Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) "Basis" carries two
meanings.
(1) When used in the context of an
initial or redetermination method, "basis" means the specified period over which an
average is computed that produces the value of the five-year Constant Maturity
Treasury ("CMT") Rate. The "specified period" could be as short as a single day. The
same basis shall apply to all equity-indexed benefits and the non equity-indexed
benefit, if any.
(A) The basis may also use a
specified period that is determined by the level of change in the CMT rate, or any
other date dependent methodology adopted by the National Association of Insurance
Commissioners ("NAIC") and approved by the commissioner. A specifically excluded
method is one that defines the nonforfeiture rate as the lowest rate in a specified
time period. A method based upon changes in CMT levels must move up or down in an
identical manner with changes in interest rates, subject to statutory minimums and
maximums.
(B) If the basis uses a
specified period determined by the level of change in the CMT rate:
1. The nonforfeiture rate applicable at the time
this subsection is first utilized for a contract form shall be determined by a
method using a specified period or another approved date dependent
methodology.
2. A symmetrical range
shall be defined that will determine when the rate shall be updated. The maximum
allowable range shall be plus or minus fifty (50) basis points.
3. At the beginning of each modal period (e.g.,
monthly, quarterly, etc.), a potential nonforfeiture rate shall be calculated using
the method in paragraph 1., above, without incorporating any caps or floors. The
"modal period" is the period the company specifies during which the current
nonforfeiture rate will remain fixed.
4.
If the difference between the potential nonforfeiture rate and the current initial
nonforfeiture rate is less than or equal to the range, the current nonforfeiture
rate shall not be updated.
5. If the
difference between the potential nonforfeiture rate and the current nonforfeiture
rate is more than the range, the current nonforfeiture rate shall be updated to be
equal to the potential nonforfeiture rate adjusted for rounding and any caps or
floors.
6. See the examples of indexing
methods dependent upon changes in CMT levels in Section
2523.6, Appendix
A.
(2) When used in
the context of equity-indexed benefits, "basis" means the point in time used for
establishing the parameters incorporated into the calculation of the value of the
equity-indexed options. These parameters include the risk free rate, dividend yield,
index volatility, prior index values if the option is path dependent, and any other
relevant parameters.
(b)
"Equity-indexed benefit" means a benefit in an annuity contract in which the value
of the benefit is determined using an interest crediting rate based on the
performance on an equity-based index and contract parameters. Excluded from this
definition are variable benefits of separate account variable annuities and indexed
guaranteed separate account contracts purchased by institutional buyers.
(c) "Index term" means each period of time until
the next indexed interest crediting date.
(d) "Initial method" means the basis upon which
the initial nonforfeiture rate is established and the period for which it applies.
The period may last for the entire duration of the contract.
(e) "Initial nonforfeiture rate" means the
nonforfeiture rate applicable at contract issue.
(f) "Minimum nonforfeiture amount" means the
minimum value required under Section
10168.25 of the
Insurance Code. It reflects net considerations, the nonforfeiture rate, and other
items as specified in Section 10168.25.
(g) "Nonforfeiture rate" means the interest rate
used in determining the minimum nonforfeiture amount. This will be determined at
issue (initial nonforfeiture rate) and, if applicable, each subsequent
redetermination period (redetermination nonforfeiture rate).
(h) "Redetermination method" means the
redetermination date, basis and period for all future redetermination nonforfeiture
rates.
(i) "Redetermination
nonforfeiture rate" means the nonforfeiture rate applicable at
redetermination.
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.
