ARC 4432C

ARC 4432C

INSURANCE DIVISION[191]

Adopted and Filed

Rule making related to unfair trade practices

The Insurance Division hereby amends Chapter 15, "Unfair Trade Practices," Iowa Administrative Code.

Legal Authority for Rule Making

This rule making is adopted under the authority provided in Iowa Code chapter 507B.

State or Federal Law Implemented

This rule making implements, in whole or in part, Iowa Code chapter 507B.

Purpose and Summary

This adopted rule making is intended to implement a model regulation adopted by the National Association of Insurance Commissioners whereby the Insurance Division requires insurers to provide to consumers certain disclosures related to participating immediate and deferred income annuities.

Public Comment and Changes to Rule Making

Notice of Intended Action for this rule making was published in the Iowa Administrative Bulletin on March 13, 2019, as ARC 4326C. A public hearing was held on April 2, 2019, at 11 a.m.at the Insurance Division offices, Fourth Floor, Two Ruan Center, 601 Locust Street, Des Moines, Iowa. No one attended the public hearing. No public comments were received. No changes from the Notice have been made.

Adoption of Rule Making

This rule making was adopted by Doug Ommen, Iowa Insurance Commissioner, on April 17, 2019.

Fiscal Impact

This rule making has no fiscal impact to the State of Iowa.

Jobs Impact

After analysis and review of this rule making, no impact on jobs has been found.

Waivers

The Insurance Division's general waiver provisions of 191—Chapter 4 apply to these rules.

Review by Administrative Rules Review Committee

The Administrative Rules Review Committee, a bipartisan legislative committee which oversees rule making by executive branch agencies, may, on its own motion or on written request by any individual or group, review this rule making at its regular monthly meeting or at a special meeting. The Committee's meetings are open to the public, and interested persons may be heard as provided in Iowa Code section 17A.8(6).

Effective Date

This rule making will become effective on June 12, 2019.

The following rule-making actions are adopted:

Item 1. Amend paragraph 15.66(6)"h" as follows:

h. The 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;

Item 2. Amend paragraphs 15.66(6)"t" and "u" as follows:

t. Annuitization benefits shall be based on contract values that reflect surrender charges or any other adjustments, if applicable; and

u. Illustrations shall show both annuity income rates per $1000.00 and the dollar amounts of the periodic income payable.; and

Item 3. Adopt the following new paragraph 15.66(6)"v":

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 during:

●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 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 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":

[Filed 4/19/19, effective 6/12/19]

[Published 5/8/19]

Editor's Note: For replacement pages for IAC, see IAC Supplement 5/8/19.