Specific reasons underlying the finding of necessity:
Regulation No. 56 was originally effective August 18, 1971 in its present form and has not been substantively amended since that time. In the intervening 31 years, the National Association of Insurance Commissioners has adopted new reserving tables for individual and group disability income insurance policies, popularly referred to as the Commissioners' Disability Tables (“CDT”). The current CDT was adopted in 1986 and is used widely across the country as the standard for holding reserves for individual and group disability insurance policies. It reflects both modern morbidity and claims experience and the judgement of actuaries and regulators who are knowledgeable about the current state of the disability insurance market.
However, New York authorized insurers are required to use the 1964 CDT because it was required by Regulation No. 56 (see, e.g., 11 NYCRR Part 94.1(a)(4)(iii)(A)). Also, Regulation No. 56 did not apply to group insurance, providing little or no guidance to New York insurers that write this important form of protection. The effect of the application of this outdated regulation is that New York authorized insurers are required to hold reserves far in excess of the national standard for disability insurance active lives reserves, but below the prevailing standard for claims reserves. Most New York authorized insurers hold reserves in excess of the amount needed to pay claims due to the required use of the outdated tables. For these insurers, the adoption of the more recent tables will significantly reduce the cost of doing business and allow them to compete more effectively with insurers that are not subject to New York standards and to pass the cost savings on to consumers. For some insurers, this regulation may require an increase in reserves especially for coverages such as group health insurance for which there had been no standards previously. The adoption of these standards will help to ensure that such insurers remain financially capable of paying claims as they come due.
New York authorized insurers must file quarterly financial statements based upon minimum reserve standards in effect on December 31 of the preceding year. The filing date for the March 31, 2007 quarterly statement is May 15, 2007. The insurers must be given advance notice of the applicable standards in order to file their reports in an accurate and timely manner.
The regulation was previously promulgated as an emergency measure on 18 occasions effective December 31, 2002, March 24, 2003, June 17, 2003, September 8, 2003, December 2, 2003, February 26, 2004, May 19, 2004, August 11, 2004, November 4, 2004, January 26, 2005, April 21, 2005, July 15, 2005, October 12, 2005, January 6, 2006, April 5, 2006, June 29, 2006, September 21, 2006, and December 14, 2006. The original Pre-Proposal for Regulation 56 was sent to GORR on January 28, 2003. Minor changes were made to the text in the March 24, 2003 and June 17, 2003 emergency regulations. Subsequently, the National Association of Insurance Commissioners (“NAIC”) Accident & Health Working Group of the Life & Health Actuarial Task Force adopted changes to the NAIC's Health Insurance Reserves Model Regulation. These changes include sections discussing: disability income claim reserves, unearned premium reserves for Single Premium Credit disability income business, lapse and mortality rates for contract reserves for long term care insurance, as well as changes to the effective dates associated with these changes. Changes to the NAIC's Health Insurance Reserves Model Regulation were incorporated into the February 26, 2004 emergency regulation. In the July 15, 2005 version, the regulation was made applicable to Health and Property and Casualty insurers as well as life insurers.
The Revised Proposal was approved by GORR on October 2, 2006 and a Notice of Proposed Rulemaking will be published in the State Register in the near future. In order to enable New York authorized insurers to file the March 31, 2007 quarterly financial statement based upon minimum reserve standards in effect on December 31, 2006, the regulation must be continued on an emergency basis.
For all of the reasons stated above, an emergency adoption of this new Regulation No. 56 is necessary for the general welfare.
Subject:
Rules governing individual and group accident and health insurance reserves.
Purpose:
To prescribe rules and regulations for valuation of minimum individual and group accident and health insurance reserves including standards for valuing certain accident and health benefits in life insurance policies and annuity contracts.
Substance of emergency rule:
Section 94.1 lists the main purposes of the regulation including implementation of sections 1303, 4117, 4217(d), 4517(d) and 4517(f) of the Insurance Law and prescribing rules for valuing certain accident and health benefits in the life insurance policies.
Section 94.2 is the applicability section. This section applies to both individual policies and group certificates. The regulation applies to all insurers, fraternal benefit societies, and accredited reinsurers doing business in the State of New York. It applies to all statutory financial statements filed after its effective date.
Section 94.3 is the definitions section.
Section 94.4 sets forth the general requirements and minimum standards for claim reserves, including claim expense reserves and the testing of prior year reserves for adequacy and reasonableness using claim runoff schedules and residual unpaid liability.
Section 94.5 sets forth the general requirements and minimum standards for unearned premium reserves.
Section 94.6 sets forth the general requirements and minimum standards for contract reserves.
Section 94.7 concerns increases to, or credits against reserves carried, arising from reinsurance agreements.
Section 94.8 prescribes the methodology of adequately calculating the reserves for waiver of premium benefit on accident and health policies.
Section 94.9 provides that a company shall maintain adequate reserves for all individual and group accident and health insurance policies that reflect a sound value being placed on its liabilities under those policies.
Section 94.10 provides the specific standards for morbidity, interest and mortality.
Section 94.11 allows for a four-year period for grading into the higher reserves beginning with year-end 2003 for insurers for which higher reserves are required because of this Part.
Section 94.12 establishes the severability provision of the regulation.
This notice is intended
to serve only as a notice of emergency adoption. This agency intends to adopt this emergency rule as a permanent rule and will publish a notice of proposed rule making in the State Register at some future date. The emergency rule will expire June 10, 2007.
Text of emergency rule and any required statements and analyses may be obtained from:
Andrew Mais, Insurance Department, 25 Beaver St., New York, NY 10004, (212) 480-5257, e-mail: amais@ins.state.ny.us
Regulatory Impact Statement
1. Statutory authority:
The superintendent's authority for the adoption of Regulation No. 56 (11 NYCRR 94) is derived from sections 201, 301, 1303, 1304, 1305, 1308, 4117, 4217, 4310 and 4517 of the Insurance Law.
These sections establish the superintendent's authority to promulgate regulations governing reserve requirements for insurers. Sections 201 and 301 of the Insurance Law authorize the superintendent to prescribe regulations accomplishing, among other concerns, interpretation of the provisions of the Insurance Law, as well as effectuating any power given to him under the provisions of the Insurance Law to prescribe forms or otherwise to make regulations.
Section 1303 covers loss or claim reserves for insurers.
Section 1304 of the Insurance Law enables the superintendent to require any additional reserves as necessary on account of life insurers' policies, certificates and contracts.
Section 1305 covers unearned premium reserves for insurers.
Section 1308 of the Insurance Law describes when reinsurance is permitted and the effect that reinsurance will have on reserves.
Section 4117 covers loss reserves for Property and Casualty (P&C) insurers.
Section 4217(d) provides that reserves for all individual and group accident and health policies shall reflect a sound value placed on the liabilities of such policies and permits the superintendent to issue, by regulation, guidelines for the application of reserve valuation provisions for these types of policies.
Section 4310 covers investments, financial conditions, and reserves for non-profit health plans.
For fraternal benefit societies, section 4517(d) provides that reserves for all individual accident and health certificates shall reflect a sound value placed on the liabilities of such certificates and permits the superintendent to issue, by regulation, standards for minimum reserve requirements on these types of certificates. Additionally, section 4517(f) provides that reserves for unearned premiums and disabled lives be held in accordance with standards prescribed by the superintendent for certificates or other obligations which provide for benefits in case of death or disability resulting solely from accident, or temporary disability resulting from sickness, or hospital expense or surgical and medical expense benefits.
2. Legislative objectives:
One major area of focus of the Insurance Law is solvency of insurers doing business in New York. One way the Insurance Law seeks to ensure solvency is through requiring all insurers licensed to do business in New York State to hold reserve funds necessary in relation to the obligations made to policyholders.
3. Needs and benefits:
The regulation is necessary to help ensure the solvency of insurers doing business in New York. The Insurance Law does not specify mortality, morbidity, and interest standards used to value individual and group accident and health insurance policies and relies on the superintendent to specify the method. Without this regulation, there would be no standard method for valuing such products and, in fact, the current regulation, absent the proposed rule, provides no guidance related to certain coverages such as group accident and health policies. This could result in inadequate reserves for some insurers, which would jeopardize the security of policyholder funds.
Additionally, the current regulation, absent the proposed rule, requires higher reserves than necessary for certain individual accident and health insurance policies. This proposed rule, by lowering such reserves for individual policies, will result in a lower cost of doing business in New York.
4. Costs:
Costs to most insurers licensed to do business in New York State will be minimal, including the cost to develop computer programs which calculate reserves for accident and health insurance due to several changes in the underlying reserve methodology and new morbidity tables. Companies that are domiciled in New York and are not licensed to do business in other states will be impacted the most by this adoption. Most insurers that are domiciled in New York and licensed to do business in other states already have in place identical or similar procedures for reserve requirements and morbidity tables due to adoption by many states of the Health Insurance Reserves Model Regulation of the National Association of Insurance Commissioners (NAIC). The adoption of this regulation by New York State improves reserve uniformity throughout the insurance industry. Therefore, minimal additional costs will be incurred in most cases. For some insurers doing business only in New York or in other states that have not adopted the NAIC model regulation, the adoption for the first time of standards for certain coverages such as group health insurance may require an increase in reserves and would therefore increase the insurer's cost of capital. In addition, an insurer that needs to modify its current systems could produce modifications internally or purchase software from a consultant, who would typically charge $5,000 to $10,000. Once the program has been developed, no additional systems costs should be incurred due to those requirements.
Costs to the Insurance Department will be minimal. There are no costs to other government agencies or local governments.
5. Local government mandates:
The regulation imposes no new programs, services, duties or responsibilities on any county, city, town, village, school district, fire district or other special district.
6. Paperwork:
The regulation imposes no new reporting requirements.
7. Duplication:
The regulation does not duplicate any existing law or regulation.
8. Alternatives:
The Department considered allowing an additional grade-in period, beyond the grade-in period currently cited in the emergency rule, for health and property and casualty insurers. The Department has decided against allowing an additional grade-in period since during an outreach effort to the property and health industries, only one insurer notified the Department that a material reserve increase would result. That insurer was notified of the proposed change to the rule during 2004 and has had ample time to prepare for the reserve change. Additionally, it is important that all insurers hold the correct amount of reserves as soon as possible and therefore be held to the same grade-in period.
The only other significant alternative to be considered was to keep the current version of Regulation No. 56, without adopting this proposed rule, which would result in different reserve requirements for those insurers licensed in New York.
9. Federal standards:
There are no federal standards in the subject area.
10. Compliance schedule:
Beginning with year-end 2003, where the requirements of this regulation produce reserves higher than those calculated at year-end 2002, the insurer may linearly interpolate, over a four year period, between the higher reserves and those calculated based on the year-end 2002 standards. Insurers must be in full compliance with this Part by year-end 2006. This allows insurers subject to the regulation ample time to achieve full compliance.
Regulatory Flexibility Analysis
1. Small Businesses:
The Insurance Department finds that this rule will not impose any adverse economic impact on small businesses and will not impose any reporting, recordkeeping or other compliance requirements on small businesses. The basis for this finding is that this rule is directed at all insurance companies licensed to do business in New York State, none of which fall within the definition of small business as found in Section 102(8) of the State Administrative Procedure Act. The Insurance Department has reviewed filed Reports on Examination and Annual Statements of authorized insurers and believes that none of them fall within the definition of small business, because there are none which are both independently owned and have under one hundred employees.
2. Local Governments:
The regulation does not impose any impacts, including any adverse impacts, or reporting, recordkeeping, or other compliance requirements on any local governments.
Rural Area Flexibility Analysis
1. Types and estimated number of rural areas:
Insurance companies covered by the regulation do business in every county in this state, including rural areas as defined under SAPA 102(10).
2. Reporting, recordkeeping and other compliance requirements; and professional services:
The regulation establishes reserve requirements for individual and group accident and health policies and establishes standards for valuing certain accident and health benefits in life insurance policies and annuity contracts.
3. Costs:
Costs to most insurers licensed to do business in New York State will be minimal, including the cost to develop computer programs which calculate reserves for accident and health insurance due to several changes in the underlying reserve methodology and new morbidity tables. Companies that are domiciled in New York and are not licensed to do business in other states will be impacted the most by this adoption. Most insurers that are domiciled in New York and licensed to do business in other states already have in place identical or similar procedures for reserve requirements and morbidity tables due to adoption by many states of the Health Insurance Reserves Model Regulation of the National Association of Insurance Commissioners (NAIC). The adoption of this regulation by New York State improves reserve uniformity throughout the insurance industry. Therefore, minimal additional costs will be incurred in most cases. For some insurers doing business only in New York or in other states that have not adopted the NAIC model regulation, the adoption for the first time of standards for certain coverages such as group health insurance may require an increase in reserves and would therefore increase the insurer's cost of capital. In addition, an insurer that needs to modify its current systems could produce modifications internally or purchase software from a consultant, who would typically charge $5,000 to $10,000. Once the program has been developed, no additional systems costs should be incurred due to those requirements.
4. Minimizing adverse impact:
The regulation does not impose any adverse impact on rural areas.
5. Rural area participation:
The regulation was drafted after consultation with member companies of the Life Insurance Council of New York (LICONY). A copy of the draft was distributed to LICONY in November, 2002. Additional changes were made to the text of the regulation based on changes made to the NAIC's Health Insurance Reserves Model Regulation in December 2003 and a revised draft of the regulation was distributed to LICONY in January 2004. The draft was sent to American Insurance Association (AIA), Property Casualty Insurers Association of America (PCI) and National Association of Mutual Insurance Companies (NAMIC) for property and casualty insurers and to selected health insurers during late 2004 and early 2005. In addition, a discussion of the proposed rule making was included in the Insurance Department's regulatory agenda which was published in the January 3, 2007 issue of the State Register.
Job Impact Statement
Nature of impact:
The Insurance Department finds that this rule will have little or no impact on jobs and employment opportunities. This regulation sets standards for setting reserves for insurers. Most insurers will be able to reduce reserves and a few may need to increase reserves but this is unlikely to impact jobs and employment opportunities.
Categories and numbers affected:
No categories of jobs or number of jobs will be affected.
Regions of adverse impact:
This rule applies to all insurers licensed to do business in New York State. There would be no region in New York which would experience an adverse impact on jobs and employment opportunities.
Minimizing adverse impact:
No measures would need to be taken by the Department to minimize adverse impacts.
Self-employment opportunities:
This rule would not have a measurable impact on self-employment opportunities.
