New York Life Industry Update: Principle-Based Reserving for Life Insurers coming in 2018

This week, the New York Department of Financial Services (the “Department”) announced that it will adopt a principle-based reserving (“PBR”) approach for life insurers beginning in 2018. The Department has also established a working group to help implement certain reserve safeguards.

New York had been one of the few outlier states that had not embraced the PBR approach with respect to life insurance companies; 45 of the other states have already adopted PBR. PBR allows companies to reserve based on unique experiences applicable to each insurer and its products, rather than have to meet “redundant” reserve requirements that could unduly burden the books of insurers without any meaningful added protection. As we have previously discussed here,The adoption of PBR also has the benefit of helping certain insurers avoid recourse to captive reserve financing structures. More flexible reserving standards particularly help those within the life insurance industry in addressing redundant XXX and AXXX reserve requirements.

Between now and 2018 the Department intends to engage state regulators and the NAIC to establish its PBR framework. We will continue to report on any further developments.