New York Codes, Rules and Regulations
Title 11 - INSURANCE
Chapter IV - Financial Condition Of Insurer and Reports to Superintendent
Subchapter B - Life Insurers
Part 103 - Principle-Based Reserving
Section 103.6 - Valuation of variable annuity and hybrid annuity reserves

Universal Citation: 11 NY Comp Codes Rules and Regs ยง 103.6

Current through Register Vol. 46, No. 39, September 25, 2024

(a) Scope.

(1) This section applies to the following categories of insurance policies and annuity contracts, whether directly written or assumed through reinsurance:
(i) variable deferred annuity contracts, regardless of whether such contracts contain GMDBs or VAGLBs;

(ii) variable immediate annuity contracts, regardless of whether such contracts contain GMDBs or VAGLBs;

(iii) individual and group annuity contracts with guarantees similar in nature to GMDBs, VAGLBs, or any combination thereof;

(iv) hybrid annuities; and

(v) all other insurance policies or annuity contracts that contain guarantees similar in nature to GMDBs or VAGLBs, even if the insurer does not offer the mutual funds or variable funds to which these guarantees relate, where there is no other explicit reserve requirement. If an insurer offers such a guarantee as part of an insurance policy or annuity contract that has an explicit reserve requirement and that guarantee does not currently have an explicit reserve requirement, then the minimum reserve held for the insurance policy or annuity contract shall equal the sum of:
(a) the reserve for the guarantee where for purposes of the reserve calculation, the guarantee is treated as a separate contract; and

(b) the reserve for the underlying insurance policy or annuity contract determined according to the explicit reserve requirement.

(b) Effective dates and minimum valuation standards.

(1) This section is effective for all valuations on or after December 31, 2020, regardless of when the insurance policies and annuity contracts were issued.

(2) For those insurers that do not elect to apply the optional phase-in methodology of paragraph (3)(i)(b) of this subdivision and for all valuations after the phase-in period if elected, the minimum aggregate reserve shall be the greater of:
(i) the sum of:
(a) the minimum reserve calculated in accordance with the methodology and assumptions prescribed by subdivision (d) of this section for insurance policies and annuity contracts issued prior to January 1, 2020; and

(b) the minimum reserve calculated in accordance with the methodology and assumptions prescribed by subdivision (e) of this section for insurance policies and annuity contracts issued on or after January 1, 2020; or

(ii) the minimum reserve calculated in accordance with the methodology and assumptions prescribed by the valuation manual prior to reflecting any reinsurance ceded.

(3) Minimum valuation standards during the phase-in period for those insurers that elect to apply the optional phase-in methodology prescribed by subparagraph (i)(b) of this paragraph.
(i) For insurance policies and annuity contracts issued prior to January 1, 2020:
(a) The minimum reserve shall be the greater of:
(1) the minimum reserve calculated in accordance with the methodology and assumptions prescribed by subdivision (d) of this section; and

(2) the minimum reserve calculated in accordance with the methodology and assumptions prescribed by the valuation manual prior to reflecting any reinsurance ceded.

(b) At the insurer's election, any positive amount equal to the excess of the aggregate minimum reserves determined in accordance with clause (a) of this subparagraph over the aggregate minimum reserves determined in accordance with the 2017 Actuarial Guideline XLIII may be established as follows. To comply with the requirements of this paragraph, such excess reserve amount shall be calculated each year and established in the following manner:
(1) one-fifth of the excess reserve amount shall be established by December 31, 2020;

(2) two-fifths of the excess reserve amount shall be established by December 31, 2021;

(3) three-fifths of the excess reserve amount shall be established by December 31, 2022;

(4) four-fifths of the excess reserve amount shall be established by December 31, 2023; and

(5) the entire minimum reserve determined in accordance with clause (a) of this subparagraph shall be established by December 31, 2024.

(ii) The minimum reserve for insurance policies and annuity contracts issued on or after January 1, 2020 shall be the greater of:
(a) the minimum reserve calculated in accordance with the methodology and assumptions prescribed by subdivision (e) of this section; and

(b) the minimum reserve calculated in accordance with the methodology and assumptions prescribed by the valuation manual prior to reflecting any reinsurance ceded.

(c) Definitions.

For the purpose of this section:

(1) 2012 IAR Table means the cohort mortality table containing rates, qx2012+n, derived from a combination of rates from the 2012 IAM Period Table and Projection Scale G2, using the methodology specified in section 99.10(i)(3)(iii) of this Title.

(2) 2012 Individual Annuity Mortality Period Life (2012 IAM Period) Table means the period table containing mortality rates for calendar year 2012 containing rates, qx2012, as specified in section 99.10(i)(3)(i) of this Title.

(3) 2012 Individual Annuity Mortality Basic (2012 IAM Basic) Table means the basic period table containing mortality rates for calendar year 2012 containing rates, qx2012, as specified in subdivision (f)(1) of this section.

(4) 2017 Actuarial Guideline XLIII means the version of Actuarial Guideline XLIII - CARVM for Variable Annuities published by the National Association of Insurance Commissioners in the Accounting Practices and Procedures Manual as of March 2017.

(5) Actuarial Guideline XXXV means the "Actuarial Guideline XXXV - The Application of the Commissioners Annuity Reserve Method to Equity Indexed Annuities" published in the National Association of Insurance Commissioners' Accounting Practices and Procedures Manual as adopted by Part 83 (Insurance Regulation 172) of this Title.

(6) Cash surrender value means the amount available to the annuity contract holder upon surrender of the annuity contract, reflecting all applicable market value adjustments where the underlying assets are reported at market value.

(7) Cohort mortality table means a mortality table containing a set of mortality rates that decrease for a given age from one year to the next year and is based on a combination of a period table and a projection scale that contains rates of mortality improvement.

(8) Constant maturity treasury or CMT means the nominal yields on actively traded non-inflation-indexed issues adjusted to constant maturities, as released daily by the Federal Reserve Board.

(9) Factor Table F means the table of factors, Fx, varying by attained age for variable annuity contracts with guaranteed living benefits and for all other contracts, as specified in subdivision (f)(2) of this section.

(10) Guaranteed minimum accumulation benefit or GMAB means a guaranteed benefit providing, or resulting in, an amount payable on the contractually determined maturity date of the benefit that will be increased or will be at least a minimum amount, where such guarantees have the potential to produce a contractual total amount payable on benefit maturity that exceeds the account value, or in the case of an annuity providing income payments, an amount payable on benefit maturity other than continuation of any guaranteed income payments.

(11) Guaranteed minimum death benefit or GMDB means a guaranteed benefit providing, or resulting in, an amount payable on the death of a contract holder, annuitant, participant, or insured that will be increased or will be at least a minimum amount, where such guarantees have the potential to produce a contractual total amount payable on death that exceeds the account value, or in the case of an annuity providing income payments, an amount payable on death other than continuation of any guaranteed income payments, or where such guarantees are based on a portion of the excess of the account value over the net of premiums paid less partial withdrawals made.

(12) Guaranteed minimum income benefit or GMIB means a VAGLB for which the benefit is contingent on annuitization of a variable deferred annuity or similar contract, where the benefit may be expressed as a contract holder option, on one or more option dates, to have a minimum amount applied to provide periodic income using a specified purchase basis.

(13) Guaranteed minimum withdrawal benefit or GMWB means a VAGLB providing, or resulting in, an amount withdrawable by the contract holder each year that will at least be a minimum amount until the benefit amount depletes or until a contractually specified event occurs, provided that the contract holder does not exceed a maximum withdrawal amount in preceding years.

(14) Guaranteed payout annuity floor or GPAF means a VAGLB guaranteeing that one or more of the periodic payments under a variable immediate annuity will not be less than a minimum amount.

(15) Hybrid annuity means an annuity contract with an investment option where the rate of return is based on an index, such as the S&P 500, and for which such return may be less than zero.

(16) Period table means a table of mortality rates applicable to a given calendar year.

(17) Projection frequency means the time step used for the projections pursuant to this section, where such time step is no less frequent than annually.

(18) Projection scale means a table of annual rates of mortality improvement by age, to be used for projecting future mortality rates.

(19) Projection Scale G2 means the table of annual rates, G2x, of mortality improvement by age for projecting future mortality rates beyond calendar year 2012, as specified in section 99.10(i)(3)(i) of this Title.

(20) Revenue sharing means any arrangement or understanding by which an entity responsible for providing investment or other types of services makes payments to the insurer that are attributable to charges or fees taken from the underlying variable funds or mutual funds supporting the contracts that fall under the scope of this section, where such payments may be made in exchange for administrative services provided by the insurer, such as marketing, distribution and recordkeeping.

(21) Variable annuity guaranteed living benefit or VAGLB means a guaranteed benefit providing, or resulting in, one or more guaranteed benefit amounts payable or accruing to a living contract holder or living annuitant, under contractually specified conditions, such as at the end of a specified waiting period, upon annuitization, or upon withdrawal of premium over a period of time, that will increase contractual benefits should the contract value referenced by the guarantee, (for example, account value) fall below a given level or fail to achieve certain performance levels, where such guarantees have the potential to provide benefits with a present value as of the benefit commencement date that exceeds the contract value referenced by the guarantee.

(d) Reserve methodology for insurance policies and annuity contracts issued prior to January 1, 2020.

(1) The minimum reserve for each annuity contract shall be determined in accordance with the methodology and assumptions of the standard scenario reserve prescribed by Appendix 3 of the 2017 Actuarial Guideline XLIII, except for the following:
(i) the mortality assumption for determining the Current Value as defined by section A3.3(C)(3) of the 2017 Actuarial Guideline XLIII shall be the 2012 IAM Basic Table, improved to December 31, 2017 using Projection Scale G2 but not applying any additional mortality improvement in the projection;

(ii) the amounts determined in section A3.3(B)(2)(b) of the 2017 Actuarial Guideline XLIII shall be discounted for survivorship as follows:

The mortality rate for a contract holder with age x in year (2012 + n) shall be calculated using the following formula, where qx2012 denotes mortality from the 2012 IAM Basic Table, Fx denotes the appropriate factor from Factor Table F, and G2x denotes mortality improvement from Projection Scale G2: Click to view image

(iii) the discount rate prescribed by section A3.3(C)(3) of the 2017 Actuarial Guideline XLIII shall equal the series of one-year U.S. Treasury forward rates implied by the U.S. Treasury yield curve as of the valuation date plus 100 basis points. Forward rates beyond 30 years shall equal the thirtieth year forward rate;

(iv) the discount rate as defined by section A3.1(B)(2) of the 2017 Actuarial Guideline XLIII shall equal the series of one-year U.S. Treasury forward rates implied by the U.S. Treasury yield curve as of the valuation date plus 150 basis points. Forward rates beyond 30 years shall equal the thirtieth year forward rate;

(v) for all guaranteed living benefits that are in the money, the lapse rates prescribed by section A3.3(C)(3) of the 2017 Actuarial Guideline XLIII shall be 3 percent per annum for each projection interval where the benefit is less than 20 percent in the money, and 1.5 percent per annum for each projection interval where the benefit is 20 percent or more in the money; and

(vi) for hybrid annuities, the amounts determined in section A3.3(B)(1) and A3.3(B)(2)(a) of the 2017 Actuarial Guideline XLIII shall be determined by applying Part 99 (Insurance Regulation 151) of this Title and Actuarial Guideline XXXV. Section A.3.3(B)(2) of the 2017 Actuarial Guideline XLIII shall only be calculated for those hybrid annuity contracts with guaranteed living benefits or guaranteed death benefits.

(e) Reserve methodology for insurance policies and annuity contracts issued on or after January 1, 2020.

(1) The minimum reserve for each contract is the greater of the standard scenario reserve, the cash surrender value, and the option value floor. The option value floor shall not apply to those contracts reserved for in accordance with the alternative methodology prescribed by VM-21 of the valuation manual.

(2) For each annuity contract, the standard scenario reserve is calculated as follows:
(i) for annuity contracts without any guaranteed benefits, the standard scenario reserve shall be determined by applying Part 99 (Insurance Regulation 151) of this Title and Actuarial Guideline XXXV, as applicable;

(ii) for all other annuity contracts, the standard scenario reserve shall equal the quantity (a) plus (b) minus (c), where:
(a) is the amount determined by applying Part 99 (Insurance Regulation 151) of this Title and Actuarial Guideline XXXV, as applicable, to the annuity contract disregarding any GMDBs or VAGLBs;

(b) is the greater of zero and the greatest present value measured as of the end of each projection year of the negative of the accumulated net revenue described below using the assumptions described in paragraph (3) of this subdivision and discounted at the series of one-year U.S. Treasury forward rates implied by the U.S. Treasury yield curve as of the valuation date plus 100 basis points. Forward rates beyond 30 years shall equal the thirtieth year forward rate. The accumulated net revenue at the end of a projection year is equal to (1) plus (2) minus (3), where:
(1) is the accumulated net revenue at the end of the prior projection year accumulated at the one-year U.S. Treasury forward rate implied by the U.S. Treasury yield curve as of the valuation date plus 100 basis points to the end of the current projection year; the accumulated net revenue at the beginning of the projection (i.e., time 0) is zero. Forward rates beyond 30 years shall equal the thirtieth year forward rate;

(2) are the margins generated during the projection year on account values accumulated at the one-year U.S. Treasury forward rate implied by the U.S. Treasury yield curve as of the valuation date plus 100 basis points to the end of the projection year. Such margins shall be determined in accordance with subparagraph (iii) of this paragraph. Forward rates beyond 30 years shall equal the thirtieth year forward rate; and

(3) are the contract benefits in excess of account values during the projection year accumulated at the one-year U.S. Treasury forward rate implied by the U.S. Treasury yield curve as of the valuation date plus 100 basis points to the end of the projection year. Forward rates beyond 30 years shall equal the thirtieth year forward rate; and

(c) is the contract's allocation of the value of hedges as described in paragraph (4) of this subdivision.

(iii) the margins generated on the account value shall be determined as follows:
(a) During the surrender charge amortization period, the margins shall equal:
(1) 0.20% of account value; plus

(2) any net revenue sharing income that is contractually guaranteed to the insurer and its liquidator, receiver, and statutory successor; plus

(3) for all guaranteed living benefits of a given contract combined, the greater of 0.20% of account value and the explicit and optional contract charges for guaranteed living benefits; plus

(4) for all guaranteed death benefits of a given contract combined, the greater of 0.20% of account value and the explicit and optional contract charges for guaranteed death benefits;

(b) After the surrender charge amortization period, the margins shall equal the amount determined in clause (a) of this subparagraph plus 50% of the excess, if any, of all contract charges, excluding net revenue sharing income, over the sum of clause (a)(1), (3), and (4) of this subparagraph. On fixed funds after the surrender charge period, a margin of up to the amount determined in clause (a) of this subparagraph plus 0.40% may be used;

(c) the surrender charge amortization period shall be calculated as follows:
(1) determine the length of time between the valuation date and the projected date where an ultimate event such as 100% surrender, 100% annuitization, or maturity occurs within the greatest present value stream required under paragraph (2)(ii)(a) of this subdivision;

(2) calculate the surrender charge not amortized under paragraph (2)(ii)(a) of this subdivision as the difference between the projected account value and the projected cash surrender value at the point in time of the ultimate event determined in subclause (1) of this clause. This value for a given contract shall not be less than zero; and

(3) the surrender charge amortization period is equal to the ratio of the amount determined in subclause (2) of this clause to the account value on the valuation date times 100 plus the length of time determined in subclause (1) of this clause. Such amount shall be rounded to the nearest number, taking into account the projection frequency. For example, if the amount produces a value of 2.15 and the projection frequency is quarterly, the surrender charge amortization period for the contract is 2.25; and

(iv) for annuity contracts with multiple guaranteed benefits, the minimum reserve shall be the greatest of the respective minimum reserves at the valuation date for each benefit disregarding all other guaranteed benefits.

(3) Assumptions used to calculate the accumulated net revenue in paragraph (2)(ii)(b) of this subdivision are as follows:
(i) account values shall be projected using the appropriate gross rates less all fund and contract charges according to the provisions of the funds and contract. The appropriate gross rates shall be those rates specified by subparagraphs (ii) and (iii) of this paragraph;

(ii) equity returns shall be projected under the following two scenarios:
(a) scenario 1 shall be an immediate drop of 20% followed by a 0% return the first year, and a return equal to 4.5% for the second year and thereafter; and

(b) scenario 2 shall be an immediate increase of 20% followed by a -30% return the first year, and a return equal to 4.5% for the second year and thereafter;

(iii) returns for asset classes other than equities shall be projected in conjunction with the equity returns projected in scenario 1 specified in subparagraph (ii)(a) of this paragraph and the equity returns projected in scenario 2 specified in subparagraph (ii)(b) of this paragraph according to the following gross rates:
(a) for bond fund returns, the gross rate shall be an immediate drop of 4.0% followed by the five-year U.S. Treasury bond rate plus 100 basis points for the first year and thereafter;

(b) for money market fund returns, the gross rate shall be the three-month U.S. Treasury bond rate;

(c) for balanced fund returns, the gross rate shall reflect the equity and bond allocations as of the valuation date and any expected asset rebalancing in the projection consistent with fund operations;

(d) for fixed account returns, the gross rate each year shall be the greater of the minimum rate guaranteed in the contract and 4.0%, but not greater than the current rates being credited to the fixed account funds on the valuation date;

(iv) the current value shall be used to determine the dynamic lapse assumption and partial withdrawals elected as guaranteed living benefits.
(a) The current value of the guaranteed benefit at the beginning of any projection interval shall be the greater of the amount of the current lump sum payment (if exercisable) or the present value of future lump sum or income payments. For the purpose of determining the present value, the discount rate shall be equal to the series of one-year U.S. Treasury forward rates implied by the U.S. Treasury yield curve as of the valuation date plus 100 basis points. Forward rates beyond 30 years shall equal the thirtieth year forward rate. If future living benefit payments are life contingent (i.e., either the right of future exercise or the right to future income benefits expires with the death of the annuitant or the owner), then the insurer shall determine the present value of such payments using the 2012 IAM Basic Table, improved to December 31, 2017 using Projection Scale G2 but not applying any additional mortality improvement in the projection.

(b) If a guaranteed living benefit is exercisable (withdrawal can start or, in the case of a GMWB, has begun) at the beginning of the projection interval, then the current value of the guaranteed living benefit shall be determined assuming immediate or continued exercise of that benefit.

(c) If a guaranteed living benefit is not exercisable, such as due to minimum age or duration requirements, at the beginning of that projection interval, then the current value of the guaranteed living benefit shall be determined assuming exercise of the guaranteed living benefit at the earliest possible future projection interval.

(d) Determination of the current value of a guaranteed living benefit that is exercisable or payable at a future projection interval shall take account of any guaranteed growth in the basis for the guarantee, such as where the basis grows according to an index or an interest rate.

(e) For a GMWB, the current value shall be determined assuming the earliest penalty-free withdrawal of guaranteed benefits after withdrawals begin and by applying the constraints of any applicable maximum or minimum withdrawal provisions.

(f) For an unexercised GMIB, the current value shall be determined assuming the option with a reserve closest to the reserve for a ten-year certain and life option; provided, however, that the current value of an unexercised GMIB shall be set equal to the account value if the contract holder can receive higher income payments on the assumed date of exercise by electing the same option under the normal settlement option provisions of the contract.

(g) For a GMDB that terminates at a certain age or in a certain policy year, the current value shall be calculated as if the GMDB does not terminate.

(h) For the purpose of applying the lapse assumptions and contract holder elections rates, the contract shall be considered out of the money for a projection interval if the current value of the guaranteed benefit at the beginning of the projection interval is less than or equal to the account value at the beginning of the same projection interval. If the current value of the guaranteed benefit at the beginning of the projection interval is greater than the account value also at the beginning of the projection interval, the contract shall be considered in the money and the percent in the money shall equal:

100 * ((current value of the guaranteed benefit /Account Value) - 1).

If a contract has multiple living benefit guarantees, then the guarantee having the largest current value shall be used to determine the percent in the money;

(v) The accumulated net revenue shall incorporate the following lapse rates applied as full contract surrenders based on the percent in the money determined in subparagraph (iv) of this paragraph:
(a) Guaranteed death benefits.
(1) For each projection interval during the surrender charge period, a lapse rate of 2.5% per annum shall be applied.

(2) For each projection interval after the surrender charge period for benefits that are:
(i) out of the money, a lapse rate of 10% per annum shall be applied; and

(ii) in the money, a lapse rate of 7% per annum shall be applied in every projection interval where the benefit is less than 20% in the money, and 3% per annum shall be applied in every projection interval where the benefit is 20% or more in the money.

(b) Guaranteed living benefits.
(1) For each projection interval during the surrender charge period where the benefit is out of the money, a lapse rate of 2.5% per annum shall be applied. For each projection interval after the surrender charge period where the benefit is out of the money, a lapse rate of 10% per annum shall be applied.

(2) For each projection interval where the benefit is in the money for:
(i) all guaranteed minimum accumulation benefits, a lapse rate of 0% shall be applied; and

(ii) all other benefits, a lapse rate of 2.5% per annum shall be applied in every projection interval where the living benefit is less than 20% in the money, and a lapse rate of 1% per annum shall be applied in every projection interval where the living benefit is 20% or more in the money;

(vi) The accumulated net revenue shall incorporate the following election rates:
(a) the contract holder election rate for any exercisable in the money guaranteed living benefit shall be zero if exercise would cause the extinction of a guaranteed living benefit having a larger current value;

(b) for guaranteed living benefits other than GMWBs and GMABs, contract holder election rates for exercisable in the money benefits shall be 5% per annum in every projection interval where the living benefit is less than 10% in the money, 15% per annum in every projection interval where the living benefit is 10% or more in the money and less than 20% in the money, and 25% per annum in every projection interval where the living benefit is more than 20% in the money. In addition, the election rate for an exercisable in the money guaranteed living benefit shall be 100% at the last duration to elect such benefit;

(c) for GMABs, an election rate of 100% shall be used at the point in time where the benefit has the highest current value;

(d) for GMWBs, contract holder election rates shall be determined as follows:
(1) calculate the current value for each potential age of initiating withdrawals ("initial withdrawal age") until the end of the projection period or the contract holder reaches age 120, if sooner. For each of these current value calculations:
(i) the calculation shall assume that the contract holder takes no partial withdrawals until the initial withdrawal age;

(ii) with respect to the discount rate, the calculation shall disregard the instructions of subparagraph (iv)(a) of this paragraph and instead apply a discount rate of 3.0%; and

(iii) the current value for each initial withdrawal age shall be expressed in present value terms taking into account survival from issue to the initial withdrawal age, as well as time value of money during that period. For example, if the issue age is 55, then the current value for an initial withdrawal age of 60 shall take into account survival of the annuitant or owner to age 60 using the mortality table specified in subparagraph (iv)(a) of this paragraph and the time value of money from age 55 to age 60;

(2) calculate the adjusted current values by raising each of the current values to the second power and multiplying all the resultant values corresponding to initial withdrawal ages below 60 by 50%;

(3) the election rate for each projection interval shall equal the corresponding adjusted current value divided by the sum of the adjusted current values;

(4) for contracts that offer guaranteed growth in the benefit basis or one-time bonuses to the benefit basis, the election rates shall be adjusted as follows:
(i) add 0.35 * (1 - sum of the election rates from the issue age to initial withdrawal age) to the election rate corresponding to the initial withdrawal age that occurs immediately after the termination of the guaranteed growth or the one-time bonus. If there is more than one such initial withdrawal age, the addition shall be made to the initial withdrawal age with the higher current value; and

(ii) scale the remainder of the election rates at all future ages such that the sum of the revised values equals 1.00;

(5) for tax-qualified policies:
(i) add .50 * (1 - sum of the election rates from the issue age to initial withdrawal age) to the election rate corresponding to an initial withdrawal age of 71; and

(ii) scale the remainder of the election rates at all future initial withdrawal ages such that the sum of the revised scaled current values equals 1.00;

(6) the calculations prescribed by this clause only shall need to be performed once for a given set of contracts with a certain issue age, guaranteed benefit product, and tax status; and

(7) the election rates on the valuation date shall be determined by discarding election rates determined for initial withdrawal ages less than the attained age on the valuation date and scaling the remaining election rates such that the sum of their re-scaled weights equals 1.00;

(e) Partial withdrawals that are elected as guaranteed living benefits, or required contractually, such as a contract operating under an automatic withdrawal provision on the valuation date, shall be deducted from the account value in each projection interval consistent with the projection frequency used, and according to the terms of the contract;

(f) no other partial withdrawals, including free partial withdrawals, shall be deducted from the account value; and

(g) GMDBs shall not be benefits subject to election;

(vii)
(a) No transfers between funds shall be assumed in the projection used to determine the accumulated net revenue unless required by the contract, such as transfers from a dollar cost averaging fund or contractual rights given to the insurer to implement a contractually specified portfolio insurance management strategy or a contract operating under an automatic re-balancing option. When transfers shall be modeled, to the extent not inconsistent with contract language, the allocation of transfers to funds shall be in proportion to the contract's current allocation to funds;

(b) Margins generated during a projection interval on funds supporting account value are transferred to the accumulated net revenue and are subsequently accumulated at the one-year U.S. Treasury forward rate implied by the U.S. Treasury yield curve as of the valuation date plus 100 basis points. Forward rates beyond 30 years shall equal the thirtieth year forward rate. Assets for each class supporting account values shall be reduced in proportion to the amount held in each asset class at the time of transfer of margins or any portion of account value applied to the payment of benefits; and

(c) Future deposits to account value shall not be assumed unless required by the terms of the contract to prevent contract or guaranteed benefit lapse, in which case they shall be modeled. When future deposits shall be modeled, to the extent not inconsistent with contract language, the allocation of the deposit to funds shall be in proportion to the contract's current allocation to such funds;

(viii) The amounts determined in paragraph (2)(ii)(b) of this subdivision shall be discounted for survivorship as follows:
(a) prior to election, the mortality rate for a contract holder with age x in year (2012 + n) shall be calculated using the following formula, where qx2012 denotes mortality from the 2012 IAM Basic Table, Fx denotes the appropriate factor from Factor Table F, and G2x denotes mortality improvement from Projection Scale G2:

Click to view image

(b) after election, the mortality rates shall be determined using the 2012 IAR Table;

(ix) The projection used to determine the accumulated net revenue shall be calculated using an annual or more frequent time step, such as quarterly. For time steps more frequent than annual, assets supporting account values at the start of a year may be retained in such funds until year-end (i.e., margin earned during the year will earn the fund rates instead of the discount rate until year end) or removed after each time step. However, the same approach shall be applied for all years. Similarly, projected benefits, lapses, elections and other contract holder activity may be assumed to occur annually or at the end of each time step, but the approach shall be consistent for all years; and

(x) If an interest index is required to determine projected benefits, the index shall assume interest rates have not changed since the last reported rates before the valuation date. If an equity index is required, the index shall be consistent with the last reported index before the valuation date, the initial drop in equity returns and the subsequent equity returns in the standard scenario projection. The sources of information and how they are used to determine the indexes shall be documented and, to the extent possible, consistent from year-to-year.

(4) The value of approved hedges shall be calculated separately from the accumulated net revenue. The value of approved hedges shall be the difference between the discounted value at the one-year CMT as of the valuation date of the pre-tax cash flows from the approved hedges and their statement values on the valuation date.
(i) To be an approved hedge for purposes of the standard scenario reserve, a derivative or other investment shall be an actual asset held by the insurer on the valuation date, shall be used as a hedge supporting the contracts falling under the scope of this section, and shall comply with all applicable laws and regulations, including applicable documentation requirements, related to the use of derivative instruments.

(ii) The superintendent may require the exclusion of any portion of the value of approved hedges upon a finding that the insurer's documentation, controls, measurement, execution of strategy or historical results are not adequate to support a future expectation of risk reduction commensurate with the value of approved hedges.

(iii) The cash flow projection for approved hedges that expire in less than one year from the valuation date shall be based on holding the hedges to their expiration. For hedges with an expiration of more than one year, the value of hedges shall be based on liquidation of the hedges no more than two years from the valuation date. Where applicable, the liquidation value of hedges shall be consistent with the assumed returns in the standard scenario from the start of the projection to the date of liquidation, Black-Scholes pricing, a risk free rate equal to the five-year CMT as of the valuation date and the annual volatility implicit as of the valuation date in the statement value of the hedges when the statement value of hedges are valued with Black-Scholes pricing and a risk-free rate equal to the five-year CMT as of the valuation date.

(iv) There is no credit in the Standard Scenario Reserve for dynamic hedging beyond the credit that results from hedges actually held on the valuation date.

(v) The value of approved hedges shall be allocated to the contracts that are supported by the applicable approved hedges. A contract's allocation shall be the lesser of the amount in paragraph (2)(ii)(b) of this subdivision for the contract and the product of (a) and (b), where:
(a) is the sum of the value of the applicable approved hedges for all contracts supported by the same hedges; and

(b) is the ratio of the amount in paragraph (2)(ii)(b) of this subdivision for the contract to the sum of the amount in paragraph (2)(ii)(b) of this subdivision for all contracts supported by the same hedges.

(5) Option value floor.
(i) The option value floor shall be calculated on a seriatim basis with arbitrage-free interest rates and equity return paths with an equity volatility consistent with that currently observed in the market and assuming efficient contract holder behavior.

(ii) Each insurer subject to this subdivision shall file with the superintendent on or before March 1 of each year an actuarial report, in form and substance satisfactory to the superintendent and subject to appropriate actuarial standards of practice promulgated by the Actuarial Standards Board of the American Academy of Actuaries, describing the analysis, methodology, and assumptions applied in calculating the option value floor.

(6) The amount of the reserve held in the insurer's general account shall not be less than the excess, if any, of the minimum reserve over the amount determined under paragraph (2)(ii)(a) of this subdivision, attributable to the variable portion of all such contracts.

(f) Mortality and factor tables.

(1) The rates of mortality per 1,000 lives based on age nearest birthday for the 2012 IAM Basic Table are as follows:

2012 Individual Annuity Mortality Basic Table

MALE

FEMALE

MALE

FEMALE

MALE

FEMALE

Age (x)

qx2012

qx2012

Age (x)

qx2012

qx2012

Age (x)

qx2012

qx2012

0

1.783

1.801

41

1.029

0.667

82

46.957

36.122

1

0.446

0.450

42

1.110

0.723

83

52.713

41.477

2

0.306

0.287

43

1.188

0.774

84

59.148

47.589

3

0.254

0.199

44

1.268

0.823

85

66.505

54.441

4

0.193

0.152

45

1.355

0.866

86

75.015

61.972

5

0.186

0.139

46

1.464

0.917

87

84.823

70.155

6

0.184

0.130

47

1.615

0.983

88

95.987

78.963

7

0.177

0.122

48

1.808

1.072

89

108.482

88.336

8

0.159

0.105

49

2.032

1.168

90

122.214

98.197

9

0.143

0.098

50

2.285

1.290

91

136.799

108.323

10

0.126

0.094

51

2.557

1.453

92

152.409

119.188

11

0.123

0.096

52

2.828

1.622

93

169.078

131.334

12

0.147

0.105

53

3.088

1.792

94

186.882

145.521

13

0.188

0.120

54

3.345

1.972

95

205.844

162.722

14

0.236

0.146

55

3.616

2.166

96

219.247

182.120

15

0.282

0.174

56

3.922

2.393

97

238.612

199.661

16

0.325

0.199

57

4.272

2.666

98

258.341

217.946

17

0.364

0.220

58

4.681

3.000

99

278.219

236.834

18

0.399

0.234

59

5.146

3.393

100

298.452

256.357

19

0.430

0.245

60

5.662

3.844

101

323.610

283.802

20

0.459

0.253

61

6.237

4.352

102

344.191

304.716

21

0.492

0.260

62

6.854

4.899

103

364.633

325.819

22

0.526

0.266

63

7.510

5.482

104

384.783

346.936

23

0.569

0.272

64

8.220

6.118

105

400.000

367.898

24

0.616

0.275

65

9.007

6.829

106

400.000

387.607

25

0.669

0.277

66

9.497

7.279

107

400.000

400.000

26

0.728

0.284

67

10.085

7.821

108

400.000

400.000

27

0.764

0.290

68

10.787

8.475

109

400.000

400.000

28

0.789

0.300

69

11.625

9.234

110

400.000

400.000

29

0.808

0.313

70

12.619

10.083

111

400.000

400.000

30

0.824

0.333

71

13.798

11.011

112

400.000

400.000

31

0.834

0.357

72

15.195

12.030

113

400.000

400.000

32

0.838

0.375

73

16.834

13.154

114

400.000

400.000

33

0.828

0.390

74

18.733

14.415

115

400.000

400.000

34

0.808

0.405

75

20.905

15.869

116

400.000

400.000

35

0.789

0.424

76

23.367

17.555

117

400.000

400.000

36

0.783

0.447

77

26.155

19.500

118

400.000

400.000

37

0.800

0.476

78

29.306

21.758

119

400.000

400.000

38

0.837

0.514

79

32.858

24.412

120

400.000

400.000

39

0.889

0.560

80

36.927

27.579

40

0.955

0.613

81

41.703

31.501

(2) The factors, Fx, of Factor Table F are as follows. Factor Table F

Attained Age (x)

Fx for VA with

Fx for All Other

<65

80.0%

100.0%

66

81.5%

102.0%

67

83.0%

104.0%

68

84.5%

106.0%

69

86.0%

108.0%

70

87.5%

110.0%

71

89.0%

112.0%

72

90.5%

114.0%

73

92.0%

116.0%

74

93.5%

118.0%

75

95.0%

120.0%

76

96.5%

119.0%

77

98.0%

118.0%

78

99.5%

117.0%

79

101.0%

116.0%

80

102.5%

115.0%

81

104.0%

114.0%

82

105.5%

113.0%

83

107.0%

112.0%

84

108.5%

111.0%

85

110.0%

110.0%

86

110.0%

110.0%

87

110.0%

110.0%

88

110.0%

110.0%

89

110.0%

110.0%

90

110.0%

110.0%

91

110.0%

110.0%

92

110.0%

110.0%

93

110.0%

110.0%

94

110.0%

110.0%

95

110.0%

110.0%

96

109.0%

109.0%

97

108.0%

108.0%

98

107.0%

107.0%

99

106.0%

106.0%

100

105.0%

105.0%

101

104.0%

104.0%

102

103.0%

103.0%

103

102.0%

102.0%

104

101.0%

101.0%

>105

100.0%

100.0%

Disclaimer: These regulations may not be the most recent version. New York may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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