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  • 4. Medical Pricing Report

    • 4.1 General Requirements

      SAMA is requiring all insurance companies to provide a lull actuarial pricing update for medical products on at least an annual basis, and will consider requiring more frequent updates if necessary. 
       
      SAMA requires all companies approved to sell medical products to provide lull updated reports by 30 September 2016. 
       
      For any medical pricing reports, the Appointed Actuary must use up to date complete data to determine the premium rates. The data used in the report must be up to date when the report is submitted to SAMA. Specifically, if a report is submitted between: 
       
       1)1 March to 31 May: it must use complete data up to at least 31 December of the previous year.
       2)1 June to 31 August: it must use complete data up to at least 31 March of the same year
       3)1 September to 30 November: it must use complete data up to at least 30 June of the same year.
       4)I December to 31 December: it must use complete data up to at least 30 September of the same year.
       5)1 January to 28/29 February: it must use complete data up to at least 30 September of the previous year.
       
      Medical products approval may be withdrawn if the updated Actuarial Pricing Reports arc not submitted or are not compliant with SAMA's instructions. 
       
      The Insurance Company's Appointed Actuary shall prepare the medical pricing reports that are to be submitted to SAMA unless the Insurance Company has obtained SAMA's no objection to ask another actuary to prepare the pricing reports at least three months before the date of the actuarial report submission. It should be noted that SAMA will only allow another actuary to be used only if it is justified, and SAMA will require a report to be submitted from the Appointed Actuary in addition to those prepared by the other actuary. It should be noted that there are no restrictions on the preparation of technical or actuarial reports that are not submitted to SAMA. 
       
      If a company submits two actuarial reports to SAMA then it must implement the one prepared by its Appointed Actuary. It may only implement the premium rates in the other actuary's report if and when it receives SAMA's noobjection. 
       
      The Insurance Company should note that it is acceptable to provide partial submissions to SAMA from the Actuary in respect of 
       
        a.Revisions to credibility formula
        b.Changes to recommended loadings
        c.Pricing of a single product within the medical class
        d.Introduction of a new rating factor
        e.A new network option
        f.Other amendments to the pricing basis that the actuary recommends, subject to these not leading to a reduction in premium rates for retail/individual medical
       
      The Insurance Company may seek SAMA's approval to provide partial pricing submissions from the Actuary in other circumstances. 
       
      It is always acceptable to charge higher premium rates than those determined by the Actuary, subject to such rates being fully documented, justified, and in line with Article (46) of Implementing Regulations. 
       
      It should be noted that there is no requirement for the Company to submit any actuarial pricing report to SAMA unless required by this Circular, or the Company wishes to amend its premium rates or rating structure. The Company must never charge rates lower than those that have been submitted to SAMA. It is always permitted to charge higher rates than those in the Actuary's report, provided the rates charged are fair, reasonable and technically justified. 
       
      If the Company makes any material alteration in its reinsurance arrangements for medical insurance, then it must consult with its Actuary to determine whether the recommended loadings in the premium rates remain adequate, and must amend its rates as appropriate. 
       
      It should be noted that the Actuary must recommend premium rates with no cross subsidies between the rating factors, in line with Article 46 of the Implementing Regulations. However if, for competitive purposes, the Company wishes to charge rates which have some element of crosssubsidisation, then it may ask the Actuary to prepare an additional report setting out the risks of applying the cross-subsidies, based on the expected portfolios of business written, which may not be too dissimilar to the in-force portfolio. SAMA will review the cross-subsidy report separately. 
       
      It should be noted that cross-subsidies are only permitted within the same class of insurance. In addition, no cross-subsidies are permitted between retail and corporate business. 
       
      The Actuary is responsible to ensure that a comprehensive and concise report is provided to SAMA, so as to minimize the extent of required follow-up queries from SAMA. 
       
      In addition, the Actuary must prepare a short summary document highlighting his key findings for each Actuarial Pricing Report. This shall be no more than five (5) pages in length, and must be submitted to the Board of Directors of the Company as a Board paper within five working days of the Actuary's submission, with the Actuary’s full report being an appendix to the Board paper. 
       
      The Actuarial Pricing Reports submitted to SAMA cannot be preliminary or initial and are required to be the final reports. The reports shall clearly summarize and compare the Company's current premium rates (loads and discounts) and the new premium rates (loads and discounts) calculated by the Actuary. 
       

    • 4.2 Mandatory Loading Requirements

      The Actuary is required to include the following loadings within the gross premium rates: 
       
       1)An Expense Loading covering all of the Company’s expenses, both tor policyholders and shareholders, allocated appropriately to each class of insurance. A Company may use projected expenses if it meets the criteria set out in Section 4.3
       2)A Commission Loading covering any direct payments made in respect of the acquisition of a policy, whether to intermediaries or to internal staff.
       3)A Profit Loading that must be explicitly approved by the Board of Directors of the Company.
       4)A Contingency Loading set at 2.5% of premium for medical expenses.
       5)A Financial Condition Loading to allow for the lower risk capacity of any insurance company that is not able to cover its solvency margin fully. This is defined fully in Appendix Three.
       
      Detailed requirements for the calculation of these loadings are shown in Appendix Two. 
       
      SAMA has noted that there is some confusion in the industry about the correct definitions of Loss Ratio. Expense Ratio and Combined Ratios, so these are set out in Appendix Four. 
       
      a. Use of Projected Expense Loadings 
       
      If a Company has cover for its statutory solvency margin in excess of 125% as at 31 December 2015. and it docs not have product approval for any Savings products, then it may adopt projected expense loadings for medical insurance. 
       
      The pricing report should provide justification lor the proposed expense loadings by including a prudent business projection showing the legal solvency margin of the Company as at the end of 2016, 2017 and 2018. 
       
      In addition, in order to use projected expense loadings a Company must demonstrate that it has been achieving economies of scale over 2014 and 2015. In particular: 
       
       1)The Company must have had more than 100% growth in Medical Insurance Gross Written Premium from 2014 to 2015.
       2)The Company must have had no increase in loss ratio in 2015 from that experienced in 2014.
       3)The Loss Ratio in 2014 must be no higher than 80%.
       
      If this business projection does not sufficiently demonstrate that the Company will have 110% cover for its statutory solvency margin as at the end of 2016. 2017 and 2018, then SAMA will require the Company to increase its expense loadings. 
       
      By 2018 the projection must show that the Company is fully covering all of its allocated expenses to the medical class by its premium loadings from medical business written. 
       
      In addition: 
       
       •Medical premium income and expenses must be projected based on stated and justified assumptions.
       •The allocation of expenses to the medical line of business must be based on slated and justified assumptions.
       
      If al any quarter end, the cover for the legal solvency margin is below 110% then the Company must immediately increase its expense loadings lor medical expenses business to those determined according to the mandatory loadings section, with all expenses being covered by premiums written.