Bulletin 2026-8: Pension Risk Transfer Products

RICARDO LARA CALIFORNIA INSURANCE COMMISSIONER

BULLETIN 2026-8

TO: All Admitted Life Insurers and Other Interested Parties

FROM: Laura Clements, Deputy Commissioner Financial Surveillance Branch

DATE: October 29, 2026

RE: Procedures and Requirements for Implementation of California Insurance Code Section 10506.4 Regarding Separate Account Products with General Account Guarantees Including Pension Risk Transfer (PRT) Products

In recent years, there has been an increased interest from life insurance companies in offering Pension Risk Transfer (PRT) products out of a separate account. There have also been multiple court cases regarding these Pension Risk Transfer transactions as well as relevant activity at the National Association of Insurance Commissioners (NAIC), including with active leadership involvement of the California Department of Insurance (Department), regarding regulatory oversight of these PRT products. The Department, utilizing its existing authority and oversight role of insurance companies, seeks to ensure consumers receive the benefits promised by the employers who transfer consumer pensions to life insurance companies.

Therefore, in the interest of consumer protection, Insurance Commissioner Ricardo Lara is establishing additional requirements and disclosures to allow for the issuance of separate account PRT products in California among the various types of separate account products with general accounts already available. For products issued out of a separate account with general account guarantees, it is imperative that the separate account product’s contract holders, plan participants, and/or certificate holders are protected, but also that the vested policyholders of the general account are protected.

Therefore, this Bulletin, which replaces Bulletin 95-8 effective January 1, 1995, is issued pursuant to Section 10506.4 of the California Insurance Code (CIC) setting forth reasonable requirements for insurers issuing products authorized by this statute with the same force and effect as regulations issued by the Insurance Commissioner. Included in this Bulletin, per the attached Appendix, are requirements related to application Bulletin 2026-08 Page 2 of 8 October 29, 2026

procedures for CIC Section 10506.4 financial qualification, and the reserve and financial reporting requirements by financially qualified companies.

Please note that this Bulletin does not purport to reiterate or summarize CIC Section 10506.4, so reference to the statute, as well as to this Bulletin, is essential to obtain information on all pertinent requirements relating to the newly authorized insurance products.

Pursuant to CIC Section 10506.4(c)(2), the company will be responsible for the payment of fees for this application. The total fee will be based on billed hours required by the Department to examine the materials. In reviewing this application, the Department may retain independent actuaries, independent investment specialists, and/or other professionals and specialists, and/or include any of the employees of the Department as assigned by the Insurance Commissioner, the cost of which shall be borne by the company.

The notices to the Insurance Commissioner pursuant to CIC Sections 10506.4 (d) (3) and (4) shall be made by the insurer to the Department’s Actuarial Division at: [email protected].

The Insurance Commissioner reserves the right to request additional information and documentation deemed necessary under the circumstances for a more complete understanding and to facilitate consideration of a company’s proposed products and Method of Operations.

The Insurance Commissioner also reserves the right to reject or disapprove any filing submitted pursuant to this Bulletin for any matter deemed relevant to the review of the filing.

Questions regarding this Bulletin may be referred to:

Laura Clements Ahmad Kamil Deputy Commissioner Chief Life Actuary Financial Surveillance Branch Financial Surveillance Branch [email protected] [email protected]

California Department of Insurance South Tower 300 South Spring Street Los Angeles, CA 90013 Bulletin 2026-08 Page 3 of 8 October 29, 2026

Appendix: Application and Method of Operations Requirements

1. Application for Financial Qualification

Insurers applying for financial qualification to issue products authorized by CIC Section 10506.4 should submit filings through the NAIC System for Electronic Rates & Forms Filing (SERFF). The cover letter should reference Bulletin 2026-8.

Please notify the Financial Surveillance Branch’s Actuarial Division ([email protected]) after a submission has been made and provide a SERFF tracking number.

The following items are required to be submitted in the SERFF filing:

a. A copy of the California Department of Insurance letter conferring variable contract authority (for either variable life or annuity) on the applicant.

b. A list of the officers who will be responsible for the administration of these products. Written confirmation that the company is in compliance with the applicable model audit law for its state of domicile.

c. A statement that the company meets the financial qualifications of CIC Section 10506.4(d)(1)(A) and (C), with a copy of the assets and liabilities pages (pages 2 and 3) of the most recent financial statements. (If a company ceases to qualify, it shall notify the Insurance Commissioner of this fact, as required by CIC Section 10506.4(d)(3).)

d. The filing for approval of the policy forms that will be used to provide these products, with document submission forms and otherwise following the procedures of Title 10, California Code of Regulations Sections 2200-2217, as applicable. (Future policy filings relating to an existing qualification granted pursuant to CIC Section 10506.4 shall also be subject to these procedures.)

e. A demonstration that each product meets the requirements of either CIC Section 10506.4(b)(1), (2), or (3). (Future filings relating to an existing qualification granted pursuant to CIC Section 10506.4 shall also provide such demonstration.)

f. Disclosure of the company’s ratings from two Nationally Recognized Statistical Rating Organizations (NRSRO) recognized by the U.S. Securities and Exchange Commission (SEC) to provide financial strength ratings on insurance companies. All insurers must maintain an equivalent investment grade financial strength rating from two or more rating agencies to meet the financial qualification to continue issuing this type of product.

g. A Method of Operations as outlined in 2. below. Bulletin 2026-08 Page 4 of 8 October 29, 2026

2. Method of Operations

Each company applying for qualification shall provide a description of its method or plan of operations regarding the proposed contracts, which should include (but not be limited to) the following:

a. A description of: the contract design and operation for each contract type to be offered under CIC Section 10506.4(b); the withdrawal and conversion privileges and guarantees; and, the risks assumed by the insurer.

b. A statement, with rationale, that issuance of the contract is believed to not be hazardous to the public or to present or future policyholders.

c. The investment policy and objective of the separate account, including restrictions on asset type, quality, maturity, affiliated and related party origination, and diversification; whether general account seed money is to be used; and, a description of any hedging techniques to be employed.

d. A description of how values are to be determined for all assets, including those assets not publicly traded. (See also Section 5. below, “Valuation of Assets”.)

e. A description of how values of annual statement liabilities are to be determined. A description (with formulas) of how basic reserves and additional reserves are to be computed. The additional reserves are for the general account guarantees. The description should include, where applicable, what asset valuation reserve factors are to be used.

f. An explanation of how the investment strategy is designed and managed to make it likely that the separate account assets will be sufficient to meet all the guarantees. Include a portfolio liquidity profile and stress testing results. For contracts under CIC Section 10506.4(b)(3) include a demonstration that the investment strategy is likely to match the performance of the index.

g. A description of all the fees charged to the separate account, the purpose of the fees, and how they are determined.

h. An actuarial statement that the pricing of any general account guarantees and other fees for administration paid to the general account are reasonable and sufficient, accompanied by a memorandum satisfactory to the Insurance Commissioner from the actuary describing the assumptions and calculations supporting the statement. The actuarial memorandum shall take all of the following into consideration for scenario testing, if applicable:

i. Longevity risk using alternative mortality improvement scales.

ii. Early retirement risk with accelerated retirement assumptions. Bulletin 2026-08 Page 5 of 8 October 29, 2026

iii. Interest rate risk using rate shock scenarios.

iv. Liquidity risk with stress testing of portfolio liquidity.

v. Operational risk including data transfer, servicing continuity, and reinsurance administration.

i. Projected premium volume and number of policyholders for each type of policy for the balance of the current calendar year and for the next 3 calendar years (California and nationwide, shown separately).

j. A description of the arrangements to ensure adequate marketing supervision.

k. A statement of whether or not the contract and/or separate account is SEC registered. If so, submit a copy of the prospectuses.

l. A statement of the reserve and asset valuation methodology for the product.

m. A description of all affiliated, related party, and/or offshore reinsurance arrangements and whether they include trust or collateral provisions sufficient to protect policyholder obligations. A description of whether reinsurance cessions are ceded to a reinsurer that is either licensed, accredited, has an approved U.S. trust, is a reciprocal jurisdiction reinsurer, or a certified reinsurer, as described in CIC Section 922.4. If the reinsurer is not licensed and does not fall into any of the above-mentioned categories, describe how the reinsurer complies with CIC Section 922.5.

n. A statement that all affiliated, related party, and/or offshore reinsurance arrangements will be disclosed to holders and prospective holders of the proposed guaranteed separate account products with general account guarantees.

3. Follow-up Method of Operations

Where significant changes occur in the Method of Operations or Investment Guidelines both while an application is pending and after qualification is issued, the company shall notify the Department of such changes, with prior approval required by the Department.

4. Reserve Requirements

For plans under CIC Section 10506.4(b)(1), the reserve shall be determined by either using the same interest rates, mortality tables, and methods as for like guarantees under products held in the general account, or using the method described for plans under CIC Section 10506.4(b)(2) below. Bulletin 2026-08 Page 6 of 8 October 29, 2026

For plans under CIC Section 10506.4(b)(2), the reserve shall be determined as follows:

(a) Definitions:

M = The Market value of assets in the separate account.

L = The present value of Liabilities discounting guaranteed benefit cash flows at 105% of the current yield on US government securities with substantially similar maturities. See Section 10506.4(b)(2)(B).

mrf= The weighted (by market value) asset valuation reserve factor for the assets held in the separate account. (See Section 10506.4(b)(2)(B)(i) and (ii).)

Where,

for debt instruments, mrf is equal to the asset valuation reserve "maximum reserve factor",

for other assets, mrf = .20, and mrf is reduced by 50% if the difference in duration of the assets and liabilities is one year or less.

F = mrf * M

(b) Conditions:

If M equals or exceeds L + F, the reserve = M.

If L + F exceeds M, the reserve = L + F

A = L + F - M = additional reserves as defined in CIC Sections 10506.4(b)(1)(C) and 10506.4(b)(2)(C) respectively.

For plans under CIC Section 10506.4(b)(3), the basic reserve in the Separate Account statement is the account value defined in the contract as described in the approved Method of Operations. This usually is the market value of assets in the separate account or the value of the guaranteed contractholder liability before any deduction for surrender charges. Additional reserves are required if the appointed actuary (as defined in Title 10, California Code of Regulations Section 2580.3(d)) expects that the future investment performance will not support expenses and contractual guarantees. The basis for making this judgment must be included in the Method of Operations filed for the product.

For PRT products, reserves shall be determined in accordance with VM-22 of the latest edition of the NAIC Valuation Manual. Bulletin 2026-08 Page 7 of 8 October 29, 2026

General Rules Applicable to All Plans:

(1) Reserves are subject to the annual asset adequacy analysis, and the results of which are described in the actuarial memorandum supporting the actuarial opinion of the company’s appointed actuary as required by CIC Section 10489.15 and Title 10 of the California Code of Regulations, Sections 2580.1, et seq.

(2) Insurers are reminded that CIC Section 10489.15(b)(4)(F) provides that the qualified actuary shall be liable for the actuary’s negligence or other tortious conduct.

(3) The Department will review annual asset adequacy testing for products subject to this Bulletin on an annual basis. For PRT products, asset adequacy analysis specific to all inforce PRT business, and without consideration of results for other blocks of business within the company, must be performed for valuations associated with annual year-end statutory financial statements. The analysis shall comply with applicable Actuarial Standards of Practice, including standards regarding identification of key risks. Material assumptions associated with the PRT business shall be determined by testing moderately adverse deviations in actuarial assumptions. The analysis shall extend to the methods used by the actuary to recognize the impact of reinsurance on the Company’s cash flows, including both assets and liabilities, under each of the scenarios tested.

(4) The value of assets in the separate account cannot be less than the amount available for lump sum withdrawal by the contractholder. Any deficiency is to be made up by the general account.

(5) Mortality and morbidity tables: use the same tables applicable to similar benefits for which reserves are established in the general account.

(6) Risk reserves shall include:

(i) Gross unearned risk premium. (Analogous to the gross unearned premium reserve.)

(ii) At least 10% of the total charges to the separate account (considered to be the risk premium) less claims (including any contribution under (2) above) shall be accumulated without interest. This can be released back to surplus on the maturity date. The maximum reserve for contracts without a maturity date shall be equal to five times the latest annual increment. Bulletin 2026-08 Page 8 of 8 October 29, 2026

5. Financial Reporting Requirements

Valuation and reporting of assets and liabilities shall follow the applicable NAIC Annual Statement Instructions for the NAIC Annual Statement Blanks.

Regarding valuation of assets, for plans under CIC Section 10506.4(b)(1), assets shall be valued either in accordance with the rules applicable to general account assets if reserves are also calculated in accordance with general account rules, or at market value if reserves are calculated in accordance with the rules under Section 4, herein above. For plans under CIC Section 10506.4 (b)(2) and (3), assets shall be valued at market value.