Office of the Revisor of Statutes
Minnesota Session Laws - 2004, Regular Session
Key: (1) language to be deleted (2) new language
CHAPTER 285-H.F.No. 2258
An act relating to commerce; establishing risk-based
capital requirements for health organizations;
establishing the minimum standard of valuation for
health insurance; enacting model regulations of the
National Association of Insurance Commissioners;
regulating loss revenue certifications; regulating
disclosure of information to certain investigatory
entities; amending Minnesota Statutes 2002, sections
45.027, subdivision 7a; 60A.03, subdivision 9;
60A.031, subdivision 4; 60A.129, subdivision 2;
62C.09, by adding a subdivision; 62D.04, subdivision
1; 62D.041, subdivision 2; 62D.042, subdivisions 1, 2;
62N.25, subdivision 6; 62N.27, subdivision 1; 62N.29;
proposing coding for new law in Minnesota Statutes,
chapter 60A; repealing Minnesota Statutes 2002,
sections 62C.09, subdivisions 3, 4; 62D.042,
subdivisions 5, 6, 7; 62D.043; Minnesota Rules, part
4685.0600.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
ARTICLE 1
RISK-BASED CAPITAL FOR HEALTH ORGANIZATIONS
Section 1. [60A.50] [DEFINITIONS.]
Subdivision 1. [SCOPE.] For purposes of sections 60A.50 to
60A.592 the terms in subdivisions 2 to 13 have the meanings
given them.
Subd. 2. [ADJUSTED RBC REPORT] "Adjusted RBC report" means
an RBC report which has been adjusted by the commissioner in
accordance with section 60A.51, subdivision 3.
Subd. 3. [COMMISSIONER.] "Commissioner" means the
commissioner of commerce or the commissioner of health,
whichever commissioner otherwise regulates the health
organization.
Subd. 4. [CORRECTIVE ORDER.] "Corrective order" means an
order issued by the commissioner specifying corrective actions
which the commissioner has determined are required.
Subd. 5. [DOMESTIC HEALTH ORGANIZATION.] "Domestic health
organization" means a health organization domiciled in this
state.
Subd. 6. [FOREIGN HEALTH ORGANIZATION.] "Foreign health
organization" means a health organization that is licensed to do
business in this state but is not domiciled in this state.
Subd. 7. [NAIC.] "NAIC" means the National Association of
Insurance Commissioners.
Subd. 8. [HEALTH ORGANIZATION.] "Health organization"
means an entity licensed under this chapter or chapter 62C or
62D. This definition does not include an organization that is
licensed or regulated as either a life and health insurer or a
property and casualty insurer that is otherwise subject to
either the life or property and casualty risk-based capital
requirements.
Subd. 9. [RBC INSTRUCTIONS.] "RBC instructions" means the
RBC report including risk-based capital instructions adopted by
the NAIC, as these RBC instructions may be amended by the NAIC
from time to time in accordance with the procedures adopted by
the NAIC.
Subd. 10. [RBC LEVEL.] "RBC level" means a health
organization's company action level RBC, regulatory action level
RBC, authorized control level RBC, or mandatory control level
RBC where:
(1) "company action level RBC" means, with respect to any
health organization, the product of 2.0 and its authorized
control level RBC;
(2) "regulatory action level RBC" means the product of 1.5
and its authorized control level RBC;
(3) "authorized control level RBC" means the number
determined under the risk-based capital formula in accordance
with the RBC instructions; and
(4) "mandatory control level RBC" means the product of .70
and the authorized control level RBC.
Subd. 11. [RBC PLAN.] "RBC plan" means a comprehensive
financial plan containing the elements specified in section
60A.52, subdivision 2. If the commissioner rejects the RBC
plan, and it is revised by the health organization, with or
without the commissioner's recommendation, the plan must be
called the "revised RBC plan."
Subd. 12. [RBC REPORT.] "RBC report" means the report
required in section 60A.51.
Subd. 13. [TOTAL ADJUSTED CAPITAL.] "Total adjusted
capital" means the sum of:
(1) a health organization's statutory capital and surplus
as determined in accordance with the statutory accounting
applicable to the annual financial statements required to be
filed; and
(2) such other items, if any, as the RBC instructions may
provide.
Sec. 2. [60A.51] [RBC REPORTS.]
Subdivision 1. [SUBMISSIONS.] A domestic health
organization shall, on or before each April 1, prepare and
submit to the commissioner a report of its RBC levels as of the
end of the calendar year just ended, in a form and containing
the information required by the RBC instructions. In addition,
a domestic health organization shall file its RBC report:
(1) with the NAIC in accordance with the RBC instructions;
and
(2) with the insurance commissioner in any state in which
the health organization is authorized to do business, if the
insurance commissioner has notified the health organization of
its request in writing, in which case the health organization
shall file its RBC report not later than the later of:
(i) 15 days from the receipt of notice to file its RBC
report with that state; or
(2) the filing date.
Subd. 2. [DETERMINATION.] A health organization's RBC must
be determined in accordance with the formula set forth in the
RBC instructions. The formula must take the following into
account, and may adjust for the covariance between, determined
in each case by applying the factors in the manner set forth in
the RBC instructions:
(1) asset risk;
(2) credit risk;
(3) underwriting risk; and
(4) all other business risks and such other relevant risks
as are set forth in the RBC instructions.
Subd. 3. [ADJUSTED REPORT.] If a domestic health
organization files an RBC report that in the judgment of the
commissioner is inaccurate, then the commissioner shall adjust
the RBC report to correct the inaccuracy and shall notify the
health organization of the adjustment. The notice must contain
a statement of the reason for the adjustment. An RBC report as
so adjusted is referred to as an "adjusted RBC report."
Sec. 3. [60A.52] [COMPANY ACTION LEVEL EVENT.]
Subdivision 1. [DEFINITION.] "Company action level event"
means the following events:
(1) the filing of an RBC report by a health organization
that indicates that the health organization's total adjusted
capital is greater than or equal to its regulatory action level
RBC but less than its company action level RBC;
(2) notification by the commissioner to the health
organization of an adjusted RBC report that indicates an event
in clause (1), provided the health organization does not
challenge the adjusted RBC report under section 60A.56; or
(3) if, pursuant to section 60A.56, a health organization
challenges an adjusted RBC report that indicates the event in
clause (1), the notification by the commissioner to the health
organization that the commissioner has, after a hearing,
rejected the health organization's challenge.
Subd. 2. [RBC PLAN REQUIRED.] In the event of a company
action level event, the health organization shall prepare and
submit to the commissioner an RBC plan that:
(1) identifies the conditions that contribute to the
company action level event;
(2) contains proposals of corrective actions that the
health organization intends to take and that would be expected
to result in the elimination of the company action level event;
(3) provides projections of the health organization's
financial results in the current year and at least the two
succeeding years, both in the absence of proposed corrective
actions and giving effect to the proposed corrective actions,
including projections of statutory balance sheets, operating
income, net income, capital and surplus, and RBC levels. The
projections for both new and renewal business might include
separate projections for each major line of business and
separately identify each significant income, expense, and
benefit component;
(4) identifies the key assumptions impacting the health
organization's projections and the sensitivity of the
projections to the assumptions; and
(5) identifies the quality of, and problems associated
with, the health organization's business, including, but not
limited to, its assets, anticipated business growth and
associated surplus strain, extraordinary exposure to risk, mix
of business, and use of reinsurance, if any, in each case.
Subd. 3. [RBC PLAN SUBMISSION.] The RBC plan must be
submitted:
(1) within 45 days of the Company Action Level Event; or
(2) if the health organization challenges an adjusted RBC
report pursuant to section 60A.56, within 45 days after
notification to the health organization that the commissioner
has, after a hearing, rejected the health organization's
challenge.
Subd. 4. [RBC PLAN IMPLEMENTATION.] Within 60 days after
the submission by a health organization of an RBC plan to the
commissioner, the commissioner shall notify the health
organization whether the RBC plan must be implemented or is, in
the judgment of the commissioner, unsatisfactory. If the
commissioner determines the RBC plan is unsatisfactory, the
notification to the health organization must set forth the
reasons for the determination, and may set forth proposed
revisions which will render the RBC plan satisfactory, in the
judgment of the commissioner. Upon notification from the
commissioner, the health organization shall prepare a revised
RBC plan, which may incorporate by reference any revisions
proposed by the commissioner, and shall submit the revised RBC
plan to the commissioner:
(1) within 45 days after the notification from the
commissioner; or
(2) if the health organization challenges the notification
from the commissioner under section 60A.56, within 45 days after
a notification to the health organization that the commissioner
has, after a hearing, rejected the health organization's
challenge.
Subd. 5. [UNSATISFACTORY PLAN.] In the event of a
notification by the commissioner to a health organization that
the health organization's RBC plan or revised RBC plan is
unsatisfactory, the commissioner may, at the commissioner's
discretion, subject to the health organization's right to a
hearing under section 60A.56, specify in the notification that
the notification constitutes a regulatory action level event.
Subd. 6. [ADDITIONAL FILING.] Every domestic health
organization that files an RBC plan or revised RBC plan with the
commissioner shall file a copy of the RBC plan or revised RBC
plan with the insurance commissioner in any state in which the
health organization is authorized to do business if:
(1) the state has an RBC provision substantially similar in
section 60A.57, subdivision 1; and
(2) the insurance commissioner of that state has notified
the health organization of its request for the filing in
writing, in which case the health organization shall file a copy
of the RBC plan or revised RBC plan in that state no later than
the later of:
(i) 15 days after the receipt of notice to file a copy of
its RBC plan or revised RBC plan with the state; or
(ii) the date on which the RBC plan or revised RBC plan is
filed under subdivisions 3 and 4.
Sec. 4. [60A.53] [REGULATORY ACTION LEVEL EVENT.]
Subdivision 1. [DEFINITION.] "Regulatory action level
event" means, with respect to a health organization, any of the
following events:
(1) the filing of an RBC report by the health organization
that indicates that the health organization's total adjusted
capital is greater than or equal to its authorized control level
RBC but less than its regulatory action level RBC;
(2) notification by the commissioner to a health
organization of an adjusted RBC report that indicates the event
in clause (1), provided the health organization does not
challenge the adjusted RBC report under section 60A.56;
(3) if, pursuant to section 60A.56, the health organization
challenges an adjusted RBC report that indicates the event in
clause (1), the notification by the commissioner to the health
organization that the commissioner has, after a hearing,
rejected the health organization's challenge;
(4) the failure of the health organization to file an RBC
report by the filing date, unless the health organization has
provided an explanation for the failure that is satisfactory to
the commissioner and has cured the failure within ten days after
the filing date;
(5) the failure of the health organization to submit an RBC
plan to the commissioner within the time period set forth in
section 60A.52, subdivision 3;
(6) notification by the commissioner to the health
organization that:
(i) the RBC plan or revised RBC plan submitted by the
health organization is, in the judgment of the commissioner,
unsatisfactory; and
(ii) notification constitutes a regulatory action level
event with respect to the health organization, provided the
health organization has not challenged the determination under
section 60A.56;
(7) if, pursuant to section 60A.56, the health organization
challenges a determination by the commissioner under clause (6),
the notification by the commissioner to the health organization
that the commissioner has, after a hearing, rejected the
challenge;
(8) notification by the commissioner to the health
organization that the health organization has failed to adhere
to its RBC plan or revised RBC plan, but only if the failure has
a substantial adverse effect on the ability of the health
organization to eliminate the company action level event in
accordance with its RBC plan or revised RBC plan and the
commissioner has so stated in the notification, provided the
health organization has not challenged the determination under
section 60A.50; or
(9) if, pursuant to section 60A.56, the health organization
challenges a determination by the commissioner under clause (8),
the notification by the commissioner to the health organization
that the commissioner has, after a hearing, rejected the
challenge.
Subd. 2. [COMMISSIONER'S DUTIES.] In the event of a
regulatory action level event the commissioner shall:
(1) require the health organization to prepare and submit
an RBC plan or, if applicable, a revised RBC plan;
(2) perform any examination or analysis the commissioner
considers necessary of the assets, liabilities, and operations
of the health organization, including a review of its RBC plan
or revised RBC plan; and
(3) after the examination or analysis, issue a corrective
order specifying the corrective actions the commissioner
determines are required.
Subd. 3. [CORRECTIVE ACTIONS.] In determining corrective
actions, the commissioner may take into account factors the
commissioner considers relevant with respect to the health
organization based upon the commissioner's examination or
analysis of the assets, liabilities, and operations of the
health organization, including, but not limited to, the results
of any sensitivity tests undertaken pursuant to the RBC
instructions. The RBC plan or revised RBC plan must be
submitted:
(1) within 45 days after the occurrence of the regulatory
action level event;
(2) if the health organization challenges an adjusted RBC
report pursuant to section 60A.56 and the challenge is not
frivolous in the judgment of the commissioner within 45 days
after the notification to the health organization that the
commissioner has, after a hearing, rejected the health
organization's challenge; or
(3) if the health organization challenges a revised RBC
plan pursuant to section 60A.56 and the challenge is not
frivolous in the judgment of the commissioner, within 45 days
after the notification to the health organization that the
commissioner has, after a hearing, rejected the health
organization's challenge.
Subd. 4. [CONSULTANTS.] The commissioner may retain
actuaries and investment experts and other consultants as may be
necessary in the judgment of the commissioner to review the
health organization's RBC plan or revised RBC plan, examine or
analyze the assets, liabilities, and operations, including
contractual relationships, of the health organization and
formulate the corrective order with respect to the health
organization. The fees, costs, and expenses relating to
consultants must be borne by the affected health organization or
such other party as directed by the commissioner.
Sec. 5. [60A.54] [AUTHORIZED CONTROL LEVEL EVENT.]
Subdivision 1. [DEFINITION.] "Authorized control level
event" means any of the following events:
(1) the filing of an RBC report by the health organization
that indicates that the health organization's total adjusted
capital is greater than or equal to its mandatory control level
RBC but less than its authorized control level RBC;
(2) the notification by the commissioner to the health
organization of an adjusted RBC report that indicates the event
in clause (1), provided the health organization does not
challenge the adjusted RBC report under section 60A.56;
(3) if, pursuant to section 60A.56, the health organization
challenges an adjusted RBC report that indicates the event in
clause (1), notification by the commissioner to the health
organization that the commissioner has, after a hearing,
rejected the health organization's challenge;
(4) the failure of the health organization to respond, in a
manner satisfactory to the commissioner, to a corrective order,
provided the health organization has not challenged the
corrective order under section 60A.56; or
(5) if the health organization has challenged a corrective
order under section 60A.56 and the commissioner has, after a
hearing, rejected the challenge or modified the corrective
order, the failure of the health organization to respond, in a
manner satisfactory to the commissioner, to the corrective order
subsequent to rejection or modification by the commissioner.
Subd. 2. [COMMISSIONER'S DUTIES.] In the event of an
authorized control level event with respect to a health
organization, the commissioner shall:
(1) take such actions as are required under section 60A.53
regarding a health organization with respect to which a
regulatory action level event has occurred; or
(2) if the commissioner considers it to be in the best
interests of the policyholders and creditors of the health
organization and of the public, take such actions as are
necessary to cause the health organization to be placed under
regulatory control under chapter 60B. In the event the
commissioner takes such actions, the authorized control level
event is considered sufficient grounds for the commissioner to
take action under chapter 60B, and the commissioner shall have
the rights, powers, and duties with respect to the health
organization as are set forth in chapter 60B. In the event the
commissioner takes actions under this clause pursuant to an
adjusted RBC report, the health organization is entitled to the
protections afforded health organizations under sections 60B.11
and 60B.13 pertaining to summary proceedings.
Sec. 6. [60A.55] [MANDATORY CONTROL LEVEL EVENT.]
Subdivision 1. [DEFINITION.] "Mandatory control level
event" means any of the following events:
(1) the filing of an RBC report which indicates that the
health organization's total adjusted capital is less than its
mandatory control level RBC;
(2) notification by the commissioner to the health
organization of an adjusted RBC report that indicates the event
in clause (1), provided the health organization does not
challenge the adjusted RBC report under section 60A.56; or
(3) if, pursuant to section 60A.56, the health organization
challenges an adjusted RBC report that indicates the event in
clause (1), notification by the commissioner to the health
organization that the commissioner has, after a hearing,
rejected the health organization's challenge.
Subd. 2. [COMMISSIONER'S DUTIES.] (a) In the event of a
mandatory control level event, the commissioner shall take such
actions as are necessary to place the health organization under
regulatory control under section 60B.13. In that event, the
mandatory control level event is considered sufficient grounds
for the commissioner to take action under section 60B.13, and
the commissioner shall have the rights, powers, and duties with
respect to the health organization as are set forth in section
60B.13. If the commissioner takes actions pursuant to an
adjusted RBC report, the health organization is entitled to the
protections of sections 60B.11 and 60B.13 pertaining to summary
proceedings.
(b) Notwithstanding paragraph (a), the commissioner may
forego action for up to 90 days after the mandatory control
level event if the commissioner finds there is a reasonable
expectation that the mandatory control level event may be
eliminated within the 90-day period.
Sec. 7. [60A.56] [HEARINGS.]
Upon the occurrence of any of the following events, the
health organization has the right to a confidential departmental
hearing, on a record, at which the health organization may
challenge any determination or action by the commissioner. The
health organization shall notify the commissioner of its request
for a hearing within five days after the notification by the
commissioner under clause (1), (2), (3), or (4). Upon receipt
of the health organization's request for a hearing, the
commissioner shall set a date for the hearing, which must be no
less than ten nor more than 30 days after the date of the health
organization's request. The events include:
(1) notification to a health organization by the
commissioner of an adjusted RBC report;
(2) notification to a health organization by the
commissioner that:
(i) the health organization's RBC plan or revised RBC plan
is unsatisfactory; and
(ii) notification constitutes a regulatory action level
event with respect to the health organization;
(3) notification to a health organization by the
commissioner that the health organization has failed to adhere
to its RBC plan or revised RBC plan and that the failure has a
substantial adverse effect on the ability of the health
organization to eliminate the company action level event with
respect to the health organization in accordance with its RBC
plan or revised RBC plan; or
(4) notification to a health organization by the
commissioner of a corrective order with respect to the health
organization.
Sec. 8. [60A.57] [ACCESS TO AND USE OF RBC INFORMATION.]
Subdivision 1. [CONFIDENTIALITY; PROHIBITION ON
ANNOUNCEMENTS.] Section 60A.67, subdivisions 1 and 2, apply to
sections 60A.50 to 60A.592.
Subd. 2. [PROHIBITION FOR RATE MAKING OR PREMIUM SETTING.]
The RBC instructions, RBC reports, adjusted RBC reports, RBC
plans, and revised RBC plans are intended solely for use by the
commissioner in monitoring the solvency of health organizations
and the need for possible corrective action with respect to
health organizations and shall not be used by the commissioner
for rate making nor considered or introduced as evidence in any
rate proceeding nor used by the commissioner to calculate or
derive any elements of an appropriate premium level or rate of
return for any line of insurance that a health organization or
any affiliate is authorized to write.
Sec. 9. [60A.58] [SUPPLEMENTAL PROVISIONS.]
Subdivision 1. [EFFECT.] Sections 60A.50 to 60A.592 are
supplemental to any other provisions of the laws of this state,
and must not preclude or limit any other powers or duties of the
commissioner under such laws, including, but not limited to,
chapter 60B and sections 62D.041, 62D.042, 62D.18, and 62D.181.
Subd. 2. [EXEMPTION.] The commissioner may exempt from the
application of sections 60A.50 to 60A.592 a domestic health
organization that:
(1) writes direct business only in this state;
(2) assumes no reinsurance in excess of five percent of
direct premium written; and
(3) writes direct annual premiums for comprehensive medical
business of $2,000,000 or less.
Sec. 10. [60A.59] [FOREIGN HEALTH ORGANIZATIONS.]
Subdivision 1. [RBC REPORT.] (a) A foreign health
organization shall, upon the written request of the
commissioner, submit to the commissioner an RBC report as of the
end of the calendar year just ended the later of:
(1) the date an RBC report would be required to be filed by
a domestic health organization under sections 60A.50 to 60A.592;
or
(2) 15 days after the request is received by the foreign
health organization.
(b) A foreign health organization shall, at the written
request of the commissioner, promptly submit to the commissioner
a copy of any RBC plan that is filed with the insurance
commissioner of any other state.
Subd. 2. [RBC PLAN.] In the event of a company action
level event, regulatory action level event, or authorized
control level event with respect to a foreign health
organization as determined under the RBC statute applicable in
the state of domicile of the health organization or, if no RBC
statute is in force in that state, under sections 60A.50 to
60A.592, if the insurance commissioner of the state of domicile
of the foreign health organization fails to require the foreign
health organization to file an RBC plan in the manner specified
under that state's RBC statute or, if no RBC statute is in force
in that state, under section 60A.52, the commissioner may
require the foreign health organization to file an RBC plan with
the commissioner. In such event, the failure of the foreign
health organization to file an RBC plan with the commissioner
shall be grounds to order the health organization to cease and
desist from writing new insurance business in this state. This
section does not limit the commissioner's authority to require a
foreign insurer to file a copy of the risk-based capital plan
submitted to the commissioner in the state of domicile.
Subd. 3. [LIQUIDATION OF PROPERTY.] In the event of a
mandatory control level event with respect to a foreign health
organization, if no domiciliary receiver has been appointed with
respect to the foreign health organization under the
rehabilitation and liquidation statute applicable in the state
of domicile of the foreign health organization, the commissioner
may make application to the district court permitted under
chapter 60B with respect to the liquidation of property of
foreign health organizations found in this state, and the
occurrence of the mandatory control level event shall be
considered adequate grounds for the application.
Sec. 11. [60A.591] [IMMUNITY.]
There is no liability on the part of, and no cause of
action arises against, the commissioner or the department or its
employees or agents for any action taken by them in the
performance of their powers and duties under sections 60A.50 to
60A.592.
Sec. 12. [60A.592] [NOTICES.]
All notices by the commissioner to a health organization
that may result in regulatory action under sections 60A.50 to
60A.592 are effective upon dispatch if transmitted by registered
or certified mail, or in the case of any other transmission are
effective upon the health organization's receipt of notice.
ARTICLE 2
MINIMUM STANDARD OF VALUATION FOR
HEALTH INSURANCE
Section 1. [60A.76] [PURPOSE AND SCOPE.]
Sections 60A.76 to 60A.768 apply to all individual and
group accident and health insurance coverages as defined in
section 60A.06, subdivision 1, paragraph (5)(a), including
single premium credit disability insurance. Other credit
insurance is not subject to sections 60A.76 to 60A.768.
When an insurer determines that adequacy of its health
insurance reserves requires reserves in excess of the minimum
standards specified in sections 60A.76 to 60A.768, the increased
reserves must be held and must be considered the minimum
reserves for that insurer.
With respect to any block of contracts, or with respect to
an insurer's health business as a whole, a prospective gross
premium valuation is the ultimate test of reserve adequacy as of
a given valuation date. The prospective gross premium valuation
must take into account, for contracts in force, in a claims
status, or in a continuation of benefits status on the valuation
date, the present value as of the valuation date of: all
expected benefits unpaid, all expected expenses unpaid, and all
unearned or expected premiums, adjusted for future premium
increases reasonably expected to be put into effect.
The prospective gross premium valuation must be performed
whenever a significant doubt exists as to reserve adequacy with
respect to any major block of contracts, or with respect to the
insurer's health business as a whole. In the event inadequacy
is found to exist, immediate loss recognition must be made and
the reserves restored to adequacy. Adequate reserves, inclusive
of claim, premium, and contract reserves, if any, must be held
with respect to all contracts, regardless of whether contract
reserves are required for such contracts under sections 60A.76
to 60A.768.
Whenever minimum reserves, as defined in sections 60A.76 to
60A.768, exceed reserve requirements as determined by a
prospective gross premium valuation, such minimum reserves
remain the minimum requirement under sections 60A.76 to 60A.768.
Sec. 2. [60A.761] [GLOSSARY OF TECHNICAL TERMS USED.]
Subdivision 1. [SCOPE.] As used in sections 60A.76 to
60A.768, the terms in subdivisions 2 to 21 have the meaning
given them.
Subd. 2. [ANNUAL CLAIM COST.] "Annual claim cost" means
the net annual cost per unit of benefit before the addition of
expenses, including claim settlement expenses, and a margin for
profit or contingencies. For example, the annual claim cost for
a $100 monthly disability benefit, for a maximum disability
benefit period of one year, with an elimination period of one
week, with respect to a male at age 35, in a certain occupation
might be $12, while the gross premium for this benefit might be
$18. The additional $6 would cover expenses and profit or
contingencies.
Subd. 3. [CLAIMS ACCRUED.] "Claims accrued" means that
portion of claims incurred on or prior to the valuation date
which result in liability of the insurer for the payment of
benefits for medical services which have been rendered on or
before the valuation date, and for the payment of benefits for
days of hospitalization and days of disability which have
occurred on or prior to the valuation date, which the insurer
has not paid as of the valuation date, but for which it is
liable, and will have to pay after the valuation date. This
liability is sometimes referred to as a liability for "accrued"
benefits. A claim reserve, which represents an estimate of this
accrued claim liability, must be established.
Subd. 4. [CLAIMS REPORTED.] "Claims reported" means when
an insurer has been informed that a claim has been incurred, if
the date reported is on or before the valuation date, the claim
is considered as a reported claim for annual statement purposes.
Subd. 5. [CLAIMS UNACCRUED.] "Claims unaccrued" means that
portion of claims incurred on or before the valuation date which
result in liability of the insurer for the payment of benefits
for medical services expected to be rendered after the valuation
date, and for benefits expected to be payable for days of
hospitalization and days of disability occurring after the
valuation date. This liability is sometimes referred to as a
liability for unaccrued benefits. A claim reserve, which
represents an estimate of the unaccrued claim payments expected
to be made (which may or may not be discounted with interest)
must be established.
Subd. 6. [CLAIMS UNREPORTED.] "Claims unreported" means
when an insurer has not been informed, on or before the
valuation date, concerning a claim that has been incurred on or
prior to the valuation date, the claim is considered as an
unreported claim for annual statement purposes.
Subd. 7. [DATE OF DISABLEMENT.] "Date of disablement"
means the earliest date the insured is considered as being
disabled under the definition of disability in the contract,
based on a doctor's evaluation or other evidence. Normally this
date will coincide with the start of any elimination period.
Subd. 8. [ELIMINATION PERIOD.] "Elimination period" means
a specified number of days, weeks, or months starting at the
beginning of each period of loss, during which no benefits are
payable.
Subd. 9. [GROSS PREMIUM.] "Gross premium" means the amount
of premium charged by the insurer. It includes the net premium
(based on claim-cost) for the risk, together with any loading
for expenses, profit, or contingencies.
Subd. 10. [GROUP INSURANCE.] "Group insurance" means the
term group insurance includes blanket insurance and franchise
insurance and any other forms of group insurance.
Subd. 11. [LEVEL PREMIUM.] "Level premium" means a premium
calculated to remain unchanged throughout either the lifetime of
the policy, or for some shorter projected period of years. The
premium need not be guaranteed; in which case, although it is
calculated to remain level, it may be changed if any of the
assumptions on which it was based are revised at a later time.
Generally, the annual claim costs are expected to increase
each year and the insurer, instead of charging premiums that
correspondingly increase each year, charges a premium calculated
to remain level for a period of years or for the lifetime of the
contract. In this case, the benefit portion of the premium is
more than needed to provide for the cost of benefits during the
earlier years of the policy and less than the actual cost in the
later years. The building of a prospective contract reserve is
a natural result of level premiums.
Subd. 12. [LONG-TERM CARE INSURANCE.] "Long-term care
insurance" means a qualified long-term care insurance policy or
rider as defined in section 62S.01, subdivision 18, and a
nonqualified long-term insurance policy or rider as defined in
section 62A.46, subdivision 2.
Subd. 13. [MODAL PREMIUM.] "Modal premium" refers to the
premium paid on a contract based on a premium term which could
be annual, semiannual, quarterly, monthly, or weekly. Thus if
the annual premium is $100 and if, instead, monthly premiums of
$9 are paid then the modal premium is $9.
Subd. 14. [NEGATIVE RESERVE.] "Negative reserve" means
normally the terminal reserve is a positive value. However, if
the values of the benefits are decreasing with advancing age or
duration it could be a negative value, called a negative reserve.
Subd. 15. [PRELIMINARY TERM RESERVE METHOD.] "Preliminary
term reserve method" means that under this method of valuation
the valuation net premium for each year falling within the
preliminary term period is exactly sufficient to cover the
expected incurred claims of that year, so that the terminal
reserves will be zero at the end of the year. As of the end of
the preliminary term period, a new constant valuation net
premium (or stream of changing valuation premiums) becomes
applicable such that the present value of all such premiums is
equal to the present value of all claims expected to be incurred
following the end of the preliminary term period.
Subd. 16. [PRESENT VALUE OF AMOUNTS NOT YET DUE ON
CLAIMS.] "Present value of amounts not yet due on claims" means
the reserve for "claims unaccrued" which may be discounted at
interest.
Subd. 17. [RATING BLOCK.] "Rating block" means a grouping
of contracts determined by the valuation actuary based on common
characteristics, such as a policy form or forms having similar
benefit designs.
Subd. 18. [RESERVE.] "Reserve" includes all items of
benefit liability, whether in the nature of incurred claim
liability or in the nature of contract liability relating to
future periods of coverage, and whether the liability is accrued
or unaccrued.
An insurer under its contracts promises benefits, which
result in:
(a) claims which have been incurred, that is, for which the
insurer has become obligated to make payment, on or prior to the
valuation date. On these claims, payments expected to be made
after the valuation date for accrued and unaccrued benefits are
liabilities of the insurer which should be provided for by
establishing claim reserves; or
(b) claims which are expected to be incurred after the
valuation date. Any present liability of the insurer for these
future claims should be provided for by the establishment of
contract reserves and unearned premium reserves.
Subd. 19. [TERMINAL RESERVE.] "Terminal reserve" means the
reserve at the end of a contract year, and is defined as the
present value of benefits expected to be incurred after that
contract year minus the present value of future valuation net
premiums.
Subd. 20. [UNEARNED PREMIUM RESERVE.] "Unearned premium
reserve" means that portion of the premium paid or due to the
insurer which is applicable to the period of coverage extending
beyond the valuation date. Thus if an annual premium of $120
was paid on November 1, $20 would be earned as of December 31
and the remaining $100 would be unearned. The unearned premium
reserve could be on a gross basis as in this example, or on a
valuation net premium basis.
Subd. 21. [VALUATION NET MODAL PREMIUM.] "Valuation net
modal premium" means the modal fraction of the valuation net
annual premium that corresponds to the gross modal premium in
effect on any contract to which contract reserves apply. Thus
if the mode of payment in effect is quarterly, the valuation net
modal premium is the quarterly equivalent of the valuation net
annual premium.
Sec. 3. [60A.762] [CATEGORIES OF RESERVES.]
The following sections set forth minimum standards for
three categories of health insurance reserves:
(1) section 60A.763, claim reserves;
(2) section 60A.764, premium reserves; and
(3) section 60A.765, contract reserves.
Adequacy of an insurer's health insurance reserves is to be
determined on the basis of all three categories combined.
However, sections 60A.76 to 60A.768 emphasize the importance of
determining appropriate reserves for each of the three
categories separately.
Sec. 4. [60A.763] [CLAIM RESERVES.]
Subdivision 1. [GENERALLY.] (a) Claim reserves are
required for all incurred but unpaid claims on all health
insurance policies.
(b) Appropriate claim expense reserves are required with
respect to the estimated expense of settlement of all incurred
but unpaid claims.
(c) Claim reserves for prior valuation years are to be
tested for adequacy and reasonableness along the lines of claim
runoff schedules in accordance with the statutory financial
statement including consideration of any residual unpaid
liability.
Subd. 2. [MINIMUM STANDARDS FOR CLAIM RESERVES FOR
DISABILITY INCOME.] (a) The maximum interest rate for claim
reserves is specified in section 60A.768.
(b) Minimum standards with respect to morbidity are those
specified in section 60A.768, except that, at the option of the
insurer:
(1) for claims with a duration from date of disablement of
less than two years, reserves may be based on the insurer's
experience, if such experience is considered credible, or upon
other assumptions designed to place a sound value on the
liabilities; and
(2) for group disability income claims with a duration from
date of disablement of more than two years but less than five
years, reserves may, with the approval of the commissioner, be
based on the insurer's experience for which the insurer
maintains underwriting and claim administration control. The
request for approval of a plan of modification to the reserve
basis must include:
(i) an analysis of the credibility of the experience;
(ii) a description of how all of the insurer's experience
is proposed to be used in setting reserves;
(iii) a description and quantification of the margins to be
included;
(iv) a summary of the financial impact that the proposed
plan of modification would have had on the insurer's last filed
annual statement;
(v) a copy of the approval of the proposed plan of
modification by the commissioner of the state of domicile; and
(vi) any other information deemed necessary by the
commissioner.
(c) For contracts with an elimination period, the duration
of disablement must be measured as dating from the time that
benefits would have begun to accrue had there been no
elimination period.
Subd. 3. [MINIMUM STANDARDS FOR CLAIM RESERVES FOR ALL
OTHER BENEFITS.] (a) The maximum interest rate for claim
reserves is specified in section 60A.768.
(b) The reserve must be based on the insurer's experience,
if the experience is considered credible, or upon other
assumptions designed to place a sound value on the liabilities.
Subd. 4. [CLAIM RESERVE METHODS GENERALLY.] A generally
accepted actuarial reserving method or other reasonable method
if the method is approved by the commissioner before the
statement date, or a combination of methods as described in this
section, may be used to estimate all claim liabilities. The
methods used for estimating liabilities generally may be
aggregate methods, or various reserve items may be separately
valued. Approximations based on groupings and averages may also
be employed. Adequacy of the claim reserves, however, must be
determined in the aggregate.
Sec. 5. [60A.764] [PREMIUM RESERVES.]
Subdivision 1. [GENERALLY.] (a) Unearned premium reserves
are required for all contracts with respect to the period of
coverage for which premiums, other than premiums paid in
advance, have been paid beyond the date of valuation.
(b) If premiums due and unpaid are carried as an asset, the
premiums must be treated as premiums in force, subject to
unearned premium reserve determination. The value of unpaid
commissions, premium taxes, and the cost of collection
associated with due and unpaid premiums must be carried as an
offsetting liability.
(c) The gross premiums paid in advance for a period of
coverage beginning after the next premium due date which follows
the date of valuation may be appropriately discounted to the
valuation date and must be held either as a separate liability
or as an addition to the unearned premium reserve which would
otherwise be required as a minimum.
Subd. 2. [MINIMUM STANDARDS FOR UNEARNED PREMIUM
RESERVES.] (a) The minimum unearned premium reserve with respect
to a contract is the pro rata unearned modal premium that
applies to the premium period beyond the valuation date, with
the premium determined on the basis of:
(1) the valuation net modal premium on the contract reserve
basis applying to the contract; or
(2) the gross modal premium for the contract if no contract
reserve applies.
(b) However, in no event may the sum of the unearned
premium and contract reserves for all contracts of the insurer
subject to contract reserve requirements be less than the gross
modal unearned premium reserve on all such contracts, as of the
date of valuation. The reserve must never be less than the
expected claims for the period beyond the valuation date
represented by the unearned premium reserve, to the extent not
provided for elsewhere.
Subd. 3. [PREMIUM RESERVE METHODS GENERALLY.] The insurer
may employ suitable approximations and estimates, including, but
not limited to, groupings, averages, and aggregate estimation,
in computing premium reserves. Approximations or estimates
should be tested periodically to determine the continuing
adequacy and reliability.
Sec. 6. [60A.765] [CONTRACT RESERVES REQUIRED.]
(a) Contract reserves are required, unless otherwise
specified in paragraph (b) for:
(1) all individual and group contracts with which level
premiums are used; or
(2) all individual and group contracts with respect to
which, due to the gross premium pricing structure at issue, the
value of the future benefits at any time exceeds the value of
any appropriate future valuation net premiums at that time.
This evaluation may be applied on a rating block basis if the
total premiums for the block were developed to support the total
risk assumed and expected expenses for the block each year, and
a qualified actuary certifies the premium development. The
actuary must state in the certification that premiums for the
rating block were developed such that each year's premium was
intended to cover that year's costs without any prefunding. If
the premium is also intended to recover costs for any prior
years, the actuary must also disclose the reasons for and
magnitude of the recovery. The values specified in this clause
must be determined on the basis specified in section 60A.766,
subdivisions 1 to 4.
(b) Contracts not requiring a contract reserve are:
(1) contracts that cannot be continued after one year from
issue; or
(2) contracts already in force on the effective date of
sections 60A.76 to 60A.768 for which no contract reserve was
required under the immediately preceding standards.
(c) The contract reserve is in addition to claim reserves
and premium reserves.
(d) The methods and procedures for contract reserves must
be consistent with those for claim reserves for a contract, or
else appropriate adjustment must be made when necessary to
assure provision for the aggregate liability. The definition of
the date of incurral must be the same in both determinations.
Sec. 7. [60A.766] [MINIMUM STANDARDS FOR CONTRACT
RESERVES.]
Subdivision 1. [BASIS.] (a) Minimum standards with respect
to morbidity are those set forth in section 60A.768. Valuation
net premiums used under each contract must have a structure
consistent with the gross premium structure at issue of the
contract as this relates to advancing age of insured, contract
duration, and period for which gross premiums have been
calculated.
Contracts for which tabular morbidity standards are not
specified in section 60A.768 must be valued using tables
established for reserve purposes by a qualified actuary and
acceptable to the commissioner. The morbidity tables must
contain a pattern of incurred claims cost that reflects the
underlying morbidity and must not be constructed for the primary
purpose of minimizing reserves.
(b) The maximum interest rate is specified in section
60A.768.
(c) Termination rates used in the computation of reserves
must be on the basis of a mortality table as specified in
section 60A.768 except as noted in clauses (1) to (3):
(1) under contracts for which premium rates are not
guaranteed, and where the effects of insurer underwriting are
specifically used by policy duration in the valuation morbidity
standard or for return of premium or other deferred cash
benefits, total termination rates may be used at ages and
durations where these exceed specified mortality table rates,
but not in excess of the lesser of:
(i) 80 percent of the total termination rate used in the
calculation of the gross premiums; or
(ii) eight percent;
(2) for long-term care individual policies or group
certificates issued after January 1, 1997, the contract reserve
may be established on a basis of separate:
(i) mortality as specified in section 60A.768; and
(ii) terminations other than mortality, where the
terminations are not to exceed:
A. for policy years one through four, the lesser of 80
percent of the voluntary lapse rate used in the calculation of
gross premiums and eight percent;
B. for policy years five and later, the lesser of 100
percent of the voluntary lapse rate used in the calculation of
gross premiums and four percent;
(3) where a morbidity standard specified in section 60A.768
is on an aggregate basis, the morbidity standard may be adjusted
to reflect the effect of insurer underwriting by policy duration.
The adjustments must be appropriate to the underwriting and be
acceptable to the commissioner.
Subd. 2. [RESERVE METHOD.] (a) For insurance, except
long-term care and return of premium or other deferred cash
benefits, the minimum reserve is the reserve calculated on the
two-year full preliminary term method; that is, under which the
terminal reserve is zero at the first and also the second
contract anniversary.
(b) For long-term care insurance, the minimum reserve is
the reserve calculated as follows:
(1) for individual policies and group certificates issued
on or before December 31, 1991, reserves calculated on the
two-year full preliminary term methods;
(2) for individual policies and group certificates issued
on or after January 1, 1992, reserves calculated on the one-year
full preliminary term method.
(c) For return of premium or other deferred cash benefits,
the minimum reserve is the reserve calculated as follows:
(1) on the one-year preliminary term method if the benefits
are provided at any time before the 20th anniversary;
(2) on the two-year preliminary term method if the benefits
are only provided on or after the 20th anniversary.
The preliminary term method may be applied only in relation
to the date of issue of a contract. Reserve adjustments
introduced later, as a result of rate increases, revisions in
assumptions, for example projected inflation rates, or for other
reasons, are to be applied immediately as of the effective date
of adoption of the adjusted basis.
Subd. 3. [NEGATIVE RESERVES.] Negative reserves on any
benefit may be offset against positive reserves for other
benefits in the same contract, but the total contract reserve
with respect to all benefits combined may not be less than zero.
Subd. 4. [NONFORFEITURE BENEFITS FOR LONG-TERM CARE
INSURANCE.] The contract reserve on a policy basis must not be
less than the net single premium for the nonforfeiture benefits
at the appropriate policy duration, where the net single premium
is computed according to the specifications in this section.
While the consideration for nonforfeiture benefits in this
section is specific to long-term care insurance, similar
consideration may be applicable for other lines of business.
Subd. 5. [ALTERNATIVE VALUATION METHODS AND ASSUMPTIONS
GENERALLY.] Provided the contract reserve on all contracts to
which an alternative method or basis is applied is not less in
the aggregate than the amount determined according to the
applicable standards specified in this section, an insurer may
use any reasonable assumptions as to interest rates, termination
and mortality rates, and rates of morbidity or other contingency.
Also, subject to the preceding condition, the insurer may employ
methods other than the methods stated in this section in
determining a sound value of its liabilities under such
contracts, including, but not limited to, the following: the
net level premium method; the one-year full preliminary term
method; prospective valuation on the basis of actual gross
premiums with reasonable allowance for future expenses; the use
of approximations such as those involving age groupings,
groupings of several years of issue, average amounts of
indemnity, and grouping of similar contract forms; the
computation of the reserve for one contract benefit as a
percentage of, or by other relation to, the aggregate contract
reserves exclusive of the benefit or benefits so valued; and the
use of a composite annual claim cost for all or any combination
of the benefits included in the contracts valued.
Subd. 6. [TEST FOR ADEQUACY AND REASONABLENESS OF CONTRACT
RESERVES.] Annually, an appropriate review must be made of the
insurer's prospective contract liabilities on contracts valued
by tabular reserves, to determine the continuing adequacy and
reasonableness of the tabular reserves giving consideration to
future gross premiums. The insurer shall make appropriate
increments to such tabular reserves if such tests indicate that
the basis of such reserves is no longer adequate; subject,
however, to the minimum standards of section 60A.766,
subdivisions 1 to 4.
In the event a company has a contract or a group of related
similar contracts for which future gross premiums will be
restricted by contract, department rule, or for other reasons,
such that the future gross premiums reduced by expenses for
administration, commissions, and taxes will be insufficient to
cover future claims, the company shall establish contract
reserves for such shortfall in the aggregate.
Sec. 8. [60A.767] [REINSURANCE.]
Increases to or credits against reserves carried, arising
because of reinsurance assumed or reinsurance ceded, must be
determined in a manner consistent with sections 60A.76 to
60A.768 and with all applicable provisions of the reinsurance
contracts which affect the insurer's liabilities.
Sec. 9. [60A.768] [SPECIFIC STANDARDS FOR MORBIDITY,
INTEREST, AND MORTALITY.]
Subdivision 1. [MORBIDITY.] A. Minimum morbidity
standards for valuation of specified individual contract health
insurance benefits are as follows:
(1) Disability Income Benefits Due to Accident or Sickness.
(a) Contract Reserves:
Contracts issued on or after January 1, 2004:
The 1985 Commissioners Individual Disability Tables A
(85CIDA); or
The 1985 Commissioners Individual Disability Tables B
(85CIDB).
Each insurer shall elect, with respect to all individual
contracts issued in any one statement year, whether it will use
Tables A or Tables B as the minimum standard. The insurer may,
however, elect to use the other tables with respect to any
subsequent statement year.
(b) Claim Reserves:
(i) For claims incurred on or after January 1, 2004:
The 1985 Commissioners Individual Disability Table A
(85CIDA) with claim termination rates multiplied by the
following adjustment factors:
Adjusted
Duration Adjustment Termination
Factor Rates*
Week 1 0.366 0.04831
2 0.366 0.04172
3 0.366 0.04063
4 0.366 0.04355
5 0.365 0.04088
6 0.365 0.04271
7 0.365 0.04380
8 0.365 0.04344
9 0.370 0.04292
10 0.370 0.04107
11 0.370 0.03848
12 0.370 0.03478
13 0.370 0.03034
Month 4 0.391 0.08758
5 0.371 0.07346
6 0.435 0.07531
7 0.500 0.07245
8 0.564 0.06655
9 0.613 0.05520
10 0.663 0.04705
11 0.712 0.04486
12 0.756 0.04309
13 0.800 0.04080
14 0.844 0.03882
15 0.888 0.03730
16 0.932 0.03448
17 0.976 0.03026
18 1.020 0.02856
19 1.049 0.02518
20 1.078 0.02264
21 1.107 0.02104
22 1.136 0.01932
23 1.165 0.01865
24 1.195 0.01792
Year 3 1.369 0.16839
4 1.204 0.10114
5 1.199 0.07434
6 and later 1.000 **
*The adjusted termination rates derived from the
application of the adjustment factors to the DTS Valuation Table
termination rates shown in exhibits 3a, 3b, 3c, 4, and 5
(Transactions of the Society of Actuaries (TSA) XXXVII, pages
457-463) is displayed. The adjustment factors for age,
elimination period, class, sex, and cause displayed in exhibits
3a, 3b, 3c, and 4 should be applied to the adjusted termination
rates shown in this table.
**Applicable DTS Valuation Table duration rate from
exhibits 3c and 4 (TSA XXXVII, pages 462-463).
The 85CIDA table so adjusted for the computation of claim
reserves shall be known as 85CIDC (The 1985 Commissioners
Individual Disability Table C).
(2) Hospital Benefits, Surgical Benefits, and Maternity
Benefits (Scheduled benefits or fixed time period benefits only).
(a) Contract Reserves.
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.
(b) Claim Reserves:
No specific standard. See (6).
(3) Cancer Expense Benefits (Scheduled benefits or fixed
time period benefits only).
(a) Contract Reserves:
Contracts issued on or after January 1, 2004:
The 1985 NAIC Cancer Claim Cost Tables.
(b) Claim Reserves:
No specific standard. See (6).
(4) Accidental Death Benefits.
(a) Contract Reserves:
Contracts issued on or after January 1, 2004:
The 1959 Accidental Death Benefits Table.
(b) Claim Reserves:
Actual amount incurred.
(5) Single Premium Credit Disability.
(a) Contract Reserves:
(i) For contracts issued on or after January 1, 2004:
(I) 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.
(ii)(II) For plans having a 30-day and greater elimination
period, the 85CIDA for a 14-day elimination period with the
adjustment in item (I).
(b) Claim Reserves:
Claim reserves are to be determined as provided in section
60A.763.
(6) Other Individual Contract Benefits.
(a) Contract Reserves:
For all other individual contract benefits, morbidity
assumptions are to be determined as provided in section 60A.765.
(b) Claim Reserves:
For all benefits other than disability, claim reserves are
to be determined as provided in section 60A.763.
B. Minimum morbidity standards for valuation of specified
group contract health insurance benefits are as follows:
(1) Disability Income Benefits Due to Accident or Sickness.
(a) Contract Reserves:
Contracts issued on or after January 1, 2004:
The 1987 Commissioners Group Disability Income Table
(87CGDT).
(b) Claim Reserves:
For claims incurred on or after January 1, 2004:
The 1987 Commissioners Group Disability Income Table
(87CGDT);
(2) Single Premium Credit Disability
(a) Contract Reserves:
(i) For contracts issued on or after January 1, 2004:
(I) 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.
(ii)(II) For plans having a 30-day and greater elimination
period, the 85CIDA for a 14-day elimination period with the
adjustment in item (I).
(b) Claim Reserves:
Claim reserves are to be determined as provided in section
60A.763.
(3) Other Group Contract Benefits.
(a) Contract Reserves:
For all other group contract benefits, morbidity
assumptions are to be determined as provided in section 60A.765.
(b) Claim Reserves:
For all benefits other than disability, claim reserves are
to be determined as provided in section 60A.763.
Subd. 2. [INTEREST.] A. 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.
B. 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 incurred date.
C. 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 incurred date,
reduced by 100 basis points.
Subd. 3. [MORTALITY.] A. For individual long-term care
insurance policies or group long-term care insurance
certificates issued on or after January 1, 2004, the mortality
basis used must be the 1983 Group Annuity Mortality Table
without projection.
B. Other mortality tables adopted by the NAIC and adopted
by the commissioner 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 approval must
include the proposed mortality table and the reason that the
standard specified in subsection A is inappropriate.
C. For single premium credit insurance using the 85CIDA
table, no separate mortality must be assumed.
ARTICLE 3
MISCELLANEOUS
Section 1. Minnesota Statutes 2002, section 60A.129,
subdivision 2, is amended to read:
Subd. 2. [LOSS RESERVE CERTIFICATION.] (a) Each domestic
company engaged in providing the types of coverage described in
section 60A.06, subdivision 1, clause (1), (2), (3), (5)(b),
(6), (8), (9), (10), (11), (12), (13), or (14), must have its
loss reserves certified by a qualified actuary. The company
must file the certification with the commissioner within 30 days
of completion of the certification, but not later than June 1.
The actuary providing the certification may be an employee of
the company but the commissioner may still require an
independent actuarial certification as described in subdivision
1. This subdivision does not apply to township mutual
companies, or to other domestic insurers having less than
$1,000,000 of premiums written in any year and fewer than 1,000
policyholders. The commissioner may allow an exception to the
stand alone certification where it can be demonstrated that a
company in a group has a pooling or 100 percent reinsurance
agreement used in a group which substantially affects the
solvency and integrity of the reserves of the company, or where
it is only the parent company of a group which is licensed to do
business in Minnesota. If these circumstances exist, the
company may file a written request with the commissioner for an
exception. Companies writing reinsurance alone are not exempt
from this requirement. The certification must contain the
following statement: "In my opinion, the reserves described in
this certification are consistent with reserves computed in
accordance with standards and principles established by the
Actuarial Standards Board and are fairly stated."
(b) Each foreign company engaged in providing the types of
coverage described in section 60A.06, subdivision 1, clause (1),
(2), (3), (5)(b), (6), (8), (9), (10), (11), (12), (13), or
(14), required by this section to file an annual audited
financial report, whose total net earned premium for Schedule P,
Part 1A to Part 1H plus Part 1R, (Schedule P, Part 1A to Part 1H
plus Part 1R, Column 4, current year premiums earned, from the
company's most currently filed annual statement) is equal to
one-third or more of the company's total net earned premium
(Underwriting and Investment Exhibit, Part 2, Column 4, total
line, of the annual statement) must have a reserve certification
by a qualified actuary at least every three years. In the year
that the certification is due, the company must file the
certification with the commissioner within 30 days of completion
of the certification, but not later than June 1. The actuary
providing the certification must not may be an employee of the
company. Companies writing reinsurance alone are not exempt
from this requirement. The certification must contain the
following statement: "The loss reserves and loss expense
reserves have been examined and found to be calculated in
accordance with generally accepted actuarial principles and
practices and are fairly stated."
(c) Each company providing life and/or health insurance
coverages described in section 60A.06, subdivision 1, clause (4)
or (5)(a), required by this section to file an audited annual
financial report, whose premiums and annuity considerations (net
of reinsurance) from accident and health equal one-third or more
of the company's total premiums and annuity considerations (net
of reinsurance), as reported in the summary of operations, must
have its aggregate reserve for accident and health policies and
liability for policy and contract claims for accident and health
certified by a qualified actuary at least once every three
years. The actuary providing the certification must not be an
employee of the company. Companies writing reinsurance alone
are not exempt from this requirement. The certification must
contain the following statement: "The policy and contract
claims reserves for accident and health have been examined and
found to be calculated in accordance with generally accepted
actuarial principles and practices and are fairly stated."
Sec. 2. Minnesota Statutes 2002, section 62C.09, is
amended by adding a subdivision to read:
Subd. 5. [RISK-BASED CAPITAL REQUIREMENT.] A service plan
corporation is subject to regulation of its financial solvency
under sections 60A.50 to 60A.592.
Sec. 3. Minnesota Statutes 2002, section 62D.04,
subdivision 1, is amended to read:
Subdivision 1. [APPLICATION REVIEW.] Upon receipt of an
application for a certificate of authority, the commissioner of
health shall determine whether the applicant for a certificate
of authority has:
(a) demonstrated the willingness and potential ability to
assure that health care services will be provided in such a
manner as to enhance and assure both the availability and
accessibility of adequate personnel and facilities;
(b) arrangements for an ongoing evaluation of the quality
of health care;
(c) a procedure to develop, compile, evaluate, and report
statistics relating to the cost of its operations, the pattern
of utilization of its services, the quality, availability and
accessibility of its services, and such other matters as may be
reasonably required by regulation of the commissioner of health;
(d) reasonable provisions for emergency and out of area
health care services;
(e) demonstrated that it is financially responsible and may
reasonably be expected to meet its obligations to enrollees and
prospective enrollees. In making this determination, the
commissioner of health shall require the amounts amount of
initial net worth and working capital required in section
62D.042, compliance with the risk-based capital standards under
sections 60A.50 to 60A.592, the deposit required in section
62D.041, and in addition shall consider:
(1) the financial soundness of its arrangements for health
care services and the proposed schedule of charges used in
connection therewith;
(2) arrangements which will guarantee for a reasonable
period of time the continued availability or payment of the cost
of health care services in the event of discontinuance of the
health maintenance organization; and
(3) agreements with providers for the provision of health
care services;
(f) demonstrated that it will assume full financial risk on
a prospective basis for the provision of comprehensive health
maintenance services, including hospital care; provided,
however, that the requirement in this paragraph shall not
prohibit the following:
(1) a health maintenance organization from obtaining
insurance or making other arrangements (i) for the cost of
providing to any enrollee comprehensive health maintenance
services, the aggregate value of which exceeds $5,000 in any
year, (ii) for the cost of providing comprehensive health care
services to its members on a nonelective emergency basis, or
while they are outside the area served by the organization, or
(iii) for not more than 95 percent of the amount by which the
health maintenance organization's costs for any of its fiscal
years exceed 105 percent of its income for such fiscal years;
and
(2) a health maintenance organization from having a
provision in a group health maintenance contract allowing an
adjustment of premiums paid based upon the actual health
services utilization of the enrollees covered under the
contract, except that at no time during the life of the contract
shall the contract holder fully self-insure the financial risk
of health care services delivered under the contract. Risk
sharing arrangements shall be subject to the requirements of
sections 62D.01 to 62D.30;
(g) demonstrated that it has made provisions for and
adopted a conflict of interest policy applicable to all members
of the board of directors and the principal officers of the
health maintenance organization. The conflict of interest
policy shall include the procedures described in section
317A.255, subdivisions 1 and 2. However, the commissioner is
not precluded from finding that a particular transaction is an
unreasonable expense as described in section 62D.19 even if the
directors follow the required procedures; and
(h) otherwise met the requirements of sections 62D.01 to
62D.30.
Sec. 4. Minnesota Statutes 2002, section 62D.041,
subdivision 2, is amended to read:
Subd. 2. [REQUIRED DEPOSIT.] Each health maintenance
organization shall deposit with any organization or trustee
acceptable to the commissioner through which a custodial or
controlled account is utilized, bankable funds in the amount
required in this section. The commissioner may allow a health
maintenance organization's deposit requirement to be funded by a
guaranteeing an organization, as defined in section
62D.043 approved by the commissioner.
Sec. 5. Minnesota Statutes 2002, section 62D.042,
subdivision 1, is amended to read:
Subdivision 1. [DEFINITIONS DEFINITION.] (a) For purposes
of this section, "guaranteeing organization" means an
organization that has agreed to make necessary contributions or
advancements to the health maintenance organization to maintain
the health maintenance organization's statutorily required net
worth.
(b) For this section, "working capital" means current
assets minus current liabilities.
(c) For purposes of this section, if a health maintenance
organization offers supplemental benefits as described in
section 62D.05, subdivision 6, "expenses" does not include any
expenses attributable to the supplemental benefit.
Sec. 6. Minnesota Statutes 2002, section 62D.042,
subdivision 2, is amended to read:
Subd. 2. [INITIAL NET WORTH REQUIREMENTS REQUIREMENT.] (a)
Beginning organizations shall maintain net worth of at least
8-1/3 percent of the sum of all expenses expected to be incurred
in the 12 months following the date the certificate of authority
is granted, or $1,500,000, whichever is greater.
(b) After the first full calendar year of operation,
organizations shall maintain net worth of at least 8-1/3 percent
and at most 25 percent of the sum of all expenses incurred
during the most recent calendar year, but in no case shall net
worth fall below $1,000,000.
(c) Notwithstanding paragraphs (a) and (b), any health
maintenance organization owned by a political subdivision of
this state, which has a higher than average percentage of
enrollees who are enrolled in medical assistance or general
assistance medical care, may exceed the maximum net worth limits
provided in paragraphs (a) and (b), with the advance approval of
the commissioner.
Sec. 7. Minnesota Statutes 2002, section 62N.25,
subdivision 6, is amended to read:
Subd. 6. [SOLVENCY.] A community integrated service
network is exempt from the deposit, reserve, and solvency
requirements specified in sections 62D.041, 62D.042, 62D.043,
and 62D.044 and shall comply instead with sections 62N.27 to
62N.32. To the extent that there are analogous definitions or
procedures in chapter 62D or in rules promulgated thereunder,
the commissioner shall follow those existing provisions rather
than adopting a contrary approach or interpretation.
Sec. 8. Minnesota Statutes 2002, section 62N.27,
subdivision 1, is amended to read:
Subdivision 1. [APPLICABILITY.] For purposes of sections
62N.27 to 62N.32, the terms defined in this section have the
meanings given. Other terms used in those sections have the
meanings given in sections 62D.041, 62D.042, 62D.043, and
62D.044.
Sec. 9. Minnesota Statutes 2002, section 62N.29, is
amended to read:
62N.29 [GUARANTEEING ORGANIZATION.]
Subdivision 1. [USE OF GUARANTEEING ORGANIZATION.] (a) A
community network may satisfy its net worth and deposit
requirements, in whole or in part, through the use of one or
more guaranteeing organizations, with the approval of the
commissioner, under the conditions permitted in chapter 62D this
section. If the guaranteeing organization is used only to
satisfy the deposit requirement, the requirements of this
section do not apply to the guaranteeing organization.
(b) For purposes of this section, a "guaranteeing
organization" means an organization that has agreed to assume
the responsibility for the obligation of the community network's
net worth requirement.
(c) Governmental entities, such as counties, may serve as
guaranteeing organizations subject to the requirements of
chapter 62D this section.
Subd. 2. [RESPONSIBILITIES OF GUARANTEEING ORGANIZATION.]
Upon an order of rehabilitation or liquidation, a guaranteeing
organization shall transfer funds to the commissioner in the
amount necessary to satisfy the net worth requirement.
Subd. 3. [REQUIREMENTS FOR GUARANTEEING ORGANIZATION.] (a)
A community network's net worth requirement may be guaranteed
provided that the guaranteeing organization:
(1) transfers into a restricted asset account cash or
securities permitted by section 61A.28, subdivisions 2 and 6, in
an amount necessary to satisfy the net worth requirement.
Restricted asset accounts shall be considered admitted assets
for the purpose of determining whether a guaranteeing
organization is maintaining sufficient net worth. Permitted
securities shall not be transferred to the restricted asset
account in excess of the limits applied to the community
network, unless approved by the commissioner in advance;
(2) designates the restricted asset account specifically
for the purpose of funding the community network's net worth
requirement;
(3) maintains positive working capital subsequent to
establishing the restricted asset account, if applicable;
(4) maintains net worth, retained earnings, or surplus in
an amount in excess of the amount of the restricted asset
account, if applicable, and allows the guaranteeing organization:
(i) to remain a solvent business organization, which shall
be evaluated on the basis of the guaranteeing organization's
continued ability to meet its maturing obligations without
selling substantially all its operating assets and paying debts
when due; and
(ii) to be in compliance with any state or federal
statutory net worth, surplus, or reserve requirements applicable
to that organization or lesser requirements agreed to by the
commissioner; and
(5) fulfills requirements of clauses (1) to (4) by April 1
of each year.
(b) The commissioner may require the guaranteeing
organization to complete the requirements of paragraph (a) more
frequently if the amount necessary to satisfy the net worth
requirement increases during the year.
Subd. 4. [EXCEPTIONS TO REQUIREMENTS.] When a guaranteeing
organization is a governmental entity, subdivision 3 is not
applicable. The commissioner may consider factors which provide
evidence that the governmental entity is a financially reliable
guaranteeing organization. Similarly, when a guaranteeing
organization is a Minnesota-licensed health maintenance
organization, health service plan corporation, or insurer,
subdivision 3, paragraphs (1) and (2), are not applicable.
Subd. 5. [AMOUNTS NEEDED TO MEET NET WORTH REQUIREMENTS.]
The amount necessary for a guaranteeing organization to satisfy
the community network's net worth requirement is the lesser of:
(1) an amount needed to bring the community network's net
worth to the amount required by section 62N.28; or
(2) an amount agreed to by the guaranteeing organization.
Subd. 6. [CONSOLIDATED CALCULATIONS FOR GUARANTEED
COMMUNITY NETWORKS.] (a) If a guaranteeing organization
guarantees one or more community networks, the guaranteeing
organization may calculate the amount necessary to satisfy the
community networks' net worth requirements on a consolidated
basis.
(b) Liabilities of the community network to the
guaranteeing organization must be subordinated in the same
manner as preferred ownership claims under section 60B.44,
subdivision 10.
Subd. 7. [AGREEMENT BETWEEN GUARANTEEING ORGANIZATION AND
COMMUNITY NETWORK.] A written agreement between the guaranteeing
organization and the community network must include the
commissioner as a party and include the following provisions:
(1) any or all of the funds needed to satisfy the community
network's net worth requirement shall be transferred,
unconditionally and upon demand, according to subdivision 2;
(2) the arrangement shall not terminate for any reason
without the commissioner being notified of the termination at
least nine months in advance. The arrangement may terminate
earlier if net worth requirements will be satisfied under other
arrangements, as approved by the commissioner;
(3) the guaranteeing organization shall pay or reimburse
the commissioner for all costs and expenses, including
reasonable attorney fees and costs, incurred by the commissioner
in connection with the protection, defense, or enforcement of
the guarantee;
(4) the guaranteeing organization shall waive all defenses
and claims it may have or the community network may have
pertaining to the guarantee including, but not limited to,
waiver, release, res judicata, statute of frauds, lack of
authority, usury, illegality;
(5) the guaranteeing organization waives present demand for
payment, notice of dishonor or nonpayment and protest, and the
commissioner shall not be required to first resort for payment
to other sources or other means before enforcing the guarantee;
(6) the guarantee may not be waived, modified, amended,
terminated, released, or otherwise changed except as provided by
the guarantee agreement, and as provided by applicable statutes;
(7) the guaranteeing organization waives its rights under
the Federal Bankruptcy Code, United States Code, title 11,
section 303, to initiate involuntary proceedings against the
community network and agrees to submit to the jurisdiction of
the commissioner and Minnesota state courts in any
rehabilitation or liquidation of the community network;
(8) the guarantee shall be governed by and construed and
enforced according to the laws of the state of Minnesota; and
(9) the guarantee must be approved by the commissioner.
Subd. 8. [SUBMISSION OF GUARANTEEING ORGANIZATION'S
FINANCIAL STATEMENTS.] The community network shall submit to the
commissioner the guaranteeing organization's audited financial
statements annually by April 1 or at a different date if agreed
to by the commissioner. The community network shall also
provide other relevant financial information regarding a
guaranteeing organization as may be requested by the
commissioner.
Subd. 9. [PERFORMANCE AS GUARANTEEING ORGANIZATION
VOLUNTARY.] No provider may be compelled to serve as a
guaranteeing organization.
Subd. 10. [GUARANTOR STATUS IN REHABILITATION OR
LIQUIDATION.] Any or all of the funds in excess of the amounts
needed to satisfy the community network's obligations as of the
date of an order of liquidation or rehabilitation shall be
returned to the guaranteeing organization in the same manner as
preferred ownership claims under section 60B.44, subdivision 10.
Sec. 10. [REVISOR INSTRUCTION.]
The revisor of statutes shall change the heading of
Minnesota Statutes, section 62D.042, to read "INITIAL NET WORTH
REQUIREMENT."
Sec. 11. [REPEALER.]
(a) Minnesota Statutes 2002, sections 62C.09, subdivisions
3 and 4; 62D.042, subdivisions 5, 6, and 7; and 62D.043, are
repealed.
(b) Minnesota Rules, part 4685.0600, is repealed.
ARTICLE 4
SECURITIES REGULATION TECHNICAL CHANGES
Section 1. Minnesota Statutes 2002, section 45.027,
subdivision 7a, is amended to read:
Subd. 7a. [AUTHORIZED DISCLOSURES OF INFORMATION AND
DATA.] (a) The commissioner may release and disclose any active
or inactive investigative information and data on licensees to
any national securities exchange or national securities
association registered under the Securities Exchange Act of 1934
when necessary for the requesting agency in initiating,
furthering, or completing an investigation.
(b) The commissioner may release any active or inactive
investigative data relating to the conduct of the business of
insurance to the Office of the Comptroller of the Currency or
the Office of Thrift Supervision in order to facilitate the
initiation, furtherance, or completion of the investigation.
Sec. 2. Minnesota Statutes 2002, section 60A.03,
subdivision 9, is amended to read:
Subd. 9. [CONFIDENTIALITY OF INFORMATION.] The
commissioner may not be required to divulge any information
obtained in the course of the supervision of insurance
companies, or the examination of insurance companies, including
examination related correspondence and workpapers, until the
examination report is finally accepted and issued by the
commissioner, and then only in the form of the final public
report of examinations. Nothing contained in this subdivision
prevents or shall be construed as prohibiting the commissioner
from disclosing the content of this information to the insurance
department of another state or, the National Association of
Insurance Commissioners, or any national securities association
registered under the Securities Exchange Act of 1934, if the
recipient of the information agrees in writing to hold it as
nonpublic data as defined in section 13.02, in a manner
consistent with this subdivision. This subdivision does not
apply to the extent the commissioner is required or permitted by
law, or ordered by a court of law to testify or produce evidence
in a civil or criminal proceeding. For purposes of this
subdivision, a subpoena is not an order of a court of law.
Sec. 3. Minnesota Statutes 2002, section 60A.031,
subdivision 4, is amended to read:
Subd. 4. [EXAMINATION REPORT; FOREIGN AND DOMESTIC
COMPANIES.] (a) The commissioner shall make a full and true
report of every examination conducted pursuant to this chapter,
which shall include (1) a statement of findings of fact relating
to the financial status and other matters ascertained from the
books, papers, records, documents, and other evidence obtained
by investigation and examination or ascertained from the
testimony of officers, agents, or other persons examined under
oath concerning the business, affairs, assets, obligations,
ability to fulfill obligations, and compliance with all the
provisions of the law of the company, applicant, organization,
or person subject to this chapter and (2) a summary of important
points noted in the report, conclusions, recommendations and
suggestions as may reasonably be warranted from the facts so
ascertained in the examinations. The report of examination
shall be verified by the oath of the examiner in charge thereof,
and shall be prima facie evidence in any action or proceedings
in the name of the state against the company, applicant,
organization, or person upon the facts stated therein.
(b) No later than 60 days following completion of the
examination, the examiner in charge shall file with the
department a verified written report of examination under oath.
Upon receipt of the verified report, the department shall
transmit the report to the company examined, together with a
notice which provides the company examined with a reasonable
opportunity of not more than 30 days to make a written
submission or rebuttal with respect to matters contained in the
examination report.
(c) Within 30 days of the end of the period allowed for the
receipt of written submissions or rebuttals, the commissioner
shall fully consider and review the report, together with the
written submissions or rebuttals and the relevant portions of
the examiner's workpapers and enter an order:
(1) adopting the examination report as filed or with
modification or corrections. If the examination report reveals
that the company is operating in violation of any law, rule, or
prior order of the commissioner, the commissioner may order the
company to take any action the commissioner considers necessary
and appropriate to cure the violation;
(2) rejecting the examination report with directions to the
examiners to reopen the examination for purposes of obtaining
additional data, documentation, or information, and refiling the
report as required under paragraph (b); or
(3) calling for an investigatory hearing with no less than
20 days' notice to the company for purposes of obtaining
additional documentation, data, information, and testimony.
(d)(1) All orders entered under paragraph (c), clause (1),
must be accompanied by findings and conclusions resulting from
the commissioner's consideration and review of the examination
report, relevant examiner workpapers, and any written
submissions or rebuttals. The order is a final administrative
decision and may be appealed as provided under chapter 14. The
order must be served upon the company by certified mail,
together with a copy of the adopted examination report. Within
30 days of the issuance of the adopted report, the company shall
file affidavits executed by each of its directors stating under
oath that they have received a copy of the adopted report and
related orders.
(2) A hearing conducted under paragraph (c), clause (3), by
the commissioner or authorized representative, must be conducted
as a nonadversarial confidential investigatory proceeding as
necessary for the resolution of inconsistencies, discrepancies,
or disputed issues apparent upon the face of the filed
examination report or raised by or as a result of the
commissioner's review of relevant workpapers or by the written
submission or rebuttal of the company. Within 20 days of the
conclusion of the hearing, the commissioner shall enter an order
as required under paragraph (c), clause (1).
(3) The commissioner shall not appoint an examiner as an
authorized representative to conduct the hearing. The hearing
must proceed expeditiously. Discovery by the company is limited
to the examiner's workpapers which tend to substantiate
assertions in a written submission or rebuttal. The
commissioner or the commissioner's representative may issue
subpoenas for the attendance of witnesses or the production of
documents considered relevant to the investigation whether under
the control of the department, the company, or other persons.
The documents produced must be included in the record.
Testimony taken by the commissioner or the commissioner's
representative must be under oath and preserved for the record.
This section does not require the department to disclose
information or records which would indicate or show the
existence or content of an investigation or activity of a
criminal justice agency.
(4) The hearing must proceed with the commissioner or the
commissioner's representative posing questions to the persons
subpoenaed. Thereafter, the company and the department may
present testimony relevant to the investigation.
Cross-examination may be conducted only by the commissioner or
the commissioner's representative. The company and the
department shall be permitted to make closing statements and may
be represented by counsel of their choice.
(e)(1) Upon the adoption of the examination report under
paragraph (c), clause (1), the commissioner shall continue to
hold the content of the examination report as private and
confidential information for a period of 30 days except as
otherwise provided in paragraph (b). Thereafter, the
commissioner may open the report for public inspection if a
court of competent jurisdiction has not stayed its publication.
(2) Nothing contained in this subdivision prevents or shall
be construed as prohibiting the commissioner from disclosing the
content of an examination report, preliminary examination report
or results, or any matter relating to the reports, to the
Commerce Department or the insurance department of another state
or country, or to law enforcement officials of this or another
state or agency of the federal government at any time, if the
agency or office receiving the report or matters relating to the
report agrees in writing to hold it confidential and in a manner
consistent with this subdivision.
(3) If the commissioner determines that regulatory action
is appropriate as a result of an examination, the commissioner
may initiate proceedings or actions as provided by law.
(f) All working papers, recorded information, documents and
copies thereof produced by, obtained by, or disclosed to the
commissioner or any other person in the course of an examination
made under this subdivision must be given confidential treatment
and are not subject to subpoena and may not be made public by
the commissioner or any other person, except to the extent
provided in paragraph (e). Access may also be granted to the
National Association of Insurance Commissioners and any national
securities association registered under the Securities Exchange
Act of 1934. The parties must agree in writing prior to
receiving the information to provide to it the same confidential
treatment as required by this section, unless the prior written
consent of the company to which it pertains has been obtained.
Sec. 4. [EFFECTIVE DATE.]
Sections 1 to 3 are effective the day following final
enactment.
Presented to the governor May 18, 2004
Signed by the governor May 29, 2004, 1:00 p.m.
Official Publication of the State of Minnesota
Revisor of Statutes