211 CMR, § 42.07

Current through Register 1538, January 3, 2025

Section 42.07 - Loss Ratio Guarantee Filings and Review

Pursuant to the provisions of M.G.L. c. 175 §108, only nongroup major medical policies are allowed to file for loss ratio guarantees. Medicare Supplement policies subject to 211 CMR 71.00, specified disease or specified accident insurance subject to 211 CMR 42.05(2)(e), accident only health insurance subject to 211 CMR 42.05(2)(f), disability income policies subject to 211 CMR 42.05(2)(g), long-term care insurance policies subject to 211 CMR 42.05(2)(h) or any other policy forms under which more than 50% of the policies are issued to individuals age 65 or over, are excluded from the provisions of 211 CMR 42.07 related to loss ratio guarantees.

(1) Definitions pertinent to 211 CMR 42.07:

Actual Loss Ratio means the loss ratio attributable solely to Massachusetts if there are 2,000 or more policyholders in the state on the policy form. If there are 500 or more policyholders on the policy form in this state but less than 2,000, it is the linear interpolation of the nationwide loss ratio and the loss ratio for this state. If there are less than 500 policyholders in this state, it is the nationwide loss ratio for the policy form. For example, if there are 1,200 policyholders in the state, the actual loss ratio is:

(1,200 - 500) /(2,000 - 500) state loss ratio + (2,000 - 1,200)/(2,000 - 500) U.S. loss ratio.

If there are fewer than 2,000 policyholders nationwide, the applicable loss ratio will be calculated using combined experience of current calendar year and each subsequent year until the sum of policyholders in all such calendar years adds up to 2,000.

Anticipated Durational Loss Ratio means the ratio of incurred claims to earned premium for a given policy duration (i.e., first year, second year, etc.)

Anticipated Lifetime Loss Ratio means the ratio of the present value of all past and future incurred claims to the present value of all past and future earned premiums where the present values are calculated at a rate of interest at least equal to the health valuation rate of interest at the time the policy is approved and as prescribed in Massachusetts law or regulation, or if no such rate is prescribed, at the rate prescribed by the National Association of Insurance Commissioners.

Experience Period means the period, ordinarily a calendar year, for which a loss ratio guarantee is calculated.

Loss Ratio means ratio of incurred claims to earned premium for any individual policy form.

(2)Initial Filing of Loss Ratio Guarantee.

(a) In addition to the provisions of 211 CMR 42.07(2)(b), all benefits of individual major medical policies issued subject to M.G.L. c. 175, § 108 shall be deemed to be reasonable in relation to premium rates if the rates are filed pursuant to a loss ratio guarantee and both the initial rates and the anticipated durational and lifetime loss ratios in the original filing of the form have been approved by the Commissioner.

(b) All filings submitted under 211 CMR 42.07(2) shall have renewability provisions no less favorable to the policyholder than conditional renewability.

(c) The initial filing of a loss ratio guarantee shall include a specific written statement as to the detail of the loss ratio guarantee, which shall contain at least the following:

1. the policy form number;

2. a recitation of the anticipated lifetime and durational loss ratios contained in the actuarial memorandum filed with the policy form when it was originally approved, and a copy of the original actuarial memorandum. If the original actuarial memorandum did not include anticipated durational loss ratios, these ratios shall be included in the initial filing of the loss ratio guarantee;

3. the first calendar year in which the loss ratio guarantee is to be effective;

4. a guarantee that the actual loss ratios for each experience period shall meet or exceed the anticipated lifetime and durational target loss ratios approved by the Commissioner pursuant to 211 CMR 42.07(2)(a);

5. a guarantee that the actual loss ratio results for the experience period will be independently audited in the form prescribed by 211 CMR 42.07(4) at the carrier's expense by an auditor who is a certified public accountant or Member of the American Academy of Actuaries;

6. a guarantee that the audit shall be performed in the second calendar quarter of the year following the end of the experience period and the audited results shall be reported to the Commissioner no later than the end of such quarter;

7. a guarantee that the audit shall be done in accordance with generally accepted auditing or actuarial standards;

8. a guarantee that affected policyholders in Massachusetts shall be issued a proportional refund, based on the premium earned, of the amount necessary to bring the actual experience period loss ratio up to the anticipated durational loss ratio approved by the Commissioner pursuant to 211 CMR 42.07(2)(a);

9. a sample calculation and illustration of the refund methodology; and

10. the signature of an officer of the carrier.

(3)Subsequent Rate Filings.

(a) Notwithstanding the provisions of 211 CMR 42.07(2), renewal premium rates for individual major medical policies issued subject to M.G.L. c. 175, § 108 shall be deemed to be approved upon filing with the Commissioner, if the filing includes sufficient evidence that it meets the standards of 211 CMR 42.07 and is accompanied by a copy of the loss ratio guarantee filed pursuant to 211 CMR 42.07(2).

(b) The Commissioner shall have the right to bring an administrative action should he or she deem that the lifetime loss ratio approved pursuant to 211 CMR 42.07(2)(a) will not be met or exceeded.

(4)Form and Contents of the Audit. The audit required under 211 CMR 42.07(2) shall include:

(a) the number of policyholders in Massachusetts and the nation, on both a durational and total basis;

(b) the incurred claims and earned premium by policy duration period for the audited experience period;

(c) a signed opinion by the independent auditor that the audit has been performed in accordance with generally accepted accounting or actuarial standards and that the audit report presents fairly and accurately the amount of incurred claims, including incurred but not reported claims, and earned premium, for the audited experience period;

(d) the durational and lifetime loss ratios guaranteed;

(e) a statement of any refunds due for the current experience period and the refund calculation; and

(f) the currently anticipated lifetime loss ratio on the policy block. This loss ratio shall be defined as the present value of past and future expected incurred claims divided by the present value of past and future expected earned premiums.

(5)Refund Calculation.

(a) The refund shall be made to all policyholders in Massachusetts who are insured under the applicable policy form for at least six months of the experience period, except that no refund need be made to a policyholder in an amount less than ten dollars. Refunds less than $10.00 shall be aggregated and paid prorata to the policy holders receiving refunds.

(b) The refund shall include interest compounded monthly at the then current variable loan interest rates for life insurance policies established by the National Association of Insurance Commissioners (NAIC), from the end of the experience period until the date of payment.

(c) Payments shall be made during the third calendar quarter of the year following the experience period for which a refund is determined to be due. However, no refunds shall be made until 60 days after the filing of the audit report in order that the Commissioner has adequate time to review the report.

(d) The refund shall be subtracted from earned premiums in the loss ratio calculation. The premium refund shall not be considered a benefit payment.

211 CMR, § 42.07