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BULLETIN
2002-02 CREDIT
ACCIDENT AND HEALTH INSURANCE PRIMA FACIE RATES TO:
All Credit Accident and Health Insurers FROM:
Utah State Insurance Department DATE:
March 13, 2002 SUBJECT:
Credit Accident and Health Insurance Prima Facie Rates for
Open-End Loans The purpose of this
Bulletin is to clarify the calculation of the credit accident and health
insurance prima facie monthly rates for open-end loans.
Section 7 of the Credit Life Insurance and Credit Accident and
Health Insurance Rule R590-91 specifies formulas to be used to convert
published credit accident and health single premium prima facie rates to
monthly outstanding balance rates. The
special case of open-end loans is addressed in Subsection R590-91-7.A.(7)(a) and
(b). The following two
examples illustrate the calculation of the prima facie rate for a
particular plan of insurance written on an open-end loan.
Example 1.
Suppose that credit accident and health insurance is offered on an
open-end loan with an APR of 18%. Let
the monthly indemnity benefit be 5% of the outstanding principal balance
as of the day of the disability and be retroactive to the first day of
disability following the 30-day elimination period.
Because 24 monthly payments are required to completely pay off the
loan, the applicable single premium prima facie rate is $2.41 per $100 of
indebtedness. The prima facie
monthly rate per $1,000 of principal outstanding balance is OP = 20 x SP / (n + 1)
= 20 x 2.41 / (24 + 1) = $1.928 Example 2.
Suppose that the credit accident and health insurance policy from
Example 1 limits the number of monthly payments to 12.
The corresponding critical period factor based on the 1968 Credit
A&H Two Composite Tables published by the NAIC (Proceedings – 1968
Vol. II) is 0.7894. The prima
facie monthly rate per $1,000 of principal outstanding balance is 1.928 x 0.7894 =
$1.522 Insurers writing
credit accident and health insurance on open end loans are advised to
review their rates to ensure compliance with the Rule R590-91. Use of premium rates in excess of the prima facie rates
calculated in accordance with the rule is prohibited. Insurers currently writing credit accident and health insurance on open end loans at rates lower than the prima facie rates may not deviate their rates upward without the Department’s prior approval. Insurers currently writing credit accident and health insurance on open end loans at rates higher than prima facie rates shall file new compliant rates within 30 days of the effective date of this Bulletin. DATED this 13th
day of March, 2002 |