DFS-20-14-00009-P Valuation of Annuity, Single Premium Life Insurance, Guaranteed Interest Contract and Other Deposit Reserves

5/21/14 N.Y. St. Reg. DFS-20-14-00009-P

NEW YORK STATE REGISTER

VOLUME XXXVI, ISSUE 20

May 21, 2014

RULE MAKING ACTIVITIES

DEPARTMENT OF FINANCIAL SERVICES

PROPOSED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. DFS-20-14-00009-P

Valuation of Annuity, Single Premium Life Insurance, Guaranteed Interest Contract and Other Deposit Reserves

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:

Proposed Action:

Amendment of Part 99 (Regulation 151) of Title 11 NYCRR.

Statutory authority:

Financial Services Law, sections 202 and 302; and Insurance Law, sections 301, 1304, 4217 and 4517

Subject:

Valuation of Annuity, Single Premium Life Insurance, Guaranteed Interest Contract and Other Deposit Reserves.

Purpose:

To adopt NAIC Individual Annuity Reserving Table.

Text of proposed rule:

Subdivisions (k)-(r) of section 99.3 are re-lettered as subdivisions (l)-(s).

A new subdivision (k) is added to section 99.3 to read as follows:

(k) Cohort mortality table means a mortality table containing a set of mortality rates that decrease for a given age from one year to the next and is based on a combination of a period table and a projection scale that contains rates of mortality improvement.

Current subdivision (s) is re-lettered as subdivision (u), and subdivisions (t)-(w) are re-lettered as subdivisions (w)-(z).

A new subdivision (t) is added to section 99.3 to read as follows:

(t) Period table means a table of mortality rates applicable to a given calendar year (the period).

A new subdivision (v) is added to section 99.3 to read as follows:

(v) Projection scale means a table of annual rates of mortality improvement by age, to be used for projecting future mortality rates.

Current subdivisions (x) – (y) of section 99.3 are re-lettered as subdivisions (aa) – (ab).

Current subdivision (z) of section 99.3 is re-lettered as subdivision (ac) and is amended to read as follows:

(ac) 1983 GAM Table means the mortality table shown in section [99.10(i)(3)] 99.10(i)(4) of this Part.

Current subdivision (aa) of section 99.3 is re-lettered as subdivision (ad) and is amended to read as follows:

(ad) 1994 GAR Table means that mortality table shown in section [99.10(i)(4)] 99.10(i)(5) of this Part.

A new subdivision (ae) is added to section 99.3 to read as follows:

(ae) 2012 IAR Table means the cohort mortality table containing rates, q²⁰¹²⁺ⁿ, derived from a combination of rates from the 2012 IAM Period Table and Projection Scale G2, using the methodology specified in section 99.10(i)(3)(iii) of this Part.

A new subdivision (af) is added to section 99.3 to read as follows:

(af) 2012 Individual Annuity Mortality Period Life (‘2012 IAM Period’) Table means the period table containing mortality rates for calendar year 2012 containing rates, q²⁰¹², as specified in section 99.10(i)(3)(i) of this Part.

Subdivision (b) of section 99.10 is amended to read as follows:

(b)(1) Individual annuities and pure endowments issued or purchased on or after January 1, 2000 and prior to January 1, 2015. The Annuity 2000 Mortality Table shall be used in determining the minimum standard of valuation for individual annuities and pure endowment contracts issued or purchased (under individual deferred annuity contracts or under individual or group life insurance policies) on or after January 1, 2000 and prior to January 1, 2015.

(2) Individual annuities and pure endowments issued or purchased on or after January 1, 2015. The 2012 IAR Table shall be used to determine the minimum standard of valuation for individual annuities or pure endowment contracts issued or purchased (under individual deferred annuity contracts or under individual or group life insurance policies) on or after January 1, 2015.

Paragraphs (3) – (5) of subdivision (i) of section 99.10 are re-numbered as paragraphs (4) – (6).

A new paragraph (3) of subdivision (i) of section 99.10 is added to read as follows:

(3) The 2012 IAR Table

(i) The rates of mortality per 1,000 lives based on age nearest birthday for the 2012 IAR Table are as follows:

THE 2012 INDIVIDUAL ANNUITY RESERVING TABLE

	MALE		FEMALE
Age ()	q 2012	G2	qx 2012	G2
0	1.605	0.010	1.621	0.010
1	0.401	0.010	0.405	0.010
2	0.275	0.010	0.259	0.010
3	0.229	0.010	0.179	0.010
4	0.174	0.010	0.137	0.010
5	0.168	0.010	0.125	0.010
6	0.165	0.010	0.117	0.010
7	0.159	0.010	0.110	0.010
8	0.143	0.010	0.095	0.010
9	0.129	0.010	0.088	0.010
10	0.113	0.010	0.085	0.010
11	0.111	0.010	0.086	0.010
12	0.132	0.010	0.094	0.010
13	0.169	0.010	0.108	0.010
14	0.213	0.010	0.131	0.010
15	0.254	0.010	0.156	0.010
16	0.293	0.010	0.179	0.010
17	0.328	0.010	0.198	0.010
18	0.359	0.010	0.211	0.010
19	0.387	0.010	0.221	0.010
20	0.414	0.010	0.228	0.010
21	0.443	0.010	0.234	0.010
22	0.473	0.010	0.240	0.010
23	0.513	0.010	0.245	0.010
24	0.554	0.010	0.247	0.010
25	0.602	0.010	0.250	0.010
26	0.655	0.010	0.256	0.010
27	0.688	0.010	0.261	0.010
28	0.710	0.010	0.270	0.010
29	0.727	0.010	0.281	0.010
30	0.741	0.010	0.300	0.010
31	0.751	0.010	0.321	0.010
32	0.754	0.010	0.338	0.010
33	0.756	0.010	0.351	0.010
34	0.756	0.010	0.365	0.010
35	0.756	0.010	0.381	0.010
36	0.756	0.010	0.402	0.010
37	0.756	0.010	0.429	0.010
38	0.756	0.010	0.463	0.010
39	0.800	0.010	0.504	0.010
40	0.859	0.010	0.552	0.010
41	0.926	0.010	0.600	0.010
42	0.999	0.010	0.650	0.010
43	1.069	0.010	0.697	0.010
44	1.142	0.010	0.740	0.010
45	1.219	0.010	0.780	0.010
46	1.318	0.010	0.825	0.010
47	1.454	0.010	0.885	0.010
48	1.627	0.010	0.964	0.010
49	1.829	0.010	1.051	0.010
50	2.057	0.010	1.161	0.010
51	2.302	0.011	1.308	0.010
52	2.545	0.011	1.460	0.011
53	2.779	0.012	1.613	0.011
54	3.011	0.012	1.774	0.011
55	3.254	0.013	1.950	0.012
56	3.529	0.013	2.154	0.012
57	3.845	0.014	2.399	0.012
58	4.213	0.014	2.700	0.012
59	4.631	0.015	3.054	0.013
60	5.096	0.015	3.460	0.013
61	5.614	0.015	3.916	0.013
62	6.169	0.015	4.409	0.013
63	6.759	0.015	4.933	0.013
64	7.398	0.015	5.507	0.013
65	8.106	0.015	6.146	0.013
66	8.548	0.015	6.551	0.013
67	9.076	0.015	7.039	0.013
68	9.708	0.015	7.628	0.013
69	10.463	0.015	8.311	0.013
70	11.357	0.015	9.074	0.013
71	12.418	0.015	9.910	0.013
72	13.675	0.015	10.827	0.013
73	15.150	0.015	11.839	0.013
74	16.860	0.015	12.974	0.013
75	18.815	0.015	14.282	0.013
76	21.031	0.015	15.799	0.013
77	23.540	0.015	17.550	0.013
78	26.375	0.015	19.582	0.013
79	29.572	0.015	21.970	0.013
80	33.234	0.015	24.821	0.013
81	37.533	0.014	28.351	0.012
82	42.261	0.013	32.509	0.012
83	47.441	0.013	37.329	0.011
84	53.233	0.012	42.830	0.010
85	59.855	0.011	48.997	0.010
86	67.514	0.010	55.774	0.009
87	76.340	0.009	63.140	0.008
88	86.388	0.009	71.066	0.007
89	97.634	0.008	79.502	0.007
90	109.993	0.007	88.377	0.006
91	123.119	0.007	97.491	0.006
92	137.168	0.006	107.269	0.005
93	152.171	0.005	118.201	0.005
94	168.194	0.005	130.969	0.004
95	185.260	0.004	146.449	0.004
96	197.322	0.004	163.908	0.004
97	214.751	0.003	179.695	0.003
98	232.507	0.003	196.151	0.003
99	250.397	0.002	213.150	0.002
100	268.607	0.002	230.722	0.002
101	290.016	0.002	251.505	0.002
102	311.849	0.001	273.007	0.001
103	333.962	0.001	295.086	0.001
104	356.207	0.000	317.591	0.000
105	380.000	0.000	340.362	0.000
106	400.000	0.000	362.371	0.000
107	400.000	0.000	384.113	0.000
108	400.000	0.000	400.000	0.000
109	400.000	0.000	400.000	0.000
110	400.000	0.000	400.000	0.000
111	400.000	0.000	400.000	0.000
112	400.000	0.000	400.000	0.000
113	400.000	0.000	400.000	0.000
114	400.000	0.000	400.000	0.000
115	400.000	0.000	400.000	0.000
116	400.000	0.000	400.000	0.000
117	400.000	0.000	400.000	0.000
118	400.000	0.000	400.000	0.000
119	400.000	0.000	400.000	0.000
120	1000.000	0.000	1000.000	0.000

(ii) The values in the 2012 IAR Table are as follows: q²⁰¹²= the mortality rate for a person age x in year 2012 (i.e., the period table rate), and G2x = the annual improvement factor in the mortality rate for age x.

(iii) In using the 2012 IAR Table, the mortality rate for a person age x in year (2012 + n) is calculated as follows: q²⁰¹²⁺ⁿ= q²⁰¹²(1 – G2x) ⁿ

(iv) The resulting q²⁰¹²⁺ⁿshall be rounded to three decimal places per 1,000 (e.g., 0.741 deaths per 1,000) in accordance with the formula in subparagraph (iii) of this paragraph, starting at the 2012 period table rate. For example: For a male, age 30, q²⁰¹²= 0.741, q²⁰¹³= 0.741 * (1 – 0.010) ¹= 0.73359, which is rounded to 0.734, and q²⁰¹⁴= 0.741 * (1 – 0.010) ²= 0.7262541, which is rounded to 0.726.

(v) Rounding shall be performed only at the end of the calculation, not at intermediate steps. For example, a method leading to incorrect rounding would be to calculate q²⁰¹⁴as q²⁰¹³* (1 – 0.010), or 0.734 * 0.99 = 0.727. The already-rounded q²⁰¹³may not be used to calculate q²⁰¹⁴.

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

Frederick Andersen, New York State Department of Financial Services, One Commerce Plaza, Albany, NY 12257, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

45 days after publication of this notice.

Regulatory Impact Statement

1. Statutory authority: The Superintendent’s authority to promulgate the Third Amendment to Insurance Regulation 151 (11 NYCRR 99) derives from Financial Services Law (“FSL”) sections 202 and 302, and Insurance Law sections 301, 1304, 4217, and 4517.

FSL section 202 establishes the office of the Superintendent and designates the Superintendent as the head of the Department of Financial Services.

FSL section 302 and Insurance Law section 301 authorize the Superintendent to effectuate any power accorded to him by the Insurance Law, the Banking Law, the Financial Services Law, or any other law of this state, and to prescribe regulations interpreting the Insurance Law, among other things.

Insurance Law section 1304 requires every authorized insurer to transact the kinds of insurance specified in Insurance Law section 1113(a)(1), (2) or (3) to maintain reserves necessary on account of such insurer's policies, certificates and contracts.

Insurance Law section 4217 requires the Superintendent to annually value, or cause to be valued, the reserve liabilities (“reserves”) for all outstanding policies and contracts of every life insurer doing business in New York. Insurance Law section 4217(a)(1) specifies that the Superintendent may certify the amount of any such reserves, specifying the mortality table or tables, rate or rates of interest, and methods used in the calculation of the reserves.

Insurance Law section 4217(c)(6)(D) permits the Superintendent to issue, by regulation, guidelines for the application of the reserve valuation provisions of section 4217 to such policies and contracts as the Superintendent deems appropriate.

Section 4517(c)(2) of the Insurance Law requires fraternal benefit societies to comply with the minimum valuation standards of Insurance Law section 4217 for life insurance and annuities issued on or after January 1, 1980.

2. Legislative objectives: Maintaining solvency of insurers doing business in New York is a principle focus of the Insurance Law. One fundamental way the Insurance Law seeks to ensure solvency is by requiring all insurers and fraternal benefit societies authorized to do business in New York State to hold reserve funds sufficient in relation to the obligations made to policyholders. The Insurance Law prescribes the mortality tables and interest rates to be used for calculating such reserves.

3. Needs and benefits: This amendment incorporates a new individual annuity mortality table, which was recently adopted by the National Association of Insurance Commissioners (“NAIC”), that must be used to calculate reserves on individual annuities and pure endowments issued or purchased on or after January 1, 2015. The table includes projection scales to reflect mortality improvement. The resulting mortality rates, which are lower than those previously prescribed, will be used by insurers to calculate reserves, and are those required by new section 99.10(i)(3) of the regulation. The use of this type of generational table for valuing individual annuity reserves is a departure from the use of static tables, which can become outdated more quickly. Use of the mortality rates and projection scales, which were developed by the Society of Actuaries’ Committee on Life Insurance Research and based on testing conducted by the NAIC during development of the table, are expected to result in increased reserves because mortality rates will be lower due to the expectation that lifetime annuitants will receive their income for longer periods of time. The longer annuity incomes are received, the greater the expectation of future cash flows. Because the cash flows are expected to be greater, insurers need to hold higher reserves.

4. Costs: Costs to insurers and fraternal benefit societies authorized to do business in New York State that are impacted by this amendment are expected to be minimal. Minor additional costs may arise from the need to modify existing computer software to incorporate the new individual mortality table prescribed by this rule to calculate reserves for individual annuities and pure endowments that were issued or purchased on or after January 1, 2015. The Department does not contemplate incurring any costs arising from this amendment. 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 amendment imposes no new reporting requirements.

7. Duplication: The regulation does not duplicate any existing law or regulation.

8. Alternatives: During the course of developing the new individual annuity table, the drafting committee considered developing multiple tables by gender and annuity income level. However, the drafting committee determined that breaking out the valuation mortality rate by annuity income would result in some undesirable outcomes, including the ability to break up a high-income annuity into smaller annuities for the purpose of lowering the reserve held on the policy. The new table that was adopted by the NAIC has the same structure as the current Annuity 2000 Individual Annuity Mortality Table, in which the same table is used regardless of annuity income level.

9. Federal standards: There are no federal standards in this subject area.

10. Compliance schedule: This amendment to the regulation applies to financial statements filed on or after January 1, 2015. This amendment provides a new mortality table to be used to calculate reserves for individual annuities and pure endowments. Since this table has already been adopted by the NAIC and will not impact reserves until 2015, insurers should have adequate time to incorporate this new mortality table into their valuation systems.

Regulatory Flexibility Analysis

1. Small businesses: The Department finds that this amendment 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 insurers and fraternal benefit societies that are authorized to do business in New York State, none of which comes within the definition of “small business” as defined in section 102(8) of the State Administrative Procedure Act. The Department reviewed filed Reports on Examination and Annual Statements of authorized insurers and fraternal benefit societies and concludes that none of these entities comes within the definition of “small business,” because there are none that are both independently owned and have fewer than one hundred employees.

2. Local governments: The amendment 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: Insurers and fraternal benefit societies covered by the amendment do business in every county in this state, including rural areas as defined in State Administrative Procedure Act (“SAPA”) section 102(10).

2. Reporting, recordkeeping and other compliance requirements; and professional services: The amendment does not impose any new reporting, recordkeeping, or other compliance requirements and does not require the use of professional services.

3. Costs: Costs to insurers and fraternal benefit societies authorized to do business in New York State that are impacted by this amendment are expected to be minimal. Minor additional costs may arise from the need to modify existing computer software to incorporate the new individual mortality table prescribed by this rule to calculate reserves for individual annuities and pure endowments that were issued or purchased on or after January 1, 2015. The Department does not contemplate incurring any costs arising from this amendment. There are no costs to other government agencies or local governments.

4. Minimizing adverse impact: The regulation does not impose any adverse impact on rural areas.

5. Rural area participation: The mortality table being adopted through this amendment is the same as the table that was recently adopted by the National Association of Insurance Commissioners. Affected insurers and their trade associations, including the American Council of Life Insurance, had the opportunity to comment on the use of this table through that process.

Job Impact Statement

The Department finds that this amendment should have no impact on jobs and employment opportunities. This amendment prescribes a new individual annuity mortality table to be used when setting reserves that are held for individual annuities and pure endowments issued or purchased on or after January 1, 2015. Insurers should not need to hire additional employees or independent contractors to comply with these new standards.