005.03 A domestic insurer
will satisfy the requirements of this section with respect to a class of
contracts if the insurer has filed a plan of operation pertaining to the class
of contracts, together with copies of the forms of the contract in the class,
with the Director, and the filing of the plan of operation has been approved.
005.03A The plan of operation for a class of
contracts shall describe the financial implications for the insurer of the
issuance of the contracts in the class, and shall include at least the
following:
005.03A(1) A statement that the
plan of operation will be administered in accordance with the requirements
prescribed by the Director pursuant to this regulation, along with a statement
that the insurer will comply with the plan of operation in its administration
of the contract;
005.03A(2) A
statement describing the methods and procedures used to value statutory
liabilities for purposes of Section 010;
005.03A(3) A description of the criteria used
by the insurer in approving the investment manager for the segregated portfolio
of assets associated with a contract in the class, if the investment manager is
an entity other than the insurer or its wholly owned subsidiary;
005.03A(4) A description of the insurer's
requirement for reports concerning the assets in each segregated portfolio and
transactions involving the assets, and a description of how the insurer can use
the information in a report to determine that the segregated portfolio is being
managed in accordance with its investment guidelines. The insurer shall require
that the report be prepared no less frequently than quarterly, and include a
complete statement of segregated portfolio holdings and their fair market
value;
005.03A(5) A demonstration
of financial results for one or more sample contracts from the class of
contracts, showing at a minimum the projected contract value records, the
applicable fixed rate or rates of return, and the projected market value
records, describing how the investments in the segregated portfolio reflect
provision for benefits insured by the contract and how the contract value and
market values and the rates of return may be affected by changes in the
investment returns of the segregated portfolio and reasonably anticipated
deposits to and withdrawals from the segregated portfolio by the contract
holder, as well as any advances made by the insurer to the contract holder. The
sample contracts must be chosen to reasonably represent the range of results
that could be expected from possible combinations of contract provisions of all
contracts in the class. The demonstration shall include at least three (3)
hypothetical return scenarios (level, increasing and decreasing) and for each
of these scenarios, at least three (3) withdrawal scenarios (zero, moderate and
high) shall be modeled. The Director may require additional scenarios if deemed
necessary to fully understand the risks under the class of contracts. The
demonstration period must be the greater of five (5) years or the minimum
period the insurer must underwrite the risk;
005.03A(6) A statement that all contracts in
the class of contracts satisfy the requirement of Section 009 regarding
unilateral contract terminations, together with a description of all
termination events, discontinuation triggers and options, notice requirements,
corrective action procedures, all other contract safeguards, and the procedures
to be followed when a unilateral contract termination event occurs;
005.03A(7) A description of the allowable
investment parameters (such as objectives, derivative strategies, asset
classes, quality, duration and diversification requirements applied to the
assets held within the segregated portfolio) to be reflected in the investment
guidelines applicable to each contract in the class to which the submitted plan
of operation applies; and a description of the procedures that will be followed
by the insurer in evaluating the appropriateness of any specific investment
guidelines submitted by the contract holder.
005.03A(8) A description of the criteria used
by the insurer in approving for contract issuance a pooled fund representing
multiple employer-sponsored plans and in approving the investment manager for
the segregated portfolio of assets associated with such pooled fund
contract;
005.03A(9) A description
of risk-mitigation techniques used by the insurer in connection with contracts
issued to pooled funds representing multiple employer-sponsored
plans;
005.03A(10) An unqualified
opinion by a qualified actuary with expertise in these matters as to the
adequacy of the consideration charged by the insurer for the risks it has
assumed with respect to the contracts in the class to which the plan of
operation applies;
005.03A(11) A
statement that the actuarial opinion and memorandum required by Section 010
shall include, with respect to the class of contracts to which the plan of
operation applies:
005.03A(11)(i) If a payment
has been made by the insurer in the prior reporting period under a contract in
the class, the amount of aggregate risk charges (net of administrative
expenses) for contracts in the class, and the aggregate amount of any losses
incurred; and
005.03A(11)(ii) An
inventory of all material unilateral contract termination events in the class
of contracts that have not been cured within the time period specified and that
have occurred during the prior reporting period but where the company decided
not to terminate the contract.
005.03B Review of the plan of operation by
the Director may necessitate requests for information to supplement that
furnished pursuant to Subsection 005.03. Replies made in compliance with this
paragraph should be made in sufficient detail that any follow-up correspondence
can be held to a minimum.
