A working group is pushing ahead with an effort that could affect how insurers reserve for group long-term disability insurance (LTD) business.
The working group, made up of representatives from the American Academy of Actuaries (AAA) and the Society of Actuaries (SOA), Schaumburg, Ill., recently sent an update on efforts to develop a group LTD valuation table to the Health Actuarial Task Force at the National Association of Insurance Commissioners (NAIC), Kansas City, Mo.
The task force included the group LTD valuation table project update in its packet of materials for the NAIC’s recent spring meeting in New Orleans.
The SOA paved the way for the valuation table project by using a database of 1 million LTD claims and 680,000 claim terminations to produce a 10-year 2008 LTD claim termination experience report in 2009.
In May 2011, the AAA/SOA Group LTD Work Group began using the 2008 SOA report to create a valuation table that could replace the 1987 Commissioners Group Disability Table.
The actuaries note in their update that the new experience study deals only with disabled life terminations, not with matters such as the discount rates used to value benefits obligations.
The actuaries are suggesting that regulators could provide detailed rules for setting termination assumptions, with the understanding that assumptions will be approved automatically if the prescribed formula is followed.
The appointed actuary should bear ultimate responsibility for maintaining reserve adequacy, the actuaries say.
Reserves should be higher than 100% of an insurer’s own claims experience, and they ought to be higher than 130% of what the valuation table shows the expected claims level to be, the actuaries say.
The table might be constructed to take into account the likelihood that insurers will more active managers of cases in the first two years an insured is collecting benefits, may change the definition of disability in years 3 through 5, and may be more passive about managing a case starting in the sixth year, the actuaries say.
The new table might have a 15% margin for error in the termination rates, compared with a margin of 10% for the old table, but the old table has extra built-in padding because recovery rates are significantly higher now than they were in 1987, the actuaries say.