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¹ OFFICIAL NAIC ANNUAL STATEMENT INSTRUCTIONS, PROPERTY/CASUALTY, FOR THE 2016 REPORTING YEAR. Printed September 2016. © Copyright 1984 - 2016 by National Association of Insurance Commissioners, in Kansas City, Missouri.

1. Statutory authority: Financial Services Law Sections 202 and 302 and Insurance Law Sections 301, 307, 316, and 4117.

Financial Services Law Section 202 establishes the office of the Superintendent of Financial Services (“Superintendent”).

Financial Services Law Section 302 and Insurance Law Section 301, in material part, authorize the Superintendent to effectuate any power accorded to the Superintendent by the Financial Services Law, Insurance Law, or any other applicable law, and to prescribe regulations interpreting the Insurance Law, the Financial Services Law, or any other applicable law.

Insurance Law Section 307 requires an insurer to submit an annual statement to the Superintendent showing the insurer’s condition at last year end, and permits the Superintendent to prescribe the form of the annual statement.

Insurance Law Section 316 permits the Superintendent to promulgate regulations to require an insurer to make a filing or submission with the Superintendent electronically, and requires the Superintendent to allow an insurer to submit a request for an exemption from the electronic filing requirement upon a demonstration of undue hardship, impracticability, or good cause.

Insurance Law Section 4117 requires that in any financial statement or report of a property/casualty insurer, there shall be included in the liabilities of such insurer loss reserves and loss expense reserves in an amount at least equal to the amounts required by that section. Section 4117 also requires every licensed property/casualty insurer that is required to file an annual statement with the superintendent to engage a qualified independent loss reserve specialist to render an opinion as to the adequacy of the insurer’s loss and loss adjustment expense reserves when two of three of the insurer's results of its loss and loss adjustment expense ratios, as indicated in Insurance Law Section 4117(g)(1)(A)-(C), are outside of the indicated acceptable ranges.

2. Legislative objectives: Insurance Law Section 4117 requires every licensed property/casualty insurer that must file an annual statement to engage a qualified independent loss reserve specialist to render an opinion as to the adequacy of its loss and loss adjustment expense reserves under certain conditions. Insurance Law Section 307 requires an insurer to submit an annual statement, and permits the Superintendent to prescribe the form of the statement. The Superintendent has adopted the National Association of Insurance Commissioners (“NAIC”) annual statement blank and has encouraged insurers to file their annual statements electronically with the NAIC. See Ins. Circular Letter No. 4 (2001) and 11 NYCRR § 83.2 (Insurance Regulation 172). The NAIC property and casualty annual statement instructions as of September 2014 (the “statement instructions”) require an insurer to attach or include in page one of the annual statement a statement of actuarial opinion (“SAO”), which sets forth the actuary’s opinion relating to reserves. The statement instructions permit an insurer to apply to its domiciliary state for an exemption from the SAO filing requirement if the insurer (i) has less than one million dollars total direct plus assumed written premiums during a calendar year and less than one million dollars total direct plus assumed loss and loss adjustment expenses at year-end; (ii) based upon the nature of its business written; or (iii) based upon a financial hardship.

The statement instructions also state that each insurer required by its domiciliary state to submit an actuarial opinion summary (“AOS”) must file the AOS in the insurer’s domiciliary state annually and with any other state upon request. The AOS must include certain information pertaining to loss and loss adjustment expense reserves, among other things.

This rule accords with the public policy objectives that the Legislature sought to advance in Insurance Law Sections 307 and 4117 by requiring an authorized property/casualty insurer to submit annually to the Superintendent an SAO (unless exempted from filing by the insurer’s domiciliary state); requiring a domestic property/casualty insurer that must submit an SAO to submit to the Superintendent an annual AOS; and requiring a foreign insurer to submit to the Superintendent an AOS within 15 days of the Superintendent’s request.

3. Needs and benefits: Section 2A of the NAIC’s Property and Casualty Actuarial Opinion Model Law (the “Model Law”) requires an authorized property/casualty insurer to submit an annual SAO unless otherwise exempted by the insurer’s domiciliary state. Section 2B of the Model Law requires a domestic property/casualty insurer that must submit an SAO to submit an annual AOS written by the insurer’s appointed actuary. An insurer must file the SAO and the AOS in accordance with the statement instructions. A foreign property/casualty insurer must submit the AOS upon request.

Sections 2A and B of the Model Law currently are NAIC accreditation standards. The purpose of the NAIC’s accreditation program is for state insurance regulatory agencies to meet certain minimum standards of solvency regulation in order to promote effective insurer financial solvency regulation. Since the New York State Department of Financial Services (“DFS”) has adopted the statement instructions, DFS receives an SAO as part of an insurer’s annual statement. In addition, DFS issues an annual insurance circular letter that advises all domestic property/casualty insurers that are required to file an SAO that they also should file an AOS with DFS. See e.g., Supplement No. 9 to Insurance Circular Letter No. 22 (2005) dated February 27, 2017. However, DFS has been criticized for its reliance on circular letters for meeting accreditation standards.

This rule would incorporate Sections 2A and B of the Model Law to ensure that DFS meets NAIC accreditation standards and relieve DFS of the need to continue reissuing circular letters each year.

The rule also would require an authorized property/casualty insurer to submit an AOS electronically unless the Superintendent grants the insurer an exemption from filing electronically.

4. Costs: This rule should not impose any cost on authorized property/casualty insurers to implement or continue compliance with this rule because insurers who are not exempt from the filing requirements already are submitting an annual SAO and AOS to DFS. The electronic filing requirement should not impose any financial burden on most insurers, which already file electronically. Smaller insurers that have to file may seek an exemption from the electronic filing requirement upon a demonstration of undue hardship, impracticability, or good cause. DFS should not incur any additional costs in connection with the implementation of this rule because DFS already receives annual SAO and AOS filings.

This rule does not impose compliance costs on state or local governments.

5. Local government mandates: This rule does not impose any requirement upon a county, city, town, village, school district, fire district, or other special district.

6. Paperwork: The rule requires an authorized property/casualty insurer to submit with its annual statement an SAO, and requires a domestic property/casualty insurer that files an SAO to file electronically an annual AOS. The rule also requires a foreign property/casualty insurer to submit an AOS electronically within 15 days of the Superintendent’s request. However, because the rule merely codifies current practices, the rule does not impose any new or additional paperwork requirements.

7. Duplication: This rule will not duplicate, overlap, or conflict with any existing state or federal rules or other legal requirements.

8. Alternatives: DFS considered not requiring an authorized property/casualty insurer to file an AOS electronically. However, DFS decided to require such an insurer to file an AOS electronically because it will reduce paperwork and create greater efficiency, though an insurer may request an exemption from the electronic filing requirement based upon a demonstration of undue hardship, impracticability, or good cause consistent with Insurance Law Section 316.

9. Federal standards: The rule does not exceed any minimum standards of the federal government for the same or similar subject areas.

10. Compliance schedule: The rule, once adopted, would take effect upon publication in the State Register.

1. Effect of rule: The rule requires an authorized property/casualty insurer to submit with its annual statement a statement of actuarial opinion (“SAO”) in accordance with the National Association of Insurance Commissioners property and casualty annual statement instructions as of September 2016 (the “statement instructions”), and requires a domestic property/casualty insurer that files an SAO to file with the Superintendent of Financial Services (“Superintendent”) an annual actuarial opinion summary (“AOS”) electronically in accordance with the statement instructions. The rule also requires a foreign property/casualty insurer to submit an AOS electronically within 15 days of the Superintendent’s request. As such, it should not affect local governments. Since the New York State Department of Financial Services (“DFS”) has adopted the statement instructions, DFS receives an SAO as part of an insurer’s annual statement. In addition, DFS issues an annual insurance circular letter that advises all domestic property/casualty insurers that are required to file an SAO that they also should file an AOS with DFS. See e.g., Supplement No. 9 to Insurance Circular Letter No. 22 (2005) dated February 27, 2017. Therefore, this rule merely codifies current practice.

This rule is directed at property/casualty insurers, which do not fall within the definition of a “small business” as defined by State Administrative Procedure Act section 102(8) because in general they are not independently owned and do not have fewer than 100 employees.

Industry has asserted that certain property/casualty insurers, in particular co-op insurers and mutual insurers, are small businesses. DFS believes that the language in the statement instructions that permit an authorized property/casualty insurer to apply to its domiciliary state for an exemption from the SAO filing requirement if it is (i) an insurer that has less than one million dollars total direct plus assumed written premiums during a calendar year and less than one million dollars total direct plus assumed loss and loss adjustment expenses at year-end; (ii) based upon the nature of its business written; or (iii) based upon a financial hardship, will exclude any insurers that may be small businesses from being subject to the SAO and AOS filing requirements. In fact, DFS granted approximately 19 exemption requests for the filing due in 2014 and approximately 15 exemption requests for the filing due in 2015. In addition, there are co-op insurers and mutual insurers who have not requested exemptions and are already making the SAO and AOS filings.

The electronic filing requirement should not impose any financial burden on small insurers because these insurers may seek an exemption from the electronic filing requirement upon a demonstration of undue hardship, impracticability, or good cause.

2. Compliance requirements: Because the rule merely codifies current practices, there are no new or additional compliance requirements placed on small businesses. Additionally, a small business may apply for an exemption from the rule’s filing requirements. A local government will not have to undertake any reporting, recordkeeping, or other affirmative acts to comply with the rule since the rule does not apply to any local government.

3. Professional services: Because the rule merely codifies current practices, a small business should not need new or additional professional services to comply. Additionally, a small business may apply for an exemption from the rule’s filing requirements. A local government will not need any professional services to comply with this rule since the rule does not apply to any local government.

4. Compliance costs: Because the rule merely codifies current practices, a small business should not be subject to any new or additional compliance costs to comply. Additionally, a small business may apply for an exemption from the rule’s filing requirements. A local government will not incur any costs to comply with this rule since the rule does not apply to any local government.

5. Economic and technological feasibility: Because the rule merely codifies current practices, the rule does not impose any new or additional economic or technological requirements on small businesses. Additionally, a small business may apply for an exemption from the rule’s filing requirements. The rule does not impose any economic or technological requirements on a local government because the rule does not apply to any local government.

6. Minimizing adverse impact: Because the rule merely codifies current practices, the rule will not have an adverse impact on any small businesses. Additionally, a small business may apply for an exemption from the rule’s filing requirements. There will not be an adverse impact on a local government because the rule does not apply to any local government.

7. Small business and local government participation: Small businesses and local government will have an opportunity to participate in the rule making process when the proposed rule is published in the State Register.

Changes made to the last published proposed rule have no bearing on the last published Rural Area Flexibility Analysis and Job Impact Statement. Therefore, no changes have been made to the Rural Area Flexibility Analysis and Job Impact Statement.

As a rule that requires a RFA, RAFA or JIS, this rule will be initially reviewed in the calendar year 2020, which is no later than the 3rd year after the year in which this rule is being adopted.

The New York State Department of Financial Services (“Department”) received comments from a state trade association representing property/casualty insurers (“trade association”) in response to the publication of its proposed rule in the New York State Register. The trade association stated that it does not have substantive objections to the proposed rule but had two suggestions.

The trade association suggested including language in the regulation from Supplement No. 9 to Insurance Circular Letter No. 22 (2005) that makes clear that an insurer may request that the Department exempt from disclosure records it considers to be trade secrets under Public Officers Law Article 6.

The Department did not make this change because insurers already legally have the right to request that the Department exempt from disclosure records they consider to be trade secrets and therefore the Department does not believe that the change is necessary.

The trade association also asked that the Department update the current Department property/casualty statutory checklist to account for the rule if the rule is adopted. The Department did not make any changes to the rule in light of this comment since this comment does not pertain to the rule.