On December 10, 2018, the New York Department of Financial Services (DFS) adopted an emergency regulation to begin the implementation of principle-based reserving (PBR) for life insurers. (https://www.dfs.ny.gov/about/press/pr1812101.htm) The emergency regulation affirmed the superintendent’s authority to require life insurers to change an assumption or method and adjust reserves as necessary to protect New York policyholders under New York’s insurance laws. The principle-based reserving will become effective on January 1, 2020. The emergency regulation follows the signing of enabling legislation by Governor Cuomo.

PBR is a valuation model designed to allow insurance companies to hold reserves based upon credible experience that is tailored to the company’s particular products, within strict guidelines that will be set by DFS for New York. The superintendent’s emergency enaction provides statutory authority to deviate from the National Association of Insurance Commissioners (NAIC) Valuation Manual. Superintendent Maria Vullo of DFS believes that this measure is necessary to protect both New York policyholders and domestic life insurance companies by assuring that they hold sufficient reserves to meet their contractual obligations to pay claims to beneficiaries of life insurance policies over the long term. Principle-based reserving is a developed alternative for life insurance reserves that replace reserving formulas with a set of principles that permit an insurer to reflect its own unique experience and risks in calculating its own reserves.

This development brings New York fill circle as initially then Superintendent Ben Lawsky, Superintendent Vullo’s predecessor, opposed PBR when the NAIC proposed it as a life insurance reserve practice.