N.Y. Comp. Codes R. & Regs. tit. 11 § 99.4

Current through Register Vol. 46, No. 53, December 31, 2024

Section 99.4 - Individual contracts and group certificates involving individual fund accumulations

(a)General.

(1) Except as noted in paragraphs (2) through (6) of this subdivision, this section pertains to individual contracts, individual funding agreements and group certificates involving fund accumulations for particular individuals where annuities are not in course of payment and where both assets and reserves are valued on a book value basis.

(2) Individual contracts. This section applies to all individual contracts that involve accumulations for particular individual beneficiaries, except as noted in paragraph (5) of this subdivision.

(3) Group certificates. This section applies to all group certificates involving individual fund accumulations in which the individual exercises control of withdrawal and of transfer between investment options. For purposes of this section, contract shall include certificate as described in this paragraph.

(4) Individual funding agreements. This section also applies to individual funding agreements, such as individual deferred annuity certain contracts that do not provide for annuities with life contingencies, but provide for the accumulation of net contributions at interest based on an interest rate set in advance for a specified period.

(5) Modified guaranteed annuities. Modified guaranteed annuities are contracts with values available at specified times or dates without a market value adjustment but provide for a market-value adjustment both upward and downward, depending on both the changes in interest rates prior to the expiry of the interest guarantee and the remaining period of the guaranteed interest rate. For modified guaranteed annuities for which the assets are valued on a book value basis, this section and the relevant requirements of Part 44 of this Title shall apply. The relevant requirements of Part 44 of this Title and this Part, except for paragraph (b)(1) of this section, shall apply to modified guaranteed annuities for which the assets are valued on a market value basis.

(6) Life Insurance and Health Insurance Riders. Life or health insurance riders attached to an annuity contract, where all components of the rider (e.g., premiums, benefits contract changes, accumulation values, and other components) are separate and distinct from the components of the annuity contract, shall be treated as a separate life or health insurance contract not subject to this section.

(b)Elective and nonelective benefits.

(1) For purposes of determining reserves under this section, each benefit available under the annuity contract must be placed into one of the two categories defined as follows:

(i)Nonelective benefits. Benefits that are payable to contract owners or beneficiaries only after the occurrence of a contingent or scheduled event independent of a contract owner's election of an option specified in the contract, including (but not limited to) death benefits, accidental death benefits, disability benefits, nursing home benefits, and benefits payable under either a deferred or immediate annuity contract (with or without life contingencies), where no benefit options are available under the terms of the contract; or

(ii)Elective benefits. Benefits that do not fall under the nonelective benefits category (i.e., benefit options that may be freely elected under the terms of the contract). Elective benefits include (but are not limited to) full surrenders, partial withdrawals, and full and partial annuitizations.

In some cases it may not be clear whether some benefits are elective or nonelective. For example, some annuity contracts offer benefits that vary depending upon the age of retirement. In such cases, the appointed actuary shall use judgment in making this determination, by considering factors such as the degree to which contract owner actions would be influenced by the availability of the benefit.

(2) If the death benefit under a fixed account contract exceeds 105 percent of the current account value, then the reserve for the excess of the death benefit over 105 percent of the current account value shall not be less than the one-year term insurance reserve as of the date of valuation using the appropriate life insurance valuation mortality table and life insurance valuation interest rate as if the excess death benefit were a stand alone policy.

(c)Elective and nonelective incidence rates.

(1) For nonelective benefits, incidence rates from tables prescribed by section 4217 of the Insurance Law shall be applied to determine the payment of nonelective benefits and to discount, for survivorship, all benefit payments included in an integrated benefit stream, as defined in subdivision (d) of this section. If no incidence tables are prescribed, then company or industry experience (with margins to cover moderately adverse deviations in experience) may be used, as appropriate. Annuity mortality tables prescribed by section 99.10 of this Part shall be used to determine all mortality based benefits under the contract (including, but not limited to, annuitizations and death benefits) and to discount other types of benefit payments for survivorship. However, if the death benefit under a fixed account value exceeds 105 percent of the current account value, then the procedures of paragraph (b)(2) of this section shall be followed for the excess of the death benefit over the current account value.

(2) For elective benefits, incidence rates shall not be based on tables reflecting past company experience, industry experience or other expectations. Instead, every potential guaranteed elective benefit stream must be considered in the determination of integrated benefit streams This is accomplished by considering trial sets of guaranteed elective benefit incidence rates, either through numerical testing or analytical means, to determine which trial set produces the "greatest present value". This means that all possible elective benefit incidence rates between 0 percent and 100 percent shall be considered.

(d)Integrated benefit stream.

An integrated benefit stream is one potential blend of guaranteed elective and nonelective benefits available under the contract, determined as the combination of (1) and (2), where:

(1) is one potential stream of one or more types of guaranteed elective benefits available under the terms of the contract, based upon a chosen set of elective benefit incidence rates; and

(2) is the stream of all guaranteed nonelective benefits provided under the terms of the contract, recognizing the guaranteed elective benefit stream under consideration in paragraph (1) of this subdivision, and the nonelective incidence rates defined in paragraph (c)(1) of this section.

Both paragraphs (1) and (2) of this subdivision shall be discounted for survivorship, based on the nonelective incidence rates defined in this section.

(e)Annuity reserve valuation method.

Minimum reserves for contracts subject to this section shall be calculated assuming no indebtedness on the contracts and shall not be less than the greatest present value of all potential integrated benefit streams, reflecting all guaranteed elective and nonelective benefits available to the contract owner. Each integrated benefit stream available under the contract must be individually valued and the ultimate reserve established must be the greatest of the present values of these values, based on valuation interest rate(s) as defined in paragraph (6) of this subdivision. Examples of integrated benefit streams that must be considered include those described in paragraphs (1), (2) and (3) of this subdivision:

(1) Cash surrender value streams.

(i) For contracts not requiring future considerations, the reserve shall not be less than the greater of:

(a) the cash surrender value or

(b) the greatest present value of any possible blend of future guaranteed partial withdrawals and full surrenders available under the contract on any day of each respective contract year, assuming no future considerations are paid, with appropriate recognition of all guaranteed nonelective benefits available under the contract.

(ii) For contracts requiring future considerations, the reserve shall never be less than the greater of:

(a) the reserve determined by subparagraph (i) of this paragraph assuming no future considerations are paid or

(b) the greatest of the respective excesses of the present values, at the date of valuation, of any possible blend of future guaranteed partial withdrawals and full surrenders (including those resulting from receipt of required gross considerations) provided for by the contract on any day of each respective contract year with appropriate recognition of all guaranteed nonelective benefits available under the contract, over the present value, at the date of valuation, of any future valuation net considerations derived from future gross considerations, required by the terms of the contract that become payable prior to such day of such respective contract year, assuming required considerations are paid.

(iii) In general, future considerations are not required for single premium deferred annuity (SPDA) and flexible premium deferred annuity (FPDA) contracts but may be required for scheduled premium contracts. Considerations are considered to be required, if failure to pay considerations causes a change in status of the contract. Conversely, considerations are considered not to be required if failure to pay considerations causes no change in the status of the contract. Where considerations are required, the valuation net considerations are the portions of the respective gross considerations applied under the terms of the contract to determine nonforfeiture or withdrawal values.

(2) Guaranteed purchase rate streams.

(i) For contracts not requiring future considerations, the reserve shall not be less than the greatest present value, at the date of valuation, of any possible blend of future guaranteed full or partial annuitization elections available to the contract owner on any day of each respective contract year, assuming no future considerations are paid, with appropriate recognition of all guaranteed nonelective benefits available under the terms of the contract.

(ii) For contracts requiring future considerations, the reserve shall not be less than the greater of:

(a) the reserve determined by subparagraph (i) of this paragraph assuming no future considerations are paid or

(b) the greatest of the respective excesses of the present value, at the date of valuation, of any possible blend of future guaranteed full or partial annuity benefit streams available under all annuitization options provided for by the guaranteed purchase rates in the contract on any day of each respective contract year with appropriate recognition of all guaranteed nonelective benefits available under the terms of the contract, over the present value, at the date of valuation, of any future valuation net considerations derived from future gross considerations, required by the terms of the contract that become payable prior to such respective contract year, assuming required considerations are paid.

(iii) In general, future considerations are not required for single premium deferred annuity (SPDA) and flexible premium deferred annuity (FPDA) contracts but may be required for scheduled premium contracts. Considerations are considered to be required if failure to pay considerations causes a change in status of the contract. Conversely considerations are considered not to be required if failure to pay considerations causes no change in the status of the contract. Where considerations are required, the valuation net considerations are the portions of the respective gross considerations applied under the terms of the contract.

(iv) The future guaranteed annuity benefit streams shall be calculated for all guaranteed annuitization options and possible future guaranteed annuitization election dates.

(v) For purposes of this paragraph, the present values shall be determined using the valuation interest rate(s) defined in paragraph (6) of this subdivision.

(vi) The current annuity purchase rates shall be ignored for the purpose of this paragraph, if such rates are not guaranteed.

(3) Other elective benefit streams. In addition to the cash surrender value and guaranteed purchase rate streams described in paragraphs (1) and (2) of this subdivision, all other possible elective benefits (for example, elective commutation of annuity benefits) available under the contract, including blends of more than one type of elective benefit, must be considered in a manner consistent with the cash surrender value and guaranteed purchase rate streams, with appropriate recognition of all guaranteed nonelective benefits available under the contract.

(4) Special considerations for applying paragraphs (1), (2) and (3) of this subdivision.

(i) Except as permitted in subparagraph (iii) of this paragraph, only unconditional surrender charges or surrender charges subject to conditions not considered to be meaningful may be deducted in determining future elective and nonelective benefits. However, the deduction of any surrender charges in determining future elective and nonelective benefits may be done only to the extent justified by an acceptable actuarial opinion and memorandum in accordance with sections 95.8 and 95.9 of this Title.

(ii) An example of a surrender charge subject to conditions is a charge that will be waived upon surrender if the rate at which interest is credited falls below the bailout rate. The conditions are meaningful if the bailout rate is greater than the calendar year statutory valuation interest rate for life insurance policies with guarantee durations in excess of 20 years issued in the same year.

(iii) Notwithstanding subparagraph (v) of this paragraph, the company may, at its option, deduct surrender charges subject to conditions considered to be meaningful if:

(a) the current interest rate equals or exceeds the bail-out rate and

(b) reserves are calculated based on the assumption that future account values are projected as if the bail-out rate were guaranteed until expiry of the contractual provision for waiving the surrender charge and thereafter the future account values are based on the greater of the contractual minimum interest rate and any higher declared interest rate.

(iv) For contracts with bail-out rates which are a function of an external index, a judgment as to the availability of the surrender charges may be made by comparing historical values of the function with corresponding values of the calendar year statutory valuation interest rate for life insurance policies with guarantee durations in excess of 20 years. If the values of the function have generally been less than or equal to the valuation rates, then the conditions may be treated as not meaningful.

(v) Waivers of surrender charges upon contractholder or certificate holder death, disability, unemployment or admittance to a nursing home and other guaranteed nonelective benefits must be reflected in the determination of future integrated benefit streams, based on the appropriate nonelective benefit incidence rates.

(vi) The future account values shall be determined by using the current interest rate for the remaining guarantee duration, and thereafter the interest rate specified in the contract for determining guaranteed benefits. The present values shall be determined using the valuation interest rate(s) defined in paragraph (6) of this subdivision.

(5) Current purchase rates.

(i) This paragraph applies to:

(a) contracts which provide for the crediting of additional amounts during the payout period over those guaranteed at the commencement of annuity payments; and

(b) contracts which guarantee the availability of current annuity purchase rates at the time of annuitization.

(ii) For the purpose of this paragraph, current annuity purchase rates include:

(a) rates being offered by the company for single consideration immediate annuities on the date of valuation to the same class of annuitants; and

(b) any other annuity purchase rates available other than those specified in the contract as guaranteed purchase rates.

(iii) Minimum reserves under this paragraph shall not be less than (a) minus (b), where (a) is the greater of the annuity purchase amount or the account value, and (b) is an expense allowance not to exceed seven percent of (a). This paragraph does not require the calculation of a reserve equal to the present value of annuity income based upon current purchase rates.

(6) Determination of valuation interest rates.

(i) Section 99.8 of this Part sets forth requirements for the determination of valuation interest rates. Additional valuation interest rate requirements for this section are provided in subparagraphs (ii), (iii) and (iv) of this paragraph.

(ii) As referred to in section 4217 (c)(4) of the Insurance Law, the valuation interest rates determined in this section are determined based on the following parameters:

(a) the basis of valuation (issue year or change in fund);

(b) whether or not the annuity provides for cash settlement options;

(c) whether interest is guaranteed on premiums received more than 12 months following issue (or the valuation date for change in fund basis);

(d) the guarantee duration; and

(e) the plan type.

Clauses (a), (b) and (c) in this subparagraph shall be determined at a contract level, while clauses (d) and (e) in this subparagraph shall be determined at a benefit level, as set forth in this paragraph. Under a contract level determination, parameters are set based on the characteristics of the contract as a whole. Under a benefit level determination, parameters are set based on the characteristics of each benefit, resulting in potentially different valuation rates for each benefit type comprising the integrated benefit stream.

(iii) Determination of guarantee duration and plan type. Guarantee duration and plan type are based upon the specific characteristics of each individual benefit type that comprise the integrated benefit stream, as follows:

(a) For portions of the integrated benefit stream attributable to full surrender and partial withdrawal benefits, the plan type shall be based upon the withdrawal characteristics of the benefit, as stated in the contract. This may result in a plan type A, B or C. The guarantee duration is the number of years for which interest rates are guaranteed to exceed the calendar year statutory valuation interest rate for life insurance policies with guarantee durations in excess of 20 years.

(b) For portions of the integrated benefit stream attributable to full and partial annuitization benefits, the determination of the valuation interest rate involves the use of the appropriate weighting factor as defined in section 4217 of the Insurance Law and the appropriate plan type, with the guarantee duration as the number of years from the original date of issue or date of purchase, to the date the annuitization is assumed to commence. If the underlying assumption is that the contract owner may withdraw funds only as an immediate life annuity or as installments over five years or more, this will generally result in a plan type A, with the valuation interest rate changing as different assumed annuitization dates determine guarantee durations which will fall into different guarantee duration bands. An assumed annuitization option which has a nonlife contingent payout period of less than five years shall be considered a plan type C, with the valuation interest rate changing as different assumed annuitization dates determine guarantee durations which fall into different guarantee bands.

(c) For portions of the integrated benefit stream attributable to nonelective benefits, since the underlying assumption is that no withdrawal is permitted, plan type A will generally be used, with a guarantee duration determined as the number of years from issue or purchase to the date nonelective benefits may first be paid. However, if the death benefit under a fixed account contract exceeds 105 percent of the account value, the procedures of paragraph (b)(2) of this section shall be followed for the excess of the death benefit over 105 percent of the current account value. In addition, portions of an integrated benefit stream attributable to any nonelective benefit, other than a death benefit or a waiver of surrender charge, shall be discounted using the interest rate which would be applicable for such nonelective benefit if such benefit were issued as a stand alone policy.

(iv) Issue year or change in fund basis. Section 99.8 of this Part sets forth considerations in applying the issue year and change in fund basis.

(7) Reserves for purposes of this subdivision may be determined using any other method substantially consistent with paragraphs (1) through (5) of this subdivision and with the prior written approval of the superintendent.

(8) While in theory there may be an infinite number of contract owner options, this section requires that the actuary consider, though not necessarily test, all potential integrated benefit streams to ascertain to what extent each contract owner option has a material impact on the reserve. The actuary may eliminate some potential streams by analytical methods. The actuary may also demonstrate the reserve adequacy of certain approximations.

(9) Where the requirements of this subdivision produce higher reserves than those calculated for the 1999 yearend valuation, the company shall; for 2000 and later issues, comply with this subdivision. For 1999 and earlier issues, the company may linearly interpolate between the higher reserves and the old reserves as follows:

(i) 33 1/3 percent and 66 2/3 percent, respectively, starting with yearend 2000;

(ii) 66 2/3 percent and 33 1/3 percent, respectively, starting with yearend 2001; and

(iii) the company shall hold the full amount of such new reserves for such issues starting with yearend 2002.

(10) Grouping of contracts or portions of contracts before determination of reserves is permissible only if all contracts or portions of contracts within a group have substantially identical features including the same year of issue, current interest rate, long-term guaranteed interest rate, surrender charge schedule, and year of maturity of the current interest rate.

N.Y. Comp. Codes R. & Regs. Tit. 11 § 99.4