Alabama Administrative Code › Title 482 - ALABAMA DEPARTMENT OF INSURANCE › Chapter 482-1-134 - HEALTH INSURANCE RESERVES › Appendix B - GLOSSARY OF TECHNICAL TERMS USED

Current through Register Vol. 42, No. 9, June 28, 2024
As used in this valuation standard, the following terms have
				the following meaning:
ANNUAL-CLAIM COST. 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.
CLAIMS ACCRUED. 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.
CLAIMS 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.
CLAIMS UNACCRUED. 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 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.
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.
DATE OF DISABLEMENT. 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.
ELIMINATION PERIOD. A specified number of days, weeks, or
				months starting at the beginning of each period of loss, during which no
				benefits are payable.
GROSS PREMIUM. The amount of premium charged by the insurer. It
				includes the net premium (based on claim-costs) for the risk, together with any
				loading for expenses, profit or contingencies.
GROUP INSURANCE. The term group insurance includes blanket
				insurance and franchise insurance and any other forms of group
				insurance.
GROUP LONG-TERM DISABILITY INCOME. The term "group long-term
				disability income" includes group contracts providing group disability income
				coverage with a maximum benefit duration longer than two years. Group long-term
				disability income contracts are based on a group pricing structure. The term
				"group long-term disability" does not include group short-term disability
				(coverage with benefit periods of two years or less in maximum duration). It
				also does not include volunltary group disability income coverage that is
				priced on an individual risk structure and generally sold in the
				workplace.
LEVEL PREMIUM. 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.
LONG-TERM CARE INSURANCE. Any insurance policy or rider
				advertised, marketed, offered or designed to provide coverage for not less than
				twelve (12) consecutive months for each covered person on an expense incurred,
				indemnity, prepaid or other basis; for one or more necessary or medically
				necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance or
				personal care services, provided in a setting other than an acute care unit of
				a hospital. Such term also includes a policy or rider which provides for
				payment of benefits based upon cognitive impairment or the loss of functional
				capacity. Long-term care insurance may be issued by insurers; fraternal benefit
				societies; nonprofit health, hospital, and medical service corporations;
				prepaid health plans; health maintenance organizations or any similar
				organization to the extent they are otherwise authorized to issue life or
				health insurance. Long-term care insurance shall not include any insurance
				policy which is offered primarily to provide basic Medicare supplement
				coverage, basic hospital expense coverage, basic medical-surgical expense
				coverage, hospital confinement indemnity coverage, major medical expense
				coverage, disability income or related asset-protection coverage, accident only
				coverage, specified disease or specified accident coverage, or limited benefit
				health coverage.
MODAL PREMIUM. This refers to 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.
NEGATIVE RESERVE. Normally the terminal reserve is a positive
				value. However, if the values of the benefits are decreasing with advancing age
				or duration it could be a negative value, called a negative reserve.
PRELIMINARY TERM RESERVE METHOD. Under this method of valuation
				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.
PRESENT VALUE OF AMOUNTS NOT YET DUE ON CLAIMS. The reserve for
				"claims unaccrued" (see definition), which may be discounted at
				interest.
RATING BLOCK. "Rating block" means a grouping of contracts
				determined by the valuation actuary based on common characteristics filed with
				the commissioner, such as a policy form or forms having similar benefit
				designs.
RESERVE. The term "reserve" is used to include 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:
(a) 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 should
				be provided for by establishing claim reserves; or
(b) Claims which are expected to be incurred after the
				valuation date. Any present liability of the insurer for these future claims
				should be provided for by the establishment of contract reserves and unearned
				premium reserves.
TERMINAL RESERVE. This is the reserve at the end of a contract
				year, and is defined as the present value of benefits expected to be incurred
				after that contract year minus the present value of future valuation net
				premiums.
UNEARNED PREMIUM RESERVE. This reserve values that portion of
				the premium paid or due to the insurer which is applicable to the period of
				coverage extending beyond the valuation date. 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.
VALUATION NET MODAL PREMIUM. This is 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.
WORKSITE DISABILITY POLICIES. The term worksite disability
				policy refers to individual short-term disability policies that are sold at the
				worksite through employer- sponsored enrollment, cover normal pregnancy, and
				that have benefit periods up to 24 months. Worksite disability policies do not
				include personal disability policies sold to an individual and not associated
				with employer-sponsored enrollment. They also do not include business overhead
				expense, disability buyout, or key person policies, in whatever manner those
				policies are sold.
Author:
Commissioner of Insurance
Statutory Authority:
Code of Ala. 1975,
				  §§
										27-2-17,
				  27-36-7.