S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                  8978--A
 
                             I N  S E N A T E
 
                               June 8, 2018
                                ___________
 
 Introduced  by  Sen.  SEWARD -- read twice and ordered printed, and when
   printed to be  committed  to  the  Committee  on  Rules  --  committee
   discharged, bill amended, ordered reprinted as amended and recommitted
   to said committee
 
 AN  ACT to amend the insurance law, in relation to the implementation of
   a valuation manual; and to direct the department of financial services
   to study the impact of the implementation of  such  valuation  manual;
   and providing for the repeal of such provisions upon expiration there-
   of
 
   THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
 BLY, DO ENACT AS FOLLOWS:
 
   Section 1. Section 4217 of the insurance law is amended  by  adding  a
 new subsection (g) to read as follows:
   (G)(1)  THIS  SUBSECTION SHALL APPLY ONLY TO INDIVIDUAL AND GROUP LIFE
 INSURANCE POLICIES AND ANNUITY CONTRACTS ISSUED ON OR AFTER  THE  OPERA-
 TIVE DATE OF THE VALUATION MANUAL AS PRESCRIBED BY THE SUPERINTENDENT BY
 REGULATION,  PROVIDED  THAT  THE  OPERATIVE DATE SHALL BE NO SOONER THAN
 JANUARY FIRST, TWO THOUSAND NINETEEN.
   (2) FOR THE  PURPOSES  OF  THIS  SUBSECTION,  "NAIC"  SHALL  MEAN  THE
 NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS.
   (3) FOR PURPOSES OF THIS SUBSECTION, "PRINCIPLE-BASED VALUATION" SHALL
 MEAN  A  RESERVE VALUATION THAT USES METHODS AND ASSUMPTIONS REQUIRED BY
 PARAGRAPH ELEVEN OF THIS SUBSECTION AS SPECIFIED IN THE VALUATION  MANU-
 AL.
   (4)  FOR PURPOSES OF THIS SUBSECTION, "QUALIFIED ACTUARY" SHALL MEAN A
 MEMBER IN GOOD STANDING OF THE AMERICAN ACADEMY OF ACTUARIES  WHO  MEETS
 THE REQUIREMENTS PRESCRIBED BY THE SUPERINTENDENT BY REGULATION.
   (5) FOR PURPOSES OF THIS SUBSECTION, "VALUATION MANUAL" SHALL MEAN THE
 VALUATION  MANUAL  ADOPTED  BY THE NAIC ON DECEMBER SECOND, TWO THOUSAND
 TWELVE, AS SUBSEQUENTLY AMENDED, AND AS APPROVED BY  THE  SUPERINTENDENT
 UPON A FINDING THAT SUCH MANUAL IS FOR THE BEST INTERESTS OF THE HOLDERS
 OF  POLICIES  AND CONTRACTS AND ANNUITANTS OF THIS STATE AND WHICH MEETS
 THE REQUIREMENTS AS SET FORTH IN THIS SUBSECTION.
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                       [ ] is old law to be omitted.
              

                                                            LBD16245-03-8

 S. 8978--A                          2
 
   (6) NOTWITHSTANDING SUBSECTION (C) OF THIS SECTION  AND  SECTION  FOUR
 THOUSAND  TWO HUNDRED EIGHTEEN OF THIS ARTICLE, THE MINIMUM STANDARD FOR
 THE VALUATION OF ALL SUCH POLICIES AND CONTRACTS SHALL BE  THE  STANDARD
 PRESCRIBED IN THE VALUATION MANUAL.
   (7)  THE  VALUATION  MANUAL  SHALL  NOT BECOME OPERATIVE IN THIS STATE
 UNLESS AND UNTIL THE SUPERINTENDENT HAS APPROVED OF SUCH MANUAL AND  HAS
 ADOPTED ALL NECESSARY REGULATIONS TO EFFECTUATE THIS SUBSECTION.
   (8) (A) NO AMENDMENT TO THE VALUATION MANUAL SHALL TAKE EFFECT IN THIS
 STATE  UNLESS  THE  SUPERINTENDENT  FINDS THAT SUCH AMENDMENT IS FOR THE
 BEST INTERESTS OF THE HOLDERS OF POLICIES AND CONTRACTS  AND  ANNUITANTS
 OF THIS STATE.
   (B)  THE  SUPERINTENDENT  MAY  DEVIATE,  THROUGH REGULATIONS, FROM THE
 RESERVE STANDARDS, VALUATION METHODS, ASSUMPTIONS, AND RELATED  REQUIRE-
 MENTS  IN  THE  VALUATION  MANUAL,  INCLUDING  FOR INDIVIDUAL COMPANIES,
 PROVIDED, HOWEVER, THAT SUCH DEVIATION SHALL NOT RESULT IN RESERVE VALU-
 ATIONS THAT ARE LOWER THAN THE MINIMUM STANDARDS PRESCRIBED IN THE VALU-
 ATION MANUAL AND MAY BE BASED ON A PERCENTAGE OF THE RESERVES BEING HELD
 FOR THE POLICIES AND CONTRACTS SUBJECT TO THIS SUBSECTION PRIOR  TO  THE
 OPERATIVE DATE OF SUCH MANUAL.
   (9) THE VALUATION MANUAL SHALL SPECIFY ALL OF THE FOLLOWING:
   (A)  MINIMUM  VALUATION  STANDARDS FOR AND DEFINITIONS OF THE POLICIES
 AND CONTRACTS SUBJECT TO THIS SUBSECTION AS  DETERMINED  BY  THE  SUPER-
 INTENDENT. SUCH MINIMUM VALUATION STANDARDS SHALL BE:
   (I)  THE  COMMISSIONERS  RESERVE  VALUATION  METHOD FOR LIFE INSURANCE
 POLICIES SUBJECT TO THIS SUBSECTION; AND
   (II) THE COMMISSIONERS ANNUITY RESERVE VALUATION  METHOD  FOR  ANNUITY
 CONTRACTS SUBJECT TO THIS SUBSECTION.
   (B) REQUIREMENTS FOR THE FORMAT OF REPORTS TO THE SUPERINTENDENT UNDER
 ITEM  (III)  OF  SUBPARAGRAPH (B) OF PARAGRAPH ELEVEN OF THIS SUBSECTION
 AND WHICH SHALL INCLUDE INFORMATION NECESSARY TO DETERMINE IF THE  VALU-
 ATION IS APPROPRIATE AND IN COMPLIANCE WITH THIS SUBSECTION;
   (C)  ASSUMPTIONS  FOR RISKS OVER WHICH A COMPANY DOES NOT HAVE SIGNIF-
 ICANT CONTROL OR INFLUENCE;
   (D) PROCEDURES FOR CORPORATE GOVERNANCE AND OVERSIGHT OF THE ACTUARIAL
 FUNCTION, AND A PROCESS FOR APPROPRIATE WAIVER OR MODIFICATION  OF  SUCH
 PROCEDURES;
   (E)  OTHER REQUIREMENTS, INCLUDING, BUT NOT LIMITED TO, THOSE RELATING
 TO RESERVE METHODS, MODELS FOR MEASURING RISK,  GENERATION  OF  ECONOMIC
 SCENARIOS,  ASSUMPTIONS,  MARGINS, USE OF COMPANY EXPERIENCE, RISK MEAS-
 UREMENT, DISCLOSURE, CERTIFICATIONS,  REPORTS,  ACTUARIAL  OPINIONS  AND
 MEMORANDUMS, TRANSITION RULES AND INTERNAL CONTROLS; AND
   (F)  THE  DATA AND FORM OF THE DATA REQUIRED UNDER PARAGRAPH TWELVE OF
 THIS SUBSECTION, WITH WHOM  THE  DATA  SHALL  BE  SUBMITTED,  AND  OTHER
 REQUIREMENTS INCLUDING DATA ANALYSES AND REPORTING OF ANALYSES.
   (10) THE SUPERINTENDENT MAY ENGAGE A QUALIFIED ACTUARY, AT THE EXPENSE
 OF  A  COMPANY,  TO PERFORM AN ACTUARIAL EXAMINATION OF SUCH COMPANY AND
 OPINE ON THE APPROPRIATENESS OF ANY RESERVE ASSUMPTION OR METHOD USED BY
 SUCH COMPANY, OR TO REVIEW AND OPINE ON SUCH COMPANY'S  COMPLIANCE  WITH
 ANY REQUIREMENT SET FORTH IN THIS SUBSECTION.
   (11)  (A) A COMPANY THAT ISSUES POLICIES AND CONTRACTS SUBJECT TO THIS
 SUBSECTION SHALL ESTABLISH RESERVES USING  A  PRINCIPLE-BASED  VALUATION
 THAT  MEETS  THE FOLLOWING CONDITIONS FOR SUCH POLICIES AND CONTRACTS AS
 SPECIFIED IN THE VALUATION MANUAL:
   (I) QUANTIFY THE BENEFITS AND GUARANTEES, AND THE FUNDING,  ASSOCIATED
 WITH  THE  POLICIES OR CONTRACTS AND THEIR RISKS AT A LEVEL OF CONSERVA-
 TISM THAT REFLECTS CONDITIONS THAT INCLUDE UNFAVORABLE EVENTS THAT  HAVE

 S. 8978--A                          3
 
 A  REASONABLE  PROBABILITY OF OCCURRING DURING THE LIFETIME OF THE POLI-
 CIES AND CONTRACTS. FOR POLICIES AND  CONTRACTS  WITH  SIGNIFICANT  TAIL
 RISK,  REFLECT  CONDITIONS  APPROPRIATELY  ADVERSE  TO QUANTIFY THE TAIL
 RISK.
   (II)  INCORPORATE  ASSUMPTIONS,  RISK  ANALYSIS  METHODS AND FINANCIAL
 MODELS AND MANAGEMENT TECHNIQUES  THAT  ARE  CONSISTENT  WITH,  BUT  NOT
 NECESSARILY  IDENTICAL  TO,  THOSE UTILIZED WITHIN THE COMPANY'S OVERALL
 RISK ASSESSMENT PROCESS,  WHILE  RECOGNIZING  POTENTIAL  DIFFERENCES  IN
 FINANCIAL  REPORTING  STRUCTURES AND ANY PRESCRIBED ASSUMPTIONS OR METH-
 ODS.
   (III) INCORPORATE ASSUMPTIONS THAT ARE DERIVED IN ONE OF THE FOLLOWING
 MANNERS:
   (I) THE ASSUMPTION IS PRESCRIBED IN THE VALUATION MANUAL.
   (II) FOR ASSUMPTIONS THAT ARE NOT PRESCRIBED, THE ASSUMPTIONS SHALL:
   A. BE ESTABLISHED UTILIZING THE COMPANY'S AVAILABLE EXPERIENCE, TO THE
 EXTENT IT IS RELEVANT AND STATISTICALLY CREDIBLE; OR
   B. TO THE EXTENT THAT COMPANY EXPERIENCE IS NOT  AVAILABLE,  RELEVANT,
 OR  STATISTICALLY  CREDIBLE,  BE  ESTABLISHED  UTILIZING OTHER RELEVANT,
 STATISTICALLY CREDIBLE EXPERIENCE.
   (IV) PROVIDE MARGINS FOR UNCERTAINTY INCLUDING ADVERSE  DEVIATION  AND
 ESTIMATION  ERROR,  SUCH THAT THE GREATER THE UNCERTAINTY THE LARGER THE
 MARGIN AND RESULTING RESERVE.
   (B) A COMPANY THAT ISSUES  POLICIES  AND  CONTRACTS  SUBJECT  TO  THIS
 SUBSECTION SHALL:
   (I) ESTABLISH PROCEDURES FOR CORPORATE GOVERNANCE AND OVERSIGHT OF THE
 ACTUARIAL  VALUATION  FUNCTION  CONSISTENT  WITH  THOSE DESCRIBED IN THE
 VALUATION MANUAL.
   (II) PROVIDE TO THE SUPERINTENDENT, ANNUALLY ON OR BEFORE  A  DATE  AS
 DETERMINED  BY  THE  SUPERINTENDENT,  AND  THE BOARD OF DIRECTORS OF THE
 COMPANY AN ANNUAL CERTIFICATION OF THE  EFFECTIVENESS  OF  THE  INTERNAL
 CONTROLS  WITH  RESPECT  TO THE PRINCIPLE-BASED VALUATION. SUCH CONTROLS
 SHALL BE DESIGNED TO ASSURE THAT ALL  MATERIAL  RISKS  INHERENT  IN  THE
 LIABILITIES AND ASSOCIATED ASSETS SUBJECT TO SUCH VALUATION ARE INCLUDED
 IN  THE  VALUATION,  AND THAT VALUATIONS ARE MADE IN ACCORDANCE WITH THE
 VALUATION MANUAL.  THE CERTIFICATION SHALL BE BASED ON THE  CONTROLS  IN
 PLACE AS OF THE END OF THE PRECEDING CALENDAR YEAR.
   (III)  DEVELOP, AND FILE WITH THE SUPERINTENDENT UPON REQUEST, A PRIN-
 CIPLE-BASED VALUATION REPORT THAT COMPLIES WITH STANDARDS PRESCRIBED  IN
 THE VALUATION MANUAL.
   (C)  A  PRINCIPLE-BASED VALUATION SHALL INCLUDE A PRESCRIBED FORMULAIC
 RESERVE COMPONENT.
   (12) A COMPANY THAT ISSUES POLICIES  AND  CONTRACTS  SUBJECT  TO  THIS
 SUBSECTION  SHALL SUBMIT MORTALITY, MORBIDITY, POLICYHOLDER BEHAVIOR, OR
 EXPENSE EXPERIENCE AND OTHER DATA AS PRESCRIBED IN THE VALUATION  MANUAL
 TO  THE SUPERINTENDENT ANNUALLY ON OR BEFORE A DATE AS DETERMINED BY THE
 SUPERINTENDENT.
   (13) (A) THE SUPERINTENDENT MAY EXEMPT SPECIFIC PRODUCT FORMS OR PROD-
 UCT LINES OF A DOMESTIC COMPANY THAT IS LICENSED AND DOING BUSINESS ONLY
 IN THIS STATE FROM THE REQUIREMENTS OF THIS SUBSECTION PROVIDED:
   (I) THE SUPERINTENDENT HAS ISSUED  AN  EXEMPTION  IN  WRITING  TO  THE
 COMPANY AND HAS NOT SUBSEQUENTLY REVOKED THE EXEMPTION IN WRITING; AND
   (II)  THE COMPANY COMPUTES RESERVES USING ASSUMPTIONS AND METHODS USED
 PRIOR TO THE OPERATIVE DATE OF THE VALUATION MANUAL IN ADDITION  TO  ANY
 REQUIREMENTS  ESTABLISHED BY THE SUPERINTENDENT AND PROMULGATED BY REGU-
 LATION.

 S. 8978--A                          4
 
   (B) FOR  ANY  COMPANY  GRANTED  AN  EXEMPTION  UNDER  THIS  PARAGRAPH,
 SUBSECTIONS (C), (D), (E) AND (F) OF THIS SECTION AND SECTION FOUR THOU-
 SAND  TWO  HUNDRED  EIGHTEEN  OF  THIS ARTICLE SHALL BE APPLICABLE. WITH
 RESPECT TO ANY COMPANY APPLYING FOR THIS  EXEMPTION,  ANY  REFERENCE  TO
 SUBSECTION  (G)  FOUND  IN  SUBSECTIONS  (C),  (D),  (E) AND (F) OF THIS
 SECTION AND SECTION FOUR THOUSAND TWO HUNDRED EIGHTEEN OF  THIS  ARTICLE
 SHALL NOT BE APPLICABLE.
   §  2. 1. For purposes of this section, valuation manual shall have the
 same meaning as such term is defined by section 4217  of  the  insurance
 law.
   2.  The department of financial services shall study the impact on the
 New York state life insurance industry and consumers of the  implementa-
 tion  of  the  valuation  manual  for determining the amount of required
 reserves for individual and group life insurance  policies  and  annuity
 contracts. Such study shall include but not be limited to:
   (a) The percentage change between the reserves required under New York
 state  law  prior  to the implementation of the valuation manual and the
 reserves required pursuant to such manual for individual and group  life
 insurance policies and annuity contracts;
   (b) The percentage change between premiums prior to the implementation
 of  the  valuation  manual and premiums after the implementation of such
 manual in the individual and group life insurance  markets  and  annuity
 market;
   (c)  Identification  of  the redundancies eliminated from the reserves
 for each product subject to the valuation manual;
   (d) The impact on the use of captive insurance companies by  the  life
 insurance industry to reinsure existing policies and contracts;
   (e)  The  changes to the department of financial services oversight of
 insurance companies that have occurred as a result of  implementing  the
 valuation manual;
   (f) The impact on risk based capital requirements;
   (g)  The  impact  on consumers including cost savings, cost increases,
 any loss of accrued interest on policies  and  contracts,  any  loss  of
 existing  consumer  protections  and the impact of replacement products;
 and
   (h) An analysis of any regulations promulgated by  the  department  of
 financial  services  that  allow  deviations from the reserve standards,
 valuation methods, assumptions, and related requirements  in  the  valu-
 ation  manual,  including  (1) a summary of such deviations, (2) whether
 such deviations are based upon a percentage of the reserves held for the
 policies and contracts subject to subsection (g) of section 4217 of  the
 insurance  law  prior to the operative date of the valuation manual, and
 (3) the impact of such deviations on reserves for impacted insurance and
 annuity products including  a  comparison  of  the  differences  between
 reserves  for  impacted insurance and annuity products required prior to
 the implementation of the valuation manual  and  reserves  required  for
 impacted  insurance  and annuity products as a result of such deviations
 from the valuation manual.
   3. The superintendent of the department of  financial  services  shall
 submit  a  report to the governor, temporary president of the senate and
 speaker of the assembly of the  department's  findings  in  the  second,
 fifth  and seventh years after the operative date of the valuation manu-
 al.
   § 3. This act shall take  effect  immediately;  and  shall  be  deemed
 repealed 10 years after it shall have become a law.