1. (1) As used in this rule:

   1. (a) "Account" means the coverage for a single plan of benefits offered by 1 creditor. Single life and joint life together is 1 plan of benefits; however, the various elimination and retroactive terms on accident and health create separate plans of benefits. The definition of "account" includes coverage which is written on a group or individual policy basis.
   2. (b) "Adjusted actual loss ratio (AALR)," for a case, means the ratio of actual incurred claims to actual earned premium adjusted to prima facie as described in subdivision (f) of this subrule.
   3. (c) "Average number of life years" means the average number of group certificates or individual policies in force during the experience period, without regard to multiple coverage, times the number of years in the experience period, or some equivalent calculation.
   4. (d) "Case" means a single account case, a multiple account case, or a pooled account case as follows:
   5. (i) "Single account case" means an account that has a credibility factor of not less than .65 for the experience period, excluding all of these accounts which have been included in multiple account cases.

   6. (ii) "Multiple account case" means, with the approval of the commissioner, that 2 or more accounts of the same insurer having similar underwriting characteristics are combined by the insurer for premium rating purposes, excluding all cases defined in paragraph (i) of this subdivision and which, when combined, have a credibility factor of not less than .65 for the experience period.

      1. (iii) "Pooled account case" means a combination of all the insurer's accounts of the same plan of insurance and class of business, which combination has experience in this state, excluding all cases defined in paragraphs (i) and (ii) of this subdivision.
   7. (e) "Credibility measure" means 1 of the following, chosen by the insurance company:
   8. (i) Number of claims.

   9. (ii) Average number of life years.

      1. (iii) Earned premium. The same measure shall be used for life and accident and health and for the entire state. An insurer shall notify the commissioner in advance of which method it will use to measure the credibility of all its cases in this state and shall not change its method without the prior approval of the commissioner.
   10. (f) "Earned premium" means premiums earned at the level of the prima facie rates. If the rates applicable to an account are not at the prima facie level or at a level percentage of the prima facie rates, the amount of premium which would have been earned at the prima facie rates may be calculated using reasonable approximations.
   11. (g) "Experience period" means the most recent 3 experience years or a lower number of full years, if full credibility is reached (credibility factor equals 1.00), for that case as shown in the credibility table. The same period shall be used for determining credibility and upward deviations.
   12. (h) "Experience year," for a group policy, means a 12-month period ending on the policy anniversary or renewal date or on a calendar year end. Experience year for individual policies or a case means a calendar year. Experience for a given case shall be reported consistently from year to year.
   13. (i) "Incurred claim count" means the number of claims incurred for the case during the experience period. This means the total number of claims reported during the experience period, whether paid or in the process of payment, plus an incurred but not reported (IBNR) at the end of the experience period, less the number of claims incurred but not reported at the beginning of the experience period. If a debtor has been issued more than 1 certificate for the same plan of insurance, only 1 claim is counted. If a debtor receives disability benefits, only the initial claim payment for that period of disability is counted.
   14. (j) "Incurred claims" means total claims paid during the experience period, adjusted for the change in the claim reserve.
   15. (k) "Minimum loss ratio" (MLR) is .60.
2. (2) Credibility shall be determined in accordance with appendix E of R 550.221.

3. (3) Upward rate deviations may be obtained by an insurer under the following circumstances:

   1. (a) For cases where AALR is greater than MLR, the case rate shall be derived using the credible loss ratio (CLR) where CLR = c(AALR) + (1-c)(MLR) and c = credibility factor of the case, according to the upward rate deviation procedure following:
   2. (i) If the case rate applies to a pool of accounts, the case rate will continue to apply to every account which was pooled for determination of the case rate and only to those accounts. If an account which was not pooled becomes insured with a new insurer, the case rate will continue to apply to that account for the duration of the effective period.
   3. (ii) If a pooled account becomes insured with a new insurer, the case rate will continue to apply to the account for the duration of the previous insurer's effective period or to the end of the current insurer's effective period, whichever is later, but in no event later than 1 year.
   4. (b) If the credible loss ratio is greater than the minimum loss ratio the new case rate shall be the prima facie rate times the upward deviation factor f where: f = [1 + 1.25 (CLR-MLR)]
4. (4) A designated officer of the insurer shall sign the deviation request and a certification deemed necessary by the commissioner. An insurer may use a deviation procedure, other than described in subrule (3) of this rule, only with the approval of the commissioner. Such procedure may have alternative definitions and calculations, including basis for credibility and experience period and a definition of "case."
5. (5) Nothing in this rule shall be construed to prevent the commissioner from accepting for filing a schedule of rates not developed in strict conformance with this rule.
6. (6) Any insurer that has rates on file which are equal to or lower than prima facie rates may retain on file and use those rates without further proof of their reasonableness, whether or not such rates develop the MLR.An insurer may at any time use a rate for an account that is lower than its filed rate without notice to the commissioner. An upward deviation may be filed with the commissioner for use if an insurer's credible loss ratio is greater than the minimum loss ratio. If the commissioner does not object to the filing of the upward deviation within 30 days after receipt of the filing, rates not higher than the deviation rates which were filed may be placed in effect by the insurer.

History: 1987 AACS.