New York Codes, Rules and Regulations
Title 11 - INSURANCE
Chapter III - Policy and Certificate Provisions
Subchapter A - Life, Accident and Health Insurance
Part 43 - Individual Life Insurance Market-value Adjustment
Section 43.9 - Examples
Current through Register Vol. 46, No. 39, September 25, 2024
This section contains examples of the application of market-value adjustment formulae that meet the requirements of this Part.
MARKET VALUE ADJUSTMENT EXAMPLES
Variables
xPV t = Unborrowed portion of the policy value at time t derived from contribution made at time x
xSC t = Surrender Charge applicable at time t derived from contribution made at time x
CSBt = Cash Surrender Benefit at time t
LAt = Value of Loan Account at time t
It = Amount of Indebtedness at time t
Lt = Loan requested at time t
(a) Single premium policies.
Example 1:
Five-year guaranteed interest rate policy.
Assume this policy was issued three years ago with a five-year guaranteed interest rate of 12%. Currently, two-year single premium policies are issued with a two-year guaranteed interest rate of 10%.
The current cash surrender benefit is determined to be:
Alternatively:
Example 2:
Five-year guaranteed interest rate policy with cap.
Assume this policy was issued three years ago with a guaranteed interest rate of 12% in years 1-5, and a minimum interest guarantee of 5% in years 6-10. There is a 5% cap on market value adjustments. Currently, two-year guaranteed interest rates of 8% are being offered on similar policies.
The current cash surrender benefit is determined to be:
CSB3 = 0PV3 x1.12 2/1.082 cap of 5% + LA3 I3 0SC3
= 0PV3 x 1.05 + LA 3 I3 0SC3
Example 3:
Five-year guaranteed interest rate policy.
Assume this policy was issued two years ago with a five-year guaranteed interest rate of 9%. At issue, the yield to maturity on five-year Treasury bills was 10%. Currently, three-year Treasury bills are yielding 12% to maturity.
The current cash surrender benefit is determined to be:
Alternatively:
(b) Flexible premium policies.
Example 4:
Five-year flexible premium guaranteed interest rate policy.
Assume this policy was issued three years ago, and the guaranteed interest rates to maturity (five years from issue) associated with deposits made during the first three policy years are as follows:
|
Time of deposit |
Guaranteed interest rate to maturity |
|
0 |
10% |
|
1 |
9% |
|
2 |
9% |
Currently, two-year flexible premium policies are issued with a guaranteed interest rate to maturity of 81/2% on first year deposits.
The current cash surrender benefit is determined to be:
+ 2PV3x
1.092 /1.0852 + LA3 I3 (0SC3 +1SC3 + 2SC 3)
Alternatively:
Then:
CSB3 = [(0PV3 + 1PV3 + 2PV3)x (1 + iavg)2)[/(1.085)2 + LA 3= I3 (0SC3 + 1SC3 +2SC3)
Example 5:
Five-year flexible premium, flexible maturity guaranteed interest rate policy.
Assume this policy was issued three years ago, and the guaranteed interest rates to maturity (five years from deposit) associated with deposits made during the first three policy years are as follows:
| Time of deposit | Guaranteed interest rate to maturity |
| 0 | 10% |
| 1 | 10% |
| 2 | 11% |
Currently, the following guaranteed interest rates are offered on deposits to new issues of similar policies:
| Years to maturity | Guaranteed interest rate to maturity |
| 2 | 8% |
| 3 | 9% |
| 4 | 10% |
The current cash surrender benefit is determined to be:
+1 PV3x 1.103/1.093
+ 2PV3x
1.114 /1.104 + LA3 I3 (0SC3 +1SC3 + 2SC 3)
1PV3[1 (.09 .10) x 3[ + 2PV 3[1 (.10 .11) x 4[
+ LA3 I3 (0SC 3+1SC3 + 2SC3)
Alternatively:
Letnavg = 0PV 3 x 2 +1PV3 x 3 + 2PV3 * 4/( 0PV3 +1PV3 + 2PV 3)
Assume navg= 3
Then:
+ LA3 I3 (0SC3 +1SC3 + 2SC 3)
Example 6:
Five-year flexible premium guaranteed interest rate policy.
Assume this policy was issued three years ago with a five-year guaranteed interest rate of 9%. The yield to maturity on Treasury bills during this period was as follows:
| Time | Years to maturity | T-bill yield to maturity |
| 0 | 5 | 10% |
| 1 | 4 | 9% |
| 2 | 3 | 9% |
Currently, two-year Treasury bills are yielding 8 1/2% to maturity.
The current cash surrender benefit is determined to be:
CSB3 = 0PV3 * 1.10 2/1.0852 +1PV3 *
1.092 /1.0852
+ 2PV3 * 1.092/1.0852
+ LA3 I3(0SC3+1SC3 + 2SC3)
Example 7:
Five-year flexible premium, flexible maturity guaranteed interest rate policy.
Assume the same facts as in example 6, and assume that the following market values of $1,000, semiannual coupon Treasury bills are known:
| Time | Years to maturity | Annual coupon rate | Market value |
| 0 | 5 | 10% | $1,000 |
| 1 | 5 | 10% | $1,000 |
| 2 | 5 | 11% | $1,000 |
| 3 | 2 | 10% | $1,100 |
| 3 | 3 | 10% | $1,100 |
| 3 | 4 | 11% | $1,200 |
The current cash surrender benefit is determined to be:
CSB3 = 0PV3 x1100/1000 +1PV3x 1100/1000
+ 2PV3x
1200/1000 + LA3 I3 (0SC3 +1SC 3 + 2SC3)
(c) Loan activity.
A prime (2) indicates a value immediately prior to loan activity.
Example 8:
Five-year guaranteed interest rate contract.
Assume a policy issued three years ago with a five-year guaranteed interest rate of 10%. Currently, two-year single premium policies are issued with a two-year guaranteed interest rate of 8%. Loan is made at the end of the third year.
0PV3 = 0PV23 L 3x(1.08)2/(1.10)2
LA3 = LA23 + L3
I3 = I23 + L3
CSB3 = 0PV3 x (1.10)2/(1.08)2 + LA3 I3 0SC3
Example 9:
Five-year guaranteed interest rate contract.
Assume a policy issued two years ago with a five -year guaranteed interest rate of 9%. At issue, the yield to maturity on five-year Treasury bills was 10%. Currently three-year Treasury bills are yielding 13% to maturity. Loan is made at the end of the second year.
0PV2 = 0PV22 L 2 x(1.13)3/(1.10)3
LA2 = LA22 + L2
I2 = I22 + L2
CSB2 = 0PV2 x (1.10)3/(1.13)3 + LA2 I2 0SC2
