N.Y. Insurance Law § 4117: Loss and loss expense reserves

§ 4117. Loss and loss expense reserves. (a) In determining the

financial condition of any property/casualty insurance company for the

purpose of applying the provisions of this chapter, and in any financial

statement or report of any such company, there shall be included in the

liabilities of such company loss reserves and loss expense reserves at

least equal to the amounts required under the provisions of this

section, and the amount of such reserves shall be diminished by

allowance or credit for reinsurance recoverable from assuming insurers

in accordance with paragraph nine of subsection (a) of section one

thousand three hundred one of this chapter. The date as of which such

determination, statement or report is made is hereinafter referred to as

the date of determination.

(b) For all outstanding losses and loss expenses, the reserves shall

include the following:

(1) the aggregate estimated amounts due or to become due on account of

all known losses and claims and loss expenses incurred but not paid,

including the estimated liability on any notice received by the company

of the occurrence of any event which may result in a loss;

(2) the aggregate amounts of liability for all losses and loss

expenses incurred but on which no notice has been received, estimated in

accordance with the company's prior experience, if any, otherwise in

accordance with the experience of similar companies under similar

contracts of insurance. The estimated liabilities for such losses under

all its bonds, policies or contracts of fidelity insurance, shall be not

less than ten percent of the net premiums in force thereon, and the

estimated liabilities for all such losses under all its surety contracts

shall be not less than five percent of the net premiums in force

thereon.

(c) Except as provided in subsection (e) hereof the minimum reserves

for outstanding losses and loss expenses under policies of personal

injury liability insurance and under policies of employers' liability

insurance, where the losses were incurred during the three years

immediately preceding the date of determination, shall be calculated in

accordance with any method adopted or approved by the National

Association of Insurance Commissioners and shall be not less than the

aggregate of the estimated unpaid losses and loss expenses for claims

incurred computed in accordance with subsection (b) hereof.

(d) The minimum reserves for outstanding losses and loss expenses

under policies of workers' compensation insurance, except as provided in

subsection (e) hereof, shall be computed as follows:

(1) For all such compensation policies where losses were incurred more

than three years prior to the date of determination, such reserves shall

be the sum of the present values, at five percent interest per annum, of

the determined and estimated unpaid losses computed on an individual

case basis plus the estimated unpaid loss expenses computed in

accordance with subsection (b) hereof.

(2) Where losses were incurred during the three years immediately

preceding the date of determination, such reserves shall be the sum of

the reserves for each year, which shall be calculated in accordance with

any method adopted or approved by the National Association of Insurance

Commissioners and shall be not less than the sum of the present values,

at five percent interest per annum, of the determined and estimated

unpaid losses computed on an individual case basis plus the estimated

unpaid loss expenses computed in accordance with subsection (b) hereof.

(e) Whenever in the judgment of the superintendent, the loss and loss

expense reserves of any property/casualty insurance company doing

business in this state calculated in accordance with the foregoing

provisions are inadequate or excessive, he may prescribe any other basis

which will produce adequate and reasonable reserves.

(f) Every property/casualty insurance company doing business in this

state shall keep a complete and itemized record showing all losses and

claims on which it has received notices including all notices received

by it of the occurrence of any event which may result in a loss.

(g) (1) Effective with the nineteen hundred ninety annual statement,

every licensed property/casualty insurer required to file such annual

statement with the superintendent by the following April first, shall,

unless exempted by the superintendent, engage a qualified independent

loss reserve specialist for the following year to render an opinion as

to the adequacy of its loss and loss adjustment expense reserves when

two of three of such insurer's results of its loss and loss adjustment

expense ratios as indicated below are outside of the indicated

acceptable ranges:

(A) One Year Reserve Development to Surplus

Add the year-end estimate of the losses that were outstanding one year

earlier to the payments on those losses made during that year. The

difference between that sum and the reserves that were established at

the end of the prior year is the one-year reserve development. The ratio

of one-year reserve development to prior year's surplus is the

deficiency or redundancy. The acceptable range is less than twenty-five

percent deficiency. Any redundancy is acceptable.

(B) Two Year Reserve Development to Surplus

Add the year-end estimate of the losses that were outstanding two

years earlier to the payments on those losses made during those two

years. The difference between that sum and the reserves that were

established at the end of the second prior year is the two-year reserve

development. The ratio of two-year reserve development to the second

prior year's surplus is the deficiency or redundancy. The acceptable

range is less than twenty-five percent deficiency. Any redundancy is

acceptable.

(C) Estimated Current Reserve Deficiency to Surplus

For the last two years the reserves as stated in those years are

adjusted by the one-year or two-year reserve development as calculated

in the above two ratios. This total is then divided by the net premium

earned in the appropriate year to obtain the developed reserve to

premium ratio. The estimated reserves required is the current net

premium earned multiplied by the average ratio between developed

reserves and earned premium for the last two years. The estimated

deficiency is the difference between the estimated reserves required by

the company and the actual reserves maintained. The estimated current

reserve deficiency or redundancy is taken as a percentage of surplus and

the acceptable range is less than twenty-five percent deficiency. Any

redundancy is acceptable.

(2) Such opinion shall be submitted by the qualified loss reserve

specialist to the insurer and the superintendent, by such date

established by the superintendent. For the purposes of this section, a

"qualified independent loss reserve specialist" shall mean a person who

is not an employee, principal or director or indirect owner of the

insurer and is a member of the Casualty Actuarial Society, or has such

other experience as is acceptable to the superintendent to assure a

professional opinion on the adequacy of loss and loss adjustment expense

ratios.

(3) Nothing in this subsection shall be construed to restrict or

diminish any right or power of the superintendent under any other

provision of this chapter.

(4) The superintendent shall keep the contents of each report made

pursuant to this subsection and any information obtained in connection

therewith confidential and shall not make the same public without the

prior written consent of the insurer to which it pertains unless the

superintendent after notice and an opportunity to be heard shall

determine that the interests of policyholders, shareholders or the

public will be served by the publication thereof.