1. (1) A company may fund its policies in a separate account holding assets valued at market only if all of the following conditions are met:

   1. (i) the company does not invest such assets in other than publicly traded obligations, short-term debt and cash (and cash equivalents) unless at least 90 percent of the market-value of such assets consist of fixed income obligations and other securities (and hedging instruments purchased in connection therewith) and cash (and cash equivalents), having a Macaulay duration within one year of the Macaulay duration of the policy liabilities, determined in accordance with one of the two ways provided in paragraph (2) of this subdivision;
   2. (ii) the company invests the assets of the separate account so that at least 80 percent of the market-value of such assets consist of fixed income obligations and short-term debt (and hedging instruments purchased in connection therewith) and cash (and cash equivalents), having a Macaulay duration within one year of the Macaulay duration of the policy liabilities, determined in accordance with one of the two ways provided in paragraph (2) of this subdivision;
   3. (iii) the policies provide for separate account funding;
   4. (iv) the company obtains the superintendent's approval of its plan of operation for the separate account; and
   5. (v) the company submits annually to the superintendent, an opinion, in form and substance satisfactory to the superintendent, of a qualified actuary meeting the requirements of Part 95 of this Title that, after taking into account any risk charge payable from the assets of the separate account with respect to policy liabilities, the reserves for the policies and the separate account assets make good and sufficient provision for the company's liabilities with respect thereto, such opinion to be accompanied by a memorandum, also in form and substance satisfactory to the superintendent, of the qualified actuary, describing the calculations made in support of such opinion and the assumptions used in the calculations. The form of the opinion and memorandum shall comply with said Part 95 of this Title.

2. (2) The Macaulay durations of assets and liabilities used for purposes of paragraph (1) of this subdivision shall be computed in one of the following two ways using an assumed rate of interest equal to Moody's Corporate Bond Yield Average, as published by Moody's Investors Service, Inc., for the date of valuation (or, at the election of the company which may not be changed without the prior approval of the superintendent, equal to Moody's Corporate Bond Yield Average-Monthly Average Corporates, as published by Moody's Investors Service, Inc., for the month including the month of valuation):

   1. (i) based on the assumptions that assets held in the separate account will not be sold and that each policy will be surrendered on its next guaranteed benefit date; or
   2. (ii) based on the assumptions set forth in, the plan of operations for the separate account that assets will be sold and reinvested, and some policies will be renewed with a new guaranteed benefit date, in accordance with procedures approved by the superintendent.

3. (3) A plan of operations for a separate account referred to in paragraph (1) of this subdivision should contain a statement of:

   1. (i) the investment policy for the account;
   2. (ii) how the market-value of the assets of the account is to be determined;
   3. (iii) how the account's operations are designed to provide for the payment of benefits as they become due; and
   4. (iv) how the reserve liabilities are to be valued.

4. (4) If the company uses a separate account referred to in paragraph (1) of this subdivision, the value of the reserves for the policies funded by the account will be the largest of (i) the aggregate cash surrender values of such contracts on the valuation date (as adjusted by any market-value adjustment formulae); (ii) an amount deemed by the qualified actuary to make good and sufficient provision for the policy liabilities as indicated in the actuarial opinion and memorandum submitted to the superintendent pursuant to subparagraph (1)(v) of this subdivision; and (iii) the sum of the values of such policies, where, for each policy, the value (“V”) shall be determined in accordance with the following formula:

   V = MR^1[LA]/_{[LA + PV]} + MR^2[PV]/_{[LA + PV]}

   where

   PV = the nonborrowed portion of the policy value.

   LA = the amount in the loan account.

   MR¹ = t he minimum reserve for the policy calculated in accordance with section 4217 of the Insurance Law.

   MR² = the minimum reserve for the policy calculated in accordance with section 4217 of the Insurance Law, except that in lieu of using the calendar year statutory valuation interest rate or rates determined in accordance with that section, the company shall use a rate of interest of either (x) or (y) (which shall be consistently applied) for the period remaining until the end of the current guarantee period and thereafter the calendar year statutory valuation interest rate or rates that were applicable to such policies under section 4217 of the Insurance Law on the preceding year-end, where:

5. (x) is the annual market yield to maturity of those assets of the account consisting of fixed income obligations and other securities and cash (and cash equivalents), reduced to reflect a reduction in the yield to maturity of any obligations not of investment grade in the account by 2½ percent, reduced by a provision for reasonably anticipated investment expenses and further reduced by a margin for adverse deviation of ¼ of 1 percent; and

6. (y) is an annual rate equal to Moody's Corporate Bond Yield Average as published by Moody's Investors Service, Inc., for the date of valuation (or, at the election of the company which may not be changed without the prior approval of the superintendent, equal to Moody's Corporate Bond Yield Average-Monthly Average Corporates, as published by Moody's Investors Service, Inc., for the month including the date of valuation).

   1. (5) At all times, the company shall maintain assets in the separate account having an aggregate market value at least equal to the greater of (i) an amount equal to the aggregate cash surrender values of the policies funded by the account (as adjusted by any market-value adjustment formulae) less aggregate of the amounts in the loan accounts of such policies; and (ii) an amount of assets deemed by the qualified actuary to be necessary to make good and sufficient provision for the policy liabilities, as indicated by the actuarial opinion and memorandum referred to in subparagraph (1)(v) of this subdivision. If the aggregate market value of such assets should fall below such amount, the company shall transfer assets into the separate account so that market value of the separate assets is at least equal to such amount. Assets and reserves for settlement options under policies shall not be maintained in the same separate account as used for in force policies.

      (c) General account assets.

   2. (1) If a company meets the conditions of this subdivision and funds its policies in its general account or in a separate account holding assets valued in accordance with section 1414 of the Insurance Law, it shall value its reserves for such policies as the greatest of (i) the aggregate amount of what the cash surrender values of such policies would be on the valuation date if such policies did not provide for market-value adjustments; (ii) an amount deemed by the qualified actuary to make good and sufficient provision for the policy liabilities as indicated in the actuarial opinion and memorandum submitted to the superintendent pursuant to subparagraph (2)(v) of this subdivision; and (iii) the minimum reserves for such policies determined in accordance with section 4217 of the Insurance Law.

   3. (2) A company meets the conditions of this subdivision if the company:

      1. (i) maintains clearly identifiable assets supporting reserves for its policies;
      2. (ii) does not invest in other than publicly traded obligations, short-term debt and cash (and cash equivalents) unless at least 90 percent of the market-value of such assets consist of fixed income obligations and other securities (and hedging instruments purchased in connection therewith) and cash (and cash equivalents), having a Macaulay duration within one year of the Macaulay duration of the policy liabilities determined in accordance with one of the two ways provided in paragraph (b)(2) of this section;
      3. (iii) invests the assets of the separate account so that at least 80 percent of the market-value of such assets consist of fixed income obligations and short-term debt (and hedging instruments purchased in connection therewith) and cash (and cash equivalents), having a Macaulay duration within one year of the Macaulay duration of the policy liabilities determined in accordance with one of the two ways provided in paragraph (b)(2) of this section;
      4. (iv) obtains the superintendent's approval of a plan of operations for the management of such assets containing information comparable to that called for by paragraph (b)(3) of this section; and

      5. (v) submits annually to the superintendent an opinion and memorandum of a qualified actuary with respect to such assets, in form and substance satisfactory to the superintendent, comparable to the opinion and memorandum called for by subparagraph (b)(1)(v) of this section and, in addition, demonstrates that the market-value of such identifiable assets on the valuation date is at least equal to the cash surrender values of such policies (as adjusted by market-value adjustment formulae).

         (d) Noncompliance with subdivision (c).

         If a company does not fund its policies in a separate account holding assets valued at market and fails to meet the conditions of subdivision (c) of this section, it shall value its reserves for its policies as the greater of (i) the cash surrender values of such policies on the valuation date (as adjusted by market-value adjustment formulae); and (ii) the minimum reserves for such policies determined in accordance with section 4217 of the Insurance Law, but using in lieu of the reference interest rate, the lower of the reference interest rate and an annual rate equal to Moody's Corporate Bond Yield Average, as published by Moody's Investors Service, Inc., for the date of valuation (or, at the election of the company which may not be changed without the prior approval of the superintendent, equal to Moody's Corporate Bond Yield Average-Monthly Average Corporates, as published by Moody's Investors Service, Inc., for the month including the date of valuation).

(a) Choice of funding.

A company may fund its policies where permitted by law in a separate account holding assets valued at market and may value its reserve liabilities for policies using a current interest rate determined in accordance with this section. Alternatively, a company may fund policies in its general account or where permitted by law in a separate account holding assets valued in accordance with section 1414 of the Insurance Law, and in either case value its reserve liabilities using an interest rate determined in accordance with this section and section 4217 of the Insurance Law.

(b) Market-value separate accounts.