Assessment of public comments for new 11 NYCRR 82 (Insurance Regulation 203)

The New York State Department of Financial Services ("Department") received comments from an organization that represents life insurers ("life trade organization"), an organization that represents United States insurers ("insurer trade organization"), an organization that represents mutual insurers ("mutual insurer trade organization"), an organization that represents property/casualty insurers in New York ("state property/casualty trade organization"), an organization that represents property/casualty insurers nationally ("national property/casualty trade organization"), an organization that represents New York health care plans ("health plan trade organization"), a national organization representing the health insurance industry ("health insurer trade organization"), a national federation of 37 independent, community-based and locally operated health insurers, ("health insurer federation"), an organization that represents property/casualty reinsurers ("reinsurer trade organization"), a property/casualty insurer ("insurer A"), an insurer that writes property/casualty and life insurance ("insurer B"), an insurance committee at a bar association ("insurance committee"), and an attorney, in response to its publication of the proposed rule in the New York State Register.

Comments on specific parts of the proposed rule are discussed below.

11 NYCRR § 82.2 ("Enterprise Risk Management")

Comment

Insurer A, the health insurer trade organization, state property/casualty trade organization, national property/casualty trade organization, mutual insurer trade organization, health insurer federation, and reinsurer trade organization commented that the rule applies the enterprise risk management ("ERM") function to insurers that are not part of an Article 15, 16, or 17 system ("stand-alone insurers"), both foreign and domestic, which is inconsistent with other states and Chapter 238 of the Laws of 2013.

The life trade organization, mutual insurer trade organization, and state property/casualty trade organization commented that this section should include an exemption for all "small" holding companies and insurers. The national trade organization urged the Department to limit the rule to entities that constitute an "enterprise" as contemplated by the National Association of Insurance Commissioners' ("NAIC's") model Insurance Holding Company System Regulatory Act ("model Holding Company Act").

Department's Response

The Insurance Law requires an ultimate holding company that directly or indirectly controls an insurer and a domestic insurer with subsidiaries, such as a mutual insurer, to adopt a formal ERM function and file an annual enterprise risk report. There is no exception to that statutory requirement, including for a "small" holding company or insurer. Therefore, the Superintendent of Financial Services ("Superintendent") may not create an exception by rule.

While the model Holding Company Act does not apply to a stand-alone insurer, the Department believes that insurers should have an ERM function given the importance of risk management. However, to address the foregoing comments, the Department amended the rule so that the ERM function and enterprise risk reporting requirements apply only to a larger stand-alone domestic insurer that has premiums that are equal to or greater than a certain amount. Requiring only larger stand-alone domestic insurers that have premiums that are equal to or greater than a certain amount to have an ERM function and file an enterprise risk report should minimize any adverse impact that the rule may have on smaller insurers that may be small businesses and will limit the impact of the rule to those insurers, namely domestic rather than foreign insurers, for which the Department is principally responsible for ensuring solvency. In addition, the Superintendent always could request an enterprise risk report from an insurer, if necessary.

Comment

Insurer A, insurer B, the life trade organization, health plan trade organization, national property/casualty trade organization, health insurer trade organization, mutual insurer trade organization, health insurer federation, and reinsurer trade organization commented that it will take some time for a holding company and an insurer to fully comply with this section, and requested that the rule extend the effective date of the ERM function requirement and the enterprise risk reporting deadline.

Department's Response

Insurance Law §§ 1503(b), 1604(b), and 1717(b) require an ultimate holding company and a domestic insurer with subsidiaries to adopt a formal ERM function and file an enterprise risk report by April 30 of each year. Governor Andrew M. Cuomo signed these provisions into law on July 31, 2013 and they took effect on October 29, 2013. Since this language is set forth in the law and already took effect, the Department cannot extend its effective date by rule. Moreover, since the Governor signed it into law last year, holding companies and domestic insurers with subsidiaries have had plenty of time to prepare.

In addition, in 2011 the Department issued Circular Letter No. 14, which informed all domestic insurers that they should have an ERM function and set forth what should be part of that ERM function. The rule codifies the standards from the circular letter. Moreover, the Department published the rule in the State Register and posted it on the Department's website in January 2014. As mentioned previously, the Department amended the rule so it does not apply to a stand-alone foreign insurer. With regard to a stand-alone domestic insurer, the Department believes that such insurers have had sufficient time to prepare in light of the foregoing. Therefore, the Department did not make any changes to address this comment.

Comment

Insurer A and the life trade organization, state property/casualty trade organization, national property/casualty trade organization, health insurer trade organization, mutual insurer trade organization, health insurer federation, and reinsurer trade organization commented that the rule should provide a holding company and an insurer with the flexibility to decide how to meet ERM objectives, rather than prescribing detailed requirements, and requested that the Department amend the rule to exempt "small" holding companies and insurers, provide a separate, less detailed list of requirements for "small" holding companies and insurers, or present the ERM requirements as suggested options for fulfilling ERM objectives rather than as absolute requirements.

Department's Response

The Department intended that the rule provide flexibility in how an insurer or a holding company would meet the ERM objectives and has amended the rule to clarify that the ERM function is to be appropriate for the nature, scale, and complexity of the risk and adhere to the list set forth in § 82.2(a)(1) through (11), as relevant. With respect to exempting small holding companies and insurers, as stated above, the law requires an ultimate holding company that directly or indirectly controls an insurer and a domestic insurer with subsidiaries, such as a mutual insurer, to adopt a formal ERM function and file an annual enterprise risk report. There is no exception to that statutory requirement, including for a "small" holding company or insurer, but the Department has exempted certain smaller stand-alone insurers.

Comment

Insurer B, the life trade organization, and the health plan trade organization commented that the Department should amend the rule to permit an appropriate committee of the board of directors to approve the written risk policy. The life trade organization also requested that the Department amend the rule to recognize that a holding company or insurer may have different written risk policies for different kinds of risks.

Department's Response

The Department added language to permit the appropriate committee of the board of directors to approve the written risk policy. However, it did not amend the rule to recognize that a holding company or insurer may have different written risk policies for different kinds of risks because nothing in the rule precludes a holding company or insurer from having such different policies.

Comment

Insurer B, the life trade organization, the health plan trade organization, and the insurance committee requested that the Department amend the rule to specify that submission of the NAIC's Form F would suffice to fulfill the enterprise risk reporting requirements of the rule.

Department's Response

The Department adopted the enterprise risk reporting requirements from the Form F, except that the rule adds an attestation and a signature requirement. Therefore, submission of the Form F (with an attestation and a signature) would suffice to fulfill the rule's reporting requirements. The Department does not believe that it is necessary so to state in the rule so the Department did not make any changes to address this comment.

Comment

The life trade organization requested that the Department amend the rule to clarify that the information to be included in the enterprise risk report is limited to that could produce enterprise risk, in order to be consistent with the language set forth in the Form F.

Department's Response

The Department made this change.

Comment

The life trade organization requested that the Department delete the attestation and signature requirement for the enterprise risk report in order to be consistent with the Form F.

Department's Response

Based upon discussions with an NAIC representative, it is the Department's understanding that the lack of an attestation and a signature requirement in the NAIC's Form F was an oversight. The Department believes that the attestation and signature requirement is important and therefore did not change the rule to address this comment.

Comment

The insurance committee asked the Department to clarify in the rule that an enterprise risk report filed by April 30 need not include a risk discovered or arising after the preceding December 31 because to impose a stricter timing requirement would not permit a full review of risks that come to the attention of a holding company or insurer shortly before filing the report.

Department's Response

The enterprise risk report is intended to be a qualitative report rather than a quantitative report. As a result, a holding company or insurer should include in its report a discussion of any risks of which it is aware up until the time the holding company or insurer completes its report. Therefore, the Department did not change the rule to address this comment.

11 NYCRR § 82.3 ("Own Risk and Solvency Assessment")

Comment

The life trade organization and attorney commented that the opening language in § 82.3(a) of the rule should reference subdivision (c) of this section, not subdivision (d).

Department's Response

The Department made this change.

Lead State Concept

Comment

Insurer A, insurer B, and the life trade organization, health plan trade organization, national property/casualty trade organization, health insurer trade organization, mutual insurer trade organization, health insurer federation, and reinsurer trade organization commented that the rule's ERM and own risk and solvency assessment ("ORSA") provisions are inconsistent with the lead-state concept contained in the model Holding Company Act and the NAIC's Risk Management & Own Risk and Solvency Assessment Model Act ("ORSA Model Act") (collectively, the "model acts"), and requested that the Department amend the rule to incorporate the lead-state concept.

The life trade organization and health plan trade organization stated that if the Department is unwilling to amend the rule to incorporate the lead-state concept, then the Department should amend the rule to authorize a holding company or an insurer to file an enterprise risk report or ORSA summary report with the Superintendent subsequent to filing it with the lead state.

Insurer A and the national property/casualty trade organization, health insurer trade organization, mutual insurer trade organization, health insurer federation, reinsurer trade organization, and insurance committee asked the Department to clarify that a domestic insurer may file an ORSA summary report at any time as long as the Superintendent receives the report no later than December 1 of each year.

Department's Response

With regard to the enterprise risk report, Insurance Law §§ 1503(b), 1604(b), and 1717(b) require an ultimate holding company and a domestic insurer with subsidiaries to file an enterprise risk report with the Superintendent by April 30 of each year. The law does not incorporate the lead-state concept. Therefore, the Department may not incorporate that concept by rule. In addition, since the April 30 filing date is in the law, the Department may not change that date by rule. Therefore, the Department did not change the rule to address this comment, with regard to the enterprise risk report.

The ORSA Model Act and the rule require a domestic insurer to conduct an ORSA and file an ORSA summary report. Since the ORSA Model Act and rule apply to domestic insurers, the Department thinks that it is important that it receive reports directly from these insurers because the Department is tasked with making sure that such insurers are solvent. The rule also is consistent with the Insurance Law, which does not adopt the lead-state concept for enterprise risk reports. In addition, it is unclear how the Superintendent would have the authority to require an insurer to file reports with another state. Therefore, the Department did not amend the rule to address this comment, with regard to the ORSA summary report.

However, the Department amended the rule to clarify that a domestic insurer may submit an ORSA summary report to the Superintendent annually, but no later than December 1. Therefore, if a domestic insurer (or the system of which it is a member) files an ORSA summary report in its lead state prior to December 1, then it may file the same report with the Superintendent at the same time it files with the lead state.

Confidentiality

Comment

Insurer A, insurer B, and the life trade organization, health plan trade organization, national property/casualty trade organization, state property/casualty trade organization, health insurer trade organization, mutual insurer trade organization, health insurer federation, reinsurer trade organization, and insurance committee commented that the enterprise risk report and ORSA summary report will contain highly sensitive information, and insurer B, the life trade organization, the health plan trade organization, and the national property/casualty trade organization requested that the Department amend the rule or seek amendments to the Insurance Law to include the more extensive confidentiality provisions contained in the model Holding Company Act and ORSA Model Act.

The life trade organization, health plan trade organization, and insurer B stated that if the Department is not willing to include these more comprehensive provisions in the rule, then the Department should amend the rule to recognize the reports as confidential assessments. Insurer A and the state property/casualty trade organization, health insurer trade organization, mutual insurer trade organization, health insurer federation, and reinsurer trade organization requested that the Department amend the rule to at least clarify confidentiality protections.

 

Department's Response

Public Officers Law § 87(2) requires an agency to make available for public inspection all records unless the records or any portions thereof fall within an exception set forth in this section. The Department may not create confidentiality by rule and therefore is limited to the exceptions set forth in the Public Officers Law. However, the Department amended the rule to make clear that a holding company or insurer may invoke the trade secret exception under the Public Officers Law when submitting an enterprise risk report or ORSA summary report. The Department also amended the definition of "ORSA summary report" in the rule to mean a "confidential, internal assessmentů" and amended the rule to require the submission of a "confidential" enterprise risk report to recognize that holding companies and insurers believe that these reports are confidential.

Duplication

Comment

Insurer B and the life trade organization commented that there likely will be redundancy and duplication in the content of the enterprise risk report and the ORSA summary report once the ORSA summary reporting requirement set forth in the rule takes effect. Insurer B and the life trade organization requested that the Department amend the rule to permit a holding company or insurer to reference provisions of either the enterprise risk report or the ORSA summary report if the provisions are responsive to that is being requested in either the enterprise risk report or the ORSA summary report. Alternatively, insurer B and the life trade organization suggested that the Department waive or eliminate duplicative reporting requirements once the ORSA summary reporting requirement takes effect.

Department's Response

The items that must be discussed in the enterprise risk report and ORSA summary report were adopted directly from the model Holding Company Act and ORSA Model Act. There is nothing in the rule that prohibits a holding company or insurer from referencing responses already provided in one of the reports when submitting the other report. In addition, waiving or eliminating reporting requirements that may be duplicative would mean that the rule would not be uniform with the model acts or other states' laws. Therefore, the Department did not make any changes to address this comment.

Ultimate Controlling Person

Comment

The health plan trade organization commented that the model acts place the requirements on the ultimate controlling person, and that it has significant concerns about applying this requirement to an individual who may have only a relatively small direct or indirect interest in the holding company. The organization stated that asking such a person to file an enterprise risk report and ORSA summary report may result in a significant burden that produces very little in the area of true risk management and risk assessment relative to the insurer.

Department's Response

The model Holding Company Act requires the ultimate controlling person to file an enterprise risk report. The model Holding Company Act also defines a "person" to include an individual. Therefore, the model Holding Company Act does not exempt an individual from filing an enterprise risk report. Insurance Law § 1503(b) requires an ultimate holding company that directly or indirectly controls an insurer to adopt an ERM function and file an enterprise risk report. This may include an individual and is consistent with the model Holding Company Act. The Department may not change the applicability by rule. In addition, the ORSA Model Act and the rule require a domestic insurer, not the ultimate controlling person, to conduct an ORSA and file an ORSA summary report.

Therefore, the Department did not make any changes to the rule to address this comment.

 

 

Applicability to Certain Health Plans

Comment

The health plan trade organization commented that the rule applies to an insurer, including a health maintenance organization ("HMO"), and not a managed care organization, which not only includes an HMO, but also includes a pre-paid health services plan ("PHSP"), HIV special needs plan ("HIV SNP"), and managed long term care plan ("MLTCP"). The organization stated that it understands that only those PHSPs, HIV SNPs, and MLTCPs that are part of an Article 15, 16, or 17 system would be subject to the rule.

Department's Response

The Department amended the rule to remove references to HMOs. As a result, the rule would apply only to a managed care organization that is part of an Article 15, 16, or 17 system.

Miscellaneous

Comment

The insurer trade organization commented that it supports the comments made in the joint industry letter but has much larger concerns and suggested that the Department: be a thought leader on how to improve the United States system in the areas of confidentiality, group supervision, and uniformity; participate in the renewed discussions for opening and improving the model Holding Company Act; commit to follow through on its commitments to uniformity and hold its peers accountable for keeping those commitments in their respective jurisdictions; and actively use supervisory colleges to cooperate, coordinate, and communicate respective concerns of multijurisdictional groups.

Department's Response

The Department did not make any changes since this comment does not pertain to the rule.