Life and Health Product
Review
Multi-State Review Actuarial Memoranda
Formats & Rating Requirements
ACTUARIAL MEMORANDA
GENERAL SUBMISSION
REQUIREMENTS
An actuarial memoranda,
signed by a qualified
actuary who is a Member of
the American Academy of
Actuaries, must be provided.
The actuarial memoranda
must contain sufficient
information to determine
compliance with minimum
nonforfeiture values as
required by the Multi-State
Review Standards.
Such information shall
include (but is not limited
to):
- The methodology for
establishing minimum
nonforfeiture values. This
methodology must provide the
formulas and assumptions in
sufficient detail for the
department analyst to
calculate the minimum
nonforfeiture values at any
point in time.
- A
numerical demonstration of
compliance based on issue
age 35, along with
assumptions necessary for
the department analyst to
calculate the minimum
nonforfeiture amounts. This
demonstration should provide
20 years of the contract's
guaranteed cash surrender
values and calculated
minimum nonforfeiture
amounts.
- A
certification from a
qualified actuary that the
contract will comply with
the minimum nonforfeiture
requirements of the
Multi-State Review Standards
regardless of any change to
the minimum nonforfeiture
interest rate or any other
changes provided by the
contract.
Any additional
offset to the nonforfeiture
interest rate for an
equity-indexed benefit shall
meet compliance with the
current draft exposure or
subsequent NAIC adoption of
the Annuity Nonforfeiture
Model Regulation by the Life
Health Actuarial Task Force
of the National Association
of Insurance Commissioners
(NAIC).
EQUITY INDEXED
BENEFITS
The actuarial memoranda
must contain the following
information:
1. A description of the
product.
2. A
description of the index
used:
Describe the external
index used and the criteria
for selecting a substitute
index if the current index
is no longer in existence or
applicable. Advance
notification would be
provided to the insurance
department on the substitute
index, the rationale for
replacing the existing index
and the substitute index
used for in-force contracts.
3. A description of how
index-based benefits are
calculated:
It must provide
descriptions, complete with
formula definitions, of how
index-based benefits are
calculated under level, up
and down index scenarios.
Include a description,
complete with an algorithm,
if any, of how the
index-based benefits are set
initially at product launch
and how they are planned to
be reset subsequent to
product launch. If the
contract contains a cap or
floor for the indexed
benefits, then the minimum
cap and minimum floor for
all indexed periods/terms
should be addressed in the
actuarial memoranda.
4. A demonstration of
compliance with the
applicable nonforfeiture
requirements.
GUARANTEED LIVING
BENEFITS
Actuarial Certification
and Memoranda Required
The actuarial memoranda
must contain:
1) Support for the
reasonableness and
sufficiency of the pricing
to support the guarantees
provided, including a
description of how the
benefit charge is
calculated.
2) The
reason for any continuation
of the charge after the
benefit is terminated, if
applicable.
3) The
reason must include the
investment strategy and
instrument used.
4) For
a Guaranteed Minimum
Withdrawal Benefit, a
demonstration reflecting
contract values with and
without the benefit. The
demonstration shall include:
a) Accumulated Value,
b) Guaranteed Minimum
Withdrawal Benefit Charge,
c) Guaranteed Withdrawal
Balance,
d) Guaranteed
Annual Withdrawal Amount,
and
e) Cash Surrender
Value.
MODIFIED GUARANTEED
ANNUITY
A modified guaranteed
annuity shall be subject to
Multi-State Review standards
for Individual Deferred
Fixed Annuities with regard
to Nonforfeiture values
computed under the terms of
the annuity but excluding
from the computation the
effect of market-value
adjustment factors.
A modified guaranteed
annuity shall be subject to
Multi-State Review standards
for Group Deferred Fixed
Annuities with regard to
Nonforfeiture values
computed under the terms of
the annuity but excluding
from the computation the
effect of market-value
adjustment factors.
MARKET VALUE
ADJUSTMENTS
The contract shall be
subject to the individual
deferred annuity Multi-State
review standards with regard
to nonforfeiture values,
after inclusion of any
market value adjustment
NONFORFEITURE
VALUES/COMPUTATION OF VALUES
(a) (1) The minimum
nonforfeiture amount at any
time at or prior to the
commencement of any annuity
payments shall be equal to
an accumulation up to that
time, at the rates of
interest indicated in
subdivision (b) of the net
considerations (as
hereinafter defined) paid
prior to that time,
decreased by the sum of all
of the following:
(A) Any prior withdrawals
from or partial surrenders
of the contract, accumulated
at the rates of interest
indicated in subdivision (b)
(B) An annual contract
charge of fifty dollars
($50), accumulated at the
rates of interest indicated
in subdivision (b)
(C)
Any state premium tax paid
by the company for the
contract, accumulated at the
rates of interest indicated
in subdivision (b) However,
the minimum nonforfeiture
amount may not be decreased
by this amount if the
premium tax is subsequently
credited back to the
company.
(D) The amount
of any indebtedness to the
company on the contract,
including interest due and
accrued.
(2) The net
considerations used to
define the minimum
nonforfeiture amount shall
be an amount equal to 87.5
percent of the gross
considerations credited to
the contract.
(b) The
interest rate used in
determining minimum
nonforfeiture amounts shall
be an annual rate of
interest determined as the
lesser of 3 percent per
annum and the following,
which shall be specified in
the contract if the interest
rate will be reset:
(1) The five-year
Constant Maturity Treasury
(CMT) Rate reported by the
Federal Reserve as of a
date, or averaged over a
period, rounded to the
nearest one-twentieth of 1
percent, specified in the
contract no longer than 15
months prior to the contract
issue date or
redetermination date under
paragraph (2), reduced by
125 basis points, where the
resulting rate is not less
than 1 percent.
(2) The interest rate
shall apply for an initial
period and may be
redetermined for additional
periods. The redetermination
date, basis, and period, if
any, shall be stated in the
contract. The basis is the
date, or average over a
specified period, which
produces the value of the
five-year Constant Maturity
Treasury Rate to be used at
each redetermination date.
To the extent that a
variable annuity contract
provides benefits that do
not vary in accordance with
the investment performance
of a separate account before
the annuity commencement
date, the contract values
shall satisfy the
requirements on standards
NCV01 through NCV09.
The method, for
determining the interest
rate in
NCV1(b) applicable at
contract issue, shall be
disclosed in an actuarial
memoranda submitted with
the contract form.
The method for
determining the interest
rate in
NCV1(b) shall base the
selection of the five-year
CMT rate on a specific
date(s) or on a date(s)
dependent upon changes in
CMT levels. A method based
upon changes in CMT levels
must move up or down in a
consistent manner with
changes in interest rates,
subject to statutory
minimums and maximums. An
example of an unacceptable
method is one that is a
continuous change to the
lowest rate over a specified
period.
The contract form shall
not permit insurer
discretion in the timing of
redetermining the
nonforfeiture interest rate
unless the result of
re-determining the rate
would be a higher
nonforfeiture rate.
At any point in time each
contract will have its
nonforfeiture interest
rate(s) based on one
calculated value of the
five-year Constant Maturity
Treasury Rate.
An additional offset to
the nonforfeiture interest
rate is allowed for a
deferred annuity
equity-indexed benefit. The
maximum additional offset is
100 basis points. Any such
offset must comply with
requirements in the
actuarial memoranda section
of the MSRP standards.
For any contract which
provides, within the same
contract by rider or
supplemental contract
provision, both annuity
benefits and life insurance
benefits that are in excess
of the greater of cash
surrender benefits or a
return of the gross
considerations with
interest, the minimum
nonforfeiture benefits shall
be equal to the sum of the
minimum nonforfeiture
benefits for the annuity
portion and the minimum
nonforfeiture benefits, if
any, for the life insurance
portion computed as if each
portion were a separate
contract.
Notwithstanding the
provisions of
NCV08,
NCV09, and
NCV13, additional
benefits payable
(a) in the event of total
and permanent disability,
(b) as reversionary annuity
or deferred reversionary
annuity benefits, or
(c)
as other contract benefits
additional to life
insurance, endowment, and
annuity benefits, and
considerations for all such
additional benefits, shall
be disregarded in
ascertaining the minimum
nonforfeiture amounts,
paid-up annuity, cash
surrender and death benefits
that may be required by this
Standard. The inclusion of
such additional benefits
shall not be required in any
paid-up benefits, unless
such additional benefits
separately would require
minimum nonforfeiture
amounts, paid-up annuity,
cash surrender and death
benefits.
For contracts which
provide cash surrender
benefits, such cash
surrender benefits available
prior to maturity shall not
be less than the present
value as of the date of
surrender of that portion of
the maturity value of the
paid-up annuity benefit
which would be provided
under the contract at
maturity arising from
considerations paid prior to
the time of cash surrender
reduced by the amount
appropriate to reflect any
prior withdrawals from or
partial surrenders of the
contract, such present value
being calculated on the
basis of an interest rate
not more than 1 percent
higher than the interest
rate specified in the
contract for accumulating
the net considerations to
determine such maturity
value, decreased by the
amount of any indebtedness
to the company on the
contract, including interest
due and accrued, and
increased by any existing
additional amounts credited
by the company to the
contract.
In no event
shall any cash surrender
benefit be less than the
minimum nonforfeiture amount
at that time. The death
benefit under such contracts
shall be at least equal to
the cash surrender benefit.
For contracts which do not
provide cash surrender
benefits, the present value
of any paid-up annuity
benefit available as a
nonforfeiture option at any
time prior to maturity shall
not be less than the present
value of that portion of the
maturity value of the
paid-up annuity benefit
provided under the contract
arising from considerations
paid prior to the time the
contract is surrendered in
exchange for, or changed to,
a deferred paid-up annuity,
such present value being
calculated for the period
prior to the maturity date
on the basis of the interest
rate specified in the
contract for accumulating
the net considerations to
determine such maturity
value, and increased by any
existing additional amounts
credited by the company to
the contract.
For
contracts which do not
provide any death benefits
prior to the commencement of
any annuity payments, such
present values shall be
calculated on the basis of
such interest rate and the
mortality table specified in
the contract for determining
the maturity value of the
paid-up annuity benefit.
However, in no event shall
the present value of a
paid-up annuity benefit be
less than the minimum
nonforfeiture amount at that
time.
In the case of
annuity contracts under
which an election may be
made to have annuity
payments commence at
optional maturity dates, the
maturity date shall be
deemed to be the latest date
for which election shall be
permitted by the contract,
but shall not be deemed to
be later than the
anniversary of the contract
next following the
annuitant's seventieth
birthday or the tenth
anniversary of the contract,
whichever is later.
The
present value of any paid-up
annuity benefit available
under the contract shall be
such that its present value
on the date annuity payments
are to commence is at least
equal to the minimum
nonforfeiture amount on that
date. Such present value
shall be computed using the
mortality table, if any, and
the interest rate specified
in the contract for
determining the minimum
paid-up annuity benefits
guaranteed in the contract.
For benefits which vary
based on the performance of
a separate account, the
minimum values of any
paid-up annuity, cash
surrender, or death benefits
shall be based upon
nonforfeiture amounts
meeting the requirements of
NCV10 and
NCV11. The minimum
nonforfeiture amount on any
date prior to the annuity
commencement date shall be
an amount equal to the
percentages of net
considerations, as provided
below, increased (or
decreased) by the net
investment return allocated
to the percentages of net
considerations, which amount
shall be reduced to reflect
the effect of:
(i) any partial
withdrawals from or partial
surrenders of the contract;
(ii) the amount of any
indebtedness on the
contract,
including
interest due and accrued;
(iii) an annual contract
charge not less than zero
nor greater than $30 less
the amount of any annual
contract charge deducted
from any gross
considerations credited to
the contract during such
contract year; and
(iv)
a transaction charge of $10
for each transfer to another
separate account or to
another investment division
within the same separate
account.
The
percentages of net
considerations used to
define the minimum
nonforfeiture amount shall
meet the following
requirements
With
respect to contracts
providing for periodic
considerations, the net
considerations for a given
contract year used to define
the minimum nonforfeiture
amount shall be an amount
not less than zero and shall
be equal to the
corresponding gross
considerations credited to
the contract during that
contract year less an annual
contract charge of $30 and
less a collection charge of
$1.25 per consideration
credited to the contract
during that contract year.
The percentages of net
considerations shall be 65%
for the first contract year
and 87.5% for the second and
later contract years.
Notwithstanding the
provisions of the preceding
sentence, the percentage
shall be 65% of the portion
of the total net
consideration for any
renewal contract year which
exceeds by not more than two
times the sum of those
portions of the net
considerations in all prior
contract years for which the
percentage was 65%.
A demonstration must be
provided showing that the
nonforfeiture amounts are in
compliance with the
following assumptions:
- A table reflecting 20
years of values for the
separate account;
- An
investment return of 7% per
year for the separate
account;
- A monthly
consideration of $100.
Note: Expense and mortality
charges for the variable
account can only be deducted
from the separate account.
For benefits which vary
based on the performance of
a separate account, the
minimum values of any
paid-up annuity, cash
surrender, or death benefits
shall be based upon
nonforfeiture amounts
meeting the requirements of
this
NCV10S and
NCV11. The minimum
nonforfeiture amount on any
date prior to the annuity
commencement date shall be
an amount equal to the
percentage of net
consideration, as provided
below, increased (or
decreased) by the net
investment return allocated
to the percentage of net
consideration, which amount
shall be reduced to reflect
the effect of:
(i) any partial
withdrawals from or partial
surrenders of the contract;
(ii) the amount of any
indebtedness on the
contract, including interest
due and accrued;
(iii)
an annual contract charge
not less than zero nor
greater than $30 less the
amount of any annual
contract charge deducted
from any gross
considerations credited to
the contract during such
contract year; and
(iv)
a transaction charge of $10
for each transfer to another
separate account or to
another investment division
within the same separate
account.
The
percentage of the net
consideration used to define
the minimum nonforfeiture
amount shall meet the
following requirements:
The net consideration
used to define the minimum
nonforfeiture amount shall
be the gross consideration
less a contract charge of
$75.
The percentage of net
consideration shall be 90%.
A demonstration must be
provided showing that the
nonforfeiture amounts are in
compliance with the
following assumptions:
- A table reflecting 20
years of values for the
separate account;
- An
investment return of 7% per
year for the separate
account;
- A single
consideration of $10,000.
Note: Expense and mortality
charges for the variable
account can only be deducted
from the separate account.
The present value of any
paid-up annuity benefit
available under the contract
shall be such that its
present value on the date
annuity payments are to
commence is at least equal
to the minimum nonforfeiture
amount on that date. Such
present value shall be
computed using the mortality
table, if any, and the
guaranteed or assumed
interest rates specified in
the contract for calculating
annuity payments.
Any paid-up annuity, cash
surrender or death benefits
available at any time shall
be calculated with allowance
for the lapse of time and
the payment of any scheduled
considerations beyond the
beginning of the contract
year.
PERSISTENCY BONUS
Persistency bonus must be
disclosed in the contract
and included in minimum
nonforfeiture
determinations.
SURRENDER CHARGES
All surrender charge
schedules and classes must
be defined in the actuarial
memoranda.
VARIABILITY OF
INFORMATION
The guaranteed minimum
interest rate may be
bracketed as variable and
changed without refiling
only if it is a function of
the nonforfeiture interest
rate that complies with
Standard
NCV01(b). If the
guaranteed minimum interest
rate is a function of the
nonforfeiture interest rate,
a provision indicating the
method and manner of
determination, adjustment
and any redetermination must
be provided and clearly
expressed in the contract on
the same page as the
bracketed rate.
The guaranteed minimum
interest rate may be
bracketed as variable and
changed without re-filing
only if it is a function of
the nonforfeiture interest
rate that complies with
Standard
NCV01(b). If the
guaranteed minimum interest
rate is a function of the
nonforfeiture interest rate,
a provision indicating the
method and manner of
determination, adjustment
and any re-determination
must be provided and clearly
expressed in the contract on
the same page as the
bracketed rate.
All submissions for
approval of a change shall
be accompanied by a
demonstration, if
applicable, signed by a
member of the American
Academy of Actuaries, that
the contract continues to
comply with the Multi-State
Review Standards.
The company may also
identify product
specifications that may be
changed without prior notice
or approval, as long as the
Statement on Variability
presents reasonable and
realistic ranges for the
item.
These items
include:
a) interest rate
guarantee periods,
b)
bonus interest rates or
credits applied to premiums,
c) persistency of
anniversary interest rates
or credits,
d) tiering
levels for credits and
charges,
e) minimum
premium limits,
f)
maximum premium limits,
g) minimum withdrawal
amounts,
h) minimum loan
amounts,
i) amounts
available for any penalty
free withdrawals,
j)
charges for supplemental
benefits and options,
k)
any ages assumed in the
calculations of benefits and
options.
Any change
to a range requires a
refiling for prior approval
and shall be accompanied by
a demonstration, if
applicable, signed by a
member of the American
Academy of
Actuaries that the
contract continues to comply
with the Multi-State Review
standards.
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NCV08, NCV09, and
NCV13NCV08
For contracts which provide
cash surrender benefits,
such cash surrender benefits
available prior to maturity
shall not be less than the
present value as of the date
of surrender of that portion
of the maturity value of the
paid-up annuity benefit
which would be provided
under the contract at
maturity arising from
considerations paid prior to
the time of cash surrender
reduced by the amount
appropriate to reflect any
prior withdrawals from or
partial surrenders of the
contract, such present value
being calculated on the
basis of an interest rate
not more than 1 percent
higher than the interest
rate specified in the
contract for accumulating
the net considerations to
determine such maturity
value, decreased by the
amount of any indebtedness
to the company on the
contract, including interest
due and accrued, and
increased by any existing
additional amounts credited
by the company to the
contract. In no event shall
any cash surrender benefit
be less than the minimum
nonforfeiture amount at that
time. The death benefit
under such contracts shall
be at least equal to the
cash surrender benefit. For
contracts which do not
provide cash surrender
benefits, the present value
of any paid-up annuity
benefit available as a
nonforfeiture option at any
time prior to maturity shall
not be less than the present
value of that portion of the
maturity value of the
paid-up annuity benefit
provided under the contract
arising from considerations
paid prior to the time the
contract is surrendered in
exchange for, or changed to,
a deferred paid-up annuity,
such present value being
calculated for the period
prior to the maturity date
on the basis of the interest
rate specified in the
contract for accumulating
the net considerations to
determine such maturity
value, and increased by any
existing additional amounts
credited by the company to
the contract. For contracts
which do not provide any
death benefits prior to the
commencement of any annuity
payments, such present
values shall be calculated
on the basis of such
interest rate and the
mortality table specified in
the contract for determining
the maturity value of the
paid-up annuity benefit.
However, in no event shall
the present value of a
paid-up annuity benefit be
less than the minimum
nonforfeiture amount at that
time. In the case of annuity
contracts under which an
election may be made to have
annuity payments commence at
optional maturity dates, the
maturity date shall be
deemed to be the latest date
for which election shall be
permitted by the contract,
but shall not be deemed to
be later than the
anniversary of the contract
next following the
annuitant's seventieth
birthday or the tenth
anniversary of the contract,
whichever is later.
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NCV09 The present
value of any paid-up annuity
benefit available under the
contract shall be such that
its present value on the
date annuity payments are to
commence is at least equal
to the minimum nonforfeiture
amount on that date. Such
present value shall be
computed using the mortality
table, if any, and the
interest rate specified in
the contract for determining
the minimum paid-up annuity
benefits guaranteed in the
contract.
NCV13 Any paid-up
annuity, cash surrender or
death benefits available at
any time shall be calculated
with allowance for the lapse
of time and the payment of
any scheduled considerations
beyond the beginning of the
contract year.
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NCV10 and NCV11
NCV10 For benefits
which vary based on the
performance of a separate
account, the minimum values
of any paid-up annuity, cash
surrender, or death benefits
shall be based upon
nonforfeiture amounts
meeting the requirements of
NCV10 and NCV11. The minimum
nonforfeiture amount on any
date prior to the annuity
commencement date shall be
an amount equal to the
percentages of net
considerations, as provided
below, increased (or
decreased) by the net
investment return allocated
to the percentages of net
considerations, which amount
shall be reduced to reflect
the effect of: (i) any
partial withdrawals from or
partial surrenders of the
contract; (ii) the amount of
any indebtedness on the
contract, including interest
due and accrued; (iii) an
annual contract charge not
less than zero nor greater
than $30 less the amount of
any annual contract charge
deducted from any gross
considerations credited to
the contract during such
contract year; and (iv) a
transaction charge of $10
for each transfer to another
separate account or to
another investment division
within the same separate
account. The percentages of
net considerations used to
define the minimum
nonforfeiture amount shall
meet the following
requirements With respect to
contracts providing for
periodic considerations, the
net considerations for a
given contract year used to
define the minimum
nonforfeiture amount shall
be an amount not less than
zero and shall be equal to
the corresponding gross
considerations credited to
the contract during that
contract year less an annual
contract charge of $30 and
less a collection charge of
$1.25 per consideration
credited to the contract
during that contract year.
The percentages of net
considerations shall be 65%
for the first contract year
and 87.5% for the second and
later contract years.
Notwithstanding the
provisions of the preceding
sentence, the percentage
shall be 65% of the portion
of the total net
consideration for any
renewal contract year which
exceeds by not more than two
times the sum of those
portions of the net
considerations in all prior
contract years for which the
percentage was 65%. A
demonstration must be
provided showing that the
nonforfeiture amounts are in
compliance with the
following assumptions: - A
table reflecting 20 years of
values for the separate
account; - An investment
return of 7% per year for
the separate account; - A
monthly consideration of
$100. Note: Expense and
mortality charges for the
variable account can only be
deducted from the separate
account.
NCV11 The present
value of any paid-up annuity
benefit available under the
contract shall be such that
its present value on the
date annuity payments are to
commence is at least equal
to the minimum nonforfeiture
amount on that date. Such
present value shall be
computed using the mortality
table, if any, and the
guaranteed or assumed
interest rates specified in
the contract for calculating
annuity payments.
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NCV10S and NCV11
NCV10S For benefits
which vary based on the
performance of a separate
account, the minimum values
of any paid-up annuity, cash
surrender, or death benefits
shall be based upon
nonforfeiture amounts
meeting the requirements of
this NCV10S and NCV11. The
minimum nonforfeiture amount
on any date prior to the
annuity commencement date
shall be an amount equal to
the percentage of net
consideration, as provided
below, increased (or
decreased) by the net
investment return allocated
to the percentage of net
consideration, which amount
shall be reduced to reflect
the effect of: (i) any
partial withdrawals from or
partial surrenders of the
contract; (ii) the amount of
any indebtedness on the
contract, including interest
due and accrued; (iii) an
annual contract charge not
less than zero nor greater
than $30 less the amount of
any annual contract charge
deducted from any gross
considerations credited to
the contract during such
contract year; and (iv) a
transaction charge of $10
for each transfer to another
separate account or to
another investment division
within the same separate
account. The percentage of
the net consideration used
to define the minimum
nonforfeiture amount shall
meet the following
requirements: The net
consideration used to define
the minimum nonforfeiture
amount shall be the gross
consideration less a
contract charge of $75. The
percentage of net
consideration shall be 90%.
A demonstration must be
provided showing that the
nonforfeiture amounts are in
compliance with the
following assumptions: - A
table reflecting 20 years of
values for the separate
account; - An investment
return of 7% per year for
the separate account; - A
single consideration of
$10,000. Note: Expense and
mortality charges for the
variable account can only be
deducted from the separate
account.
NCV11 The present
value of any paid-up annuity
benefit available under the
contract shall be such that
its present value on the
date annuity payments are to
commence is at least equal
to the minimum nonforfeiture
amount on that date. Such
present value shall be
computed using the mortality
table, if any, and the
guaranteed or assumed
interest rates specified in
the contract for calculating
annuity payments.
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NCV01 (b)
NCV01(b) (b) The
interest rate used in
determining minimum
nonforfeiture amounts shall
be an annual rate of
interest determined as the
lesser of 3 percent per
annum and the following,
which shall be specified in
the contract if the interest
rate will be reset:
(1)
The five-year Constant
Maturity Treasury (CMT) Rate
reported by the Federal
Reserve as of a date, or
averaged over a period,
rounded to the nearest
one-twentieth of 1 percent,
specified in the contract no
longer than 15 months prior
to the contract issue date
or redetermination date
under paragraph (2), reduced
by 125 basis points, where
the resulting rate is not
less than 1 percent.
(2)
The interest rate shall
apply for an initial period
and may be redetermined for
additional periods. The
redetermination date, basis,
and period, if any, shall be
stated in the contract. The
basis is the date, or
average over a specified
period, which produces the
value of the five-year
Constant Maturity Treasury
Rate to be used at each
redetermination date.
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