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.
Public hearing(s) will be held at:
11:00 a.m. – 12:30 p.m., May 16, 2007 at Insurance Department, One Commerce Plaza, Life Bureau Conference Rm., Suite 1910, Albany, NY.
Accessibility:
All public hearings have been scheduled at places reasonably accessible to persons with a mobility impairment.
Interpreter Service:
Interpreter services will be made available to deaf persons, at no charge, upon written request submitted within reasonable time prior to the scheduled public hearing. The written request must be addressed to the agency representative designated in the paragraph below.
Substance of proposed rule (Full text is posted at the following State website: http://www.ins.state.ny.us/rproindx.htm):
The following is a summary of the substance of the 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 for premium reserves 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.
Text of proposed 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
Data, views or arguments may be submitted to:
Frederick Anderson, Insurance Department, One Commerce Plaza, Albany, NY 12257, (518) 474-7929, e-mail: fanderse@ins.state.ny.us
Public comment will be received until:
Five days after the last scheduled public hearing required by statute.
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 proposed 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 were allowed to linearly interpolate, over a four year period, between the higher reserves and those calculated based on the year-end 2002 standards. Insurers were required to be in full compliance with this Part by year-end 2006.
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”, under section 102(8) of the State Administrative Procedure Act, because there are none that are both independently owned and that employ fewer than 100 persons. 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” under section 102(8) of the State Administrative Procedure Act, because there are none that are both independently owned and that employ fewer than 100 persons.
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 numbers of rural areas:
Insurance companies covered by the regulation do business in every county in this state, including rural areas as defined under Section 102(10) of the State Administrative Procedure Act.
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 number 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.
