Section 1410.10  Purpose

 

The purpose of this Part is to establish the required contract provisions for modified guaranteed annuity contracts.

 

Section 1410.20  Applicability

 

This Part shall apply to insurance producers who sell modified guaranteed annuity contracts and insurers who issue such contracts in this State.

 

Section 1410.30  Definitions

 

"Adjusted Minimum Nonforfeiture Amount" means the minimum nonforfeiture amount as defined in Section 229.4a of the Code, adjusted by the Market Value Adjustment.

 

"Appointed Actuary" means an appointed actuary as defined in Section 223(13) of the Code.

 

"Code" means the Illinois Insurance Code [215 ILCS 5].

 

"Director" means the Director of the Department of Insurance.

 

"Insurance Producer" means an individual licensed pursuant to Article XXXI of the Code [215 ILCS 5/Art. XXXI] who solicits, negotiates, effects, procures, renews, continues or binds modified guaranteed annuity contracts in this State.

 

"Insurer" means any insurance company that has delivered or issued for delivery in this State a modified guaranteed annuity contract.

 

"Interest Credit" means all interest that is credited to the contract.

 

"Market Value Adjustment" or "MVA" means a formula specified in the contract that adjusts the cash value of the contract.  It reflects changes in prevailing interest rates and the time remaining until the date on which the cash surrender value is available without adjustment.

 

"Minimum Nonforfeiture Amount" means the minimum nonforfeiture amount as defined in Section 229.4a of the Code.

 

"Modified Guaranteed Annuity" or "MGA" means a fixed annuity, or a fixed portion of a combination annuity, that is funded through the general account and provides for guaranteed values on specified dates or specified ages and with interim nonforfeiture values that are adjusted in accordance with an MVA.  This term applies to contracts issued before January 1, 2017.  The term "Modified Guaranteed Annuity" or "MGA" is to be substituted with "General Account Modified Guaranteed Annuity" or "GAMGA" throughout this Part for contracts issued on or after January 1, 2017. A GAMGA otherwise has the same definition as an MGA.

 

"Qualified Actuary" means a qualified actuary as defined in Section 223(13) of the Code.

 

(Source:  Amended at 42 Ill. Reg. 14239, effective July 12, 2018)

 

Section 1410.40  Authority of Insurers

 

The following requirements apply to all insurers who have authority to issue MGA contracts in this State.

 

a)         Approval to do Business:

 

1)         No insurer shall deliver or issue for delivery any MGA contracts unless licensed to do life insurance or annuity business in this State.

 

2)         An insurer shall submit to the Director a general description of the kinds of annuities it intends to issue prior to the deliverance or issue of the contracts within this State.

 

b)         Use of Sales Materials:

 

1)         An insurer authorized to sell MGA contracts in this State shall not use any sales material, advertising material, descriptive literature or other materials of any kind in connection with the sale of MGA contracts in this State which are false, misleading, deceptive or inaccurate.

 

2)         Illustrations of benefits payable under any MGA contract shall not include projections of past investment experience into the future or attempted predictions of future investment experience, except that hypothetical assumed interest credits may be used to illustrate possible levels of benefits.

 

3)         Before any insurer shall deliver or issue for delivery any MGA contract in this State, the Director may require the filing of a copy of other sales material to be used in connection with the marketing of the insurer's MGA contract.  The sales material must clearly illustrate that there can be both upward and downward adjustments due to the application of the MVA formula in determining nonforfeiture benefits.

 

c)         Reports:

Any insurer authorized to transact the business of MGA contracts in this State shall submit to the Director such additional information concerning its MGA operations as the Director may deem necessary.

 

d)         Authority of Director to Disapprove:

Any material filed with and approved by the Director pursuant to Section 1410.60 of this Part shall be subject to disapproval if it is not in compliance with this Part.  The Director must be satisfied that the insurer's condition or method of operation in connection with the issuance of MGA contracts will not render its operation hazardous to the public or its policyholders.

 

Section 1410.50  Filing of Contracts

 

The filing requirements applicable to MGA contracts shall be made pursuant to Section 143 of the Code and 50 Ill. Adm. Code 916.  Filings shall include a demonstration that the nonforfeiture provisions of the contract comply with Section 229.4a of the Code and Section 1410.60(b) of this Part.

 

(Source:  Amended at 42 Ill. Reg. 14239, effective July 12, 2018)

 

Section 1410.60  General Account Modified Guaranteed Annuity (GAMGA) Contract Requirements

 

a)         Mandatory Contract Benefit and Design Requirements

 

1)         Any MGA contract delivered or issued for delivery in this State shall contain a statement of the procedures to be followed by the insurer in determining the dollar amount of nonforfeiture benefits.

 

2)         No MGA contract calling for the payment of periodic stipulated payments shall be delivered or issued for delivery in this State unless it contains the following provisions:

 

A)        A provision that there shall be a grace period of 30 days or one month following the premium due date during which the contract shall remain in force and, within which any payment due to the insurer, other than the first, may be made.  The contract may include a statement of the basis for determining the date as of which any payment received during the grace period shall be applied to produce the values under the contract.

 

B)        A provision that, at any time within one year from the date of default, the contract may be reinstated upon payment to the insurer of any overdue payments required by contract, and of all indebtedness to the insurer on the contract, including interest.  Reinstatement may not occur if the cash value has been paid.  The contract may include a statement of the basis for determining the date as of which the amount to cover the overdue payments and indebtedness shall be applied to produce the values under the contract.

 

3)         The MVA formula, used in determining nonforfeiture benefits, must be stated in the contract and must be applicable for both upward and downward adjustments.  When a contract is filed, it must be accompanied by an actuarial certification by a qualified actuary indicating the basis for the MVA formula and that the formula provides reasonable equity to both the contractholder and the insurer.

 

b)         Nonforfeiture Benefits

 

1)         This subsection (b) does not apply to any of the contracts excluded in Section 229.4a(2) of the Code.

 

2)         Any paid-up annuity benefit available under an MGA contract shall be such that its present value on the annuity commencement date is at least equal to the Adjusted Minimum Nonforfeiture Amount on that date.  The present value shall be computed using the mortality table, if any, and the guaranteed or assumed interest rates used in calculating the annuity payments.

 

3)         For MGA contracts that provide cash surrender benefits, the cash surrender benefit at any time prior to the annuity commencement date shall not be less than the Adjusted Minimum Nonforfeiture Amount next computed after the request for surrender is received by the insurer.  The death benefit under MGA contracts shall be at least equal to the cash surrender benefit.  The contract may provide that the insurer may defer payment of the cash surrender benefit for a period of 6 months after demand.

 

4)         Any MGA contract that does not provide cash surrender benefits or does not provide death benefits at least equal to the Adjusted Minimum Nonforfeiture Amount prior to the annuity commencement date shall include a statement in a prominent place in the contract that the benefits are not provided.

 

5)         For any MGA contract that provides, within the same contract by rider or supplemental contract provision, both annuity benefits and life insurance benefits that are in excess of the greater of cash surrender benefits (without regard to any surrender charges) or a return of the gross considerations with interest, the minimum nonforfeiture benefits shall be equal to the sum of the Adjusted Minimum Nonforfeiture Amount for the annuity portion and the minimum nonforfeiture benefits, if any, for the life insurance portion computed as if each portion were a separate contract.

 

c)         The Application

The application for an MGA shall prominently state that amounts payable under the contract are subject to a market value adjustment prior to a date or dates specified in the contract.  The statement shall be placed immediately above the signature line on the application.

 

(Source:  Amended at 42 Ill. Reg. 14239, effective July 12, 2018)

 

Section 1410.70  Reserve Liabilities

 

a)         The reserve is the greater of (a)(1) or (a)(2) below:

 

1)         the cash surrender value at the date of valuation, excluding the effect of the MVA; or

 

2)         the present value of the contract benefits that are guaranteed, such present value assuming a "B" type contract as defined in Section 223(6)(c)(i)(C)(5) of the Code [215 ILCS 5/223(6)(c)(i)(C)(5)].

 

b)         Each year, the appointed actuary must provide an opinion on whether the assets supporting the MGA contracts are adequate to provide all future benefits that are guaranteed.  The MVA formula, the interest guarantees and the degree to which projected cash flow of assets and liabilities are matched must also be considered.

 

Section 1410.80  Reports to Policyholders

 

Insurers will annually provide their contractholders with a report showing both the account value and the cash surrender value.  The report must indicate the amount of any expense charges used to determine the account value and that the account value is determined prior to any adjustment(s) for surrender charges or the MVA formula. It should also specify the surrender charge and MVA and any other charges used to determine the cash surrender value.