ARC 4326C
INSURANCE DIVISION[191]
Notice of Intended Action
Proposing rule making related to unfair trade practices
and providing an opportunity for public comment
The Insurance Division hereby proposes to amend Chapter 15, “Unfair Trade Practices,” Iowa Administrative Code.
Legal Authority for Rule Making
This rule making is proposed under the authority provided in Iowa Code chapter 507B.
State or Federal Law Implemented
This rule making implements, in whole or in part, Iowa Code chapter 507B.
Purpose and Summary
This proposed rule making is intended to implement a model regulation adopted by the National Association of Insurance Commissioners.
Fiscal Impact
This rule making has no fiscal impact to the State of Iowa.
Jobs Impact
After analysis and review of this rule making, no impact on jobs has been found.
Waivers
The Division’s general waiver provisions of 191—Chapter 4 apply to these rules.
Public Comment
Any interested person may submit written comments concerning this proposed rule making. Written comments in response to this rule making must be received by the Division no later than 4:30 p.m.	on April 2, 2019. Comments should be directed to:

Ann Outka
Insurance Division
Two Ruan Center
601 Locust Street, Fourth Floor
Des Moines, Iowa 50309
Fax: 515.281.3059
Email: ann.outka@iid.iowa.gov	
Public Hearing
A public hearing at which persons may present their views orally or in writing will be held as follows:

April 2, 2019
11 a.m.	to 12 noon	Division Offices, Fourth Floor
Two Ruan Center
601 Locust Street
Des Moines, Iowa	
Persons attending the public hearing will be asked to provide their names; persons may submit written comments; if persons wish to make oral comments in person or by telephone, they will be asked to state their names and who they represent for the record and to confine any remarks to the subject of this proposed rule making.
Any persons who intend to attend the public hearing and have special requirements, such as those related to hearing or mobility impairments, should contact the Division and advise of specific needs.
Review by Administrative Rules Review Committee
The Administrative Rules Review Committee, a bipartisan legislative committee which oversees rule making by executive branch agencies, may, on its own motion or on written request by any individual or group, review this rule making at its regular monthly meeting or at a special meeting. The Committee’s meetings are open to the public, and interested persons may be heard as provided in Iowa Code section 17A.8(6).
The following rule-making actions are proposed:
	Item 1. Amend paragraph 15.66(6)“h” as follows:
	h. 	The Except as provided by paragraph 15.66(6)“v,” nonguaranteed elements underlying the nonguaranteed illustrated values shall be no more favorable than current nonguaranteed elements and shall not include any assumed future improvement of such elements. Additionally, nonguaranteed elements used in calculating nonguaranteed illustrated values at any future duration shall reflect any planned changes, including any planned changes that may occur after expiration of an initial guaranteed or bonus period;
	Item 2. Amend paragraphs 15.66(6)“t”  and “u” as follows:
	t. 	Annuitization benefits shall be based on contract values that reflect surrender charges or any other adjustments, if applicable; and
	u. 	Illustrations shall show both annuity income rates per $1000.00 and the dollar amounts of the periodic income payable.; and
	Item 3. Adopt the following new paragraph 15.66(6)“v”:
	v. 	For participating immediate and deferred income annuities:
	(1)	Illustrations shall not assume any future improvement in the applicable dividend scale (or scales, if more than one dividend scale applies, such as for a flexible premium annuity);
	(2)	Illustrations shall reflect the equitable apportionment of dividends, whether performance meets, exceeds or falls short of expectations;
	(3)	If the dividend scale is based on a portfolio rate method, the portfolio rate underlying the illustrated dividend scale shall not be assumed to increase;
	(4)	If the dividend scale is based on an investment cohort method, the illustrated dividend scale shall assume that reinvestment rates grade to long-term interest rates, subject to the following conditions:
	1.	Any assumptions as to future investment performance in the dividend formula shall be consistent with assumptions that are reflected in the marketplace within the normal range of analyst forecasts and investor behavior. These assumptions shall not be changed arbitrarily, notwithstanding changes in markets or economic conditions, and shall be consistent with assumptions that the insurer uses with respect to other lines of business.
	2.	The illustrated dividend scale shall assume that reinvestment rates grade to long-term interest rates, based on the rates of U.S. Treasury bonds (U.S. Treasury rates). For the purposes of this grading, the assumed long-term rates shall not exceed the rates calculated using the formula in numbered paragraph 15.66(6)“v”(4)“3” based on the time to maturity or reinvestment (the “tenor”) of the investments supporting the cohort of policies.
	3.	Maximum long-term interest rates shall be calculated for tenors of 3 months or less, 5 years, 10 years, and 20 years or more, using U.S. Treasury rates. For each tenor, the maximum long-term interest rate shall vary over time, based on historical interest rates as they emerge. The formula for the maximum long-term interest rate is the average of the median U.S. Treasury rate during the last 600 months and the average U.S. Treasury rate during the last 120 months, rounded to the nearest quarter of one percent (0.25%).
	4.	The maximum long-term interest rate for a tenor shall be recalculated once per year, in January, using historical interest rates as of December 31 of the calendar year two years prior to the calendar year of the calculation date. The historical interest rate for each month is the interest rate reported for the last business day of the month.
	5.	Grading to the maximum long-term interest rates shall take place during:
	●	No less than 20 years from the issue date if U.S. Treasury rates as of the illustration date are below the long-term interest rates; or
	●	No more than 20 years from the issue date if the U.S. Treasury rates as of the illustration date are above the long-term interest rates.
	6.	When the ten-year U.S. Treasury rate is less than the ten-year maximum long-term interest rate, an additional illustrated dividend scale shall be presented. This additional illustrated dividend scale shall satisfy the following conditions:
	●	Assume that reinvestment U.S. Treasury rates do not exceed the initial investment U.S. Treasury rates, and
	●	Illustrate dividends of no less than half of the dividends illustrated under the current dividend scales.
If the conditions under the two prior bulleted paragraphs are in conflict (i.e., if half of the current dividends are greater than would be permitted by the condition under the first bulleted paragraph above), then the reinvestment U.S. Treasury rates shall equal the initial investment U.S. Treasury rates.
	7.	The illustration shall include a disclosure that is substantially similar to the following:
The illustrated current dividend scale is based on interest rates that are assumed to gradually [increase/decrease] from current interest rates to long-term interest rates during a period of [20] years. As required by state regulations, the long-term assumed interest rates cannot and do not exceed the rates listed in column (c) of the table below.
[Insert table from paragraph 15.66(6)“v”(4)“9”]
	8.	If the illustration contains an additional dividend scale pursuant to numbered paragraph 15.66(6)“v”(4)“6,” then the illustration also shall include a disclosure that is substantially similar to the following:
The additional illustrated dividend scale is based on interest rates that are assumed not to increase and that do not exceed the interest rates in column (b) of the table below.
[Insert table from paragraph 15.66(6)“v”(4)“9”]
	9.	The following table shall be used in the disclosures as indicated in numbered paragraphs 15.66(6)“v”(4)“7” and “8”:

(a)	(b)	(c)	
	U.S. Treasury Rate as of 12/31/2016	Long-Term U.S. Treasury Rate	
3 Months or Less	0.51%	3.00%	
5 Years	1.93%	4.50%	
10 Years	2.45%	5.00%	
20 Years or More	3.06%	5.50%