New York Codes, Rules and Regulations
Title 11 - INSURANCE
Chapter III - Policy and Certificate Provisions
Subchapter A - Life, Accident and Health Insurance
Part 44 - Individual Deferred Annuities, Market-value Adjustments Withdrawal Charges, Availability Of Cash Values
Section 44.10 - Examples

Universal Citation: 11 NY Comp Codes Rules and Regs ยง 44.10

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 regulation.

MARKET VALUE ADJUSTMENT EXAMPLES

Variables

xAt = Actual Accumulation Amount at time t derived from contribution made at time x

Wt = Withdrawal Charge Factor at time t

CSBt = Cash Surrender Benefit at time t

(a) Single premium contracts.

(1) Internal index.

Example 1:

Five-year guaranteed interest rate contract.

Assume a contract issued three years ago with a five-year guaranteed interest rate of 12%. Currently, two-year single premium contracts are issued with a two-year guaranteed interest rate of 10%.

The current cash surrender benefit is determined to be:

(i) CSB3 = (1 W3) 0A3 x 1.122/1.102

Alternatively:

(ii) CSB3 = (1 W 3)(0A3)[1 (.10 .12) x 2]

Example 2:

Five-year guaranteed interest rate contract with cap.

Assume a contract 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 contracts.

The current cash surrender benefit is determined to be:

CSB3 = (1 W3)0A3 x 1.122/1.082 cap of 5%

= (1 W3) 0A3 * 1.05

(2) External index.

Example 3:

Five-year guaranteed interest rate contract.

Assume a contract 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:

(i) CSB2 = (1 W2)0A2 x 1.10 3/1.123

Alternatively:

(ii) CSB2 = (1 W 2)(0A2)[1 (.12 .10) * 3]

(b) Flexible premium contracts.

(1) Internal index.

Example 4:

Five-year flexible premium guaranteed interest rate contract.

Assume a contract issued three years ago, and the guaranteed interest rates to maturity (five years from issue) associated with deposits made during the first three contract years are as follows:

Time of deposit Guaranteed interest rate to maturity
0 10%
1 9%
2 9%

Currently, two-year flexible premium contracts 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:

(i) CSB3 = (1 W3)(0A3 x1.102/1.0852 + 1A3 x 1.092/1.0852 + 2A3 x 1.092)/1.0852

Alternatively:

(ii) Let iavg = 0A3 * .10 + 1A3 * .09 + 2A3 * .09/0A3 +1A3 + 2A3

Then:

CSB3 = [(1 W 3) x ((0A3 + 1A3 + 2A3) x (1 + iavg)2)]/(1.085)2

Example 5:

Five-year flexible premium, flexible maturity guaranteed interest rate contract.

Assume a contract issued three years ago, and the guaranteed interest rates to maturity (five years from deposit) associated with deposits made during the first three contract 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 contracts:

Years to maturity Guaranteed interest rate to maturity
2 8%
3 9%
4 10%

The current cash surrender benefit is determined to be:

(i) CSB3 = (1 W3)(0A3 x1.102/1.082 + 1A3 x 1.103/1.093 + 2A3 x 1.114)/1.104

(ii) CSB3 = (1 W 3)[(0A3)[1 (.08 .10) * 2]

+ (1A3)[1 (.09 .10) x 3]

+ (2A3)[1 (.10 .11) x 4]]

Alternatively:

Let navg = (0A3 x 2) + (1A3 x 3) + (2A3 x 4)/(0A3 + 1A3 + 2A3

Assume navg = 3, Then:

(iii) CSB3 = (1 W 3)(0A3 x 1.103 + 1A3 x 1.10 3 + 2A3 x 1.113)/1.093

(2) External index.

Example 6:

Five-year flexible premium guaranteed interest rate contract.

Assume a contract 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 81/2% to maturity.

The current cash surrender benefit is determined to be:

CSB3 = (1 W3)(0A3x 1.102/1.0852+ 1A3 x 1.092/1.0852+ 2A3 x1.092)/1.085 2

Example 7:

Five-year flexible premium, flexible maturity guaranteed interest rate contract.

Assume the same facts as in example 6, and further 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 = (1 W3)(0A3 x 1100/1000 + 1A3 x1100/1000 + 2A3 x 1200)/1000

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