Final
Report on the
Medical Loss Ratio Examination
of
Standard Life and Accident Insurance Company
(Galveston, Texas)
for the
2013 MLR Reporting Year
DEPARTMENT OF HEALTH & HUMAN SERVICES
Centers for Medicare & Medicaid Services
Center for Consumer Information and Insurance Oversight
200 Independence Avenue SW
Washington, DC 20201
OVERSIGHT GROUP
July 21, 2016
In accordance with Title 45 of the Code of Federal Regulations (CFR), section 158.402, the Center
for Consumer Information and Insurance Oversight (CCIIO) has completed an examination of the
Medical Loss Ratio (MLR) Annual Reporting Form submitted by Standard Life and Accident
Insurance Company (the Company) for the 2013 reporting year, including 2012 and 2011 data
reported on that form. Following an exit conference, Standard Life and Accident Insurance
Company responded to each finding and recommendation. This final report, which will be made
publicly available, incorporates those responses and CCIIO’s evaluation of them.
Christina Whitefield, Acting Director
Medical Loss Ratio Division
Office of Oversight
Center for Consumer Information and Insurance Oversight
Centers for Medicare & Medicaid Services
US Department of Health and Human Services
Table of Contents
I. Executive Summary ............................................................................................................. 1
II. Scope of Examination .......................................................................................................... 1
III. Summary of Key Findings .................................................................................................. 2
IV. Company Overview ............................................................................................................. 2
A. Description, Territory, and Plan of Operation ................................................................. 2
B. Management ..................................................................................................................... 3
C. Ownership ........................................................................................................................ 3
D. Agreements ...................................................................................................................... 4
E. Reinsurance ...................................................................................................................... 4
V. Accounts and Records ......................................................................................................... 4
VI. Examination Results ............................................................................................................ 4
A. MLR Data ........................................................................................................................ 5
B. Credibility-Adjusted MLR and Rebate Amount .............................................................. 6
C. Rebate Disbursement and Notice ..................................................................................... 6
D. Compliance with Previous Recommendations ................................................................ 6
VII. Impact of Findings ............................................................................................................... 6
VIII. Subsequent Events ............................................................................................................... 6
IX. Conclusion, Summary of Recommendations and Company Responses ...................... 6-7
Page 1 of 7
I. Executive Summary
The Center for Consumer Information and Insurance Oversight (CCIIO) has performed an
examination of the 2013 Medical Loss Ratio (MLR) Annual Reporting Form for Standard Life
and Accident Insurance Company (the Company) to assess the Company’s compliance with the
requirements of 45 CFR Part 158. We determined that the Company’s 2013 MLR Annual
Reporting Form contains one minor reporting error that caused it to not be fully compliant with
the requirements of 45 CFR Part 158, but which does not impact consumer rebates. We
recommend that the Company implement corrective actions to comply with 45 CFR Part 158,
including ensuring the accuracy of the amounts reported on the MLR Annual Reporting Form.
The examination did not result in any change to the Company’s reported MLR for the individual
market, the only market in which the Company operates.
II. Scope of Examination
CCIIO examined the Company’s 2013 MLR Annual Reporting Form to determine compliance
with 45 CFR Part 158. 45 CFR Part 158 implements section 2718 of the Public Health Service
Act (PHS Act). Section 2718 of the PHS Act, as added by the Affordable Care Act, generally
requires health insurance companies to submit to the Secretary an annual report on their MLRs.
The MLR is the proportion of premium revenue expended by a company on clinical services and
activities that improve health care quality in a given state and market. Section 2718 also requires
a company to provide rebates to consumers if it does not meet the MLR standard (generally, 80%
in the individual market and small group markets and 85% in the large group market).
This is the first examination of the Company’s MLR Annual Reporting Form performed by CCIIO.
The examination covered the reporting period of January 1, 2011 through December 31, 2013,
including 2011 and 2012 experience and claims run-out through March 31, 2014. We conducted
the examination in accordance with the CCIIO Medical Loss Ratio Examination Handbook (the
Handbook). The Handbook sets forth the guidelines and procedures for planning and performing
an examination to evaluate the validity and accuracy of the data elements and calculated amounts
reported on the MLR Annual Reporting Form, and the accuracy and timeliness of any rebate
payments. The examination included assessing the principles used and significant estimates made
by the Company, evaluating the reasonableness of expense allocations, and determining
compliance with relevant statutory accounting standards, MLR regulations and guidance, and the
MLR Annual Reporting Form Filing Instructions.
The Company’s response to each finding appears after the finding in the Conclusion and Summary
of Recommendations section of this Report. The Company’s corrective action was not reviewed
for proof of implementation or subjected to any procedures applied during the examination.
CCIIO’s response is based solely on a review of the Company’s response. CCIIO reserves the
right to review the actual implementation of the Company’s corrective action for each finding and
proposed action plan in future MLR Annual Reporting Forms, examinations or as otherwise may
be appropriate.
Page 2 of 7
III. Summary of Key Findings
Page
Summary of Key Findings
5
Failure to report amounts under the state where the contract was issued,
as required by §158.120 – The Company inadvertently reported Other Health
amounts under incorrect states on its 2013 MLR Annual Reporting Form.
The finding did not result in any change to the Company’s reported MLR for the 2013
reporting year. The three-year adjusted, aggregated incurred claims and earned premium
amounts for all states in which the Company offered coverage subject to 45 CFR Part 158, along
with the corresponding rebate liability as reported by the Company, are shown in the following
table. The Company filed an MLR Annual Reporting Form for 37 states, as it had operations in
each of these states during the three-year examination period.
1
Re-calculated Individual Market Incurred Claims, Earned Premium and Rebates
for the 2013 Reporting Year
Individual Market
Incurred Claims
Earned Premiums
Rebates
As Filed
$5,717,209
$10,946,394
$0
As Recalculated
$5,717,209
$10,946,394
$0
Difference
$0
$0
$0
Because the Company’s experience in each of the states and markets in which it operates included
fewer than 1,000 aggregate life-years, the experience is considered to be non-credible in each of
its states and markets in accordance with §158.230(c)(3). According to §158.230(d), if an issuer’s
experience in a particular state and market is non-credible, the issuer’s MLR is presumed to meet
or exceed the applicable MLR standard. Consequently, the recalculated amounts did not impact
the Company’s rebate liability for the 2013 reporting year, as the recalculated MLRs for the
individual market continue to be presumed to meet or exceed the MLR standard of 80%.
IV. Company Overview
A. Description, Territory, and Plan of Operation
The Company is a for-profit life, accident and health insurer domiciled in Texas. The Company
primarily sells life and health insurance and annuities. As of 2010, the Company discontinued its
health insurance policies that are guaranteed renewable, grandfathered plans.
During the 2011, 2012 and 2013 MLR reporting years, the Company had business subject to the
MLR reporting requirements under 45 CFR Part 158 in the individual market in 37 states. As of
December 31, 2013, the Company reported a total of 1,256 covered lives and $2,673,718 in direct
1
Full, in-depth data review was performed only for select state and market segments, because the findings appeared
to be consistent across states.
Page 3 of 7
earned premium in policies subject to the MLR reporting and rebate requirements and a total of
152,180 covered lives and $132,530,273 in direct earned premium from all health lines of business.
Lines of business not subject to the MLR regulations at 45 CFR Part 158 include Medicare
Supplement, cancer expense, limited benefit, long term care and nursing home care policies.
B. Management
The corporate officers and board of directors of the Company as of December 31, 2013 were:
Officers
Name
Title
George R. Ferdinandtsen
President and CEO
John M. Flippin
John J. Dunn, Jr.
Secretary and Treasurer
Vice President and CFO
William F. Carlton
Controller
Ronald J. Welch
Senior Vice President
Steve H. Schouweiler
Executive Vice President and COO
Clarence E. Tipton
Vice President and Actuary
Directors
Name
George R. Ferdinandtsen
James E. Pozzi
Steven J. Schouweiler
Ronald J. Welch
John J. Dunn, Jr.
Company management and corporate-level personnel responsible for the preparation, submission
and attestation of the 2013 MLR Annual Reporting Form were:
Name
Title
George R. Ferdinandtsen
CEO Attester
John J. Dunn, Jr.
CFO Attester
C. Ownership
The Company is a member of an insurance holding group system.
Page 4 of 7
Standard Life and Accident Insurance Company
Organizational Chart as of December 31, 2013
D. Agreements
As of December 31, 2013, the Company had entered into the following inter-company agreements
that are pertinent to a review of its MLR Annual Reporting Form:
1. A Service Agreement with ANICO, its ultimate parent, and ANICO’s other subsidiaries.
2. A Tax-Sharing Agreement with ANICO and its other subsidiaries.
3. An Automatic and Facultative Self-Administered Reinsurance Agreement with ANICO.
E. Reinsurance
During 2011, 2012, and 2013, the Company had excess-of-loss reinsurance agreements in place
with several non-affiliated entities for hospital and medical services. The Company also had in
place a facultative reinsurance agreement with ANICO. The Company did not assume any
reinsurance.
V. Accounts and Records
The Company’s main administrative and financial reporting office is located at One Moody Plaza,
Galveston, TX 77550. The Company provided adequate access to its accounts and records,
including computer and other electronic systems, as required by §158.501.
Except as noted below, the procedures performed did not identify any errors or irregularities in the
data reported on the MLR Annual Reporting Form with regard to rebates and the provision of
notices.
VI. Examination Results
The Company’s 2011, 2012 and 2013 MLR Annual Reporting Forms were filed on the form and
in the manner prescribed by the Secretary by or before the required due date.
American National Insurance Company (ANICO)
American National Life Holdings, Inc.
Standard Life and Accident Insurance
Company
Prime Therapeutics, LLC
*Remaining ownership held by other Blue Cross and Blue
Shield licensees
100%
100%
13%
Page 5 of 7
During all three years under Examination, the Company’s experience was non-credible in all states
and markets where it had business subject to the rebate requirements of 45 CFR Part 158, and thus
the Company was not required to pay rebates to its enrollees.
A. MLR Data
Market Classification Policies and Procedures
The Company has adopted policies and procedures for determining group size and market
classification that are consistent with the requirements of §158.220, which stipulates that an
issuer's MLR must be calculated separately for the large group market, small group market and
individual market within each state.
Aggregation
Reporting of Other Health Business under Incorrect States
During the examination, the Company discovered and notified the examiners that it had
inadvertently reported its Other Health experience on the MLR Annual Reporting Forms for the
incorrect states. The total nationwide amounts reported were accurate.
Other than the incorrect reporting of Other Health business noted above, the samples of policies,
claims and other items tested during the examination were correctly assigned to the appropriate
states, markets, and lines of business in accordance with §158.120.
Incurred Claims
Based upon substantive testing and validation of the incurred claims (as defined by §158.140)
reported by the Company, incurred claims were accurately reported.
Claims Recovered Through Fraud Reduction Efforts
The Company did not report any recoveries of paid fraudulent claims, which §158.140(b)(2)(iv)
allows as an adjustment to incurred claims up to the amount of fraud reduction expenses.
Quality Improvement Activities
The expenses and programs for quality improvement activities (QIA) identified by the Company
met the definition of a QIA in accordance with §158.150. Based upon substantive sample testing,
QIA expenses were accurately reported and reasonably allocated among the Company’s states and
markets, as required by §158.170.
Earned Premium
Based on substantive testing, earned premium was properly reported on a direct basis and the data
elements underlying 2011, 2012 and 2013 premium as reported on the Company’s 2013 MLR
Annual Reporting Form were compliant with §158.130.
Taxes
Based upon substantive testing, the taxes and regulatory fees excluded from 2011, 2012 and 2013
earned premium on the Company’s 2013 MLR Annual Reporting Form complied with §158.161
and §158.162. Also based on substantive testing, taxes and regulatory fees were accurately
Page 6 of 7
reported and were reasonably allocated among the Company’s state and market, as required by
§158.170. The Company did not include any federal income tax amounts in the tax and regulatory
fees reported on its 2013 MLR Annual Reporting Form.
B. Credibility-Adjusted MLR and Rebate Amount
Based upon substantive testing, the Company correctly applied the credibility adjustment when
the Company calculated and reported its MLRs, in accordance with §158.221. The Company’s
final, credibility-adjusted MLRs were calculated correctly in accordance with 45 CFR Part 158
and the applicable MLR Annual Reporting Form Filing Instructions. Because the Company’s
final, credibility-adjusted MLRs were presumed to exceed the applicable standards in the
individual market in all states in which it operated, no rebates were due for 2011, 2012, or 2013.
C. Rebate Disbursement and Notice
According to its MLR Annual Reporting Forms, the Company did not owe any rebates for 2011,
2012 or 2013 as a result of the MLR calculations. Based on substantive testing, the Company
timely issued the 2011 Notice (of no rebate) in accordance with §158.251 and was not required
to (and did not) issue any Notices for the 2012 or 2013 MLR reporting years.
D. Compliance with Previous Recommendations
The Company indicated that neither CCIIO nor any state regulatory entity has previously
performed an examination of the Company’s MLR processes and reporting. The Texas
Department of Insurance performed a financial examination of the Company in 2013 covering the
period of January 1, 2011 through December 31, 2012. The financial examination did not result
in any findings.
VII. Impact of Findings
The cumulative effect of all errors and findings did not impact MLR rebates since the incorrectly
reported items did not change the fact that the Company’s experience was non-credible in all of
its states and markets. Therefore, the Company was presumed to meet or exceed the applicable
MLR standards in all of its states and markets.
VIII. Subsequent Events
The Company is required to inform CCIIO of any subsequent events that may affect the currently
attested 2013 MLR Annual Reporting Form. No post-December 31, 2013 significant events were
brought to CCIIO’s attention.
IX. Conclusion, Summary of Recommendations, and Company Responses
Page 7 of 7
CCIIO has examined Standard Life and Accident Insurance Company’s 2013 MLR Annual
Reporting Form to assess the Company’s compliance with the requirements of 45 CFR Part 158.
The examination involved determining the validity and accuracy of the data elements and
calculated amounts reported on the MLR Annual Reporting Form, and the accuracy and timeliness
of any rebate payments. The Company’s 2013 MLR Annual Reporting Form did not comply with
one minor requirement of 45 CFR Part 158. The effect of the examination finding and resultant
recalculation of the Company’s MLR did not result in any change to its reported MLR for any of
the states or markets in which it operates.
As a result of this examination, CCIIO recommended the following:
Recommendation #1
The Company should adopt and implement procedures to ensure that all amounts are accurately
reported in its MLR Annual Reporting Form in accordance with the MLR Annual Reporting Form
Filing Instructions, including reporting of Other Health business on the MLR Annual Reporting
Form for the appropriate state.
Company Response
“The company agrees with the findings of the report, and has added the following procedures in
response to its one recommendation:
1. The process whereby data from the Supplemental Health Care Exhibit populates the MLR
support workbooks has been automated; and
2. Manual cross-checks of certain amounts reported in both the Supplemental Health Care
Exhibit and the Medical Loss Ratio Report have been implemented. These cross-checks are
performed for the Grand Total template and for the templates of the three largest states, as
measured by earned premium. These cross-checks are done by market.”
CCIIO Reply
CCIIO accepts the Company’s response and the corrective action plan.
CCIIO thanks the Company and its staff for its cooperation with this Examination.
