The New York life insurance industry is slowly moving the state toward what it feels is more equitable treatment of its industry, with efforts spread across years rather than seasons.
Thomas E. Workman, right, president and CEO of the Life Insurance Council of New York (LICONY) wants to make sure the life industry in New York moves ahead and is able to stay competitive while working amicably with state regulators.
As of February, LICONY has been threading this needle for 45 years.
During an interview in mid-March, Workman outlined some key legislative initiatives designed to update to NAIC model law standards and remove various regulatory strictures in the state.
One initiative that has advanced this session is a bill to amend the state insurance law governing replacement of life insurance policies or annuity contracts to remove what LICONY calls an expensive cost comparison and shore up the regulation, known a Reg. 60, with the NAIC model law on replacements.
This replacements bill, S. 3065, introduced by Senate Insurance Committee Chairman James L. Seward, R-N.Y., is broken, as people at the state Department of Financial Services (DFS) have even said, Workman notes.
“Agents are anxious to solve this. [They] are going crazy with the paperwork,” Workman said. Workman, a seasoned insurance lawyer in the Ohio firm of Bricker & Eckler LLP since 1969, has been with LICONY for 13 and a-half years.
Since its 1998 promulgation, Reg. 60 “has not worked so well, so much so that some companies have made the determination to discontinue offering their products in this state, if another policy is being replaced to finance their product,” LICONY stated.
DFS does not support the scrapping of Reg. 60, as one person there noted, and LICONY’s lobbyist Diane D. Stuto agrees. She said that DFS no longer takes positions on legislation, and LICONY continues to work with the DFS Life Bureau on the substance of the bills “in the hopes that they will offer no objections to the bills if they pass both houses.”
The DFS press office said it had no comment.
“The New York Department, under the leadership of Superintendent [Benjamin] Lawsky, is filled with sophisticated professionals at both the executive and operating levels. They are highly responsive to requests for information and for opportunities to discuss regulatory issues. We believe effective regulation of a complex industry requires ongoing collaboration and trust between the regulator and the regulated. Accordingly, we appreciate the open door policy and professionalism of the officials at the New York Department,” Workman states.
Seward, a 2009 past president of the National Conference of State Legislatures (NCOIL) said LICONY is a “very effective trade association for life insurers” because through it, they are able to speak with a “unified, single voice in New York State.” The property casualty and health industries are more “splintered” in their advocacy, Seward says.
And, while Seward gives the DFS high praise for keeping the insurance industry safe during the financial crisis and spoke of how people are proud of their insurance regulators, he acknowledges that it is an “ongoing challenge” trying to change the so-called “49 and 1 rule.”
That’s the shorthand for the fact that policies and products are often accepted in all states except New York, according to lawmakers.
Seward has been trying to “streamline and modernize” insurance regulation for a while, notably with legislation to enable New York to join 41 other states in the Interstate Compact for product regulation.
It has passed the state Senate several times with bipartisan support, but cannot get through the Democratic-controlled state assembly.
Workman says that the DFS has issues with the Compact legislation, the old S. 2895, which would provide for a new Article 88 of the insurance law, and has said, “let’s make our policies and procedures better.”
Seward noted “it is no secret that we get resistance from the DFS on various issues,” as New York regulators try and preserve their uniqueness.
Seward said he believes New York should set high standards but be more uniform with the rest of the country for the good of consumers, the domestic industry and for the state as a whole.
One stymied wish of LICONY that involves an issue that now has national regulatory attention is the amending of Regulation 17 to eliminate the “mirror reserving requirement.”
The Dodd- Frank Act precludes the DFS from denying reinsurance credit claimed by nondomestic ceding insurers in accredited states or similar financial solvency requirements, and that recognize credit for reinsurance.
Other states do not require the mirror reserving for reinsurance cessions, putting New York companies at a disadvantage, LICONY argues.
However, the reserves discussion is caught up in the contentious captive insurance/special purpose vehicles use issue. The DFS’s discomfort with removing the mirror reserving requirement is “because the use of letters of credit had expanded into what they believe to be dangerous territory,” LICONY said.
The Department is investigating the use of captives and special purpose vehicles (SPVs) by life insurers to offload excess reserves generated under actuarial guidelines for certain types of life insurance policies.
The department’s representatives have asked in various forums if the use of SPVs and captives is actually reinsurance or merely a tool to make the balance sheet appear more nimble while possibly imperiling solvency.
DFS – which does not speak for the Department policy – has told LICONY that they would like to wait until a white paper by the NAIC had been exposed by a subgroup before determining what action the DFS would take, according to the trade group.
The DFS did not reply to any captives issue query. The NAIC’s Captives and SPV Subgroup white paper was exposed March 14.
Another big chunk of legislation LICONY is trying to move through the state legislature is S. 2890 and A. 2130, which would increase the overall limit on foreign investments by life insurers to 26 percent of admitted assets as opposed to the 20 percent allowed today.
The foreign investments bill would also increase the limit on unhedged foreign currency-denominated investments by life insurers into a stand-alone provision that would cap these investments at 6 percent versus 4 percent under current law.
This legislation is necessary for life insurers in New York to compete effectively in today’s global marketplace, insurers said.
“The ability of this state’s life insurers to provide their customers with superior, risk-adjusted returns depends on their ability to make timely investment decisions. Foreign investments provide safety-enhancing diversification to domestic portfolios and expand investment alternatives,” LICONY stated.
There are 177 life insurers licensed in New York and 88 are domiciled in the state, according to the ACLI Life Insurers Fact Book of 2011. About 50 domestics are members of LICONY, with about 18 additional nondomestic insurer members. Life insurance companies nationwide had $375 billion of their assets invested in the economy of New York.
Stuto writes that LICONY and the state legislature are close to making some amendments to the foreign investment bill that will hopefully satisfy the current objections of the DFS.
“I think we are very close to an agreement,” Workman said earlier this month.
Another measure LICONY is amending to gain DFS approval is an amendment to permit equity indexed life insurance policies to credit additional amounts no less frequently than every three years. S. 4171 would change current law, which requires that all policies crediting additional amounts must credit them not less frequently than annually.
“This annual crediting requirement places severe limitations on product design for indexed universal life (UL) insurance and limits the products available to New York consumers,” LICONY said.
The bill would also require that insurers must make available certain policy features on equity-indexed life insurance policies that credit additional amounts more frequently than annually and also requires certain customer disclosures.
Other measures the life industry would like to see in New York include the authority to sell contingent annuity contracts in the states, with an amendment to state law which has hampered their acceptance by DFS thus far, among other things – the interpretation by DFS that contingent annuities are instead financial guaranty insurance.
Another item is legislation to enact the NAIC redomestication model law to allow insurers to redomesticate elsewhere.
Workman points out that the NAIC Redomestication Model law has been widely adopted, and it can attract business and more options in the state for consumers, but that the state may be worried about big life insurers moving out, which Workman views as improbable.
At least one regulatory change LICONY has been pushing for is not yet showing signs of action, according Workman, and that is the hope to amend Regulation 74 on illustrations and graded death benefit policies to once again align with the NAIC interpretive guidance to the NAIC Life Insurance Illustrations Model Law.
The LICONY-backed amendment to Reg. 74 would also expand the age range of death benefit life insurance policies to from ages 50 to 75 to ages 45 to 80, noting that the DFS has interpreted additional disclosure rule requirement for certain ages as the age band itself.
“Over 40 states impose no limit on the age at which graded death benefit policies may be sold,” LICONY said.