NEW JERSEY

20 West State Street, 10th Floor

PO Box 325

Trenton, NJ 08625

Phone: 609-633-1882, ext. 50306

Fax: 609-633-2030

July 7, 1999

To: IHC Program Member Carriers Seeking Reimbursement of Losses

From: Wardell Sanders, Executive Director

On May 21, 1999, the New Jersey Individual Health Coverage Program Board wrote to all carriers who are seeking reimbursement of losses for the 1997/1998 two-year calculation period, requiring carriers to make available the minimum data within 90 days, pursuant to N.J.A.C. 11:20-2.8(c). In reviewing the preliminary data provided pursuant to that letter, and in reviewing the filed Exhibit K "Net Paid Gain and (Loss) Reports" from carriers seeking reimbursement, the IHC Board has seen the need for clarification of certain issues regarding the reporting of Net Investment Income. The filing requirements for Net Investment Income for Exhibit K are set forth in N.J.A.C. 11:20-8.5(d).

First, N.J.A.C. 11:20-8.5(d)2 refers to the calculation of "mean funds" as being determined by the average net cash flow balance. The IHC Board intends that a carrier determine the "average" by measuring the net cash flow balance on a daily, monthly or quarterly basis. Carriers have the option of choosing any one of those periods for determining the "average." The IHC Board does not believe that it is reasonable to determine "average" by measuring cash flow on periods greater than a calendar quarter.

Second, the allocation of the net investment income to the New Jersey individual line of business must be made on a basis consistent with the allocation to all lines of business and that the method shall be according to "mean funds" pursuant to N.J.A.C. 11:20-8.5(d)2.

Third, the Board notes that there may have been some confusion in determining net investment income because the formula to determine net investment income refers to net investment income. The "mean funds" refers to the average "cash flow balance" over the period used for calculation i.e. daily, monthly or quarterly. The "cash flow balance" at the beginning of the period is equal to the inception to date paid premiums, plus the net investment income at the beginning of the period, plus loss reimbursement received, less paid claims, less refunds, less loss assessment paid, and less paid expenses. The "cash flow balance" at the end of the period is equal to the inception to date paid premiums, plus loss reimbursement received, less paid claims, less refunds, less loss assessment paid and less paid expenses, plus net investment income at the beginning of the period.

Fourth, some carriers reported net investment income amounts of $0. Net investment income will be audited and a carrier reporting net investment income of $0 will be required to support this figure. Carriers should note that it is possible to have a negative net investment income figure.

If these clarifications require an amended Exhibit K for 1997/1998, please submit such an amended filing by July 16, 1999.