August 11, 1992

SUBJECT: INSURANCE

Circular Letter No. 12 (1992)

WITHDRAWN

TO: ALL AUTHORIZED LIFE INSURANCE COMPANIES, ACCREDITED LIFE REINSURERS, FRATERNAL BENEFIT SOCIETIES AND CHARITABLE ANNUITY SOCIETIES

ATTN: CHIEF ACTUARY OR CONSULTING ACTUARY, OR CHIEF FINANCIAL OFFICER

SUBJECT: MAXIMUM RESERVE VALUATION AND MAXIMUM LIFE POLICY NONFORFEITURE INTEREST RATES UNDER SECTIONS 4217, 4218 AND 4221(k) OF THE NEW YORK INSURANCE LAWS, AS AMENDED IN 1982, 1983, 1985, 1986, 1987, 1988, AND 1990

Attached hereto is an outline, providing maximum reserve valuation and maximum life policy nonforfeiture interest rates for new issues, new purchases or changes in fund (as defined) for years 1982 through 1992 (and other years where shown), under Sections 4217, 4218 and 4221(k) of the New York Insurance Laws, as amended in 1982, 1983, 1985, 1986, 1987, 1988, and 1990.

This Circular Letter is for informational purposes, as an aid in complying with the law.

Should any person have any question or comment, in regard to this matter, please contact Mr. Robert Priest (518-474-4244) or Mr. William Carmel l: (518-486-1804) of the Actuarial Valuation Bureau.

This letter is being sent to the Chief Actuary, or absent such, to the Chief Financial Officer.

Very truly yours, [SIGNATURE]

Salvatore R. Curiale

Superintendent of Insurance

MAXIMUM VALUATION AND NONFORFEITURE INTEREST RATES UNDER SECTIONS 4217. 4218 and 4221(k) OF THE NEW YORK INSURANCE LAWS

The maximum valuation and nonforfeiture interest rates, prescribed by Sections 4217 and 4221(k) of the New York Insurance Laws for future years, will vary from year to year depending on Moody's corporate bond yield averages.

The maximum valuation interest rates for issues, purchases and changes-in-fund of years 1982 through 1992 (and other years where shown) are outlined below. The maximum valuation and nonforfeiture interest rates for Ordinary Life Insurance are shown in A on page 2, except for Single Premium Life Insurance (of the kind referred to in Section 4217(c)(4)(B)(vi) as amended by Chapter 302 of the laws of 1987) the maximum valuation interest rates for which are shown in B on page 3.

This Circular Letter is for informational purposes, as an aid in complying with the law.

A. ORDINARY LIFE INSURANCE (Except as covered in B on page 3)

B. Single Premium Life Insurance of the kind referred to in Section 4217(c)(4)(B)(vi) of the New York Insurance Laws (as amended by Chapter 302 of the laws of 1987).#

C. Single Premium Immediate Annuities and annuity benefits arising from life insurance policies and annuity and guaranteed interest contracts with cash settlement options.

D. Other Annuities and Guaranteed Interest Contracts, with cash settlement options and with interest rate guarantees on future considerations, valued on the "Issue Year" basis.

E. Other Annuities and Guaranteed Interest Contracts, with cash settlement options but without interest rate guarantees on future considerations, valued on the "Issue Year" basis.

F. Other Annuities and Guaranteed Interest Contracts, without cash settlement options, valued on the "Issue Year" basis.

G. Other Annuities and Guaranteed Interest Contracts, with cash settlement options and with interest rate guarantees on future considerations, valued on the "Change in Fund" basis.

H. Other Annuities and guaranteed interest contracts, with cash settlement options but without interest rate guarantees on future considerations, valued on the "Change in fund" basis.

Said Section 4221(k)(12) was amended by Chapter 81 of the Laws of 1983 to permit a company to elect to comply with the new provisions of Section 4221 on a plan-by-plan basis, with the proviso that the entire portfolio must be converted to the new provisions on or before January 1 of the third calendar, year following the calendar year of compliance for the first plan so converted, but not, in any event, later than January 1, 1989.

Plan types, as used in the above tables, are defined as follows:

Plan Type A: The policyholder may withdraw funds only (1) with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, or (2) without such adjustment but in installments over five years or more, or (3) as an immediate life annuity.

Plan Type B: The policyholder may not withdraw funds before the expiration of the interest rate guarantee or, if withdrawals are permitted before the expiration of such guarantee, may withdraw funds only (1) with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, or (2) without such adjustment but in installments over five years or more. At the end of the interest rate guarantee, funds may be withdrawn without such adjustment in a single sum or in installments over less than five years.

Plan Type C: The policyholder may withdraw funds before the expiration of the interest rate guarantee in a single sum or installments over less than five years either (1) without adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, or (2) subject only to a fixed surrender charge stipulated in the contract as a percentage of the fund.

(The most popular plan type, in the group annuity area, for current issues, is plan type B; while, the most popular plan type, in the individual annuity area, for current issues, is plan type C.)

The guarantee duration, for other annuities and guaranteed interest contracts with cash settlement options, generally is the number of years for which the contract guarantees interest rates in excess of the calendar year statutory valuation interest rate for life insurance policies (covered in A on page 2) with guarantee durations of more than twenty years (See D, E, G and H herein).

The Guarantee duration, for other annuities 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.

Other annuities and guaranteed interest contracts, without cash settlement options, may be valued only on an "Issue Year" basis.

For structured settlement annuities with lump-sum payments, see Section 95.12 of Regulation 126.

The maximum reserve valuation interest rates, for annuities and guaranteed interest contracts and for single premium life insurance policies of the kind referred to in Section 4217(c)(4)(B)(vi), are based on Moody's Corporate Bond Yield Averages for a one or three year period ending in June of the year of issue, purchase or change in fund. Consequently, we are not able to compute rates applicable to 1993 at this time.

The attached Appendix describes the method of calculating the maximum reserve valuation interest rates, in accordance with the specifications of Section 4217 of the New York Insurance Laws, as amended.

Section 4217, as amended by Chapter 749 of the Laws of 1983, permits the dynamic interest rates (under the 1982 amendments) to be used for issues of January 1, 1982 and irrespective of a company's election or non-election under Section 4221 (k)(12). Thus, the new dynamic interest rates may be used either with 1958 CSO issues of January 1, 1982 through December 31, 1988 or with 1980 CSO issues of January 1, 1982 and later, for valuation purposes.

The reserve for a Single Premium Life Insurance policy, of the kind referred to in Section 4217(c)(4)(B)(vi), of the New York Insurance Laws (as amended by Chapter 302 of the laws of 1987), must not be less than its cash value. Section 95.14 of Regulation 126 limits the applicable duration of maximum reserve valuation interest rates specified in B on page 3.

APPENDIX

To Circular Letter Number 12 (1992)

The maximum reserve valuation interest rates are based on reference interest rates, with averages of corporate bond earnings published by Moody's Investors Service, Inc., and weighting factors prescribed by Section 4217.

The weighting factors do not vary from year to year. None of the weighting factors given in Table 1 below will change unless Section 4217 is revised by new legislation. The following formulas are used to compute the maximum reserve valuation interest rates:

I = 3.00% + W(R1-3.00)% + W/2(R2-9.00)%, (Formula 1, called "Life Insurance Formula")

or

I = 3.00% + W(R-3.00)%, (Formula 2, called "Annuity Formula")

Where:

I = Maximum calendar year statutory valuation interest rate, rounded to the nearer

1/4%.

R = Reference interest rate, derived from Moody's corporate bond monthly yield averages, rounded to the nearer basis point (.01 of 1%).

R[1]= Lesser of R and 9.00%.

R[2]= Greater of R and 9.00%.

W = Weighting factor.

The third term of Formula 1 is dropped whenever the reference interest rate falls below 9.00%. The weighting factors vary by type of benefit, guarantee duration, and valuation basis (i.e. "issue year" basis or "change-in-fund" basis). An asterisk (*), where shown with the weighting factor in Table 1, indicates that Formula 2 may optionally be used with a given factor if an acceptable actuarial opinion and memorandum are provided, as required by se 4217(c)(4)(B)(vi).

TABLE 1

Appendix (Continued)

To Circular Letter Number 12 (1992)

TABLE 1 (continued)

The reference interest rates are based on the average corporate bond earnings published by Moody's Investors Service, Inc.

Section 4217 defines running averages of the published monthly. yield rates for 12-month and 36-month periods.

The year of issue, of purchase or of change-in-fund, applicable to the running yield average ending in the current year, is the next following year for Life Insurance other than single. premium life insurance of the kind referred to in Section 4217(c)(4)(B)(vi) i.e. Category A in the Circular Letter) and the current year for all other business (i.e. Categories B through H in the Circular Letter).

Appendix (Continued)

To Circular Letter Number 12 (1992)

The following table shows Moody's yield averages for recent years:

TABLE 2

The maximum nonforfeiture interest rate for Life Insurance, under Section 4221(k), for a particular issue year, is equal to 125% of the maximum reserve valuation interest rate for the same issue year, rounded to the nearer 1/4%.

Should the computed maximum reserve valuation interest rate for Life Insurance (other than Single Premium Life Insurance covered in Category B on page 3 of the Circular Letter) for a particular issue year be different from the actual maximum reserve valuation interest rate for the next previous issue year by less than 1/2%, then the maximum reserve valuation interest rate for such particular issue year will be the same as that for such next previous issue year.