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Product Drafting & Filing

“1035 exchanges are about to get easier. Is that a good thing?”

This title is not original. It is the title of an article written by Greg Iacurci in InvestmentNews’ January 21, 2019 edition. It is an interesting piece about the effort to use technology to speed up the 1035 annuity-to-annuity transfer on a tax-free basis. Whenever I see 1035, I think replacement and when I think replacement, I think about Regulation 60 in NY. When I read this article, I kept thinking how likely it is to lead to Reg 60 violations and fines.

While not mentioned in the article, I am hopeful that those working on this streamlining effort are familiar with Reg 60 and its mandates. The article states “Annuity products are often derided as being expensive, complicated products, a criticism that’s compounded by cumbersome industry infrastructure that often creates a month-long exchange process. Technology can reduce the time line substantially, executives said, likely to within a week, start to finish.” That does not appear to be enough for all that is required by Reg 60.

Sheryl Moore, CEO of Moore Market Intelligence does point out that it is possible that “more bad actors would get missed” due to the streamlined process, and that is certainly true, but my concern is a compliance one. I do not see how it will be possible to comply with the disclosure requirements of Reg 60 within that process. So perhaps NY is outside the scope of these efforts? Perhaps once the rest of the country has successfully expedited the replacement process, pressure can be brought to bear on the NY DFS to revise Reg 60 to increase the speed of these transactions.


However, that seems a long shot given recent experience with Reg 60 procedures filings. In most cases, if not all, an expedited process for replacements requires revisions to a company’s DFS-filed procedures. Those filings are reviewed in granular detail and changes are often requested along with every screen shot of an electronic process. If changes are also required to the application to accommodate a new process, the slowdown at DFS is dramatically increased. Both the policy form reviewers and Reg 60 reviewers hold these types of changes to an extremely rigorous scope of review, far in excess of anything that exists in the review of paper processes. The chance that 1035 exchanges will get easier in NY seems remote.

Disclosure Requirements for Non-illustrated Products


There often is a bit of confusion concerning the disclosure requirements for non-illustrated products.

This requirement comes in part from NY Section 3209. This section calls for preliminary information (see 3209(d) for requirements) to be provided at or before the time of application. Then a policy summary (see 3209(e) for requirements) is required at or before the time of policy delivery.

However, 3209(l) then goes on to say:

‘(l) An insurer of any life insurance policy or annuity contract subject to this section shall notify the superintendent whether its policies or contract forms have been or will be marketed with or without an illustration.  

For those policies and contracts marketed with an illustration which complies with the regulations promulgated pursuant to subsection (k) of this section, no preliminary information or policy summary shall be required.

For those policies that are not marketed with an illustration, the preliminary information and policy summary shall be provided pursuant to the provisions of this section.’

Now, here’s where things get messy for non-illustrated products. Preliminary Information & the Policy Summary must be provided. These include projections on a current basis. But NY Regulation 74 indicates that any depiction of non-guaranteed elements to be an illustration. But the product is supposed to be non-illustrated. And now we are going around in the dreaded compliance circle.

To allow for non-illustrated products to exist in NY, the Department has taken the position that as long as the Preliminary Information & the Policy Summary show only the non-guaranteed elements required by 3209 (and 53-2.1 & 53-22 for UL type policies) then these would not be considered illustrations within the meaning of Regulation 74.

Again, a bit messy.

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Getting Out the Pencil in New York

I’m no actuary, but I’m pretty darn good at math for a regular person.

And yet, every time I read a NY policy with an accelerated death benefit that discounts the payment, which is fairly regularly, I have to get out a pencil and a piece of paper and think, think, think.

Here’s a very simplified version of how NY describes the interest rate that may be used to figure the discount.

The maximum interest rate cannot exceed the greater of:
(a) yield on 90-day T-Bills; and
(b) maximum adjustable policy loan interest rate based on the greater of:
     (i) Moody’s Average; and
     (ii) the policy’s guaranteed rate + 1%.

There are basically three values in the above sentence: T-Bills, Moody’s, and “R+1.” Using pencil and paper, I must convince myself, usually more than once, that if a company uses only one of the values to set the rate, then the rate is compliant.

Is this immediately clear to everyone but me? It’s completely intuitive to my colleague, Tom Hartman, but he’s an actuary, and I view actuaries as outliers.

It’s completely counterintuitive to me.

If the acceleration discount uses, let’s say, the Moody’s rate, I have to assign a low number to the Moody’s and higher rates to the T-Bills and R+1 rates, and then prove to myself that it’s compliant. Then I have to assign a high number to the Moody’s and lower numbers to the other two rates and ponder that situation. Then I do it again with the Moody’s rate in the middle. Amazingly enough, it always works.

Perhaps the issue is that regulations do not usually set maximums by giving the “greater of” methodology. I think I am accustomed to regs using “lesser of” language when capping a maximum, and, conversely, using “greater of” language for the setting of minimums.

If a regulatory maximum is the greater of three values, of course any one of the values can be used without regard to the other two, because the value selected is either the lowest, the middle value, or the highest. And since we’re allowed to use the “greater of” the values, meaning the highest value, of course we can use any one of the values because it’s either the highest value, or less than the highest value.

Do I sound convincing? I’m actually trying to convince myself. With luck, next time I come across a discounted accelerated death benefit, and I look at New York’s Regulation 143 to confirm compliance, it will all be crystal clear to me and my pencil will remain in my desk drawer.

Accelerated Death Benefits in CA

AICP Western Chapter E-Day in San Francisco

During the AICP Western Chapter E-Day held in San Francisco on May 3rd, we had a session on accelerated death benefits in CA presented by Leslie Tick, Emily Smith, and Ryan Delatorre of the CDI, and it was a VERY informative! The session was titled 10295 Accelerated Death Benefits: How to Get Your 10295 Filing to Sail Through the Policy Approval Process.

While I won’t provide all the information that was shared, I have included here what might be helpful to those contemplating a 10295 filing or waiting for one to be reviewed.

As the name of the session implies, the focus of the session was accelerated death benefits for chronic illness under 10295.

Before I jump into the tips shared in the presentation, there was discussion regarding the current review time being experienced by all with a filing in the queue. The following is a summary of that discussion:

There are a limited number of reviewers for 10295 benefits who are also responsible for LTC review, and their queue currently has a backlog. While they are making good progress getting caught up, there is an understandable delay in what would be considered the normal turn-around time. Without the backlog, the goal to have the first set of reviewer comments out to the company 4 months after submission. Progress is being made on the backlog, but filings from 2017 are still being reviewed, and they couldn’t say when the review of 2018 submissions would begin. It was clear to me that they understand the concerns of the carriers with filings still in the queue, and this is where their presentation began.

The following is a summary of the tips shared by the CDI for those who are planning on submitting a 10295 filing. You will see that the theme is focused on ways to make your filing cleaner, resulting in shorter review time, and hopefully quicker approvals for all:

  1. Review 10295 in its entirety to ensure that your benefit complies (easy enough, but many of the objections written are a result of this oversight).
  2. DO NOT submit the Compact version in CA. CA law is different, resulting in a CA version of the form. (Apparently this happens quite often as well.)
  3. The compulsory provisions set forth in 10271(c) should also be included.
  4. Do not require that a rider be inforce for a claim to be submitted. (Your general exclusions section should be reviewed to ensure there are no conflicts with 10295.16.)
  5. Explain the process for certification of chronic illness as outlined in 10295(b)(2)(B)(ii)(I)-(IV).
  6. Include lump sum and periodic payment options 10295.1(a)(3).
  7. Allow multiple accelerations on the same and different qualifying events 10295.1(b)(2) & (3).
  8. Include an explanation and a numeric illustration of how the insured will pay for the acceleration per 10295.1(e). (This can be included in the rider or in an attachment to the rider.)
  9. Identify the specific forms the rider will be used with (policies, applications, notices). Do not include a statement that it will be used with forms in the future.
  10. Section headings, page numbers, and tables of contents are very helpful to your reviewer.

If your filing is in the queue, and after reviewing this list, you feel that some changes to your forms are necessary, here is what you should do:

  1. Send a note to your assigned reviewer to ask the status of your review. Basically, if they haven’t started yet, you can make changes to your filing without losing your place in line. Include a clear explanation of why you made the changes. For example: “Rider form replaced prior to review to comply with payment options as described in 10295.1.”
  2. If you had a previously approved form and now you are submitting an updated version with few changes, let the reviewer know by describing the changes in your filing description and include a redline comparison to the previously approved form.
  3. If you are responding to objections, always include redlines. Be sure you are not making changes that are not explained and that you have included the correct redlined version. The redlines seem to be a place where some carriers can be a bit sloppy, causing delays in review.

If you have serious deadlines, you can include them in your filing description along with an explanation. Filings are reviewed in the order they are received, but an understanding of the carrier’s intentions is helpful to your reviewer.

If you have questions or need assistance with your filing, please let us know; as always we are happy to help! Call (518) 692-2494 or send us an email.