Indiana Code 27-1-12.8-26. Interest rates in determining minimum standard for valuation
(1) Life insurance contracts issued in a particular calendar year, on or after the operative date of IC 27-1-12-7(dd).
Terms Used In Indiana Code 27-1-12.8-26
- Annuity: A periodic (usually annual) payment of a fixed sum of money for either the life of the recipient or for a fixed number of years. A series of payments under a contract from an insurance company, a trust company, or an individual. Annuity payments are made at regular intervals over a period of more than one full year.
- change in fund basis: refers to a valuation basis under which the interest rate used to determine the minimum valuation standard applicable to each change in the fund held under an annuity or a guaranteed interest contract is the calendar year valuation interest rate for the year of the change in the fund. See Indiana Code 27-1-12.8-3
- Commissioner: means the "insurance commissioner" of this state. See Indiana Code 27-1-2-3
- Contract: A legal written agreement that becomes binding when signed.
- contract: means a contract or a policy. See Indiana Code 27-1-12.8-6
- Insurance: means a contract of insurance or an agreement by which one (1) party, for a consideration, promises to pay money or its equivalent or to do an act valuable to the insured upon the destruction, loss or injury of something in which the other party has a pecuniary interest, or in consideration of a price paid, adequate to the risk, becomes security to the other against loss by certain specified risks; to grant indemnity or security against loss for a consideration. See Indiana Code 27-1-2-3
- Interest rate: The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures. Source: OCC
- issue year basis: refers to a valuation basis under which the interest rate used to determine the minimum valuation standard for the entire duration of an annuity or a guaranteed interest contract is the calendar year valuation interest rate for the year of issue or year of purchase of the annuity or guaranteed interest contract. See Indiana Code 27-1-12.8-9
- life insurance: means insurance under a contract that incorporates mortality risk, including annuity and pure endowment contracts. See Indiana Code 27-1-12.8-10
- NAIC: refers to the National Association of Insurance Commissioners. See Indiana Code 27-1-12.8-11
- premium: means money or any other thing of value paid or given in consideration to an insurer, insurance producer, or solicitor on account of or in connection with a contract of insurance and shall include as a part but not in limitation of the above, policy fees, admission fees, membership fees and regular or special assessments and payments made on account of annuities. See Indiana Code 27-1-2-3
- Settlement: Parties to a lawsuit resolve their difference without having a trial. Settlements often involve the payment of compensation by one party in satisfaction of the other party's claims.
- Year: means a calendar year, unless otherwise expressed. See Indiana Code 1-1-4-5
(3) Annuities and pure endowments purchased in a particular calendar year after December 31, 1981, under group annuity and pure endowment contracts.
(4) A net increase in a particular calendar year after January 1, 1982, in amounts held under guaranteed interest contracts.
(b) Except as provided in subsection (c), the calendar year statutory valuation interest rate, I, is determined as follows, and the results must be rounded to the nearest one-quarter of one percent (1/4 of 1%):
(1) For life insurance,
I = .03 + W(R1 – .03) + W/2(R2 – .09)
(2) For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and from guaranteed interest contracts with cash settlement options,
I = .03 + W(R – .03)
where R1 is the lesser of R and .09,
R2 is the greater of R and .09,
R is the reference interest rate specified in this section, and
W is the weighting factor specified in this section.
(3) For:
(A) other annuities; and
(B) guaranteed interest contracts;
with cash settlement options, valued on an issue year basis, except as provided in subdivision (2), the formula for life insurance specified in subdivision (1) applies to annuities and guaranteed interest contracts with guarantee durations in excess of ten (10) years and the formula for single premium immediate annuities described in subdivision (2) applies to annuities and guaranteed interest contracts with guarantee duration of ten (10) years or less.
(4) For:
(A) other annuities; and
(B) guaranteed interest contracts;
with no cash settlement options, the formula for single premium immediate annuities specified in subdivision (2).
(5) For:
(A) other annuities; and
(B) guaranteed interest contracts;
with cash settlement options, valued on a change in fund basis, the formula for single premium immediate annuities specified in subdivision (2).
(c) If the calendar year statutory valuation interest rate for a life insurance contract issued in a calendar year determined without reference to this subsection differs from the corresponding actual rate for similar contracts issued in the immediately preceding calendar year by less than one-half of one percent (1/2 of 1%), the calendar year statutory valuation interest rate for the life insurance contract is equal to the corresponding actual rate for the immediately preceding calendar year. For purposes of this subsection, the calendar year statutory valuation interest rate for life insurance contracts issued in a calendar year is determined for 1980 (using the reference interest rate defined in 1979) and must be determined for each subsequent calendar year regardless of when IC 27-1-12-7(dd) becomes operative.
(d) The weighting factors referred to in the formulas specified in subsection (b) are as follows:
(1) Weighting factors for life insurance:
|
|
Guarantee Duration |
Weighting |
|
|
(Years) |
Factors |
|
|
10 or less |
.50 |
|
|
More than 10, but not more than 20 |
.45 |
|
|
More than 20 |
.35 |
For life insurance, the guarantee duration is the maximum number of years the life insurance can remain in force on a basis guaranteed in the contract or under options to convert to life insurance contracts with premium rates, nonforfeiture values, or both that are guaranteed in the original contract.
(2) Weighting factor for single premium immediate annuities and for annuity benefits involving life contingencies arising from:
(A) other annuities; and
(B) guaranteed interest contracts with cash settlement options:
|
|
|
.80 |
(3) Weighting factors for other annuities and for guaranteed interest contracts are as specified in clauses (A) through (C), according to the requirements of clauses (D) and (E), as follows:
(A) For annuities and guaranteed interest contracts valued on an issue year basis:
|
|
Guarantee |
Weighting Factor |
||
|
|
Duration |
for Plan Type |
||
|
|
(Years) |
A |
B |
C |
|
|
5 or less: |
.80 |
.60 |
.50 |
|
|
More than 5, but |
|
|
|
|
|
not more than 10: |
.75 |
.60 |
.50 |
|
|
More than 10, but |
|
|
|
|
|
not more than 20: |
.65 |
.50 |
.45 |
|
|
More than 20: |
.45 |
.35 |
.35 |
(B) For annuities and guaranteed interest contracts valued on a change in fund basis, the weighting factors specified in clause (A), increased by:
|
Plan Type |
|||
|
|
A |
B |
C |
|
|
.15 |
.25 |
.05 |
(C) For annuities and guaranteed interest contracts valued on:
(i) an issue year basis (other than annuities and guaranteed interest contracts with no cash settlement options) that do not guarantee interest on considerations received more than one (1) year after the issue or purchase date; or
(ii) a change in fund basis that do not guarantee interest rates on considerations received more than twelve (12) months after the valuation date;
the weighting factors specified in clause (A) or derived in clause (B), increased by:
|
Plan Type |
|||
|
|
A |
B |
C |
|
|
.05 |
.05 |
.05 |
(D) For other annuities and guaranteed interest contracts:
(i) with cash settlement options, the guarantee duration 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 contracts with guarantee duration in excess of twenty (20) years; and
(ii) with no cash settlement options, the guaranteed duration is the number of years from the date of issue or purchase to the date annuity benefits are scheduled to begin.
(E) A company may elect to value:
(i) annuities; and
(ii) guaranteed interest contracts;
with cash settlement options on either an issue year basis or on a change in fund basis. Other annuities and guaranteed interest contracts with no cash settlement options must be valued on an issue year basis.
(e) The reference interest rate referred to in subsection (b) is as follows:
(1) For life insurance, the lesser of:
(A) the average, over a period of thirty-six (36) months; or
(B) the average, over a period of twelve (12) months;
ending on June 30 of the calendar year preceding the year of issue, of the monthly average of the composite yield on seasoned corporate bonds published by Moody’s Investors Service, Inc.
(2) For single premium immediate annuities and for annuity benefits involving life contingencies arising from:
(A) other annuities; and
(B) guaranteed interest contracts;
with cash settlement options, the average, over a period of twelve (12) months ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds published by Moody’s Investors Service, Inc.
(3) For:
(A) other annuities; and
(B) guaranteed interest contracts;
with cash settlement options valued on a year of issue basis, except as provided in subdivision (2), with guarantee duration in excess of ten (10) years, the lesser of the average over a period of thirty-six (36) months or the average over a period of twelve (12) months ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds published by Moody’s Investors Service, Inc.
(4) For:
(A) other annuities; and
(B) guaranteed interest contracts;
with cash settlement options valued on a year of issue basis, except as provided in subdivision (2), with guarantee duration of ten (10) years or less, the average, over a period of twelve (12) months ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds published by Moody’s Investors Service, Inc.
(5) For:
(A) other annuities; and
(B) guaranteed interest contracts;
with no cash settlement options, the average, over a period of twelve (12) months ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds published by Moody’s Investors Service, Inc.
(6) For:
(A) other annuities; and
(B) guaranteed interest contracts;
with cash settlement options valued on a change in fund basis, except as provided in subdivision (2), the average, over a period of twelve (12) months ending on June 30 of the calendar year of the change in the fund, of the monthly average of the composite yield on seasoned corporate bonds published by Moody’s Investors Service, Inc.
(f) If:
(1) the monthly average of the composite yield on seasoned corporate bonds is no longer published by Moody’s Investors Service, Inc.; or
(2) the NAIC determines that the monthly average of the composite yield on seasoned corporate bonds published by Moody’s Investors Service, Inc., is no longer appropriate for the determination of the reference interest rate;
an alternative method for determination of the reference interest rate that is adopted by the NAIC and approved under rules adopted by the commissioner under IC 4-22-2 may be substituted.
As added by P.L.276-2013, SEC.10.