As the starting point of a discussion on long term care reserving, regulators wondered how three different actuarial reserving assessments for long term care insurance for one company could vary by $200 million and still all be within the letter of the law.
That question and the discussion that ensued point to the need to quickly establish focused reserving standards, said regulators at the spring meeting of the National Association of Insurance here.
Regulators were joined by insurers and actuaries as a project to develop reserving guidelines gets under way. The project, as discussed, takes a two-part approach: first, reviewing the current requirements in the Health Insurance Minimum Reserves Model Regulation for possible changes; and then, developing longer term actuarial standards to ensure there is proper reserving.
The issue has become visible because the long term care market is coming of age and with 10-15 years of “credible experience,” there is now enough data to work on creating proper reserving standards, says Mike Abroe, who addressed regulators as a representative of both the American Academy of Actuaries, Washington, and the Society of Actuaries, Schaumburg, Ill.
One of the challenges of the project is to find a way to integrate current with emerging experience in the long term care market, he explained. At present, current assumptions are not tied to emerging issues, Abroe said.
As work progresses, assumptions that need to be examined include morbidity and mortality experience as well as lapse rates and discount rates, he continued.
Indeed, the Academy is examining the model regulations requirements in areas including persistency, morbidity and expected claims assumptions.
Morbidity assumptions are an area of particular concern for regulators, according to discussions held at the NAIC, which referenced Penn Treaty Network American Insurance Company, Allentown, Pa., for its “aggressive use of morbidity assumptions.” The issue of three different actuarial assessments for the companys reserving was also raised.
However, it was also noted that regulators are aware of only three companies using such assumptions and that “most in the industry are not convinced it is appropriate,” said John Hartnedy, an Arkansas regulator.
“We have included a small degree of morbidity improvement in our current reserves. We do this as a result of numerous Society of Actuaries and market studies that suggest morbidity improvement of 0.7% to 2.5% annually,” said Penn Treaty Executive Vice President and CFO Cameron Waite in a March 10 response requested by National Underwriter.