Sec. 97.4. Procedure

(a) To establish a market-value separate account pursuant to this Part, the insurance company shall file for approval with the superintendent a plan of operations for the separate account, accompanied by the contract or form of contract, or a description thereof, providing for allocation of amounts to the separate account, and an undertaking to file actuarial opinions and memoranda in conformity with the requirements of this Part.

(b) The plan of operations shall include but not be limited to:

(1) a statement of the investment policy for the separate account, including requirements for diversification, maturity, type and quality of assets and, if applicable, for matching guaranteed contract liabilities;

(2) a description of how the market-value of the separate account assets is to be determined, including (but not limited to) a statement of procedures and rules for valuing securities and other separate account assets which are not publicly traded;

(3) a description of how the guaranteed contract liabilities are to be valued, including with respect to fixed or guaranteed minimum benefits, a description of the methodology for calculating spot rates and the rates proposed to be used to discount guaranteed contract liabilities if higher than the applicable spot rates, provided that the rate or rates used shall not exceed the maximum rates allowed to be used to calculate the minimum value of guaranteed contract liabilities described in section 97.5(k) of this Part, and must conservatively reflect expected investment returns (taking into account foreign exchange risks);

(4) a statement of how the separate accounts operations are designed to provide for payment of contract benefits as they become due, including (but not limited to) a description of the method for estimating the amount and timing of benefit payments, the arrangements necessary to provide liquidity to cover contingencies, and the method to be used to comply with the asset maintenance requirement;

(5) a demonstration that the consideration charged for account contracts is appropriate in view of the risks to the insurance company with respect to such account contracts;

(6) a description of the charges to be made against the separate account assets, and a description of the manner in which the risk charge, if any, payable from separate account assets will be determined;

(7) a description of how any surrender charges under the account contracts are to be computed;

(8) if hedging techniques or dynamic hedging techniques are to be utilized in managing separate account assets a description of such techniques and an explanation of how they are intended to reduce risk of loss;

(9) if the amount of the asset maintenance requirement depends on the separate account or a subportfolio thereof being duration matched, a description of the method used and assumptions made to determine the durations of separate account assets and guaranteed contract liabilities;

(10) if the amount of the asset maintenance requirement depends on the separate account or a subportfolio thereof being cash-flow matched, a description of the method used to determine the cash inflows to be received from separate account assets and the cash outflows needed to meet guaranteed contract liabilities (including, where applicable, a description of any provisions contained in the account contracts which are designed to transfer substantially all of the investment risk to the contractholder);

(11) if the insurance company proposes to create a duration matched or cash-flow matched subportfolio, a justification for creating such a subportfolio, a description of the method by which the specified guaranteed contract liabilities to be duration or cash-flow matched will be determined and a description of how the duration matched or cash-flow matched subportfolio will be managed separately so as to continue to maintain duration or cash-flow matching;

(12) if a part of the asset maintenance requirement is to be met by maintaining a reserve liability in the general account, a description of:

(i) the circumstances under which increases and decreases in such reserve liability will be made;

(ii) the circumstances under which transfers will be made between the separate account and the general account; and

(iii) any arrangements needed to provide sufficient liquidity in the general account to enable the insurance company to make transfers to the separate account when due;

(13) a statement as to whether or not the account contracts will provide that the separate account assets shall not be chargeable with liabilities arising out of any other business of the insurance company; and

(14) if any person is empowered under section 4240 of the Insurance Law to authorize, approve or review the acquisition and disposition of investments for the account, a statement of the safeguards adopted by the insurance company to assure that the actions to be taken by such person are appropriate.

(c) The contract form submission shall be accompanied by the material referred to in subdivision (a) of this section and shall identify the product as one whose reserving and asset maintenance are subject to this Part and shall identify the type of product and whether it is subject to section 97.5(g)(1) or (2) of this Part.

(d) Notwithstanding the descriptions in the plan of operations, the insurance company may change the rate used pursuant to section 97.5(k) of this Part to discount guaranteed contract liabilities and other items applicable to the separate account, such as if the investment portfolio is different from that anticipated by the plan of operations, provided that the rate or rates used shall not exceed the maximum rates allowed to be used to calculate the minimum value of guaranteed contract liabilities described in section 97.5(k) of this Part, and must conservatively reflect expected investment returns (taking into account any foreign-exchange risks). Any such change must be disclosed and justified in the actuary's opinion and memorandum submitted pursuant to section 97.6 of this Part.

(e) A plan of operations filed pursuant to this section may provide that the separate account will fund guaranteed contract liabilities denominated in the currency of a foreign country with separate account assets denominated in such currency, provided that at the time of issuance of the account contracts the country is rated in one of the two highest rating categories by an independent nationally recognized United States rating agency acceptable to the superintendent.

(f) The superintendent may require an insurer to file additional information as part of the plan of operations if the superintendent determines that the plan of operations is not sufficient.