(a) A company may fund its contracts providing for market-value adjustments in a separate account holding assets valued at market and may value its reserve liabilities for such contracts using a current interest rate determined in accordance with this section. Alternatively, a company may fund such contracts in its general account or 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 and regulations promulgated by the superintendent.

1. (1) A company may fund its contracts 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 in nor reinvest 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 consists of fixed income obligations and other securities and cash (and cash equivalents), having a Macaulay duration within one year of the Macaulay duration of the contract liabilities under at least one of the two ways provided in paragraph (2) of this subdivision;
   2. (ii) the company maintains at least 80 percent of the market value of the assets held in the separate account consisting of fixed income obligations, short-term debt and cash (and cash equivalents), having a Macaulay duration within one year of the Macaulay duration of the contract liabilities under at least one of the two ways provided in paragraph (2) of this subdivision;
   3. (iii) the contracts provide for separate account funding;
   4. (iv) the company obtains the superintendent's approval of its plan of operation for the separate account;
   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 contract liabilities, 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 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 - Monthly Average Corporates, as published by Moody's Investors Service, Inc., for the month ending on or immediately preceding the date of valuation:

   1. (i) based on the assumptions that assets held in the separate account will not be sold and that each contract 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 contracts 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 contract benefits as they become due; and
   4. (iv) how the reserve contract 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 contracts funded by the account will be the larger of:

   1. (i) the aggregate cash surrender values of such contracts on the valuation date (as adjusted by any market-value adjustment formulae); and

   2. (ii) the present value of the contract benefits that are guaranteed. The company shall determine such present value using a discount rate of interest of either (x) or (y) (which shall be consistently applied), where:

      1. (a) (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 high-yield obligations in the account by 2.5 percent reduced by a provision for reasonably anticipated investment expenses and further reduced by a margin for adverse deviation of ¼ of one percent; and
      2. (b) (y) is an annual rate equal to Moody's Corporate Bond Yield Average - Monthly Average Corporates, as published by Moody's Investors Service, Inc., for the month ending on or immediately preceding the date of valuation.

5. (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 contracts funded by the account (as adjusted by any market-value adjustment formulae), and (ii) an amount of assets deemed by the qualified actuary to be necessary to make good and sufficient provision for the contract liabilities, as indicated by the actuarial opinion and memorandum referred to in subparagraph (b)(1)(v) of this section. 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 annuity benefits under such contracts in the course of payment shall not be maintained in the same separate account as used for deferred annuity contracts.

   (c) General account and some separate account assets.

6. (1) If a company meets the conditions of this subdivision and funds its contracts in its general account or in a separate account holding assets valued in accordance with section 1414 of the Insurance Law, it may value its reserves for such contracts as the greatest of (i) the aggregate amount of what the cash surrender values of such contracts would be on the valuation date if such contracts did not provide for market-value adjustments, (ii) the present value, determined as provided in paragraph (3) of this subdivision, of the contract benefits that are guaranteed, and (iii) the minimum reserves for such contracts calculated in accordance with Part 95 of this Title for contracts with cash settlement options.

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

   1. (i) maintains clearly identifiable assets supporting reserves for its contracts;
   2. (ii) does not invest nor reinvest 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 consists of fixed income obligations and other securities and cash (and cash equivalents), having a Macaulay duration within one year of the Macaulay duration of the contract liabilities (computed as provided in paragraph [b][2] of this section);
   3. (iii) maintain such assets so that at least 80 percent of the market value of such assets consists of fixed income obligations, short-term debt and cash (and cash equivalents), having a Macaulay duration within one year of the Macaulay duration of the contract liabilities under 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. The opinion should take into account all factors that will result in differences between the market value of such assets and the cash surrender values of such contracts (as adjusted by market-value adjustment formulae).

8. (3) The present value of contract benefits shall be determined under this subdivision using an interest rate calculated in accordance with section 4217 of the Insurance Law and regulations promulgated thereunder on the assumption that such contracts are of Plan Type B within the meaning of subsection (c)(4)(D)(iii)(V) of such section.

   (d) Noncompliance with subdivision (c) of this section.

9. (1) If a company does not fund its contracts 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 contracts as the greatest of (i) the cash surrender values of such contracts on the valuation date (as adjusted by market-value adjustment formulae), (ii) the present value, determined as provided in paragraph (2) of this subdivision, of the contract benefits that are guaranteed, and (iii) the minimum reserves for such contracts calculated in accordance with Part 95 of this Title for contracts with cash settlement options, with or without an acceptable actuarial opinion and memorandum, whichever is applicable.
10. (2) The present value of contract benefits shall be determined under this subdivision using an interest rate calculated in accordance with the formula for life insurance contained in section 4217(c)(4)(B)(i) of the Insurance Law on the assumption that such contracts are of Plan Type C within the meaning of subsection (c)(4)(D)(iii)(V) of such section.

(b) Market-value separate accounts.