Current through Register 2024 Notice Reg. No. 52, December 27, 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.
