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Product Drafting & Filing

Successful LHCA Meeting in Portland, OR

LHCA Portland OR

I am sitting in the Delta Sky Club in Portland, OR after a great LHCA meeting here.  I have had really positive experiences at LHCA meetings and some that are not so great. The meetings tend to be small, which is a great thing if the people there are excited to both ask questions and share information. This was one of those. The meetings that are not as good are the ones where the people in attendance don’t get up to the mic and share. If there are only a couple of people answering all the questions and many questions with minimal input, it is hard to feel great about the time spent. This meeting was the kind that makes it more than worthwhile to be there. In our office we have some new staff that are really talented and excited about the work and I see that we are not alone- the new attendees at this LHCA meeting shared that excitement and passion for the work we do. I am going home upbeat and invigorated to keep doing the work! 

I presented on NY’s Reg 187 as it relates to life insurance.  There were fabulous questions and comments about how the various company’s implementation efforts are going. I got great feedback on the presentation and that is always nice to hear.  The slides are being made available to LHCA attendees and are posted in our Standard of Care Center for members’ reference.  

My next presentation on Reg 187 will be at AICP’s E-day in Springfield, MA on June 12. That one will focus on the intersections and conflicts between Reg 187, Reg 210 and Reg 60.  I am sure that, too, will be a lively discussion and I am really looking forward to it.  I hope to see you there.  Of course, that deck will also be available for members at education.currincompliance.com in the Standard of Care Center.  

- Cailie

“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.

Review

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

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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.

Confused about designing annuities in NY?

If the answer is yes, then our Demystifying NYS Annuity Nonforfeiture course is your go-to source. This course will teach you everything you need to know about NYS nonforfeiture law and what you need to do to design a product that complies.

This course, authored by Tom Hartman, Senior Compliance Actuary (formerly with NYSDFS), clarifies the requirements in detail so you know exactly which product designs will and will not work.

When it comes to understanding these requirements, few are as knowledgeable as Tom. This course will help you develop products with confidence, determine an appropriate filing method, and achieve an approval quickly.

ACT NOW and purchase Demystifying NYS Annuity Nonforfeiture for only $1499/single user access or $2998/unlimited access.

Download this free white paper to learn some basic and common drafting issues.

If you would like more information about the Demystifying NYS Annuity Nonforfeiture course, please email Glenda Bean or call her directly at (518) 512-0172.

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.