New York Life Insurance Compliance Lawyer & Attorney : Currin Law Office : Annuity Compliance & Insurance Regulation

Today the NYSID has issued a press release aimed at AIG insurance company policy holders. Specifically it  warns policyholders  not to  make hasty decisions with respect to their AIG policies and it "reminds" producers of their obligations in replacement situations.  FAQs follow the introductory discussion.  

The press release also reiterates much of what has been in NAIC releases over the last few days regarding the strength of state-regulated insurers compared to federally-regulated financial institutions including, of course, the non-insurance AIG parent company.   While I think much of this is likely falling on deaf ears, perhaps some will take in the message.  It may end up being one of this industry's great ironies that after all these years of the ACLI and others calling for insurers to have optional federal charters as banks do because, the argument goes, that regulatory paradigm works it may be the  failure, insolvencies and bailouts of  federally-regulated entities that will ultimately lead to federal regulation of insurance as well.  

It would be impossible to represent as many life insurers in state regulatory matters as we do here without knowing that state regulation has significant  and costly inefficiencies.  But right now, of all times in history, to promote federal regulation as a better answer to the industry's problems -- in the midst of  this chaos and financial devastation --  leaves me questioning whether I am reading the same articles and hearing the same information that the people arguing for federal regulation are.  

As I write this I remember that little boy from the fairy tale who calls out during the parade to say that the emperor has no clothes!  While there is more than one "little boy" calling out in this story, it remains to be seen whether any one will listen at all.  

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Speaking at the LHCA Conference in Boston on Friday, Commissioner Burnes addressed a participant question regarding the unisex annuity legislation, discussed here previously.  The commissioner wanted to make sure that all attendees realized this was not a Division initiative and that they were doing what they could to mitigate the challenges of the fast-approaching implementation date of 1/1/09, but she also advised that companies would need to go to the legislature for relief as the Division's hands are tied by the terms of the new law.  She indicated that she would be meeting with LIAM Representatives tomorrow and directly with companies later in the week.  

As I continue to talk to companies about this, it is clear that there are those who do not realize that this legislation differs significantly from that in Montana, in that it is extra-territorial with respect to MA residents.  In this forum, I previously addressed some extra-territorial situations, but another that seems to be equally troublesome would occur when an individual has purchased an annuity in another state but then moves into MA.  The law appears to require that individual get a new contract with unisex rates at that time.  

With the well-known exception of NY's compensation laws, I do not think there has ever before been a state law that so directly challenged the standard provision in all life and annuity contracts, that the contract is subject to the laws of the state in which it is delivered.  Even NY's compensation requirements are at least set at the time of issue, even though they are extra-territorial.  Here, there is no certainty.  What would happen to the person's contract described above if, after living in MA for a couple of years, s/he moves and is no longer a resident of MA?  Does s/he retain the unisex rates?  Does her/his contract revert to the original?  Does it matter whether the original rates are more favorable or the unisex ones are?  These are but a few of the questions that are likely to arise under the law scheduled to go into effect on January 1.  

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Here in Boston at the LHCA conference, one major topic of discussion has been the SEC's proposed Rule 151A and the possible federal regulation of indexed annuities as securities.  At this morning's annuities session, there were several questions on this topic and the discussion closed with the hope that the comment period would be extended.  Barbara Price of the ACLI indicated that the trade association  had requested an extension.  So did some individual companies and the National Governor's Association, in a letter signed by Gov. Jon S. Corzine and Gov. M. Michael Rounds.  One LHCA speaker indicated he understood that comments were running at over 85% against the SEC's proposal.

But despite the requests for extension, the SEC closed the comment period.  The process now moves to closed deliberations. 

A review of the website suggests that The Hartford had the last public word of comment and that was generally in favor of proposal.  That comment indicates that while the Proposed Rule is overbroad as currently drafted, federal regulation would be a welcome and valuable addition to regulation by the states. 

And now we wait.....

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Sometime after my post on the Illustration guidance this morning, it was brought to my attention that the NYSID fixed the formatting and added columns so that the comparison between Reg 74 and the Model is much easier to follow! The link takes you to the much improved document on the NYSID website. 

Kudos for that - what a great improvement!!! 

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The NYSID recently published "Guidance for Life Insurance Policy Illustrations."  It begins with the statement that "It has come to the Department's attention that there may be some confusion between the NAIC requirements for Life Insurance Policy Illustrations and those required by New York's Statutes and Regulations."  The guidance goes on to indicate that some of the Department's concern is based on companies' reliance on the Q and As that were published with respect to the model illustration regulation. Much of the guidance is a "side-by-side" comparison between the model and NY's Reg 74, but because the provisions do not line up and the formatting is different, it can be a bit confusing to follow when viewed or printed from the website.  I found it helpful to cut and paste the two regulations to create my own spreadsheet that lines up more clearly and has columns of equal size.  The Department's points with respect to the differences they seek to highlight are more obvious to me laid out in this manner. Upon request, I would be happy to provide this document. 

For those who have experienced post-approval reviews of life products, it will come as no surprise that illustration issues are the subject of Department scrutiny.  Illustrations seem to now be a standard post-approval area of inquiry, and illustration issues have even been prominent in recent prior approval submissions as well.   One area that this posted guidance does not address, but which has repeatedly come up on post-approval reviews, is the effort to apply the Reg 74 standards discussed in this guidance - particularly those related to illustration of non-guaranteed elements - to variable policies when the illustration is used in lieu of a preliminary information/policy summary.  While this guidance is helpful, having a similar document that provides an analysis of which provisions of Reg 74 the Department has determined it has the legal authority to apply to variable policies - and under what circumstances - would be even more so! 

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In the Capital Confidential blog this afternoon, Rick Karlin reports that NYS agency commissioners, including the Superintendent of the Insurance Department, have been ordered by Governor Paterson to "focus their operations on their agency's core mission."  Gov. Paterson reportedly set "savings targets" for many state agencies. 

The list that accompanied the post indicates that the Insurance Department has been directed to save $13,377,000. 

That does not bode well for filling the staff positions necessary to get CL6 submissions moving quickly again! 

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The Massachusetts legislature recently prohibited, as of January 1, 2009,  the use of sex-distinct mortality tables for individual or group annuities or pure endowment contracts.  Several sections of the Mass Insurance Law were revised to state that "a mortality table shall only be applied to an individual or group annuity or pure endowment contract on a gender-neutral or gender-blended so-called basis in accordance with regulations promulgated by the commissioner."  In addition, recognition of a difference in life expectancy in the terms or conditions of a group or individual annuity, pure endowment contract or certificate covering residents of the commonwealth which is issued or delivered within or without the commonwealth on or after January 1, 2009, including but not limited to the amount or method of payment of premiums, rate charges or in the benefits payable, is considered to be an unfair method of competition or an unfair or deceptive act under the new law.  (Emphasis mine). 

Note that the italicized text appears to expand the usual exercise of jurisdiction.  This unfair practices section applies, on its face, to annuity contracts issued anywhere, if a resident is covered by the contract.   For some companies this might mean that they need to have unisex annuity contracts approved in several states so that a unisex contract could be issued to a MA resident who legitimately applies for an annuity in another state, e.g. one who is employed in neighboring CT.  If a CT application is completed, a CT annuity contract  must be issued.  However, if the applicant is a MA resident, even if the annuity contract is issued in CT, under the new law it must have unisex purchase rates.  Therefore, the company needs an approved unisex contract for use in CT.   After January 1, 2009, issuing a contract with sex-specific purchase rates to that MA resident would appear to be a violation of the new provisions of the unfair practices law in MA, even though the sale occurred in CT.  

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In a move reflecting state insurance departments' commitment to standardization, the Illinois DOI has issued a proposed regulation that will allow the use of the NAIC life Buyer's Guide in addition to the Illinois-specific one.  An interesting part of this proposal is that it is expressly based on company requests as acknowledged in the proposed regulation:  "This Part is being amended to allow insurers to use the National Association of Insurance Commissioner's (NAIC) Life Insurance Buyer's Guide as a substitute for the buyer's guide created by the Division of Insurance.  Companies have asked to use the NAIC's Guide in order to maintain uniformity across states in which companies sell life insurance.  Allowing for the use of either Guide in Illinois will improve the efficiency for the life insurer industry while maintaining consumer protections..."  It is always welcome to see actions based on regulators' recognition that this type of requirement for state-specific documents adds significantly to the cost of doing business and inefficiency in product delivery.   Kudos to the Illinois DOI!!

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The NY Insurance Department has posted updated Filing Guidance on the use of Variable Material for Individual Annuity Contracts and Life Insurance Policies.  While some of the guidance is duplicative of  previously posted documents, the new rules for List of Fund filings are now included here, not just in the revised SERFF general instructions.  This is helpful.  In addition, there is guidance on informational filings. 

The Department indicates that informational filings will be acknowledged.  Companies are advised that they must wait for this "placed on file" acknowledgment prior to use of the new material.  While we generally prefer to receive something from the Department in order to have complete files documenting the filing, the recent slowdowns in processing submissions makes this requirement more onerous and something to plan around.  If recent List of Funds filings are any indication, receipt of this acknowledgment of informational filings could take a few weeks. 

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