Ins 3.17(3)(i)(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. Ins 3.17(3)(k)(k) “Individual insurance” includes franchise insurance. Ins 3.17(3)(L)(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. Ins 3.17 NoteNote: 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.
Ins 3.17 NoteGenerally, 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.
Ins 3.17(3)(m)(m) “Modal premium” means the premium paid on a contract based on a premium term which could be annual, semiannual, quarterly, monthly, or weekly. Ins 3.17 NoteNote: Thus if the annual premium is $100 and if, instead, monthly premiums of $9 are paid then the modal premium is $9.
Ins 3.17(3)(n)(n) “Negative reserve” means a negative terminal reserve value due to the values of the benefits decreasing with advancing age or duration. Ins 3.17(3)(o)(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. Ins 3.17(3)(p)(p) “Present value of amounts not yet due on claims” means the reserve for claims unaccrued which may be discounted at interest. Ins 3.17(3)(q)(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. Ins 3.17 NoteNote: An insurer under its contracts promises benefits which result in:
Ins 3.17 NoteOn 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
Ins 3.17 NoteClaims 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.
Ins 3.17(3)(r)(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. Ins 3.17(3)(s)(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. Ins 3.17 NoteNote: 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.
Ins 3.17(3)(t)(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. Ins 3.17(4)(4) Reserves in excess of minimum reserve standards. An insurer subject to this section may determine that the adequacy of its accident and sickness reserves requires reserves in excess of the minimum standards specified in this section. The insurer shall hold and consider the excess reserves as its minimum reserves. Ins 3.17(5)(a)(a) With respect to any block of contracts, or with respect to an insurer’s accident and sickness business as a whole, a prospective gross premium valuation is the ultimate test of reserve adequacy as of a given valuation date. The gross premium valuation shall take into account, for contracts in force, in a claims status, or in a continuation of benefits status on the valuation date, the present value as of the valuation date adjusted for future premium increases reasonably expected to be put into effect, of: Ins 3.17(5)(b)(b) The insurer shall perform a gross premium valuation whenever a significant doubt exists as to reserve adequacy with respect to any major block of contracts, or with respect to the insurer’s accident and sickness business as a whole. In the event inadequacy is found to exist, the insurer shall make immediate loss recognition and restore the reserves to adequacy. The insurer shall hold adequate reserves, inclusive of claim, premium and contract reserves, if any, with respect to all contracts, regardless of whether contract reserves are required for the contracts under these standards. Ins 3.17(5)(c)(c) Whenever minimum reserves, as defined in these standards, exceed reserve requirements as determined by a prospective gross premium valuation, the minimum reserves remain the minimum requirement under these standards.