N.Y. Comp. Codes R. & Regs. tit. 11 § 99.5

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

Section 99.5 - Group contracts including fund accumulations

(a)General.

The cash settlement options associated with contracts referred to in this section may be in the form of a lump sum without any adjustment or may be with an adjustment based on some formula including but not limited to a fixed percentage charge; or a variable charge to reflect changes in interest rates or asset values since receipt of the funds; or in the form of installment payments with or without an adjustment in the interest rate during the installment payout period. Group contracts involving fund accumulations include the following, with special requirements indicated therein:

(1) Immediate participation guarantee contracts. Immediate participation guarantee contracts.

(i) These contracts typically provide for participation by both retired and active lives in the experience of the company. The annuities in course of payment for retired lives are not considered as being purchased unless the funds fall below a specified level, in which case the contract becomes a deposit administration contract.

(ii) The reserve for the annuities on retired lives and for previously guaranteed annuities on deferred lives shall be at least equal to the reserves, determined in accordance with section 99.6 of this Part, based on the minimum valuation basis assuming such annuities were purchased in the year of valuation, at time of retirement or at time of previous guarantee, provided such method is consistently applied.

(iii) Any portion allocated for active lives may or may not have interest guarantees.

(2) Deposit administration contracts. Deposit administration contracts.

(i) These contracts typically provide for an unallocated fund accumulation for active lives out of which immediate annuities are purchased for individuals at retirement and deferred annuities are purchased for terminated individuals (e.g., employees) with vested benefits.

(ii) The reserve for retired lives and deferred annuities purchased for terminated individuals with vested benefits shall be at least as much as that determined in accordance with section 99.6 of this Part, based on the minimum valuation basis in effect on the date of purchase.

(iii) There may or may not be high interest guarantees on the active life funds.

(3) Funding agreements. These contracts are generally funds accumulated for specified purposes, but which do not include provisions for the application of funds to provide annuities involving life contingencies.

(4) Guaranteed interest contracts (GICs). These contracts may include those referred to in paragraphs (1)-(3) of this subdivision as well as other contracts which include high interest rate guarantees (that is, guarantees above which either no or minimal additional interest is likely to be credited) for a specified period (generally several years). There may or may not be high interest guarantees for future considerations.

(b)Group allocated contracts.

(1) Group allocated contracts generally refer to those contracts in which the company maintains records for each individual covered under the contract.

(2) Where the individual certificate holder has control of both withdrawal and of transfer between investment options the reserve for each certificate shall not be less than the reserve calculated in accordance with section 99.4 of this Part.

(3) Where the individual certificate holder has limited control, such as where the holder or the holder's beneficiary can withdraw funds only in the event of a death, disability, retirement, or bona fide termination of employment, or can redirect or transfer funds to another investment option within the contract, the contract shall be valued the same as for a group unallocated contract except that the contract shall be considered as a plan type C group contract, or if the contract contains written provisions which are designed to reduce the C-3 risk to the company, the contract shall be considered as a plan type B group contract.

(i) A plan or contract that meets the criteria to be considered plan type B would include both of the following provisions:

(a) No direct transfer to competing funds, whether such funds are alternate funds of the company or not. This provision prohibits direct transfer of funds from the GIC option to a competing plan option that offers either a guarantee of principal or to an option in which the risk of loss of principal is small such as a money market fund or short-term bond fund. Any transfer to such an option must first go through a noncompeting plan option and reside there for at least 90 days.

(b) For a GIC that funds plan investment options where interest is allocated to plan participants based on how much of their account balance is in each particular interest rate "cell", a participant is not allowed to redirect any of the balance the participant has in a GIC funding a particular cell to a competing fund until the GIC's maturity date.

(ii) In order to use the plan type B valuation interest rate, the appointed actuary must be satisfied that the GIC provisions designed to reduce the C-3 risk are administered by the company in the designed manner. This requirement may be fulfilled by the actuary obtaining from the appropriate company officer a certificate of intent regarding the company administration of the provisions.

(iii) The appointed actuary shall annually review the actual experience under the contract to verify the appropriateness of the plan type assumption for the contract.

(4) All other group allocated contracts shall be valued as group unallocated contracts with the plan type determined on the basis of the group contract holder's rights of withdrawal or transfer of funds.

(c)Group unallocated contracts.

(1) This subdivision generally applies to contracts wherein the fund accumulation is not allocated to specific individuals. The funds may or may not provide for annuities either involving life contingencies and/or annuities not involving life contingencies to be purchased from the fund accumulation. The contract holder or a third party may or may not provide for recordkeeping of the funds for allocation to specific individuals. There may or may not be guaranteed interest factors on the accumulation of the funds. This subdivision does not apply to such contracts with guaranteed benefits for which assets are held in the separate account and valued on a market value basis; for such contracts, reserves shall be determined in accordance with Part 97 of this Title.

(2) Valuation interest rates.

(i) The maximum valuation interest rates for 1981 and earlier issue years or changes in fund shall be 7.5 percent.

(ii) The maximum valuation interest rates for 1982 and later issue years or changes in fund shall be determined in accordance with section 4217(c)(4) of the Insurance Law, and shall vary depending on the type of contract, the plan type, the guarantee duration, whether guaranteed interest rates apply to future considerations, and whether an issue year or change in fund basis is used.

(3) For contracts which (i) guarantee interest rates for an initial duration of A years, (ii) guarantee the return of book value after N years (where N exceeds A); and (iii) permit withdrawals at the greater of the fund value or some other value which is approximately equal to the present value (at then current interest rates for new investments) of the book value at maturity assuming that the initial interest rate is continued to maturity, the guarantee duration shall be N years.

(4) Minimum reserves under this subdivision shall never be less than the greater of:

(i) the value of the funds (on a book value basis) that are payable on surrender or transfer on the valuation date; or

(ii) the minimum reserve for the applicable portion of any active life funds with guaranteed interest rates and not yet applied or allocated for the purchase of annuities calculated by the following formula:

R = F(1E)(1+i)^n/(1+i)^n,

where

R = reserve,

E = any fixed charge, not to exceed five percent, assessed before transfer of cash values and/or application to purchase annuities,

F = the fund or portion of the fund subject to the applicable guaranteed interest rate and applicable valuation rate,

i = the guaranteed rate,

i = the applicable maximum valuation interest rate, and

n = the number of years or portion thereof remaining as of the valuation date for which the guaranteed interest rate exceeds the maximum valuation rate.

(5) Minimum reserves shall be calculated on the assumption of no future considerations. No reduction in reserves shall be made for guaranteed annuity purchase rates based on assumptions that are more conservative than the minimum reserve standards for annuity income. Additional reserves shall be held where guaranteed purchase rates are based on assumptions that are less conservative than the minimum reserve standards for annuity income. The additional reserves shall be based on the judgment of the appointed actuary and on the insurer's experience, or if appropriate, other relevant experience regarding incidence of annuitization and type of annuity option chosen.

(6) Special reserve valuation procedures may be permitted by the superintendent for contracts that are subject to this subdivision but are not referred to in subdivision (a) of this section.

(7) 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 guarantee.

N.Y. Comp. Codes R. & Regs. Tit. 11 § 99.5