Chapter Ins 2

Ins 2.13(5)(d) (d) Each form shall include hypothetical data showing its use, a correct table of values and an explanation of all variable information.

Ins 2.13(5)(e) (e) Each filing shall include an actuarial statement of methods used to calculate values in the contract.

Ins 2.13(6) (6) Variable benefits.

Ins 2.13(6)(a) (a) Any variable contract issued in this state shall contain a statement of the essential features of the procedures to be followed by the insurer in determining the amount of the variable benefits. Each variable contract, including a group contract and any certificate issued under a group contract, shall state that the amount of benefits will vary to reflect investment experience and shall contain on its first page, in a prominent position, a clear statement that the benefits under the contract are on a variable basis and the location in the contract of the details of the variable provisions.

Ins 2.13(6)(b) (b) No illustration of benefits payable under any variable contract may include a projection of past investment experience into the future or a prediction of future investment experience. This paragraph does not prohibit the use of hypothetical assumed rates of return to illustrate possible levels of benefits.

Ins 2.13(6)(c) (c) No insurer may issue an individual variable annuity contract calling for periodic stipulated payments in this state unless the contract contains in substance all of the following provisions or provisions which in the opinion of the commissioner are more favorable to the holder of the contract:

Ins 2.13(6)(c)1. 1. A grace period of 30 days or one month within which the holder may make any stipulated payment, other than the first payment, due the insurer. During the grace period the contract shall continue in force. The contract may include a statement of the basis on which the insurer determines the date that it will apply any stipulated payment received during the grace period to produce the values under the contract arising from the application of the payment.

Ins 2.13(6)(c)2. 2. A right to reinstatement of the contract at any time within 3 years from the date of default in making periodic stipulated payments to the insurer during the life of the annuitant, upon payment to the insurer of the overdue payments as required by the contract, and of all indebtedness, including interest, on the contract. The right to reinstatement does not apply if the insurer has paid the cash surrender value of the contract. The contract may include a statement of the basis on which the insurer determines the date that it will apply the amount to cover the overdue payments and indebtedness to produce the values under the contract arising from the application of the payment.

Ins 2.13(6)(c)3. 3. The options available in the event of default in a periodic stipulated payment. The options may include an option to surrender the contract for a cash value as determined by the contract, and shall include an option to receive a paid-up annuity if the contract is not surrendered for cash. The amount of the paid-up annuity shall be determined by applying the value of the contract at the annuity commencement date in accordance with the terms of the contract.

Ins 2.13(6)(d) (d) Any individual variable annuity contract issued in this state shall stipulate the expense, mortality and investment increment factors to be used in computing the amount of variable benefits or other contractual payments or values, and may guarantee that no expense or mortality results, or both, will adversely affect the amount of benefits. The expense factors may exclude some or all taxes, as stipulated in the contract. In computing the amount of variable benefits or other contractual payments or values under an individual variable annuity contract:

Ins 2.13(6)(d)1. 1. No annual net investment increment assumption may exceed 5%, except with the approval of the commissioner; and

Ins 2.13(6)(d)2. 2. To the extent that the level of benefits may be affected by mortality results, the insurer shall determine the mortality factor from the 1983 Table ‘a’, as defined in s. Ins 2.30 (2) (b), or any modification of that table not having a higher mortality rate at any age.

Ins 2.13(6)(e) (e) The insurer shall establish the reserve liability for variable annuities under s. 623.06, Stats., in accordance with actuarial procedures that recognize the variable nature of the benefits provided.

Ins 2.13(7) (7) Modified guaranteed life insurance.

Ins 2.13(7)(a) (a) An insurer that issues modified guaranteed life insurance policies in this state shall comply with all of the following requirements:

Ins 2.13(7)(a)1. 1. The insurer shall bear mortality and expense risks. The mortality and expense charges shall be subject to the maximum stated in the contract.

Ins 2.13(7)(a)2. 2. For scheduled premium policies, the insurer shall provide a minimum death benefit in an amount at least equal to the initial face amount of the policy as long as premiums are paid, subject to par. (d) 2.

Ins 2.13(7)(a)3. 3. The insurer shall determine the cash value of each policy at least monthly. Each policy shall describe the method of computing cash values and other nonforfeiture benefits and shall state the market-value adjustment formula the insurer uses to determine nonforfeiture benefits. The formula shall apply to both upward and downward adjustments.

Ins 2.13(7)(a)4. 4. With the form filing under s. 631.20, Stats., the insurer shall submit an actuarial statement of the basis for the market-value adjustment formula which states that the formula provides reasonable equity to both the policyholder and the insurer. The form filing shall demonstrate that, if the interest credits at all times during which the policy is in effect equal those guaranteed in the policy, with premiums and benefits determined under the terms of the policy, then, ignoring any market-value adjustment, the resulting cash values and other nonforfeiture benefits shall be at least equal to the minimum values required by s. 632.43, Stats., for a fixed benefit general account policy with the same premiums and benefits.

Ins 2.13(7)(a)5. 5. Guaranteed interest credits in each year for any period of time for which interest credits are guaranteed shall be reasonably related to the average guaranteed interest credits over that period of time.

Ins 2.13(7)(a)6. 6. At the end of any specified guarantee period, the policyholder may select a new guarantee period of not more than 5 years or until the end of the coverage period, whichever is shorter.

Ins 2.13(7)(b) (b) Each modified guaranteed life insurance policy form filed for approval shall contain all of the following:

Ins 2.13(7)(b)1. 1. A cover page, or pages corresponding to a cover page, which shall include all of the following:

Ins 2.13(7)(b)1.a. a. A prominent statement that cash values may increase or decrease in accordance with the market-value adjustment formula.

Ins 2.13(7)(b)1.b. b. A captioned notice that the policyholder may return the policy within 10 days of its receipt, and receive a refund equal to the sum of (i) the difference between premiums paid, including policy fees and other charges, and the amounts allocated to any separate accounts under the policy, and (ii) the value of the amounts allocated to any separate accounts under the policy, on the date the insurer or its agent receives the returned policy, as determined by the market-value adjustment formula.

Ins 2.13(7)(b)1.c. c. Any other item required by statute or administrative rule for fixed benefit life insurance policies which is not inconsistent with this section.

Ins 2.13(7)(b)2. 2. If settlement options are provided, a provision that at least one of the options shall be provided on a fixed basis only.

Ins 2.13(7)(b)3. 3. A description of the basis for computing the cash value and the surrender value under the policy.

Ins 2.13(7)(b)4. 4. A separate statement of premiums or charges for incidental insurance benefits.

Ins 2.13(7)(b)5. 5. Any other policy provision required by this section.

Ins 2.13(7)(b)6. 6. Any other item required by statute or administrative rule for fixed benefit life insurance policies which is not inconsistent with this section.

Ins 2.13(7)(b)7. 7. A provision for nonforfeiture insurance benefits. The insurer may establish a reasonable minimum cash value below which any nonforfeiture insurance options will not be available.

Ins 2.13(7)(c) (c) Each modified guaranteed life insurance policy issued in this state shall provide that the policyholder may borrow at least 75% of the policy’s cash surrender value after the policy has been in force for at least 3 years unless the policy includes a policy loan provision that is no less favorable to the policyholder. Each policy loan provision shall provide all of the following:

Ins 2.13(7)(c)1. 1. The amount borrowed shall bear interest as provided under s. 632.475, Stats.

Ins 2.13(7)(c)2. 2. The insurer shall deduct any indebtedness from the proceeds payable on death.

Ins 2.13(7)(c)3. 3. The insurer shall deduct any indebtedness from the cash surrender value upon surrender or in determining any nonforfeiture benefit.

Ins 2.13(7)(c)4. 4. For scheduled premium policies, whenever the indebtedness exceeds the cash surrender value, the insurer shall give notice of any intent to cancel the policy if the excess indebtedness is not repaid within 31 days after the date the notice is mailed. For flexible premium policies, whenever the total charges authorized by the policy that are necessary to keep the policy in force until the next policy processing day exceed the amount available under the policy to pay those charges, the insurer shall mail the policyholder a report containing the information specified in par. (g) 2.

Ins 2.13(7)(c)5. 5. If the policy specifies a minimum amount which may be borrowed, the minimum may not apply to any automatic premium loan provision.

Ins 2.13(7)(c)6. 6. The policy loan provision does not apply if the policy is under an extended insurance nonforfeiture option.

Ins 2.13(7)(c)7. 7. A policyholder who has not exercised the policy loan provision may not be disadvantaged by exercising it.

Ins 2.13(7)(c)8. 8. Upon the exercise of any policy loan provision, the insurer shall withdraw from the separate account the amount paid to the policyholder and shall return that amount to the separate account upon repayment, except that a stock insurer may provide the amount for a policy loan from the general account.

Ins 2.13(7)(d) (d) A modified guaranteed life insurance policy or related form issued in this state may, in substance, include one or more of the following provisions:

Ins 2.13(7)(d)1. 1. An exclusion for suicide within 2 years after the date the policy takes effect, except that, if the policy includes an increased death benefit as a result of the policyholder’s application after the date the policy takes effect, the exclusion applies only to the amount of the increased benefit.

Ins 2.13(7)(d)2. 2. Incidental insurance benefits on a fixed or variable basis.

Ins 2.13(7)(d)3. 3. If the policy is issued on a participating basis, an offer to pay dividends in cash and other dividend options.

Ins 2.13(7)(d)4. 4. A provision allowing a policyholder to elect in writing, either in the application or after issuance of the policy, an automatic premium loan on a basis not less favorable than the requirements under par. (c), except that the insurer may restrict this provision to the payment of not more than 2 consecutive premiums.

Ins 2.13(7)(d)5. 5. A provision allowing the policyholder to make partial withdrawals.

Ins 2.13(7)(d)6. 6. Any other policy provision approved by the commissioner.

Ins 2.13(7)(e) (e)

Ins 2.13(7)(e)1. 1. An insurer issuing any modified guaranteed life insurance policy in this state shall, before or at the time the application is taken, deliver to the applicant and obtain from the applicant a written acknowledgment of receipt of all of the following information:

Ins 2.13(7)(e)1.a. a. A non-technical summary of the principal features of the policy, including a description of the manner in which the nonforfeiture benefits will be affected by the market-value adjustment formula and the factors which affect the variation. The summary shall include the notice required by par. (b) 1. b.

Ins 2.13(7)(e)1.b. b. A summary of the federal income tax aspects of the policy applicable to the insured, the policyholder and the beneficiary.

Ins 2.13(7)(e)1.c. c. Illustrations, prepared by the insurer, of benefits payable under the policy. No illustration may include a projection of past investment experience into the future or a prediction of future investment experience. This subparagraph does not prohibit the use of hypothetical assumed rates of return to illustrate possible levels of benefits if the insurer makes it clear that such assumed rates are hypothetical only.

Ins 2.13(7)(e)2. 2. An insurer may satisfy the requirements of subd. 1. by delivering to the policyholder a disclosure containing the information required by subd. 1., either in the form of a prospectus which is part of an effective registration statement under the securities act of 1933, 15 USC 77a to 77aa or, if the policies are exempt from the registration requirements of the securities act of 1933, all information and reports required by the federal employee retirement income security act of 1974, 29 USC 1001 to 1461.

Ins 2.13(7)(f) (f) The application for a modified guaranteed life insurance policy shall contain all of the following:

Ins 2.13(7)(f)1. 1. Immediately before the signature line, a statement that amounts payable under the policy are subject to a market-value adjustment before a date or dates specified in the policy.

Ins 2.13(7)(f)2. 2. A request for information which will enable the insurer to determine the suitability of modified guaranteed life insurance for the applicant.

Ins 2.13(7)(g) (g)

Ins 2.13(7)(g)1. 1. In this paragraph, “unadjusted cash value” means the cash value before applying any surrender charge or market-value adjustment formula.

Ins 2.13(7)(g)2. 2. An insurer shall mail to each holder of a modified guaranteed life insurance policy, at his or her last known address, an annual report showing the unadjusted cash value, the cash surrender value, death benefit, any partial withdrawal or policy loan, any interest charge and any optional payments allowed under the policy. The report shall also specify the surrender charge and market-value adjustment formula used to determine the cash surrender value. Each report shall state that the cash values may increase or decrease in accordance with the market-value adjustment formula. The report shall prominently identify any stated value that may be recomputed before the next annual report.

Ins 2.13(7)(g)3. 3. For flexible premium policies, if the unadjusted cash value and cash surrender value are different, the annual report shall contain a reconciliation of these values based on payments made less deductions for expense charges, withdrawals, investment experience, insurance charges and any other charges made against the cash value. The annual report shall also show the projected unadjusted cash value and cash surrender value, if different, as of one year from the end of the period covered by the report assuming all of the following:

Ins 2.13(7)(g)3.a. a. Planned periodic premiums, if any, are paid as scheduled.

Ins 2.13(7)(g)3.b. b. Guaranteed costs of insurance are deducted.

Ins 2.13(7)(g)3.c. c. Interest is credited at the guaranteed rate or, in the absence of a guaranteed rate, at a rate not greater than zero. If the projected unadjusted cash value is less than zero, the report shall include a warning stating that the policy may be in danger of terminating without value in the next 12 months unless additional premium is paid.

Ins 2.13(7)(g)4. 4. The insurer shall mail each annual report within 30 days after one of the following dates:

Ins 2.13(7)(g)4.a. a. The policy anniversary date, in which case the amounts reported shall be computed as of the policy anniversary date.

Ins 2.13(7)(g)4.b. b. Another date specified in the policy, in which case the amounts reported shall be computed as of a date no earlier than 60 days before the mailing date.

Ins 2.13(7)(h) (h) For flexible premium policies, the insurer shall also send a report to the policyholder whenever the amount available under the policy on any policy processing day to pay the charges authorized by the policy are less than the amount necessary to keep the policy in force until the next policy processing day. The report shall state the minimum payment required under the terms of the policy to keep it in force and the length of the grace period for payment.

Ins 2.13(8) (8) Modified guaranteed annuities.

Ins 2.13(8)(a) (a) Each insurer issuing modified guaranteed annuities in this state shall provide each contract holder with an annual report showing both the account value and the cash surrender value. The report shall clearly state that the account value does not include the application of any surrender charge or market-value adjustment formula. The annual report shall also specify the surrender charge and market-value adjustment formula used to determine the cash surrender value.

Ins 2.13(8)(b) (b)

Ins 2.13(8)(b)1. 1. Each modified guaranteed annuity contract issued in this state shall describe the essential features of the procedures the insurer uses in determining the amount of nonforfeiture benefits.

Ins 2.13(8)(b)2. 2. No insurer may issue in this state a modified guaranteed annuity contract calling for periodic stipulated payments unless it contains in substance all of the following provisions:

Ins 2.13(8)(b)2.a. a. A grace period of 30 days or one month within which the policyholder may make any stipulated payment, other than the first payment, due the insurer. During the grace period the contract shall continue in force. The contract may include a statement of the basis on which the insurer determines the date that it will apply any stipulated payment received during the grace period to produce the values under the contract arising from the application of the payment.

Ins 2.13(8)(b)2.b. b. A right to reinstatement of the contract at any time within one year from the date of default in making periodic stipulated payments to the insurer during the life of the annuitant, upon payment to the insurer of the overdue payments as required by the contract, and of all indebtedness, including interest, on the contract. The right to reinstatement does not apply if the insurer has paid the cash surrender value of the contract. The contract may include a statement of the basis on which the insurer determines the date that it will apply the amount to cover the overdue payments and indebtedness to produce the values under the contract arising from the application of the payment.

Ins 2.13(8)(b)3. 3. Each modified guaranteed annuity contract shall state the market-value adjustment formula the insurer uses to determine nonforfeiture benefits. The formula shall apply to both upward and downward adjustments. With each policy form filed under s. 631.20, Stats., the insurer shall submit an actuarial statement of the basis for the market-value adjustment formula which states that the formula provides reasonable equity to both the contract holder and the insurer.

Ins 2.13(8)(b)4. 4. Unless provided under any applicable contract, the portion of the assets of any separate account equal to the reserves and other applicable contract liabilities of the account are not chargeable with liabilities arising out of any other business of the insurer.

Ins 2.13(8)(c) (c)

Ins 2.13(8)(c)1. 1. Subdivisions 2. to 10. do not apply to any of the following:

Ins 2.13(8)(c)1.a. a. Reinsurance.

Ins 2.13(8)(c)1.b. b. A group annuity contract purchased in connection with a retirement plan or deferred compensation plan established or maintained by or for one or more employers, including partnerships, sole proprietorships, employee organizations or any combination thereof, other than plans providing individual retirement accounts or individual retirement annuities under 26 USC 408, as amended.

Ins 2.13(8)(c)1.c. c. A premium deposit fund.

Ins 2.13(8)(c)1.d. d. An investment annuity.

Ins 2.13(8)(c)1.e. e. An immediate annuity.

Ins 2.13(8)(c)1.f. f. A deferred annuity contract after annuity payments have commenced.

Ins 2.13(8)(c)1.g. g. A reversionary annuity.

Ins 2.13(8)(c)1.h. h. A contract which will be issued outside this state through an agent or other representative of the insurer.

Ins 2.13(8)(c)2. 2. No insurer may issue a modified guaranteed annuity contract in this state unless it contains in substance all of the following provisions:

Ins 2.13(8)(c)2.a. a. A plan that complies with subd. 4. for granting a paid-up annuity benefit upon cessation of payment of considerations under the contract. The contract shall describe the plan and shall include a statement of the mortality table, if any, and guaranteed or assumed interest rates used in calculating annuity payments.