Providing an annuity crediting feature through an insurance company’s general account is different from providing the same type of feature through a separate account.

The Annuity Subgroup at the Interstate Compact National Standards Working Group is considering a proposal for “addition standards for [an] index-linked crediting feature provided through a separate account.”

The working group, part of the National Association of Insurance Commissioners, Kansas City, Mo., helps the Interstate Insurance Product Regulation Commission draft national standards for insurance products that are eligible for inclusion in the Interstate Insurance Product Regulation Compact.

The states that choose to participate in the compact use it to create a centralized filing process for life and annuity products and forms. An insurer can use the office to comply with filing requirements in many different states at once, rather than sending separate filings to dozens of offices.

The proposed index-linked crediting feature standard would apply to features with returns based on the performance of investment indexes and “provided through a separate account that are built-in to individual deferred annuity contracts,” according to a scope provision at the beginning of the proposed standard. “These standards modify the standards for individual deferred variable annuities.”

Insurers could offer an index-linked crediting feature in more than one way, officials note in the scope provision.

“The major difference between an index-linked feature provided through a general account and an index-linked feature provided through a separate account is in the treatment of nonforfeiture values.”

A version posted July 21 includes the following drafting note:

The phrases “provided through a separate account” and “backed by a separate account” as used in this standard refer to the fact that the assets supporting the contract (or the index-linked portion of the contract) are held in a designated separate account. This means that the separate account holds the premiums paid into the contract and the investment income earned by those premiums and any “true-up” of assets transferred from or to the general account to ensure that the market value of assets at least equals the value of the contract liabilities. The separate account is established and maintained under the laws of the state of domicile and any federal requirements. The type of separate account required to back this type of product is a non-unitized separate account, which means that the annuity contract does not participate in the investment results of the separate account. The separate account may be insulated from the creditors of the general account or not depending on company and/or domiciliary state requirements. One of the main benefits of holding the assets in a separate account is that they are usually required to be held at market, which is more consistent with the way the liabilities for this type of index-linked annuity are calculated.

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