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New York State Change Could Cut Life and Annuity Costs

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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.

Although the text of the new law calls for a shift to principles-based reserving, based on the latest edition of the valuation manual the NAIC approved in 2012, it gives state insurance regulators the ability to step in when they think life insurers are under-reserving.

The text states that, “A principle-based valuation shall include a prescribed formulaic reserve component.”

The state’s financial services superintendent can hire a qualified actuary to decide whether an issuer’s reserving assumptions and methods are reasonable.

The text also includes the follow provision:

The superintendent may deviate, through regulations, from the reserve standards, valuation methods, assumptions, and related requirements in the valuation manual, including for individual companies, provided, however, that such deviation shall not result in reserve valuations that are lower than the minimum standards prescribed in the valuation manual and may be based on a percentage of the reserves being held for the policies and contracts subject to this subsection prior to the operative date of such manual.


Maria Vullo, New York’s financial services superintendent, said in a statement that she believes the new law will give her enough statutory authority to adjust an insurer’s reserving, if that proves to be necessary to protect the policyholders.

The New York department “continues to have the necessary flexibility to make certain that reserves to back insurance policies are appropriately set and adjusted,” Vullo said.

LICONY is welcoming the signing of the new principles-based reserving law.

Mary Griffin, the president of the Albany, New York-based group, said in a statement that sticking with the old reserving rules would have hurt the ability of New York state life insurers to compete with other insurers.

The reserving rules now in effect “can cause over-reserving, add additional costs and also limit the selection of life insurance products,” Griffin said.


A copy of the NAIC’s 2018 Valuation Manual is available here.

Links to information related to S. 08978-A/A. 11116-A, the bill Cuomo signed, are available here.

Links to documents related to the implementation regulations are available here.

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© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.