3903.721 Determination of valuation interest rate.
3903.721 Determination of valuation interest rate.
(A) The valuation interest rate (VIR) required by division (D) of section 3903.72 of the Revised Code is determined:
(1) For all life insurance policies, by adding three per cent to the result of multiplying W (the applicable weighting factor) by R minus three per cent (where R is the lesser of the reference interest rate and nine per cent) and also adding the result of multiplying one-half of the weighting factor by R minus nine per cent (where R is the greater of the reference interest rate and nine per cent), expressed as follows:
VIR = .03 + W (R – .03) + W/2 (R – .09).
Provided that if the valuation interest rate for policies issued in any calendar year determined in accordance with this division does not differ from the valuation interest rate for similar policies issued in the preceding calendar year by at least one-half of one per cent, the valuation interest rate for such policies shall be equal to the valuation interest rate for the preceding calendar year. For any calendar year the valuation interest rate is determined for each preceding calendar year starting with 1980.
(2) For all annuity and guaranteed interest contracts by adding to three per cent the result of multiplying W (the applicable weighting factor) by R minus three per cent (where R is the reference interest rate), expressed as follows:
VIR = .03 + W (R – .03).
Provided that, the life insurance formula stated in division (A)(1) of this section shall apply to all annuity and guaranteed interest contracts with cash settlement options valued on an issue year basis and with guarantee durations in excess of ten years other than single premium immediate annuities and annuity and guaranteed interest contracts.
(3) The results obtained under divisions (A)(1) and (2) of this section shall be rounded to the nearer one-quarter of one per cent.
(B) The weighting factors for life insurance policies change with the guarantee duration is the maximum number of years the life insurance can remain in force on a basis guaranteed in the policy or under an option to convert to a plan of life insurance with premium rates or nonforfeitures values, or both, guaranteed in the policy. The weighting factors are shown in the following table:
Weighting Factors for Life Insurance
Guarantee Duration (Years) Weighting Factors
10 or less .50
More than 10, but not more than 20 .45
More than 20 .35
(C) The weighting factor for single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuity and guaranteed interest contracts with cash settlement options is eighty-hundredths.
(D) Weighting factors for all other annuity and guaranteed interest contracts vary with the type of plan and guarantee duration. The types of plans are as follows:
(1) A plan type A is one in which funds may not be withdrawn or may be withdrawn in only one of three ways:
(a) With an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the company;
(b) Without such adjustment but installments over five or more years;
(c) As an immediate life annuity.
(2) A plan type B is one in which the funds may not be withdrawn before the expiration of the interest rate guarantee unless an adjustment is made to reflect changes in interest rates or asset values since receipt of the funds by the company or unless they are withdrawn in installments over five or more years. At the end of the interest rate guarantee, funds may be withdrawn in a single sum or in installments over less than five years without adjustment.
(3) A plan type C is one in which the funds may be withdrawn before the end of the interest rate guarantee in a single sum or in installments over less than five years without adjustment or subject only to a fixed surrender charge stipulated in the contract as a percentage of the fund.
(4) The guarantee duration for an annuity or guaranteed interest contract with cash settlement options is the number of years for which the contract guarantees interest rates in excess of the valuation interest rate for life insurance policies with guarantee duration in excess of twenty years. The guarantee duration for annuity and guaranteed interest contracts without cash settlement options is the number of years from the date of issue or date of purchase to the date annuity benefits are scheduled to commence.
(5) Annuity and guaranteed interest contracts with cash settlement options may be valued on an issue year basis or on a change in fund basis. If valued on an issue year basis, the interest rate used to determine the minimum valuation standard for the entire duration is the valuation interest rate for the year of issue or purchase. If valued on a change in fund basis, the interest rate used to determine the minimum valuation standard applicable to each change in the fund held under the contract is the valuation interest rate for the year of change in the fund. Annuity and guaranteed interest contracts without cash settlement options must be valued on an issue year basis.
(6) These weighting factors are specified in the applicable table shown below. Table I applies to annuity and guaranteed interest contracts valued on an issue year basis that either guarantee interest on considerations received more than one year after issue or purchase or that have no cash settlement options. Table II applies to annuity and guaranteed interest contracts with cash settlement options valued on an issue year basis that do not guarantee interest on considerations received more than one year after issue or purchase. Tables III and IV are for contracts similar to those in tables I and II, respectively, except that they are valued on a change in fund basis and one-year guarantee refers to one year following the valuation date.
Weighting Factors for Annuities and Guaranteed
Interest Contracts
Table I
Issue Year Basis – Interest on Considerations
After First Year
Guaranteed Or No Cash Settlement Options
Guarantee Weighting Factor
Duration for Plan Type
(Years) A B C
5 or less .80 .60 .50
More than 5, but not more than 10 .75 .60 .50
More than 10, but not more than 20 .65 .50 .45
More than 20 .45 .35 .35
Table II
Issue Year Basis – Interest on Considerations
After First Year
NOT Guaranteed And Cash Settlement Options
Guarantee Weighting Factor
Duration for Plan Type
(Years) A B C
5 or less .85 .65 .55
More than 5, but not more than 10 .80 .65 .55
More than 10, but not more than 20 .70 .55 .50
More than 20 .50 .40 .40
Table III
Change in Fund Basis – Interest on Considerations
Guaranteed More Than Twelve Months After
Valuation Date
Guarantee Weighting Factor
Duration for Plan Type
(Years) A B C
5 or less .95 .85 .55
More than 5, but not more than 10 .90 .85 .55
More than 10, but not more than 20 .80 .75 .50
More than 20 .60 .60 .40
Table IV
Change in Fund Basis – Interest on Considerations
NOT Guaranteed More Than Twelve Months After
Valuation Date
Guarantee Weighting Factor
Duration for Plan Type
(Years) A B C
5 or less 1.00 .90 .60
More than 5, but not more than 10 .95 .90 .90
More than 10, but not more than 20 .85 .80 .55
More than 20 .65 .65 .45
(E) The reference interest rate is determined by taking the average for the applicable period of time of Moody’s corporate bond yield average – monthly average corporates, as published by Moody’s Investors Service, Inc.
(1) The reference interest rate for all life insurance is the lesser of such average over the thirty-six month period and such average over the twelve-month period ending on the thirtieth day of June of the calendar year preceding the year of issue.
(2) The reference interest rate for annuity and guaranteed interest contracts with cash settlement options, except single premium immediate annuities and annuity benefits involving life contingencies arising from other annuity and guaranteed interest contracts with cash settlement options, valued on an issue year basis with guarantee durations in excess of ten years, is the lesser of such average over the thirty-six month period and such average over the twelve-month period ending on the thirtieth day of June of the calendar year of issue or purchase.
(3) The reference interest rate for all annuity and guaranteed interest contracts valued on a change in fund basis is such average over the twelve-month period ending on the thirtieth day of June of the calendar year in which a change in the fund occurs.
(4) The reference interest rate for all single premium immediate annuities, annuity benefits involving life contingencies arising from other annuity and guaranteed interest contracts with cash settlement options, and all other annuity and guaranteed interest contracts is such average over the twelve-month period ending on the thirtieth day of June of the calendar year of issue or purchase.
(5) If such corporate bond rate average is no longer published or the national association of insurance commissioners determines that such average is no longer appropriate, the superintendent may approve the use of any alternative method for the determination of the reference interest rate adopted by the commissioners.
Effective Date: 03-03-1996