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Life Bureau Filing Guidance Note

Guidance Date: 05/16/2018

Supplemental Guidance for Change in Annuitization Start Date under Guaranteed Paid-up Deferred Annuities

This guidance supplements the filing guidance note dated 03/13/2009 entitled "Guidance for Guaranteed Paid-up Deferred Annuities". Item 7 of the 2009 guidance note provided guidance related to disclosure of the payment adjustments made as the result of a change in the annuitization start date, annuity income option or annuitant. Recently, questions have arisen with respect to the range of adjustment that the Department would find acceptable when there is a change in annuitization start date. While the Department reviews the products on a case-by-case basis, we offer the following guidance to assist insurers in preparing their filings.

There is often no explicit charge for a change in annuitization start date. Rather, an implicit charge is made through use of an adjusted interest rate in the derivation of the new benefit amount associated with the new start date. The adjusted interest rate is a current rate that is “adjusted” upward by a specified amount for start date accelerations and downward for start date deferrals.

These adjustments and the related replacement ratios must not be unjust, unfair or inequitable. See Insurance Law §3201(c)(2). The Department has objected to interest adjustments that exceed 1.5%. For contracts that permit an annuitization start date change greater than 5 years, the Department has objected to replacement ratios below 95%. For contracts that permit more than one start date change, the 95% floor applies to the cumulative replacement ratio. For start date changes of 5 years or less, the Department has not objected to replacement ratios that fall slightly below 95% (i.e. 94%) for certain ages so long as the interest adjustment does not exceed 1.5%. This analysis would be the same for both single life and joint life contracts. Similar analysis would also apply to adjustments related to a change in income option or annuitant.

For questions about this guidance, please contact Richard Bernardi, Supervising Actuary, at (212) 480-5325 or by email to Richard Bernardi.

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