N.Y. Comp. Codes R. & Regs. tit. 11 § 103.5

Current through Register Vol. 46, No. 53, December 31, 2024

Section 103.5 - Valuation of payout annuity reserves

(a) Scope.

(1) This section applies to the following, whether group or individual, including both life contingent and term certain only contracts, directly written or assumed through reinsurance:

(i) immediate annuity contracts issued on or after January 1, 2019;

(ii) deferred income annuity contracts issued on or after January 1, 2019;

(iii) structured settlements in payout or deferred status issued on or after January 1, 2019;

(iv) fixed payout annuities resulting from the exercise of settlement options or annuitizations of host contracts, for which the fixed payout annuities commence on or after January 1, 2019;

(v) supplementary contracts, excluding contracts with no scheduled payments (such as retained asset accounts and settlements at interest), issued on or after January 1, 2019;

(vi) fixed income payment streams attributable to guaranteed living benefits associated with deferred annuity and variable annuity contracts, for which the fixed income payment streams commence on or after January 1, 2019, once the contract funds are exhausted; and

(vii) certificates with premium determination dates on or after January 1, 2019, under non-variable group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuity contracts under Internal Revenue Code section 408.

(b) Definitions.

For the purpose of this section:

(1) Jumbo contract means a contract with an initial consideration equal to or greater than $250 million, or each contract belonging to a group of contracts issued by an insurer to the same contract holder within 90 days of each other with aggregate considerations equal to or greater than $250 million.

(2) Non-jumbo contract means a contract other than a jumbo contract.

(3) Premium determination date means the date as of which the valuation interest rate for a policy, contract, certificate, or benefit subject to this section being valued is determined.

The following table specifies the decision rules for setting the premium determination date for each policy, contract, certificate, and benefit subject to this section:

Section 103.5(a)(1)	Description	Premium determination date
(i)	Immediate annuity	Date consideration is determined and committed to by contract holder
(ii)	Deferred income annuity	Date consideration is determined and committed to by contract holder
(iii)	Structured settlements	Date consideration is determined and committed to by contract holder
(iv)	Fixed payout annuities resulting Date consideration for benefit is from settlement options or determined and committed to by annuitizations from host contracts contract holder
(v)	Supplementary contracts	Date of issue of supplementary contract
(vi)	Fixed income payment streams from guaranteed living benefits	Date on which account value becomes 0
(vii)	Group annuity contracts and Date consideration is determined certificates and committed to by contract holder

(c) Maximum valuation interest rates.

(1) For the policies, contracts, certificates, and benefits set forth in subdivision (a)(1)(iv) through (vi) of this section, an insurer may apply the same maximum valuation interest rate applicable to the base contract to value the payment stream if the insurer obtains the superintendent's prior approval. In order to obtain the superintendent's prior approval, the insurer shall demonstrate to the superintendent that its investment policy and practices are consistent with this paragraph.

(2) For the policies, contracts, certificates, and benefits subject to this section with premium determination dates on or after January 1, 2019 and prior to January 1, 2020, an insurer shall select one of the methods set forth in subparagraph (i), (ii) or (iii) of this paragraph to determine the maximum valuation interest rate:

(i) the maximum valuation interest rate determined in accordance with the methodology and assumptions prescribed by Insurance Law section 4217(c) and any applicable regulations;

(ii) the maximum valuation interest rate determined in accordance with the methodology and assumptions prescribed by Insurance Law section 4217(c) and any applicable regulations, with the following adjustments:

(a) for jumbo contracts, the maximum valuation interest rate shall be determined on a monthly basis, where the reference interest rate as defined in Insurance Law section 4217(c)(4)(F) shall equal the Moody's Corporate Bond Yield Average - Monthly Average Corporates, as published by Moody's Investors Service, Inc., for the month preceding the premium determination date; and

(b) for non-jumbo contracts, the maximum valuation interest rate shall be determined on a quarterly basis, where the reference interest rate as defined in Insurance Law section 4217(c)(4)(F) shall equal the average over a period of three months, ending on either March 31, June 30, September 30, or December 31, of Moody's Corporate Bond Yield Average - Monthly Average Corporates, as published by Moody's Investors Service, Inc., for the calendar year quarter preceding the premium determination date; or

(iii) the maximum valuation interest rate determined in accordance with paragraph (3)(i) of this subdivision.

(3) For the policies, contracts, certificates, and benefits subject to this section with premium determination dates on or after January 1, 2020, the maximum valuation interest rate shall be the lesser of the rates determined in accordance with subparagraph (i) and (ii) of this paragraph.

(i) Modified maximum valuation interest rate.

(a) The modified maximum valuation interest rate for non-jumbo contracts shall equal (1) less (2), where:

(1) is the valuation interest rate determined in accordance with the methodology and assumptions prescribed by the valuation manual; and

(2) is the greater of zero and (i) less (ii) rounded down to the nearest 25 basis points, where:

(i) is the valuation interest rate determined in accordance with the methodology and assumptions prescribed by the valuation manual prior to rounding the valuation interest rate to the nearest 25 basis points; and

(ii) is the unrounded valuation interest rate determined in accordance with the methodology and assumptions prescribed by the valuation manual, except for the following:

(A) the prescribed portfolio credit quality distribution as defined in Section 2.I of VM-22 of the valuation manual shall mean the following credit rating distribution:

(I) 5.0% Treasuries;

(II) 45.0% Aa bonds (15.0% Aa1, 15.0% Aa2, 15.0% Aa3); and

(III) 50.0% A bonds (50.0%/3 A1, 50.0%/3 A2, 50.0%/3 A3); and

(B) the individual spreads constituting the Table X spreads as defined in Section 2.F of VM-22 of the valuation manual shall each be no greater than 200 basis points.

(b) The modified maximum valuation interest rate for jumbo contracts shall equal the lesser of (1) and (2), where:

(1) is the Daily Valuation Rate defined by Section 3.C.5 of VM-22 of the valuation manual less the amount determined in accordance with clause (a)(2) of this subparagraph for the calendar quarter preceding the business day immediately preceding the premium determination date;

(2) is the maximum daily valuation rate defined as Rd-1 + 1.90% - D - E, where:

(i) Rd-1 is the daily reference rate for the business day immediately preceding the premium determination date. The daily reference rate for each Valuation Rate Bucket, defined by Section 3.A of VM-22 of the valuation manual, is calculated as the weighted average of the daily Treasury rates immediately preceding the premium determination date for two-year, five-year, 10-year and 30-year U.S. Treasuries using Table 1 weights as determined in accordance with Section 3.I of VM-22 of the valuation manual effective for the calendar year in which the premium determination date falls;

(ii) D is the default cost rate determined in accordance with Section 3.F of VM-22 of the valuation manual and based on the portfolio credit quality distribution defined in clause (a)(2)(ii)(A) of this subparagraph effective for the calendar year quarter in which the premium determination date falls; and

(iii) E is the spread deduction defined as 0.25%; and

(ii) the maximum valuation interest rate determined in accordance with the methodology and assumptions prescribed by the valuation manual.

(d) The minimum reserve for the policies, contracts, certificates, and benefits subject to this section with premium determination dates on or after January 1, 2019 shall be the greater of:

(1) the minimum reserve calculated in accordance with the methodology and assumptions prescribed by Insurance Law section 4217(a) through (f), Part 99 (Insurance Regulation 151) of this Title, and any other applicable regulations, except that the maximum valuation interest rate shall be determined in accordance with subdivision (c) 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.

N.Y. Comp. Codes R. & Regs. Tit. 11 § 103.5

Adopted New York State Register February 26, 2020/Volume XLII, Issue 08, eff. 2/26/2020

Amended New York State Register March 31, 2021/Volume XLIII, Issue 13, eff. 3/31/2021