New York Codes, Rules and Regulations
Title 11 - INSURANCE
Chapter IV - Financial Condition Of Insurer and Reports to Superintendent
Subchapter B - Life Insurers
Part 98 - Valuation Of Life Insurance Reserves
Section 98.9 - Minimum reserves for certain specified life insurance policies
Universal Citation: 11 NY Comp Codes Rules and Regs ยง 98.9
Current through Register Vol. 46, No. 39, September 25, 2024
(a) An insurer shall hold additional reserves in an amount determined by the superintendent if the superintendent determines that the calculated reserves are less than those calculated by a proper interpretation of this Part.
(b) Definitions, for purposes of this section:
(1)
Secondary guarantee has the meaning contained in section
98.7(b)(1)(i) of
this Part.
(2)
Secondary
guarantee period has the meaning contained in section
98.7(b)(1)(ii) of
this Part.
(3)
Fully fund
the guarantee means that the secondary guarantee would be realized
with no further premium payment required for the remainder of the secondary
guarantee period.
(4)
Shadow account means the accumulation of premiums less
withdrawals calculated in a similar manner as the account value, except with
interest credits, mortality charges and/or expense charges that may be
different than used to calculate the account value. The resulting value is such
that the policy will not lapse if this value as of any given date is greater
than or equal to zero or exceeds a certain dollar amount.
(c) Reserve methodology.
(1) Unless otherwise stated, this section
applies to policies issued on or after January 1, 2000.
(2) Subparagraphs (i) through (viii) of this
paragraph describe various examples of policy features that constitute
guarantees. These subparagraphs also provide reserve methodologies that must be
used for determining reserves for these products. For policy features not
specifically described herein, the methodologies used to value such products
must be consistent with those described in this Part.
(i) In certain cases when there is a limit on
the insurer's ability to increase premiums:
(a) For example, an initial level premium
rate is guaranteed for 10 years followed by increased guaranteed premiums for
an additional 20 years. However, an insurer may not increase premiums after
year 10 (i.e., the initial premium continues to be charged)
unless some contractually specified event occurs.
(b) In the reserve calculation, an initial
reserve segment of 30 years must be used. Since the contract contains
provisions that limit the insurer's ability to increase premiums, the initial
premium shall be treated as guaranteed for the entire 30-year period. It would
be contrary to the conservative nature of statutory accounting to treat this
policy the same as one in which the ability to raise premiums is
unrestricted.
(ii) In
certain cases when there is a refund option:
(a) For example, a term policy has an
illustrated level premium for 30 years, the first 10 of which are guaranteed.
Additionally, there is a refund option that provides that a specified refund
will be paid if the premium ever increases. The refund must be requested within
a limited time (e.g., 30 days) of receiving notice of the
increase. Coverage terminates if the option is exercised.
(b) Regarding the reserve calculation, this
example differs from the one in subparagraph (i) of this paragraph, in that
there is no specified event that has to occur in order for the insurer to
impose a premium increase; however, the insurer must provide an additional
benefit to the policyholder if it exercises this right. Thus the insurer does
not have an unrestricted right to impose an increase after 10 years. If the
contract contains provisions that require additional benefits be provided to
the policyholder in the event of a premium increase, even if these benefits are
lost if not claimed within a stated time frame, then the initial premiums shall
be treated as guaranteed for the entire 30-year period. It would be contrary to
the conservative nature of statutory accounting to treat this policy the same
as one in which the ability to raise premiums does not require that additional
benefits be provided. Therefore, the initial segment for this policy is 30
years.
(iii) In certain
cases when there are policyholder protections against premiums being increased:
(a) For example, an initial level premium
rate is guaranteed for 10 years followed by increased guaranteed premiums for
an additional 20 years. However, after year 10, the policyholder is protected
against premiums being increased above the initial level, with the protection
provided by a second insurer (i.e., not the direct writer)
through either reinsurance, a second policy issued to the policyholder, or an
agreement between the insurers.
(b)
Regarding the reserve calculation, the combined reserves of the direct writer
and the second insurer shall be no less than the amount which the direct writer
would hold if there were no second insurer and the initial reserve segment were
30 years. If this condition is not met, reserve credits for the direct writer
shall be disallowed. The reserve held by the direct writer shall be based on
the initial level premium being guaranteed for 30 years.
(iv) In certain cases when net costs to the
policyholder are lower than the gross premium:
(a) For example, a product specifies gross
premiums with a guaranteed dividend or guaranteed refund schedule, or by some
other means guarantees a net cost to the policyholder that is lower than the
gross premium.
(b) Regarding the
reserve calculation, the net amount of premium (i.e., gross
premium less dividends or refunds) shall be used. This represents the amount
the insured actually pays for coverage.
(c) For products reinsured on either a
coinsurance or modified coinsurance basis, the reinsurer's reserve calculation
shall also be based on the net premium (i.e., gross premiums
less dividends or refunds guaranteed to be paid to the policyholder).
(v) In certain cases when a
re-entry provision is contained in the policy:
(a) For example, a term life insurance
product with a re-entry provision has an initial rate guarantee for 10 years,
with minimal or non-existent re-entry underwriting, allowing the policyholder
to re-enter for an additional 20 years at specified rates. Similarly, a
universal life policy has provisions such that, if the universal life policy
lapses prior to the 10th policy anniversary because the actual accumulation
value (or cash value, depending on design) falls below zero but specified
premiums have been paid, a substitute policy is guaranteed to be issued
providing the same amount of insurance coverage at the same specified premium
for the remainder of the 10-year period plus an additional 20 years.
(b) Regarding the reserve calculation, the
re-entry periods and premiums shall be treated as a continuation of the initial
guarantees for reserve calculation purposes. The initial reserve segment
applicable to the original policy shall be 30 years if the specified premium
for the substitute policy is not high enough to trigger a new reserve segment.
When the substitute policy is issued, reserves shall be determined as if the
coverage had been issued at the issue age and issue date of the original
policy. Effectively, the insurer has guaranteed coverage for 30 years at the
time the initial policy is issued, and the reserves established shall reflect
that guarantee.
(vi) In
certain cases when net reinsurance payments remain unchanged after a change in
premium is made:
(a) For example, a
reinsurance treaty provides for 30 years of level premiums on a current scale
but directly guarantees those premiums for only the first 10 years. However, if
the reinsurer increases the premiums after 10 years, the reinsurer agrees to
increase the expense allowance such that the net payments
(i.e., premium minus expense allowance) by the direct writer
remains unchanged.
(b) Reserve
treatment and applicability date for this policy feature are contained in
section 98.4(q) of this
Part.
(vii) In certain
cases when a universal life policy has a cumulative catch-up provision:
(a) For example, a universal life insurance
policy has a cumulative premium catch-up provision in which coverage is
guaranteed to remain in force as long as a specified premium is paid each year.
If the insured is paying less than is required to maintain the guarantee, there
is an unlimited right to the policyholder to make up past premium
deficiencies.
(b) Regarding the
reserve calculation, when a policy contains more than one secondary guarantee,
the minimum reserve shall be the greatest of the respective minimum reserves at
that valuation date of each unexpired secondary guarantee, ignoring all other
secondary guarantees. Since secondary guarantees with catch-up provisions are
capable of being reinstated up to the end of the secondary guarantee period,
they constitute unexpired secondary guarantees that must be incorporated into
the calculation of the greatest of the respective minimum reserves at the
valuation date of each unexpired secondary guarantee, ignoring all other
secondary guarantees.
(c) The basic
and deficiency reserves for a secondary guarantee with a catch-up provision
shall be computed as if the specified premium requirement had been met. The
basic reserve shall be reduced by the product of the catch-up amount, if any,
which would be required on the valuation date, and the ratio of the initial
(i.e., before adjustment) basic reserve to the sum of the
initial basic and deficiency reserves. In no event shall the reduced basic
reserve be reduced below zero. The deficiency reserve shall be reduced by the
product of the catch-up amount, if any, which would be required on the
valuation date and the ratio of the initial deficiency reserve to the sum of
the initial basic and deficiency reserves. In no event shall the reduced
deficiency reserve be reduced below zero.
(d) If a universal life policy with a premium
catch-up provision has a shadow account value below the level necessary to
maintain the secondary guarantee, then the reserve for the secondary guarantee
shall be valued according to the provisions of this subparagraph. The basic and
deficiency reserves, before deduction for the catch-up amount, shall be
calculated as specified in subparagraph (viii) of this paragraph.
(viii) When a universal life
policy guarantees coverage to remain in force as long as the accumulation of
premiums paid satisfies the secondary guarantee requirement, for policies
issued on or after January 1, 2003, the steps specified in clauses
(a) through (i) of this subparagraph must be
used to calculate the reserves.
(a) Derive
the minimum gross premiums, determined at issue, that will satisfy the
secondary guarantee requirement.
(b)
(1) For
purposes of applying section
98.7(b)(1) of
this Part, the specified premiums are the minimum gross premiums derived in
clause (a) of this subparagraph. Consistent with section
98.5 of this Part, items in
clauses (c) through (i) of this subparagraph
shall be calculated on a segmented basis, using the segments that section
98.5 of this Part defines for the
product. Therefore, in clauses (c) through
(i) of this subparagraph, the term fully fund the
guarantee shall mean fully funding the guarantee to the end of each
possible segment. The term remainder of the secondary guarantee
period shall mean the remainder of each possible segment. The reserve
shall be no less than the greatest reserve determined by applying the
methodology of this subparagraph to the end of each possible segment.
(2)
(i) For
policies issued on or after January 1, 2007, except for policies issued on or
after January 1, 2015 and prior to January 1, 2017, or on or after January 1,
2015 and prior to January 1, 2020 if optionally elected under item
(iii) of this subclause, for purposes of applying section
98.7(b)(1) of
this Part, an insurer may use a lapse rate of no more than two percent per year
for the first five years, followed by no more than one percent per year to the
policy anniversary specified in the following table based on issue age, and
zero percent per year thereafter. If the period of time from the date of policy
issuance to the date of the applicable policy anniversary age in the table is
less than five years, then an insurer may use a lapse rate of no more than two
percent per year for that period of time, and zero percent per year thereafter.
| Issue age | Policy anniversary after which the lapse rate is zero |
| 0-50 | 30th policy anniversary |
| 51-60 | Policy anniversary age 80 |
| 61-70 | 20th policy anniversary |
| 71-89 | Policy anniversary age 90 |
| 90 and over | No lapse |
(ii) For policies issued on or after January
1, 2015 and prior to January 1, 2017, or on or after January 1, 2015 and prior
to January 1, 2020 if optionally elected under item (iii) of
this subclause, for the purposes of applying section
98.7(b)(1) of
this Part, an insurer may use a lapse rate of no more than two percent per year
for the first five years, followed by no more than one percent per year for the
remaining life of the contract.
(iii) An insurer that as of December 31, 2016
utilized the provisions of item (ii) of this subclause for any
policies issued on or after January 1, 2015 and prior to January 1, 2017, may
elect to continue to apply the provisions of said item to policies issued on or
after January 1, 2017 and prior to January 1, 2020, provided that:
(A) In applying the provisions of item
(ii) of this subclause, the insurer shall utilize the 2001 CSO
Mortality Table, or for preferred lives meeting the conditions of section
100.9 of this Title (Regulation
179), the 2001 CSO Preferred Class Structure Mortality Table.
(B) The insurer provides written notification
to the superintendent by February 28,
2020.
(c) Determine the amount of actual premium
payments in excess of the minimum gross premiums. For policies utilizing shadow
accounts, this will be the amount of the shadow account. For policies with no
shadow accounts but which specify cumulative premium requirements, this excess
will be the amount of the cumulative premiums paid in excess of the cumulative
premium requirements; the cumulative premium payments and requirements shall
include any interest credited under the secondary guarantee, with interest
credited at the rate specified under the secondary guarantee.
(d) Complete the calculation of the pre-funding ratio as follows:
(1) As of the valuation date for the policy
being valued, for policies utilizing shadow accounts, determine the minimum
amount of shadow account required to fully fund the guarantee. For policies
with no shadow accounts but that specify cumulative premium requirements,
determine the amount of the cumulative premiums paid in excess of the
cumulative premium requirements that would result in no future premium
requirements to fully fund the guarantee. The cumulative premium payments and
requirements shall include any interest credited under the secondary guarantee,
with interest credited at the rate specified under the secondary guarantee. For
any policy for which the secondary guarantee can not be fully funded in
advance, solve for the minimum sum of any possible excess funding, either the
amount in the shadow account or excess cumulative premium payments depending on
the product design, and the present value of future premiums, using the maximum
allowable valuation interest rate and the minimum mortality standards allowable
for calculating basic reserves, that would fully fund the guarantee.
Additionally, for policies issued on or after July 1, 2005, the amount
determined in this clause is to then be divided by 0.93.
(2) The result from clause
(c) of this subparagraph, shall be divided by the number
determined in subclause (1) of this clause, with the resulting
ratio capped at one. This ratio is intended to measure the level of prefunding
for the secondary guarantee that is used to establish reserves. Assumptions
within the numerator and denominator of this ratio therefore must be consistent
in order to appropriately reflect the level of prefunding. A ratio of one shall
result for any secondary guarantee which is fully funded on the valuation
date.
(e) Compute the net single premium on the valuation date for the coverage provided by the secondary guarantee for the remainder of the secondary guarantee period, using the applicable valuation table and select factors as prescribed in section 98.4(a) of this Part, or Part 100 of this Title (Regulation 179), if applicable. For purposes of calculating the net single premium for policies issued on or after January 1, 2007, except for policies issued on or after January 1, 2015 and prior to January 1, 2017, or on or after January 1, 2015 and prior to January 1, 2020 if optionally elected under item (b)(2)(iii) of this subparagraph, a lapse rate subject to the same criteria as the lapse rate used in applying item (b)(2)(i) of this subparagraph may be used. For policies issued on or after January 1, 2015 and prior to January 1, 2017, or on or after January 1, 2015 and prior to January 1, 2020 if optionally elected under item (b)(2)(iii) of this subparagraph, a lapse rate subject to the same criteria as the lapse rate used in applying item (b)(2)(ii) of this subparagraph may be used.
(f) Determine the net amount of additional premiums by multiplying the ratio from clause (d) of this subparagraph, by the difference between the net single premium from clause (e) of this subparagraph and the basic and deficiency reserve, if any, computed in clause (b) of this subparagraph.
(g) Compute the reduced deficiency reserve by multiplying the deficiency reserve, if any, by one minus the ratio from clause (d) of this subparagraph, but not less than zero. This reduced deficiency reserve is the deficiency reserve to be used for purposes of section 98.7(b)(1)(vi) (a) of this Part.
(h) Complete the next step in the calculation of the reserve as follows:
(1) The actual
reserve used for purposes of section
98.7(b)(1)(vi)
(a) of this Part is the lesser of:
(i) the net single premium from clause
(e) of this subparagraph; and
(ii) the amount of the excess from clause
(f) of this subparagraph plus the basic reserve and the
deficiency reserve, if any, computed in clause (b) of this
subparagraph. Reduce this result by the applicable policy surrender charges,
i.e., the account value less the cash surrender value. For
policies issued on or after July 1, 2005, multiply the surrender charge by the
ratio of the net level premium for the secondary guarantee period divided by
the net level premium for whole life insurance.
(2) Calculate both net premiums using the
maximum allowable valuation interest rate and the minimum mortality standards
allowable for calculating basic reserves. However, except for policies issued
on or after January 1, 2007, if no future premiums are required to support the
guarantee period being valued, there is no reduction for surrender charges. If
the resulting amount is less than the sum of the basic and deficiency reserve
from clause (b) of this subparagraph, then the basic and
deficiency reserves to be used for the purposes of section
98.7(b)(1)(vi)
(a) of this Part are those calculated in clause
(b) of this subparagraph, and no further calculation is
required.
(i) Compute an increased basic reserve by subtracting the reduced deficiency reserve in clause (g) of this subparagraph from the reserve computed in clause (h) of this subparagraph. This increased basic reserve is the basic reserve to be used for purposes of section 98.7(b)(1)(vi) (a) of this Part.
(j) With respect to any policy issued pursuant to this subparagraph, on or after January 1, 2007, the insurer shall annually submit an actuarial opinion and memorandum on or before March 1st, in form and substance satisfactory to the superintendent, which satisfies the requirements of Part 95 of this Title (Regulation 126). Reserves established in accordance with this subparagraph shall be increased by any additional reserves required by the stand-alone asset adequacy analysis.
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