The title of Part 100 of Title 11 was amended to include the 2001 CSO Preferred Class Structure Mortality Table for use in determining minimum reserve liabilities.

Section 100.1 lists the main purposes of the rule and was amended to recognize and prescribe the use of a new mortality table for the valuation of life insurance, and recognizing, permitting, and providing guidance on the use of another mortality table for preferred lives.

Section 100.2 was amended to include the transition dates associated with the 2001 CSO Preferred Class Structure Mortality Table.

New subdivisions (h) through (t) were added to section 100.3, which is the definitions section.

The title of section 100.5 was amended.

The title of section 100.7 was amended.

A new section 100.8 was added that sets forth the general requirements for use of the 2001 CSO Preferred Class Structure Mortality Table. Such table may be substituted for the 2001 CSO Mortality Table for policies issued on or after January 1, 2007, for individual life insurance and group life insurance products sold to individuals by certificate with premium rates guaranteed from issue for at least two years, if certain conditions are met by the insurer. Such table may not be used as the minimum nonforfeiture standard.

A new section 100.9 was added that defines the conditions for use of the 2001 CSO Preferred Class Structure Mortality Table and defines tests of sufficiency which must be met for policies valued as super preferred nonsmoker, preferred nonsmoker, and preferred smoker. This section also requires that insurers annually submit statistical reports showing mortality information.

A new section 100.10 was added that provides guidance on how to choose an appropriate table from the 2001 CSO Preferred Class Structure Mortality Table. This section also requires that an actuarial certification and supporting actuarial report be provided for each class of business other than the residual standard class.

Section 100.8 was renumbered to section 100.11. This is the severability provision.

A new Appendix 25A was added that contains the 2001 CSO Preferred Class Structure Mortality Table.

A new Appendix 25B was added that contains the 2001 Valuation Basic Table.

1. Statutory authority:

The superintendent's authority for the adoption of 11 NYCRR 100 (Regulation No. 179) derives from sections 201, 301, 1304, 4217, 4218, 4221, 4224, 4240, 4517, Article 24, and Article 26 of the Insurance Law.

These sections establish the superintendent's authority to promulgate regulations governing reserve requirements for life insurers. Sections 201 and 301 of the Insurance Law authorize the superintendent to effectuate any power accorded to him by the Insurance Law, and prescribe regulations interpreting the Insurance Law.

Section 1304 of the Insurance Law requires insurers to maintain reserves for life insurance policies and certificates according to prescribed tables of mortality and rates of interest.

Section 4217(c)(2)(A)(iii) permits, as a minimum standard of valuation for life insurance policies, any ordinary mortality table adopted by the National Association of Insurance Commissioners (NAIC) after 1980, and approved by the superintendent.

Section 4218 requires that when the actual premium charged for life insurance under any life insurance policy is less than the modified net premium calculated on the basis of the commissioners reserve valuation method, the minimum reserve required for such policy shall be the greater of either the reserve calculated according to the mortality table, rate of interest, and method actually used for such policy, or the reserve calculated by the commissioners reserve valuation method replacing the modified net premium by the actual premium charged for the policy in each contract year for which such modified net premium exceeds the actual premium.

Section 4221(k)(9)(B)(vi) permits, for policies of ordinary insurance, the use of any ordinary mortality table, adopted by the NAIC after 1980, and approved by the superintendent, for use in determining the minimum nonforfeiture standard.

Section 4224(a)(1) prohibits unfair discrimination between individuals of the same class and of equal expectation of life, in the amount or payment or return of premiums, or rates charged for life insurance policies.

Section 4240(d)(7) states the superintendent shall have the power to promulgate regulations, as may be appropriate, to carry out the provisions of this section, which covers various issues related to separate accounts of insurance companies, including reserve issues.

Section 4517(c)(2) requires fraternal benefit societies to comply with the minimum valuation standards of section 4217 of the Insurance Law for life insurance certificates issued on or after January 1, 1980.

Article 24 describes unfair methods of competition and unfair and deceptive acts and practices.

Article 26 describes unfair claim settlement practices, other misconduct and discrimination.

2. Legislative objectives:

One major area of focus of the Insurance Law is the solvency of insurers doing business in New York. One way the Insurance Law seeks to ensure solvency is by requiring all insurers licensed to do business in New York State to hold reserve funds necessary in relation to the obligations made to policyholders. The Insurance Law prescribes the mortality tables and interest rates to be used for calculating such reserves.

3. Needs and benefits:

With respect to policies issued on or after January 1, 2007, the 2001 CSO Preferred Class Structure Mortality Table may be used in place of the 2001 CSO Mortality Table under certain conditions, as specified in the rule, for valuing the minimum standards for individual life insurance policies and group life insurance policies sold to individuals by certificate with premium rates guaranteed from issue for at least two years. The split of the 2001 CSO Mortality Table into super-preferred, preferred, and residual standard classes will allow for reserves to better match the risks associated with different underwriting classifications. Use of the 2001 CSO Preferred Class Structure Mortality Table, however, is not mandatory.

The rule requires insurers to submit certain data because experience information is necessary in order to help the Department monitor the ongoing adequacy of the reserve established pursuant to this rule, particularly as the Department considers the implementation of a more principles-based reserve system that puts greater emphasis on an insurer's own experience data.

4. Costs:

Costs to most insurers and fraternal benefit societies authorized to do business in New York State will be minimal with respect to the cost to develop computer programs that incorporate the new 2001 CSO Preferred Class Structure Mortality Table. An insurer that chooses to modify its current system to include this table could produce modifications internally or purchase services from a consultant. Once the new table is incorporated into the insurers' systems, no additional costs should be incurred. An insurer would not need to modify its current computer systems if it decides not to use the 2001 CSO Preferred Class Structure Mortality Table for valuation.

Moreover, within plans of insurance where the insurer chooses to use the 2001 CSO Preferred Class Structure Mortality Table for valuation, it is estimated that insurer reserves will decrease by 10 to 50 percent. It is expected that the largest decrease would result from term life insurance policies valued with super-preferred mortality rates. This should help reduce overall insurer costs as well.

Costs to the Insurance Department will be minimal, as existing personnel are available to verify that the appropriate reserves are held by insurers for policies affected by the rule. There are no costs to other government agencies or local governments.

The requirement of an actuarial certification and the supporting actuarial report should involve minimal costs for insurers and the Department, because it is likely that an actual to expected mortality analysis is already performed by most insurers that sell applicable business.

The cost of submitting data for an insurer that already voluntarily supplies data as part of the Society of Actuaries data call is expected to be less than $10,000. For an insurer that does not currently contribute to industry studies, the cost is expected to be up to $50,000. The rule, however, provides an exemption from submitting data for those insurers that do not use the 2001 CSO Preferred Class Structure Mortality Table for valuation.

5. Local government mandates:

The rule 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 rule imposes reporting requirements related to the actuarial certification and supporting actuarial report required for insurers using the new 2001 CSO Preferred Class Structure Mortality Table for valuation. Additionally, the rule requires that insurers opting to use the new table provide data for mortality and other company specific experience in a statistical report for life insurance policies and group life insurance products sold to individuals by certificate with premium rates guaranteed from issue for at least two years.

7. Duplication:

The rule does not duplicate any existing law or regulation.

8. Alternatives:

The only significant alternative to be considered was to keep the current minimum mortality standard for the valuation of individual life insurance and group life insurance products sold to individuals by certificate with premium rates guaranteed from issue for at least two years, which would result in higher reserves for New York authorized life insurers and fraternal benefit societies on some policies.

9. Federal standards:

There are no federal standards in the subject area.

10. Compliance schedule:

This rule applies to financial statements filed on or after December 31, 2007. The 2001 CSO Preferred Class Structure Mortality Table may be used for policies issued on or after January 1, 2007. Use of the 2001 CSO Preferred Class Structure Mortality Table, however, is not mandatory. Voluntary election of such table is conditional, dependent upon the requirements set forth in the rule being met by the insurer. The actuarial certification and supporting actuarial report is due annually on March 1. The statistical report required for insurers that use the 2001 CSO Preferred Class Structure Mortality Table is due annually on July 1. Insurers should have ample time to meet the reporting requirements.

1. Small Businesses:

The Insurance Department finds that this rule 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 and fraternal benefit societies authorized to do business in New York State, none of which fall within the definition of “small business” contained in section 102(8) of the State Administrative Procedure Act. The Insurance Department has reviewed filed Reports on Examination and Annual Statements of authorized insurers and fraternal benefit societies and believes that none of them fall within the definition of “small business”, because there are none which are both independently owned and have under one hundred employees.

2. Local Governments:

The regulation does not impose any impacts, including any adverse impacts, or reporting, recordkeeping, or other compliance requirements on any local governments.

1. Types and estimated number of rural areas:

Insurers covered by the regulation do business in every county in this state, including rural areas as defined under SAPA 102(10).

2. Reporting, recordkeeping and other compliance requirements; and professional services:

The amendment to this regulation imposes reporting requirements related to the actuarial certification and supporting actuarial report required for insurers using the new 2001 CSO Preferred Class Structure Mortality Table for valuation. Additionally, the rule requires that insurers opting to use the new table provide data for mortality and other company specific experience in a statistical report for life insurance policies and group life insurance products sold to individuals by certificate with premium rates guaranteed from issue for at least two years. Use of the 2001 CSO Preferred Class Structure Mortality Table is not mandatory. Voluntary election of such table is conditional on the requirements set forth in the amendment to the regulation being met by the insurer.

3. Costs:

Costs to most insurers and fraternal benefits societies authorized to do business in New York State will be minimal, including the cost to develop computer programs which incorporate the new 2001 CSO Preferred Class Structure Mortality Table. The use of the new 2001 CSO Preferred Class Structure Mortality Table is optional and can be used for policies issued on or after January 1, 2007. This rule is expected to lower reserve levels for a number of products which use the new 2001 CSO Preferred Class Structure Mortality Table. An insurer that needs to modify its current system to include this table could produce modifications internally or purchase services from a consultant. Once the new table is incorporated into the insurers systems, no additional costs should be incurred due to the new table. An insurer would not need to modify its current computer systems if it decides not to use the 2001 CSO Preferred Class Structure Mortality Table for valuation.

For policies issued on or after January 1, 2007, within plans of insurance where the insurer chooses to use the 2001 CSO Preferred Class Structure Mortality Table for valuation, it is estimated that reserves will decrease by ten to fifty percent. It is expected that the largest decrease would result from term life insurance policies valued with super-preferred mortality rates.

Costs to the Insurance Department will be minimal, as existing personnel are available to verify that the appropriate reserves are held by insurers for policies affected by this rule. There are no costs to other government agencies or local governments.

The requirement of an actuarial certification and the supporting actuarial report should involve minimal costs for insurers and the Department because it is likely that an actual to expected mortality analysis is already performed by most insurers that sell applicable business.

The cost of submitting data for an insurer that already voluntarily supplies data as part of the Society of Actuaries data call is expected to be less than $10,000. For an insurer that does not currently contribute to industry studies, the cost is expected to be up to $50,000. The rule, however, provides an exemption from submitting data for those insurers that do not use the 2001 CSO Preferred Class Structure Mortality Table for valuation.

4. Minimizing adverse impact:

It does not impose any adverse impact on rural areas.

5. Rural area participation:

The tables in the rule are the same as those developed for the American Council of Life Insurers (ACLI) by Tillinghast of Towers Perrin and those adopted by the NAIC in September 2006. The ACLI represents 377 life insurers operating in the United States, including several New York domiciled insurers. Additionally, the Department had extensive discussions with the Life Insurance Council of New York (LICONY) regarding this rule. Moreover, a discussion of the proposed rule was included in the Insurance Department's regulatory agenda, which was published in the June 27, 2007 issue of the State Register.

Nature of impact:

The Insurance Department finds that this rule will have a positive impact or no impact on jobs and employment opportunities. The rule adopts a new mortality table for use in determining minimum reserve liabilities and nonforfeiture benefits. This rule will lower reserve requirements and therefore decrease the cost of doing business in New York.

Categories and number affected:

The Insurance Department finds that no categories of jobs or number of jobs will be affected.

Regions of adverse impact:

This rule applies to all life insurers and fraternal benefit societies authorized to do business in New York State. There would be no region in New York that would experience an adverse impact on jobs and employment opportunities.

Minimizing adverse impact:

No measures would need to be taken by the Department to minimize adverse impacts.

Self-employment opportunities:

This rule would not have a measurable impact on self-employment opportunities.