Section 031-220-9 - Prima Facie Credit Life Insurance RatesCredit life insurance benefits provided in connection with forms filed in accordance with Title 24-A M.R.S.A., Section2858, and this Rule shall be deemed prima facie reasonable in relation to the premiums charged if the schedule of premium rates filed with such forms does not exceed the premium rate standard set forth below.
A. In the absence of an approved rate deviation, the prima facie single life monthly premium rate per $1,000 of outstanding balance is $.50 and the prima facie joint life monthly premium rate per $1,000 of outstanding balance is $.84.B. Prima facie single premium rates per dollar of total note for monthly payment indebtedness which are the actuarial equivalents of the prima facie monthly rate shall be computed by the following formula: SPn = Click here to view Image(OP) (Fn)
where: SPn is the credit life single premium rate per $1.00 of total note;
n is the number of monthly payments;
i is the monthly finance rate;
a Click here to view ImageClick here to view Image
OP is the monthly credit life rate per $1.00 of insured amount; and
Fn = discount factor for interest and mortality
= Click here to view Image
(1) When an upward or downward deviation applies, single premium and single charge rates equivalent to the deviated rate are to be computed with the deviated rate substituted for the prima facie rate of $.50 or $.84.(3) Prima facie single premium rates for monthly payment indebtedness where coverage is to be provided for a period shorter than the full term of indebtedness (truncated coverage) shall be computed by the following formula: Click here to view Image
where: SPm,n is the credit life single premium rate per $1.00 of total note;
m is the number of months for which coverage is to be provided; and
n, a Click here to view Image , i, OP, and Fn are as defined above.
(4) Prima facie single premium rates per dollar of amount financed for monthly payment indebtedness shall be computed as follows: a. Rates which are the actuarial equivalent of the prima facie monthly rate shall be computed by the following formula: SP'n = Click here to view Image (OP) (Fn)
where SP'n is the credit life single premium rate per $1.00 of outstanding principal balance and all other terms are as defined above.
b. At the insurer's option, the following approximation may be used for an account instead of the rates which result from the formula in (a) above: SP'n = Click here to view Image
(5) Prima facie single premium rates for other variations shall be actuarially consistent with the above rates. C. Alternative methods of converting monthly premium rates to single premium rates may be approved if it can be demonstrated that: (1) In the aggregate, the premium for any case, as defined in Section 13, will not be greater than if the methods specified in subsection A and B above were used, and(2) The method is not unfairly discriminatory.D. Deviations (1) The total deviated rate for a specified plan of benefits shall be the appropriate promulgated prima facie premium rate increased or decreased by the additional rate produced by the following formula: Credibility Factor x (Actual/Expected Ratio -
(1) x Prima Facie Claim Cost where: The Actual/Expected Ratio is the ratio of actual incurred losses to expected losses for single life and joint life plans combined;
Expected losses are Earned Premiums at the prima facie rate multiplied by the ratio of the prima facie claim cost to the prima facie rate; and
The prima facie claim is .315 for single life and .63 for joint life.
(2) The application of this formula is illustrated by the following examples: CREDIT LIFE
UPWARD DEVIATION
| Single | Joint | Total |
| A. Earned Premium At Prima Facie Rate | 200,000 | 20,000 | 220,000 |
| B. Incurred Losses | 170,000 | 19,000 | 189,000 |
| C. Number Of Life Years Covered | 28,000 | 2,000 | 30,000 |
| D. Credibility Factor (from table) | xxx | xxx | 90% |
| E. Prima Facie Rate | .50 | .84 | xxx |
| F. Prima Facie Claim Cost | .315 | .63 | xxx |
| G. Expected Losses [A x F/E] | 126,000 | 15,000 | 141,000 |
| H. Actual /Expected Ratio (B/G) | xxx | xxx | 1.340 |
| I. Deviation [D X (H-1) x F] | .096 | .193 | xxx |
| J. Deviated Rate [E + I] | .596 | 1.033 | xxx |
CREDIT LIFE
DOWNWARD DEVIATION
| Single | Joint | Total |
| A. Earned Premium At Prima Facie Rate | 200,000 | 20,000 | 220,000 |
| B. Incurred Losses | 91,500 | 12,000 | 103,500 |
| C. Number Of Claims Incurred | 125 | 15 | 140 |
| D. Credibility Factor (from table) | xxx | xxx | 90% |
| E. Prima Facie Rate | .50 | .84 | xxx |
| F. Prima Facie Claim Cost | .315 | .63 | xxx |
| G. Expected Losses [A X F/E] | 126,000 | 15,000 | 141,000 |
| H. Actual /Expected Ratio [B/G] | xxx | xxx | .734 |
| I. Deviation [D X (H-1) X F] | -0.075 | - 1.51 | xxx |
| J. Deviated Rate [ E= I] | .425 | .689 | xxx |
(3) The credit life insurance earned premium at the prima facie level will be the product of the prima facie monthly outstanding balance rate of $.00050 for single life, or $.00084 for joint life, times the insured balance for each of the three policy years. The insured balance for each year shall be either (1) the sum of the actual monthly outstanding insured balances during the year or (2) 12 times the average monthly outstanding insured balance for the year. In either case, the outstanding insured balance must be calculated according to the definition in Section 7. (4) The credibility factor is to be taken from the table in Section 13 and is to be based on single life and joint life plans combined.(5) If the indicated rate exceeds the current rate by less than 10 percent, the current rate shall continue in effect. If the indicated rate is less than the current rate by less than 10 percent, the current rate may continue in effect.(6) If the indicated rate exceeds the current rate by more than 10 percent but the current rate will have been in effect for less than three years as of the date the deviated rate would otherwise take effect, the current rate shall continue in effect. If the indicated rate is less than the current rate by more than 10 percent but the current rate will have been in effect for less than three years as of the date the deviated rate would otherwise take effect, the current rate may continue in effect.(7) Experience for the most recent three policy years must be used. If the three-year experience cannot be determined because experience of the prior insurer cannot be obtained, the current rate for the plan shall be continued until three years of experience is developed, except:a. If the prior insurer had scheduled a downward deviation, the new insurer must implement it; andb. If an insurer has a large account and it has credible experience for a period of less than three years, the account's experience may be used as the basis for a downward deviation.(8) Deviations from the prima facie rates other than those indicated by paragraphs (1) through (7) above may be approved under the provisions of Title 24-A M.R.S.A., Section2858. However, in the absence of an approved deviation under this provision, any downward deviation indicated by paragraphs (1) through (6) must be implemented.(9) Upward deviations shall not be applied to debtors with closed-end loans whose coverage is already in force on the effective date of the deviation. Downward deviations need not be applied to debtors with closed-end loans whose coverage is already in force on the effective date of the deviation. E. The premium rate standards set forth above are applicable to the type of credit life insurance contract customarily offered for sale. This is assumed to be the usual broad form of death benefits which contain no exceptions, limitations or exclusions, except for suicide and incontestability, and is offered to all debtors regardless of age or to all debtors not older than sixty-five at the scheduled maturity date of the transaction. If the credit life insurance requires evidence of individual insurability, a 10% reduction in the prima facie rate is required unless deviated rates based on experience are in use. No reduction is required if the death benefit exceeds $25,000. The Bureau may consider a different reduction if the insurer can provide support for the difference.
An insurer may file other forms of credit life insurance which meet the requirements of 24-A M.R.S.A., Section2858. Premium rate standards for these contracts must be consistent with the above standards. Premium rates for use with forms which are more restrictive than those set forth above must reflect these variations to the extent that there is a measurable difference in the cost of the coverage provided.
02-031 C.M.R. ch. 220, § 9