Life Bureau Filing Guidance Note

Interest Rate Changes in Insurance Law §4221(n-1)

Guidance Date: 07/12/2023


I. Scope and Purpose

This guidance applies to all policies subject to Insurance Law §4221(n-1) delivered or issued for delivery in New York, except that it does not apply to policies complying with Insurance Regulation 77. This guidance addresses Universal Life Nonforfeiture Rate pursuant to §4221(n-1)(2)(H) and Paid-Up Insurance Option Rate pursuant to §4221(n-1)(3)(B)(iii)(I).  The purpose of this guidance is to remind insurers that the rates discussed below must appear in the policy as well as the supporting actuarial memorandum for all policies issued on or after July 21, 2022 and to provide guidance for expediting future product filings related to these rates.

II. Amendment to Insurance Law §4221(n-1)

Chapter 443 of the Laws of 2022 revised the interest rate used for the determination of the expense allowance and the net level whole life annual premium at issue calculations in §4221(n-1)(2)(H) and also revised the interest rate used for the determination of the paid-up life insurance element in 4221(n-1)(3)(B)(iii)(I). The amendments were effective July 21, 2022.  

Section 4221(n-1)(2)(H) for the Net Level Whole Life Annual Premium states, in part, that it is calculated based on:

“an interest rate based on the rate specified in the policy but not less than the lesser of four percent and the nonforfeiture interest rate per annual pursuant to paragraph ten of subsection (k) of this section”. 

Section 4221(n-1)(3)(B)(iii)(I) for the paid-up life insurance element states, in part, that it is calculated based on:

“an interest rate (not less than the lesser of (aa) four percent and  (bb) the nonforfeiture interest rate per annum pursuant to paragraph ten of subsection (k) of this section minus one percent) guaranteed in the policy for this purpose”

III.  Continued use of a 4% interest rate

Companies have asked for guidance on what they need to file with the Department if they wish to continue to use a 4% interest rate in this context.   

A. For the paid-up interest rate:

The paid-up rate should already be set forth in the policy as that rate was required to be in the policy prior to the recent amendments. Companies may leave the rate at 4% without any new filings with the Department, provided that the rate already appears in the approved form. In order to change the rate, a form filing would be needed.

B. For the Universal Life nonforfeiture rate:

Prior to the amendment, some companies included the nonforfeiture rate in the policy and others did not. As noted above, the law now requires this rate to always be set forth in the policy. If the 4% nonforfeiture rate is already set forth in the policy, then the company would not need to make a policy form filing to continue to use 4%. If the nonforfeiture rate is not set forth in the policy, then a policy form filing is needed.

IV. Filing Process

A. Updating policy forms and actuarial memoranda for new issue.

To expediate approval, new policy form filings being submitted solely to add the above-reference rates for new issue may be submitted using the Circular Letter No. 6 (2004) certified process. The Department recommends that the Universal Life Nonforfeiture Rate and the Paid-Up Insurance Option Rate be set forth in the specification page and that the specification page be designed as an insert page with its own form number. This will simplify and expedite future interest rate changes since the company will only need to submit the revised specification page and not the entire policy. Be sure that actuarial materials also address the new rate. Please note that these rates are not permissible variable material and may not be bracketed. See section C. below for filing future rate changes.

B. Amending policy forms issued on or after July 21, 2022 that did not set forth the rates.

If any policies were issued on or after 7/21/2022 without the Universal Life Nonforfeiture Rate and/or the Paid-Up Insurance Option Rate set forth in the policy, these policies will need to be amended to include the applicable rate or rates. This can be done with an approved endorsement form.

C. Future Rate Revisions.

Any revisions to the Universal Life Nonforfeiture Rate pursuant to §4221(n-1)(2)(H), or the Paid-Up Insurance Option Rate pursuant to §4221(n-1)(3)(B)(iii)(I), necessitates a submission of the revised policy form and variable material reflecting the new rate and the actuarial materials supporting the new rate, including the Actuarial Memorandum and the Statement of Self-Support. To expediate approval, new policy forms being submitted solely to change the above-reference rates for new issue may be submitted using the Circular Letter No. 6 (2004) certified process.

Contact

Questions about this guidance should be emailed to the Department at [email protected]