DFS-46-13-00008-P Valuation of Life Insurance Reserves

11/13/13 N.Y. St. Reg. DFS-46-13-00008-P

NEW YORK STATE REGISTER

VOLUME XXXV, ISSUE 46

November 13, 2013

RULE MAKING ACTIVITIES

DEPARTMENT OF FINANCIAL SERVICES

PROPOSED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. DFS-46-13-00008-P

Valuation of Life Insurance Reserves

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 98 (Regulation 147) of Title 11 NYCRR.

Statutory authority:

Financial Services Law, sections 202 and 302 and Insurance Law, sections 301, 1304, 1308, 4217, 4218, 4240 and 4517

Subject:

Valuation of Life Insurance Reserves.

Purpose:

To remove the January 1, 2014 sunset provisions in section 98.9(c)(viii).

Text of proposed rule:

Section 98.9(c)(2)(viii)(b)(2) is amended to read as follows:

(2) For policies issued on or after January 1, 2007 [and prior to January 1, 2014], for the purposes of applying section 98.7(b)(1) of this Part, an insurer may use a lapse rate of no more than two percent per year for the first five years, followed by no more than one percent per year to the policy anniversary specified in the following table based on issue age, and zero percent per year thereafter. If the period of time from the date of policy issuance to the date of the applicable policy anniversary age in the table is less than five years, then an insurer may use a lapse rate of no more than two percent per year for that period of time, and zero percent per year thereafter.

Issue Age	Policy Anniversary After Which the Lapse Rate is Zero
0 – 50	30th Policy Anniversary
51 – 60	Policy Anniversary Age 80
61 – 70	20th Policy Anniversary
71 – 89	Policy Anniversary Age 90
90 and Over	No Lapse

Section 98.9(c)(2)(viii)(e) is amended to read as follows:

(e) Compute the net single premium on the valuation date for the coverage provided by the secondary guarantee for the remainder of the secondary guarantee period, using the applicable valuation table and select factors as prescribed in section 98.4(a) of this Part, or Part 100 of this Title (Insurance Regulation 179), if applicable. For purposes of calculating the net single premium for policies issued on or after January 1, 2007 [and prior to January 1, 2014], a lapse rate subject to the same criteria as the lapse rate used in applying clause (b) of this subparagraph may be used.

Section 98.9(c)(2)(viii)(h)(2) is amended to read as follows:

(2) Calculate both net premiums using the maximum allowable valuation interest rate and the minimum mortality standards allowable for calculating basic reserves. However, except for policies issued on or after January 1, 2007 [through January 1, 2014], if no future premiums are required to support the guarantee period being valued, there is no reduction for surrender charges. If the resulting amount is less than the sum of the basic and deficiency reserve from clause (b) of this subparagraph, then the basic and deficiency reserve to be used for the purposes of section 98.7(b)(1)(vi)(a) of this Part are those calculated in clause (b) of this subparagraph, and no further calculation is required.

Section 98.9(c)(2)(viii)(j) is amended to read as follows:

(j) With respect to any policy issued pursuant to this subparagraph, on or after January 1, 2007 [and prior to January 1, 2014], the insurer shall annually submit an actuarial opinion and memorandum on or before March 1, in form and substance satisfactory to the superintendent, which satisfies the requirements of Part 95 of this Title (Insurance Regulation 126). Reserves established in accordance with this subparagraph shall be increased by any additional reserves required by the stand-alone asset adequacy analysis.

Text of proposed rule and any required statements and analyses may be obtained from:

Sally Geisel, New York State Department of Financial Services, One State Street, New York, NY 10004, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Michael Maffei, New York State Department of Financial Services, One State Street, New York, NY 10004, [phone], email: [e-mail]

Public comment will be received until:

45 days after publication of this notice.

Consensus Rule Making Determination

In February 2013, the Department of Financial Services (“Department”) proposed, and promulgated as an emergency measure, its first Fourth Amendment to Part 98 (Insurance Regulation 147), which revised reserve standards for certain universal life insurance policies in conformity with National Association of Insurance Commissioners (“NAIC”) Actuarial Guideline 38. The emergency measure was re-promulgated in May and July, 2013. The Department allowed the last emergency measure to expire in September 2013. The Department also withdrew its proposal on October 16, 2013, because the rule resulted in insurers increasing their reserves for in-force business by less than $1 billion in the aggregate, rather than by the $10 billion that had been projected by the NAIC Joint Working Group that drafted Actuarial Guideline 38. Superintendent Lawsky addressed the matter in a letter to the NAIC, which is available at the following link: http://www.dfs.ny.gov/about/press2013/pr1309111-link.pdf. Thus, the rule currently in effect is the Third Amendment to Part 98 (Insurance Regulation 147).

Current Section 98.9(c)(2)(viii), which permits insurers to use certain prescribed lapse assumptions, is subject to “sunset” provisions that would make the section inoperable with respect to policies written on or after January 1, 2014. The Life Insurance Council of New York, Inc. (“LICONY”), a life insurance industry trade association that represents insurers subject to the rule, requested that the Department remove the January 1, 2014 sunset provisions to ensure that life insurers doing business in New York remain competitive. This amendment remedies the Department’s unintended expiration of the lapse assumptions provided in Section 98.9(c)(2)(viii) by removing the January 1, 2014 sunset provisions.

Accordingly, this rulemaking is determined to be a consensus rulemaking, as defined in State Administrative Procedure Act (“SAPA”) § 102(11), because no person is likely to object to its adoption, and it is proposed pursuant to SAPA § 202(1)(b)(i). Therefore, this rulemaking is exempt from the requirement to file a Regulatory Impact Statement, Regulatory Flexibility Analysis for Small Businesses and Local Governments, and a Rural Area Flexibility Analysis.

Job Impact Statement

Current Section 98.9(c)(2)(viii), which permits insurers to use certain prescribed lapse assumptions, is subject to “sunset” provisions that would make the section inoperable with respect to policies written on or after January 1, 2014. This amendment deletes the January 1, 2014 sunset provisions to keep the rule in operation. Therefore, amendment of the regulation will not adversely impact job or employment opportunities in New York, or have any adverse impact on self-employment opportunities, because the revision imposes no new or additional requirements on any insurer subject to the rule; it merely keeps the rule in effect with respect to policies written on or after January 1, 2014.