New York State seal

August 28, 1985

SUBJECT: INSURANCE

WITHDRAWN

Circular Letter No. 14 (1985)

TO: ALL AUTHORIZED LIFE INSURANCE COMPANIES, ACCREDITED LIFE REINSURERS, FRATERNAL BENEFIT SOCIETIES AND CHARITABLE ANNUITY SOCIETIES

ATTN: CHIEF ACTUARY OR CONSULTING ACTUARY AND CHIEF FINANCIAL OFFICER

SUBJECT: MAXIMUM RESERVE VALUATION AND MAXIMUM LIFE POLICY NONFORFEITURE INTEREST RATES UNDER SECTIONS 4217, 4218 AND 4221 OF THE NEW YORK INSURANCE LAWS, AS AMENDED IN 1982 AND 1983

Attached hereto is an outline, providing maximum reserve valuation and maximum life policy nonforfeiture interest rates for new issues, new purchases or changes in fund (as defined) for years 1982, 1983, 1984 and 1985 (and other years where shown), under Sections 4217, 4218 and 4221 of the New York Insurance Laws, as amended in 1982 and 1983.

Should any person have any question or comment, in regard to this matter, please contact Mr. Robert J. Callahan, Chief of the Actuarial Valuation Bureau (518-474-7929).

Very truly yours,

[SIGNATURE]

James P. Corcoran

Superintendent of Insurance

ATTACHMENT

MAXIMUM VALUATION AND NONFORFEITURE INTEREST RATES UNDER SECTIONS 4217, 4218 and 4221 OF THE NEW YORK INSURANCE LAW

The maximum valuation and nonforfeiture interest rates, prescribed by Sections 4217 and 4221 of the New York Insurance Law for future years, will vary from year to year depending on Moody's corporate bond yield averages.

The maximum valuation interest rates for issues of 1982, 1983, 1984 and 1985 (and other years where shown) are outlined below. The maximum nonforfeiture interest rates for Ordinary Life Insurance are shown in A below.

A. Ordinary Life Insurance

   

 ***Maximum

Maximum

 *Issue

 

Reserve Valuation

Nonforfeiture

Year

 **Guarantee Duration

Interest Rate

Interest Rate

     

# 1980

1958

     

CSO

CSO

1979-81

10 Years or Less

4.50%

 

5.50%

 

More than 10 Years, up to 20

4.50

 

5.50

 

More than 20 Years

4.50

 

5.50

         

1982

10 Years or Less

6.75%

8.50%

5.50%

 

More than 10 Years, up to 20

6.25

7.75

5.50

 

More than 20 Years

5.50

7.00

5.50

         

1983

10 Years or Less

7.25%

9.00%

5.50%

 

More than 10 Years, up to 20

6.75

8.50

5.50

 

More than 20 Years

6.00

7.50

5.50

         

1984

10 Years or Less

7.25%

9.00%

5.50%

 

More than 10 Years, up to 20

6.75

8.50

5.50

 

More than 20 Years

6.00

7.50

5.50

         

1985

10 Years or Less

7.25%

9.00%

5.50%

 

More than 10 Years, up to 20

6.75

8.50

5.50

 

More than 20 Years

6.00

7.50

5.50

         

1986

10 Years or Less

7.25%

9.00%

5.50%

 

More than 10 Years, up to 20

6.75

8.50

5.50

 

More than 20 Years

6.00

7.50

5.50

*See the first paragraph under the table on page 6.

**The guarantee duration is the maximum number of years the life

insurance can remain in force on a basis guaranteed

in the policy.

***The maximum reserve valuation interest rate will be the

lesser of the rate as determined from the above table and

the rate actually used in determining cash values. This

applies to basic reserves under Section 4217, not to the

minimum reserve test under Section 4218.

#Applicable on or after the operative date elected under

Section 4221(k)(12). (See the last paragraph at the

bottom of page 6).

B. Single Premium Immediate Annuities, and annuity benefits involving life contingencies arising from other contracts with cash settlement options.

 

Maximum Reserve Valuation Interest Rate

Issues of or

   

Purchases

Without Actuary's Opinion

With Actuary's Opinion

During

and Memorandum**

and Memorandum**

1982

10.50%

13.25%

1983

9.50

11.25

1984

9.50

11.25

1985

9.50

11.00

**The Actuary's Opinion and Memorandum, referred to in

B, C, D, E, F and G herein, are as required by Section

4217(c)(4)(B)(vi) of the New York Insurance Laws.

C. Other Annuities and Guaranteed Interest Contracts, with Cash Settlement Options and with Interest Rate Guarantees on future considerations, valued on the "Issue Year" basis.

   

Maximum Reserve Valuation Interest Rate

   

Without Actuary's Opinion

With Actuary's Opinion

   

and Memorandum

and Memorandum

   

*Plan Type

*Plan Type

Issue

             

Year

Guarantee Duration#

A

B

C

A

B

C

1982

5 years or less

10.50%

8.50%

7.75%

13.25%

10.50%

9.25%

 

More than 5 yrs, up to 10

10.00

8.50

7.75

12.50

10.50

9.25

 

More than 10 yrs, up to 20

8.50

7.25

6.75

8.50

7.25

6.75

 

More than 20 years

6.75

6.00

6.00

6.75

6.00

6.00

               

1983

5 years or less

9.50%

8.00%

7.00%

11.25%

9.25%

8.25%

 

More than 5 yrs, up to 10

9.25

8.00

7.00

10.75

9.25

8.25

 

More than 10 yrs, up to 20

8.25

7.00

6.75

8.25

7.00

6.75

 

More than 20 years

6.75

5.75

5.75

6.75

5.75

5.75

               

1984

5 years or less

9.50%

7.75%

7.00%

11.25%

9.25%

8.00%

 

More than 5 yrs, up to 10

9.00

7.75

7.00

10.75

9.25

8.00

 

More than 10 yrs, up to 20

8.25

7.00

6.75

8.25

7.00

6.75

 

More than 20 years

6.75

5.75

5.75

6.75

5.75

5.75

               

1985

5 years or less

9.50%

7.75%

7.00%

11.00%

9.00%

8.00%

 

More than 5 yrs, up to 10

9.00

7.75

7.00

10.50

9.00

8.00

 

More than 10 yrs, up to 20

8.25

7.00

6.50

8.25

7.00

6.50

 

More than 20 years

6.50

5.75

5.75

6.50

5.75

5.75

*See descriptions of plan types on page 7.

D. Other Annuities and Guaranteed Interest Contracts, with Cash Settlement Options but without Interest Rate Guarantees on future considerations, valued on the "Issue Year" basis.

   

Maximum Reserve Valuation Interest Rate

   

Without Actuary's Opinion

With Actuary's Opinion

   

and Memorandum

and Memorandum

   

*Plan Type

*Plan Type

Issue

             

Year

Guarantee Duration#

A

B

C

A

B

C

1982

5 years or less

11.00%

9.00%

8.25%

13.75%

11.25%

10.00%

 

More than 5 yrs, up to 10

10.50

9.00

8.25

13.25

11.25

10.00

 

More than 10 yrs, up to 20

8.75

7.50

7.25

8.75

7.50

7.25

 

More than 20 years

7.25

6.25

6.25

7.25

6.25

6.25

               

1983

5 years or less

10.00%

8.25%

7.50%

11.75%

9.75%

8.75%

 

More than 5 yrs, up to 10

9.50

8.25

7.50

11.25

9.75

8.75

 

More than 10 yrs, up to 20

8.75

7.50

7.00

8.75

7.50

7.00

 

More than 20 years

7.00

6.25

6.25

7.00

6.25

6.25

               

1984

5 years or less

10.00%

8.25%

7.50%

11.75%

9.75%

8.50%

 

More than 5 yrs, up to 10

9.50

8.25

7.50

11.25

9.75

8.50

 

More than 10 yrs, up to 20

8.75

7.50

7.00

8.75

7.50

7.00

 

More than 20 years

7.00

6.25

6.25

7.00

6.25

6.25

               

1985

5 years or less

9.75%

8.25%

7.50%

11.50%

9.50%

8.50%

 

More than 5 yrs, up to 10

9.50

8.25

7.50

11.00

9.50

8.50

 

More than 10 yrs, up to 20

8.50

7.50

7.00

8.50

7.50

7.00

 

More than 20 years

7.00

6.25

6.25

7.00

6.25

6.25

#See definition of guarantee duration for

Categories C, D, F and G on page 7.

*See descriptions of plan types on page 7.

E. Other Annuities and Guaranteed Interest Contracts, without Cash Settlement Options, valued on the "Issue Year" basis.

   

Maximum Reserve Valuation Interest Rate

   

Without Actuary's

With Actuary's

   

Opinion and

Opinion and

   

Memorandum

Memorandum

   

 *Plan Type

 *Plan Type

Issue

     

Year

Guarantee Duration**

A

A

1982

5 years or less

10.50%

13.25%

 

More than 5 yrs, up to 10

10.00

12.50

 

More than 10 yrs, up to 20

9.00

11.25

 

More than 20 years

7.25

8.75

       

1983

5 years or less

9.50%

11.25%

 

More than 5 yrs, up to 10

9.25

10.75

 

More than 10 yrs, up to 20

8.25

9.75

 

More than 20 years

6.75

7.75

       

1984

5 years or less

9.50%

11.25%

 

More than 5 yrs, up to 10

9.00

10.75

 

More than 10 yrs, up to 20

8.25

9.75

 

More than 20 years

6.75

7.50

       

1985

5 years or less

9.50%

11.00%

 

More than 5 yrs, up to 10

9.00

10.50

 

More than 10 yrs, up to 20

8.25

9.50

 

More than 20 years

6.50

7.50

*See descriptions of plan types on page 7.

**The guarantee duration, for other annuities and

guaranteed interest contracts without cash

settlement options, is the number of years from

the date of issue or date of purchase to the

date annuity benefits are scheduled to commence.

F. Other Annuities and Guaranteed Interest Contracts, with Cash Settlement Options and with Interest Rate Guarantees on future considerations, valued on the "Change in Fund" basis.

   

Maximum Reserve Valuation Interest Rate

   

Without Actuary's Opinion

With Actuary's Opinion

Change

 

and Memorandum

and Memorandum

in Fund

 

*Plan Type

*Plan Type

During

             

Year

Guarantee Duration#

A

B

C

A

B

C

1982

5 years or less

12.00%

11.00%

8.25%

15.00%

13.75%

10.00%

 

More than 5 yrs, up to 10

11.50

11.00

8.25

14.50

13.75

10.00

 

More than 10 yrs, up to 20

10.50

10.00

7.75

13.25

12.50

9.25

 

More than 20 years

8.50

8.50

6.75

10.50

10.50

8.00

               

1983

5 years or less

10.75%

10.00%

7.50%

12.75%

11.75%

8.75%

 

More than 5 yrs, up to 10

10.50

10.00

7.50

12.25

11.75

8.75

 

More than 10 yrs, up to 20

9.50

9.25

7.00

11.25

10.75

8.25

 

More than 20 years

8.00

8.00

6.25

9.25

9.25

7.25

               

1984

5 years or less

10.75%

10.00%

7.50%

12.75%

11.75%

8.50%

 

More than 5 yrs, up to 10

10.25

10.00

7.50

12.25

11.75

8.50

 

More than 10 yrs, up to 20

9.50

9.00

7.00

11.25

10.75

8.00

 

More than 20 years

7.75

7.75

6.25

9.25

9.25

7.00

               

1985

5 years or less

10.50%

9.75%

7.50%

12.50%

11.50%

8.50%

 

More than 5 yrs, up to 10

10.25

9.75

7.50

12.00

11.50

8.50

 

More than 10 yrs, up to 20

9.50

9.00

7.00

11.00

10.50

8.00

 

More than 20 years

7.75

7.75

6.25

9.00

9.00

7.00

*See descriptions of plan types on page 7.

G. Other Annuities and Guaranteed Interest Contracts, with Cash Settlement Options but without Interest Rate Guarantees on future considerations, valued on the "Change in Fund" basis.

   

Maximum Reserve Valuation Interest Rate

   

Without Actuary's Opinion

With Actuary's Opinion

   

and Memorandum

and Memorandum

Change

             

in Fund

 

*Plan Type

*Plan Type

During

             

Year

Guarantee Duration#

A

B

C

A

B

C

1982

5 years or less

12.25%

11.50%

8.50%

15.75%

14.50%

10.50%

 

More than 5 yrs, up to 10

12.00

11.50

8.50

15.00

14.50

10.50

 

More than 10 yrs, up to 20

11.00

10.50

8.25

13.75

13.25

10.00

 

More than 20 years

9.00

9.00

7.25

11.25

11.25

8.75

               

1983

5 years or less

11.25%

10.50%

8.00%

13.50%

12.25%

9.25%

 

More than 5 yrs, up to 10

10.75

10.50

8.00

12.75

12.25

9.25

 

More than 10 yrs, up to 20

10.00

9.50

7.50

11.75

11.25

8.75

 

More than 20 years

8.25

8.25

6.75

9.75

9.75

7.75

               

1984

5 years or less

11.00%

10.25%

7.75%

13.25%

12.25%

9.25%

 

More than 5 yrs, up to 10

10.75

10.25

7.75

12.75

12.25

9.25

 

More than 10 yrs, up to 20

10.00

9.50

7.50

11.75

11.25

8.50

 

More than 20 years

8.25

8.25

6.75

9.75

9.75

7.50

               

1985

5 years or less

11.00%

10.25%

7.75%

13.00%

12.00%

9.00%

 

More than 5 yrs, up to 10

10.50

10.25

7.75

12.50

12.00

9.00

 

More than 10 yrs, up to 20

9.75

9.50

7.50

11.50

11.00

8.50

 

More than 20 years

8.25

8.25

6.50

9.50

9.50

7.50

*See descriptions of plan types on page 7.

Section 4217, as amended by Chapter 749 of the Laws of 1983, permits the dynamic interest rates (under the 1982 amendments) to be used for issues of January 1, 1982 and later, irrespective of a company's election or non-election under Section 4221 (k)(12). Thus, the new dynamic interest rates may be used either with 1958 CSO or with 1980 CSO issues of January 1, 1982 and later, for valuation purposes.

Said Section 4221(k)(12) was amended by Chapter 81 of the Laws of 1983 to permit a company to elect to comply with the new provisions of Section 4221 on a plan-by-plan basis, with the proviso that the entire portfolio must be converted to the new provisions on or before January 1 of the third calendar year following the calendar year of compliance for the first plan so converted, but not, in any event, later than January 1, 1989.

Plan types, as used in the above tables, are defined as follows:

Plan Type A: The policyholder may withdraw funds only (1) with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, or (2) without such adjustment but in installments over five years or more, or (3) as an immediate life annuity.

Plan Type B: The policyholder may not withdraw funds before the expiration of the interest rate guarantee or, if withdrawals are permitted before the expiration of such guarantee, may withdraw funds only (1) with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, or (2) without such adjustment but in installments over five years or more. At the end of the interest rate guarantee, funds may be withdrawn without such adjustment in a single sum or installments over less than five years.

Plan Type C: The policyholder may withdraw funds before the expiration of the interest rate guarantee in a single sum or installments over less than five years either (1) without adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, or (2) subject only to a fixed surrender charge stipulated in the contract as a percentage of the fund.

The most popular plan type, in the group annuity area, for current issues, is plan type B; while, the most popular plan type, in the individual annuity area, for current issues, is plan type C.

The guarantee duration, for other annuities and guaranteed interest contracts with cash settlement options, is the number of years for which the contract guarantees interest rates in excess of the calendar year statutory valuation interest rate for life insurance policies with guarantee durations of more than twenty years (See C, D, F and G herein).

Other annuities and guaranteed interest contracts, without cash settlement options, may be valued only on an "Issue Year" basis.

The maximum valuation interest rates, for annuities and guaranteed interest contracts, are based on Moody's Corporate Bond Yield Averages for a one or three year period ending in June of the year of issue, purchase or change in fund. Consequently, we are not able to compute rates applicable to 1986 at this time.

The attached Appendix describes the method of calculating the maximum reserve valuation interest rates, in accordance with the specifications of Section 4217 of the New York Insurance Laws, as amended.

APPENDIX

To Circular Letter Number 14 (1985)

The maximum valuation interest rates are based on reference interest rates, which are averages of corporate bond earnings published by Moody's Investors Service, Inc., and weighting factors prescribed by Section 4217.

The weighting factors do not vary from year to year. None of the weighting factors given in Table 1 below will change unless Section 4217 is revised by new legislation. The following formulas are used to compute the maximum valuation interest rates:

I = 3.00% + W(R[1]-3.00)% + W/2(R[2]-9.00)%, (Formula 1)

or

I = 3.00% + W(R-3.00)%, (Formula 2)

Where:

I = Maximum calendar year statutory valuation interest rate, rounded to the nearer 1/4%.

R = Reference interest rate, derived from Moody's corporate bond monthly yield averages, rounded to the nearer basis point (.01 of 1%).

R[1]= The lesser of R and 9.00%.

R[2]= The greater of R and 9.00%.

W = The weighting factor.

The third term of Formula 1 is dropped whenever the reference interest rate falls below 9.00%. The weighting factors vary by type of benefit, guarantee duration, and valuation basis (i.e. 'issue year' basis or 'change in fund' basis). An asterisk (*), where shown with the weighting factor in Table 1, indicates that Formula 2 may optionally be used with a given factor if an Actuary's opinion and memorandum satisfactory to the Superintendent are provided, as required by Section 4217(c)(4)(B)(vi).

TABLE 1

   

Valuation

Reference

Weighting

   

Benefit

Guarantee

Basis

Interest

Factor

   
 

Duration

 

Rate

     

(Category in

(Where duration

 

(Column from

     

Circular

t, in years,

 

Table 2)

     

Letter)

is)

         

A

= or < 10

Issue

(3)

.50

 

> 10, = or < 20

Year

 

.45

 

> 20

   

.35

B

All Durations

Issue or

(1)

     
   

Purchase Year

 

.80*

       

Varies By Plan Type

       

A

B

C

C

= or < 5

Issue

(1)

.80*

.60*

.50*

 

> 5, = or < 10

Year

(1)

.75*

.60*

.50*

 

> 10, = or < 20

 

(3)

.65

.50

.45

 

> 20

 

(3)

.45

.35

.35

             
       

A

B

C

D

= or < 5

Issue

(1)

.85*

.65*

.55*

 

> 5, = or < 10

Year

(1)

.80*

.65*

.55*

 

> 10, = or < 20

 

(3)

.70

.55

.50

 

> 20

 

(3)

.50

.40

.40

             

E

= or < 5

Issue

(1)

.80*

 

> 5, = or < 10

Year

(1)

.75*

 

> 10, = or < 20

 

(1)

.65*

 

> 20

 

(1)

.45*

             
       

Varies By Plan Type

       

A

B

C

F

= or < 5

Change

(1)

.95*

.85*

.55*

 

> 5, = or < 10

in

(1)

.90*

.85*

.55*

 

> 10, = or < 20

Fund

(1)

.80*

.75*

.50*

 

> 20

 

(1)

.60*

.60*

.40*

             
       

A

B

C

G

= or < 5

Change

(1)

1.00*

.90*

.60*

 

> 5, = or < 10

in

(1)

.95*

.90*

.60*

 

> 10, = or < 20

Fund

(1)

.85*

.80*

.55*

 

> 20

 

(1)

.65*

.65*

.45*

The reference interest rates are based on the average corporate bond earnings published by Moody's Investors Service, Inc.

Section 4217 defines running averages of the published monthly yield rates for 12-month and 36-month periods.

The year of issue, purchase or change in fund applicable to the running yield average ending in the current year is the next following year for Life Insurance (Category A in the Circular Letter) and the current year for all other business (Categories B through G in the Circular Letter).

The following table shows Moody's yield averages for recent years.

TABLE 2

For Period

     

Ending

12-Month

36-Month

 

June 30

Running

Running

Lesser of

of Year

Average

Average

Two Averages

 

(1)

(2)

(3)

1982

15.70%

13.64%

13.64%

1983

13.39

14.26

13.39

1984

13.22

14.10

13.22

1985

13.01

13.21

13.01

The maximum nonforfeiture interest rate for Life Insurance, for a particular issue year, is equal to 125% of the maximum valuation interest rate for the same issue year, rounded to the nearer 1/4%.

Should the computed maximum valuation interest rate for Life Insurance for a particular issue year be different from the actual maximum valuation interest rate for the next previous issue year by less than 1/2%, the maximum valuation interest rate for such particular issue year will be the same as that for such previous issue year.