New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following opinion on June 29, 2001 representing the position of the New York State Insurance Department.

RE: Section 4228(h) of the Insurance Law.

Questions Presented:

1. May the Department require that statements of self-support, required under N.Y. Ins. Law § 4228(h) (McKinney 2000), include an actuarial opinion that the subject policy or contract form is self-supporting based on reasonable assumptions as to interest, mortality, persistency, taxes, agents’ survival, expenses and "other relevant factors"?

2. May the Department require a declaration from an insurer as to whether fully allocated expenses were assumed in the demonstration of self-support?

3. May the Department require that, upon request, a company submit its demonstration of self-support?

Conclusions:

1. No. N.Y. Ins. Law § 4228(h) (McKinney 2000) requires that statements and demonstrations of self-support are to be based on "reasonable assumptions as to interest, mortality, persistency, taxes, agents’ survival and expenses resulting from the sale of the policy or contract form". The list of "reasonable assumptions" does not include "other relevant factors".

2. Yes. The Department may require that insurers submit a declaration as to whether it assumed fully allocated expenses in its demonstration of self-support. However, that requirement must be specified in the regulation required to be promulgated under N.Y. Ins. Law § 4228(h) (McKinney 2000), before such a requirement may be imposed.

3. Yes. The Department may require that a company submit, upon request, its demonstration of self-support. N. Y. Ins. Law § 308 (McKinney 2000) gives the superintendent broad authority to request that an insurer produce certain documents as part of an inquiry in relation to an insurer’s "transactions or condition or any matter connected therewith".

Facts:

No specific facts were provided.

Anasysis:

N.Y. Ins. Law § 4228(h) (McKinney 2000) which became effective on January 1, 1998, states:

(h) No company shall offer for sale any life insurance policy form or annuity contract form covered by this section or any debit life insurance policy form which shall not appear to be self-supporting on reasonable assumptions as to interest, mortality, persistency, taxes, agents’ survival and expenses resulting from the sale of the policy or contract form. For all such forms offered for sale in this state, and for all forms filed for use outside this state by domestic life insurance companies, a statement that the requirements of this subsection have been met, signed by an actuary who is a member in good standing of the American Academy of Actuaries and meets the requirements prescribed by the superintendent by regulation shall be submitted with each such life insurance policy or annuity contract form filed pursuant to paragraph one or six of subsection (b) of section three thousand two hundred one of this chapter. A demonstration supporting such statement, signed by an actuary meeting such qualifications, shall be retained in the company’s home office, while such form is being offered in this state and for a period of six years thereafter and be available for inspection. The superintendent shall promulgate a regulation establishing the guidelines applicable to such demonstration.

The last sentence of N.Y. Ins. Law § 4228(h) (McKinney 2000) requires that the Superintendent of Insurance promulgate a regulation establishing guidelines applicable to self-support demonstrations. Pending the promulgation of a regulation, the Department issued Circular Letter No. 8 (1998) to provide interim guidance to insurance companies with respect to some provisions of the new Section 4228.

Section II(A)(6)(c) of Circular Letter No. 8 (1998) requires that the statement of self-support include "an actuarial opinion that the subject policy or contract form is self-supporting based on reasonable assumptions as to interest, mortality, persistency, taxes, agents’ survival, expenses and other relevant factors". (emphasis added). N.Y. Ins. Law § 4228(h) (McKinney 2000) requires that statements and demonstrations of self-support are to be based on "reasonable assumptions as to interest, mortality, persistency, taxes, agents’ survival and expenses resulting from the sale of the policy or contract form". The "reasonable assumptions" upon which the statement and demonstration are to be based are clearly set forth in the statute and do not include "other relevant factors".

The inquirer asserted that Section II(A)(6)(f) of Circular Letter No. 8 (1998), which states that the statement of self-support should include a declaration as to whether fully allocated expenses were assumed in the demonstration of self-support, is not required by Section 4228(h). The first sentence of Section 4228(h) states in relevant part, "[n]o company shall offer for sale any life insurance policy form … which shall not appear to be self-supporting on reasonable assumptions as to interest, mortality, persistency, taxes, agents’ survival and expenses resulting from sale of the policy or contract form". (emphasis added). Although the statute does not require that the self-support statement include such a declaration, requiring a company to state the basis of the expense assumptions used in its demonstration, i.e., whether or not it has used fully allocated expense assumptions, is clearly within the discretion of the Superintendent pursuant to the statute. However, any such requirements must be included in the regulation required to be promulgated under the statute.

The inquirer also argued that language contained in Item 8 of in Circular Letter No. 8 (1998) concerning submission of a demonstration of self-support upon the Department’s request is inconsistent with Section 4228(h). Section 4228(h) provides in relevant part that:

[A] statement [of self-support] … shall be submitted with each such life insurance policy or annuity contract form filed pursuant to paragraph one or six of subsection (b) of section three thousand two hundred one of this chapter. A demonstration supporting each such statement [of self-support] … shall be retained in the company’s home office, … and be available for inspection….

The statutory framework clearly envisions review of the statement of self-support as part of the prior approval process pursuant to N.Y. Ins. Law § 3201 (McKinney 2000) and review of the demonstration of self-support as part of an examination review. Routine submissions of such demonstrations, as set forth in Product Outlines currently available on the Department’s website, may not be required as part of the prior approval process under the statute.

However, the Department disagreed with the inquirer’s reading of Section 4228(h), that the language that demonstrations of support be retained in the company’s home office and be available for inspection means that the Department would only review a demonstration for compliance with the statute as part of the examination process. In addition to other relevant provisions of the Insurance Law (see, e.g., N.Y. Ins. Law §§ 2401-2409 (McKinney 2000)), N. Y. Ins. Law § 308 (McKinney 2000) gives the superintendent broad authority to request that an insurer produce certain documents as part of an inquiry in relation to an insurer’s "transactions or condition or any matter connected therewith". Thus, in furtherance of its regulatory responsibilities, the Department has the authority to request as part of a lawful inquiry, that an insurer submit, among other things, its demonstration of self-support.

N. Y. Ins. Law § 308(a) (McKinney 2000) states in pertinent part:

(a)The superintendent may also address to … any authorized insurer or its officers any inquiry in relation to its transactions or condition or any matter connected therewith.

The Department will review and, if necessary, amend any product outlines that require the routine filing of demonstrations of support.

For further information, you may contact First Deputy Superintendent Kevin M. Rampe at the New York City office.