Possible revisions to clarify that the Model 695 is not meant to apply to CDAs
Members of the SG generally agree that CDAs were not meant to be included in the scope of the
Synthetic GIC Model 695. Nevertheless, due to some similarities or parallels in the definitions of CDAs
and Synthetic GICs, a clarification may be necessary. SG members suggested several possible ways that
this could be resolved. These suggestions fall into four general approaches.
Approach 1. Modify the definition of the CDA so that it cannot possibly be considered a Synthetic GIC.
Bob Chester (CT) proposed the following wording:
“A CDA is an insurance product that provides protection against underperforming and downward
performing markets in the form of an income guarantee on outside investment accounts owned by an
insured. The insurer provides this income guarantee through the collection of on-going charges or
premium deductions from within these outside investment accounts. The insured must agree to certain
portfolio restrictions and must first deplete their outside investment account assets at the CDA
guaranteed income amount and rate according to the contract and prior to the insurer’s assumption of
this amount.”
Approach 2. Modify the definition of the Synthetic GIC so that CDA cannot possibly be considered a
Synthetic GIC.
Felix Schirripa (NJ) proposed the following wording:
A “Synthetic Guaranteed Investment Contract” means an agreement that permits a segregated portfolio
of assets, not owned by the insurer, to be recorded at book value (or amortized cost value) for
participant-initiated distributions, by amortizing the portfolio’s market gains and losses over the average
duration of the portfolio’s assets through future interest credited to book value. The interest credited to
the book value record is periodically, often monthly, reset using the following formula:
CR= (1+i)*((MV/BV)^(1/d)) – 1
Approach 3. Modify the Scope and Application section of the Model to narrow its scope.
Tomasz Serbinowski (UT) proposed that Section 3 of the Model be rewritten in a more structured way
making it clear that only some Synthetic GIC are within its scope (as expressed by the Drafting
Note). Something along the following:
This regulation applies to that portion of a group annuity contract or other agreement described in
Section 4W and issued by a life insurer that:
a.
Functions as an accounting record …
b.
Has a constant rate of return …
c.
….
Approach 4. Modify the Scope and Application section of the Model to exclude CDAs.
Mike Colburn (CT) proposed adding the following at the very beginning of Section 3:
“Notwithstanding the rest of this Scope and Application section, any CDA-type benefits/contract
features (as described in the Life Insurance and Annuities (A) committee definition of Contingent
Deferred Annuity) are not subject to this model regulation.”