Wisconsin Administrative Code › Office of the Commissioner of Insurance › Chapter Ins 3 - Casualty Insurance › Section Ins 3.17 - Reserves for accident and sickness insurance policies

Current through June 24, 2024
(1) PURPOSE. This
			 section establishes required minimum standards under ch. 623, Stats., for
			 claim, premium and contract reserves of insurers writing accident and sickness
			 insurance policies.
(2) SCOPE. This
			 section applies to any insurer, including a fraternal benefit society, issuing
			 a policy providing individual or group accident and sickness insurance
			 coverages as classified under s. Ins 6.75(1) (c) or (2) (c). This section does
			 not apply to credit insurance as classified under s. Ins 6.75(1) (c) 1. or (2)
			 (c) 1.
(3) DEFINITIONS. In this
			 section:
(a) "Annual claim cost" means the
			 net annual cost per unit of benefit before the addition of expenses, including
			 claim settlement expenses, and a margin for profit or contingencies.
Note:
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.
Note:
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) "Claims incurred" means a claim for which
			 the insurer has become obligated to make payment, on or prior to the valuation
			 date.
(d) "Claims reported" means
			 those claims that have been incurred on or prior to the valuation date of which
			 the insurer has been informed, on or prior to the valuation date.
Note:
These claims are considered as reported
				claims for annual statement purposes.
(e) "Claims unaccrued" 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 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.
Note:
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.
(f) "Claims unreported" means those claims
			 that have been incurred on or prior to the valuation date of which the insurer
			 has not been informed, on or prior to the valuation date.
Note:
These claims are considered as unreported
				claims for annual statement purposes.
(g) "Date of disablement" means the earliest
			 date on which the insured is considered as being disabled under the definition
			 of disability in the contract, based on a physician's evaluation or other
			 evidence.
(h) "Elimination period"
			 means a specified number of days, weeks, or months starting at the beginning of
			 each period of loss, during which no benefits are payable.
(i) "Gross premium" means 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.
(j) "Group
			 insurance" includes blanket insurance.
(k) "Individual insurance" includes franchise
			 insurance.
(l) "Level premium" means
			 a premium calculated to remain unchanged throughout either the lifetime of the
			 policy, or for some shorter projected period of years.
Note:
The level 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.
(m) "Modal
			 premium" means the premium paid on a contract based on a premium term which
			 could be annual, semiannual, quarterly, monthly, or weekly.
Note:
Thus if the annual premium is $100 and if,
				instead, monthly premiums of $9 are paid then the modal premium is
				$9.
(n) "Negative reserve"
			 means a negative terminal reserve value due to the values of the benefits
			 decreasing with advancing age or duration.
(o) "Preliminary term reserve method" means
			 the method of 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 reserve 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.
(p)
			 "Present value of amounts not yet due on claims" means the reserve for claims
			 unaccrued which may be discounted at interest.
(q) "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.
Note:
An insurer under its contracts promises
				benefits which result in:
On claims incurred, 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
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.
(r) "Terminal
			 reserve" means the reserve at the end of the contract year which is the present
			 value of benefits expected to be incurred after that contract year minus the
			 present value of future valuation net premiums.
(s) "Unearned premium reserve" means that
			 portion of the premium paid or due to the insurer which is applicable to the
			 period of coverage extending beyond the valuation date.
Note:
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.
(t) "Valuation net modal premium" means 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.