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Disability proposal could be costly, commenters say

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Commenters are asking the Health Actuarial Task Force to slow down on efforts to set a new group long-term disability (LTD) insurance valuation table standard and a new actuarial guideline.

Big insurance trade groups have sent joint letter asking the task force to give members of the public more time to analyze the proposals, and insurers say they see signs that the proposed changes could have unintended consequences.

Renee Bauer, an actuary at American Fidelity Assurance Company, said using the tables as recommended seemed to produce reserve amounts that were lower than she would have liked.

For an insurer, increasing group LTD reserves over the level produced by the standard table and actuarial guidelines can cause tax problems, Bauer said.

“Please don’t force a situation where we have to hold extra statutory reserves that do not also qualify as tax reserves,” Bauer said.

The task force, an arm of the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., asked for the comments in September, when it posted a Group LTD Valuation Table Report and an discussion draft of a proposed Group LTD Valuation Table on its section of the NAIC’s website.

A valuation table is an official actuarial table that an insurer uses to set reserves.

A valuation table includes data indicating how an insurance policy might perform. The insurers that use the tables are supposed to include “margins,” or enough wiggle room to keep policies from losing money if projections for claims and other variables turn out to be wrong.

Group LTD insurers now use a valuation table — the 1987 Commissioners’ Group Disability Table — that’s based on experience from policies sold before some of the actuaries using the table were born.

The table covers the likelihood that a group LTD claim will “terminate,” or end, because the claimant has died, recovered, or lost access to benefits for other reasons.

The Society of Actuaries (SOA), Schaumburg, Ill., began the valuation table update project by collecting and analyzing experience data for 680,000 group LTD claims that ended from 1997 to 2006.

In May 2011, actuaries at the SOA and the American Academy of Actuaries, Washington, began to use the experience data to create a new valuable table.

The Group Long Term Disability Working Group, an arm of the American Academy of Actuaries and the Society of Actuaries, gave the Health Actuarial Task Force a report on the valuation table project in August.

In the report, the working group recommended that the NAIC adopt a new group LTD valuation table and also develop an actuarial guideline for group LTD reserves.

Unlike the 1987 table, the proposed table would break group LTD claim termination information down by diagnosis, and the new table also would include an adjustment to reflect steady increases in the number of years that group LTD claimants can expect to live, drafters said.

The proposed actuarial guideline accompanying the table would make some changes in how group LTD insurers would use projections based on the tables.

Today, for example, group LTD insurers can create their own termination rate tables for the first two years that a group LTD policy is in effect.

A large group LTD carrier can get permission to use its own claim termination data to project what is likely to happen during the first five years that a policy is in effect.

The people who have developed the proposed actuarial guideline have said that insurers could apply it in a flexible fashion, but commenters are saying they think it could reduce insurers’ ability to use their own termination rate tables during the early years, commenters said.

A big group LTD carrier with a successful return-to-work programs and high termination rates might have to reduce the assumed termination rates to 130 percent of the figures given in the new valuation table, commenters said.

Neil Gordon, an actuary with Cigna Corp., said in a comment letter that using the valuation table data, rather than Cigna’s own termination rate data, could force the company to add $200 million to group LTD statutory reserves.

The American Council of Life Insurers (ACLI) and America’s Health Insurance Plans (AHIP) said in a joint letter that they would like the task force to give members of the public more time to comment.

The task force seems to be trying to work quickly to get a new table into effect by Jan. 1, 2014, Steve Clayburn of the ACLI and William Weller of AHIP wrote in the letter.

In the past, regulators have usually given the public three months to six months to comment on valuable tables, and the comment for the proposed group LTD table has been just 30 days, Clayburn and Weller said.

“Sufficient time should be allowed for a significant number of companies to compare the results from the use of the new table to amounts considered necessary by valuation actuaries,” Clayburn and Weller said.

Frederick Andersen, a New York state insurance regulator, also expressed concerns about the table project.

“Regarding economic factors’ impact on recoveries, how was it determined that the added margins to account for this impact are sufficient in certain scenarios, e.g., today?” Andersen asked. 

In the report the Group LTD Working Group gave to the Health Actuarial Task Force, the group said, “Notwithstanding these restrictions, it should always be possible for the actuary to obtain written permission from the domiciliary commissioner to produce some unique company specific modifications based on sound logic, credible experience and sufficient margins.”

New York regulators would like to see examples where that wording would apply, Andersen said.

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