On May 24, 2017, DFS posted the revised second version of Regulation 210, Life Insurance and Annuity Non-Guaranteed Elements. The shorter comment period on this version just ended on June 23, 2017.
Some of the significant changes include:
Without question, the most surprising aspect of the latest proposal is that it still applies to annuity contracts, though with some changes in the applicable mandates. In the assessment of public comment, DFS stated:
The Department acknowledges that the problems uncovered over the years have primarily, but not exclusively, involved life insurance and has substantially revised the proposed rules for annuities to limit reporting on annuities to an annual reporting to the Department of adverse changes in non-guaranteed elements that took place in the prior year, as well as the 60-day notice to policyholders of adverse changes in non-guaranteed elements. The Department believes that this reporting is necessary to protect annuitants’ interest.
Another type of product that many thought should be excluded from Reg 210 is group products, especially when they are not subject to individual standards. Here DFS offered:
The Department narrowed the scope of the regulation with respect to group business but some groups not subject to individual rules are still subject to the regulation if the Department continues to have concerns about fair treatment of the participants. For example, the regulation would still be applicable to certain group annuities subject to ERISA that are not subject to individual standards in which case the insurer would be required to report annually on adverse changes to non-guaranteed elements.
One of the most controversial aspects of this regulation is that for the first time, and with unclear legal authority, DFS regulates insurer profit margins. Changes sought by commenters on the first public draft of the regulation were not made:
The Department believes in order to ensure that changes to non-guaranteed elements are based solely on changes in expected future experience, the profit margin must be fixed. Otherwise, if an insurer may change the profit margin, the various sections of the law requiring reasonable assumptions and equitable treatment of policyholders could easily be violated and bait and switch pricing could occur.
On a related issue – rate regulation – the Department notes that several commenters asserted that advance filing of changes in non-guaranteed elements is “tantamount to rate regulation.” In its assessment, DFS did not specifically address the rate regulation assertion, and instead responded as follows:
The Department believes prior approval is not necessary to ensure fair treatment of policyholders but advance notice of adverse changes is important because it helps avoid situations where improper changes in non-guaranteed elements results in fines and the need for the insurer to make restitution to harmed policyholders.
This suggests that advance filing may be rate regulation, but it is a better alternative, in the Department’s thinking, than waiting and only seeing those situations that the Department may find after the fact and where there has been a violation of law. It may be that the Department prefers that method of enforcement, but it remains an open issue if, without rate regulation authority, they have that option open to them. I believe we will hear more about this in the future.
A change that reduces filings is the removal of the requirement that board criteria be filed within 30 days of adoption. As the second public version reads the board criteria would fall in §48.4(f) as a record required by the regulation, and so it would need to be provided to the Superintendent upon request.
Another major positive change in this version is that DFS removed the policy form requirements. Several commenters on the first published draft indicated that the result of that version’s mandates would be overly burdensome. This change is very welcome and will make implementation easier than it would have if policy forms had to be filed.
The effective date of the regulation is now set to be 180 days after publication of the final rule. As indicated above, the second comment period ended on June 23rd, so now we wait to see if there will be any additional changes. It always seems likely that changes will be made the second time around – especially when there was active participation in the first. However, perhaps new statements of previous concerns will be persuasive this time around. It is always possible that comments will be raised on the revised language, making them essentially new comments. We will have to see.
Be sure to take a look at our November 3rd symposium in Hartford, CT; Regulation 210 and NY Issues - A look at solutions and new ways to approach your filings! Space is limited. Register today and get the early bird price.