1. (1) For purposes of this section, an annuity shall be considered as a series of payments made not less frequently than annually for five years or more, in which the payments in any one contract or calendar year (at the option of the company) after the first do not exceed 115 percent of the payments in the immediately preceding contract or calendar year. An immediate annuity is an annuity in which the first payment begins in 13 or fewer months after issue. A deferred annuity is an annuity in which the first payment begins more than 13 months after issue.
2. (2) A series of payments made less frequently than annually and/or payable for less than five years shall be considered a series of lump sums. A lump sum shall be considered a cash settlement option.
3. (3) Immediate annuity payments may or may not be convertible to a lump sum by commuting future payments. Any payments in a year in excess of 115 percent of the prior calendar or contract year's payments may be considered as a lump sum or may be considered as part of a new annuity, depending on the circumstances. Some contracts may consist of combinations of annuities and of lump sums.
4. (b) Where a contract contains, for the current or any future period of time, a sequence of payments which are payable less frequently than annually, i.e., a series solely consisting of lump sums, the maximum valuation interest rate for each payment within such period or periods shall be determined using the guarantee duration of each payment assuming plan type B. The plan type B guarantee duration of such a payment is the number of years from the date of issue or date of purchase to the date on which the payment is due. Year of issue valuation interest factors shall be used for these types of contracts.
5. (c) Where a contract contains, for the current or any future period of time, a sequence of annual (or more frequent) payments which is less than five years in length but such sequence would qualify as an annuity except for the number of years of payments, the maximum valuation interest rate for the sequence shall be determined assuming plan type B. The plan type B guarantee duration for the sequence of payments is the number of years from the date of issue or date of purchase to the date on which the first installment payment of such sequence is due. Year of issue valuation interest rates shall be used for these types of contracts.
6. (d) Where the amount of the deferred annuity income payments is guaranteed and there are no cash settlement options, the reserve shall be based on the present value of the income payments based on an appropriate annuity mortality table and the valuation rate of interest in accordance with section 4217(c) of the Insurance Law based on an issue year method and a guarantee duration equal to the number of years from the date of issue to the date the first payment begins.
7. (e) Individual structured settlements vary considerably in payment pattern and duration. These contracts may provide for level and/or increasing periodic payment schedules, as well as lump sum benefit payments. These contracts do not allow for commutation of the future payouts unless directed by a court of competent jurisdiction. In valuing individual structured settlements, a split of all or a portion of the lump sum payments from the periodic benefit payments may be appropriate. Splits not in accordance with paragraph (f)(1) of this section would require valuation in accordance with the procedures in subdivision (g) of this section, subject to any restrictions in that subdivision.

8. (f) This subdivision applies to blocks of contracts consisting of immediate annuities, deferred annuities, and structured settlements where such annuities and structured settlements have fixed income, no withdrawal rights, and payments both no less frequently than annually and for at least five years.

   1. (1) As to all amounts guaranteed to be paid under such contracts issued in a given calendar year, the calendar year valuation interest rate for single premium immediate annuities may be used if the first such payment is made 13 or fewer months after issuance of the contract, or if the first such payment is made at a later time, then the appropriate plan type A valuation interest rate may be used, provided:

      1. (i) the guaranteed payments under each contract in the block due in any contract or calendar year (at the option of the company) after the first is not greater than 115 percent of the guaranteed payments due in the immediately preceding contract or calendar year; or
      2. (ii) the total guaranteed payments under all contracts combined included in the block due in any calendar year after the second are not greater than 110 percent of the total guaranteed payments due in the immediately preceding calendar year but only contracts having payments not less frequently than annually for at least five years shall be included.
   2. (2) The year to year comparison of benefits may be made before or after considering the effect of mortality or any certain period, but the actuary shall indicate and justify the method used.
   3. (3) For contracts which contain, for the current or any future period of time, a sequence of payments which are payable less frequently than annually or for less than five years, the sequence of payments shall be valued in accordance with subdivision (b) or (c) of this section, as applicable.

9. (g) If a block of immediate annuities with income fixed, deferred annuities with income fixed, or structured settlements with income fixed, or other contracts with income fixed, and which provide for payments no less frequently than annually for at least five years, provide for payments that do not meet the requirements of subdivision (f) of this section (i.e., payments exceeding the applicable 110 percent or 115 percent rule), then one of the procedures in paragraphs (1)-(3) of this subdivision shall be used. For contracts which contain, for the current or any future period of time, a sequence of payments which are payable less frequently than annually and/or for less then five years, the sequence of payments shall be valued in accordance with subdivision (b) or (c) of this section, as applicable.

   1. (1) The block shall be divided into components so that:

      1. (i) The contracts/payments satisfying the requirements of subdivision (f) of this section are included in one or more components and those not satisfying such requirements are included in another component or components. The valuation interest rate for single premium immediate annuities or the appropriate plan type A valuation interest rate or rates, whichever is applicable, may be used in accordance with subdivision (f) of this section for the component or components of the block which satisfy such requirements. The plan type A guarantee duration of a given component is the number of years from the date of issue or date of purchase to the date on which the first payment in such component is due.
      2. (ii) The maximum valuation interest rate for any payment included in a component which does not satisfy the requirements of subdivision (f) of this section (i.e., a payment in excess of the applicable 110 percent or 115 percent rule) shall be determined using the guarantee duration of the lump sum payment and on the assumption that the payment is made under a contract of plan type B. The plan type B guarantee duration of a lump sum payment is the number of years from the date of issue or date of purchase to the date on which the payment or the first installment payment of payments payable annually (or more frequently) for less than five years is due.
      3. (iii) Year of issue valuation interest rates shall be used for both plan type A and plan type B components.
      4. (iv) The lump sum payment (i.e., the payment in excess of the applicable 110 percent or 115 percent rule) shall be disregarded for purposes of determining compliance of the immediately following year's payments.
      5. (v) The actuary shall describe the components and justify the choice of valuation interest rate or rates for the component or components of the block that, if included, would cause the block to fail the test.

   2. (2) The reserves for each contract for each valuation year shall be the greater of the “level interest rate reserves” and of the “graded interest rate reserves”. Graded interest rate reserve factors for each separate year of issue for all future payments of such year of issue, whether periodic or lump sum payments, shall be graded in a manner that produces reserves at least as great as the method described in subparagraphs (i)-(iv) of this paragraph. The procedure of this paragraph shall not be used for contracts with payments for which the latest scheduled payment is 20 years or less after issue. Contracts subject to this subdivision for which the latest scheduled payment is 20 years or less after issue shall be valued in accordance with paragraph (1) or (3) of this subdivision. If this procedure is used for any contract issued in a given calendar year subject to this subdivision for which the latest scheduled payment is more than 20 years after issue, it shall be used for all contracts issued in the same calendar year subject to this subdivision for which the latest scheduled payment is more than 20 years after issue.

      1. (i) Step one, calculate the present value of future benefits at issue for each contract using the calendar year valuation interest rate for single premium immediate annuities if the first payment under the contract is made 13 or fewer months after issue, or if the first such payment is made at a later time, then the appropriate (level) plan type A interest rate for contracts without cash settlement options for the guarantee duration corresponding to the number of years from the date of issue or date of purchase to the date that the first payment is due. Define this value as “PV(O)”, and define the reserves at successive durations using this interest rate as “level interest rate reserves”.
      2. (ii) Step two, solve for “x percent” such that the present value of future benefits at issue for each contract is equal to PV(0) (calculated in accordance with step one), using “x percent” as the valuation interest rate for the first 20 contract years after issue and thereafter the plan type A valuation interest rate for contracts without cash settlement options for guarantee durations of more than 20 years. However, “x percent” shall be limited to 115 percent of the appropriate plan type A interest rate in step one; where such limit is effected, the present value at issue shall be greater than PV(0).
      3. (iii) For each valuation year calculate the “graded interest rate reserves” based on the assumption that the valuation interest rate during the first 20 contract years is “x percent” as calculated in step two and thereafter the plan type A valuation interest rate for contracts without cash settlement options and guarantee durations of more than 20 years; or
   3. (3) Any other method substantially consistent with paragraph (1) or (2) of this subdivision, with the prior written approval of the superintendent.

10. (h) For contracts for which additional amounts may be payable during the payout period, the reserve before annuitization shall be determined in accordance with section 99.4 or 99.5 of this Part, as applicable, of this Part and the reserve after annuitization shall be the greater of:

    1. (1) the present value, at the valuation date, of the guaranteed annuity benefits determined using, as the valuation basis, the valuation mortality table, if applicable, and the maximum applicable valuation interest rate; or

    2. (2) the present value, at the valuation date, of the guaranteed annuity benefits determined using, as the valuation basis, the mortality table, if applicable, and the interest rate over which additional amounts may be payable.

       Any other method in recognition of the method for paying additional amounts, substantially consistent with the principles of this subdivision, may be used with the prior written approval of the superintendent.

       (i) Use of substandard annuity mortality tables, for structured and other settlements of tort actions.

    3. (1) Solely for the purpose of valuing benefits arising from settlements or judgments of claims pertaining to tort actions (such as in accordance with article 50-A or 50-B of the Civil Practice Law & Rules), or settlements involving similar actions such as workers' compensation, or settlements of long term disability where a temporary or life annuity has been used in lieu of continuing disability payments, and where the injured party is the annuitant, a substandard annuity mortality table may be used, as specified in paragraph (2) or (3) of this subdivision. The insurer shall retain, as proof of the individual's impaired health and shortened longevity, all relevant hospital records, treating physicians' reports or other independent medical evaluations utilized in the underwriting process.
    4. (2) The minimum reserves for applicable contracts are the reserves based on a mortality table obtained by making a constant addition to the mortality rate of the otherwise applicable standard valuation mortality table, as specified in section 99.10(e) of this Part, such that the expectation of life as of the issue date on the adjusted valuation table is greater than or equal to the average of the expectations of life as of the issue date indicated by or obtained from information given by the company's medical directors or underwriters during the underwriting and pricing process. The constant addition to the mortality table herein described shall be made as of the issue date and, once determined, held constant for the period of time that the contract remains in force.
    5. (3) For annuitants other than the injured person in such settlements, the actual age and an appropriate statutory standard annuity mortality table or any modification of such table which produces reserves at least as high as those under the standard table based on the actual age shall be used.

    6. (4) Where a company uses a modified table with higher mortality rates for impaired lives under structured judgments and settlements, the company shall maintain records of actual to expected mortality to monitor the appropriateness of the substandard mortality.

       (j) Use of substandard annuity mortality tables in valuing impaired lives under individual single premium immediate annuities.

    7. (1) This subdivision applies to any individual single premium immediate annuity contract issued on or after January 1, 2012 not covered by subdivision (i) of this section, but for which medical records indicate the expectation of life has been reduced and tor which the premium charged ret1ects that reduction.
    8. (2) An insurer may use a substandard annuity mortality table where there is a medical assessment of the annuitant, or measuring life, based on relevant hospital records, treating physicians' reports, or independent medical evaluations that support at least a 25 percent reduction in the expectation of life, based on either the current valuation table or the insurer's pricing table, consistently applied, compared to a normally healthy individual of the same age and gender. The insurer shall retain the information used in the medical assessment in its underwriting file as proof of the individual's impaired health and shortened longevity for as long as the contract remains in force.

    9. (3) Minimum reserves.

       1. (i) The minimum reserves for a contract subject to this paragraph shall be the reserves obtained by making a constant addition to the mortality rate of the otherwise applicable valuation mortality table, as specified in section 99.10 of this Part. The constant addition shall be determined as follows:

          1. (a) calculate the present value of future benefits at issue for each contract using a rated up age, the applicable valuation mortality table, and the single premium immediate annuity valuation interest rate. The rated up age must produce an expectation of life under this valuation mortality table whose percent reduction from the actual age expectation of life under this table is not greater than the percent reduction in the expectation of life supported by the medical assessment described in paragraph (2) of this subdivision; and
          2. (b) solve for the constant addition to the true age mortality rates such that the present value of future benefits at issue is equal to or greater than the present value obtained in clause (a) of this subparagraph. The base mortality table and the valuation interest rate shall be the same as those specified in clause (a) of this subparagraph.
       2. (ii) The constant addition to the mortality table shall be made as of the issue date and, once determined, held constant for the period of time that the contract remains in force.
       3. (iii) For every contract subject to this subdivision, the insurer shall maintain records of actual to expected mortality to monitor the appropriateness of the substandard mortality. The appointed actuary must comment on the appropriateness of the substandard mortality and report any material deviations in the actuarial memorandum that supports the actuarial opinion required by Part 95 of this Title (Insurance Regulation 126). The fact that an insurer has held minimum reserves as described in this paragraph shall not relieve the appointed actuary from considering whether the reserves are adequate.

(a) General.