PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:
Proposed Action:
This is a consensus rule making to amend Part 54 (Regulation 77) of Title 11 NYCRR.
Statutory authority:
Insurance Law, sections 201, 301, 3201 and 4240
Subject:
Variable life insurance.
Purpose:
To amend 11 NYCRR Part 54 to authorize, and provide exceptional treatment for, private placement variable life insurance.
Text of proposed rule:
A new subdivision (y) is added to section 54.1 to read as follows:
(y) Private placement variable life insurance policy means any variable life insurance policy that:
(i) is exempt from registration under the Federal Securities Act of 1933;
(ii) includes one or more separate accounts that are exempt from registration as an investment company under the Investment Company Act of 1940; and
(iii) is only available to an accredited investor, as defined in 17 CFR § 230.501(a)(2010),* or to a qualified purchaser, as defined in 15 U.S.C. § 80a-2(a)(51)(2010).**
* 17 Code of Federal Regulations § 230.501(a) (2010), published by U.S. Government Printing Office, Washington, D.C. 20401.
** 15 United States Code Sec. 80a-2(a)(51) (2010), published by Office of the Law Revision Counsel, U.S. House of Representatives, Washington, DC 20515.
Subdivision (b) of section 54.3 is amended to read as follows:
(b) [The] Except as set forth in subdivision (g) of this section, the assets of such separate accounts shall be valued at least as often as variable benefits are determined, but in any event at least monthly.
New subdivision (g) is added to section 54.3 to read as follows:
(g) The assets of a separate account established to provide life insurance under private placement variable life insurance policies shall be valued at least as often as variable benefits are determined, but no less frequently than annually. The determination of the value of the assets of a separate account, to the extent necessary, may be based upon reasonable approximations.
Paragraph (6) of subdivision (b) of section 54.6 is amended to read as follows:
(6) A provision designating the separate account to be used and stating that the assets of such separate account shall be valued at least as often as any policy benefits vary, but [at least] no less frequently than annually for a private placement variable life insurance policy and monthly for any other variable life insurance policy.
The opening clause of paragraph (7) of subdivision (b) of section 54.6 is amended to read as follows:
(7) [A] Except in the case of a private placement variable life insurance policy, a provision that at any time during the first 18 policy months, so long as the policy is in force on a premium-paying basis, the owner may exchange the policy without evidence of insurability for a policy of general account life insurance on the life of the insured for the same amount of insurance as the initial face amount of the variable life insurance policy, and on a plan of insurance specified in the policy, subject to the following requirements:
New paragraphs (15) and (16) of subdivision (b) are added to section 54.6 to read as follows:
(15) For a private placement variable life insurance policy, a provision stating that the payment of variable death benefits shall be made no later than 30 days from the date the request for payment and all necessary documentation are received.
(16) For a private placement variable life insurance policy, a provision stating that the payment of cash surrender values, policy loans, partial withdrawals or partial surrenders shall be made as expeditiously as possible but in no event later than 15 months from the date the request for payment is received.
The opening paragraph of section 54.7 is amended to read as follows:
The policy value and cash surrender value [of each variable life insurance policy] shall be determined [at least] no less frequently than annually for a private placement variable life insurance policy and at least monthly for any other variable life insurance policy. A summary of the method of computation of cash surrender values and other nonforfeiture benefits shall be described in the policy; a complete statement of the method of computation shall be filed with the superintendent. Such method shall be in accordance with actuarial procedures that recognize the variable nature of the policy. The method of computation must be such that it complies with subdivision (a) or (b) of this section:
Section 54.7(b)(2)(i)(c) is amended to read as follows:
(c) A deferred acquisition and other charge may be charged against the policy value in any policy year 2 through [15] 20, such that the total of all such charges imposed to date plus the surrender charge for that year does not exceed the maximum initial surrender charge. The deferred acquisition and other charge in any one year may not exceed the maximum allowable surrender charge for that year. Similar deferred acquisition and other charges may be imposed with respect to an increase in face amount.
Paragraph (3) of subdivision (b) of section 54.7 is amended to read as follows:
(3) Any surrender charge in paragraph (2) of this subdivision must be such that [at the end of] during any policy year it does not exceed the maximum initial surrender charge that would be allowed multiplied by the ratio of [a + ;15-t| to a;15|] a life annuity due for age x+t for 20-t years to a life annuity due for age x for 20 years based on the mortality table and interest rate used in calculating the net level whole life annual premiums. Furthermore, any such surrender charge may not exceed the maximum initial surrender charge less the sum of all deferred acquisition and other charges made to date against the policy value. For these annuity values, x is the age at [which] the effective date of the surrender charge [is created] and t is the [duration] number of years completed since [of] the effective date of the surrender charge.
Section 54.7(b)(5)(iii) is amended to read as follows:
(iii) [At least once each year, the] The [insured] policyholder [has] shall have the option to transfer all separate account funds to the general account and apply [his] the policy's cash Surrender value to purchase a guaranteed fixed paid-up benefit at least once every five years for a private placement variable life insurance policy and at least once each year for any other variable life insurance policy.
The opening paragraph of section 54.9 is amended to read as follows:
An insurer delivering or issuing for delivery in this State any variable life insurance policies shall deliver to the applicant for the policy, and obtain a written acknowledgment of receipt from such applicant coincident with or prior to the execution of the application, a private placement offering memorandum in the case of a private placement variable life insurance policy or a prospectus included in a registration statement relating to the [policies which satisfies] policy in the case of any other variable life insurance policy. The prospectus must satisfy the requirements of the Federal Securities [Act of 1933 and which was] Laws, have been declared effective by the Securities and Exchange Commission, and [which] include[s] the following information:
Text of proposed rule and any required statements and analyses may be obtained from:
Andrew Mais, New York State Insurance Department, 25 Beaver Street, New York, NY 10004, (212) 480-2285, email: amais@ins.state.ny.us
Data, views or arguments may be submitted to:
Deborah Kahn, New York State Insurance Department, 25 Beaver Street, Albany, NY 12257, (518) 474-7668, email: dkahn@ins.state.ny.us
Public comment will be received until:
45 days after publication of this notice.
Consensus Rule Making Determination
Insurance Law §§ 201 and 301 authorize the Superintendent to effectuate any power accorded to him by the Insurance Law, and to prescribe regulations interpreting the Insurance Law.
Insurance Law § 3201 establishes the Superintendent's authority to approve life, accident and health, credit unemployment and annuity policy forms, as that term is defined in that section.
Insurance Law § 4240 establishes requirements for the creation, operation, and maintenance of separate accounts used to fund variable life insurance policies. That section authorizes the Superintendent to promulgate regulations setting forth, among other things, standards to be followed in the approval of forms for use in connection with separate accounts. Insurance Law § 4240 also provides that, notwithstanding any other provision of law, the Superintendent shall have the sole authority to regulate the issuance and sale of separate accounts and the agreements related thereto and, in addition shall have the power to promulgate, from time to time, such regulations, not inconsistent with the Insurance Law, to carry out the provisions of § 4240, and insofar as applicable to Insurance Law § 4240, other provisions of the Insurance Law.
Accordingly, the Superintendent promulgated New York Comp. Codes & Reg. tit. 11 ("11 NYCRR"), Part 54 ("Regulation 77"), which pertains to separate accounts and variable life insurance policies. 11 NYCRR § 54.3(b) requires the assets of separate accounts to be valued at least as often as variable benefits are determined, but in any event at least monthly. 11 NYCRR § 54.6(b)(8) permits payments of death benefits in excess of any minimum death benefits, cash surrender values, policy loan, partial withdrawals (except when used to pay premiums) and partial surrenders to be deferred for any period during which the New York Stock Exchange is closed for trading (except for normal holiday closing) or when the Securities and Exchange Commission has determined that a state of emergency exists, which may make such payment impractical. 11 NYCRR § 54.7(b)(5)(iii) requires an insurer to provide an insured with an annual option to transfer all separate account funds to the general account and apply the insured's cash surrender value to purchase a guaranteed fixed paid-up benefit.
Recently, insurers have proposed to make available private placement investments in variable life insurance policies. Private placement investments have long been available to accredited investors and qualified purchasers through other financial institutions. Private placement investments are exempt from registration under the Federal Securities Act of 1933, and are available to accredited investors, which are defined in 17 CFR § 230.501(a)(2010). Because private placement investments are not traded on a stock exchange, longer timeframes are necessary to value the assets, which may not be as liquid as those that are traded on a stock exchange. Accordingly, this amendment exempts variable life insurance policies that offer private placement investments from the monthly valuation requirement set forth in 11 NYCRR § 54.3(b), and imposes an annual valuation requirement.
In addition, this amendment requires insurers that offer private placement variable life insurance to pay variable death benefits on those policies no later than 30 days from the date of the request for payment and receipt of necessary documentation. It also requires those insurers to pay cash surrender values, policy loans, partial withdrawals, or partial surrenders on those policies no later than 15 months from the date the request for payment is received by the insurer.
Furthermore, this amendment requires insurers that offer private placement variable life insurance policies to give to those policyholders an option at least every five years to transfer all separate account funds to the general account and apply a policyholder's cash surrender value to purchase a guaranteed fixed paid-up benefit.
Finally, several technical revisions are proposed to § 54.7 of Regulation 77. Some changes were made to the calculation of the surrender charge to make the formula more consistent with statutory requirements for the corresponding non-variable products. Another change eliminates ambiguities concerning the surrender charge during the year. These changes are designed to ensure that any existing contracts that comply with the existing regulation will remain in compliance after these revisions become effective.
No person is likely to object to the amendment to Regulation 77 for several reasons. First, the Insurance Department has worked closely with the Life Insurance Council of New York ("LICONY"), the trade association representing the majority of life insurance companies, to draft the amendment to Regulation 77. In addition, this regulation has no effect on existing or new variable life insurance policies that do not offer private placement investment options. Rather, this regulation only exempts private placement variable life insurance policies from certain valuation requirements and imposes a different valuation requirement as necessary in order to allow insurers to offer private placement variable life insurance policies to consumers who qualify as accredited investors. Finally, the Department recently posted the draft amendment to its website for 10 days to elicit public comment. However, the Department received no comments about the regulation.
Job Impact Statement
This rule will not adversely impact job or employment opportunities in New York. This amendment: 1) exempts variable life insurance policies that offer private placement investments from the monthly valuation requirement set forth in 11 NYCRR § 54.3(b), and imposes an annual valuation requirement; 2) requires insurers that offer private placement variable life insurance policies to pay variable death benefits on those policies no later than 30 days from the date of the request for payment and receipt of necessary documentation; 3) requires insurers that offer private placement variable life insurance policies to pay cash surrender values, policy loans, partial withdrawals or partial surrenders no later than 15 months from the date the request for payment is received by the insurer; and 4) requires insurers that offer private placement variable life insurance policies to give to those policyholders an option at least every five years to transfer all separate account funds to the general account and apply the insured’s cash surrender value to purchase a guaranteed fixed paid-up benefit.
The rule is likely to have no measurable impact on jobs and employment opportunities because life insurers’ existing personnel should be able to amend policy forms to conform to the requirements of this Part. In addition, no region in New York should experience an adverse impact on jobs and employment opportunities. Finally, this rule would not have a measurable impact on self-employment opportunities.
