§ 85.40. Permissible guaranteed benefits.
(a) The following types of benefits guaranteed as to dollar amount shall be permitted in variable annuity contracts or variable accumulation annuity contracts; any other benefits guaranteed as to dollar amount which are not described in this subsection may be permitted if the Department determines that these benefits afford the policyholders and the public protection substantially equal to that provided by the benefits described in this subsection:
(1) Minimum Death Benefit, which guarantees that, upon the death of the annuitant, the beneficiary will be paid a specified percentage of gross premium paid to date, less any payments already made. The maximum percentage of gross premium that is payable is 100%.
(2) Minimum Surrender Value, which guarantees that, prior to the commencement of annuity payments but on or after a specified policy anniversary or of a group certificate which shall not be earlier than the tenth anniversary if the issue age is less than 55 nor earlier than the fifth anniversary if the issue age is greater than or equal to 55, the cash value of the contract will not be less than some specified percentage, not to exceed 100%, of the gross premium paid to date for the contract.
(b) A separate account contract containing any of the benefits described in subsection (a) shall cause the issuer to be subject to the following additional requirements:
(1) Reserves for any minimum guarantees of variable benefits shall be maintained in the general account of the insurer and shall be determined according to a reserve formula approved in advance by the Commissioner.
(2) Any premium charges of more than 1% or charges against the separate account assets of more than an effective annual rate of .5%, to provide minimum guarantee or variable benefits, shall be separately disclosed in the contract and shall be equitably determined so as not to unfairly discriminate by age, sex, size of policy, or generation of policyholders.
(3) No insurer may issue variable annuity or variable accumulation annuity contracts providing minimum surrender value guarantees if the sum of the excess of the minimum surrender value guarantees over 1/2 of the current cash of the current cash value would exceed 20% of the insurer’s surplus. This amount may be considered as net of reinsurance ceded provided that such reinsurance contracts have prior approval of the Commissioner.
(4) Investments in separate accounts used to fund contracts containing either of the minimum guarantees set forth in paragraphs (2) or (3) shall be limited to the following:
(i) Common stock, preferred stocks, and bonds listed and traded on a national stock exchange or listed by the National Association of Securities Dealers Automated Quotations (NASDAQ).
(ii) Bonds, notes, or obligations of such governmental instrumentalities as are permitted by Pennsylvania law for the investment of assets held to satisfy capital requirements of life insurance companies.
(iii) Shares of an investment company registered pursuant to the investment Company Act of 1940 (15 U.S.C.A. § § 80a-1—80a-52).
(iv) Prime commercial paper and certificates of deposit to the extent insured.
(v) Corporate obligations which meet the requirements of section 404(d) of the act (40 P. S. § 504(d)).
(vi) Real estate located within the United States which the insurer is authorized to hold under section 406(c), (d) or (f) of the act (40 P. S. § 506(c), (d) or (f)), provided that no real estate authorized under section 406(f) is acquired if the market value of all real estate held by the separate account immediately subsequent to the acquisition would exceed 15% of the reserve liability held in the separate account.
(vii) Cash.
(viii) Policy loans.
Authority The provisions of this § 85.40 issued under section 406.2(d) of The Insurance Company Law of 1921 (40 P. S. § 506.2(d)); The Insurance Company Law of 1921 (40 P. S. § § 101—1101); The Insurance Department Act of 1921 (40 P. S. § § 1—321); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).
Source The provisions of this § 85.40 amended December 24, 1981, effective December 26, 1981, 11 Pa.B. 4439. Immediately preceding text appears at serial pages (36585) to (36586).
Cross References This section cited in 31 Pa. Code § 85.4 (relating to Departmental review).
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