Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(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.
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.
