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  • 4 Medical & Motor Pricing Report

    • 4.1 General Requirements

      SAMA is requiring all insurance companies to provide a full actuarial pricing update for medical and motor products on at least an annual basis, and will consider requiring more frequent updates if necessary. 
       
      SAMA, requires all companies approved to sell medical or motor products to provide full updated reports as follows: 
       
       1)Medical, by 31 August 2015
       2)Motor, by 30 September 2015
       
      For any medical/motor pricing reports, the Responsible 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)1 December to 31 December: it must use complete data up to at least 30 September of the same year.
       5)1 January to 28 February: it must use complete data up to at least 30 September of the previous year.
       
      Medical/Motor products approval may be withdrawn if the updated actuarial pricing reports are not submitted or are not compliant with SAMA’s instructions. 
       
      The insurance company’s Responsible Actuary shall prepare the medical and motor 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 Responsible 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 Responsible Actuary. It may only implement the premium rates in the other actuary’s report if and when it receives SAMA's no- objection. 
       
      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 or motor class
        d.Introduction of a new rating factor
        e.A new network option for medical expenses
        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 or retail/individual motor business
       
      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 arc fair, reasonable and technically justified. 
       
      If the company makes any material alteration in its reinsurance arrangements for medical or motor 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 cross-subsidisation, then it may ask the Actuary to prepare an additional report setting out the risks of applying the cross-subsidies, based on 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 for either medical or motor. 
       
      The Actuary is responsible to ensure a comprehensive and concise report is provided to SAMA 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 policyholders and shareholders, allocated appropriately to each class of insurance. As medical and motor insurance are resource intensive products, the loading for expenses (including commissions) must be set at a minimum of the expense ratio for 2014 provided the company has been writing business for three full years. If a company was licensed by SAMA to write any class of insurance business as at 1 January 2012, it must cover all of its 2014 expenses in the Expense Loading. Only insurance companies that were not licensed to write any class of insurance as at 1 January 2012 may adopt prudent project projections in order to set their expense loadings.
       2)A Profit Loading that must be explicitly approved by the Board of Directors of the company. This must be at least 2% of premium.
       3)A Contingency Loading set at 2.5% of premium for medical expenses and 5% of premium for motor business.
       4)A Financial Condition Loading to allow for the lower risk capacity of any insurance company that does not have sufficient Admissible Assets to meet the Required Margin before application of the Minimum Capital Requirement (Reporting Form 31, Line 43. Column A), The required calculation to be adopted for this loading is set out 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 Three. 
       
      Any Composite Insurance Company, defined as any company writing general/health insurance and a material amount of long-term Protection & Savings business, must not use the expense ratio for the company as a whole. Instead, an expense report shall determine a suitable split of expenses between Protection & Savings and General/Health, and the Expense Ratio determined for General/Health only. 
       
      If a company has not been writing any business for three full years then the actuary may estimate the expense ratio for its third year of writing business based on prudent assumptions. 
       
      If a company is in the process of increasing its capital then the actuary must provide two sets of premium rates for the company to use, one prior to the capital raising exercise, and the other based on the expected solvency position once the additional capital has been raised. The rates based on the post capital raising financial condition may only be used once the company has received the proceeds of the capital raising exercise. 
       
      Any expenses that may be subject to unusual fluctuations may be smoothed. In particular the change in Doubtful Debt Reserve must be considered part of the company’s expenses, but consideration should be given to smoothing this item.