Regulatory Impact Statement for the First Amendment to 11 NYCRR 97 (Insurance Regulation 128).
1. Statutory authority: The Superintendent's authority to promulgate the First Amendment to Insurance Regulation 128 (11 NYCRR 97) derives from sections 202 and 302 of the Financial Services Law ("FSL") and sections 301, 1403, 1405, 1414, 4217, and 4240 of the Insurance Law.
FSL section 202 establishes the office of the Superintendent and designates the Superintendent as the head of the Department of Financial Services.
FSL section 302 and Insurance Law section 301 authorize the Superintendent to effectuate any power accorded to him by the Insurance Law, the Banking Law, the Financial Services Law, or any other law of this state and to prescribe regulations interpreting the Insurance Law, among other things.
Insurance Law section 1403 identifies the types of investments that an insurer may make, and provides, subject to limited exceptions, that investments made for separate accounts are not subject to the investment limitations set forth in section 1403.
Insurance Law section 1405 identifies additional types of investments that a life insurer may make.
Insurance Law section 1414 provides for the valuation of investments.
Insurance Law section 4217(a)(1) requires the Superintendent annually to value, or cause to be valued, the reserve liabilities ("reserves") for all outstanding policies and contracts of every life insurer doing business in New York, except that with respect to an alien insurer the valuation is limited to its U.S. business. The Superintendent may certify the amount of reserves, specifying the mortality table or tables, rate or rates of interest, and methods used in the calculation of the reserves.
Insurance Law section 4217(c)(6)(D) authorizes the Superintendent to issue, by regulation, guidelines for the application of the reserve valuation provisions of section 4217 to such policies and contracts as the Superintendent deems appropriate.
Insurance Law section 4240(a)(5)(iii) requires a life insurer to submit an actuarial opinion and memorandum related to assets held in a separate account. Section 4240(d)(6) prohibits a life insurer from discriminating unfairly between separate accounts or between separate and other accounts, but does not require a life insurer to follow uniform investment policies for all of its accounts.
2. Legislative objectives: Maintaining the solvency of insurers doing business in New York is a principal focus of the Insurance Law. One fundamental way in which the Insurance Law seeks to ensure insurer solvency is by requiring all insurers authorized to do business in New York State to hold reserve funds in an amount sufficient to meet the obligations made to policyholders. The Insurance Law prescribes the mortality tables and interest rates that should be used for calculating such reserves.
3. Needs and benefits: This amendment prescribes minimum and maximum rates for discounting guaranteed benefit cashflows, which are based on the Treasury discount rate, to ensure that prudent levels of reserves are maintained by life insurers. A minimum discount rate, applicable when Treasury discount rates are exceptionally low, provides insurers with a moderate relief from reserve requirements. A maximum discount rate, to be applied if Treasury discount rates are significantly increased, will prevent an over-release of reserves.
This amendment also changes the filing due date of the actuarial memorandum that life insurers are required to file with the Department, pursuant to Section 97.6 of this rule, from March 1 to March 15. The Department has provided a filing extension date to several insurers that requested additional time to file the actuarial memorandum. This amendment will allow all life insurers adequate time to prepare their filings after submitting to the Department several other statutory filings that are due by March 1.
4. Costs: Insurers may have to make minor modifications to existing computer software to change the discount rate in accordance with this amendment. The costs to insurers that are affected by this amendment to make such changes will likely vary from insurer to insurer but are expected to be minimal. Once initial modifications to the software have been made, no additional costs should be incurred.
The Department anticipates little if any additional costs to the Department as a result of this rule. There are no costs to other government agencies or local governments.
5. Local government mandates: The regulation imposes no new programs, services, duties or responsibilities on any county, city, town, village, school district, fire district or other special district.
6. Paperwork: The amendment imposes no new reporting requirement.
7. Duplication: The regulation does not duplicate any existing law or regulation.
8. Alternatives: The Department deliberated the use of a discount rate based on a 65/35 weighting of Treasuries and a corporate bond index. After lengthy consideration, the Department decided against this approach, mainly due to the belief that the theoretically "correct" discount rate for liabilities is actually no higher than the risk-free rate. The Department also considered not amending the regulation. However, not amending the rule would mean that insurers would be unable to obtain reserve relief during periods of extremely low Treasury discount rates, which insurers specifically requested.
9. Federal standards: There are no federal standards in this subject area.
10. Compliance schedule: This amendment applies to financial statements filed on or after December 31, 2013. The Life Insurance Council of New York, Inc., the trade association for insurers affected by this rule, was involved in the process of developing the changes to the discount rate that are included in this amendment and the change of the filing due date of the Actuarial Memorandum from March 1 to March 15. Insurers will have ample time to revise their computer software systems to update the usable discount rates in accordance with this amendment.
Statement Setting Forth the Basis for the Finding that the First Amendment to 11 NYCRR 97 (Insurance Regulation 128) Will Not Impose Adverse Economic Impact or Compliance Requirements on Small Businesses or Local Governments.
1. Small businesses: The Department finds that this amendment will not impose any adverse economic impact on small businesses and will not impose any reporting, recordkeeping or other compliance requirements on small businesses. The basis for this finding is that this rule is directed at all life insurers that are authorized to do business in New York State, none of which comes within the definition of "small business" provided in section 102(8) of the State Administrative Procedure Act. The Department reviewed filed reports on examination and annual statements of authorized life insurers and concludes that none of these entities comes within the definition of "small business," because there are none that are both independently owned and have fewer than one hundred employees.
2. Local governments: The amendment does not impose any impacts, including any adverse impacts, or reporting, recordkeeping, or other compliance requirements on any local governments.
Rural Area Flexibility Analysis for the First Amendment to 11 NYCRR 97 (Insurance Regulation 128).
1. Types and estimated number of rural areas: Insurers covered by this amendment do business in every county in this state, including rural areas as defined in State Administrative Procedure Act ("SAPA") section 102(10).
2. Reporting, recordkeeping and other compliance requirements; and professional services: This amendment does not impose any new reporting, recordkeeping, or other compliance requirements, and is not likely to require the use of professional services of outside contractors. The revisions insurers will need to make to their computer software are most likely to be handled by the insurers' own staffs.
3. Costs: All insurers subject to this rule will likely have to make minor modifications to existing computer software to change the discount rate in accordance with this amendment. The costs to insurers that are affected by this amendment to make such changes will likely vary from insurer to insurer but are expected to be minimal, whether the insurer is located in a rural or non-rural area. Once initial modifications to the software have been made, no additional costs should be incurred.
4. Minimizing adverse impact: This amendment does not impose any adverse impact on rural areas.
5. Rural area participation: The Life Insurance Council of New York, Inc. ("LICONY"), the trade association for insurers affected by this rule, was involved in the process of developing the changes to the discount rate that are included in this amendment and the change of the filing due date of the Actuarial Memorandum from March 1 to March 15. Additionally, interested parties will have the opportunity to comment on the proposed rule for 45 days following publication in the State Register.
Statement Setting Forth the Basis for the Finding that the First Amendment to 11 NYCRR 97 (Insurance Regulation 128) Will Not Have a Substantial Adverse Impact on Jobs and Employment Opportunities.
The Department finds that this amendment should have no impact on jobs and employment opportunities. This amendment prescribes minimum and maximum rates for discounting guaranteed benefit cashflows to ensure that prudent levels of reserves are maintained by life insurers. The amendment also changes the filing due date of the actuarial memorandum that life insurers are required to file with the Department, pursuant to section 97.6 of this rule, from March 1 to March 15. Insurers should not need to hire additional employees or independent contractors to comply with these new standards.