WASHINGTON — New York today fell in line with a decision made by the National Association of Insurance Commissioners (NAIC) to shift reserve requirements for universal life insurance with secondary guarantees, and term life insurance products will shift to a more flexible evaluation system.
However, New York will only adopt the system as of Jan. 1, 2018, instead of at the beginning of 2017 under the NAIC plan.
Maria T. Vullo, the new superintendent of the New York Department of Financial Services (DFS), said the state will adopt principle-based reserving (PBR) for its regulated life insurers beginning in January 2018.
She also convened a working group representing industry and consumers to assist DFS in establishing the necessary reserve safeguards. The working group includes representatives of some of the nation’s largest insurers, including MetLife; New York Life; TIAA-Cref; Axa Equitable; Guardian; and Security Mutual. Birny Birnbaum, executive director of the Center for Economic Justice and a representative of the AARP will also serve.
“The adoption of PBR in New York will keep the state at the forefront of insurance regulation,” Vullo said.
“DFS will continue to make certain that New York’s insurance market is fiscally safe and sound and that the reserves to back insurance policies are appropriately set to protect consumers,” she added.
The decision had been expected since the resignation of Benjamin Lawsky as DFS superintendent last June. Lawsky and California commissioner Dave Jones were the primary opponents of adoption of PBR. Jones fell in line after California insurers agreed to provide funds to the department to ensure there were adequate actuaries to police the new system.
Interim successors to Lawsky had balked at the requests of Gov. Andrew Cuomo to ease capital and other standards on insurers and stepped down earlier this year.
NAIC approval was triggered last month after laws approving use of PBR were approved by 45 states, representing nearly 80 percent of the U.S life insurance market.
The major impact will be on reserve requirements for universal life insurance with secondary guarantees and term life insurance products.
In a new report in late June, Fitch Ratings said the new reserving system will have “mixed implications” for U.S. life insurers.
Fitch said it represents a “significant departure” from the formulaic reserving approach that has been in place for over 150 years.