NU Online News Service, Dec. 29, 2003, 5:48 p.m. EST – New York insurance regulators have given life insurers instructions on procedures for restricting access to the fixed accounts within variable annuity contracts.[@@]

Life insurers have been asking about the topic in recent months because a long slump in bond rates has hurt earnings on the assets that insurers use to back fixed account rate guarantees.

A life insurer can protect itself against further drops in rates by including VA contract provisions that permit it to discontinue fixed account guarantees once the initial guarantee period expires, according to a discussion of fixed account access restrictions posted on the Web site of the New York State Insurance Department.

A life insurer also can limit the share of a customer’s contract funds that go into fixed accounts, officials write.

New York regulators want an insurer to give holders at least 30 days of advance written notice before using contract provisions that let it shut off access to the fixed VA accounts.

“Prior notice would give contract and certificate holders time to decide where to invest new deposits and transfers,” the regulators write.

An insurer also must notify VA holders about the lifting of restrictions on fixed accounts, but an insurer can lift restrictions without waiting for a minimum notice period to expire.

An insurer that wants to limit the percentage of VA assets that can go into fixed accounts must describe the limits in the VA application and on the specification page of the contract or certificate forms, according to the New York regulators.

New York also lets an insurer include a contract provision that permits it to apply statutory reductions in minimum guaranteed interest rates to VA contracts.

But an insurer can apply the reduction in the minimum rate only to new annuity contracts, not to contracts that already are in force when the minimum legal rate changes, New York regulators write.

The regulators have posted the fixed account restrictions discussion at http://www.ins.state.ny.us/ifxactar.htm