Michigan Laws 500.721 – Application of alternative method or basis to contract reserve; assumptions; methods to determine sound value of liabilities
Current as of: 2023 | Check for updates
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(1) If the contract reserve on all health insurance policies and certificates 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 chapter, an insurer may use any reasonable assumptions as to interest rates, termination, and mortality rates, and rates of morbidity or other contingency.
(2) Subject to subsection (1), the insurer may employ other methods in determining a sound value of its liabilities under health insurance policies and certificates, including, but not limited to, the following:
Terms Used In Michigan Laws 500.721
- 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. See Michigan Laws 500.701
- Contract: A legal written agreement that becomes binding when signed.
- Insurer: means an individual, corporation, association, partnership, reciprocal exchange, inter-insurer, Lloyds organization, fraternal benefit society, or other legal entity, engaged or attempting to engage in the business of making insurance or surety contracts. See Michigan Laws 500.106
- Level premium: means a premium on a health insurance policy or certificate calculated to remain unchanged throughout either the lifetime of the policy or certificate or for some shorter projected period of years. See Michigan Laws 500.701
- Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
- Reserve: means 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. See Michigan Laws 500.701
(a) The net level premium method.
(b) The 1-year full preliminary term method.
(c) Prospective valuation on the basis of actual gross premiums with reasonable allowance for future expenses.
(d) 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.
(e) The computation of the reserve for 1 contract benefit as a percentage of, or by other relation to, the aggregate contract reserves exclusive of the benefit or benefits so valued.
(f) The use of a composite annual claim cost for all or any combination of the benefits included in the policies or certificates valued.