Life Bureau Filing Guidance Note

Minimum Reserve Requirements for Certain Deposit-Type Contracts with Pre-Defined Cash Flows and No Withdrawals Permitted Prior to the Contract Maturity Date

Guidance Date: 02/28/2025

The following directive applies to life insurance companies and fraternal benefit societies doing business in New York, and any insurer holding a certificate from the superintendent designating such entity as accredited for the reinsurance of life insurance, annuities, or accident and health insurance, with the exception of non-New York domestic companies that meet the definition of “reinsurers” under the Federal Dodd-Frank Act.

The purpose is to provide guidance on the minimum reserve requirements for deposit-type contracts with pre-defined cash flows and no withdrawals permitted prior to the contract maturity date under certain provisions of New York Insurance Law Sections 4217(c)(4)(F) and (G) that are not in scope of New York Insurance Law Section 4217(g).

The National Association of Insurance Commissioners (NAIC) recently adopted a Valuation Manual amendment, Amendment Proposal Form (APF) 2024-05, which revised the minimum reserve requirements for deposit-type contracts with pre-defined cash flows and no withdrawals permitted that are not in scope of VM-22.

In accordance with the APF, the NAIC Valuation Manual, Section II. Reserve Requirements, Subsection 3: Deposit-Type Contracts was amended to include the following language:

“C. For deposit-type contracts with pre-defined cash flows and no withdrawal permitted prior to the contract maturity date that are not in scope of VM-22, the company may elect to consistently determine statutory maximum valuation rates with the following adjustments to the requirements found in Model #820:

  1. The statutory maximum valuation rate shall be determined monthly;
  2. The reference rate shall be defined as the monthly average of the composite yield on seasoned corporate bonds, as published by Moody’s Investors Service, Inc., for the month prior to contract issue; and
  3. The statutory maximum valuation rate shall be rounded to the nearest one-hundredth of one percent (1/100 of 1%).”

The current valuation rate is determined annually and applied on a calendar year basis. The change to monthly rates better aligns with the yield on available assets and the interest rate environment at issue than the current valuation rate, which utilizes the Reference Rate as a twelve-month rolling average of the Moody’s Corporate Bond Yield Average ending on June 30 of the calendar year of issue. When there is a significant movement in interest rates, this may result in inappropriate valuation rates for funding agreement contracts that are typically large in size and issued on a single day.

New York Insurance Law Section 4217(c)(4)(G) states that “…in the event that the National Association of Insurance Commissioners determines that Moody’s Corporate Bond Yield Average—Monthly Average Corporates as published by Moody’s Investors Service, Inc., is no longer appropriate for the determination of the reference interest rate, then an alternative method for determination of the reference interest rate, which is adopted by the National Association of Insurance Commissioners and approved by the Superintendent, may be substituted.”

The Department has determined that the change to valuation methodology as described above is reasonable and upon written request, the superintendent may grant approval for insurers to apply a consistent methodology in determining the reference rate prescribed by New York Insurance Law Section 4217(c)(4)(F).

Such an election may be made for contracts issued on or after January 1, 2025. Once a company has made such an election, the company shall continue to determine statutory maximum valuation rates using the same methodology for future valuations.
Please direct all questions or requests for approval to [email protected].