Current through Register Vol. XLI, No. 38, September 20, 2024
5.1.
An insurer or producer may elect to provide a consumer an illustration at any time,
provided that the illustration is in compliance with this section and:
5.1.a. Clearly labeled as an
illustration;
5.1.b. Includes a statement
referring consumers to the disclosure document and Buyer's Guide provided to them at
the time of purchase for additional information about their annuity; and
5.1.c. Is prepared by the insurer or third party
using software that is authorized by the insurer prior to its use, provided that the
insurer maintains a system of control over the use of
illustrations.
5.2. An
illustration furnished an applicant for a group annuity contract or contracts issued
to a single applicant on multiple lives may be either an individual or composite
illustration representative of the coverage on the lives of members of the group or
the multiple lives covered.
5.3. The
illustration shall not be provided unless accompanied by the disclosure document
referenced in section 4.
5.4. When using
an illustration, the illustration shall not:
5.4.a.
Describe non-guaranteed elements in a manner that is misleading or has the capacity
or tendency to mislead;
5.4.b. State or
imply that the payment or amount of non-guaranteed elements is guaranteed;
or
5.4.c. Be
incomplete.
5.5. Costs and fees
of any type shall be individually noted and explained.
5.6. An illustration shall conform to the
following requirements:
5.6.a. The illustration
shall be labeled with the date on which it was prepared;
5.6.b. Each page, including any explanatory notes
or pages, shall be numbered and show its relationship to the total number of pages
in the disclosure document (e.g., the fourth page of a seven-page disclosure
document shall be labeled "page 4 of 7 pages");
5.6.c. The assumed dates of premium receipt and
benefit payout within a contract year shall be clearly identified;
5.6.d. If the age of the proposed insured is shown
as a component of the tabular detail, it shall be issue age plus the numbers of
years the contract is assumed to have been in force;
5.6.e. The assumed premium on which the
illustrated benefits and values are based shall be clearly identified, including
rider premium for any benefits being illustrated;
5.6.f. Any charges for riders or other contract
features assessed against the account value or the crediting rate shall be
recognized in the illustrated values and shall be accompanied by a statement
indicating the nature of the rider benefits or the contract features, and whether or
not they are included in the illustration;
5.6.g. Guaranteed death benefits and values
available upon surrender, if any, for the illustrated contract premium shall be
shown and clearly labeled guaranteed;
5.6.h. The non-guaranteed elements underlying the
non-guaranteed illustrated values shall be no more favorable than current
non-guaranteed elements and shall not include any assumed future improvement of such
elements. Additionally, non-guaranteed elements used in calculating non-guaranteed
illustrated values at any future duration shall reflect any planned changes,
including any planned changes that may occur after expiration of an initial
guaranteed or bonus period;
5.6.i. In
determining the non-guaranteed illustrated values for a fixed indexed annuity, the
index-based interest rate and account value shall be calculated for three different
scenarios: one to reflect historical performance of the index for the most recent
ten calendar years; one to reflect the historical performance of the index for the
continuous period often calendar years out of the last twenty calendar years that
would result in the least index value growth (the "low scenario"); one to reflect
the historical performance of the index for the continuous period often calendar
years out of the last twenty calendar years that would result in the most index
value growth (the "high scenario"). The following requirements apply:
5.6.i.1. The most recent ten calendar years and
the last twenty calendar years are defined to end on the prior December 31, except
for illustrations prepared during the first three months of the year, for which the
end date of the calendar year period may be the December 31 prior to the last full
calendar year;
5.6.i.2. If any index
utilized in determination of an account value has not been in existence for at least
ten calendar years, indexed returns for that index shall not be illustrated. If the
fixed indexed annuity provides an option to allocate account value to more than one
indexed or fixed declared rate account, and one or more of those indexes has not
been in existence for at least ten calendar years, the allocation to such indexed
account(s) shall be assumed to be zero;
5.6.i.3. If any index utilized in determination of
an account value has been in existence for at least ten calendar years but less than
twenty calendar years, the ten calendar year periods that define the low and high
scenarios shall be chosen from the exact number of years the index has been in
existence;
5.6.i.4. The non-guaranteed
element(s), such as caps, spreads, participation rates or other interest crediting
adjustments, used in calculating the non-guaranteed index-based interest rate shall
be no more favorable than the corresponding current element(s);
5.6.i.5. If a fixed indexed annuity provides an
option to allocate the account value to more than one indexed or fixed declared rate
account:
5.6.i.5.A. The allocation used in the
illustration shall be the same for all three scenarios; and
5.6.i.5.B. The ten calendar year periods resulting
in the least and greatest index growth periods shall be determined independently for
each indexed account option.
5.6.i.6. The geometric mean annual effective rate
of the account value growth over the ten calendar year period shall be shown for
each scenario;
5.6.i.7. If the most
recent ten calendar year historical period experience of the index is shorter than
the number of years needed to fulfill the requirement of subsection 5.8, the most
recent ten calendar year historical period experience of the index shall be used for
each subsequent ten calendar year period beyond the initial period for the purpose
of calculating the account value for the remaining years of the
illustration;
5.6.i.8. The low and high
scenarios:
5.6.i.8.A. Need not show surrender
values (if different than account values);
5.6.i.8.B. Shall not extend beyond ten calendar
years (and therefore are not subject to the requirements of subsection 5.8 beyond
subsection 5.8.a.1; and
5.6.i.8.C. May
be shown on a separate page. A graphical presentation shall also be included
comparing the movement of the account value over the ten calendar year period for
the low scenario, the high scenario and the most recent ten calendar year scenario;
and
5.6.i.9. The low and high
scenarios should reflect the irregular nature of the index performance and should
trigger every type of adjustment to the index-based interest rate under the
contract. The effect of the adjustments should be clear; for example, additional
columns showing how the adjustment applied may be included. If an adjustment to the
index-based interest rate is not triggered in the illustration (because no
historical values of the index in the required illustration range would have
triggered it), the illustration shall so state;
5.6.j. The guaranteed elements, if any, shall be
shown before corresponding non-guaranteed elements and shall be specifically
referred to on any page of an illustration that shows or describes only the
non-guaranteed elements (e.g., "see page 1 for guaranteed elements");
5.6.k. The account or accumulation value of a
contract, if shown, shall be identified by the name this value is given in the
contract being illustrated and shown in close proximity to the corresponding value
available upon surrender;
5.6.l. The
value available upon surrender shall be identified by the name this value is given
in the contract being illustrated and shall be the amount available to the contract
owner in a lump sum after deduction of surrender charges, bonus forfeitures,
contract loans, contract loan interest and application of any market value
adjustment, as applicable;
5.6.m.
Illustrations may show contract benefits and values in graphic or chart form in
addition to the tabular form;
5.6.n. Any
illustration of non-guaranteed elements shall be accompanied by a statement
indicating that:
5.6.n.1. The benefits and values
are not guaranteed;
5.6.n.2. The
assumptions on which they are based are subject to change by the insurer;
and
5.6.n.3. Actual results may be
higher or lower;
5.6.o.
Illustrations based on non-guaranteed credited interest and non-guaranteed annuity
income rates shall contain equally prominent comparisons to guaranteed credited
interest and guaranteed annuity income rates, including any guaranteed and
non-guaranteed participation rates, caps or spreads for fixed indexed
annuities;
5.6.p. The annuity income rate
illustrated shall not be greater than the current annuity income rate unless the
contract guarantees are in fact more favorable;
5.6.q. Illustrations shall be concise and easy to
read;
5.6.r. Key terms shall be defined
and then used consistently throughout the illustration;
5.6.s. Illustrations shall not depict values
beyond the maximum annuitization age or date;
5.6.t. Annuitization benefits shall be based on
contract values that reflect surrender charges or any other adjustments, if
applicable; and
5.6.u. Illustrations
shall show both annuity income rates per $ 1,000.00 and the dollar amounts of the
periodic income payable.
5.7.
An annuity illustration shall include a narrative summary that includes the
following unless provided at the same time in a disclosure document:
5.7.a. A brief description of any contract
features, riders or options, guaranteed and/or non-guaranteed, shown in the basic
illustration and the impact they may have on the benefits and values of the
contract;
5.7.b. A brief description of
any other optional benefits or features that are selected, but not shown in the
illustration and the impact they have on the benefits and values of the
contract;
5.7.c. Identification and a
brief definition of column headings and key terms used in the
illustration;
5.7.d. A statement
containing in substance the following:
5.7.d.1.
For other than fixed indexed annuities:
"This illustration assumes the annuity's current non-guaranteed
elements will not change. It is likely that they will change and actual values will
be higher or lower than those in this illustration but will not be less than the
minimum guarantees."
"The values in this illustration are not guarantees or even
estimates of the amounts you can expect from your annuity. Please review the entire
Disclosure Document and Buyer's Guide provided with your Annuity Contract for more
detailed information."
5.7.d.2.
For fixed indexed annuities:
"This illustration assumes the index will repeat historical
performance and that the annuity's current non-guaranteed elements, such as caps,
spreads, participation rates or other interest crediting adjustments, will not
change. It is likely that the index will not repeat historical performance, the
non-guaranteed elements will change, and actual values will be higher or lower than
those in this illustration but will not be less than the minimum guarantees."
"The values in this illustration are not guarantees or even
estimates of the amounts you can expect from your annuity. Please review the entire
Disclosure Document and Buyer's Guide provided with your Annuity Contract for more
detailed information;" and
5.7.e. Additional explanations as follows:
5.7.e.1. Minimum guarantees shall be clearly
explained;
5.7.e.2. The effect on
contract values of contract surrender prior to maturity shall be
explained;
5.7.e.3. Any conditions on the
payment of bonuses shall be explained;
5.7.e.4. For annuities sold as an IRA, qualified
plan or in another arrangement subject to the required minimum distribution (RMD)
requirements of the Internal Revenue Code, the effect of RMDs on the contract values
shall be explained;
5.7.e.5. For
annuities with recurring surrender charge schedules, a clear and concise explanation
of what circumstances will cause the surrender charge to recur; and
5.7.e.6. A brief description of the types of
annuity income options available shall be explained, including:
5.7.e.6.A. The earliest or only maturity date for
annuitization (as the term is defined in the contract);
5.7.e.6.B. For contracts with an optional maturity
date, the periodic income amount for at least one of the annuity income options
available based on the guaranteed rates in the contract, at the later of age seventy
or ten years after issue, but in no case later than the maximum annuitization age or
date in the contract;
5.7.e.6.C. For
contracts with a fixed maturity date, the periodic income amount for at least one of
the annuity income options available, based on the guaranteed rates in the contract
at the fixed maturity date; and
5.7.e.6.D. The periodic income amount based on the
currently available periodic income rates for the annuity income option in
subparagraph 5.7.e.6.B or subparagraph 5.7.e.6.C, if
desired.
5.8. Following the narrative summary, an
illustration shall include a numeric summary which shall include at minimum, numeric
values at the following durations:
5.8.a.
5.8.a.1. First ten contract years; or
5.8.a.2. Surrender charge period if longer than
ten years, including any renewal surrender charge period(s);
5.8.b. Every tenth contract year up to the later
of thirty years or age seventy; and
5.8.c.
5.8.c.1.
Required annuitization age; or
5.8.c.2.
Required annuitization date.
5.9. If the annuity contains a market value
adjustment, hereafter MVA, the following provisions apply to the illustration:
5.9.a. The MVA shall be referred to as such
throughout the illustration;
5.9.b. The
narrative shall include an explanation, in simple terms, of the potential effect of
the MVA on the value available upon surrender;
5.9.c. The narrative shall include an explanation,
in simple terms, of the potential effect of the MVA on the death benefit;
5.9.d. A statement, containing in substance the
following, shall be included:
When you make a withdrawal, the amount you receive may be
increased or decreased by a Market Value Adjustment (MVA). If interest rates on
which the MVA is based go up after you buy your annuity, the MVA likely will
decrease the amount you receive. If interest rates go down, the MVA will likely
increase the amount you receive.
5.9.e. Illustrations shall describe both the
upside and the downside aspects of the contract features relating to the
MVA;
5.9.f. The illustrative effect of
the MVA shall be shown under at least one positive and one negative scenario. This
demonstration shall appear on a separate page and be clearly labeled that it is
information demonstrating the potential impact of a MVA;
5.9.g. Actual MVA floors and ceilings as listed in
the contract shall be illustrated; and
5.9.h. If the MVA has significant characteristics
not addressed by subdivisions a through g of this subsection, the effect of such
characteristics shall be shown in the illustration.
5.10. A narrative summary for a fixed indexed
annuity illustration also shall include the following unless provided at the same
time in a disclosure document:
5.10.a. An
explanation, in simple terms, of the elements used to determine the index-based
interest, including but not limited to, the following elements:
5.10.a.1. The Index(es) which will be used to
determine the index-based interest;
5.10.a.2. The Indexing Method -- such as
point-to-point, daily averaging, monthly averaging;
5.10.a.3. The Index Term -- the period over which
indexed-based interest is calculated;
5.10.a.4. The Participation Rate, if
applicable;
5.10.a.5. The Cap, if
applicable; and
5.10.a.6. The Spread, if
applicable;
5.10.b. The
narrative shall include an explanation, in simple terms, of how index-based interest
is credited in the indexed annuity;
5.10.c. The narrative shall include a brief
description of the frequency with which the company can re-set the elements used to
determine the index-based credits, including the participation rate, the cap, and
the spread, if applicable; and
5.10.d. If
the product allows the contract holder to make allocations to declared-rate segment,
then the narrative shall include a brief description of:
5.10.d.1. Any options to make allocations to a
declared-rate segment, both for new premiums and for transfers from the
indexed-based segments; and
5.10.d.2.
Differences in guarantees applicable to the declared-rate segment and the
indexed-based segments.
5.11. A numeric summary for a fixed indexed
annuity illustration shall include, at a minimum, the following elements:
5.11.a. The assumed growth rate of the index in
accordance with subdivision 5.6.i;
5.11.b. The assumed values for the participation
rate, cap and spread, if applicable; and
5.11.c. The assumed allocation between
indexed-based segments and declared-rate segment, if applicable, in accordance with
subdivision 5.6.i.
5.12. If
the contract is issued other than as applied for, a revised illustration conforming
to the contract as issued shall be sent with the contract, except that
non-substantive changes, including, but not limited to, changes in the amount of
expected initial or additional premiums and any changes in amounts of exchanges
pursuant to Section 1035 of the Internal Revenue Code, rollovers or transfers, which
do not alter the key benefits and features of the annuity as applied for will not
require a revised illustration unless requested by the applicant.
