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 through 1995
(and other years where shown), under Sections 4217, 4218 and 4221(k) of
the New York Insurance Law, as amended in 1982, 1983, 1985, 1986, 1987,
1988, 1990, and 1994.
Previous versions of this Circular Letter distinguished between
companies submitting an acceptable Actuarial Opinion and Memorandum
(AOM) and companies not doing so. This distinction was a consequence of
Section 4217(c)(4)(B)(vi) of the Insurance Law. Section 4217 of the
Insurance Law was amended in 1994. The distinction between maximum
valuation interest rates with and without an acceptable AOM has been
eliminated. This Circular Letter reflects such changes and no longer
shows separate rates for companies submitting an acceptable AOM and for
Companies not doing so.
Regulation 126, in effect on December 31, 1993, contained provisions
regarding the valuation of annuities, GICs, deposit funds, structured
settlement annuities and single premium life policies. Such provisions
were not incorporated into Regulation 126 promulgated December 1, 1994.
It is expected that these provisions regarding annuities, GICs, deposit
funds and structured settlement annuities will be incorporated in New
York Regulation 150 by December 31, 1995. It is expected that Regulation
147 will be amended to incorporate provisions regarding single premium
life policies.
This Circular Letter is to be used for informational purposes, as an
aid in complying with the law.
Should any person have any question or comment in regard to this
matter, please contact Mr. Stuart Zamlong or Mr. John Karwatowski of the
Actuarial Valuation Section of the Life and Health Bureau at (518)
474-6605.
PAGE 1
| MAXIMUM RESERVE VALUATION AND MAXIMUM LIFE POLICYNONFORFEITURE INTEREST RATES |
| UNDER
SECTIONS 4217, 4218 AND 4221(k) OF THE NEW YORKINSURANCE LAW |
The maximum valuation and nonforfeiture interest rates, prescribed by
Sections 4217 and 4221(k) 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, purchases and
changes-in-fund of years 1982 through 1995 (and other years where shown)
are outlined below. The maximum valuation and nonforfeiture interest
rates for Ordinary Life Insurance are shown in Category A of page 2,
except for Single Premium Life Insurance (the kind referred to in
Section 4217(c)(4)(B)(vi) as amended by Chapter 302 of the laws of 1987)
the maximum valuation interest rates for which are shown in Category B
on page 3.
PAGE 2
A. ORDINARY LIFE INSURANCE (Except as covered in B on page 3)
Maximum
***Maximum Reserve NonForfeiture
Valuation Interest Interest Rate,
*Issue Year **Guarantee Duration Rate 1980 CSO#
1979- 1989 See Prior Circular Letter No. 8 (1990)
1991 10 Years or less 6.00% 7.50%
More than 10 years, up to 20 6.00 7.50
More than 20 years 5.50 7.00
1992 10 Years or less 6.00% 7.50%
More than 10 years, up to 20 6.00 7.50
More than 20 years 5.50 7.00
1993 10 Years or less 6.00% 7.50%
More than 10 years, up to 20 6.00 7.50
More than 20 years 5.00 ## 6.25
1994 10 Years or less 5.50% ## 7.00%
More than 10 years, up to 20 5.25 ## 6.50
More than 20 years 5.00 ## 6.25
1995 10 Years or less 5.50% 7.00%
More than 10 years, up to 20 5.25 6.50
More than 20 years 4.50 ## 5.75
1996 10 Years or less 5.50% 7.00%
More than 10 years, up to 20 5.25 6.50
More than 20 years 4.50 5.75
* See the paragraph at the top of page 11.
** The guarantee duration is the maximum number of years the life
insurance can remain inforce 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 top paragraph on page 10). These rates do not
apply to policies issued pursuant to Section 4221(n)(1).
## In accordance with Section 4221(k)(9)(B)(i) of the New York
Insurance Law, the nonforfeiture interest rate used for a particular
issue year may not exceed the higher of the applicable maximum
nonforfeiture interest rate for such particular issue year and that for
the immediately preceding issue year (e.g. 1994 issues may use the rate
for 1993, 1995 issues may use the rate for 1994).
PAGE 3
B. Single Premium Life Insurance of the kind referred to in Section
4217(c)(4)(B)(vi) of the New York Insurance Laws (as amended by Chapter
302 of the laws of 1987).#
*Maximum
Reserve Valuation
Interest Rate
Issue Year Change-In-Fund
Issue Year Guarantee Duration** Basis Basis
1982- 1990 See Prior Circular Letter No. 8 (1990)
1991 10 Years or less 6.75% 7.00%
More than 10 yrs, up to 20 6.25 6.75
More than 20 years 5.50 6.00
1992 10 Years or less 6.25% 6.50%
More than 10 yrs, up to 20 6.00 6.25
More than 20 years 5.25 5.75
1993 10 Years or less 5.75% 6.00%
More than 10 yrs, up to 20 5.50 5.75
More than 20 years 5.00 5.25
1994 10 Years or less 5.50% 5.75%
More than 10 yrs, up to 20 5.25 5.50
More than 20 years 4.75 5.00
1995 10 Years or less 6.00% 6.25%
More than 10 yrs, up to 20 5.50 6.00
More than 20 years 5.00 5.50
* See page 11.
** The guarantee duration is the number of years for which interest
rates provided in, or declared pursuant to, a single premium life
insurance policy of the kind referred to in Section 4217(c)(4)(B)(vi)
are guaranteed to exceed the greater of (1) 6% and (2) the calendar year
statutory valuation interest rate for life insurance policies (other
than such single premium policy) with guarantee duration's in excess of
20 years.
# Said Chapter 302 amendment became effective, on a mandatory basis,
on January 1, 1989. Any company could have filed a written notice of
prior election.
PAGE 4
C. Single Premium Immediate Annuities and annuity benefits arising
from life insurance policies and annuity and guaranteed interest
contracts with cash settlement options.
Issued of or
Purchases Maximum Reserve Valuation
During Interest Rate
1982 13.25%
1983 11.25
1984 11.25
1985 11.00
1986 9.25
1987 8.00
1988 8.75
1989 8.75
1990 8.25
1991 8.25
1992 7.75
1993 7.00
1994 6.50
1995 7.25
PAGE 5
D. 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
*Plan Type
Issue
Year Guarantee Duration# A B C
1982- 1990 See Prior Circular Letter No. 8 (1990)
1991 5 Years or less 8.25% 7.00% 6.25%
More than 5 yrs, up to 10 8.00 7.00 6.25
More than 10 yrs, up to 20 7.00 6.25 5.75
More than 20 years 5.75 5.25 5.25
1992 5 Years or less 7.75% 6.50% 6.00%
More than 5 yrs, up to 10 7.50 6.50 6.00
More than 10 yrs, up to 20 6.75 6.00 5.75
More than 20 years 5.75 5.00 5.00
1993 5 Years or less 7.00% 6.00% 5.50%
More than 5 yrs, up to 10 6.75 6.00 5.50
More than 10 yrs, up to 20 6.25 5.50 5.25
More than 20 years 5.25 4.75 4.75
1994 5 Years or less 6.50% 5.75% 5.25%
More than 5 yrs, up to 10 6.50 5.75 5.25
More than 10 yrs, up to 20 6.00 5.25 5.00
More than 20 years 5.00 4.50 4.50
1995 5 Years or less 7.25% 6.25% 5.75%
More than 5 yrs, up to 10 7.00 6.25 5.75
More than 10 yrs, up to 20 6.25 5.50 5.25
More than 20 years 5.25 4.75 4.75
# See definition of guarantee duration for Categories D, E, G and H
on page 10.
* See descriptions of plan types on page 10.
PAGE 6
E. 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
*Plan Type
Issue Year Guarantee Duration# A B C
1982- 1990 See Prior Circular Letter No. 8 (1990)
1991 5 Years or less 8.75% 7.25% 6.75%
More than 5 yrs, up to 10 8.25 7.25 6.75
More than 10 yrs, up to 20 7.50 6.50 6.25
More than 20 years 6.25 5.50 5.50
1992 5 Years or less 8.00% 6.75% 6.25%
More than 5 yrs, up to 10 7.75 6.75 6.25
More than 10 yrs, up to 20 7.00 6.25 6.00
More than 20 years 6.00 5.25 5.25
1993 5 Years or less 7.25% 6.25% 5.75%
More than 5 yrs, up to 10 7.00 6.25 5.75
More than 10 yrs, up to 20 6.50 5.75 5.50
More than 20 years 5.50 5.00 5.00
1994 5 Years or less 6.75% 6.00% 5.50%
More than 5 yrs, up to 10 6.50 6.00 5.50
More than 10 yrs, up to 20 6.25 5.50 5.25
More than 20 years 5.25 4.75 4.75
1995 5 Years or less 7.50% 6.50% 6.00%
More than 5 yrs, up to 10 7.25 6.50 6.00
More than 10 yrs, up to 20 6.50 5.75 5.50
More than 20 years 5.50 5.00 5.00
# See definition of guarantee duration for Categories D, E, G and H
on page 10.
* See descriptions of plan types on page 10.
PAGE 7
F. Other Annuities and Guaranteed Interest Contracts, without cash
settlement options, valued on the "Issue Year" basis.
Maximum Reserve
Valuation Interest
Rate
Issue Year Guarantee Duration** *Plan Type A
1982- 1990 See Prior Circular Letter No. 8 (1990)
1991 5 Years or less 8.25%
More than 5 yrs, up to 10 8.00
More than 10 yrs, up to 20 7.25
More than 20 years 6.00
1992 5 Years or less 7.75%
More than 5 yrs, up to 10 7.50
More than 10 yrs, up to 20 6.75
More than 20 years 5.75
1993 5 Years or less 7.00%
More than 5 yrs, up to 10 6.75
More than 10 yrs, up to 20 6.25
More than 20 years 5.25
1994 5 Years or less 6.50%
More than 5 yrs, up to 10 6.50
More than 10 yrs, up to 20 6.00
More than 20 years 5.00
1995 5 Years or less 7.25%
More than 5 yrs, up to 10 7.00
More than 10 yrs, up to 20 6.50
More than 20 years 5.50
* See descriptions of plan types on page 10.
** 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.
PAGE 8
G. 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
*Plan Type
Change in
Fund During
Year Guarantee Duration# A B C
1982- 1990 See Prior Circular Letter No. 8 (1990)
1991 5 Years or less 9.25% 8.75% 6.75%
More than 5 yrs, up to 10 9.00 8.75 6.75
More than 10 yrs, up to 20 8.25 8.00 6.25
More than 20 years 7.00 7.00 5.75
1992 5 Years or less 8.50% 8.00% 6.25%
More than 5 yrs, up to 10 8.25 8.00 6.25
More than 10 yrs, up to 20 7.75 7.50 6.00
More than 20 years 6.50 6.50 5.25
1993 5 Years or less 7.75% 7.25% 5.75%
More than 5 yrs, up to 10 7.50 7.25 5.75
More than 10 yrs, up to 20 7.00 6.75 5.50
More than 20 years 6.00 6.00 5.00
1994 5 Years or less 7.25% 6.75% 5.50%
More than 5 yrs, up to 10 7.00 6.75 5.50
More than 10 yrs, up to 20 6.50 6.50 5.25
More than 20 years 5.75 5.75 4.75
1995 5 Years or less 8.25% 7.50% 6.00%
More than 5 yrs, up to 10 8.00 7.50 6.00
More than 10 yrs, up to 20 7.25 7.00 5.75
More than 20 years 6.25 6.25 5.25
# See definition of guarantee duration for Categories D, E, G and H
on page 10.
* See descriptions of plan types on page 10.
PAGE 9
H. Other Annuities and Guaranteed Interest Contracts, with cash
settlement options and without interest rate guarantees on future
considerations, valued on the "Change-in-Fund" basis.
Maximum Reserve
Valuation Interest Rate
*Plan Type
Change in
Fund During
Year Guarantee Duration# A B C
1982- 1990 See Prior Circular Letter No. 8 (1990)
1991 5 Years or less 9.75% 9.00% 7.00%
More than 5 yrs, up to 10 9.25 9.00 7.00
More than 10 yrs, up to 20 8.75 8.25 6.75
More than 20 years 7.25 7.25 6.00
1992 5 Years or less 9.00% 8.25% 6.50
More than 5 yrs, up to 10 8.50 8.25 6.50
More than 10 yrs, up to 20 8.00 7.75 6.25
More than 20 years 6.75 6.75 5.75
1993 5 Years or less 8.25% 7.50% 6.00%
More than 5 yrs, up to 10 7.75 7.50 6.00
More than 10 yrs, up to 20 7.25 7.00 5.75
More than 20 years 6.25 6.25 5.25
1994 5 Years or less 7.50% 7.00% 5.75%
More than 5 yrs, up to 10 7.25 7.00 5.75
More than 10 yrs, up to 20 6.75 6.50 5.50
More than 20 years 6.00 6.00 5.00
1995 5 Years or less 8.50% 8.00% 6.25%
More than 5 yrs, up to 10 8.25 8.00 6.25
More than 10 yrs, up to 20 7.50 7.25 6.00
More than 20 years 6.50 6.50 5.50
# See definition of guarantee duration for Categories D, E, G and H
on page 10.
* See descriptions of plan types on page 10.
PAGE 10
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 in 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, generally 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 (covered in A on page 2) with a guarantee duration of more than
twenty years (See D, E, G and H herein).
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.
Other annuities and guaranteed interest contracts, without cash
settlement options, may be valued only on an "Issue Year" basis.
For structured settlement annuities with lump sum payments, see
Section 95.12 of Regulation 126 in effect on December 31, 1993. As
stated in Mr. Callahan's December 12, 1994 distribution letter for
Regulation 126, it is expected that a final regulation will be effective
by December 31, 1995, based on proposed Regulation 150, distributed by
Mr. Callahan on November 16, 1994.
The maximum reserve valuation interest rates, for annuities and
guaranteed interest contracts and for single premium life insurance
policies of the kind referred to in Section 4217(c)(4)(B)(vi), 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 such rates applicable to 1996
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 Law, as amended.
PAGE 11
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, independent 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 issues of January 1,
1982 through December 31, 1988 or with 1980 CSO issues of January 1,
1982 and later, for valuation purposes.
The reserve for a Single Premium Life Insurance policy, of the kind
referred to in Section 4217(c)(4)(B)(vi) of the New York Insurance Law,
must not be less than its cash value. See Section 95.14 of Regulation
126 in effect on December 31, 1993. It is expected that Regulation 147
will be amended to incorporate provisions regarding single premium life
policies.
APPENDIX
The maximum reserve 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 reserve valuation interest rates:
I = 3.00% + W(R1- 3.00)% + W/2(R2 - 9.00)%, (Formula 1, called "Life
Insurance Formula")
or
1 = 3.00% + W(R- 3.00)%, (Formula 2, called "Annuity Formula")
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%).
R1 = Lesser of R and 9.00%.
R2 = Greater of R and 9.00%.
W = 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 acceptable actuarial opinion and
memorandum are provided, as required by Section 4217(c)(4)(B)(vi).
TABLE 1
Benefit Category Guarantee Duration Valuation Basis Reference Interest
(in this Circular (Where duration t, Rate Weighting
Letter) in years, is) (Column from Table 2) Factor
A = or < 10 Issue Year (3) .50
> 10, = or <20 .45
> 20 .35
B = or < 10 Issue Year (1) .55*
> 10, = or < 20 Issue Year (3) .50
> 20 Issue Year (3) .40
B = or < 10 Change-in-Fund (1) .60*
> 10, = or < 20 Change-in-Fund (1) .55*
> 20 Change-in-Fund (1) .45*
C Not Applicable Issue or Purchase (1)
Year .80*
Benefit Category Guarantee Valuation Reference Interest
(in this Circular Duration Basis Rate Weighting
Letter) (Where duration (Column from Table Factor
t, in years, is) 2)
Varies By Plan
Type
A B C
D = 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
E = 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
F = or < 5 Issue (1) .80*
> 5, = or < 10 Year (1) .75*
> 10, = or < 20 (1) .65*
> 20 (1) .45*
G = 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*
H = 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, of purchase or of change-in-fund, applicable to
the running yield average ending in the current year, is the next
following year for Life Insurance other than single premium life
insurance of the kind referred to in Section 4217(c)(4)(B)(vi) (i.e.
Category A in the Circular Letter) and the current year for all other
business (i.e. Categories B through H in the Circular Letter).
The following table shows Moody's yield averages for recent years:
TABLE 2
12-Month 36-Month
For Period Ending Running Running Lesser of
June 30 of Year Average Average Two Averages
(1) (2) (3)
1981 13.71% 11.57% 11.57%
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%
1986 10.75 12.33 10.75
1987 9.40% 11.05% 9.40%
1988 10.32 10.15 10.15
1989 10.09% 9.93% 9.93%
1990 9.52 9.97 9.52
1991 9.63% 9.74% 9.63%
1992 8.88 9.34 8.88
1993 8.13% 8.88% 8.13%
1994 7.52 8.18 7.52
1995 8.42% 8.03% 8.03%
The maximum nonforfeiture interest rate for Life Insurance, under
Section 4221(k), for a particular issue year, is equal to 125% of the
maximum reserve valuation interest rate for the same issue year, rounded
to the nearer 1/4%.
Should the computed maximum reserve valuation interest rate for Life
Insurance (other than Single Premium Life Insurance covered in Category
B on page 3 of the Circular Letter) for a particular issue year be
different from the actual maximum reserve valuation interest rate for
the next previous issue year by less than 1/2%, then the maximum reserve
valuation interest rate for such particular issue year will be the same
as that for such next previous issue year.
CROSS REFERENCE INS. LAW § 4217; INS. LAW § 4218; INS. LAW § 4221
DATE NEW 1995
SUBJECT CATEGORY 020 - Life insurance / insurers
040 - Annuities
300 - The policy
560 - Finance and investments
INDEX
Policy reserves and Valuation methods and Life insurance
Interest rates and Valuation methods and Policy reserves
Nonforfeiture benefits and Valuation methods and Interest rates
Annuities and Policy reserves and Valuation methods
Single premium policies and Policy reserves and Valuation methods
INFORMATION TYPE TEXT;CHARTS/TABLES
DOCUMENT ID NY MISC BC Circular Letter 1995-10
|
