New York Codes, Rules and Regulations
Title 11 - INSURANCE
Chapter III - Policy and Certificate Provisions
Subchapter A - Life, Accident and Health Insurance
Part 41 - Accelerated Payment Of The Death Benefit Under A Life Insurance Policy
Section 41.7 - Actuarial requirements

Universal Citation: 11 NY Comp Codes Rules and Regs ยง 41.7

Current through Register Vol. 46, No. 39, September 25, 2024

(a) The statement of self-support required by Insurance Law section 4228(h) shall indicate that the cost of providing accelerated death benefits was considered in the demonstration of self-support.

(b) A nonforfeiture memorandum signed by a qualified actuary shall be submitted with the policy form filing. The memorandum shall include a discussion of any impact, both before and after acceleration, on nonforfeiture values due to the existence of the accelerated death benefit provision. If there is no impact, then the memorandum shall include an explanation as to why there is no impact.

(1) Policies and certificates or portions thereof that are not subject to the exemption in Insurance Law section 4240(d)(3) shall be in compliance with Insurance Law section 4221(l).

(2) Policies and certificates or portions thereof that are subject to the exemption in Insurance Law section 4240(d)(3) shall be in compliance with Part 54 of this Title.

(c) Reserves.

(1) General.
(i) When benefits are provided through the acceleration of death benefits under group or individual life policies or riders to such policies, policy reserves shall be determined in accordance with Insurance Law sections 4217 and 4517. A ll valuation assumptions used in constructing the reserves shall be determined as appropriate for statutory valuation purposes by the qualified actuary. Mortality tables and interest currently recognized for life insurance reserves under Insurance Law sections 4217 and 4517 may be used as well as appropriate assumptions for the other provisions incorporated in the policy. The qualified actuary should ascertain that the reserves in the aggregate are sufficient to cover:
(a) policies upon which no claim has yet arisen; and

(b) policies upon which a claim has arisen.

(ii) A reserve formula should consider all relevant factors.

(iii) Approximations to develop a single decrement table which utilize all relevant factors except for voluntary termination rates are acceptable for policies subject to this subdivision provided it can be demonstrated that the approximations used produce essentially similar reserves, conservative reserves, or negligible reserves. The calculations should take into account the reduction in life insurance benefits due to prior acceleration. In no event shall the reserves for these benefits and the life insurance benefit when taken together be less than the reserves for the life insurance benefit assuming no accelerated benefit feature. In the development and calculation of reserves for policies subject to this Part, due regard shall be given to the applicable policy provisions, marketing methods, administrative procedures and all other considerations which have an impact on projected claims costs, including, but not limited to the following:
(a) definition of qualifying events;

(b) premium waiver provision;

(c) marketing method;

(d) underwriting procedures;

(e) maximum benefit;

(f) optional nature of benefit; and

(g) guaranteed insurability options.

(2) Nondiscounted accelerated benefit.
(i) Prior to an accelerated benefit claim, the use of an additional premium and the loss of interest by the insurer in prepaying the benefit suggests a reserve in addition to the basic reserve. In the case of traditional life insurance, the basic mortality table may be conservative enough to cover any additional benefit. The qualified actuary should test the need for any additional reserves. In the case of universal life insurance, adding any additional premium and subtracting any additional cost factors may be considered when calculating the reserves.

(ii) After an accelerated death benefit claim has arisen:
(a) A liability for accelerated death benefits payable in a lump sum should be set up until paid.

(b) A liability for accelerated death benefits payable in installments shall be equal to the present value of remaining installment payments discounted at an appropriate valuation interest rate but not discounted for mortality.

(c) If the reserve (whether expressed as the full reserve or in parts as a standard reserve and a substandard extra reserve) for any remaining death benefit not accelerated for such policy is not specifically based on an appropriate valuation interest rate and a substandard mortality table reflecting the policy life expectancy, the qualified actuary shall make appropriate tests to determine whether the aggregate reserves for all policies make sufficient provision for all policies, including those on which accelerated death benefit claims have been approved, in light of the aggregate amount of remaining death benefits under all policies upon which a portion has been accelerated, the total insurance in force and reserves, distribution of risk and conservatism in the valuation mortality table used compared to the insurer's own mortality experience.

(3) Discounted accelerated death benefit.
(i) Prior to an accelerated benefit claim, the basic life insurance reserves based on section 4217 or 4517 of the Insurance Law are generally considered good and sufficient in the aggregate. However, due to the nature of a particular insurer's block of business or supporting assets, the qualified actuary may need to test for adequacy and, if necessary, set up additional reserves.

(ii) After an accelerated death benefit claim has arisen, the liability and reserve shall be as stated in subparagraph (2)(ii) of this subdivision.

(4) Lien approach with an interest accrual.
(i) Prior to an accelerated benefit claim, minimum statutory reserves for policies containing interest accrual provisions are the same as for policies with identical death benefits that do not contain interest accrued lien provisions, provided that the method of determining the interest rate to be charged, as specified in the policy provisions and actuarial memorandum, results in an interest rate at least equal to the valuation interest rate applicable to the policy. If such is not the case, an extra reserve may be necessary on such policies, if it is determined that the aggregate reserves are not good and sufficient.

(ii) After a claim for an accelerated benefit is approved and the lien effected, if the policy reserve (whether expressed as the full reserve or in parts as a standard reserve and a substandard extra reserve) held for the full amount of death benefit is not specifically determined based upon a substandard mortality table reflecting the policy life expectancy, the qualified actuary shall make appropriate tests to determine whether the aggregate reserves for all policies make sufficient provision for all policies, including those on which accelerated death benefit claims have been approved, in light of the aggregate amount of remaining death benefits under all policies upon which a portion has been accelerated, the total insurance in force and reserves, distribution of risk and conservatism in the valuation mortality table used compared to the insurer's own mortality experience. Since a policy lien is considered an asset, the policy reserve should be at least equal to the policy lien; otherwise, any excess of policy lien over policy reserve shall be considered as a nonadmitted asset.

(5) The additional morbidity risk assumed by the insurer in providing the benefit suggests a reserve should be held in addition to the basic reserve prior to an actual claim for policies that provide for periodic payments for long-term care services or accelerated death benefit payments to an individual who is chronically ill. The qualified actuary shall test the need for any additional reserves if the policies that accelerate the death benefit to pay for long-term care services or accelerated death benefit payments to an individual who is chronically ill are a material portion of the insurer's life policies.

(6) After a claim for an accelerated benefit payable in installments has arisen, a reserve liability equal to the actuarial present value of remaining installment payments, using an appropriate valuation interest rate, mortality and morbidity in accordance with section 4217 or 4517 of the Insurance Law, shall be recognized. If the reserve (whether expressed as the full reserve or in parts as a standard reserve and a substandard extra reserve) for any remaining death benefit not accelerated for such policy is not specifically based on an appropriate valuation interest rate and a substandard mortality table reflecting the policy life expectancy, the qualified actuary shall make appropriate tests to determine whether the aggregate reserves for all policies make sufficient provision for all policies, including those on which accelerated death benefit claims have been approved, in light of the aggregate amount of remaining death benefits under all policies upon which a portion has been accelerated, the total insurance inforce and reserves, distribution of risk and conservatism in the valuation mortality table used compared to the insurer's own mortality experience.

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