New York Toughens Reserve Requirements (Updated)

Empire State regulators want life insurers to set aside more capital to back their life insurance products.[@@]

The regulators have adopted an emergency regulation, an amendment to Part 98 of New York’s Regulation 147, that beefs up life insurance reserving requirements.

The rule, which took effect at the end of 2004, could affect universal life policies with secondary guarantees, life policies with non-level premiums or non-level benefits, life policies with indeterminate premiums, variable life policies and credit life policies.

The new rule provides examples of policy designs which constitute guarantees and describes the reserve methodologies to be used in valuing such policies.

The emergency rule also provides minimum mortality standards and minimum reserve standards for credit life insurance.

New York State Insurance Department officials justify the emergency adoption of the regulation by referring to reports of efforts by some insurers to design products that “circumvent” existing reserve standards.

Efforts to get around the standards raise questions about some insurers’ solvency, give those insurers an edge over other insurers to do a better job of complying with the standards, and constitute a “serious threat that could be imposed on consumers,” officials write in their discussion of the emergency rule.

The rule states that unless insurers already have told New York regulators about plans to adopt lower reserving strategies, insurers will have to get regulators’ prior approval before adopting such strategies.

The emergency rule change applies to all life insurance companies operating in New York, according to Mike Barry, a department spokesman.