N.Y. Comp. Codes R. & Regs. tit. 11 § 40.5

Current through Register Vol. 46, No. 51, December 18, 2024

Section 40.5 - Contract terminations

(a) This section shall be applicable to all unallocated amounts under group annuity contracts to which section 40.1 of this Part applies other than guaranteed interest contracts.

(b) The purpose of this section is to require, with respect to unallocated amounts under group annuity contracts to which this section applies, termination provisions that are fair and equitable for the terminating contractholder, remaining contractholders and other policyholders of the insurance company.

(c) Any group annuity contract to which this section applies shall permit a contractholder to terminate or discontinue the contract at least once each contract year upon providing the insurance company with reasonable advance notice. The contract shall permit the contractholder, upon the discontinuance or termination of any such contract, to withdraw unallocated amounts credited to the accumulation fund on any basis or bases provided for under the contract, provided that the contract contains in substance:

(1) the withdrawal options described in subdivisions (d) and (e) of this section;

(2) an option under which the contractholder may withdraw all unallocated amounts of the accumulation fund in a lump sum; or

(3) corresponding options which in the opinion of the superintendent are fair and equitable for the terminating contractholder, remaining contractholders and other policyholders of the insurance company. In determining whether a corresponding contract option satisfies the requirements of this subdivision, the superintendent may consider, among other factors, the degree to which the terms of such option reflect the maturity characteristics (e.g., expected pattern of principal repayments and investment yield to repayment) of those investments in the insurance company's general account whose investment results are allocated to the contract under the insurance company's method of investment income allocation.

(d) Any group annuity contract to which this section applies shall provide at least one withdrawal option pursuant to which the contractholder may withdraw all unallocated amounts of the accumulation fund on an installment payment basis which provides for the repayment of all the unallocated amounts in level installments over a period not to exceed 10 years; and the crediting of interest to the unpaid portion of such accumulation fund during the installment payment period at a rate of interest not less than 1.5 percent below the net effective rate of interest being credited to the contract at the time of its termination or discontinuance.

(e) Any group annuity contract to which this section applies shall provide at least one withdrawal option pursuant to which the unallocated amounts of the accumulation fund to which the contractholder is entitled are payable within five years. Such option (which may either be an immediate lump sum or equal installment option) may, if the insurance company elects, provide for market value adjustments of the unallocated amounts of the accumulation fund payable on withdrawal or for an adjustment in the interest rate credited on the unpaid balance during the period of repayment. There shall have been filed with the superintendent a memorandum, in form and substance satisfactory to the superintendent, describing:

(1) the method for determining the market value adjustment;

(2) the method used to determine the interest rate credited to the unpaid portion of such accumulation fund during the installment payment period if such rate is more than 1.5 percent below the net effective rate of interest being credited to the contract at the time of its termination or discontinuance; and

(3) stating that, in the opinion of the insurance company, the method provides reasonable equity to terminating and continuing contractholders and complies with this Part. If a market value adjustment is used by the insurance company for the option satisfying this subdivision, then the method shall not preclude the market value of the unallocated amounts of the accumulation fund from being greater than the book value or unadjusted transfer value of such fund.

(f) Separate withdrawal options are not required to satisfy the conditions of subdivisions (d) and (e) of this section if a single withdrawal option satisfies both conditions.

(g) Once a contractholder elects a withdrawal option under the contract at contract discontinuance or termination, it is no longer necessary for any other withdrawal option under the contract to remain electable.

(h) The withdrawal options described in subdivisions (d) and (e) of this section may provide that payments thereunder supersede all payments from unallocated amounts otherwise provided for under the contract.

(i) Any group annuity contract to which this section applies may provide that the insurance company has the right to change the method for determining a market value adjustment upon at least 31 days prior written notice to the contractholder.

(j) Any requested modification of the application of this section by an insurance company shall be accompanied by an explanation of the basis for such modification, and shall be permitted only if, in the opinion of the superintendent, it would achieve the purpose of this section and would not be prejudicial to the interests of the insurance company's policyholders.

N.Y. Comp. Codes R. & Regs. Tit. 11 § 40.5