BILL NUMBER:S4039A

TITLE OF BILL:
An act
to amend the insurance law, in relation to life insurance policies that
credit additional amounts in accordance with an equity index

PURPOSE:
The purpose of the bill is to permit
indexed universal life
insurance policies to credit additional amounts no less frequently
than every five years.

SUMMARY OF PROVISIONS:
Amends §3203(a)(14), 3209(b) and 4221 (n-1) of
the insurance law to permit any policy that credits additional
amounts in accordance with an equity index to do so more frequently
than annually, provided that the policy shall state that the
additional amounts will be credited no less frequently that every
five years.

EXISTING LAW:
Current law requires that all policies
crediting
additional amounts must credit such additional amounts no less
frequently than annually. This annual crediting requirement places
              

severe limitations on product design for equity indexed universal
life insurance and limits the products available to New York consumers.

JUSTIFICATION:
A universal life policy provides flexibility to the
purchaser of the policy. Unlike traditional "fixed" premium whole
life policies, universal life policies allow for flexible premium
payments both as to the timing and amount of premiums paid by the
policy owner. A policy owner may make scheduled or unscheduled
premium payments. Universal life policies credit premium payments to
a cash value account. Each month, the insurer deducts insurance and
administrative charges from the cash value account and credits the
cash value account with an interest credit Universal life policies
must also comply with the usual guarantee requirements associated
with such policies. Amounts credited in excess of guaranteed amounts
are referred to as "additional amounts" and such policies are known
as excess interest policies.

Universal life policies typically credit interest on a monthly basis
based upon the insurer's declared interest rate Indexed universal
life insurance policies are typical universal life insurance policies
except that they utilize a crediting method linked to the performance
of an external market index, e.g., the S &.P 500, rather than the
insurer's declared interest rate. Since 2003, the New York State
Insurance Department has recognized equity indexed universal life

insurance as a type of excess interest product Since 2007, guidance
from the Department confirmed that index credits on an equity index
policy must occur no more frequently than annually.

This legislation offers New York consumers the opportunity to purchase
indexed universal life insurance policies without the one year
crediting limitation. The legislation allows consumers in New York to
purchase universal life policies with index credits based upon an
equity index that credits additional amounts over a period greater
than one year but not more than five years. By allowing interest
crediting periods to exceed one year, insurers can offer greater
values to policy holders since their hedging costs associated with
promised interest credits are reduced as the crediting period is
extended beyond one year.

Several insurance companies currently offer equity indexed universal
life policies using two, three and five year crediting periods to
consumers outside of New York. A policy may use a single index in
calculating excess interest or may offer more than one index chosen
by the policy owner. Other policies may rely upon a combination of
indexes and use a weighted formula to determine index credits. Such
multiple index products allowing for even
greater diversification than that achieved through the equity index in
the calculation of index credits. Equity indexed policies typically
all include a traditional declared or fixed rate option for
determining interest rates along side the index equity option. In
this way, the policy owner may choose to allocate premium payments
between the fixed rate and the equity index formula to achieve even
greater diversification.

Equity indexed policies provide many advantages over traditional
universal lite policies that rely upon an insurer's declared rate to
credit policy interest. With a "declared" interest rate, the policy
owner must rely upon the insurer's discretion in determining a
declared rate, usually based upon the insurer's expected return on its
general account.
By contrast, an insurer relinquishes discretion with an equity index
policy and must credit interest strictly on the basis of the
performance of the index subject only to a declared participation
rate or cap on the amount of index credits offered. Once established,
however, the insurer exercises no discretion in the amount of index
credits and must strictly apply the formula applied to the policy
equity index set forth in the policy.

What sets indexed universal life apart from more traditional universal
life is the opportunity for cash value accumulation through index
crediting potential based, in part, on the performance of a stock
market index or indexes. Plus, interest is guaranteed to be credited
to the policy's cash value through a guaranteed minimum interest
rate as required by law, regardless of whether index credits are
applied to the policy. Through this combination of guarantees and
index credits, a policy owner is afforded the potential of upside

index accumulation should the equity index rise during the crediting
period. Likewise, should the index decline during the index crediting
period, the policy owner is protected through the guaranteed minimum
interest rate. In this way, the, policy owner gains exposure to
equity markets without any risk of loss should markets decline

In addition to the foregoing advantages of equity indexed universal
life, policies that use index periods greater than one year have a
historical advantage over one year indexed strategies. Higher indexed
credits can be expected where the index crediting period exceeds one
year In sum, the annual crediting requirement places severe
limitations on product design for equity indexed universal life
insurance and limits the products available to New York consumers.
This legislation removes those limitations and provides New York
consumers with greater product choice and the potential for higher
returns on cash accumulations without risk of loss associated with
market downturns.

LEGISLATIVE HISTORY:
New bill.

FISCAL IMPLICATIONS:
None to State.

EFFECTIVE DATE:
Immediately.