Empire State regulators say they want to stop life insurers from using tricky policy designs to lower policy reserve requirements.
The New York State Insurance Department has proposed an amendment to Regulation Number 147 that would tighten reserving requirements for certain types of universal life insurance products that come with secondary guarantees, such as provisions that keep premiums level for a set number of years or provisions that let policyholders "catch up" on the payments needed to keep coverage in force.
The text of the amendment describes specific examples of problem policies.
If, for example, a policy offered a 10-year level-premium term, but then limits the ability of the insurer to increase premiums for another 20 years, then, "in the reserve calculation, an initial reserve segment of 30 years must be used," according to the regulation text. "Since the contract contains provisions that limit the insurer's ability to increase premiums, the initial premium shall be treated as guaranteed for the entire 30-year period."
If a policyholder who fell behind on payment could take advantage of UL policy catch-up provisions, then the basic and deficiency reserves "shall be computed as if the specified premium requirement had been met," according to the amendment text.
The New York department believes the proposed changes are consistent with a move by the National Association of Insurance Commissioners, Kansas City, Mo., to revise NAIC Actuarial Guideline 38 in 2005, officials write in a discussion of the proposed amendment.
The guideline, originally published in 2002, was supposed to clear up ambiguities in an NAIC life policy valuation model regulation adopted in 1999, New York officials note.
