New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on August 10, 2001, representing the position of the New York State Insurance Department.

RE: Flexible Premium Variable Life Form

Question Presented:

In calculating the "excess first-year acquisition & other charges" pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 54.7(b)(1)(vi) (1995) (Regulation 77), does the wording "corresponding charges which the policy states would be made" as contained in N.Y. Comp. Codes R. & Regs. tit. 11, § 54.7(b)(1)(vi) (1995) (Regulation 77) refer to the charges that are stated in the policy in the amounts stated (whether stated as maximum charges or otherwise), or to the current scale of charges that the insurer intends to charge?

Conclusion:

The wording "corresponding charges which the policy states would be made" as contained in N.Y. Comp. Codes R. & Regs. tit. 11, § 54.7(b)(1)(vi) (1995) (Regulation 77) refers to the charges that are stated in the policy in the amounts stated (whether stated as maximum charges or otherwise).

Facts:

XYZ Life Insurance Company ("XYZ") has submitted its policy form for Department approval. XYZ’s pending form contains the maximum guaranteed charges that XYZ will charge its insureds during the policy years 2 through 20. These maximum charges guarantee that an insured will never pay more than those stated amounts under the policy. However, the amounts that XYZ will actually charge its insureds during those years may be less than the stated maximum charges.

XYZ asserted that the maximum charges stated in its policy, and not the charges that XYZ actually intends to charge its insureds, are the charges that should be used to calculate the "excess first-year acquisition and other charges" pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 54.7(b)(1)(vi) (1995) (Regulation 77).

Analysis:

N.Y. Comp. Codes R. & Regs. tit. 11, § 54.7(b)(1)(vi) (1995) (Regulation 77) states:

Excess first-year acquisition and other charges shall be the maximum excess of (A) over (B), based on the assumption that any premium (other than a single premium) payable in the first policy year is also payable during the entire premium-paying period. (A) is the acquisition and other charge made in the first policy year and (B) is the arithmetic average of the corresponding charges which the policy states would be made in policy years 2 through 20. (emphasis added.)

Thus, Regulation 77 provides an equation for determining the "excess first-year acquisition and other charges", which is determined by subtracting the arithmetic average of the policy-stated corresponding charges from the first year’s acquisition and other charges. The regulation states clearly that the arithmetic average is to be calculated using the policy-stated charges.

XYZ’s proposed policy form states the maximum guaranteed charges that XYZ will charge its insureds during the years 2 through 20 that the policy is in force, but does not provide the current scale of charges that XYZ actually intends to charge during those years. The Department has previously approved policy forms that contain only the maximum guaranteed charges and not the actually anticipated charges.

Based on the Regulation 77 requirement that the policy-stated charges are to be used to determine the "excess first year and acquisition charges", and based on the Department’s approval of policy forms containing only the maximum guaranteed charges, it is implicit that XYZ’s policy-stated maximum guaranteed charges are the charges that should be used to calculate XYZ’s "excess first-year acquisition and other charges".

Additionally, the Department agrees with XYZ’s analysis that the amount of "(A)", as defined by N.Y. Comp. Codes R. & Regs. tit. 11, § 54.7(b)(1)(vi) (1995) is not, in fact, a known, fixed dollar amount. Because these are flexible premium plans and insureds pay differing amounts, the amount of "(A)" varies depending on the level of premiums paid. Thus, this opinion reverses and supercedes the June 20, 2001 opinion regarding this issue.

For further information you may contact Attorney Sally A. Geisel at the New York City Office.