Current through Register Vol. 46, No. 39, September 25, 2024
(a) Choice
of funding. A company may fund its policies where permitted by law in a
separate account holding assets valued at market and may value its reserve
liabilities for policies using a current interest rate determined in accordance
with this section. Alternatively, a company may fund policies in its general
account or where permitted by law in a separate account holding assets valued
in accordance with section
1414 of the
Insurance Law, and in either case value its reserve liabilities using an
interest rate determined in accordance with this section and section
4217 of the
Insurance Law.
(b) Market-value
separate accounts.
(1) A company may fund its
policies in a separate account holding assets valued at market only if all of
the following conditions are met:
(i) the
company does not invest such assets in other than publicly traded obligations,
short-term debt and cash (and cash equivalents) unless at least 90 percent of
the market-value of such assets consist of fixed income obligations and other
securities (and hedging instruments purchased in connection therewith) and cash
(and cash equivalents), having a Macaulay duration within one year of the
Macaulay duration of the policy liabilities, determined in accordance with one
of the two ways provided in paragraph (2) of this subdivision;
(ii) the company invests the assets of the
separate account so that at least 80 percent of the market-value of such assets
consist of fixed income obligations and short-term debt (and hedging
instruments purchased in connection therewith) and cash (and cash equivalents),
having a Macaulay duration within one year of the Macaulay duration of the
policy liabilities, determined in accordance with one of the two ways provided
in paragraph (2) of this subdivision;
(iii) the policies provide for separate
account funding;
(iv) the company
obtains the superintendent's approval of its plan of operation for the separate
account; and
(v) the company
submits annually to the superintendent, an opinion, in form and substance
satisfactory to the superintendent, of a qualified actuary meeting the
requirements of Part 95 of this Title that, after taking into account any risk
charge payable from the assets of the separate account with respect to policy
liabilities, the reserves for the policies and the separate account assets make
good and sufficient provision for the company's liabilities with respect
thereto, such opinion to be accompanied by a memorandum, also in form and
substance satisfactory to the superintendent, of the qualified actuary,
describing the calculations made in support of such opinion and the assumptions
used in the calculations. The form of the opinion and memorandum shall comply
with said Part 95 of this Title.
(2) The Macaulay durations of assets and
liabilities used for purposes of paragraph (1) of this subdivision shall be
computed in one of the following two ways using an assumed rate of interest
equal to Moody's Corporate Bond Yield Average, as published by Moody's
Investors Service, Inc., for the date of valuation (or, at the election of the
company which may not be changed without the prior approval of the
superintendent, equal to Moody's Corporate Bond Yield Average-Monthly Average
Corporates, as published by Moody's Investors Service, Inc., for the month
including the month of valuation):
(i) based
on the assumptions that assets held in the separate account will not be sold
and that each policy will be surrendered on its next guaranteed benefit date;
or
(ii) based on the assumptions
set forth in, the plan of operations for the separate account that assets will
be sold and reinvested, and some policies will be renewed with a new guaranteed
benefit date, in accordance with procedures approved by the
superintendent.
(3) A
plan of operations for a separate account referred to in paragraph (1) of this
subdivision should contain a statement of:
(i) the investment policy for the
account;
(ii) how the market-value
of the assets of the account is to be determined;
(iii) how the account's operations are
designed to provide for the payment of benefits as they become due;
and
(iv) how the reserve
liabilities are to be valued.
(4) If the company uses a separate account
referred to in paragraph (1) of this subdivision, the value of the reserves for
the policies funded by the account will be the largest of (i) the aggregate
cash surrender values of such contracts on the valuation date (as adjusted by
any market-value adjustment formulae); (ii) an amount deemed by the qualified
actuary to make good and sufficient provision for the policy liabilities as
indicated in the actuarial opinion and memorandum submitted to the
superintendent pursuant to subparagraph (1)(v) of this subdivision; and (iii)
the sum of the values of such policies, where, for each policy, the value ("V")
shall be determined in accordance with the following formula:
V = MR1([LA]/[LA + PV]) + MR2([PV]/[LA + PV])
where
PV =the nonborrowed portion of the policy value.
LA =the amount in the loan account.
MR1 = the minimum reserve for the policy calculated in
accordance with section
4217 of the
Insurance Law.
MR2 =the minimum reserve for the policy calculated in
accordance with section
4217 of the
Insurance Law, except that in lieu of using the calendar year statutory
valuation interest rate or rates determined in accordance with that section,
the company shall use a rate of interest of either (x) or (y) (which shall be
consistently applied) for the period remaining until the end of the current
guarantee period and thereafter the calendar year statutory valuation interest
rate or rates that were applicable to such policies under section
4217 of the
Insurance Law on the preceding year-end, where:
(5) At all times, the company shall maintain
assets in the separate account having an aggregate market value at least equal
to the greater of (i) an amount equal to the aggregate cash surrender values of
the policies funded by the account (as adjusted by any market-value adjustment
formulae) less aggregate of the amounts in the loan accounts of such policies;
and (ii) an amount of assets deemed by the qualified actuary to be necessary to
make good and sufficient provision for the policy liabilities, as indicated by
the actuarial opinion and memorandum referred to in subparagraph (1)(v) of this
subdivision. If the aggregate market value of such assets should fall below
such amount, the company shall transfer assets into the separate account so
that market value of the separate assets is at least equal to such amount.
Assets and reserves for settlement options under policies shall not be
maintained in the same separate account as used for in force
policies.
(c) General
account assets.
(1) If a company meets the
conditions of this subdivision and funds its policies in its general account or
in a separate account holding assets valued in accordance with section
1414 of the
Insurance Law, it shall value its reserves for such policies as the greatest of
(i) the aggregate amount of what the cash surrender values of such policies
would be on the valuation date if such policies did not provide for
market-value adjustments; (ii) an amount deemed by the qualified actuary to
make good and sufficient provision for the policy liabilities as indicated in
the actuarial opinion and memorandum submitted to the superintendent pursuant
to subparagraph (2)(v) of this subdivision; and (iii) the minimum reserves for
such policies determined in accordance with section
4217 of the
Insurance Law.
(2) A company meets
the conditions of this subdivision if the company:
(i) maintains clearly identifiable assets
supporting reserves for its policies;
(ii) does not invest in other than publicly
traded obligations, short-term debt and cash (and cash equivalents) unless at
least 90 percent of the market-value of such assets consist of fixed income
obligations and other securities (and hedging instruments purchased in
connection therewith) and cash (and cash equivalents), having a Macaulay
duration within one year of the Macaulay duration of the policy liabilities
determined in accordance with one of the two ways provided in paragraph (b)(2)
of this section;
(iii) invests the
assets of the separate account so that at least 80 percent of the market-value
of such assets consist of fixed income obligations and short-term debt (and
hedging instruments purchased in connection therewith) and cash (and cash
equivalents), having a Macaulay duration within one year of the Macaulay
duration of the policy liabilities determined in accordance with one of the two
ways provided in paragraph (b)(2) of this section;
(iv) obtains the superintendent's approval of
a plan of operations for the management of such assets containing information
comparable to that called for by paragraph (b)(3) of this section;
and
(v) submits annually to the
superintendent an opinion and memorandum of a qualified actuary with respect to
such assets, in form and substance satisfactory to the superintendent,
comparable to the opinion and memorandum called for by subparagraph (b)(1)(v)
of this section and, in addition, demonstrates that the market-value of such
identifiable assets on the valuation date is at least equal to the cash
surrender values of such policies (as adjusted by market-value adjustment
formulae).
(d) Noncompliance with subdivision (c). If a
company does not fund its policies in a separate account holding assets valued
at market and fails to meet the conditions of subdivision (c) of this section,
it shall value its reserves for its policies as the greater of (i) the cash
surrender values of such policies on the valuation date (as adjusted by
market-value adjustment formulae); and (ii) the minimum reserves for such
policies determined in accordance with section
4217 of the
Insurance Law, but using in lieu of the reference interest rate, the lower of
the reference interest rate and an annual rate equal to Moody's Corporate Bond
Yield Average, as published by Moody's Investors Service, Inc., for the date of
valuation (or, at the election of the company which may not be changed without
the prior approval of the superintendent, equal to Moody's Corporate Bond Yield
Average-Monthly Average Corporates, as published by Moody's Investors Service,
Inc., for the month including the date of valuation).
