New York Regulation Expected to Reduce Level-Term Life Insurance Reserves by a Third


    In a letter addressed to the National Association of Insurance Commissioners, Benjamin Lawsky, Superintendent of the New York Department of Financial Services (the “DFS”), said the DFS will be issuing a regulation in the coming weeks that is expected to reduce the amount of reserves that life insurers must hold for future claims by 30% to 35%.

    According to the letter, the regulation will update the reserving formulas for term life insurance policies for new business written after January 1, 2015 and will address the following items:

    • with regard to mortality, changes consistent with evidence that policyholders are generally living longer; and
    • introduction of a 2-year “full preliminary term” to reflect the fact that upfront expenses for acquiring and retaining term life business are relatively higher as a proportion of premiums paid than for certain other types of business.

    The changes apply to level-term-life products (those backed by “XXX” reserves). The DFS plans to turn next to updating formulas for universal life insurance products with secondary guarantees (those backed by “AXXX” reserves).

    For a copy of the Superintendent’s letter, click here.

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