Section 031-370-7 - ReservesA. Construction This section shall be liberally construed to ensure that the insurer shall establish and maintain reserves which place a sound value on its liabilities and which make a good and sufficient provision for all unpaid obligations and contingencies.
B. Definitions (1) Claim Reserve -- The reserve that recognizes the liability for unpaid benefits under the contract on claims which have been reported to the insurer.(2) Incurred but not Reported Reserve -- The reserve to recognize liability for claims not yet reported or recorded by the insurer, for reopened claims, and for future development on known claims.C. Standards (1) In addition to any other statutory requirements the legal services insurance policy reserves shall not be less than the aggregate claim reserve plus incurred but not reported (IBNR) reserves for all outstanding policies and contracts.a. Claim reserve. The claim reserve for each insured shall be the insurer's estimate of the unpaid liability, and shall be based on the insurer's experience or assumptions designed to place a sound value on the liability outstanding.b. Incurred but not Reported Reserve. The IBNR reserve for each insured shall not be less than the reserve calculated by the following formula: IBNR reserve = W X IBNR based on actual experience X A + (1-W) X expected IBNR X A where W is weighting factor varying from zero to 1.0 giving appropriate credibility to actual experience, and A is an adjustment factor, if any, to reflect changes in claim costs due to changing utilization, exposure, inflation, benefit changes, or any other appropriate adjustments.
(2) Interest. The maximum interest rate which may be used to value reserves shall be 4 percent.(3) Aggregate reserves for group legal services insurance may be calculated, at the option of the insurer, according to any standards which produce greater aggregate reserves than those calculated according to the minimum standard provided in this regulation.02-031 C.M.R. ch. 370, § 7