New York state says it will let its life and annuity issuers move toward a new, possibly more efficient approach to building the asset pools needed to meet obligations — principles-based reserving.
Gov. Andrew Cuomo last week signed S. 08978-A/A. 11116-A, a principles-based reserving bill for the state’s life and annuity issuers.
The New York State Department of Financial Services began rolling out the implementation regulations this week.
The new law will let an issuer rely mainly on the judgment of a qualified actuary, using modern risk measurement and risk forecasting methods, to determine how much the issuer needs to keep in the reserves supporting an individual life insurance policy, a group life policy or an annuity issued after a specified date.
(Related: Insurers Mark Significant Regulatory Shift)
The draft implementation regulation calls for the law to become effective Jan. 1, 2020.
Comments on the proposed regulations are due Feb. 25.
Principles-Based Reserving Background
In the past, New York required insurers to use standardized formulas to set their reserves.
If the new law works as hoped, it could help issuers do a better job of understanding their life and annuity obligations, and of tailoring reserves to meet their exact needs. In some cases, insurers might be able to reduce their reserves, and use the cash freed up to cut prices or increase their profit margins.
If problems come up, and life insurers do a poor job of using the new flexibility, then they might have more problems with meeting their obligations than if they had stuck with the old static formulas.
Actuaries and state insurance regulators have been working toward a shift to principles-based reserving since the mid-1990s. New York regulators often expressed skepticism about the shift toward more flexible reserving rules. They talked about the need for some use of static formulas.
The National Association of Insurance Commissioners (NAIC) established a principles-based reserving implementation task force in 2012, and the NAIC adopted a major principles-based reserving actuarial guideline in 2016.
Forty-eight states other than New York state have already adopted principles-based reserving legislation, according to the Life Insurance Council of New York (LICONY).
New York state regulators announced an effort to move toward principles-based reserving in New York state in July 2016.
The New Law
S. 08978-A/A. 11116-A changes an existing section of New York state’s insurance law, Section 4217.