California Code of Regulations
Title 10 - Investment
Chapter 5 - Insurance Commissioner
Subchapter 3 - Insurers
Article 10.1 - Investment Annuities
Section 2522.4 - General Requirements

(a) An investment annuity policy is an individual policy or a group policy providing annuity payments to the annuitant(s) covered thereunder beginning immediately, or at some time in the future, based upon the value of a segregated custodian account, the assets of which are not managed by the insurer and which are irrevocably committed to the insurer as specified in the following subsection of this Article.

(b) Under investment annuity policies annuity purchase contributions consisting of cash, securities, or other assets, are the financial consideration for the investment annuity, and must be made to a segregated custodian account or accounts established pursuant to a written agreement with a fiduciary bank or trust company unaffiliated with the insurer or any affiliates of the insurer. The assets of the account must be irrevocably committed to the insurer and must be used, according to the provisions of the policy, to pay all current and deferred premiums, as due, to the insurer, taxes as applicable to the account, investment expenses relating to the account such as brokerage commissions and the charges of the custodian. Policies, other than when annuity benefit payments have commenced, shall provide for a cash surrender.

(c) Such investment annuity policies may provide benefits based on a single contribution (single purchase policies), or a series of contributions, reasonably anticipated to be made in predetermined specified amounts at predetermined specified times (recurring purchase policies), either of which may permit additional contributions at any time.

(d) The insurer must establish an Accepted Assets List, in accordance with Section 2522.10 of this Article, which is extensive in nature and expressed generally as to the kinds of investments acceptable to the insurer. The selection of investments within the account may be made by the annuitant in accordance with the Accepted Assets List of the insurer; provided, however, if the policyowner is other than the annuitant, and the policyowner has the investment discretion of the account, the policy may provide that the policyowner, rather than the annuitant, will select the investments. The selection of investments may be delegated to an appointed investment manager of the policyowner. The insurer shall not, directly or indirectly, manage the investment or reinvestment of assets in the account.

(e) The assets in the account shall be valued by the custodian at the end of each calendar year at fair market value on the date of valuation. "Account Market Value," as used in this Article, means the value, net of due or accrued taxes, custodian charges, investment expenses, and account market value premiums. The assets of any such account are not chargeable with liabilities arising out of any other business the insurer may conduct. Neither policyowners nor annuitants shall share in any of the profits or the losses of the insurer. There shall be no sharing of profits or losses among accounts. All policies shall be non-participating. If the insurer reduces premiums on larger annuity purchase contributions for a specified class of annuitants, such reduction shall be applicable to all members of the class.

(f) Premiums from the account may become due and payable to the insurer upon the receipts of annuity purchase contributions by the custodian, upon stated intervals based on the account market value, upon the death of the annuitant, upon the annuitant reaching a predetermined age, upon cash withdrawals or surrender of the policy or group certificate, upon such dates that immediately precede any benefit interval, or upon such other due date as specified in the policy. If after payment of premiums on a due date, obligations to an annuitant or a beneficiary continue which are not funded by the premium payments, the proper amount of assets to fulfill such continuing benefit obligations shall remain in the account.

(g) All premiums, current or deferred, prescribed by the policy shall be actuarially determined to provide benefits for annuitants with allowance to the insurer for expenses, contingencies, and profits. Premiums reflect the fact that the account market value on which benefits are based may change at stated intervals. Premiums may be expressed either as percentages or stated dollar amounts, or a combination thereof.

(h) The schedule of premium rates and annuity rates applicable during the annuity payout period shall be constructed to provide a level fixed dollar annuity for a benefit interval and such benefit amounts will remain the same for successive benefit intervals so long as the account market value increases at a rate equal to the net assumed investment increment rate stated in the policy. If the account market value increases at a higher rate, the annuity payments in the succeeding benefit interval will be increased. If the account market value increases at a lower rate, the annuity payments in the succeeding benefit interval will be decreased.

(i) The insurer shall establish reserves for its benefit obligations, and the premiums received by the insurer for such obligations shall be invested by the insurer in the manner specified by statute for fixed dollar annuity reserves.