New York Adopts Non-Guaranteed Elements Rule For Life Insurance And Annuity Products

by Carlton Fields
Contact

Carlton Fields

On September 19, the New York Department of Financial Services promulgated the final version of new Regulation 210 “Life Insurance and Annuity Non-Guaranteed Elements” (the “Rule”). The Rule takes effect on March 19, 2018.

As discussed in our recent Expect Focus article on the Rule’s previous draft, which the Department exposed for comment on May 24, the Rule will impose comprehensive requirements on insurers offering individual and group life insurance and annuity products in New York containing non-guaranteed elements (NGEs), including requirements for board-approved determination policies, substantive requirements for NGE determinations, and mandated disclosures and notices to the Department and policy owners of NGE changes. We also noted in our article that the Department received comments on the May 24 draft and informally advised us that the final Rule would incorporate only “non‑substantive” changes. Ultimately, only the following clarifying changes were added to the final Rule:

  • Section 48.1(h)’s definition of “Experience factors” was clarified to reflect that experience factors are to be determined by reference to the insurer’s financial experience on “a class of policies,” as contrasted with a reference to “a policy” in the prior version.
  • A sentence was added to Section 48.1(l)’s “Non-guaranteed element” definition to clarify that the NGE definition does not include current annuity rates.
  • The earlier version of the Rule made reference to “profit margin” without defining those words. The final Rule defines profit margin in new Section 48.1(o) as “expected revenues less costs.”
  • The actuarial memorandum required for new policy forms by Section 48.4(b) somewhat relaxes the content requirements by requiring only “sufficient detail of the pricing assumptions,” as contrasted with a “a tabulation by pricing cell,” for the specific points to be addressed in the actuarial memorandum.

As with the May 24 draft Rule, the final Rule was accompanied by an Assessment of the Public Comments, which provides insights into the Department’s positions on 37 unique comments submitted to the Department on the May 24 draft Rule. Particularly noteworthy were the Department’s remarks in rejecting comments that had suggested the following modifications:

  • One commenter recommended that the Rule should clarify that insurers are not required to make NGE changes as this requirement would exceed the Department’s statutory authority. The Department noted that “certain sections of the law require non-guaranteed elements to be based on reasonable assumptions. If an assumption is no longer reasonable it needs to be changed, which may mean that one or more non-guaranteed elements would change.” The Department also noted the Rule establishes thresholds for making NGE changes, which must be applied fairly to both increases and decreases in non-guaranteed elements.
  • Three commenters recommended that instead of requiring the profit margin at a given policy year be fixed, the Rule should require only that the present value of profits be fixed from the time of an NGE change. The Department responded by stating that its concern with this approach is that if profit margins are increased at certain durations and reduced at others, some policyholders could be harmed.
  • One commenter suggested that the Rule’s requirement for a new actuarial memorandum when NGEs are changed for new issues should not apply to changes in interest crediting rates. The Department did not change the Rule because it believes that changing interest crediting rates for only new issues might imply the creation of a new pricing class.
  • One commenter recommended exempting fixed accounts from variable annuities from the Rule. The Department believes the Rule’s protections are needed for such accounts.
  • One commenter recommended clarifying when the five-year period begins for reviewing experience factors for policies already in force on the Rule’s effective date. The Department stated in the Assessment that it added clarifying language; however, the Department informally advised us that it later decided not to add such language.
  • One commenter recommended a later effective date, referencing the need to revise board criteria. The Department responded by stating that “insurers should establish proper board criteria and procedures for setting and revising non-guaranteed elements as soon as practicable to ensure that consumers are treated fairly” and also noted that the effective date provides “sufficient time to comply.”

Compliance with the Rule will require most, if not all, insurers subject to the Rule to implement operational and other NGE-related changes. And whether the Rule’s March 19, 2018 effective date provides a given insurer sufficient time to comply will likely depend on how closely that insurer’s existing NGE procedures and approach match up with what the Rule will require. Insurers subject to the Rule should consider the need for an expeditious analytical comparison of current practice against the Rule’s requirements to identify and prioritize any necessary changes in their NGE procedures and approach. Likewise, insurers planning or evaluating the need for NGE changes in the coming year, whether subject to the Rule or not, would be well served to consider how differences between their NGE procedures and approach and those required by the Rule might impact potential litigation or regulatory exposure arising out of a decision to change (or not change) NGEs.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Carlton Fields | Attorney Advertising

Written by:

Carlton Fields
Contact
more
less

Carlton Fields on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.