The New York State Insurance Department has adopted an emergency regulation amendment that increases reserve requirements for some life insurance policy guarantees.

Department officials say they adopted the emergency amendment, which describes 8 classes of guarantees that lead to extra reserve requirements, because some insurers have been trying to get around existing reserve requirements.

Actuarial Guideline 38, a set of life reserving rules adopted by the National Association of Insurance Commissioners, Kansas City, Mo., in 2002, “stated that new policy designs which are created simply to disguise guarantees provided by the policy must be reserved in a manner similar to more typical designs with similar guarantees,” officials write in the notes explaining the regulation amendment.

The NAIC dealt with the guarantee design problem by revising the reserving rules in October 2005, and the new New York amendment is consistent with the new NAIC standards, officials write.

The new amendment, which revises Regulation 147, applies to financial statements filed on or after Dec. 31, 2004.

The new amendment lists 8 types of features that may increase reserve requirements:

Those features include:

- Limits on the insurer’s ability to increase premiums.

- Refund options.

- Agreements with a second insurer that will somehow limit premium increases.

- Designs making net costs to the policyholder lower than the gross premium.

- Re-entry provisions that might, for example, permit the holder of a 10-year term life policy to buy an additional 20 years of coverage with little underwriting at specified rates.

- Cumulative catch-up provisions sold with universal life policies.

- Provisions that keep universal life policies from lapsing as long as premiums are paid.

- Provisions that let net reinsurance payments remain unchanged after a change in premium is made.

The amendment gives many examples of guarantees that might increase reserve requirements, and the section on UL secondary guarantees includes a long explanation of how New York regulators want insurers to calculate UL secondary guarantee reserves.

The amendment also sets mortality and reserve standards for credit life insurance policies, and it explains how regulators want insurers to reserve for long term care acceleration benefits attached to life insurance policies.

Links to documents about the new amendment are on the Web at Document Link