SUBCHAPTER FF. Credit Life and Credit</u> Accident and Health Insurance

Division 1. General Provisions

28 TAC §§3.5001, 3.5002

Division 2. Applications and Policies

§3.5105

Division 3. Filing and Approval of Forms and Rates

§§3.5201, 3.5202, 3.5206

Division 4. Presumptively Acceptable Relation of Credit Life Insurance

Benefits to Premiums

§3.5307

Division 5. Standards of Benefits for Credit Accident and Health Insurance

§3.5502

Division 6. Deviation Procedures

§§3.5601, 3.5602 - 3.5604, 3.5607, 3.5608, 3.5610

Division 9. Premium Refunds

§§3.5901, 3.5905

Division 10. Responsibilities and Obligations of Insurance Companies and Their Agents and Representatives

§3.6002

The Texas Department of Insurance proposes new §§3.5002, 3.5206, and 3.5603 and amendments to §§3.5001, 3.5105, 3.5201, 3.5202, 3.5307, 3.5502, 3.5601, 3.5602, 3.5604, 3.5607, 3.5608, 3.5610, 3.5901, 3.5905, and 3.6002, concerning credit life and accident and health insurance. These amendments and new sections are proposed to implement Texas Insurance Code Chapter 1153, as amended by Acts 2001, 77th Legislature in House Bill (HB) 2159, and to improve the organization of the subchapter by putting all definitions into one section of the subchapter.

Sections 3.5110 and 3.5603 have been proposed for repeal elsewhere in this issue of the Texas Register , because those sections were primarily composed of definitions that have been moved to proposed §3.5002.

HB 2159 amended Chapter 1153 with regard to the setting of premium rates for credit life and credit accident and health insurance by changing the way those rates are set. Previously, the commissioner of insurance, through a contested case proceeding, established a presumptive premium rate for all classes of business and terms of coverage, and insurers that experienced excessive loss ratios, as defined by rule, could request approval for deviations from the presumptive premium rate. The most recent presumptive premium rates were established by Commissioner´s Order No. 99-1481. HB 2159, however, required that the presumptive premium rates be set by rulemaking, rather than through a contested case. It also allows insurers to file their rates in an amount that deviates from the presumptive premium rates without seeking written approval from the commissioner, as long as the deviated rate is no more than 30% above nor more than 30% below the presumptive premium rate. House Bill 2159 also allows insurers to use rates that are more than 30% above or below the presumptive premium rates, if the insurer obtains prior written approval from the commissioner.

Pursuant to the new ratemaking procedures of HB 2159, on June 1, 2004, the department published credit life and credit accident and health statistical data for the years 2000, 2001, and 2002 and solicited rate proposals from interested persons. The department´s contractor, Milliman reviewed the submissions and prepared a rate assessment and recommendation based on that information and the published statistical data. The Milliman report, rate recommendations from interested parties, information responsive to inquiries about staff´s recommendation, and statistical data for 2000­2002 are available at www.tdi.state.tx.us/rules/creditcomments.html . Comments on the proposed rule will also be posted. Interested persons may request a copy of this information by contacting the Life/Health Division at 512-322-3401 or LifeHealth@tdi.texas.gov .

Credit rates have traditionally been applied to predetermined classes of business, as more specifically defined in proposed §3.5002(7). In reviewing industry expense and experience data supplied in response to the data call, the department observed that the loss ratios and compensation percentages for one class, Class E--Dealers, were significantly different than the other classes in both credit life and credit accident and health. This disparity establishes a basis for distinguishing between Class E and all other classes of business, as contemplated by Insurance Code §1153.102(a). In order to give interested persons the greatest latitude in commenting on this proposed change, however, the department has decided to publish for comment two alternatives, one that establishes a presumptive premium rate for Class E alone, with a different presumptive premium rate for all classes other than Class E (Alternative 1), and a second alternative that establishes (as the department has done in previous rate proceedings) a composite presumptive premium rate for all classes of business combined (Alternative 2),. The department seeks comments on the alternatives as well as on which alternative to adopt. Likewise, for the same reasons, the department proposes two alternatives for comment with regard to loss ratios: one which presents loss ratios based on plan and class of business (Alternative 1), and one which presents composite loss ratios for all classes of business combined for credit life and all classes of business combined for credit accident and health policies (Alternative 2).

Section 3.5001 is proposed for amendment to update a statutory reference from Insurance Code Article 3.53 to Insurance Code, Chapter 1153. The statutory reference changed because of the legislature´s recodification of the Insurance Code. Similar amendments to update statutory citations are found in proposed amendments to §§3.5105, 3.5201, 3.5502, 3.5610 and 3.5905. Similarly, an amendment to §3.5905 is proposed to update a statutory citation from a reference to Texas Civil Statutes, Article 5069, Chapters 3 - 6, 6A, 7 and 15 to the current citation, which is Finance Code Chapters 342 - 348. Finally, because this proposal relocates rule language and proposes new sections, it includes various amendments to assure correct citations to other rule sections, adherence to proper form, and enhanced readability.

New §3.5002 is proposed to include definitions for the subchapter. All of the definitions that were previously found in §§3.5110 and 3.5603 are included in this new section. The new section also includes definitions for the terms actual earned premium, approved deviation by case, automatic deviation, class of business, credit disability, presumptive premium rate, pro rata method, rule of anticipation and sum of the digits method, also known as rule of 78 method.

The proposed amendment to §3.5202 adds language to clarify that the test of reasonableness applies to approved deviations, and that the loss ratio comparison is to be applied to rates that would exist if an approved deviation is allowed to become effective. The loss ratios that serve as the parameters for the test of reasonableness addressed in §3.5202 were determined using the underlying proposed presumptive premium rates and their claims cost components. The loss ratios are presented in two alternatives in this section. As noted earlier, Alternative 1 presents loss ratios based on plan and class of business. This matches Alternative 1 of the proposal for new presumptive premium rates in the proposed amendment to §3.5206. Alternative 2 presents composite loss ratios for all classes of business combined for credit life and for all classes of business combined for credit accident and health policies.

Details supporting the proposal to amend §3.5206, establishing new presumptive premium rates, can be found in the Milliman report, located as stated earlier. The proposal identifies two alternatives: Alternative 1 establishes presumptive premium rates for Class E alone and different presumptive premium rates for all classes other than Class E, and Alternative 2 is the composite presumptive premium rate for all classes of business combined. In adopting presumptive premium rates, the commissioner will decide which of these two approaches to use.

The proposed presumptive premium rates for credit life were initially calculated using actual claim cost experience by plan. However, some plans have an insufficient volume of business upon which to rely for rate setting purposes. In addition, the actual claim experience by plan does not reflect the actuarial value of the coverage and benefit differences by plan. Experience pertinent to credit accident and health plans presented the same problem. Therefore, the department relied on the claims experience in Plans 10 and 17 for credit accident and health to develop a presumptive premium rate for those plans. The presumptive premium rates established for Plans 10 and 17 are the starting points for establishing the presumptive premium rates for all other credit accident and health plans.

The proposed presumptive premium rates for both credit life and credit accident and health were developed using a method known as the component rating methodology, which was used in developing the current presumptive premium rates. Component rating considers each element of income and expense and builds the premium rate as a combination of the components. The components utilized in developing the presumptive premium rates are claims cost, general insurance expenses, investment income, premium taxes and fees, commissions, and profit. The formula used to develop a premium rate using the component rating method is: Component Rate = (claims cost + general insurance expenses)/(1+investment income-premium taxes and fees-commissions-profit ).

For credit life, the claims cost component represents the annual mortality costs based on experience data for the years 2000, 2001 and 2002. This data was submitted by carriers through the department´s annual credit data call. The claims cost component used in determining the rate for credit life is .1048 for Class E alone and .1558 for all classes except Class E.

For credit accident and health, this component is calculated as the ratio of incurred claims to presumptive premiums multiplied by the current presumptive premium rate. The claims cost components used in determining the presumptive premium rates for credit accident and health for Class E alone are 1.1480 (Plan 10) and .5130 (Plan 17). For all classes except Class E, the claims cost components used in determining the presumptive premium rates are 1.6886 (Plan 10) and .6034 (Plan 17).

For credit life, the general insurance expenses were estimated using information reported by the companies in the annual credit data calls summary expense report. The percentage ratio of the mean Texas certificates in force to the mean nationwide certificates in force was calculated for the years 2000, 2001 and 2002. This percentage was then multiplied by the total of all expense items. This gave an estimate of the Texas expenses for all plans for each year. The estimated Texas expenses were then divided by the total presumptive earned premium to develop Texas expenses as a percentage of presumptive earned premiums. Estimated annual expenses per plan were determined by applying that percentage to the presumptive earned premiums by plan. Next the annual plan expense costs per $1,000 were calculated by dividing the estimated annual expenses per plan by the plan mean insurance in force. These were then converted to expense per plan. A major change from previous studies appeared in the ratio of Texas estimated expenses to presumptive earned premium. That ratio dropped from the 20 - 21% range for studies over the six years prior to the current study period to 14% for 2000 through 2002. Because the general insurance expense component of the formula should reflect a trend over the past and current studies, this component was determined by using a weighted average expense ratio, applying a 25% weight to the current study period data and a 75% weight to the prior study period. As a result, the general insurance expense component used in determining the presumptive premium rate for credit life is .0642.

For credit accident and health, general insurance expense was determined by multiplying the ratio of total general insurance expense to presumptive earned premium by the current presumptive premium rate. As in credit life, there was an inconsistency between the general insurance expense calculated using the 2000-2002 data and general insurance expense using the experience data reported for 1997-1999. As a result, a weighted average component was calculated using a weight of 25% for 2000-2002 experience data and a weight of 75% for the 1997-1999 experience data. The general insurance expense component for credit accident and health is .5501 (Plan 10) and .2918 (Plan 17).

An annual earning rate of 3.5% was assumed for the investment income component. This rate is based on review of past and current yield for U.S. Treasury and corporate bonds with durations of less than five years. Investment income is excluded from this proposal, however, because single premium rates are currently discounted for interest in the presumptive premium rate calculation formula and because the investment income in outstanding balance business is negligible.

A percentage of 2.75% was assumed for state premium taxes, licenses, fees and other assessments. The commissioner used this same value in his 1999 order. Insurance Code art. 4.11 requires insurers selling life insurance to pay taxes at a rate of one-half of 1.75% on the first $450,000 of gross premiums and on gross premiums above that amount.

The value for the commissions component is 25% and is unchanged from the assumption the commissioner used in the 1999 presumptive premium rate order. The commission component does not fix or limit the amount an insurer may pay in commissions.

A profit of 5.75% of premium was used. This factor is calculated as follows:

(target before-tax return on equity (15%) minus net investment income on equity (3.5%)) divided by the premium to equity ratio of 2.0.

The overall target return on equity of 15% used in the calculation is based on industry practice. For comparison purposes, a 15% pre-tax ratio of return is equivalent to a 12% after-tax rate of return with a 20% effective tax rate, or to a 10.5% after-tax rate of return with a 30% effective tax rate. The premium to equity ratio of 2.0 is a key assumption and reflects surplus targets for the industry, driven in part by risk based capital requirements, along with recognition that surplus strain on single premium business may require additional commitments of equity by the insurance carrier. The commissioner also used a ratio of 2.0 in the profit margin calculation in the last presumptive premium rate order.

For credit life, the presumptive premium rates were initially calculated using actual claim cost experience by plan. However, some plans have an insufficient volume of business upon which to fully rely for rate setting purposes. In addition, the actual claim experience by plan does not reflect the actuarial value of the coverage and benefit differences by plan. Therefore, the department relied on the claims experience in Plan 1, which contains over 50% of all credit life earned premium during the experience period, to develop a presumptive premium rate for that plan. The presumptive premium rates for all other credit life plans use the rate relationships below, which reasonably represent the actuarial value of the coverage and benefit differences in each plan.

SP n = ((n x (n+1))/2n ² ) x (12/10) x O p = ((12 x (n + 1))/20n) x O p

And, for level term insurance on single lives:

LT n = (12/10) x O p

where,

SP

LTn =Single premium rate per year of coverage per $100 of level life insurance where the indebtedness remains level during the term of the coverage and is repayable in a single sum at the end of the term.

Op =Monthly outstanding balance premium rate per $1,000 of insured indebtedness.

n =Original repayment period, in months; assumed to be twenty-four months.

Presumptive premium rates for coverages on joint lives are 150% of the corresponding single life presumptive premium rates. A comparison of the experience for single life and joint life rates was made by type of plan. While there was variability within the plan sub-groups, the overall ratio of the annual claims cost of joint life to single life business is 1.434 (143.4%) for the years 2000-2002. This result confirms the reasonableness of the use of the 150% multiple for joint credit life rates.

For credit accident and health, the presumptive premium rates were calculated using the component rating method for Plans 10 and 17 for Class E alone and all classes other than Class E. Percentages representing the ratio of the indicated presumptive premium rate to the current presumptive premium rates were calculated. The Plan 10 percentages of the current presumptive premium rates were applied to the current presumptive premium rate schedule to determine the recommended presumptive premium rates for Class E alone and all classes except Class E for all single life, single premium plans and all outstanding balance other plans. The Plan 17 percentages were used for all single life, outstanding balance revolving account plans.

A discount rate of 3.5% was assumed. This rate is based on a review of the past and current yield for U.S. Treasury and corporate bonds with durations of less than five years.

The anticipated loss ratios for credit life and credit accident and health, separated by Class E and all classes except Class E, were determined using the underlying proposed presumptive premium rates and their claim cost components.

The proposal to amend §3.5307 strikes language from the section that is not pertinent and which could create confusion about the standard established by §3.5307.

The proposed amendment to §3.5601 requires that a request for an approved deviation must be presented on form CI-DRF and in accordance with §3.5602. Sec. 3.5602 is proposed for amendment to include specific reference to for CI-DRF.

Proposed §3.5603 includes the credibility table that was a part of §3.5603 that is now proposed for repeal. The amendment proposed for §3.5607 makes clear that the upward approved deviated single account case rate is the authorization addressed by that section.

Kim Stokes, Senior Associate Commissioner, Life, Health and Licensing Program, has determined that for each year of the first five years the proposed sections will be in effect, there will be no fiscal impact to state and local governments as a result of the enforcement or administration of the rule. There will be no measurable effect on local employment or the local economy as a result of the proposal.

Ms. Stokes has determined that for each year of the first five years the sections are in effect, the public benefits anticipated as a result of the proposed sections will be greater flexibility and less cost for insurers in setting rates for credit life and credit accident and health insurance policies. Both the industry and the public should benefit from a ratemaking that uses the most current statistical data.

The probable economic cost to persons required to comply with the sections will be the possible revenue impacts from the changes in rates and the costs associated with reprogramming to effect the new rates. With regard to the latter, the department has traditionally set the effective dates of rates with enough lead time to accommodate industry needs. In addition, it is the department's position that adoption of the proposal will have no adverse effect on small or micro businesses. Rates must be based on statistical data and statutory standards, and exceptions or other variations cannot be implemented unless justified by recognized standards of rate setting. Waiver or modification of rates for small or micro businesses is therefore not appropriate, in the absence of evidence or statutory requirements. The department notes that any small or micro business that is adversely affected by a presumptive premium rate may take advantage of the automatic deviation or, if justified, an approved deviation.

To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on December 20, 2004 to Gene C. Jarmon, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P. O. Box 149104, Austin, Texas 78714-9104. An additional copy of the comment must be simultaneously submitted to Bill Bingham, Deputy for Regulatory Matters, Life, Health and Licensing Program, Mail Code 107-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104.

The commissioner will consider adoption of the proposed amendments in a public hearing under Docket No. 2608 at 9:30 a.m. on January 6, 2005, in Room 100 of the William P. Hobby Building, 333 Guadalupe, Austin, Texas.

Staff circulated a working draft of the proposed rule for comment on October 19, and on October 26, 2004, the department held an informal meeting to discuss the rules draft and proposed procedures for the hearing.

Parties that submitted rate proposals or other data to the department in response to the department´s June 2004 request must re-submit those materials timely for them to be considered as a comment on the proposed rule. All commenters are also urged to include work papers with their comments. The department plans to post all comments, along with work papers, at the internet address identified earlier, in order for all interested parties to be able to review the comments prior to the hearing.

The amendments and new sections are proposed under the Insurance Code Chapter 1153 and §36.001. Chapter 1153 gives the commissioner authority to set presumptive premium rates by rule for credit life and accident and health policies. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

The following statutes are affected by this proposal: Insurance Code, Chapter 1153

Division 1. General Provisions

§3.5001. Authority and Scope. This subchapter [ of the rules and regulations of the Texas Department of Insurance ] is [ promulgated and ] adopted pursuant to the authority provided in [ the ] Insurance Code, Chapter 1153, [ Article 3.53, §12, as amended ]. This [ The rules and regulations in this ] subchapter applies [ apply ] to all life insurance and all accident and health insurance sold in connection with loans and other credit transactions, the premium for which is charged to or paid for in whole or in part either directly or indirectly by the debtor, regardless of the nature, type, or plan of the credit insurance coverage or premium payment system, which shall include any such credit insurance which purports to be on a "cost free," "no cost," "give away," or other "no charge" basis insofar as a debtor is concerned, but shall not apply to:

(1) ­ (3) (No change.)

§3.5002. Definitions. The following words and terms, when used in this chapter, shall have the following meanings unless the context clearly indicates otherwise.

(1) Account--The aggregate credit life insurance or credit accident and health coverage for a single class of business written through a single creditor, or written through more than one creditor under common control or ownership, by the insurer, whether coverage is written on a group or individual policy basis.

(2) Actual earned premium--The total of all premiums earned at the premium rates actually charged and in force during the experience period.

(3) Approved deviation by case--A premium rate or premium rate schedule adjusted in accordance with the deviation procedures set out in Division 6 of this subchapter (relating to Deviation Procedures).

(4) Automatic deviation--A premium rate that is filed pursuant to Insurance Code §1153.105.

(5) Average number of life years--The average of the number of group certificates or individual policies in force each month during the experience period (without regard to multiple coverage) times the number of years in the experience period.

(6) Case---Either a "single account case" or a "multiple account case" as follows:

(A) Single account case--An account that is at least 25% credible or, at the option of the insurer, any higher percentage as determined by the credibility table set out in §3.5603 of this subchapter (relating to Credibility Table). An insurer exercising this option must in writing notify and obtain written approval of the commissioner, of the credibility factor it will use to define a "single account case." Once the commissioner is so notified, the credibility factor will remain in effect for the insurer until a different election has been filed in writing by the insurer and approved by the commissioner.

(B) Multiple account case--A combination of all the insurer's accounts of the same class of business with experience in this state, excluding all single account cases of the insurer defined in subparagraph (A) of this paragraph: or with the approval of the commissioner, "multiple account case" also means two or more accounts of the insurer, having like underwriting characteristics which are combined by the insurer for premium rating purposes, excluding all "single account cases" as defined in subparagraph (A) of this paragraph and other "multiple account cases" defined previously.

(7) Class of business--A class of business listed as follows:

(A) Class A--Commercial banks, savings and loan associations and mortgage companies;

(B) Class B--Finance companies and small loan companies;

(C) Class C--Credit unions;

(D) Class D--Production credit associations (agriculture and horticulture P.C.A.s);

(E) Class E--Dealers (including auto and truck, other dealers, and retail stores; and

(F) Class F--Other than subparagraphs (A) ­ (E) of this paragraph.

(8) Closed-end transactions--Credit transactions other than "open-end transactions" as defined in this section.

(9) Credibility factor--The degree to which the past experience of a case can be expected to occur in the future. The credibility factor is based either on the average number of life years or the incurred claim count during the experience period as shown in the credibility table set out in §3.5603 of this subchapter. The insurer shall notify the commissioner in writing, and obtain written approval of the commissioner, about which of the two methods it will use in measuring credibility. Once the commissioner is so notified, the method will remain in effect for the insurer until a change has been filed with and approved by the commissioner.

(10) Credit disability--Credit Accident and Health.

(11) Earned premium at presumptive premium rate--Premium earned during the experience period at the presumptive premium rate set forth in §3.5206 of this subchapter (relating to Presumptive Premium Rates). If the rate for a case is not the presumptive premium rate, premium earned at the presumptive premium rate must be determined in accordance with the conversion method set forth in Form CI-EP-L or Form CI-EP-DIS, as appropriate, provided by the department for that purpose, and set out in an attachment by the insurer to its deviation request form. The forms can be obtained from the Texas Department of Insurance, Filings Intake Division, MC 106-1E, P.O. Box 149104 , Austin , Texas 78714-9104 . The forms can also be obtained from the department's internet web site at www.tdi.state.tx.us.

(12) Experience--The earned premiums and incurred claims for a single or multiple account case. Experience will be the most recent experience in this state for a class of business, and may include the experience of the case while with a prior insurer to the extent necessary to achieve credibility.

(13) Experience period--The period of time for which experience is reported, but not for period longer than three years.

(14) Incurred claim count--The number of claims incurred for the case during the experience period. This means the total number of claims reported during the experience period (whether paid or in the process of payment) plus any incurred but not reported at the end of the experience period less the number of claims incurred but not reported at the beginning of the experience period. If a debtor has been issued more than one certificate for the same plan of insurance, only one claim is counted. If a debtor receives disability benefits, only the initial claim payment for that period of disability is counted.

(15) Incurred claims--The liability resulting from the happening of the contingency insured against whether paid, reported, not reported or resisted on accounting dates, valued by date of occurrence and, without reduction for reinsurance, at amounts, excluding claims expenses, sufficient to discharge the company from all liability and is equal to claims paid minus unreported claims beginning of period plus unreported claims end of period minus claim reserve beginning of period plus claim reserve end of period.

(16) Open-end transactions or revolving accounts--Transactions in which credit is extended by a creditor under an agreement whereby:

(A) the creditor reasonably contemplates repeated transactions;

(B) the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and

(C) the amount of credit that may be extended to the debtor during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.

(17) Presumptive premium rate--The rate established by the commissioner and set out in §3.5206 of this subchapter.

(18) Pro rata method--A method used in determining premium refunds based on the assumption that premiums are earned in equal increments over the term of the policy. The premium refunds are calculated by multiplying the original gross premium by a factor determined by the formula t/n , in which t is the number of months remaining from its evaluation date to the end of the loan and n is the number of months in the original term.

(19) Rule of anticipation (aka the single premium method)--A method used in determining premium refunds in which the unearned premium is equal to the gross single premium for the remaining term and remaining benefits.

(20) Sum of the digits method, aka rule of 78 method--A method used in determining premium refunds in which an unearned premium factor is calculated by dividing the sum of the original number of monthly payments by the sum of the remaining number of monthly payments. The premium refunds are calculated by multiplying the original gross premium by a factor determined by the formula (t * (t+1)/(n * (n+1) , in which t is the number of months remaining from its evaluation date to the end of the loan and n is the number of months in the original term.

Division 2. Applications and Policies

§3.5105. Application Provisions.

(a) (No change.)

(b) Every application, enrollment form, or notice of proposed insurance shall provide for the signature of the debtor and shall set forth:

(1) ­ (6) (No change.)

(7) a statement that upon acceptance of the insurance by the insurer and not later than 45 days after the date upon which the indebtedness is incurred (or, if the indebtedness is an open-end transaction, not later than 30 days from the date of application for coverage) the insurer shall cause the individual policy or the group certificate of insurance to be delivered to the debtor, and that if the insurance is not accepted by the insurer or by a substituted insurer as authorized by [ the ] Insurance Code §1153.158 [, Article 3.53, §6E ], then any insurance charge made for such insurance shall be fully refunded and the creditor shall immediately give written notice to such debtor and shall promptly make an appropriate credit to the debtor's account in accordance with [ the ] Insurance Code §1153.203 [, Article 3.53, §8C ] .

(c) ­ (e) (No change.)

Division 3. Filing and Approval of Forms and Rates

§3.5201. Submission of Form and Rate Filings.

(a) Every insurance company, when submitting a schedule of rates for automatic or approved deviations from the presumptive premium rate [ consideration by the commissioner of insurance] , shall identify the rates to be used with the policy form submitted for approval. The [ face and ] face page of every form or schedule submitted to the commissioner [ of insurance for consideration under the Insurance Code, Article 3.53 ], shall include with [ have added to ] its identifying form number the additional identification: ("3.53") if the form is an individual life and/or individual accident and health form and used only within the scope of Insurance Code Chapter 1153 [ Article 3.53 ]; "(3.53 and 3.50)" if the form is a group life and/or group accident and health form and used only within the scope of Chapter 1153 [ Article 3.53 ]; "(3.53 R.A.)" or "(3.53 O.E.)" if the form is a credit life and/or credit accident and health form and is written on open-end transactions. The designations "(3.53 R.A.)" or "(3.53 O.E.)" may not be used on forms or schedules providing insurance coverage on closed-end transactions. The additional identification, as required by this subsection [ above ], will only be used on credit life and/or credit accident and health insurance written under the scope of Insurance Code, Chapter 1153 [ Article 3.53 ].

(b) (No change.)

§3.5202. Reasonable Relation of Benefits to Premiums for Approved Deviations . As the basic test of the reasonableness of the relation of benefits to the premium charges for approved deviations , to be applied separately by policy form number, it is hereby declared that the benefits of credit life insurance or credit accident and health insurance, individual or group, shall not be considered to be reasonable in relation to the premium charges, unless it can be reasonably anticipated that a loss ratio of "claims incurred" to "earned premiums" will, after the increase becomes effective, be [ is ] no less than the following:

(1) Alternative 1:

(A) Loss Ratios For Class E Only:

(i) [ (1) ] credit life-- 41% [ 50% ];

(ii) [ (2) ] credit accident and health : [ --60%. ]

(I) 45% for Plans 10 ­ 14 and 22 ­ 26 on the Presumptive Premium Rate Chart found at §3.5206 of this subchapter (relating to Presumptive Premium Rates); and

(II) 42% for Plans 16 ­ 19 on the Presumptive Premium Rate Chart found at §3.5206 of this subchapter.

(B) Loss Ratios For All Other Classes:

(i) credit life--47%;

(ii) credit accident and heath:

(I) 50% for Plans 10 ­ 14 and 22 ­ 26 on the Presumptive Premium Rate Chart found at §3.5206 of this subchapter; and

(II) 45% for Plans 16 ­ 19 on the Presumptive Premium Rate Chart found at §3.5206 of this subchapter.

(2) Alternative 2:

(A) credit life--43%;

(B) credit accident and health:

(i) 46% for Plans 10 ­ 14 and 22 ­ 26 on the Presumptive Premium Rate Chart found at §3.5206 of this subchapter; and

(ii) 44% for Plans 16 ­ 19 on the Presumptive Premium Rate Chart found at §3.5206 of this subchapter.

§3.5206 Presumptive Premium Rates. The following presumptive premium rates are adopted by the commissioner and shall be used on or after March 1, 2005.

Figure: 28 TAC §3.5206 (Alternative 1)

Figure: 28 TAC §3.5206 (Alternative 2)

For copies of Alternative 1 and 2 contact "sylvia.gutierrez@tdi.state.tx.us"

Division 4. Presumptively Acceptable Relation of Credit Life Insurance

Benefits to Premiums

§3.5307. Standard for Additional Benefits. If a contract of insurance includes other lawful benefit or benefits for which standards or reasonableness of benefits in relation to premium are not elsewhere in these sections determined or described, any premium charged therefor in excess of the rates set forth in these sections shall be shown to the satisfaction of the commissioner of insurance to be based upon credible statistics, and shall be reasonable in relation to the additional benefit provided [ , and shall be in accordance with the basic loss ratio in §3.5202 of this title (relating to Reasonable Relation of Benefits to Premiums) ].

Division 5. Standards of Benefits for Credit Accident and Health Insurance

§3.5502. Joint Credit Accident and Health Insurance.

(a) Joint debtors, for purposes of credit accident and health insurance written under [ Article 3.53 , Texas ] Insurance Code, Chapter 1153 means only spouses or business partners, and such persons must be jointly and severally liable for repayment of the single indebtedness and be joint signers of the instrument of indebtedness. Endorsers and guarantors are not eligible for credit insurance coverage. Joint accident and health coverage shall not be written covering more than two debtors.

(b) ­ (h) (No change.)

Division 6. Deviation Procedures

§3.5601. Deviation by Case Allowed . Two types of rate deviation are allowed , [ . They are: ] automatic deviation and approved deviation as defined in §3.5002 of this title (relating to Definitions) .

(1) (No change.)

(2) Approved Deviation by Case. Notwithstanding the determination by the Commissioner of Insurance of presumptive premium rates which are reasonable in relation to the benefits of a policy providing the coverage to which the rates are applicable, an insurer who has experienced excessive loss ratios or who fails to develop the minimum loss ratio as defined in §3.5202 of this title (relating to Reasonable Relation of Benefits to Premiums for Approved Deviations ), for a case consisting of a single account or combination of accounts, as [ "account" is hereinafter] defined in §3.5002 of this title , will be permitted, at its own request, or may be required by the commissioner, to adjust the premium rate or premium rate schedule for such case in accordance with the deviation procedures set out in this subchapter [ §§3.5601-3.5610 of this title (relating to Deviation Procedures)] . An approved deviation request shall be presented with form CI-DRF and §3.5602 of this division (relating to Request for an Approved Deviated Premium Rate).

(3) - (4) (No change.)

§3.5602. Request for an Approved Deviated Premium Rate. A request for an approved deviated rate must be made in writing and shall include all of the information which is required under this subchapter [ §§3.5601 to 3.5610 of this title (relating to Deviation Procedures ]. It must be accompanied by a list of the creditors whose experience is the basis for such request, and must be attested to by an officer of the insurer. The use of any approved rate deviation approved by the commissioner is limited to those creditors whose names appear on such list. No rate deviation may be used unless and until approved by the commissioner in writing. Any request for an approved deviated rate shall be submitted to the commissioner through the Filings Intake Division in the manner prescribed on Form CI-DRF [the form ] provided by the department for that purpose. The form can be obtained from the Texas Department of Insurance, Filings Intake Division, MC 106-1E, P.O. Box 149104, Austin, Texas 78714-9104. The form can also be obtained from the department's internet web site at www.tdi.state.tx.us [ http://www.tdi.state.tx.us ]. In order to provide the commissioner sufficient time for review, all requests for approved rate deviations must be submitted a minimum of 60 days prior to the proposed effective date of the approved deviated rate.

§3.5603. Credibility Table. The following table shall be used to determine the credibility factor of a case, as defined in §3.5002 of this title (relating to Definitions).

Figure: 28TAC §3.5603:

§3.5604. Minimum Change.

(a) For credit life insurance, the currently charged premium rates will be considered the case rates if the single premium (or its equivalent) case rate per $100 of initial amount of insured indebtedness repayable in 12 equal monthly installments as determined under this subchapter [ these §§3.5601-3.5610 of this title (relating to Deviation Procedures) ] is within 5.0% of the corresponding premium under the currently charged premium rates for the case.

(b) For credit accident and health insurance, the currently charged premium rates will be considered the case rate if the case rate as determined under this subchapter [ these §§3.5601-3.5610 of this title (relating to Deviation Procedures) ] is within 5.0% of the currently charged premium rates for the case.

§3.5607. Termination of Upward Deviated Case Rate. An upward approved deviated single account case rate [ Said authorization ] shall continue for a period equal to the experience period on which it was based, not to exceed three years, subject however to the provisions of §3.5608 of this title (relating to Annual Review of Approved Deviated Rates). If a change of insurers occurs, an upward approved deviated single account case rate may be continued by the replacement carrier by giving written notification to the commissioner, within 30 days of the effective date of providing coverage to the account, of the new carrier's intent to continue the upward approved deviated single account case rate. The period of continuance shall not go beyond the expiration date originally granted to the previous insurer for that account. If a change of insurers occurs, an approved deviated multiple account case rate shall not be continued by the replacement insurer beyond the date the original carrier lost the account unless all of the accounts forming the multiple account pool are taken over. If all accounts are taken over, the requirements for continuation are the same as mentioned in the preceding paragraph for single account cases.

§3.5608. Annual Review of Approved Deviated Rates. All approved deviated rates shall be filed for review [ reviewed ] for each case in accordance with this subchapter [ these §§3.5601 - 3.5610 of this title (relating to Deviation Procedures) ] each year for each case. At the time of such review of approved deviated rates, adjustments may be made in the rates if the commissioner finds that experience shows that an adjustment is appropriate.

§3.5610. Determination of Approved Deviated Case Rates.

(a) For cases which are not of credible size, or have no experience, no approved deviation shall be made in the presumptive premium rates under these deviation procedures; except that nothing herein shall be construed as preventing any insurer from filing an automatic deviation pursuant to Insurance Code, §1153.105 [ its rate schedules as otherwise provided under the Insurance Code, Article 3.53 ].

(b) For purposes of this section: if the coverage for a single creditor which qualifies as a case has been in force with the insurer for less than the experience period:

(1) (No change.)

(2) the experience considered in the determination of multiple state case rates shall be Texas experience for the case unless the insurer makes the one-time election to use only nationwide [ countrywide ] experience. The election to use only nationwide [ countrywide ] experience must be accompanied by a certification that the insurer uses the same nationwide basis in determining the case ratios in each state in which the case has experience. A grouping of states may be used subject to the same requirements of consistency and certification.

(c) - (d) (No change.)

Division 9. Premium Refunds

§3.5901. Refund of Unearned Premiums. With respect to policies issued and certificates delivered after the effective date of these sections:

(1) (No change.)

(2) the refund of an unearned amount paid by or charged to a debtor for credit life insurance, or for credit accident and health insurance, on which the insurance charges to the debtor are paid in a single sum must be computed by the rule of anticipation, as defined in §3.5002 [ §3.6101(b) ] of this title (relating to Definitions [ Policy Reserves ]), or by another method which produces a substantially equal amount and is approved by the commissioner of insurance. This paragraph shall not be interpreted to preclude refunds for credit accident and health insurance to be computed by the mean of the gross unearned premium calculated by the "sum of the digits" (rule of 78) and the pro rata method.

§3.5905. Refunds. No refund of premium need be made of an amount paid or charged to the debtor for credit insurance regulated under the Insurance Code, Chapter 1153 [ Article 3.53 ], in the event of termination of the indebtedness or the insurance prior to the scheduled maturity date of the indebtedness if the amount of such refund is less than $3.00. (For insurance coverage subject to Finance Code Chapters 342 - 348 [ Texas Civil Statutes, Article 5069, Chapters 3-6, 6A, 7, and 15] , a refund must be made, except that no cash refund shall be required if the amount thereof is less than $1.00.)

Division 10. Responsibilities and Obligations of Insurance Companies and Their Agents and Representatives

§3.6002. Delegation by Insurer of Responsibilities of Policy Issuance and Premium Collection.

(a) The insurer, by its group policy, may authorize the group policyholder-creditor to issue certificates of group insurance or may authorize a legally appointed insurance agent of the insurer to issue certificates of insurance or policies of insurance, and respectively, to collect the insurance charge under the group policy, or premium therefor under an individual policy, provided that the master group insurance policy with the creditor or the agent's agreement with the agent under which such authority is granted shall require that:

(1 - (2) (No change.)

(3) refunds of unearned premiums shall be made in accordance with this subchapter [ §§3.5901-3.5906 of this title (relating to Premium Refunds) of these sections ]; and

(4) (No change.)

b) (No change.)