Physicians Mutual Insurance Company 2600 Dodge Street Omaha

Physicians Mutual Insurance Company

2600 Dodge Street

Omaha, Nebraska 68131

Actuarial Rate Memorandum

Long-Term Care Policies

January 12, 2018

Maryland

1. Purpose of Filing

This is a rate increase filing for individual Long-Term Care policy forms and riders. The purpose

of this rate increase filing is to demonstrate the anticipated loss ratio of these forms after the

recommended rate increase meets the requirements under the Code of Maryland Regulations

31.14.02.05. This rate increase filing is not intended to be used for any other purpose.

2. Scope of Filing

The proposed rate increase requests below are in accordance with the 15% cap stated in

Maryland Regulation COMAR 31.14.01.04A(5). The rate increase requests will apply to the

Company’s Individual Comprehensive Long-Term Care policy forms listed in section 3 and any

related riders.

The rate increase requests vary by benefit period and if an automatic inflationary rider is attached

to the base policy. The rate increase request is illustrated in the chart below.

RequestedRateIncreaseforPolicyFormsP103,P104

 RateInc.Request Cumulative

 byYear RateInc.Request

LimitedBP,NoAutomaticInflation 0% 0%

LifetimeBP,NoAutomaticInflation 0% 0%

LimitedBP,WithAutomaticInflation 12% 12%

LifetimeBP,WithAutomaticInflation 12% 12%

Limited BP represents policyholders who have benefit periods of 2 to 5 years. Lifetime BP

represents policyholders who have a lifetime benefit period.

For policy forms P103 and P104, premium rates were originally filed for both the base policy as

well as for all available riders. The rate increase request shown in the chart above is a requested

increase on the total premium charged to customers in each of the listed benefit categories.

In order to achieve the rate increase request for the “No Automatic Inflation” benefit categories,

base premiums and all attached rider premiums excluding automatic inflationary rider premiums

have to be increased by the “No Automatic Inflation” rate increase request percentages shown in

the chart above.

Physicians Mutual Insurance Company

Long-Term Care Filing – Maryland

Page 2 of 5

For policies in the “With Automatic Inflation” benefit categories, achieving the requested rate

increase is more complicated. Policies in these benefit categories are rated as follows: The base

policy and rider premiums (other than automatic inflationary rider premiums) have been

increased by the amounts listed in the “No Automatic Inflation” rate increase request. Automatic

inflationary rider premiums are then increased at amounts so that the aggregate of the base policy

premium, any non-inflationary rider premiums, and the automatic inflationary rider premium

equate to the “With Automatic Inflation” rate increase shown in the chart above.

The ratio of automatic inflationary rider premium to total premium varies by policy depending

on issue age, benefit options and purchased riders. As a result, when base premiums and all

attached rider premiums excluding automatic inflationary rider premiums are given one rate

increase and automatic inflationary rider premiums are given a different rate increase, the total

increase in policy level premiums will vary. The requested rate increase in the above chart for

“With Automatic Inflation” benefit categories represent the average increase in total premium for

policies in those benefit categories (identified in bold below). The charts below summarize the

rate increase taken on the automatic inflationary rider premiums and the resulting range of policy

level total premium increases.

RequestedRateIncreaseforPolicyFormsP103,P104

 RateInc.Request Cumulative

 byYear RateInc.Request

LimitedBPAutomaticInflationaryRiders 28.0% 28.0%

LifetimeBPAutomaticInflationaryRiders 28.5% 28.5%

ResultingPolicyLevelTotalPremiumIncreaseforPoliciesWithAutomaticInflationaryRiders

 TotalPremium Cumulative

 IncreaseByYear

Premium

Increase

LimitedBP,WithAutomaticInflation–Average 12% 12%

LimitedBP,WithAutomaticInflation–Minimum 9% 9%

LimitedBP,WithAutomaticInflation–Maximum 15% 15%

LifetimeBP,WithAutomaticInflation–Average 12% 12%

LifetimeBP,WithAutomaticInflation–Minimum 9% 9%

LifetimeBP,WithAutomaticInflation–Maximum 15% 15%

On this rate increase request, Contingent Benefit Nonforfeiture (CBN) will be offered to all

customers who lapse their policy within 120 days of receiving the rate increase except for those

who own a Shortened Benefit Period Nonforfeiture Rider.

Customers also have the option to make changes to their policy (such as reducing their benefit

amount or benefit period, increasing their elimination period, or removing riders) which allows

them the flexibility to set their benefits and premium appropriately given their situation.

Physicians Mutual Insurance Company

Long-Term Care Filing – Maryland

Page 3 of 5

3. Description of Benefits

Policy Form P103MD, issued in Maryland from 2001 – 2006

Non-Tax Qualified Reimbursement Comprehensive Long-Term Care Policy

Issue Ages 25-84

Policy form P103MD and related rider attachments

Policy Form P104MD, issued in Maryland from 2001 – 2006

Tax Qualified Reimbursement Comprehensive Long-Term Care Policy

Issue Ages 25-84

Policy form P104MD and related rider attachments

4. Marketing Method

The above policy forms and riders were offered through Physicians Mutual’s Agency force and

were also available to and sold by brokers. All policy forms are no longer being marketed.

5. Underwriting Description

These policy forms were fully underwritten with the use of various tools in addition to the

application; tools which may have included medical records, an attending physician’s statement,

telephone interview and/or face-to-face assessment.

6. Renewability

These policy forms are guaranteed renewable.

7. Reason for Rate Increase Request

A rate increase on this policy form and related rider attachments is necessary due to current

information on combined lapse and mortality experience compared to the best industry

information available at the time these products were priced. In addition, expected future

morbidity assumptions utilize information based on the most comprehensive data available.

Loss ratio for the purpose of this memorandum is defined as the ratio of Incurred Claims to

Earned Premiums without the inclusion of Active Life Reserves, Waiver of Premium, or Return

of Premium Riders. Past experience and future projections demonstrate anticipated lifetime loss

ratios are in excess of 60%. The rate increases needed to meet the rate stability 58/85 loss ratio

standards for Maryland are shown below.

RequiredRateIncreaseforPolicyFormsP103,P104

LimitedBP,NoAutomaticInflation 7%

LifetimeBP,NoAutomaticInflation 80%

LimitedBP,WithAutomaticInflation 187%

LifetimeBP,WithAutomaticInflation 372%

Physicians Mutual Insurance Company

Long-Term Care Filing – Maryland

Page 4 of 5

Historical nationwide rate increase filings for the policy forms listed in section 3 have been 19%,

10% and 40% which equates to a cumulative rate increase of 83.3%. The nationwide rate

increase filing currently underway for these policy forms is shown in the table below:

RequestedRateIncreaseforPolicyFormsP103,P104

 RateInc.Request Cumulative

 byYear RateInc.Request

LimitedBP,NoAutomaticInflation 0% 0%

LifetimeBP,NoAutomaticInflation 10% 10%

LimitedBP,WithAutomaticInflation 50%,50% 125%

LifetimeBP,WithAutomaticInflation 60%,60% 156%

Based on Maryland Regulation COMAR 31.14.01.04A(5), the requested rate increases in section

2 represent the rate increase request in the state of Maryland. To the extent that this rate increase

request, when combined with prior rate increase approvals, is less than what is shown above,

future rate increase requests will be made to ensure equitable premium rates nationwide.

8. Premiums

Premiums are unisex, level and payable for life, with a 10-pay option offered. The premiums

vary by issue age, initial benefit amount, benefit period, elimination period, benefit rider

selection, eligible discounts, premium payment mode and underwriting class.

Modal Payment factors for policy forms P103 and P104 are shown in the table below:

MonthlyDirectBill 1.00

MonthlyElectronicFundsTransfer 1.00

Quarterly 2.90

Semi‐Annual 5.60

Annual 11.00

Underwriting Class factors are shown in the following table:

Preferred 0.85

Standard 1.00

Substandard 1.80

A 20% spouse discount was applied to the base policy and all riders.

9. Projected Experience and Lifetime Loss Ratios

Nationwide historical and projected loss ratios, both before and after the rate increase, are shown

in Exhibit 3. The historical data used in the projections are consistent with the data shown in

Exhibit 2. The projections were produced using an asset share model and the assumptions

described in Section 13. These assumptions were shown to be best estimates as demonstrated in

Section 10. Below is a summary of projected lifetime loss ratios for policy forms P103 and

P104:

Physicians Mutual Insurance Company

Long-Term Care Filing – Maryland

Page 5 of 5

 ProjectedLifetime ProjectedLifetime

 LossRatio LossRatio

 w/outRateInc. withRateInc.

LimitedBP,NoAutomaticInflation 64.4% 64.4%

LifetimeBP,NoAutomaticInflation

85.0% 85.0%

LimitedBP,WithAutomaticInflation

128.0% 122.3%

LifetimeBP,WithAutomaticInflation

186.9% 178.6%

10. Premium Increase Application

The aggregate rate increase requested for policy forms P103 and P104 and related rider

attachments included in this filing is 9%. This aggregate rate increase percentage was

determined based on our nationwide mix of business.

Premium Rate Schedules with the requested increase are shown in Exhibit 4.

11. Proposed Effective Date

This rate increase will apply to policies on their policy anniversary date following a 60-day

policyholder notification period. In no event will any policy receive this rate increase less than

one year after receiving the most recent rate increase implemented in Maryland.

12. Certification

I am a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries,

and I meet the Academy’s qualification standards for preparing health rate filings. Further, the

preparation of the data and assumptions included in this filing were completed by additional

actuaries and non-actuaries of Physicians Mutual. Although I have not audited this information,

I have reviewed it for reasonableness. To the extent that it is materially incomplete or

inaccurate, the contents of this memorandum may be affected.

I certify that, to the best of my knowledge and judgment, this entire rate filing is in compliance

with applicable laws and that it complies with Actuarial Standard of Practice #8, and that the

premiums charged are not excessive or unfairly discriminatory. This filing will enhance

premium rate adequacy, however, it is not the full rate increase that can be actuarially justified.

Future rate action may be necessary before benefits can be certified as reasonable in relation to

premiums.

_______________________________

Mark Lehman, FSA, MAAA

Assistant Vice President and Actuary