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Guidance from NY: Filing 2017 CSO Mortality Table

As you probably know by now, on May 2, 2017, NY released guidance on the filing requirements for insurers and fraternal benefit societies wanting to use the 2017 CSO mortality table. The Department began accepting submissions of policy forms referencing the 2017 CSO Table on May 17th, 2017. It appears that adoption is, not surprisingly, somewhat slow, so we thought it might make sense to provide a bit of a reminder of these rules:

Below is a summary of when the 2017 CSO table can and must be used for reserve and nonforfeiture calculations as well as what to do for previously approved forms that use the 2001 CSO Table. Note that in addition to the information listed here, policy form submissions must comply with all usual and substantive requirements set forth in the product outline applicable to the product type being submitted.

Key Dates for Reserve and Nonforfeiture Calculations

  • May use for reserve and nonforfeiture calculations for policies issued on or after 1/1/2017
  • Must use for policies issued on or after 1/1/2020

Previously Approved Form: References 2001 CSO Table

A change in the mortality basis - that is, a change in the underlying assumptions on consumer life expectancies that is used to base policy costs and project payouts - to the 2017 CSO Table cannot be accomplished without filing a new version of the policy form for approval.

  • The new version of the policy form will need a unique form number.
  • The previously approved forms that do not themselves reference the table (e.g., application) may be used with the new version of the policy form without needing to re-file. Only those forms that themselves reference the mortality table must be re-filed.
    • The filing description should identify previously approved forms that will be used with the policy form submitted for approval. For example, the application referenced in the bullet above.

Previously Approved Form: Does Not Reference 2001 CSO Table

For example, a term life insurance with no cash value and company wishes to change the mortality basis, the company must:

  • Send a letter - NOTE: it’s our understanding that this means either a physical letter or entering a letter into the Filing Description in SERFF - and supporting material to the Dept. stating intentions to revise the table and, if applicable, indicate whether or not change is retroactive for all policies issued in 2017.
    • When submitting via SERFF, select the “Other” filing mode and enter an Explanation of “Election of 2017 CSO.”
    • In SERFF, use the Filing Description field to enter the letter. If you also include an actual letter be sure to check and double check that the filing description field and the uploaded document are consistent since version control can become an issue if choosing to repeat the information in multiple places.
  • Note that the reserve and nonforfeiture basis must be the same.
  • A certification of nonforfeiture compliance must be included with the election.
  • If the 2001 CSO Mortality Table was only mentioned in the actuarial memo accompanying the original policy form filing, then an updated actuarial memo must accompany the election submission.
  • The election must be received by 12/31/17 in order to elect a retroactive change in the mortality basis for year-end 2017.
  • The 2017 CSO Table may only be used for policies issued on or after 1/1/17 and then only if the company files an actuarial opinion in the annual statement based on asset adequacy analysis as specified in 95.8 of Reg. 126. See 100.5(d) of Reg. 179 for more details.

Send election and supporting materials to William Carmello, Chief Actuary via SERFF or the address below.

  • If using SERFF, the “Other” filing mode should be selected with an Explanation of “Election of 2017 CSO.”
  • Address for Submissions not via SERFF:

New York State Department of Financial Services
Life Bureau – 19th Floor
One Commerce Plaza
Albany, New York 12557

NYDFS Health Bureau Posts New Policy Form Model Language

The New York Department of Financial Services’ Health Bureau has posted new policy form model language on its website: The new language is for the following provisions:  Continuation of Coverage, Coordination of Benefits, Pre-existing Conditions and Same-Sex Marriage Spouse Eligibility. These updates were posted today, October 24, 2012.

New Process in NY for UL Policies with Secondary Guarantees

Over the last several months our office has filed a series of requests for exemption from the NYDFS’ December 2011 filing guidance that prohibited the use of the certified process with any UL product that had a secondary guarantee. The language of that guidance was much more broad than the Department’s concern, as it was explained to us, but the stakes were way too high (use of an unapproved form) to file certified with any secondary guarantee at all. Kudos goes to the Department for changing their position on these filings.

The NYDFS recently posted a revised notice with an AG38 Certification attached for use in all UL filings with secondary guarantees. While this still may leave room to wonder whether a particular filing really has a legitimate secondary guarantee, at least the only consequence is completing an extra certification. That said, I think the inefficiencies in the new system will arise in UL submissions that do not include a certification. The notice states that the filing of the UL product with a secondary guarantee will be incomplete without this new certification. So how will the administrative personnel who review certified filings know whether a certification is needed? Will they ask a lawyer or actuary to review each UL submission that does not have an AG38 Cert. looking for a feature that might be a secondary guarantee? Will they rely on a statement in the filing description one way or the other?

Only time will tell, but our recommendation so far is that a statement be included one way or the other with the filing and that companies err on the side of including the certification even if they think the DFS does not mean to include their product.

Update and clarification: (10/24/12)  It was graciously brought to our attention that our original post was based on the general NYDFS website posting and therefore did not make note of the fact that filers in SERFF will be prompted to provide an explanation of why an AG38 Certification is not included during the process of bypassing the new UL requirement for the certification. This provides yet another reason to use SERFF.   Thank you to the commentator who provided this additional information!

Changes to New York’s Market Conduct Profile for 2011 Reporting

On March 2, 2012, the New York Department of Financial Services posted changes for the Market Conduct Profile due later this year, to be completed with data from 2011 on its website. There were only two changes indicated from last year:

  1. Question 7 in the Compliance Section is added. These questions relate to the Company’s AML Program and the specific products that are covered under the AML Program.
  2. In question 12 of the Compliance Section (formerly question 11), the question concerning membership in IMSA has been replaced with question concerning the membership with The Compliance & Ethics Forum for Life Insurers (CEFLI) or other similar organizations.

It is the second one that I found particularly interesting. As we have discussed here previously, the change from IMSA to CEFLI was a very big change and one that eliminated the compliance assessment and certification requirement for membership. I was a qualified independent assessor under IMSA, so I have a bias, but I do not think that membership in an organization that hosts webinars and conferences on general compliance topics is the same as one that mandates an exhaustive in-house assessment process and then has an outside assessor review that work.

Membership in CEFLI is not the same as membership was in IMSA. That is not to say that CEFLI doesn’t provide important information or the opportunity for significant discussions on insurance compliance topics. However it does not reflect the significant commitment to a process of assessment and evaluation of a large number of company policies and procedures the way IMSA membership used to. I am sure that the New York Department of Financial Services knows that and they do indicate that other similar organizations can be included in the response. I am, therefore, hopeful that membership in all the other organizations that support life insurance companies in their compliance efforts (e.g., the Association of Insurance Compliance Professionals, the Insurance Advertising Compliance Association, and the Life and Health Compliance Association) are given similar weight to CEFLI membership.

What made IMSA different was the rigorous assessment process. Without that in CEFLI, there are a number of equivalent organizations to which companies may turn to obtain information and compliance support. In my opinion, all should “count” in their favor on the market conduct profile.

Can We Just Focus on the Circular Letter?

When the New York Department of Financial Services Circular Letter 4 (2012) was posted on their website in late February, I had a strong reaction, as did many others. But when I took a step back, I realized that it wasn’t so much the Circular Letter itself, it was the accompanying press release. That release was surprising in both its tone and conclusions. I was not surprised that New York would issue a Circular Letter requiring disclosure around retained asset accounts and rules for their election. Many other states have.

What was surprising to me was the use of emotionally charged statements in the press release such as: “For years, the life insurance industry has been earning hundreds of millions of dollars by holding life insurance payouts of America’s soldiers, veterans and others in so-called ‘retained asset accounts.’” Is this ranked in order of the amount of proceeds held or in the order of emotional appeal? The press release further states: “Even though the money is owed to surviving family members, the insurance companies continue to earn interest on and invest these funds until they are withdrawn by survivors.” That is a true statement, but it seems to suggest that other financial institutions would not benefit if those funds were on deposit there.

All financial institutions make a profit of the funds they hold, don’t they? If a beneficiary of a life insurance policy is issued a lump sum and they deposit those proceeds in a bank account, the suggestion seems to be that the bank doesn’t then make a profit on those funds.

The suggestion by the Department of Financial Services, that now regulates both banks and insurance companies, appears to be that banks are altruistic and insurers opportunistic. Unlike the insurers, banks won’t profit off of life insurance proceeds left on deposit with them. Really? My savings accounts are earning less than 1% interest right now. Am I supposed to believe that the banks are not investing and earning anything above that? They are passing everything through to me? If not, would that be somehow different if the funds sitting in my savings accounts were proceeds from a life insurance policy instead of saved income? If my accounts had been funded with life insurance proceeds, the bank would not “continue to earn interest on and invest these funds” until I withdrew them? The only alternative to a financial institution making a profit on life insurance proceeds seems to be to require that the proceeds be held by the beneficiary in cash – perhaps stuffed in a mattress. If a financial institution is going to profit does it really matter to the individual whether it is a bank or an insurance company?

Now there is the question of FDIC coverage. FDIC does not cover proceeds left on deposit with insurers. I am fine with that being disclosed. But what about state Guaranty Fund coverage? Why is it not equally important, in the name of full disclosure, that insurers be able to compare and contrast what Guaranty Funds cover with what the FDIC provides? Notices are required in some states on policy delivery, but discussion at any other time is generally prohibited unless initiated by the consumer. Full and complete disclosure would seem to argue in favor of changing that position and allowing a discussion of Guaranty Funds whenever FDIC is mentioned.

What seems unfortunate to me is that there would have been little insurer outrage at the content of the Circular Letter itself. It focuses on disclosure and procedures for electing settlement options in lieu of a lump sum and while the requirements are somewhat more onerous than other states, in my opinion, they are not surprisingly so and they require only incremental modifications to what most companies have implemented in other states. Not what companies wanted, particularly so late in the retained asset account game when changes have been made to process and procedure based on what other states already require: but not an insurmountable burden either, I don’t think.

When coupled with such an inflammatory press release, it is hard to avoid a strong emotional response. And emotional responses often lead to resistance and opposition, which I don’t think was necessary to achieve compliance. And that suggests that perhaps the goal of the press release was other than industry compliance.