Form NYIMG0039 (Rev. 11/11/10)

Regulation 194: Producer Compensation Transparency New rule imposes mandatory compensation disclosure requirements on all persons licensed to sell insurance products in New York Effective January 1, 2011 Producer’s responsibility to comply It is recommended that all notices under this rule be given in a prominent writing. (Although disclosures may initially be given orally, the rule also requires that all such disclosures be followed up with a prominent written disclosure).

Form NYIMG0039 (Rev. 11/11/10) Initial Disclosure REQUIRED IN EVERY CASE At the time of application, the producer must disclose : A Description of his/her role in the sale The source(s) of all compensation That compensation may vary based on several factors That purchaser can request more information about the compensation that the producer will receive.

Form NYIMG0039 (Rev. 11/11/10) Sample of an initial disclosure deemed acceptable by NYSID [Insert producer name] is an insurance producer licensed by the State of New York. Insurance producers are authorized by their license to confer with insurance purchasers about the benefits, terms and conditions of insurance contracts; to offer advice concerning the substantive benefits of particular insurance contracts; to sell insurance; and to obtain insurance for purchasers. The role of the producer in any particular transaction typically involves one or more of these activities. Compensation will be paid to the producer, based on the insurance contract the producer sells. Depending on the insurer(s) and insurance contract(s) the purchaser selects, compensation will be paid by the insurer(s) selling the insurance contract or by another third party. Such compensation may vary depending on a number of factors, including the insurance contract(s) and the insurer(s) the purchaser selects. In some cases, other factors such as the volume of business a producer provides to an insurer or the profitability of insurance contracts a producer provides to an insurer also may affect compensation. The insurance purchaser may obtain information about compensation expected to be received by the producer based in whole or in part on the sale of insurance to the purchaser, and (if applicable) compensation expected to be received based in whole or in part on any alternative quotes presented to the purchaser by the producer, by requesting such information from the producer.

Form NYIMG0039 (Rev. 11/11/10) Second Disclosure REQUIRED ONLY IF PURCHASER REQUESTS MORE INFORMATION When a request for additional information is received, the producer must disclose : A description of the nature, amount and source of any compensation the producer will receive based on the sale A description of any alternative quotes presented by the producer, including the coverage, premium, and any compensation that the producer would have received

Form NYIMG0039 (Rev. 11/11/10) Second Disclosure continued A description of any material ownership interests between the producer and the issuing insurer A statement of whether the producer is legally prohibited from altering the amount of compensation he/she receives

Form NYIMG0039 (Rev. 11/11/10) Timing of Second Disclosure If request for additional information is made before policy/contract is issued, the disclosure must generally be delivered prior to the issuance of the policy/contract.* If the request comes after the policy/contract is issued but within 30 days of issuance, the disclosure must be delivered within 5 business days. *There is a limited exception which allows the disclosure to be made within 5 business days of the policy/contract’s issuance if “time is of the essence to issue the insurance contract.”

Form NYIMG0039 (Rev. 11/11/10) Ways to disclose the “Amount” The “amount” of a producer’s known compensation may be described in the following ways : A total dollar amount A percentage of one year of premium A percentage of the total premium paid over the “expected duration” of the policy/contract (there continues to be uncertainty about how the “expected duration” of the policy/contract is to be determined)

Form NYIMG0039 (Rev. 11/11/10) Unknown Compensation If the nature or value of any compensation is unknown at the time the second disclosure is required, then the producer is required to: Give a description of the circumstances that may determine the receipt and amount of compensation. Give a reasonable estimate of the amount. This can be stated as a range.

Form NYIMG0039 (Rev. 11/11/10) Records Retention Producers are required to keep copies of all disclosures provided pursuant to this rule for at least three years

Form NYIMG0039 (Rev. 11/11/10) Single Disclosure for multiple lines of coverage A producer is not required to provide separate disclosures for multiple lines of coverage applied for at the same time as long as the disclosure contains total compensation for each of the multiple lines.

Form NYIMG0039 (Rev. 11/11/10) Contradictory, misleading or false statements regarding compensation are STRICTLY PROHIBITED!!

Form NYIMG0039 (Rev. 11/11/10) Exceptions The disclosure rule does not apply to: Reinsurance Placement of insurance with a captive insurance company Producers with no direct sales or solicitation contact Those not required to be licensed including certain salaried home office employees of insurers Renewals unless requested within a 30 day window before or after a renewal

Form NYIMG0039 (Rev. 11/11/10) Practical Implications and Best Practices Effective January 1, 2011, Producers are responsible for keeping a record of all disclosures given under this rule. Every one of your files should contain a copy of at least the first disclosure and where applicable, the second disclosure. Although it’s not required, it is probably a good idea to develop a procedure to document delivery of the disclosures required by this regulation. Non-Compliance will likely result in fines per incident and may be published on the NYSID website.

Form NYIMG0039 (Rev. 11/11/10) For Agent Use Only Links to Rule and related material Link to text of Regulation 194: Link to NYSID circular letter: Link to Sample NYSID Approved Initial Disclosure Form:

Form NYIMG0039 (Rev. 11/11/10) Thank you The information in this presentation is a brief summary of New York State Insurance Department Regulation 194. For more information on the exact requirements of the rule you should read the entire rule and the NYSID circular letter.

Form NYIMG0039 (Rev. 11/11/10) Important Notice American National Life Insurance Company of New York does not provide legal advice. If you have legal questions regarding your compliance with this regulation, you should consult with a Lawyer.