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S08978 Summary:

S08978 Actions:

S08978 Committee Votes:

S08978 Floor Votes:

S08978 Text:

 
                STATE OF NEW YORK
        ________________________________________________________________________
 
                                         8978--A
 
                    IN SENATE
 
                                      June 8, 2018
                                       ___________
 
        Introduced  by  Sen.  SEWARD -- read twice and ordered printed, and when
          printed to be  committed  to  the  Committee  on  Rules  --  committee
          discharged, bill amended, ordered reprinted as amended and recommitted
          to said committee
 
        AN  ACT to amend the insurance law, in relation to the implementation of
          a valuation manual; and to direct the department of financial services
          to study the impact of the implementation of  such  valuation  manual;
          and providing for the repeal of such provisions upon expiration there-
          of
 
          The  People of the State of New York, represented in Senate and Assem-
        bly, do enact as follows:
 
     1    Section 1. Section 4217 of the insurance law is amended  by  adding  a
     2  new subsection (g) to read as follows:
     3    (g)(1)  This  subsection shall apply only to individual and group life
     4  insurance policies and annuity contracts issued on or after  the  opera-
     5  tive date of the valuation manual as prescribed by the superintendent by
     6  regulation,  provided  that  the  operative date shall be no sooner than
     7  January first, two thousand nineteen.
     8    (2) For the  purposes  of  this  subsection,  "NAIC"  shall  mean  the
     9  National Association of Insurance Commissioners.
    10    (3) For purposes of this subsection, "principle-based valuation" shall
    11  mean  a  reserve valuation that uses methods and assumptions required by
    12  paragraph eleven of this subsection as specified in the valuation  manu-
    13  al.
    14    (4)  For purposes of this subsection, "qualified actuary" shall mean a
    15  member in good standing of the American Academy of Actuaries  who  meets
    16  the requirements prescribed by the superintendent by regulation.
    17    (5) For purposes of this subsection, "valuation manual" shall mean the
    18  valuation  manual  adopted  by the NAIC on December second, two thousand
    19  twelve, as subsequently amended, and as approved by  the  superintendent
    20  upon a finding that such manual is for the best interests of the holders
    21  of  policies  and contracts and annuitants of this state and which meets
    22  the requirements as set forth in this subsection.
 
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD16245-03-8
        S. 8978--A                          2
 
     1    (6) Notwithstanding subsection (c) of this section  and  section  four
     2  thousand  two hundred eighteen of this article, the minimum standard for
     3  the valuation of all such policies and contracts shall be  the  standard
     4  prescribed in the valuation manual.
     5    (7)  The  valuation  manual  shall  not become operative in this state
     6  unless and until the superintendent has approved of such manual and  has
     7  adopted all necessary regulations to effectuate this subsection.
     8    (8) (A) No amendment to the valuation manual shall take effect in this
     9  state  unless  the  superintendent  finds that such amendment is for the
    10  best interests of the holders of policies and contracts  and  annuitants
    11  of this state.
    12    (B)  The  superintendent  may  deviate,  through regulations, from the
    13  reserve standards, valuation methods, assumptions, and related  require-
    14  ments  in  the  valuation  manual,  including  for individual companies,
    15  provided, however, that such deviation shall not result in reserve valu-
    16  ations that are lower than the minimum standards prescribed in the valu-
    17  ation manual and may be based on a percentage of the reserves being held
    18  for the policies and contracts subject to this subsection prior  to  the
    19  operative date of such manual.
    20    (9) The valuation manual shall specify all of the following:
    21    (A)  Minimum  valuation  standards for and definitions of the policies
    22  and contracts subject to this subsection as  determined  by  the  super-
    23  intendent. Such minimum valuation standards shall be:
    24    (i)  The  commissioners  reserve  valuation  method for life insurance
    25  policies subject to this subsection; and
    26    (ii) The commissioners annuity reserve valuation  method  for  annuity
    27  contracts subject to this subsection.
    28    (B) Requirements for the format of reports to the superintendent under
    29  item  (iii)  of  subparagraph (B) of paragraph eleven of this subsection
    30  and which shall include information necessary to determine if the  valu-
    31  ation is appropriate and in compliance with this subsection;
    32    (C)  Assumptions  for risks over which a company does not have signif-
    33  icant control or influence;
    34    (D) Procedures for corporate governance and oversight of the actuarial
    35  function, and a process for appropriate waiver or modification  of  such
    36  procedures;
    37    (E)  Other requirements, including, but not limited to, those relating
    38  to reserve methods, models for measuring risk,  generation  of  economic
    39  scenarios,  assumptions,  margins, use of company experience, risk meas-
    40  urement, disclosure, certifications,  reports,  actuarial  opinions  and
    41  memorandums, transition rules and internal controls; and
    42    (F)  The  data and form of the data required under paragraph twelve of
    43  this subsection, with whom  the  data  shall  be  submitted,  and  other
    44  requirements including data analyses and reporting of analyses.
    45    (10) The superintendent may engage a qualified actuary, at the expense
    46  of  a  company,  to perform an actuarial examination of such company and
    47  opine on the appropriateness of any reserve assumption or method used by
    48  such company, or to review and opine on such company's  compliance  with
    49  any requirement set forth in this subsection.
    50    (11)  (A) A company that issues policies and contracts subject to this
    51  subsection shall establish reserves using  a  principle-based  valuation
    52  that  meets  the following conditions for such policies and contracts as
    53  specified in the valuation manual:
    54    (i) Quantify the benefits and guarantees, and the funding,  associated
    55  with  the  policies or contracts and their risks at a level of conserva-
    56  tism that reflects conditions that include unfavorable events that  have
        S. 8978--A                          3
 
     1  a  reasonable  probability of occurring during the lifetime of the poli-
     2  cies and contracts. For policies and  contracts  with  significant  tail
     3  risk,  reflect  conditions  appropriately  adverse  to quantify the tail
     4  risk.
     5    (ii)  Incorporate  assumptions,  risk  analysis  methods and financial
     6  models and management techniques  that  are  consistent  with,  but  not
     7  necessarily  identical  to,  those utilized within the company's overall
     8  risk assessment process,  while  recognizing  potential  differences  in
     9  financial  reporting  structures and any prescribed assumptions or meth-
    10  ods.
    11    (iii) Incorporate assumptions that are derived in one of the following
    12  manners:
    13    (I) The assumption is prescribed in the valuation manual.
    14    (II) For assumptions that are not prescribed, the assumptions shall:
    15    a. be established utilizing the company's available experience, to the
    16  extent it is relevant and statistically credible; or
    17    b. to the extent that company experience is not  available,  relevant,
    18  or  statistically  credible,  be  established  utilizing other relevant,
    19  statistically credible experience.
    20    (iv) Provide margins for uncertainty including adverse  deviation  and
    21  estimation  error,  such that the greater the uncertainty the larger the
    22  margin and resulting reserve.
    23    (B) A company that issues  policies  and  contracts  subject  to  this
    24  subsection shall:
    25    (i) Establish procedures for corporate governance and oversight of the
    26  actuarial  valuation  function  consistent  with  those described in the
    27  valuation manual.
    28    (ii) Provide to the superintendent, annually on or before  a  date  as
    29  determined  by  the  superintendent,  and  the board of directors of the
    30  company an annual certification of the  effectiveness  of  the  internal
    31  controls  with  respect  to the principle-based valuation. Such controls
    32  shall be designed to assure that all  material  risks  inherent  in  the
    33  liabilities and associated assets subject to such valuation are included
    34  in  the  valuation,  and that valuations are made in accordance with the
    35  valuation manual.  The certification shall be based on the  controls  in
    36  place as of the end of the preceding calendar year.
    37    (iii)  Develop, and file with the superintendent upon request, a prin-
    38  ciple-based valuation report that complies with standards prescribed  in
    39  the valuation manual.
    40    (C)  A  principle-based valuation shall include a prescribed formulaic
    41  reserve component.
    42    (12) A company that issues policies  and  contracts  subject  to  this
    43  subsection  shall submit mortality, morbidity, policyholder behavior, or
    44  expense experience and other data as prescribed in the valuation  manual
    45  to  the superintendent annually on or before a date as determined by the
    46  superintendent.
    47    (13) (A) The superintendent may exempt specific product forms or prod-
    48  uct lines of a domestic company that is licensed and doing business only
    49  in this state from the requirements of this subsection provided:
    50    (i) The superintendent has issued  an  exemption  in  writing  to  the
    51  company and has not subsequently revoked the exemption in writing; and
    52    (ii)  The company computes reserves using assumptions and methods used
    53  prior to the operative date of the valuation manual in addition  to  any
    54  requirements  established by the superintendent and promulgated by regu-
    55  lation.
        S. 8978--A                          4
 
     1    (B) For  any  company  granted  an  exemption  under  this  paragraph,
     2  subsections (c), (d), (e) and (f) of this section and section four thou-
     3  sand  two  hundred  eighteen  of  this article shall be applicable. With
     4  respect to any company applying for this  exemption,  any  reference  to
     5  subsection  (g)  found  in  subsections  (c),  (d),  (e) and (f) of this
     6  section and section four thousand two hundred eighteen of  this  article
     7  shall not be applicable.
     8    §  2. 1. For purposes of this section, valuation manual shall have the
     9  same meaning as such term is defined by section 4217  of  the  insurance
    10  law.
    11    2.  The department of financial services shall study the impact on the
    12  New York state life insurance industry and consumers of the  implementa-
    13  tion  of  the  valuation  manual  for determining the amount of required
    14  reserves for individual and group life insurance  policies  and  annuity
    15  contracts. Such study shall include but not be limited to:
    16    (a) The percentage change between the reserves required under New York
    17  state  law  prior  to the implementation of the valuation manual and the
    18  reserves required pursuant to such manual for individual and group  life
    19  insurance policies and annuity contracts;
    20    (b) The percentage change between premiums prior to the implementation
    21  of  the  valuation  manual and premiums after the implementation of such
    22  manual in the individual and group life insurance  markets  and  annuity
    23  market;
    24    (c)  Identification  of  the redundancies eliminated from the reserves
    25  for each product subject to the valuation manual;
    26    (d) The impact on the use of captive insurance companies by  the  life
    27  insurance industry to reinsure existing policies and contracts;
    28    (e)  The  changes to the department of financial services oversight of
    29  insurance companies that have occurred as a result of  implementing  the
    30  valuation manual;
    31    (f) The impact on risk based capital requirements;
    32    (g)  The  impact  on consumers including cost savings, cost increases,
    33  any loss of accrued interest on policies  and  contracts,  any  loss  of
    34  existing  consumer  protections  and the impact of replacement products;
    35  and
    36    (h) An analysis of any regulations promulgated by  the  department  of
    37  financial  services  that  allow  deviations from the reserve standards,
    38  valuation methods, assumptions, and related requirements  in  the  valu-
    39  ation  manual,  including  (1) a summary of such deviations, (2) whether
    40  such deviations are based upon a percentage of the reserves held for the
    41  policies and contracts subject to subsection (g) of section 4217 of  the
    42  insurance  law  prior to the operative date of the valuation manual, and
    43  (3) the impact of such deviations on reserves for impacted insurance and
    44  annuity products including  a  comparison  of  the  differences  between
    45  reserves  for  impacted insurance and annuity products required prior to
    46  the implementation of the valuation manual  and  reserves  required  for
    47  impacted  insurance  and annuity products as a result of such deviations
    48  from the valuation manual.
    49    3. The superintendent of the department of  financial  services  shall
    50  submit  a  report to the governor, temporary president of the senate and
    51  speaker of the assembly of the  department's  findings  in  the  second,
    52  fifth  and seventh years after the operative date of the valuation manu-
    53  al.
    54    § 3. This act shall take  effect  immediately;  and  shall  be  deemed
    55  repealed 10 years after it shall have become a law.