August 15, 2008
I have read the above proposed rule on your website and my comments are more in the form of asking that you consider whether or not clarification on the following items involved in applying the mechanical aspects of the determination may be necessary. While it may be crystal clear to the drafters of the proposed rule, more guidance in understanding these items might be helpful.
Page 33 states The amounts guaranteed under a contract under any particular set of facts and circumstances would be the minimum amount that the insurer would be obligated to pay the purchasers under those facts and circumstances without reference to the performance of the security that is used in calculating amounts payable under the contract. Please note that this statement uses the words a contract. On page 36 it states that the analysis would be conclusive only if it is made at or prior to the issuance of the contract.
Many contracts are filed for approval with ranges of values and not just one value. If the range is approved, then the insurer can use any value in that range when they issue that specific contract. That means that one consumer may receive the same contract as someone else but with different values for the minimum guaranteed interest rate, participation rate, cap, spread, etc. For example, if the contract uses the five year Constant Maturity Treasury rate (CMT) to calculate the minimum guaranteed interest rate the rate may be 1% in one contract issued to one consumer and at another time it could be 3% in the same contract to another consumer. Is my understanding correct, that each contract issued to a consumer would use the exact amount guaranteed in that specific contract to a specific consumer in order to do the calculation?
To further complicate this, a specific contract may allow for redetermination of the minimum guaranteed rate when issued to a consumer. For example, a contract may be issued that allows the rate to be redetermined as often as stated in the contract meaning that one year (or more frequently or less frequently) it could be 1% and the next it could 2% for that same consumer. Since there is no way to determine what the redetermined rate will be, what rate would be used in the calculation or would it be the lower end of the range that is filed? There is another complicating issue in that the minimum guaranteed interest rate may be higher or lower than the nonforfeiture rate in the contract.
For the participation rate, spread and cap, there may be both a guaranteed value and a current value. For example, it may be filed for approval with a range of 10% to 20% as the guaranteed participation rate for the life of the contract but when issued to one consumer the guarantee may be 10% but the same contract when issued to a different consumer may have a 15% guarantee. Is my understanding correct, that each contract issued to a consumer would use the exact amount guaranteed in that contract in order to do the calculation?