SECTION 3.7006. Specific Standards for Morbidity, Interest, and Mortality

(a) Morbidity.

(1) Minimum morbidity standards for valuation of specified individual contract health insurance benefits are as follows.

(A) Disability income benefits due to accident or sickness.

(i) Contract reserves.

(I) Contracts issued on or after January 1, 1965, and prior to January 1, 1987: the 1964 Commissioners Disability Table (64 CDT). The 1964 Commissioners Disability Table (64 CDT) is adopted by reference for use in the manner indicated in these sections.

(II) Contracts issued on or after January 1, 1994: the 1985 Commissioners Individual Disability Tables A (85CIDA); or the 1985 Commissioners Individual Disability Tables B (85CIDB). The 1985 Commissioners Individual Disability Tables A (85CIDA) and the 1985 Commissioners Individual Disability Tables B (85CIDB) are adopted by reference for use in the manner indicated in these sections.

(III) Contracts issued during the years 1987 through 1993: optional use of either the 1964 table or the 1985 tables.

(IV) Each insurer shall elect, with respect to all individual contracts issued in any one statement year, whether it will use Tables A (85CIDA) or Tables B (85CIDB) as the minimum standard. The insurer may, however, elect to use the other tables with respect to any subsequent statement year.

(ii) Claim reserves.

(I) For claims incurred after December 31, 2002, the 1985 Commissioners Individual Disability Tables A (85CIDA) with claim termination rates multiplied by the following adjustment factors:

Attached Graphic

(II) For claims incurred on or before December 31, 2002, each insurer may elect to use item (-a-) or (-b-) of this subclause as the minimum standard for claims incurred on or before December 31, 2002.

(-a-) The minimum morbidity standard in effect for the contract reserves on currently issued contracts, as of the date the claim is incurred, or

(-b-) The standard as defined in clause (i) of this subparagraph, applied to all open claims. Once an insurer elects to calculate reserves for all open claims on the standard defined in clause (i) of this subparagraph, all future valuations must be on that basis.

(B) Hospital benefits, surgical benefits, and maternity benefits (scheduled benefits or fixed time period benefits only).

(i) Contract reserves.

(I) Contracts issued on or after January 1, 1955, and before January 1, 1982: the 1956 Intercompany Hospital-Surgical Tables. The 1956 Intercompany Hospital-Surgical Tables are adopted by reference for use as indicated in these sections.

(II) Contracts issued on or after January 1, 1982: the 1974 Medical Expense Tables, Table A, Transactions of the Society of Actuaries, Volume XXX, page 63. Refer to the paper (in the same volume, page 9) to which this table is appended, including its discussions, for methods of adjustment for benefits not directly valued in Table A: "Development of the 1974 Medical Expense Benefits," Houghton and Wolf. The 1974 Medical Expense Tables, Table A is adopted by reference for use in the manner indicated in these sections.

(ii) Claim reserves. No specific standard. See subparagraph (E) of this paragraph.

(C) Cancer expense benefits (scheduled benefits or fixed time period benefits only).

(i) Contract reserves. Contracts issued on or after January 1, 1986: the 1985 NAIC Cancer Claim Cost Tables. The 1985 NAIC Cancer Claim Cost Tables are adopted by reference for use in the manner specified in these sections.

(ii) Claim reserves. No specific standard. See subparagraph (E) of this paragraph.

(D) Accidental death benefits.

(i) Contract reserves. Contracts issued on or after January 1, 1965: the 1959 Accidental Death Benefits Table. The 1959 Accidental Death Benefits Table is adopted by reference for use in the manner specified in these sections.

(ii) Claim reserves. Actual amount incurred.

(E) Single premium credit accident and health.

(i) Contract reserves.

(I) For contracts issued on or after January 1, 2009:

(-a-) for plans having less than a 30-day elimination period, the 1985 Commissioners Individual Disability Table A (85CIDA) with claim incidence rates increased by 12 percent.

(-b-) for plans having a 30-day and greater elimination period, the 85CIDA for a 14-day elimination period with the adjustment specified in item (-a-) of this subclause.

(II) For contracts issued prior to January 1, 2009, the minimum contract reserve requirements are specified in §3.6101(b) of this chapter (relating to Policy Reserves).

(ii) Claim reserves. Claim reserves are to be determined in accordance with §3.7002(c) of this subchapter (relating to Claim Reserves).

(F) Other individual contract benefits.

(i) Contract reserves. For all other individual contract benefits, morbidity assumptions are to be determined as provided in the reserve standards.

(ii) Claim reserves. For all benefits other than disability, claim reserves are to be determined as provided in the standards.

(2) Minimum morbidity standards for valuation of specified group contract health insurance benefits are as follows.

(A) Disability income benefits due to accident or sickness.

(i) Contract reserves. Contracts issued prior to January 1, 1994: the same basis, if any, as that employed by the insurer as of January 1, 1994. Contracts issued on or after January 1, 1994: the 1987 Commissioners Group Disability Income Table (87CGDT). The 1987 Commissioners Group Disability Income Table (87CGDT) is adopted herein by reference.

(ii) Claim reserves. For claims incurred on or after January 1, 1994: the 1987 Commissioners Group Disability Income Table (87CGDT); for claims incurred prior to January 1, 1994: use of the 87CGDT is optional.

(B) Single premium credit accident and health.

(i) Contract reserves.

(I) For contracts issued on or after January 1, 2009:

(-a-) for plans having less than a 30-day elimination period, the 1985 Commissioners Individual Disability Table A (85CIDA) with claim incidence rates increased by 12 percent.

(-b-) for plans having a 30-day and greater elimination period, the 85CIDA for a 14-day elimination period with the adjustment specified in item (-a-) of this subclause.

(II) For contracts issued prior to January 1, 2009, the minimum contract reserve requirements are specified in §3.6101(b) of this chapter.

(ii) Claim reserves. Claim reserves are to be determined in accordance with §3.7002(c) of this subchapter.

(C) Other group contract benefits.

(i) Contract reserves. For all other group contract benefits, morbidity assumptions are to be determined as provided in the reserve standards.

(ii) Claim reserves. For all benefits other than disability, claim reserves are to be determined as provided in the standards.

(b) Interest.

(1) For contract reserves the maximum interest rate is the maximum rate permitted by law in the valuation of whole life insurance issued on the same date as the health insurance contract.

(2) For claim reserves on policies that require contract reserves, the maximum interest rate is the maximum rate permitted by law in the valuation of whole life insurance issued on the same date as the claim incurral date. For claim reserves on policies not requiring contract reserves, the maximum interest rate is the maximum rate permitted by law in the valuation of single premium immediate annuities issued on the same date as the claim incurral date, reduced by one percentage point.

(c) Mortality.

(1) Except as provided in paragraphs (2), (3), and (4) of this subsection, the mortality basis used must be according to a table (but without use of selection factors) permitted by law for the valuation of whole life insurance issued on the same date as the health insurance contract.

(2) Other mortality rates may be used in the calculation of the minimum reserves, if appropriate for the type of benefits and if approved by the commissioner. The request for such approval must include the proposed mortality basis and the reason that the standard specified in paragraph (1) of this subsection is inappropriate.

(3) For long-term care insurance individual policies or group certificates the mortality basis used shall be the 1983 Group Annuity Mortality Table without projection.

(4) For single premium credit accident and health insurance using the 85CIDA table, no separate mortality shall be assumed.

Source Note: The provisions of this §3.7006 adopted to be effective July 6, 1992, 17 TexReg 4541; amended to be effective March 20, 2003, 28 TexReg 2353; amended to be effective January 26, 2010, 35 TexReg 485