S T A T E O F N E W Y O R K
________________________________________________________________________
8978
I N S E N A T E
June 8, 2018
___________
Introduced by Sen. SEWARD -- read twice and ordered printed, and when
printed to be committed to the Committee on Rules
AN ACT to amend the insurance law, in relation to the implementation of
a valuation manual; and to direct the department of financial services
to study the impact of the implementation of such valuation manual
THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:
Section 1. Section 4217 of the insurance law is amended by adding a
new subsection (g) to read as follows:
(G)(1) THIS SUBSECTION SHALL APPLY ONLY TO INDIVIDUAL AND GROUP LIFE
INSURANCE POLICIES AND ANNUITY CONTRACTS ISSUED ON OR AFTER THE OPERA-
TIVE DATE OF THE VALUATION MANUAL AS PRESCRIBED BY THE SUPERINTENDENT BY
REGULATION, PROVIDED THAT THE OPERATIVE DATE SHALL BE NO SOONER THAN
JANUARY FIRST, TWO THOUSAND NINETEEN.
(2) FOR THE PURPOSES OF THIS SUBSECTION, "NAIC" SHALL MEAN THE
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS.
(3) FOR PURPOSES OF THIS SUBSECTION, "PRINCIPLE-BASED VALUATION" SHALL
MEAN A RESERVE VALUATION THAT USES METHODS AND ASSUMPTIONS REQUIRED BY
PARAGRAPH ELEVEN OF THIS SUBSECTION AS SPECIFIED IN THE VALUATION MANU-
AL.
(4) FOR PURPOSES OF THIS SUBSECTION, "QUALIFIED ACTUARY" SHALL MEAN A
MEMBER IN GOOD STANDING OF THE AMERICAN ACADEMY OF ACTUARIES WHO MEETS
THE REQUIREMENTS PRESCRIBED BY THE SUPERINTENDENT BY REGULATION.
(5) FOR PURPOSES OF THIS SUBSECTION, "VALUATION MANUAL" SHALL MEAN THE
VALUATION MANUAL ADOPTED BY THE NAIC ON DECEMBER SECOND, TWO THOUSAND
TWELVE, AS SUBSEQUENTLY AMENDED, AND AS APPROVED BY THE SUPERINTENDENT
UPON A FINDING THAT SUCH MANUAL IS FOR THE BEST INTERESTS OF THE HOLDERS
OF POLICIES AND CONTRACTS AND ANNUITANTS OF THIS STATE.
(6) NOTWITHSTANDING SUBSECTION (C) OF THIS SECTION AND SECTION FOUR
THOUSAND TWO HUNDRED EIGHTEEN OF THIS ARTICLE, THE MINIMUM STANDARD FOR
THE VALUATION OF ALL SUCH POLICIES AND CONTRACTS SHALL BE THE STANDARD
PRESCRIBED IN THE VALUATION MANUAL, AS MODIFIED BY THE SUPERINTENDENT
PURSUANT TO SUBPARAGRAPH (B) OF PARAGRAPH EIGHT OF THIS SUBSECTION.
EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD16245-02-8
S. 8978 2
(7) THE VALUATION MANUAL SHALL NOT BECOME OPERATIVE IN THIS STATE
UNLESS AND UNTIL THE SUPERINTENDENT HAS APPROVED OF SUCH MANUAL AND HAS
ADOPTED ALL NECESSARY REGULATIONS TO EFFECTUATE THIS SUBSECTION.
(8) (A) NO AMENDMENT TO THE VALUATION MANUAL SHALL TAKE EFFECT IN THIS
STATE UNLESS THE SUPERINTENDENT FINDS THAT SUCH AMENDMENT IS FOR THE
BEST INTERESTS OF THE HOLDERS OF POLICIES AND CONTRACTS AND ANNUITANTS
OF THIS STATE.
(B) THE SUPERINTENDENT MAY DEVIATE, THROUGH REGULATIONS, FROM THE
RESERVE STANDARDS, VALUATION METHODS, ASSUMPTIONS, AND RELATED REQUIRE-
MENTS IN THE VALUATION MANUAL 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.
(9) THE VALUATION MANUAL SHALL SPECIFY ALL OF THE FOLLOWING:
(A) MINIMUM VALUATION STANDARDS FOR AND DEFINITIONS OF THE POLICIES
AND CONTRACTS SUBJECT TO THIS SUBSECTION AS DETERMINED BY THE SUPER-
INTENDENT. SUCH MINIMUM VALUATION STANDARDS SHALL BE:
(I) THE COMMISSIONERS RESERVE VALUATION METHOD FOR LIFE INSURANCE
POLICIES SUBJECT TO THIS SUBSECTION; AND
(II) THE COMMISSIONERS ANNUITY RESERVE VALUATION METHOD FOR ANNUITY
CONTRACTS SUBJECT TO THIS SUBSECTION.
(B) REQUIREMENTS FOR THE FORMAT OF REPORTS TO THE SUPERINTENDENT UNDER
ITEM (III) OF SUBPARAGRAPH (B) OF PARAGRAPH ELEVEN OF THIS SUBSECTION
AND WHICH SHALL INCLUDE INFORMATION NECESSARY TO DETERMINE IF THE VALU-
ATION IS APPROPRIATE AND IN COMPLIANCE WITH THIS SUBSECTION;
(C) ASSUMPTIONS FOR RISKS OVER WHICH A COMPANY DOES NOT HAVE SIGNIF-
ICANT CONTROL OR INFLUENCE;
(D) PROCEDURES FOR CORPORATE GOVERNANCE AND OVERSIGHT OF THE ACTUARIAL
FUNCTION, AND A PROCESS FOR APPROPRIATE WAIVER OR MODIFICATION OF SUCH
PROCEDURES;
(E) OTHER REQUIREMENTS, INCLUDING, BUT NOT LIMITED TO, THOSE RELATING
TO RESERVE METHODS, MODELS FOR MEASURING RISK, GENERATION OF ECONOMIC
SCENARIOS, ASSUMPTIONS, MARGINS, USE OF COMPANY EXPERIENCE, RISK MEAS-
UREMENT, DISCLOSURE, CERTIFICATIONS, REPORTS, ACTUARIAL OPINIONS AND
MEMORANDUMS, TRANSITION RULES AND INTERNAL CONTROLS; AND
(F) THE DATA AND FORM OF THE DATA REQUIRED UNDER PARAGRAPH TWELVE OF
THIS SUBSECTION, WITH WHOM THE DATA SHALL BE SUBMITTED, AND OTHER
REQUIREMENTS INCLUDING DATA ANALYSES AND REPORTING OF ANALYSES.
(10) THE SUPERINTENDENT MAY ENGAGE A QUALIFIED ACTUARY, AT THE EXPENSE
OF A COMPANY, TO PERFORM AN ACTUARIAL EXAMINATION OF SUCH COMPANY AND
OPINE ON THE APPROPRIATENESS OF ANY RESERVE ASSUMPTION OR METHOD USED BY
SUCH COMPANY, OR TO REVIEW AND OPINE ON SUCH COMPANY'S COMPLIANCE WITH
ANY REQUIREMENT SET FORTH IN THIS SUBSECTION.
(11) (A) A COMPANY THAT ISSUES POLICIES AND CONTRACTS SUBJECT TO THIS
SUBSECTION SHALL ESTABLISH RESERVES USING A PRINCIPLE-BASED VALUATION
THAT MEETS THE FOLLOWING CONDITIONS FOR SUCH POLICIES AND CONTRACTS AS
SPECIFIED IN THE VALUATION MANUAL, AS MODIFIED BY THE SUPERINTENDENT
PURSUANT TO SUBPARAGRAPH (B) OF PARAGRAPH EIGHT OF THIS SUBSECTION:
(I) QUANTIFY THE BENEFITS AND GUARANTEES, AND THE FUNDING, ASSOCIATED
WITH THE POLICIES OR CONTRACTS AND THEIR RISKS AT A LEVEL OF CONSERVA-
TISM THAT REFLECTS CONDITIONS THAT INCLUDE UNFAVORABLE EVENTS THAT HAVE
A REASONABLE PROBABILITY OF OCCURRING DURING THE LIFETIME OF THE POLI-
CIES AND CONTRACTS. FOR POLICIES AND CONTRACTS WITH SIGNIFICANT TAIL
RISK, REFLECT CONDITIONS APPROPRIATELY ADVERSE TO QUANTIFY THE TAIL
RISK.
S. 8978 3
(II) INCORPORATE ASSUMPTIONS, RISK ANALYSIS METHODS AND FINANCIAL
MODELS AND MANAGEMENT TECHNIQUES THAT ARE CONSISTENT WITH, BUT NOT
NECESSARILY IDENTICAL TO, THOSE UTILIZED WITHIN THE COMPANY'S OVERALL
RISK ASSESSMENT PROCESS, WHILE RECOGNIZING POTENTIAL DIFFERENCES IN
FINANCIAL REPORTING STRUCTURES AND ANY PRESCRIBED ASSUMPTIONS OR METH-
ODS.
(III) INCORPORATE ASSUMPTIONS THAT ARE DERIVED IN ONE OF THE FOLLOWING
MANNERS:
(I) THE ASSUMPTION IS PRESCRIBED IN THE VALUATION MANUAL, AS MODIFIED
BY THE SUPERINTENDENT PURSUANT TO SUBPARAGRAPH (B) OF PARAGRAPH EIGHT OF
THIS SUBSECTION.
(II) FOR ASSUMPTIONS THAT ARE NOT PRESCRIBED, THE ASSUMPTIONS SHALL:
A. BE ESTABLISHED UTILIZING THE COMPANY'S AVAILABLE EXPERIENCE, TO THE
EXTENT IT IS RELEVANT AND STATISTICALLY CREDIBLE AND IS APPROVED BY THE
SUPERINTENDENT; OR
B. TO THE EXTENT THAT COMPANY EXPERIENCE IS NOT AVAILABLE, RELEVANT,
OR STATISTICALLY CREDIBLE, BE ESTABLISHED UTILIZING OTHER RELEVANT,
STATISTICALLY CREDIBLE EXPERIENCE THAT IS APPROVED BY THE SUPERINTEN-
DENT.
(IV) PROVIDE MARGINS FOR UNCERTAINTY INCLUDING ADVERSE DEVIATION AND
ESTIMATION ERROR, SUCH THAT THE GREATER THE UNCERTAINTY THE LARGER THE
MARGIN AND RESULTING RESERVE.
(B) A COMPANY THAT ISSUES POLICIES AND CONTRACTS SUBJECT TO THIS
SUBSECTION SHALL:
(I) ESTABLISH PROCEDURES FOR CORPORATE GOVERNANCE AND OVERSIGHT OF THE
ACTUARIAL VALUATION FUNCTION CONSISTENT WITH THOSE DESCRIBED IN THE
VALUATION MANUAL, AS MODIFIED BY THE SUPERINTENDENT PURSUANT TO SUBPARA-
GRAPH (B) OF PARAGRAPH EIGHT OF THIS SUBSECTION.
(II) PROVIDE TO THE SUPERINTENDENT, ANNUALLY ON OR BEFORE A DATE AS
DETERMINED BY THE SUPERINTENDENT, AND THE BOARD OF DIRECTORS OF THE
COMPANY AN ANNUAL CERTIFICATION OF THE EFFECTIVENESS OF THE INTERNAL
CONTROLS WITH RESPECT TO THE PRINCIPLE-BASED VALUATION. SUCH CONTROLS
SHALL BE DESIGNED TO ASSURE THAT ALL MATERIAL RISKS INHERENT IN THE
LIABILITIES AND ASSOCIATED ASSETS SUBJECT TO SUCH VALUATION ARE INCLUDED
IN THE VALUATION, AND THAT VALUATIONS ARE MADE IN ACCORDANCE WITH THE
VALUATION MANUAL, AS MODIFIED BY THE SUPERINTENDENT PURSUANT TO SUBPARA-
GRAPH (B) OF PARAGRAPH EIGHT OF THIS SUBSECTION. THE CERTIFICATION
SHALL BE BASED ON THE CONTROLS IN PLACE AS OF THE END OF THE PRECEDING
CALENDAR YEAR.
(III) DEVELOP, AND FILE WITH THE SUPERINTENDENT UPON REQUEST, A PRIN-
CIPLE-BASED VALUATION REPORT THAT COMPLIES WITH STANDARDS PRESCRIBED IN
THE VALUATION MANUAL, AS MODIFIED BY THE SUPERINTENDENT PURSUANT TO
SUBPARAGRAPH (B) OF PARAGRAPH EIGHT OF THIS SUBSECTION.
(C) A PRINCIPLE-BASED VALUATION SHALL INCLUDE A PRESCRIBED FORMULAIC
RESERVE COMPONENT.
(12) A COMPANY THAT ISSUES POLICIES AND CONTRACTS SUBJECT TO THIS
SUBSECTION SHALL SUBMIT MORTALITY, MORBIDITY, POLICYHOLDER BEHAVIOR, OR
EXPENSE EXPERIENCE AND OTHER DATA AS PRESCRIBED IN THE VALUATION MANUAL,
AS MODIFIED BY THE SUPERINTENDENT PURSUANT TO SUBPARAGRAPH (B) OF PARA-
GRAPH EIGHT OF THIS SUBSECTION TO THE SUPERINTENDENT ANNUALLY ON OR
BEFORE A DATE AS DETERMINED BY THE SUPERINTENDENT.
(13) (A) THE SUPERINTENDENT MAY EXEMPT SPECIFIC PRODUCT FORMS OR PROD-
UCT LINES OF A DOMESTIC COMPANY THAT IS LICENSED AND DOING BUSINESS ONLY
IN THIS STATE FROM THE REQUIREMENTS OF THIS SUBSECTION PROVIDED:
(I) THE SUPERINTENDENT HAS ISSUED AN EXEMPTION IN WRITING TO THE
COMPANY AND HAS NOT SUBSEQUENTLY REVOKED THE EXEMPTION IN WRITING; AND
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(II) THE COMPANY COMPUTES RESERVES USING ASSUMPTIONS AND METHODS USED
PRIOR TO THE OPERATIVE DATE OF THE VALUATION MANUAL, AS MODIFIED BY THE
SUPERINTENDENT PURSUANT TO SUBPARAGRAPH (B) OF PARAGRAPH EIGHT OF THIS
SUBSECTION IN ADDITION TO ANY REQUIREMENTS ESTABLISHED BY THE SUPER-
INTENDENT AND PROMULGATED BY REGULATION.
(B) FOR ANY COMPANY GRANTED AN EXEMPTION UNDER THIS PARAGRAPH,
SUBSECTIONS (C), (D), (E) AND (F) OF THIS SECTION AND SECTION FOUR THOU-
SAND TWO HUNDRED EIGHTEEN OF THIS ARTICLE SHALL BE APPLICABLE. WITH
RESPECT TO ANY COMPANY APPLYING FOR THIS EXEMPTION, ANY REFERENCE TO
SUBSECTION (G) FOUND IN SUBSECTIONS (C), (D), (E) AND (F) OF THIS
SECTION AND SECTION FOUR THOUSAND TWO HUNDRED EIGHTEEN OF THIS ARTICLE
SHALL NOT BE APPLICABLE.
(14) THE SUPERINTENDENT MAY REQUIRE A COMPANY TO CHANGE ANY ASSUMPTION
OR METHOD USED TO CALCULATE THE COMPANY'S RESERVES THAT, IN THE OPINION
OF THE SUPERINTENDENT, IS NECESSARY IN ORDER TO COMPLY WITH THE REQUIRE-
MENTS OF THE VALUATION MANUAL OR THIS SUBSECTION; AND THE COMPANY SHALL
ADJUST THE RESERVES AS REQUIRED BY THE SUPERINTENDENT.
§ 2. 1. For purposes of this section, the term "valuation manual"
shall have the same meaning as such term is defined by subsection (g) of
section 4217 of the insurance law.
2. The department of financial services shall, in connection with
issuing the report required in subdivision 3 of this section, study the
impact on the New York state life insurance industry and consumers of
the implementation of the valuation manual for determining the amount of
required reserves for individual and group life insurance policies and
annuity contracts. Such study shall include but not be limited to:
(a) The percentage change between the reserves required under New York
state law prior to the implementation of the valuation manual and the
reserves required pursuant to such manual for individual and group life
insurance policies and annuity contracts;
(b) The percentage change between premiums prior to the implementation
of the valuation manual and premiums after the implementation of such
manual in the individual and group life insurance markets and annuity
market;
(c) The changes to the department of financial services oversight of
insurance companies that have occurred as a result of implementing the
valuation manual;
(d) The impact on risk based capital requirements; and
(e) The impact on consumers including cost savings, cost increases,
any loss of accrued interest on policies and contracts, any loss of
existing consumer protections and the impact of replacement products.
3. The superintendent of the department of financial services shall
submit a report to the governor, temporary president of the senate and
speaker of the assembly of the department's findings no later than five
years after the operative date of the valuation manual.
§ 3. This act shall take effect immediately.
