Iowa Code r. 191-15.66 - Standards for annuity illustrations
(1) An insurer or producer may elect to
provide a consumer an illustration at any time, provided that the illustration
is in compliance with this rule and:
a. Is
clearly labeled as an illustration;
b. Includes a statement referring consumers
to the disclosure document and Buyer's Guide provided to them at time of
purchase for additional information about their annuity; and
c. Is prepared by the insurer or third party
using software that is authorized by the insurer prior to its use, provided
that the insurer maintains a system of control over the use of
illustrations.
(2) An
illustration furnished an applicant for a group annuity contract or contracts
issued to a single applicant on multiple lives may be either an individual or
composite illustration representative of the coverage on the lives of members
of the group or the multiple lives covered.
(3) The illustration shall not be provided
unless accompanied by the disclosure document referenced in rules
191-15.64 (507B) and
191-15.65 (507B).
(4) When an illustration is used, the
illustration shall not:
a. Describe
nonguaranteed elements in a manner that is misleading or has the capacity or
tendency to mislead;
b. State or
imply that the payment or amount of nonguaranteed elements is guaranteed;
or
c. Be incomplete.
(5) Costs and fees of any type
shall be individually noted and explained in the illustration.
(6) An illustration shall conform to the
following requirements:
a. The illustration
shall be labeled with the date on which it was prepared;
b. Each page, including any explanatory notes
or pages, shall be numbered and show its relationship to the total number of
pages in the disclosure document (e.g., the fourth page of a seven-page
disclosure document shall be labeled "page 4 of 7 pages");
c. The assumed dates of premium receipt and
benefit payout within a contract year shall be clearly identified;
d. If the age of the proposed insured is
shown as a component of the tabular detail, the age shown shall be issue age
plus the numbers of years the contract is assumed to have been in
force;
e. The assumed premium on
which the illustrated benefits and values are based shall be clearly
identified, including rider premium for any benefits being
illustrated;
f. Any charges for
riders or other contract features assessed against the account value or the
crediting rate shall be recognized in the illustrated values and shall be
accompanied by a statement indicating the nature of the rider benefits or the
contract features and indicating whether or not they are included in the
illustration;
g. Guaranteed death
benefits and values available upon surrender, if any, for the illustrated
contract premium shall be shown and clearly labeled as guaranteed;
h. Except as provided by paragraph
15.66(6)"v," nonguaranteed elements underlying the
nonguaranteed illustrated values shall be no more favorable than current
nonguaranteed elements and shall not include any assumed future improvement of
such elements. Additionally, nonguaranteed elements used in calculating
nonguaranteed illustrated values at any future duration shall reflect any
planned changes, including any planned changes that may occur after expiration
of an initial guaranteed or bonus period;
i. In determining the nonguaranteed
illustrated values for a fixed indexed annuity, the index-based interest rate
and account value shall be calculated for three different scenarios: one to
reflect historical performance of the index for the most recent 10 calendar
years; one to reflect the historical performance of the index for the
continuous period of 10 calendar years out of the last 20 calendar years that
would result in the least index value growth (the "low scenario"); one to
reflect the historical performance of the index for the continuous period of 10
calendar years out of the last 20 calendar years that would result in the most
index value growth (the "high scenario"). The following requirements apply:
(1) The most recent 10 calendar years and the
last 20 calendar years are defined to end on the prior December 31, except for
illustrations prepared during the first three months of the year, for which the
end date of the calendar year period may be the December 31 prior to the last
full calendar year;
(2) If any
index utilized in determination of an account value has not been in existence
for at least 10 calendar years, indexed returns for that index shall not be
illustrated. If the fixed indexed annuity provides an option to allocate
account value to more than one indexed or fixed declared rate account, and one
or more of those indexes has not been in existence for at least 10 calendar
years, the allocation to such indexed account shall be assumed to be
zero;
(3) If any index utilized in
determination of an account value has been in existence for at least 10
calendar years but less than 20 calendar years, the 10-calendar-year periods
that define the low and high scenarios shall be chosen from the exact number of
years the index has been in existence;
(4) The nonguaranteed elements, such as caps,
spreads, participation rates or other interest crediting adjustments, used in
calculating the nonguaranteed index-based interest rate shall be no more
favorable than the corresponding current elements;
(5) If a fixed indexed annuity provides an
option to allocate the account value to more than one indexed or fixed declared
rate account:
1. The allocation used in the
illustration shall be the same for all three scenarios; and
2. The ten-calendar-year periods resulting in
the least and greatest index growth periods shall be determined independently
for each indexed account option;
(6) The geometric mean annual effective rate
of the account value growth over the ten-calendar-year period shall be shown
for each scenario;
(7) If the most
recent ten-calendar-year historical period experience of the index is shorter
than the number of years needed to fulfill the requirement of subrule 15.66(8),
the most recent ten-calendar-year historical period experience of the index
shall be used for each subsequent 10-calendar-year period beyond the initial
period for the purpose of calculating the account value for the remaining years
of the illustration;
(8) The low
and high scenarios:
1. Need not show surrender
values (if different than account values);
2. Shall not extend beyond ten calendar years
(and therefore are not subject to the requirements of subrule 15.66(8) beyond
subparagraph 15.66(8)"a"(1)); and
3. May be shown on a separate page. A
graphical presentation shall also be included comparing the movement of the
account value over the ten-calendar-year period for the low scenario, the high
scenario and the most recent ten-calendar-year scenario; and
(9) The low and high scenarios
should reflect the irregular nature of the index performance and should trigger
every type of adjustment to the index-based interest rate under the contract.
The effect of the adjustments should be clear; for example, additional columns
showing how the adjustment applied may be included. If an adjustment to the
index-based interest rate is not triggered in the illustration (because no
historical values of the index in the required illustration range would have
triggered it), the illustration shall so state;
j. The guaranteed elements, if any, shall be
shown before corresponding nonguaranteed elements and shall be specifically
referred to on any page of an illustration that shows or describes only the
nonguaranteed elements (e.g., "see page 1 for guaranteed elements");
k. The account or accumulation value of a
contract, if shown, shall be identified by the name this value is given in the
contract being illustrated and shown in close proximity to the corresponding
value available upon surrender;
l.
The value available upon surrender shall be identified by the name this value
is given in the contract being illustrated and shall be the amount available to
the contract owner in a lump sum after deduction of surrender charges, bonus
forfeitures, contract loans, contract loan interest and application of any
market value adjustment, as applicable;
m. Illustrations may show contract benefits
and values in graphic or chart form in addition to the tabular form;
n. Any illustration of nonguaranteed elements
shall be accompanied by a statement indicating that:
(1) The benefits and values are not
guaranteed;
(2) The assumptions on
which they are based are subject to change by the insurer; and
(3) Actual results may be higher or
lower;
o. Illustrations
based on nonguaranteed credited interest and nonguaranteed annuity income rates
shall contain equally prominent comparisons to guaranteed credited interest and
guaranteed annuity income rates, including any guaranteed and nonguaranteed
participation rates, caps or spreads for fixed indexed annuities;
p. The annuity income rate illustrated shall
not be greater than the current annuity income rate unless the contract
guarantees are in fact more favorable;
q. Illustrations shall be concise and easy to
read;
r. Key terms shall be defined
and then used consistently throughout the illustration;
s. Illustrations shall not depict values
beyond the maximum annuitization age or date;
t. Annuitization benefits shall be based on
contract values that reflect surrender charges or any other adjustments, if
applicable;
u. Illustrations shall
show both annuity income rates per $1,000 and the dollar amounts of the
periodic income payable; and
v. For
participating immediate and deferred income annuities:
(1) Illustrations shall not assume any future
improvement in the applicable dividend scale (or scales, if more than one
dividend scale applies, such as for a flexible premium annuity);
(2) Illustrations shall reflect the equitable
apportionment of dividends, whether performance meets, exceeds or falls short
of expectations;
(3) If the
dividend scale is based on a portfolio rate method, the portfolio rate
underlying the illustrated dividend scale shall not be assumed to
increase;
(4) If the dividend scale
is based on an investment cohort method, the illustrated dividend scale shall
assume that reinvestment rates grade to long-term interest rates, subject to
the following conditions:
1. Any assumptions
as to future investment performance in the dividend formula shall be consistent
with assumptions that are reflected in the marketplace within the normal range
of analyst forecasts and investor behavior. These assumptions shall not be
changed arbitrarily, notwithstanding changes in markets or economic conditions,
and shall be consistent with assumptions that the insurer uses with respect to
other lines of business.
2. The
illustrated dividend scale shall assume that reinvestment rates grade to
long-term interest rates, based on the rates of U.S. Treasury bonds (U.S.
Treasury rates). For the purposes of this grading, the assumed long-term rates
shall not exceed the rates calculated using the formula in numbered paragraph
15.66(6)"v"(4)"3" based on the time to maturity or
reinvestment (the "tenor") of the investments supporting the cohort of
policies.
3. Maximum long-term
interest rates shall be calculated for tenors of 3 months or less, 5 years, 10
years, and 20 years or more, using U.S. Treasury rates. For each tenor, the
maximum long-term interest rate shall vary over time, based on historical
interest rates as they emerge. The formula for the maximum long-term interest
rate is the average of the median U.S. Treasury rate during the last 600 months
and the average U.S. Treasury rate during the last 120 months, rounded to the
nearest quarter of one percent (0.25%).
4. The maximum long-term interest rate for a
tenor shall be recalculated once per year, in January, using historical
interest rates as of December 31 of the calendar year two years prior to the
calendar year of the calculation date. The historical interest rate for each
month is the interest rate reported for the last business day of the
month.
5. Grading to the maximum
long-term interest rates shall take place:
* No less than 20 years from the issue date if U.S. Treasury rates as of the illustration date are below the long-term interest rates; or
* No more than 20 years from the issue date if the U.S. Treasury rates as of the illustration date are above the long-term interest rates.
6. When the ten-year
U.S. Treasury rate is less than the ten-year maximum long-term interest rate,
an additional illustrated dividend scale shall be presented. This additional
illustrated dividend scale shall satisfy the following conditions:
* Assume that reinvestment U.S. Treasury rates do not exceed the initial investment U.S. Treasury rates, and
* Illustrate dividends of no less than half of the dividends illustrated under the current dividend scales.
If the conditions under the two prior bulleted paragraphs are in conflict (i.e., if half of the current dividends are greater than would be permitted by the condition under the first bulleted paragraph above), then the reinvestment U.S. Treasury rates shall equal the initial investment U.S. Treasury rates.
7. The
illustration shall include a disclosure that is substantially similar to the
following:
The illustrated current dividend scale is based on interest rates that are assumed to gradually [increase/decrease] from current interest rates to long-term interest rates during a period of [20] years. As required by state regulations, the long-term assumed interest rates cannot and do not exceed the rates listed in column (c) of the table below.
[Insert table from numbered paragraph 15.66(6)"v"(4)"9"]
8. If the illustration contains an additional
dividend scale pursuant to numbered paragraph
15.66(6)"v"(4)"6," then the illustration also shall include a
disclosure that is substantially similar to the following:
The additional illustrated dividend scale is based on interest rates that are assumed not to increase and that do not exceed the interest rates in column (b) of the table below.
[Insert table from numbered paragraph 15.66(6)"v"(4)"9"]
9. The following table shall be used in the
disclosures as indicated in numbered paragraphs
15.66(6)"v"(4)"7" and "8":
|
(a) |
(b) |
(c) |
|
U.S. Treasury Rate as of 12/31/2016 |
Long-Term U.S. Treasury Rate |
|
|
3 Months or Less |
0.51% |
3.00% |
|
5 Years |
1.93% |
4.50% |
|
10 Years |
2.45% |
5.00% |
|
20 Years or More |
3.06% |
5.50% |
(7) An annuity illustration shall include a
narrative summary that includes the following unless provided at the same time
in a disclosure document:
a. A brief
description of any contract features, riders or options, whether guaranteed or
nonguaranteed, shown in the basic illustration and the impact they may have on
the benefits and values of the contract.
b. A brief description of any other optional
benefits or features that are selected, but not shown in the illustration and
the impact they have on the benefits and values of the contract.
c. Identification and a brief definition of
column headings and key terms used in the illustration.
d. A statement containing in substance the
following:
(1) For other than fixed indexed
annuities:
This illustration assumes the annuity's current nonguaranteed elements will not change. It is likely that they will change and actual values will be higher or lower than those in this illustration but will not be less than the minimum guarantees.
The values in this illustration are not guarantees or even estimates of the amounts you can expect from your annuity. Please review the entire Disclosure Document and Buyer's Guide provided with your Annuity Contract for more detailed information.
(2) For fixed indexed annuities:
This illustration assumes the index will repeat historical performance and that the annuity's current nonguaranteed elements, such as caps, spreads, participation rates or other interest crediting adjustments, will not change. It is likely that the index will not repeat historical performance, the nonguaranteed elements will change, and actual values will be higher or lower than those in this illustration but will not be less than the minimum guarantees.
The values in this illustration are not guarantees or even estimates of the amounts you can expect from your annuity. Please review the entire Disclosure Document and Buyer's Guide provided with your Annuity Contract for more detailed information.
e. Additional explanations as
follows:
(1) Minimum guarantees shall be
clearly explained;
(2) The effect
on contract values of contract surrender prior to maturity shall be
explained;
(3) Any conditions on
the payment of bonuses shall be explained;
(4) For annuities sold as an IRA or as a
qualified plan or in another arrangement subject to the required minimum
distribution (RMD) requirements of the Internal Revenue Code, the effect of
RMDs on the contract values shall be explained;
(5) For annuities with recurring surrender
charge schedules, a clear and concise explanation of what circumstances will
cause the surrender charge to recur shall be included; and
(6) A brief description of the types of
annuity income options available shall be explained, including:
1. The earliest or only maturity date for
annuitization (as the term is defined in the contract);
2. For contracts with an optional maturity
date, the periodic income amount for at least one of the annuity income options
available based on the guaranteed rates in the contract, at the later of age 70
or ten years after issue, but in no case later than the maximum annuitization
age or date in the contract;
3. For
contracts with a fixed maturity date, the periodic income amount for at least
one of the annuity income options available, based on the guaranteed rates in
the contract at the fixed maturity date; and
4. The periodic income amount based on the
currently available periodic income rates for the annuity income option in
numbered paragraph 15.66(7)"e"(6)"2" or "3," if
desired.
(8) Following the narrative summary, an
illustration shall include a numeric summary that shall include, at minimum,
numeric values at the following durations:
a.
Either:
(1) The first ten contract years;
or
(2) The surrender charge period
if longer than ten years, including any renewal surrender charge
period;
b. Every tenth
contract year up to the later of 30 years or age 70; and
c. Either:
(1) The required annuitization age;
or
(2) The required annuitization
date.
(9) If
the annuity contains a market value adjustment, hereafter MVA, all of the
following provisions apply to the illustration (Appendix V provides an
illustration of an annuity containing an MVA that addresses paragraphs
15.66(9)"a" through "f" below):
a. The MVA shall be referred to as such
throughout the illustration.
b. The
narrative shall include an explanation, in simple terms, of the potential
effect of the MVA on the value available upon surrender.
c. The narrative shall include an
explanation, in simple terms, of the potential effect of the MVA on the death
benefit.
d. A statement, containing
in substance the following, shall be included:
When you make a withdrawal, the amount you receive may be increased or decreased by a Market Value Adjustment (MVA). If interest rates on which the MVA is based go up after you buy your annuity, the MVA likely will decrease the amount you receive. If interest rates go down, the MVA will likely increase the amount you receive.
e. Illustrations shall describe both the
upside and the downside aspects of the contract features relating to the market
value adjustment.
f. The
illustrative effect of the MVA shall be shown under at least one positive and
one negative scenario. This demonstration shall appear on a separate page and
be clearly labeled that it is information demonstrating the potential impact of
an MVA.
g. Actual MVA floors and
ceilings as listed in the contract shall be illustrated.
h. If the MVA has significant characteristics
not addressed by paragraphs 15.66(9)"a" through
"f," the effect of such characteristics shall be shown in the
illustration.
(10) A
narrative summary for a fixed indexed annuity illustration also shall include
the following unless provided at the same time in a disclosure document:
a. An explanation, in simple terms, of the
elements used to determine the index-based interest, including, but not limited
to, the following elements:
(1) The index(es)
that will be used to determine the index-based interest;
(2) The indexing method - such as
point-to-point, daily averaging, monthly averaging;
(3) The index term - the period over which
indexed-based interest is calculated;
(4) The participation rate, if
applicable;
(5) The cap, if
applicable; and
(6) The spread, if
applicable;
b. The
narrative shall include an explanation, in simple terms, of how index-based
interest is credited in the indexed annuity;
c. The narrative shall include a brief
description of the frequency with which the company can reset the elements used
to determine the indexed-based credits, including the participation rate, the
cap, and the spread, if applicable; and
d. If the product allows the contract holder
to make allocations to declared-rate segment, then the narrative shall include
a brief description of:
(1) Any options to
make allocations to a declared-rate segment, both for new premiums and for
transfers from the indexed-based segments; and
(2) Differences in guarantees applicable to
the declared-rate segment and the indexed-based segments.
(11) A numeric summary for a fixed
indexed annuity illustration shall include, at a minimum, the following
elements:
a. The assumed growth rate of the
index in accordance with paragraph 15.66(6)"i";
b. The assumed values for the participation
rate, cap and spread, if applicable; and
c. The assumed allocation between
indexed-based segments and declared-rate segment, if applicable, in accordance
with paragraph 15.66(6)"i."
(12) If the contract is issued other than as
applied for, a revised illustration conforming to the contract as issued shall
be sent with the contract, except that nonsubstantive changes including, but
not limited to, changes in the amount of expected initial or additional
premiums and any changes in amounts of exchanges pursuant to Section
1035 of the Internal Revenue Code,
rollovers or transfers, which do not alter the key benefits and features of the
annuity as applied for, will not require a revised illustration unless
requested by the applicant.
Notes
State regulations are updated quarterly; we currently have two versions available. Below is a comparison between our most recent version and the prior quarterly release. More comparison features will be added as we have more versions to compare.
No prior version found.