Section 2523.5 - Equity-Indexed Benefits(a) If a company chooses to take the additional reduction for an equity-indexed benefit as provided under Subsection 10168.25(e) of the Insurance Code, the company shall prepare a demonstration showing compliance with the requirements in Subsection 10168.25(e).(b) To demonstrate compliance, utilize the following steps: (1) Calculate the annualized option cost for the equity-indexed benefit in the form of basis points for the entire index term as of the beginning of the index term. (A) Use the equity-indexed benefit's guaranteed product features, such as the guaranteed participation rate, guaranteed caps, etc.(B) For the option cost, use a basis representative of the point in time at the beginning of the current index term. The company cannot change this basis during the index term.(C) Make no adjustments for persistency, death, utilization, etc.(D) The method and parameters for the option cost shall be calibrated to capital markets based option pricing.(2) If the annualized option cost for the equity-indexed benefit is twenty-five (25) basis points or more, then the equity-indexed benefit provides substantive participation under Subsection 10168.25(e) of the Insurance Code and the company may take a reduction equal to the lesser of 100 basis points and the annual cost basis value.(3) The company shall prepare an actuarial certification as set forth in Section 2523.6, Appendix C, signed by a member of the American Academy of Actuaries, certifying that the reduction complies with the minimum requirements of Sections 10168 to 10168.10 of the Insurance Code and Sections 2523 to 2523.6 of this Article at the time that the contract form is filed. The company shall maintain the certification, which shall be submitted to the commissioner if requested.(4) The company shall also annually prepare an actuarial certification as set forth in Section 2523.6, Appendix D, signed by a member of the American Academy of Actuaries, with regard to ongoing compliance with this Article. The certification shall be submitted in conjunction with the filing of the company's annual statement.(5) The company shall maintain demonstrations and work papers, which shall be submitted to the commissioner if requested.(c) If the commissioner determines that the additional reduction of up to 100 basis points for equity-indexed benefits has been inappropriately taken, the commissioner may require the recalculation of all values for all affected policyholders without all or part of such additional reduction.Cal. Code Regs. Tit. 10, § 2523.5
1. New section filed 12-19-2012; operative 12-19-2012 pursuant to Government Code section 11343.4 (Register 2012, No. 51). Note: Authority cited: Sections 10168.25(f) and 10168.92, Insurance Code. Reference: Section 10168.25, Insurance Code.
1. New section filed 12-19-2012; operative 12-19-2012 pursuant to Government Code section 11343.4 (Register 2012, No. 51).