New York insurance regulators will reduce reserving requirements on term life policies by an estimated 30 percent to 35 percent starting in January, but will do so by formulas rather than the “principles-based-reserving” (PBR) approach being considered by the National Association of Insurance Commissioners.
The NAIC is being informed of the decision of Benjamin Lawsky, superintendent of the New York Department of Financial Services through a letter written today. Lawsky’s action was timed to be in advance of the NAIC Spring Meeting, now underway in Orlando.
It is unclear whether the move will result on lower pricing or higher profits for insurers on term life products.
The decision is consistent with Lawsky’s comments last September to the NAIC voicing concern over the NAIC initiative to move to PBR. At that time, Lawsky said that PBR “represents an unwise move away from reserve requirements that are established by formulas and diligently policed by insurance regulators in favor of internal models developed by insurance companies themselves.”
Lawsky released the letter in advance of an appearance this evening at the Life Insurance Council of New York’s (LICONY) 13th Annual Legislative & Regulatory Conference in Cooperstown, N.Y.
Regarding his rift with most state regulators on the PBR issue, Lawsky is scheduled to say that New York regulators do not think the reserve formulas “are perfect or that the formulas always result in the right reserves.”
For example, that for some specific products, “I wouldn’t necessarily disagree that reserves may be conservative relative to historical experience regarding payouts,” Lawsky is scheduled to say.
Lawsky also committed himself to working “constructively with insurers to make smart, targeted, limited adjustments to the historical reserving formulas where there is strong empirical evidence for doing so.”
In the letter, Lawsky said the next step for the DFS will be to update the formulas for universal life insurance policies with secondary guarantees.
An official at an insurer that will be affected by the change said the industry will likely support it. “We agree — as does most of the industry — that term reserves are too high and this DFS move is a step toward fixing that problem,” the official said.