.12 Premium Reserves.

A. General Premium Reserve Requirements.

(1) An insurer shall establish an unearned premium reserve for all long-term care insurance with respect to the period of coverage for which premiums, other than premiums paid in advance, have been paid beyond the date of valuation.

(2) If long-term care insurance premiums due and unpaid are carried as an asset, the insurer shall treat the premiums that are due and unpaid as premiums in force, subject to unearned premium reserve determination.

(3) The insurer shall carry the value of unpaid commissions, premium taxes, and the cost of collection associated with due and unpaid premiums as an offsetting liability.

(4) An insurer may appropriately discount to the valuation date the long-term care gross premiums paid in advance for a period of coverage beginning after the next premium due date that follows the date of valuation.

(5) An insurer shall hold the amount described in §A(4) of this regulation as one of the following:

(a) A separate liability; or

(b) An addition to the unearned premium reserve which would otherwise be required as a minimum.

(6) An insurer shall consider long-term care insurance contracts on premium waiver as in-force contracts when calculating the premium reserve. The insurer shall value the premium reserve for the contracts on premium waiver, as a minimum amount, at the unearned modal valuation net premium being waived.

B. Minimum Standards for Unearned Premium Reserves.

(1) Subject to §B(2) of this regulation, the minimum unearned premium reserve with respect to a long-term care insurance contract is the pro rata gross modal unearned premium that applies to the premium period beyond the valuation date.

(2) The sum of the unearned premium and contract reserves for all long-term care insurance contracts may not be less than the gross modal unearned premium reserve on all long-term care insurance contracts, as of the date of valuation.

(3) The reserve may not be less than the expected claims for the period beyond the valuation date represented by the unearned premium reserve, to the extent not provided for elsewhere.

C. Premium Reserve Methods Generally.

(1) The insurer may employ suitable approximations and estimates, including, but not limited to groupings, averages, and aggregate estimation, in computing long-term care insurance premium reserves.

(2) Approximations or estimates should be tested periodically to determine their continuing adequacy and reliability.