A. An
insurer or producer may elect to provide a consumer an illustration at any
time, provided that the illustration is in compliance with this section and:
(1) Is clearly labeled as an
illustration;
(2) Includes a
statement referring consumers to the disclosure document and Buyer's Guide
provided to them at time of purchase for additional information about their
annuity; and
(3) Is prepared by the
insurer, or is prepared for the insurer by a third party using software that is
authorized by the insurer before its use, under a system of control maintained
by the insurer over the use of illustrations.
B. An illustration furnished an applicant for
a group annuity contract or contracts issued to a single applicant on multiple
lives may be either an individual or composite illustration representative of
the coverage on the lives of members of the group or the multiple lives
covered.
C. The illustration may
only be provided as part of a disclosure statement meeting the requirements of
Subsection
5(B).
D. The illustration shall not:
(1) Describe non-guaranteed elements in a
manner that is misleading or has the capacity or tendency to mislead;
(2) State or imply that the payment or amount
of non-guaranteed elements is guaranteed; or
(3) Be incomplete.
E. Costs and fees of any type shall be
individually noted and explained.
F. An illustration shall conform to the
following requirements:
(1) The illustration
shall be labeled with the date on which it was prepared;
(2) Each page of the disclosure document that
incorporates the illustration, including any explanatory notes or pages, shall
be numbered and show its relationship to the total number of pages in the
disclosure document (e.g., the fourth page of a seven-page
disclosure document shall be labeled "page 4 of 7 pages");
(3) The assumed dates of premium receipt and
benefit payout within a contract year shall be clearly identified;
(4) If the age of the proposed insured is
shown as a component of the tabular detail, it shall be shown alongside the
number of years the contract is assumed to have been in force;
(5) The assumed premium on which the
illustrated benefits and values are based shall be clearly identified,
including rider premium for any benefits being illustrated;
(6) Any charges for riders or other contract
features assessed against the account value or the crediting rate shall be
recognized in the illustrated values and shall be accompanied by a statement
indicating the nature of the rider benefits or the contract features, and
whether or not they are included in the illustration;
(7) Guaranteed death benefits and values
available upon surrender, if any, for the illustrated contract premium shall be
shown and clearly labeled guaranteed;
(8) The non-guaranteed elements underlying
the non-guaranteed illustrated values shall be no more favorable than current
non-guaranteed elements and shall not include any assumed future improvement of
such elements. Additionally, non-guaranteed elements used in calculating
non-guaranteed illustrated values at any future duration shall reflect any
planned changes, including any planned changes that may occur after expiration
of an initial guaranteed or bonus period;
(9) In determining the non-guaranteed
illustrated values for a fixed indexed annuity, the index-based interest rate
and account value shall be calculated for three different scenarios: one to
reflect historical performance of the index for the most recent 10 calendar
years; one to reflect the historical performance of the index for the
continuous period of 10 calendar years out of the last 20 calendar years that
would result in the least index value growth (the "low scenario"); and one to
reflect the historical performance of the index for the continuous period of 10
calendar years out of the last 20 calendar years that would result in the most
index value growth (the "high scenario"). The following requirements apply:
(a) The most recent 10 calendar years and the
last 20 calendar years are defined to end on the prior December 31, except for
illustrations prepared during the first 3 months of the year, for which the end
date of the calendar year period may be the December 31 prior to the last full
calendar year;
(b) If any index
utilized in determination of an account value has not been in existence for at
least 10 calendar years, indexed returns for that index shall not be
illustrated. If the fixed index annuity provides an option to allocate account
value to more than one indexed or fixed declared rate account, and one or more
of those indices has not been in existence for at least 10 calendar years, the
allocation to the corresponding indexed account(s) shall be assumed to be
zero;
(c) If any index utilized in
determination of an account value has been in existence for at least 10
calendar years but less than 20 calendar years, the 10 calendar year periods
that define the low and high scenarios shall be chosen from the exact number of
years the index has been in existence;
(d) The non-guaranteed element(s) used in
calculating the non-guaranteed index-based interest rate, such as caps,
spreads, participation rates, or other interest crediting adjustments, shall be
no more favorable than the corresponding current element(s);
(e) If a fixed indexed annuity provides an
option to allocate the account value to more than one indexed or fixed declared
rate account:
(i) The allocation used in the
illustration shall be the same for all three scenarios; and
(ii) The 10-calendar-year periods resulting
in the least and greatest index growth periods shall be determined
independently for each indexed account option;
(f) The geometric mean annual effective rate
of the account value growth over the 10-calendar-year period shall be shown for
each scenario;
(g) If the most
recent 10 calendar year historical period experience of the index is shorter
than the number of years needed to fulfill the requirement of Subsection H ,
the most recent 10 calendar year historical period experience of the index
shall be used for each subsequent 10 calendar year period beyond the initial
period for the purpose of calculating the account value for the remaining years
of the illustration;
(h) The low
and high scenarios:
(i) need not show
surrender values (if different than account values);
(ii) shall not extend beyond 10 calendar
years (and therefore are not subject to the requirements of Subsection H beyond
Subsection H(1)(a)); and
(iii) may
be shown on a separate page. A graphical representation shall also be included
comparing the movement of the account value of the 10 calendar year period for
the low scenario, the high scenario and the most recent 10 calendar year
scenario; and
(i) The low
and high scenarios should reflect the irregular nature of the index performance
and should trigger every type of adjustment to the index-based interest rate
under the contract. The effect of the adjustments should be clear; for example,
additional columns showing how the adjustment applied may be included. If an
adjustment to the index-based interest rate is not triggered in the
illustration (because no historical values of the index in the required
illustration range would have triggered it), the illustration shall so
state;
(10) The
guaranteed elements, if any, shall be shown before corresponding non-guaranteed
elements and shall be specifically referred to on any page of an illustration
that shows or describes only the non-guaranteed elements (e.g., "see page 1 for
guaranteed elements");
(11) The
account or accumulation value of a contract, if shown, shall be identified by
the name this value is given in the contract being illustrated and shown in
close proximity to the corresponding value available upon surrender;
(12) The value available upon surrender shall
be identified by the name this value is given in the contract being illustrated
and shall be the amount available to the contract owner in a lump sum after
deduction of surrender charges, bonus forfeitures, contract loans, contract
loan interest and application of any market value adjustment, as
applicable;
(13) Illustrations may
show contract benefits and values in graphic or chart form in addition to
tabular form;
(14) Any illustration
of non-guaranteed elements shall be accompanied by a statement indicating that:
(a) The benefits and values are not
guaranteed;
(b) The assumptions on
which they are based are subject to change by the insurer; and
(c) Actual results may be higher or
lower.
(15)
Illustrations based on non-guaranteed credited interest and non-guaranteed
annuity income rates shall contain equally prominent comparisons to guaranteed
credited interest and guaranteed annuity income rates, caps or spreads for
fixed indexed annuities;
(16) The
annuity income rate illustrated shall not be greater than the current annuity
income rate unless the contract guarantees are in fact more
favorable;
(17) Illustrations shall
be concise and easy to read;
(18)
Key terms shall be defined and then used consistently throughout the
illustration;
(19) Illustrations
shall not depict values beyond the maximum annuitization age or date;
(20) Annuitization benefits shall be based on
contract values that reflect surrender charges or any other adjustments, if
applicable; and
(21) Illustrations
shall show both annuity income rates per $1,000.00 and the dollar amounts of
the periodic income payable.
G. An annuity illustration shall include a
narrative summary that includes the following unless provided in the body of
the disclosure statement;
(1) A brief
description of any contract features, riders, or options shown in the basic
illustration, guaranteed or non-guaranteed, and the impact they may have on the
benefits and values of the contract;
(2) A brief description of any other optional
benefits or features that are selected but not shown in the illustration and
the impact they have on the benefits and values of the contract;
(3) Identification and a brief definition of
column headings and key terms used in the illustration;
(4) A statement containing in substance the
following:
(a) For other than fixed indexed
annuities:
This illustration assumes the annuity's current
non-guaranteed elements will not change. It is likely that they
will change and actual values will be higher or lower than those
in this illustration but will not be less than the minimum guarantee.
The values in this illustration are not
guarantees or even estimates of the amounts you can expect from your annuity.
Please review the entire Disclosure Document and Buyer's Guide provided with
your Annuity Contract for more detailed information;
(b) For fixed indexed annuities:
The illustration assumes the index will repeat historical
performance and that the annuity's current non-guaranteed elements, such as
caps, spreads, participation rates or other interest crediting adjustments,
will not change. It is likely that the index will not repeat
historical performance, the non-guaranteed elements will change,
and actual values will be higher or lower than those in the illustration but
will not be less than the minimum guarantees.
The values in this illustration are not
guarantees or even estimates of the amounts you can expect from your annuity.
Please review the entire Disclosure Document and Buyer's Guide provided with
your Annuity Contract for more detailed information; and
(5) Additional explanation as
follows:
(a) Minimum guarantees shall be
clearly explained;
(b) The effect
on contract values of contract surrender prior to maturity shall be
explained;
(c) Any conditions on
the payment of bonuses shall be explained;
(d) For an annuity sold as an IRA, qualified
plan, or in another arrangement subject to the required minimum distribution
(RMD) requirements of the Internal Revenue Code, the effect of RMDs on the
contract values shall be explained;
(e) For annuities with recurring surrender
charge schedules, a clear and concise explanation of what circumstances will
cause the surrender charge to recur; and
(f) A brief description of the types of
annuity income options available shall be explained, including:
(i) The earliest or only maturity date for
annuitization (as the term is defined in the contract);
(ii) For contracts with an optional maturity
date, the periodic income amount for at least one of the annuity income options
available based on the guaranteed rates in the contract, at the later of age 70
or ten years after issue, but in no case later than the maximum annuitization
age or date in the contract;
(iii)
For contracts with a fixed maturity date, the periodic income amount for at
least one of the annuity income options available, based on the guaranteed
rates in the contract at the fixed maturity date; and
(iv) The periodic income amount based on the
currently available periodic income rates for the annuity income option in item
(ii) or item (iii), if desired.
H. Following the narrative summary, an
illustration shall include a numeric summary which shall include at a minimum,
numeric values at the following durations:
(1)
(a)
First 10 contract years; or
(b)
Surrender charge period if longer than 10 years, including any renewal
surrender charge period(s);
(2) Every tenth contract year up to the later
of thirty years or age 70; and
(3)
(a) Required annuitization age; or
(b) Required annuitization date.
I. If the annuity
contains a market value adjustment (MVA), the following provisions apply to the
illustration:
(1) The MVA shall be referred to
as such throughout the illustration;
(2) The narrative shall include an
explanation, in simple terms, of the potential effect of the MVA on the value
available upon surrender;
(3) The
narrative shall include an explanation, in simple terms, of the potential
effect of the MVA on the death benefit;
(4) A statement, containing in substance the
following, shall be included:
When you make a withdrawal the amount you receive may be
increased or decreased by an MVA. If interest rates on which the MVA is based
go up after you buy your annuity, the MVA likely will decrease the amount you
receive. If interest rates go down, the MVA will likely increase the amount you
receive;
(5) Illustrations
shall describe both the upside and the downside aspects of the contract
features relating to the MVA;
(6)
The illustrative effect of the MVA shall be shown under at least one positive
and one negative scenario. This demonstration shall appear on a separate page
and be clearly labeled that it is information demonstrating the potential
impact of an MVA;
(7) Actual MVA
floors and ceilings as listed in the contract shall be illustrated;
and
(8) If the MVA has significant
characteristics not addressed by Paragraphs (1) - (6), the effect of such
characteristics shall be shown in the illustration.
J. A narrative summary for a fixed indexed
annuity illustration also shall include the following unless provided at the
same time in a disclosure document:
(1) An
explanation, in simple terms, of the elements used to determine the index-based
interest, including but not limited to, the following elements:
(a) The Index(es) which will be used to
determine the index-based interest;
(b) The Indexing Method - such as
point-to-point, daily averaging, or monthly averaging;
(c) The Index Term - the period over which
indexed-based interest is calculated;
(d) The Participation Rate, if
applicable;
(e) The Cap, if
applicable; and
(f) The Spread, if
applicable.
(2) The
narrative shall include an explanation, in simple terms, of how index-based
interest is credited in the indexed annuity;
(3) The narrative shall include a brief
description of the frequency with which the company can re-set the elements
used to determine the index-based credits, including the participation rate,
the cap, and the spread, if applicable; and
(4) If the product allows the contract holder
to make allocations to a declared-rate segment, then the narrative shall
include a brief description of:
(a) Any
options to make allocations to a declared-rate segment, both for new premiums
and for transfers from the index-based segments; and
(b) Differences in guarantees applicable to
the declared-rate segment and the index-based segments.
K. A numeric summary for a fixed
indexed annuity illustration shall include, at a minimum, the following
elements:
(1) The assumed growth rate of the
index in accordance with Paragraph F(9);
(2) The assumed values for the participation
rate, cap and spread, if applicable; and
(3) The assumed allocation between
indexed-based segments and a declared-rate segment, if applicable, in
accordance with Paragraph F(9).
L. If the contract is issued other than as
applied for, a revised illustration conforming to the contract as issued shall
be sent with the contract, except that non-substantive changes which do not
alter the key benefits and features of the annuity as applied for will not
require a revised illustration unless requested by the applicant.
Non-substantive changes include changes in the amount of expected initial or
additional premiums and any changes in amounts of exchanges pursuant to Section
1035 of the Internal Revenue Code, rollovers, or transfers.
