which have been
				  rendered on or prior to the valuation date, and for the payment of benefits for
				  days of hospitalization and days of disability which have occurred on or prior
				  to the valuation date, which the insurer has not paid as of the valuation date,
				  but for which it is liable, and will have to pay after the valuation date. This
				  liability is sometimes referred to as a liability for "accrued" benefits. A
				  claim reserve, which represents an estimate of this accrued claim liability,
				  must be established.
(c) "Claim
				  Reported": When an insurer has been informed that a claim has been incurred, if
				  the date reported is on or prior to the valuation date, the claim is considered
				  as a reported claim for annual statement purposes.
(d) "Claims Unaccrued" are the portion of
				  claims incurred on or prior to the valuation date which result in liability of
				  the insurer for the payment of benefits for medical services expected to be
				  rendered after the valuation date, and for benefits expected to be payable for
				  days of hospitalization and days of disability occurring after the valuation
				  date. This liability is sometimes referred to as a liability for unaccrued
				  benefits. A claim reserve, which represents an estimate of the unaccrued claim
				  payments expected to be made (which may or may not be discounted with
				  interest), must be established.
(e)
				  "Claims Unreported": When an insurer has not been informed, on or before the
				  valuation date, concerning a claim that has been incurred on or prior to the
				  valuation date, the claim is considered as an unreported claim for annual
				  statement purposes.
(f) "Date of
				  Disablement" is the earliest date the insured is considered as being disabled
				  under the definition of disability in the contract, based on a doctor's
				  evaluation or other evidence. Normally this date will coincide with the start
				  of any elimination period.
(g)
				  "Elimination Period" is a specified number of days, weeks, or months starting
				  at the beginning of each period of loss, during which no benefits are
				  payable.
(h) "Gross Premium" is the
				  amount of premium charged by the insurer. It includes the net premium (based on
				  claim-cost) for the risk, together with any loading for expenses, profit or
				  contingencies.
(i) "Group
				  Insurance" includes blanket insurance and franchise insurance and any other
				  forms of group insurance.
(j)
				  "Level Premium" is a premium calculated to remain unchanged throughout either
				  the lifetime of the policy, or for some shorter projected period of years. The
				  premium need not be guaranteed; in which case, although it is calculated to
				  remain level, it may be changed if any of the assumptions on which it was based
				  are revised at a later time.
Generally, the annual claim costs are expected to increase
					 each year and the insurer, instead of charging premiums that correspondingly
					 increase each year, charges a premium calculated to remain level for a period
					 of years or for the lifetime of the contract. In this case the benefit portion
					 of the premium is more than needed to provide for the cost of benefits during
					 the earlier years of the policy and less than the actual cost in the later
					 years. The building of a prospective contract reserve is a natural result of
					 level premiums.
(k)
				  "Long-Term Care Insurance" is as defined in Insurance Code Section
				  10231.2.
(l) "Modal Premium" is the premium paid on a
				  contract based on a premium term which could be annual, semi-annual, quarterly,
				  monthly, or weekly. Thus if the annual premium is $100 and if, instead, monthly
				  premiums of $9 are paid then the modal premium is $9.
(m) "Negative Reserve": Normally the terminal
				  reserve is a positive value. If, however, the values of the benefits are
				  decreasing with advancing age or duration it could be a negative value, called
				  a negative reserve.
(n)
				  "Preliminary Term Reserve Method" is a method of reserve valuation under which
				  the valuation net premium for each year falling within the preliminary term
				  period is exactly sufficient to cover the expected incurred claims of that
				  year, so that the terminal reserves will be zero at the end of the year. As of
				  the end of the preliminary term period, a new constant valuation net premium
				  (or stream of changing valuation premiums) becomes applicable such that the
				  present value of all such premiums is equal to the present value of all claims
				  expected to be incurred following the end of the preliminary term
				  period.
(o) "Present Value of
				  Amounts Not Yet Due on Claims" is the reserve for "claims unaccrued" (as
				  defined in subsection (d)), which may be discounted at interest.
(p) "Reserve" includes all items of benefit
				  liability, whether in the nature of incurred claim liability or in the nature
				  of contract liability relating to future periods of coverage, and whether the
				  liability is accrued or unaccrued.
An insurer under its contracts promises benefits which
					 result in:
(1) Claims which have been
				  incurred, that is, for which the insurer has become obligated to make payment,
				  on or prior to the valuation date. On these claims, payments expected to be
				  made after the valuation date for accrued and unaccrued benefits are
				  liabilities of the insurer which shall be provided for by establishing claim
				  reserves; or
(2) Claims which are
				  expected to be incurred after the valuation date. Any present liability of the
				  insurer for these future claims shall be provided for by the establishment of
				  contract reserves and unearned premium reserves.