A document that the National Association of Insurance Commissioners (NAIC) approved earlier this week could provide a little stability for writers of health insurance, disability insurance and long-term care insurance (LTCI).
The new Valuation Manual that the NAIC adopted in Washington at its fall meeting will revamp reserving rules for life insurers and annuity issuers.
The manual is supposed to help state insurance regulators, life insurers and actuaries implement the 2009 version of the Standard Valuation Law model, a model that’s supposed to help the life and health insurance industry move away from its traditional reliance on static formulas and reserving levels, and toward use of modern statistical forecasting methods and reliance on actuarial judgment.
Advocates of life “principles-based reserving” (PBR) — who note that European financial services regulators have been using PBR principles for years — have been fighting tooth and nail with state insurance regulators and others who have asked whether some life insurers might not use a PBR approach as an excuse to pump up earnings by under-reserving.
The health and credit life and disability sections of the manual — VM-25 Health Insurance Reserve Minimum Reserve Requirements and VM-26 Credit Life and Disability Reserve Requirements — have produced no such drama and have attracted little public attention.
The health and credit life and disability manual sections mostly continue health and credit disability reserving practices that are already in place, and VM-25 is based mainly on the existing Health Reserves Model Regulation.
One section of VM-25, the definitions to be used in efforts to set minimum reserve requirements for LTCI policies, defines “long-term care insurance” as “any insurance policy or rider advertised, marketed, offered or designed to provide coverage for not less than …. 12 consecutive months for each covered person on an expense incurred, indemnity, prepaid or other basis; for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance or personal care services, provided in a setting other than an acute care unit of a hospital.”
The LTCI definition “also includes a policy or rider which provides for payment of benefits based upon cognitive impairment or the loss of functional capacity,” according to the section text.