Nebraska Administrative Code › Topic - INSURANCE, DEPARTMENT OF › Title 210 - NEBRASKA DEPARTMENT OF INSURANCE › Chapter 80 - SYNTHETIC GUARANTEED INVESTMENT CONTRACTS › Section 210-80-010 - Reserves

Current through June 17, 2024
010.01 Asset
				maintenance requirements for segregated portfolios governed by this regulation:
010.01A At all times an insurer shall hold
				minimum reserves in the general account or one or more separate accounts, as
				appropriate, equal to the excess, if any, of the value of the guaranteed
				contract liabilities, determined in accordance with 010.01(F) and
				010.01(G) of this
				subsection, over the market value of the assets in the segregated portfolio
				less the deductions provided for in
				010.01B of this
				subsection. The reserve requirements of this subsection shall be applied on a
				contract-by-contract basis.
010.01B
				In determining compliance with the asset maintenance requirement and the
				reserve for guaranteed contract liabilities specified in Subsection
				010.01A, the
				insurer shall deduct a percentage of the market value of an asset as follows:
010.01B(1) For debt instruments, the
				percentage shall be the NAIC asset valuation reserve "reserve objective
				factor," but the factor shall be increased by fifty percent (50%) for the
				purpose of this calculation if the difference in durations of the assets and
				liabilities is more than one-half year. The above notwithstanding, in the event
				that, under the terms of the synthetic guaranteed investment contract, the
				asset default risk for debt instruments is borne solely by the contract holder,
				there shall be no asset valuation reserve percentage deduction from the market
				value of an asset, for purposes of complying with the asset maintenance
				requirement and the reserve for guaranteed contract liabilities specified in
				Subsection
				010.01A.
010.01B(2) For assets that are not debt
				instruments, the percentage shall be the NAIC asset valuation reserve "maximum
				reserve factor."
010.01C To the extent that guaranteed
				contract liabilities are denominated in the currency of a foreign country and
				are supported by segregated portfolio assets denominated in the currency of the
				foreign country, the percentage deduction for these assets under Subsection
				010.01B shall be
				that for a substantially similar investment denominated in the currency of the
				United States.
010.01D To the
				extent that guaranteed contract liabilities are denominated in the currency of
				the United States and are supported by segregated portfolio assets denominated
				in the currency of a foreign country, and to the extent that guaranteed
				contract liabilities are denominated in the currency of a foreign country and
				are supported by segregated portfolio assets denominated in the currency of the
				United States, the deduction for debt instruments under
				010.01B of this
				subsection shall be increased by fifteen percent (15%) of the market value of
				the assets unless the currency exchange risk on the assets has been adequately
				hedged, in which case the percentage deduction under
				010.01B of this
				subsection shall be increased by one-half percent (.5%). No guaranteed contract
				liabilities denominated in the currency of a foreign country shall be supported
				by segregated portfolio assets denominated in the currency of another foreign
				country without the approval of the Director. For purposes of this paragraph,
				the currency exchange risk on an asset is deemed to be adequately hedged if:
010.01D(1) It is an obligation of
010.01D(1)(i) A jurisdiction that is rated in
				one of the two (2) highest rating categories by an independent nationally
				recognized United States rating agency acceptable to the Director;
010.01D(1)(ii) Any political subdivision or
				other governmental unit of such a jurisdiction, or any agency or
				instrumentality of jurisdiction, political subdivision or other governmental
				unit; or
010.01D(1)(iii) An
				institution that is organized under the laws of any such jurisdiction;
				and
010.01D(2) At all
				times the principal amount of the obligation and scheduled interest payments on
				the obligation are hedged against the United States dollar pursuant to
				contracts or agreements that are:
010.01D(2)(i) Issued by or traded on a
				securities exchange or board of trade regulated under the laws of the United
				States or Canada or a province of Canada;
010.01D(2)(ii) Entered into with a United
				States banking institution that has assets in excess of $5 billion and that has
				obligations outstanding, or has a parent corporation that has obligations
				outstanding, that are rated in one of the two (2) highest rating categories by
				an independent, nationally recognized, United States rating agency, or with a
				broker-dealer registered with the Securities and Exchange Commission that has
				net capital in excess of $250 million; or
010.01D(2)(iii) Entered into with any other
				banking institution that has assets in excess of $5 billion and that has
				obligations outstanding, or has a parent corporation that has obligations
				outstanding, that are rated in one of the two (2) highest rating categories by
				an independent, nationally recognized, United States rating agency and that is
				organized under the laws of a jurisdiction that is rated in one of the two (2)
				highest rating categories by an independent, nationally recognized United
				States rating agency.
010.01E These contracts may provide for the
				allocation to one or more separate accounts of all or any portion of the amount
				needed to meet the asset maintenance requirement. If the contract provides that
				the assets in the separate account shall not be chargeable with liabilities
				arising out of any other business of the insurer, the insurer shall maintain in
				a distinct separate account that is so chargeable:
010.01E(1) That portion of the amount needed
				to meet the asset maintenance requirement that has been allocated to separate
				accounts; less
010.01E(2) The
				amounts contributed to separate accounts by the contract holder in accordance
				with the contract and the earnings on the contract.
010.01F For purposes of this section, the
				minimum value of guaranteed contract liabilities is defined to be the sum of
				the expected guaranteed contract benefits, each discounted at a rate
				corresponding to the expected time of payment of the contract benefit that is
				not greater than the spot rate supportable by the expected return from the
				segregated portfolio assets, and in no event greater than the blended spot rate
				as described in the plan of operation (pursuant to Section 005) or the
				actuary's opinion and memorandum (pursuant to Subsection 010.02), except that
				if the expected time of payment of a contract benefit is more than thirty (30)
				years, it shall be discounted from the expected date of payment to year thirty
				(30) at a rate of no more than eighty percent (80%) of the thirty-year blended
				spot rate and from year thirty (30) to the date of valuation at a rate not
				greater than the thirty-year blended spot rate.
010.01G In calculating the minimum value of
				guaranteed contract benefits:
010.01G(1) All
				guaranteed benefits potentially available to the contract holder on an ongoing
				basis shall be considered in the valuation process and analysis, and the
				reserve held must be sufficient to fund the greatest present value of each
				independent guaranteed contract benefit. For purposes of this subparagraph, the
				right granted to the contract holder to exit the contract by discharging the
				insurer of its guarantee obligation under the contract and taking control of
				the assets in the segregated portfolio shall not be considered a guaranteed
				benefit.
010.01G(2) To the extent
				that future guaranteed cash flows are dependent upon the benefit responsiveness
				of an employer-sponsored plan, a best estimate based on company experience, or
				other reasonable criteria if company experience is not available, shall be used
				in the projections of future cash flows.
010.01G(3) The minimum value of guaranteed
				contract benefits under a contract issued to a pooled fund representing
				multiple employer-sponsored plans shall be determined so as to reflect
				projected plan sponsor contract value withdrawals available to the member plans
				in the pooled fund.
Projections of such future cash flows shall take into account
				  (i) known plan sponsor withdrawals, and (ii) a prudent estimate of future plan
				  sponsor withdrawals. The prudent estimate shall be based on company experience
				  and other relevant criteria.
A single valuation rate shall be determined, consistent with
				  Subsection
				  010.01F, equal to
				  the lesser of:
010.01G(3)(i) The
				expected return from the segregated portfolio of assets, or
010.01G(3)(ii) The blended spot rate based on
				the duration of the segregated portfolio of assets.
This single valuation rate shall be used to model future
				  market values of the segregated portfolio of assets. Future credited interest
				  rates shall be modeled according to the contractually defined crediting rate
				  formula. Modeled future contract values shall reflect modeled future market
				  values, modeled future credited interest rates, known future plan sponsor
				  withdrawals, the prudent estimate of future plan sponsor withdrawals, future
				  withdrawals consistent with Subsection
				  010.01G(2) and
				  any remaining final payment at the modeled contract termination date. All such
				  modeled withdrawals and termination payments shall be discounted using the
				  single valuation rate and the modeled times of those withdrawals and payments.
				  The sum of these present values shall be deemed the minimum value of the
				  guaranteed contract liabilities for a pooled fund contract.