GAAP for Life Insurers

Question 1

Renewability provisions for health insurance products (6)

Answer 1

1. ) Guaranteed renewable - insurer can’t cancel the policy, but may increase rates
2. ) Noncancelable - insurer cannot cancel the policy or increase premiums for any reason
3. ) Collectively renewable - insurer may cancel policies in similar rating classes, but can’t cancel individual policies
4. ) Conditionally renewable - the policy may be cancelled if certain specified reasons are met
5. ) Optionally renewable - the policy can be cancelled at any renewal date
6. ) Short-term (such as short-term medical) - this type of policy only provides coverage for a set term, but it may provide one or two renewals

Question 2

Types of health insurance policies (8)

Answer 2

1. ) Medical coverages -fpr 2 markets: under age 65 and over 65
2. ) Indemnity policies - such as a set amount per day of hospital confinement
3. ) Medical savings accounts
4. ) Disability income
5. ) Income replacement policies - attempt to reimburse actual economic losses associate w/ a disability
6. ) Business overhead policies - cover cost incurred by a business while the key owner or manager is disabled
7. ) Long-term care policies
8. ) Medicare supplement - fills the gaps in coverage provided by Medicare

Question 3

Types of liabilities for group life & health insurance (7)

Answer 3

1. ) Active life & unearned premium reserves - group life & health contracts generally don’t have active life reserves, but unearned premiums must be held as a liability for active lives in a group.
2. ) Expense capitalization - a deferred policy acquisition cost of unearned gross premiums should be established as an asset.
3. ) Claim reserves and claim adjustment expense reserves
4. ) Premium deficiency reserves - this reserve funds any projected losses in advance
5. ) Reserves for accrued experience refunds
6. ) Liabilities related to stop-loss reinsurance arrangements
7. ) Deferred profit liability

Question 4

Impact of the ACA on actuarial liabilities (4)

Answer 4

1. ) Claim liabilities - claim payment patterns & PMPM claim cost levels will change at the beginning of 2014 due to required plan design changes, the addition to the risk pool of many individuals who were previously uninsured, changes in claim operations, an other effects of the ACA. This will make it challenging to set reserves using the typical reserving methods.
2. ) Contract reserves - some insurers have held contract reserves in the individual market to account for the effect of underwriting wear-off. These will no longer be appropriate beginning in 2014 b/c underwriting will not be allowed.
3. ) Due and unpaid premium asset - this asset will be affected by the 90-day premium grace period provision that must be given to those who receive premium subsidies through the exchanges.
4. ) Premium deficiency reserve - enhanced reviews of rate increase filings could result in needed rate increases being denied, which could result in the need for a PDR. Also, insurers will need to decide whether to treat exchange products as separate blocks of business for PDR purposes.

Question 5

Shadow Adjustments

Answer 5

FAS 115 - a shift from amortized value to fair value, except for held to maturity - assets were revalued but not liabilities so they were no longer matched

3 assets categories

1. ) held to maturity - amortized
2. ) available for sale - fair value (book value + unrealized holding gains/losses)
3. ) trading - fair value

Shadow adjustments - difference between primary and shadow balance - used for DAC, VOBA, and deferred profit liability