SYNTHETIC GUARANTEED INVESTMENT CONTRACTS MODEL …

M odel Regulat ion Ser vice-----Apr il 1999

SYN T H ET I C GU ARAN T EED I N VEST M EN T CON T RACT S M ODEL REGULATI ON

T able of Contents

Sect ion 1. Sect ion 2. Sect ion 3. Sect ion 4. Sect ion 5. Sect ion 6. Sect ion 7. Sect ion 8. Sect ion 9. Sect ion 10. Sect ion 11. Sect ion 12.

Aut hor it y Pur pose Scope and Applicat ion Definit ions Financial Requir ement s and Plan of Oper at ion Requir ed Cont r act Pr ovisions and Filing Requir ement s I nvest ment M anagement of t he Segr egat ed Por t folio Pur chase of Annuit ies Unilat er al Cont r act Ter minat ions Reser ves Sever abilit y Effect ive Dat e

Section 1. Author ity

This r ule is issued pur suant t o t he aut hor it y vest ed in t he commissioner of t he St at e of [inser t st at e] under [inser t cit at ion for aut hor it y].

Section 2. Pur pose

A.

The pur pose of t his r egulat ion is t o pr escr ibe:

(1) The t er ms and condit ions under which life insur ance companies may issue gr oup annuit y cont r act s and ot her agr eement s t hat in whole or in par t est ablish t he insur er 's obligat ion by r efer ence t o a segr egat ed por t folio of asset s t hat is not owned by t he insur er ;

(2) The essent ial oper at ional feat ur es of t he segr egat ed por t folio of asset s; and

(3) The r eser ve r equir ement s for t hese gr oup annuit y cont r act s and agr eement s.

B.

This r egulat ion is int ended t o aid in t he t imely appr oval of such pr oduct s by t he

commissioner , and r ecognizes t hat t imely appr oval is essent ial given t he compet it ive

nat ur e of t he mar ket for t hese pr oduct s.

Section 3. Scope and Application

This r egulat ion applies t o t hat por t ion of a gr oup annuit y cont r act or ot her agr eement descr ibed in Sect ion 4W and issued by a life insur er t hat funct ions as an account ing r ecor d for an accumulat ion fund and has benefit guar ant ees r elat ing t o a pr incipal amount and levels of int er est at a fixed r at e of r et ur n specified in advance. The fixed r at es of r et ur n will be const ant over t he applicable r at e per iods, and may r eflect pr ior and cur r ent mar ket condit ions wit h r espect t o t he segr egat ed por t folio but may not r efer ence fut ur e changes in mar ket condit ions. I t applies t o all cont r act s issued aft er t he effect ive dat e of t his r egulat ion. Cont r act s t hat have been negot iat ed pr ior t o t he effect ive dat e need not be r efiled wit h t he commissioner .

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D r aft ing N ot e: This explanat ion of t he fixed r at e of r et ur n is int ended t o clar ify t he fact t hat t he r egulat ion excludes pr oduct s such as t hose t hat guar ant ee t he fut ur e per for mance of a st at ed index. I t is r ecognized t hat ver sions of synt het ics ot her t han t hose descr ibed in t he scope sect ion may evolve over t ime; t he int ent of t he r egulat ion is not t o pr eclude t he issuance of such pr oduct s, but r at her t o descr ibe how a specific set of synt het ics (t hose descr ibed in t he scope) should be r egulat ed.

D r aft ing N ot e: I t is expect ed t hat individual r egulat or s, wher e applicable, will r et ain t he r ight t o wit hdr aw appr oval of pr eviously filed cont r act for ms for new issuance if t hey do not confor m t o t he r egulat ion. Ther efor e, no language explicit ly wit hdr awing appr oval of pr eviously filed for ms was included.

Section 4. D efinitions

As used in t his r egulat ion, t he following t er ms shall have t hese meanings:

A.

``Account asset s'' means t he asset s in t he segr egat ed por t folio plus any asset s held in

t he gener al account or a separ at e account t o meet t he asset maint enance

r equir ement s.

B.

``Act uar ial opinion and memor andum'' means t he opinion and memor andum of t he

valuat ion act uar y r equir ed t o be submit t ed t o t he commissioner pur suant t o Sect ion

10B of t his r egulat ion.

C.

``Affir mat ively appr oved'' means appr oval of an insur er 's plan of oper at ion for a class

of cont r act s cont aining t he for m of cont r act under r eview, aft er t he plan of oper at ion

associat ed wit h t he class of cont r act s has been r eviewed by t he insur er 's domiciliar y

insur ance depar t ment , and t he plan of oper at ion has been found t o be in compliance

wit h t he NAI C Synt het ic Guar ant eed I nvest ment Cont r act s M odel Regulat ion by t he

domiciliar y insur ance depar t ment . Affir mat ively appr oved does not mean appr oval as

a r esult of t he deemer pr ovision.

D.

``Appoint ed act uar y'' means t he qualified act uar y appoint ed or r et ained eit her dir ect ly

by or by t he aut hor it y of t he boar d of dir ect or s t hr ough an execut ive officer of t he

company t o pr epar e t he annual st at ement of act uar ial opinion for t he company as a

whole pur suant t o Sect ion [inser t r efer ence t o st andar d valuat ion law].

E.

``Asset maint enance r equir ement '' means t he r equir ement t o maint ain asset s t o fund

cont r act benefit s in accor dance wit h Sect ion 10 of t his r egulat ion.

F.

``Class of cont r act s'' means t he set of all cont r act s t o which a given plan of oper at ion

per t ains.

G. ``Cont r act value r ecor d'' means an account ing r ecor d, pr ovided by t he cont r act in r elat ion t o a segr egat ed por t folio of asset s, t hat is cr edit ed wit h a fixed r at e of r et ur n over r egular per iods, and t hat is used t o measur e t he ext ent of t he insur er 's obligat ion t o t he cont r act holder . The fixed r at e of r et ur n cr edit ed t o t he cont r act value r ecor d is det er mined by means of a cr edit ing r at e for mula or declar ed at t he incept ion of t he cont r act and valid for t he ent ir e t er m of t he cont r act .

H . ``Cr edit ing r at e for mula'' means a mat hemat ical for mula used t o calculat e t he fixed r at e of r et ur n cr edit ed t o t he cont r act value r ecor d dur ing any r at e per iod and based in par t upon t he differ ence bet ween t he cont r act value r ecor d and t he mar ket value r ecor d amor t ized over an appr opr iat e per iod. The fixed r at e of r et ur n calculat ed by means of t his for mula may r eflect pr ior and cur r ent mar ket condit ions wit h r espect t o t he segr egat ed por t folio, but may not r efer ence fut ur e changes in mar ket condit ions.

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I.

``Dat e of filing,'' wit h r espect t o a filing for appr oval of a cont r act for m under t his

r egulat ion, means t he dat e as defined by t he applicable st at ut es or r egulat ions of t he

st at e of issue wit h r egar d t o cont r act filings.

D r aft ing N ot e: I ndividual st at es may wish t o inser t a specific r efer ence t o t he applicable st at ut e or r egulat ion.

J.

``Dur at ion'' means, wit h r espect t o t he segr egat ed por t folio asset s or guar ant eed

cont r act liabilit ies, a measur e of pr ice sensit ivit y t o changes in int er est r at es, such as

t he M acaulay dur at ion or opt ion-adjust ed dur at ion.

K . ``Fair mar ket value'' means a r easonable est imat e of t he amount t hat a knowledgeable buyer of an asset would be willing t o pay, and a knowledgeable seller of an asset would be willing t o accept , for t he asset wit hout dur ess in an ar m's lengt h t r ansact ion. I n t he case of a publicly t r aded secur it y, t he fair mar ket value is t he pr ice at which t he secur it y is t r aded or , if no pr ice is available, a pr ice t hat appr opr iat ely r eflect s t he lat est bid and asked pr ices for t he secur it y. I n t he case of a debt inst r ument t hat is not publicly t r aded, t he fair mar ket value is t he discount ed pr esent value of t he asset calculat ed at a r easonable discount r at e. For all ot her nonpublicly t r aded asset s, fair mar ket value will be det er mined in accor dance wit h valuat ion pr act ices cust omar ily used wit hin t he financial indust r y.

L.

``Guar ant eed minimum benefit s'' means cont r act benefit s on a specified dat e t hat may

be eit her :

(1) A pr incipal guar ant ee, wit h or wit hout a fixed minimum int er est r at e guar ant ee, r elat ed t o t he segr egat ed por t folio;

(2) An assur ance as t o t he fut ur e invest ment r et ur n or per for mance of t he segr egat ed por t folio; or

(3) The fair mar ket value of t he segr egat ed por t folio, t o t he ext ent t hat t he fair mar ket value of t he asset s det er mines t he cont r act holder 's benefit s.

M . (1) ``H edging inst r ument '' means:

(a) An int er est r at e fut ur es agr eement or for eign cur r ency fut ur es agr eement , an opt ion t o pur chase or sell an int er est r at e fut ur es agr eement or for eign cur r ency fut ur es agr eement , or any opt ion t o pur chase or sell a secur it y or for eign cur r ency, used in a bona fide hedging t r ansact ion; or

(b) A financial agr eement or ar r angement ent er ed int o wit h a br oker , dealer or bank, qualified under applicable feder al and st at e secur it ies or banking law and r egulat ion, in connect ion wit h invest ment in one or mor e secur it ies in or der t o r educe t he r isk of changes in mar ket valuat ion or t o cr eat e a synt het ic invest ment t hat , when added t o t he por t folio, r educes t he r isk of changes in mar ket valuat ion.

(2) An inst r ument shall not be consider ed a hedging inst r ument or a par t of a bona fide hedging t r ansact ion if it is pur chased in conjunct ion wit h anot her inst r ument wher e t he effect of t he combined t r ansact ion is an incr ease in t he por t folio's exposur e t o mar ket r isk.

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N. ``I nvest ment guidelines'' means a set of wr it t en guidelines, est ablished in advance by t he per son wit h invest ment aut hor it y over t he segr egat ed por t folio, t o be followed by t he invest ment manager . The guidelines shall include a descr ipt ion of:

(1) The segr egat ed por t folio's invest ment object ives and limit at ions;

(2) The invest ment manager 's degr ee of discr et ion;

(3) The dur at ion, asset class, qualit y, diver sificat ion, and ot her r equir ement s of t he segr egat ed por t folio; and

(4) The manner in which der ivat ive inst r ument s may be used, if at all, in t he segr egat ed por t folio.

O. ``I nvest ment manager '' means t he per son (including t he cont r act holder ) r esponsible for managing t he asset s in t he segr egat ed por t folio in accor dance wit h t he invest ment guidelines in a fiduciar y capacit y t o t he owner of t he asset s.

P.

``M ar ket value r ecor d'' means an account ing r ecor d pr ovided by t he cont r act t o r eflect

t he fair mar ket value of t he segr egat ed por t folio.

Q. ``Per mit t ed cust odial inst it ut ion'' means a bank, t r ust company or ot her licensed fiduciar y ser vices pr ovider .

D r aft ing N ot e: When adopt ing t his r egulat ion, individual r egulat or s may wish t o r eview t heir applicable st at e laws t o ensur e t hat t his definit ion hasn't inadver t ent ly aut hor ized an ent it y t o act as a cust odial inst it ut ion t hat it would not wish t o do so.

R.

``Plan of oper at ion'' means a wr it t en plan meet ing t he r equir ement s of Sect ion 5B(1) of

t his r egulat ion.

S.

``Qualified act uar y'' means an individual who meet s t he qualificat ion st andar ds set

for t h in [inser t r efer ence t o sect ion of t he r egulat ions r elat ed t o act uar ial opinions and

memor anda].

T.

``Rat e per iod'' means t he per iod of t ime dur ing which t he fixed r at e of r et ur n cr edit ed

t o t he cont r act value r ecor d is applicable bet ween cr edit ing r at e for mula adjust ment s.

U. ``Segr egat ed por t folio'' means:

(1) A por t folio or sub-por t folio of asset s t o which t he cont r act per t ains t hat is held in a cust ody or t r ust account by t he per mit t ed cust odial inst it ut ion and ident ified on t he r ecor ds of t he per mit t ed cust odial inst it ut ion as special cust ody asset s held for t he exclusive benefit of t he r et ir ement plans or ot her ent it ies on whose behalf t he cont r act holder holds t he cont r act ; and

(2) Any r elat ed cash or cur r ency r eceived by t he per mit t ed cust odial inst it ut ion for t he account of t he cont r act holder and held in a deposit account for t he exclusive benefit of t he r et ir ement plans or ot her ent it ies on whose behalf t he cont r act holder holds t he cont r act .

V.

``Spot r at e''

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(1) ``Tr easur y-based spot r at e'' cor r esponding t o a given t ime of benefit payment means t he yield on a zer o-coupon non-callable and non-pr epayable Unit ed St at es gover nment obligat ion mat ur ing at t hat t ime, or t he zer o-coupon yield implied by t he pr ice of a r epr esent at ive sampling of coupon-bear ing, noncallable and non-pr epayable Unit ed St at es gover nment obligat ions in accor dance wit h a for mula set for t h in t he plan of oper at ion.

(2) ``I ndex spot r at e'' cor r esponding t o a given t ime of benefit payment means t he zer o-coupon yield implied by (x) t he Bar clays Shor t Ter m Cor por at e I ndex (for a given t ime of benefit payment under one year ) or (y) t he zer o-coupon yield implied by t he Bar clays U.S. Cor por at e I nvest ment Gr ade Bond I ndex (for a given t ime of benefit payment gr eat er t han or equal t o one year ).

(3) ``Blended spot r at e'' cor r esponding t o a given t ime of benefit payment means a blend of 50% each of (i) t he t r easur y-based spot r at e, and (ii) t he index spot r at e. To t he ext ent t hat guar ant eed cont r act liabilit ies ar e denominat ed in t he cur r ency of a for eign count r y r at ed in one of t he t wo (2) highest r at ing cat egor ies by an independent nat ionally r ecognized Unit ed St at es r at ing agency accept able t o t he commissioner and ar e suppor t ed by invest ment s denominat ed in t he cur r ency of t he for eign count r y, t he t r easur y-based spot r at e component of t he blended spot r at e may be det er mined by r efer ence t o subst ant ially similar obligat ions of t he gover nment of t he for eign count r y. For liabilit ies ot her t han t hose descr ibed above, t he blended spot r at e shall be det er mined on a basis mut ually agr eed upon by t he insur er and t he commissioner .cor r esponding t o a given t ime of benefit payment means t he yield on a zer o-coupon non-callable and non-pr epayable Unit ed St at es gover nment obligat ion mat ur ing at t hat t ime, or t he zer o-coupon yield implied by t he pr ice of a r epr esent at ive sampling of coupon-bear ing, non-callable and non-pr epayable Unit ed St at es gover nment obligat ions in accor dance wit h a for mula set for t h in t he plan of oper at ion. To t he ext ent t hat guar ant eed cont r act liabilit ies ar e denominat ed in t he cur r ency of a for eign count r y r at ed in one of t he t wo (2) highest r at ing cat egor ies by an independent nat ionally r ecognized Unit ed St at es r at ing agency accept able t o t he commissioner and ar e suppor t ed by invest ment s denominat ed in t he cur r ency of t he for eign count r y, t he spot r at e may be det er mined by r efer ence t o subst ant ially similar obligat ions of t he gover nment of t he for eign count r y. For liabilit ies ot her t han t hose descr ibed above, t he spot r at e shall be det er mined on a basis mut ually agr eed upon by t he insur er and t he commissioner .

W. ``Synt het ic guar ant eed invest ment cont r act '' or ``cont r act '' means a gr oup annuit y cont r act or ot her agr eement t hat in whole or in par t est ablishes t he insur er 's obligat ions by r efer ence t o a segr egat ed por t folio of asset s t hat is not owned by t he insur er .

X.

``Unilat er al cont r act t er minat ion event '' means an event allowing t he insur er t o

unilat er ally and immediat ely t er minat e t he cont r act , wit hout fut ur e liabilit y or

obligat ion t o t he cont r act holder .

Y.

``Unit ed St at es gover nment obligat ion'' means a dir ect obligat ion issued, assumed,

guar ant eed or insur ed by t he Unit ed St at es of Amer ica or by an agency or

inst r ument alit y of t he Unit ed St at es gover nment .

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Z.

``Valuat ion act uar y'' means t he appoint ed act uar y or , alt er nat ively, a qualified

act uar y designat ed by t he appoint ed act uar y t o r ender t he act uar ial opinion pur suant

t o Sect ion 10. Wr it t en document at ion of any such designat ion shall be on file at t he

company and available for r eview by t he commissioner upon r equest .

Section 5. F inancial Requir ements and Plan of Oper ation

A cont r act may not be deliver ed or issued for deliver y in t his st at e unless t he issuing insur er is licensed as a life insur ance company in t his st at e and is financially qualified under t he pr ovisions of Subsect ion A of t his sect ion. I n addit ion, a domest ic insur er may not deliver or issue for deliver y, eit her in t his st at e or out side t his st at e, a cont r act belonging t o a specific class of cont r act s unless t he insur er has sat isfied t he r equir ement s of Subsect ion B of t his sect ion wit h r espect t o t hat class.

A.

An insur er will be financially qualified under t his sect ion if it s most r ecent st at ut or y

financial st at ement s r eflect at least $1 billion in admit t ed asset s or $100 million in

capit al and sur plus, and it s r isk-based capit al r esult s do not place it at a r egulat or y

level of act ion. I n lieu of t he r equir ement s in t he pr eceding sent ence, t he insur er may

be r equir ed t o sat isfy such ot her financial qualificat ion r equir ement s set for t h by t he

commissioner as having been deemed necessar y or appr opr iat e in a par t icular case t o

pr ot ect t he insur er 's policyholder s and t he public.

B.

A domest ic insur er will sat isfy t he r equir ement s of t his sect ion wit h r espect t o a class

of cont r act s if t he insur er has filed a plan of oper at ion per t aining t o t he class of

cont r act s, t oget her wit h copies of t he for ms of cont r act in t he class, wit h t he

commissioner and t he filing of t he plan of oper at ion has been appr oved or has not

been disappr oved wit hin t he sixt y-day per iod following t he dat e of filing, in which

event t he plan of oper at ion shall be deemed appr oved.

(1) The plan of oper at ion for a class of cont r act s shall descr ibe t he financial implicat ions for t he insur er of t he issuance of cont r act s in t he class, and shall include at least t he following:

(a) A st at ement t hat t he plan of oper at ion will be administ er ed in accor dance wit h t he r equir ement s pr escr ibed by t he commissioner pur suant t o t his r egulat ion, along wit h a st at ement t hat t he insur er will comply wit h t he plan of oper at ion in it s administ r at ion of t he cont r act ;

(b) A st at ement descr ibing t he met hods and pr ocedur es used t o value st at ut or y liabilit ies for pur poses of Sect ion 10;

(c) A descr ipt ion of t he cr it er ia used by t he insur er in appr oving t he invest ment manager for t he segr egat ed por t folio of asset s associat ed wit h a cont r act in t he class, if t he invest ment manager is an ent it y ot her t han t he insur er or it s wholly owned subsidiar y;

(d) A descr ipt ion of t he insur er 's r equir ement for r epor t s concer ning t he asset s in each segr egat ed por t folio and t r ansact ions involving t he asset s, and a descr ipt ion of how t he insur er can use t he infor mat ion in a r epor t t o det er mine t hat t he segr egat ed por t folio is being managed in accor dance wit h it s invest ment guidelines. The insur er shall r equir e t hat t he r epor t be pr epar ed no less fr equent ly t han quar t er ly,

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and include a complet e st at ement of segr egat ed por t folio holdings and t heir fair mar ket value;

(e) A demonst r at ion of financial r esult s for one or mor e sample cont r act s fr om t he class of cont r act s, showing at a minimum t he pr oject ed cont r act value r ecor ds, t he applicable fixed r at e or r at es of r et ur n, and t he pr oject ed mar ket value r ecor ds, descr ibing how t he invest ment s in t he segr egat ed por t folio r eflect pr ovision for benefit s insur ed by t he cont r act and how t he cont r act value and mar ket values and t he r at es of r et ur n may be affect ed by changes in t he invest ment r et ur ns of t he segr egat ed por t folio and r easonably ant icipat ed deposit s t o and wit hdr awals fr om t he segr egat ed por t folio by t he cont r act holder , as well as any advances made by t he insur er t o t he cont r act holder . The sample cont r act s shall be chosen t o r easonably r epr esent t he r ange of r esult s t hat could be expect ed fr om possible combinat ions of cont r act pr ovisions of all cont r act s wit hin t he class. The demonst r at ion shall include at least t hr ee (3) hypot het ical r et ur n scenar ios (level, incr easing and decr easing) and for each of t hese scenar ios, at least t hr ee (3) wit hdr awal scenar ios (zer o, moder at e and high) shall be modeled. The commissioner may r equir e addit ional scenar ios if deemed necessar y t o fully under st and t he r isks under t he class of cont r act s. The demonst r at ion per iod shall be t he gr eat er of five (5) year s or t he minimum per iod t he insur er must under wr it e t he r isk;

(f)

A st at ement t hat all cont r act s in t he class of cont r act sat isfy t he

r equir ement of Sect ion 9 r egar ding unilat er al cont r act t er minat ions,

t oget her wit h a descr ipt ion of all t er minat ion event s, discont inuat ion

t r igger s and opt ions, not ice r equir ement s, cor r ect ive act ion

pr ocedur es, all ot her cont r act safeguar ds, and t he pr ocedur es t o be

followed when a unilat er al cont r act t er minat ion event occur s;

(g) A descr ipt ion of t he allowable invest ment par amet er s (such as object ives, der ivat ive st r at egies, asset classes, qualit y, dur at ion and diver sificat ion r equir ement s applied t o t he asset s held wit hin t he segr egat ed por t folio) t o be r eflect ed in t he invest ment guidelines applicable t o each cont r act issued in t he class t o which t he submit t ed plan of oper at ion applies; and a descr ipt ion of t he pr ocedur es t hat will be followed by t he insur er in evaluat ing t he appr opr iat eness of any specific invest ment guidelines submit t ed by t he cont r act holder . I f t he insur er chooses t o oper at e a cont r act in accor dance wit h invest ment guidelines not meet ing t he cr it er ia est ablished pur suant t o t his subpar agr aph, t he non-confor ming set of invest ment guidelines shall be filed wit h t he commissioner in accor dance wit h t he filing r equir ement s of t his subsect ion;

(h) A descr ipt ion of t he cr it er ia used by t he insur er in appr oving for cont r act issuance a pooled fund r epr esent ing mult iple employer sponsor ed plans and in appr oving t he invest ment manager for t he segr egat ed por t folio of asset s associat ed wit h such pooled fund cont r act ;

Guidance N ot e: A pooled fund is an ar r angement in which mult iple, unaffiliat ed employer sponsor ed plans invest in a shar ed t r ust . Pooled funds gener ally allow plan sponsor s t he r ight t o exit t he fund at book value subject t o advance

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not ificat ion r equir ement s. I n descr ibing t he cr it er ia used by t he insur er in evaluat ing t he pot ent ial issuance of a cont r act , discuss t he insur er 's advance not ificat ion r equir ement s and how any act ual advance not ificat ions will be monit or ed and r eflect ed in t he r isk management of t he cont r act .

(i )

A descr ipt ion of r isk-mit igat ion t echniques used by t he insur er in

connect ion wit h cont r act s issued t o pooled funds r epr esent ing

mult iple employer -sponsor ed plans;

(j )

An unqualified opinion by a qualified act uar y wit h exper t ise in t hese

mat t er s as t o t he adequacy of t he consider at ion char ged by t he

insur er for t he r isks it has assumed wit h r espect t o t he cont r act s in

t he class t o which t he plan of oper at ion applies;

(ki) A st at ement t hat t he act uar ial opinion and memor andum r equir ed by Sect ion 10 shall include, wit h r espect t o t he class of cont r act s t o which t he plan of oper at ion applies:

(i )

I f a payment has been made by t he insur er in t he pr ior

r epor t ing per iod under a cont r act in t he class, t he amount of

aggr egat e r isk char ges (net of administ r at ive expenses) for

cont r act s in t he class, and t he aggr egat e amount of any losses

incur r ed; and

(ii) An invent or y of all mat er ial unilat er al cont r act t er minat ion event s in t he class t hat have not been cur ed wit hin t he t ime per iod specified and t hat have occur r ed dur ing t he pr ior r epor t ing per iod but wher e t he company decided not t o t er minat e t he cont r act .

(2) Review of t he plan of oper at ion by t he commissioner may necessit at e r equest s for infor mat ion t o supplement t hat fur nished pur suant t o Par agr aph (1). Replies made in compliance wit h t his par agr aph should be made in sufficient det ail t hat any follow-up cor r espondence can be held t o a minimum.

Section 6. Requir ed Contr act Pr ovisions and F iling Requir ements

D r aft ing N ot e: This sect ion may be omit t ed in it s ent ir et y if a st at e does not r equir e cont r act s t o be filed for appr oval, and t he st at e wishes t o eliminat e r equir ed cont r act pr ovisions. Subsect ion B of t his sect ion may be omit t ed if a st at e does not r equir e cont r act s t o be filed for appr oval, but wishes t o maint ain r equir ed cont r act pr ovisions.

A cont r act may not be deliver ed or issued for deliver y in t his st at e unless t he cont r act sat isfies t he r equir ement s of Subsect ion A of t his sect ion and t he issuing insur er has sat isfied t he r equir ement s of Subsect ion B of t his sect ion wit h r espect t o t he cont r act .

A.

The cont r act shall:

(1) Pr ovide t hat t he asset s t o which t he cont r act per t ains and for which a cont r act value r ecor d is est ablished will be maint ained in a segr egat ed por t folio of a per mit t ed cust odial inst it ut ion;

(2) Gr ant t he insur er t he r ight t o per for m audit s and inspect ions of asset s held in t he segr egat ed por t folio fr om t ime t o t ime upon r easonable not ice t o t he per mit t ed cust odial inst it ut ion;

695-8

? 1999 Nat ional Associat ion of I nsur ance Commissioner s

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