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NY Proposed Regulation 210: Life Insurance and Annuity Non-Guaranteed Elements - Part II

As readers are probably aware, on November 17, 2016, the New York State Department of Financial Services (Department or DFS) announced that proposed Regulation 210 would be filed with the Department of State on November 30. This is our second posting in a series on this proposed regulation. Be sure to check back for additional analysis or email Cailie Currin directly for more information.

In Part I of our discussion of this regulation, we looked at the new policy form content requirements established with this proposal. In this Part II, we examine the non-policy form filing requirements. Some of these are new requirements triggered by a policy form filing and others are stand-alone filing mandates. 

  1. Section 48.4(a)(1) of proposed Regulation 210 requires that a policy form filing include the date the board approved written criteria for determining non-guaranteed elements. The proposal contemplates the possibility that the criteria may not yet have been approved at the time of the form filing, and if that is the case, the filing must state that the approval date will be provided to the superintendent prior to issuance of the first policy form. It is important to note that it is NOT sufficient to indicate that the criteria will be approved by the board prior to the issuance of the first policy form. Instead, the actual date of the approval must be submitted to the Department before the first issuance.
     
  2. Section 48.4(e) requires that these criteria be filed with the DFS within 30 days of their adoption. This filing must include the policy form numbers to which the criteria apply, the issues dates and form numbers of any in-force policies to which the criteria will apply and the criteria being replaced, if any. This mandate, as well as the one above, will likely require the form filing unit(s) to track board actions in a way that has not generally been their practice historically.
     
  3. Section 48.4(a)(2) requires a signed and dated actuarial memorandum to be filed with every policy form filing. While actuarial memoranda are typically filed with life products, this has not been a requirement for annuity filings for many years now, even those that are subject to the non-forfeiture law. However, even those products that have been accompanied by an actuarial memorandum have not generally provided the level of detail set forth in this paragraph. There must be a statement that the anticipated experience factors in the memo are reasonable assumptions and that those are “the basis for determining the scale of non-guaranteed elements.” The actuary signing the certification must indicate that s/he is familiar with the NY requirements regarding non-guaranteed elements. Note the definition of a qualified actuary in Section 48.1(n) and the ongoing compliance requirements with respect to an insurer that flow from this definition in section 48.4(b). Over time, as actuaries move from insurer to insurer, it is unclear how this obligation will be workable in practice.

    This proposal further requires “a tabulation by pricing cell and duration of the current scale of non-guaranteed elements and the anticipated experience factors on which they are based.” The tabulation must then include 13 specific elements. Then there must be “a description of the experience or other information used to determine the anticipated experience factors, including a description of the reasoning and analysis that led from the information to the anticipated experience factors.” Section 48.4 further requires a description of the processes and methods used to determine the non-guaranteed elements from the anticipated experience factors for a pricing cell (defined in Section 48.1(m) and which may cross products). Indexed products have specific requirements in relation to the non-guaranteed elements found in those products, such as participation rates and caps.

    The investment strategy must be included in the submitted actuarial memorandum and it must include information on how “trading gains and losses due to interest rate changes are allocated; and a description of the methods used to assess deductions from gross earned rates for default, investment expenses and risk items.”
     
  4. Section 48.4(c) requires that a notice be filed with the superintendent at least 120 days before implementation of a change in the current scale of non-guaranteed elements that may have an adverse effect on policy values. This filing requires all of those elements applicable to an initial actuarial memorandum, and more. At this point, additional tabulations are required, including “a tabulation of all changes in the anticipated experience factors and profit margins by pricing cell giving the prior anticipated experience factors and profit margins, the current anticipated experience factors and profit margins, and the changes in the anticipated experience factors and profit margins.” Additional narrative descriptions are also required with this filing.

    If a change in current scale of non-guaranteed elements applies only to new policies, under §48.4(d) the insurer must file these same materials at least 15 days prior to implementation. In addition to the actuarial requirements of 48.4(a), this filing must include “an explanation of the inapplicability of the changes to in-force policies.” 

    We note that there is no indication of what the Department intends to do with these filings. While that may suggest that the filing alone satisfies the obligation under the regulation, given the lack of any statutory guidance or standards as to what is permissible or impermissible, and the request for vast amounts of information and subjective analyses, it appears to be a risk for any company to view this as a file and use mandate absent an explicit revision to the draft regulation making that clear.
     
  5. Section 48.4(f) requires that the insurer “maintain in its records, for six years after the termination of the last policy subject to the board-approved criteria, the written documentation of non-guaranteed elements required” by this proposed regulation. This could be a very large record-keeping effort given all the filings that are required and all the “documentation” required by this regulation.

Combined with the policy form language discussed in our previous posting, this proposed regulation expands dramatically the scope of what is reviewed by the DFS with respect to products that contain non-guaranteed elements. This expansion is not limited to a review at the time of issue, but rather could last for many decades depending on the type of product. For that reason alone, companies may be well-advised to review this proposal carefully and provide thoughtful feedback to the DFS regarding the regulation’s mandates in relation to the public policy concern shared by DFS.  

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