PURPOSE: This rule specifies standards for valuation of specifically identified life insurance, health and accident insurance policies. This rule was adopted pursuant to the provisions of section 374.045, RSMo and implements sections 376.380, 376.390, 376.405, 376.410 and 376.670, RSMo.

Editor’s Note: The secretary of state has determined that the publication of this rule in its entirety would be unduly cumbersome or expensive. The entire text of the material referenced has been filed with the secretary of state. This material may be found at the Office of the Secretary of State or at the headquarters of the agency and is available to any interested person at a cost established by state law.

1. (1) Life Insurance.

   1. (A) Group Insurance.

      1. 1. Yearly renewable term life insurance

(including waiver of premium and accidental death benefits).

1. A. Gross pro rata unearned premium

method.

1. B. The Commissioners 1960

Standards Group Mortality Table with interest as specified in section 376.380, RSMo.

1. C. Any other valuation basis produc-

ing higher reserves.

1. 2. Inasmuch as the Federal Employees

Group Life Insurance Act of 1954, 5 U.S.C.A. Section 8701, provides that appointive or elective officers or employees of the United States government, at a time and under conditions of eligibility as the Civil Service Commission by regulation may prescribe, shall be eligible to be insured for specified amounts of group life insurance and specified amounts of group accidental death and dismemberment insurance, as provided in the Act; and since as the Act requires the maintenance of a special contingency reserve upon group insurance issued or reinsured in accordance with its provisions, the provisions of this rule shall not be applicable to any group insurance issued or reinsured by a life insurance company in accordance with the provision of the Act.

1. 3. Inasmuch as the Servicemen’s Group

Life Insurance Act of 1965, 38 U.S.C.A. section 765, provides that members of the uniformed services on active duty shall be eligible to be insured for specified amounts of group life insurance, as provided in the Act; and inasmuch as the Act requires that maintenance of a special contingency reserve upon group insurance issued or reinsured in accordance with its provisions, the provisions of this rule shall not be applicable to any group insurance issued or reinsured by any life insurance company in accordance with the provisions of the Act.

1. (B) Credit Life Insurance. All credit life

insurance shall be valued on the 1958 Commissioners Standards Ordinary Mortality Table with interest assumption of three and one-half percent (3 1/2%) or any other valuation basis producing higher reserves.

1. (C) Other Standards.

   1. 1. Extra or additional reserves, calculat-

ed according to the previously mentioned standards, will be required in all cases to cover the nondeduction of deferred fractional premiums or return of premiums, in the event of death. No extra reserve is required when the basic policy reserve makes a provision for this, for example, when continuous functions are used.

1. 2. Other valuation standards may be

used so long as the reserves computed on those standards for each of the previously mentioned categories are greater in the aggregate than the reserves computed according to minimum standards.

1. 3. Reserves for annuity and pure endow-

ment contracts, for disability and accidental death benefits in all policies and contracts, for life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums, and for all other benefits, except life insurance and endowment benefits in life insurance policies, shall be calculated by a method consistent with the principles of the commissioner’s reserve valuation method, as defined in section 376.380.2(b), RSMo. In the calculation of reserves for life policies containing coupon or annual pure endowment benefits, each benefit shall be treated as a pure endowment maturing for its cash value on the date it becomes due. This coupon or annual pure endowment benefit shall be considered to be a part of the guaranteed benefits provided for by the policies.

1. (2) Accident and Health Insurance.

   1. (A) Active Life Reserves—Individual Policies.

      1. 1. General. Active life reserves are

required for all in-force policies and are in addition to any reserves required in connection with claims. For policy types A, B and C described in paragraph (2)(A)2., the minimum reserve shall be determined as specified. It should be emphasized, however, that these are minimum standards and higher, adequate reserves shall be established by the company in any case where experience indicates that the minimum standards do not place a sound value on the liabilities under the policy. For the policy described in subparagraph (2)(A)2.D., type D, the minimum reserve shall be the gross pro rata unearned premium.

1. 2. Types of individual accident and

health insurance policies.

1. A. Policies which are noncancellable

or noncancellable and guaranteed renewable for life or to a specified age, such as sixty (60) or sixty-five (65).

1. B. Policies which are guaranteed

renewable for life or to a specified age, such as sixty (60) or sixty-five (65), but under which the company reserves the right to change the scale of premiums.

1. C. Policies in which the company has

reserved the right to cancel or refuse renewal for one (1) or more reasons, but has agreed, either implicitly or explicitly, that prior to a specified time or age it will not cancel or decline renewal solely because of deterioration of health after issue; however, policies shall not be considered of this type if the company has reserved the right to refuse renewal provided the right is to be exercised at the same time for all policies in the same category, unless premiums are based on the level premium principle.

1. D. All other individual policies except

credit accident and health insurance.

1. 3. Notes.

   1. A. The previously mentioned does

not classify franchise as a type of policy. These policies are frequently written under an agreement limiting the company’s right to cancel or refuse renewal. Usually the right is reserved to refuse renewal of all policies in the group or other categories, such as those ceasing to be members of the association, and this would place those policies in type D in accordance with the last clause under subparagraph (2)(A)2.C. However, if premiums are based on the level premium principle or if the renewal privilege granted to the individual insured meets the requirements for type A, B or C, the franchise policy shall be so classified for reserve purposes.

1. B. A policy may have guarantees qual-

ifying it as type A, B or C until a specified age or duration after which the guarantees, or lack of guarantees, may qualify it as type A, B, C or D. In that case, the policy in each period shall be considered for reserve purposes according to the type to which it then belongs.

1. C. Where all of the benefits of a pol-

icy as provided by rider or otherwise are not of the same type (A,B,C or D), each benefit 20 CSR 200-1

shall be considered for reserve purposes according to the type to which it belongs.

1. 4. Reserve standards for policies of type

A, B or C.

1. A. Interest. The maximum interest

rate for reserves shall be the amount specified in section 376.380, RSMo.

1. B. Mortality.

   1. (I) 1941 Commissioners Standard

Ordinary Table.

1. (II) 1958 Commissioners Standard

Ordinary Table.

1. (III) 1941 Standard Industrial

Mortality Table.

1. (IV) Commissioners 1961 Standard

Industrial Mortality Table.

1. (V) Other table as may be approved

by the director.

1. C. Morbidity or other contingency.

   1. (I) Total disability due to accident

or sickness. The minimum standard shall be the 1964 Commissioners Disability Table.

1. (II) Hospital expense benefits. The

minimum standard shall be the 1956 Intercompany Hospital Table.

1. (III) Surgical expense benefits. The

minimum standard shall be the 1956 Intercompany Surgical Table.

1. (IV) Accidental death benefits. The

minimum standard shall be the 1959 Accidental Death Benefits Table.

1. (V) All other benefits. The compa-

ny shall adopt standards to produce reserves which place a sound value on the liabilities under the benefit.

1. D. Negative reserves. Negative

reserves on any benefit may be offset against positive reserves for other benefits in the same policy, but the mean reserve on any policy shall never be taken as less than one-half (1/2) the valuation net premium.

1. E. Preliminary term. For those poli-

cies which were type A, B or C when originally issued, the minimum reserve shall be on the basis of a two (2)-year preliminary term. For those policies which were of type D when originally issued, but which were subsequently changed by the company to a type A, B or C.

1. (I) If the change was made within

two (2) years after the date of issue, the minimum reserve shall be on the basis of a two (2)-year preliminary term, measured from the date of issue.

1. (II) If the change was made two (2)

years or more after the date of issue, the minimum reserve shall be on the net level premium basis, measured from the policy anniversary coincident with or next following the date of change.

1. F. Reserve method. Mean reserves

diminished by appropriate credit for valuation net deferred premiums; or midterminal reserves plus gross or net pro rata unearned premium reserves. In no event, however, may the aggregate reserve for all policies be less than the gross pro rata unearned premium under those policies.

1. G. Alternative valuation procedures

and assumptions. Provided the reserve on all policies to which the method or basis is applied is not less in the aggregate than the amount determined according to the applicable standard previously specified, the company may use any reasonable assumptions as to the interest rate, mortality rates or the rates of morbidity or other contingency and may introduce an assumption as to the voluntary termination of policies. Also, subject to the preceding conditions, the company may employ methods other than the methods stated previously in determining a sound value of its liabilities under those policies including, but not limited to, the following:

1. (I) Optional use of either the level

premium, the one (1)-year preliminary term or the two (2)-year preliminary term method;

1. (II) Prospective valuation on the

basis of actual gross premiums with reasonable allowance for future expenses;

1. (III) The use of approximations,

such as those involving age groupings, groupings of several years of issue or average amounts in indemnity;

1. (IV) The computation of the

reserve for one (1) policy benefit as a percentage of, or by other relation to, the aggregate policy reserves, exclusive of the benefit(s) so valued; or

1. (V) The use of a composite annual

claim cost for all or any combination of the benefits included in the policies valued. For statement purposes the net reserve liability may be shown as the excess of the mean reserve over the amount of net unpaid and deferred premiums, or regardless of the underlying method of calculation, it may be divided between the gross pro rata unearned premium reserve and a balancing item for the additional reserve.

1. (B) Active Life Reserves. Group policies except credit accident and health insurance.

   1. 1. This applies to group accident and

health insurance as defined in section 376.405, RSMo.

1. 2. The minimum reserve for active lives

on all group accident and health policies shall be the pro rata gross unearned premium.

1. 3. If a group policy contains a conver-

sion option for terminated employees and the employees, under this provision, may receive an individual policy without evidence of insurability, the company shall establish a reserve for the morbidity cost expected in excess of these costs assumed by the premium, if any, which is then payable by or on behalf of the terminated employee. The group account shall be charged with an amount (conversion charge) to establish this reserve and after that the reserve shall be maintained as an individual policy active life reserve.

1. (C) Credit Accident and Health Insurance. All credit accident and health insurance (both individual and group) shall be established and maintained on the basis of not less than the unearned gross premium computed on the basis of the sum of digits formula, commonly known as the Rule of 78.

2. (D) Claim Reserves. Present value of amounts not yet due on claims (also called disabled life reserves in the case of insurance providing loss-of-time benefits for disability due to accident or sickness).

   1. 1. General. Reserves are required for

claims on all health insurance policies, group and individual of type A, B, C or D, providing benefits for continuing loss, such as lossof-time or hospitalization.

1. 2. Claim reserve standards for total dis-

ability due to accident or sickness.

1. A. Interest. The maximum interest

rate for reserves shall be three and one-half percent (3 1/2%) compounded annually.

1. B. Morbidity. The reserve shall be

established in accordance with the 1954 Commissioners Disability Table, except that for unreported claims and resisted claims and, at the option of the company, the claims with a duration of disablement of less than two (2) years, reserves may be based on the individual company’s experience or other assumptions designed to place a sound value on the liabilities. Reserves based on those experiences or assumptions shall be verified by the development of each year’s claims over a period of years.

1. C. For policies with an elimination

period, the duration of the disablement shall be considered as dating from the time that benefits would have begun to accrue had there been no elimination period.

1. D. A new disability connected with a

previous disability which had a duration of at least one (1) year and terminated within six (6) months of the new disability shall be considered a continuation of the previous disability.

1. 3. Reserve standards for all other claim

reserves.

1. A. Interest. The maximum interest

rate for reserves shall be three and one-half percent (3 1/2%) compounded annually.

1. B. Morbidity and other contingency.

The reserve shall be based on the individual company’s experience or other assumptions designed to place a sound value on the liabilities. Results shall be verified by the development of each year’s claims over a period of years.

1. 4. Valuation procedures. The company

may employ suitable approximations and estimates including, but not limited to, groupings and averages, in computing claim reserves.

1. (E) Policies Issued Prior to Operative Date of This Rule. Any company may elect to establish and maintain reserves as required in this rule for policies issued prior to the operative date of this rule. In making this election, a company may elect to revalue all previous issues or at its option may revalue only certain blocks of issues as determined by issue date or plan of coverage. Claim reserves may be revalued independent of active life reserves. Any election shall be made by filing written notice with the director of insurance, stating the effective date of election and identifying the reserves or issues of policies to be revalued. If no election is made, reserve standards in effect in the company prior to the operative date of this rule shall be maintained.

1. (3) The new operative date with respect to this rule, means the date on or before January 1, 1989 when the company files a written notice with the director of its election to comply with the provisions of section 376.380(3), RSMo or if no election is filed, the date is January 1, 1989.

AUTHORITY: sections 374.045 and 376.380, RSMo Supp. 1993 and 376.390, 376.405, 376.410 and 376.670, RSMo 1986.* This rule was previously filed as 4 CSR 190-11.090. This version of rule filed Dec. 5, 1969, effective Dec. 15, 1969. Amended: Filed Aug. 5, 1974, effective Aug. 15, 1974. Amended: Filed July 9, 1976, effective Feb. 20, 1977. Amended: Filed Aug. 16, 1977, effective Dec. 11, 1977. Rescinded and readopted: Filed May 11, 1984, effective Nov. 13, 1984.

*Original authority: 374.045, RSMo 1967 amended 1993; 376.380, RSMo 1939, amended 1943, 1947, 1959, 1961, 1965, 1971, 1975, 1979, 1982, 1993; 376.390, RSMo 1939, amended 1943; 376.405, RSMo 1959, amended 1984; 376.410, RSMo 1945; and 376.670, RSMo 1943, amended 1959, 1961, 1965, 1975, 1979, 1982. Survivors Ben. Ins. Co. v. Farmer, 514 SW2d 565 (Mo. 1974). Superintendent of insurance has the duty to approve or disapprove life insurance contracts and forms and no contract or form may be used in Missouri without the approval of the superintendent.