INTEREST MAINTENANCE RESERVE[CRF1]

This exhibit is designed to capture the realized capital gains/(losses) that result from changes in the overall level of interest
rates and amortize them into income over the approximate remaining life of the investment sold.

These instructions cover the Interest Maintenance Reserve (IMR) for both the General Account Statement and the Separate
Accounts Statement. If an IMR is required for investments in the Separate Accounts Statement, it follows all rules applicable
to the general account IMR and it is kept separate from the General Accounts IMR and accounted for in the Separate
Accounts Statement. The criteria for determining when an IMR is required for separate accounts are described in the Separate
Accounts IMR Worksheet Instructions.

Line 1 Reserve as of December 31, Prior Year

Enter the amount from Line 6 of the prior years schedule.

If the prior years balance entered in Line 1 is negative, refer to the instructions for Line 6 to assure
proper recording of the change in any nonadmitted or disallowed portion.

Line 2 Current Years Realized Pre-tax Capital Gains/(Losses) of $______ Transferred into the Reserve Net
of Taxes of $______

Include interest-rate related realized capital gains/(losses), net of capital gains tax thereon. All realized
capital gains/(losses) transferred to the IMR are net of capital gains taxes thereon. Exclude credit
related (default) realized capital gains and losses, realized capital gains/(losses) on equity investments,
and unrealized capital gains/(losses).

All realized capital gains/(losses), due to interest rate changes on fixed income investments, net of
related capital gains tax, should be captured in the IMR and amortized into income (Column 2, Lines 1
through 31) according to Table 1 or the seriatim method. Realized capital gains/(losses) must be
classified as either interest (IMR) or credit (AVR) related, not a combination except as specified in
SSAP No. 43RLoan-Backed and Structured Securities. Purchase lots with the same CUSIP are
treated as individual assets for IMR and AVR purposes.

Exclude those capital gains and losses that, in accordance with contract terms have been used to
directly increase or decrease contract benefit payments or reserves during the reporting period. The
purpose of this exclusion is to avoid the duplicate utilization of such gains and losses.

Capital gains tax should be determined using the method developed by the company to allocate taxes
used for statutory financial reporting purposes. By capturing the realized capital gains/(losses) net of
tax, the capital gains tax associated with those capital gains/(losses) due to an interest rate change is
charged or credited to the IMR and amortized in proportion to the before-tax amortization.

Include realized capital gains/(losses) on:

Debt securities (excluding loan-backed and structured securities) and preferred stocks whose National
Association of Insurance Commissioners (NAIC)/Securities Valuation Office (SVO) designation at the
end of the holding period is NOT different from its NAIC designation at the beginning of the holding
period by more than one NAIC designation. Exclude any such gains/(losses) exempt from the IMR.

Class One Bond Mutual Funds as Identified by SVO. Include any capital gains/(losses) realized by
the Company, whether from sale of the Fund or capital gains distributions by the Fund. If, during the
course of the year, the SVO removes the designation of NAIC 1 from a Class One Bond Mutual
Fund as Identified by SVO, the company shall not report capital gains/(losses) in this schedule. Any
such removal of the NAIC 1 designation will cause the Fund to be reported as common stock on the
applicable schedules.

Called bonds, tendered bonds, and sinking fund payments.

1984 2016 National Association of Insurance Commissioners 269 L/H 2016

 Mortgage loans where:

Interest is NOT more than 90 days past due, or

The loan is NOT in process of foreclosure, or

The loan is NOT in course of voluntary conveyance, or

The terms of the loan have NOT been restructured during the prior two years.

Mortgage loan prepayment penalties are not included in IMR. Treat them as regular investment
income.

Interest-related gains/(losses) realized on directly held capital and surplus notes reported on
Schedule BA should be transferred to the IMR in the same manner as similar gains and losses on fixed
income assets held on Schedule D. A capital gain/(loss) on such a note is classified as an interest rate
gain if the note is eligible for amortized-value accounting at both the time of acquisition and the time
of disposition.

Determination of IMR gain/(loss) on multiple lots of the same securities should follow the underlying
accounting treatment in determining the gain/(loss). Thus, the designation, on a purchase lot basis,
should be compared to the designation at the end of the holding period to determine IMR or AVR gain
or loss.

Realized capital gains/(losses) on any debt security (excluding loan-backed and structured securities)
that has had an NAIC/SVO designation of 6 at any time during the holding period should be excluded
from the IMR and included as a credit related gain/(loss) in the Asset Valuation Reserve (AVR).

Realized capital gains/(losses) on any preferred stock that had an NAIC/SVO designation of RP4, RP5
or RP6 or P4, P5 or P6 at any time during the holding period should be reported as credit related
gains/(losses) in the AVR.

The holding period for debt securities (excluding loan-backed and structured securities) and preferred
stocks is defined as the period from the date of purchase to the date of sale. For the end of period
classification, the most recent available designation should be used. For bonds acquired before
January 1, 1991, the holding period is presumed to have begun on December 31, 1990. For preferred
stocks acquired before January 1, 1993, the holding period is presumed to have begun on
December 31, 1992. For Class One Bond Mutual Funds, the holding period is defined as one calendar
year to expected maturity.

Where the gain on a convertible bond or preferred stock sold while in the money is included in the
IMR; the expected maturity date is defined as the next conversion date. In the money is defined to
mean that the number of shares available currently or at next conversion date, multiplied by their
current market price, is greater than the book/adjusted carrying value of the convertible asset.
However, for a convertible bond or convertible preferred stock purchased while its conversion value
exceeds its par value, any gain or loss realized from its sale before conversion must be excluded from
the IMR and included in the AVR. Conversion value is defined to mean the number of shares available
currently or at next conversion date, multiplied by the stocks current market price.

Other-than-temporary impairments taken on interest-related declines in value that are only required
to be impaired in accordance with INT 06-07: Definition of Phrase Other-Than-Temporary because
management no longer has the intent and ability to retain the investment in the issuer for a period of
time sufficient to allow for recovery in value. Credit-related other-than-temporary impairment losses
shall be recorded through the Asset Valuation Reserve.

1984 2016 National Association of Insurance Commissioners 270 L/H 2016

 In accordance with SSAP No. 43RLoan-Backed and Structured Securities, for loan-backed and
structured securities only, if the reporting entity wrote the loan backed or structured security down to
fair value due to the intent to sell or does not have the intent and ability to retain the investment in the
security for a period of time sufficient to recover the amortized cost basis, the non-interest-related
portion of the other-than-temporary impairment losses shall be recorded through the AVR; the
interest-related other-than-temporary impairment losses shall be recorded through the IMR.

For derivative instruments used in hedging transactions, the determination of whether the capital
gains/(losses) are allocable to the IMR or the AVR is based on how the underlying asset is treated.
Realized gains/(losses) on portfolio or general hedging instruments should be included with the hedged
asset. Gains/(losses) on hedges used, as specific hedges should be included only if the specific hedged
asset is sold or disposed of.

For income generation derivative transactions, the determination of whether the capital gains/(losses)
are allocable to the IMR or the AVR is based on how the underlying interest (for a put) or covering
asset (for a call, cap or floor) is treated. Realized gains/(losses) should be included in the same
sub-component where the realized gains/(losses) of the underlying interest (for a put) or covering asset
(for a call, cap or floor) is reported. For a more complete and detailed explanation, refer to
SSAP No. 86Derivatives for accounting guidance.

Realized gains/(losses), on derivative transactions entered into solely for the purpose of altering the
interest rate characteristics of the companys assets and/or liabilities (hedging transactions) should be
allocated to the IMR and amortized over the life of the hedged assets. Realized gains/(losses), on
income generation derivative transactions where the underlying interest (put) or covering asset
(call, cap or floor) is subject to IMR, should be allocated to the IMR and amortized over the remaining
life of the:

a. underlying interest for a put

b. covering asset for a call
c. derivative contract for a cap or floor

Capital gains/(losses) associated with the cash components of a replication (synthetic asset) transaction
should be categorized as interest-rate related or credit related and as to sub-component within the Asset
Valuation Reserve as they would be in the absence of the replication (synthetic asset) transaction.

Capital gains/(losses), other than those arising at the time of counterparty default, on the derivative
component of a replication (synthetic asset) transaction that is not a swap of prospectively-determined
interest rates should be categorized as interest-rate related or credit related and as to sub-component
within the Asset Valuation Reserve as if they were gains and losses on the replicated (synthetic)
asset(s).

Capital gains/(losses) arising from counterparty default or the curing of a previous counterparty default
should be separately identified and credited or charged to the bond and preferred stock component of
the Asset Valuation Reserve.

Interest-rate related gains/(losses) associated with the cash component of a replication (synthetic asset)
transaction should be amortized in the same manner as they would be in the absence of the replication
(synthetic asset) transaction.

Interest-rate related gains/(losses) associated with the derivative component of a replication (synthetic
asset) transaction that is not a swap of prospectively determined interest rates should be amortized as if
they arose from the replicated asset.

Realized capital gains/(losses) arising from a swap of prospectively-determined interest rates

constituting a component of a replication (synthetic asset) transaction should be credited or charged to
the Interest Maintenance Reserve using the maturity bucket corresponding to the side of the transaction
with the longest interest rate guarantee period.

1984 2016 National Association of Insurance Commissioners 271 L/H 2016

 Gains/(losses) on dollar repurchase agreements that are traded for the fee have no IMR (or AVR)
impact because they are treated as financing.

The total dollar value of these IMR realized capital gains and (losses), net of capital gains tax will be
excluded from the realized gains/(losses) reported on Page 4, Line 34 in the general account.

In the Separate Accounts Statement, the total dollar value of these IMR realized capital gains/(losses),
net of capital gains tax will be excluded from the realized gains/(losses) reported on Page 4, Line 3.

By capturing the realized capital gains/(losses), net of tax, the capital gains tax associated with those
capital gains/(losses) due to an interest rate change is charged or credited to the IMR and amortized in
proportion to the before-tax amortization.

Line 3 Adjustment for Current Years Liability Gains/(Losses) Released from the Reserve

Reinsurance Ceded

Ceding Company means an insurer who has sold, transferred or reinsured a block of its in force
liabilities under an agreement that qualifies for reinsurance accounting as described in SSAP No. 61R
Life, Deposit-Type and Accident and Health Reinsurance.

The interest-related gain/(loss), net of taxes, associated with the sale, transfer or reinsurance of a block
of liabilities must be credited or charged to the ceding companys IMR and then amortized into income
provided:

1. The portion of the block reinsured represents more than 1% of the ceding companys
General Account Liabilities, Page 3, Line 26;

and

2. The transaction was completed in the current year.

A company may elect to use a lower materiality threshold than the 1% specified in Item 1 above. Once
a threshold is established, it can only be changed with the prior approval of the Insurance Department
of the state of domicile.

The amount of the gain/(loss) that is interest-related and its IMR amortization should be determined
using the following three step procedure for the portion of the block sold, transferred or reinsured.

1. Identify the IMR balance and future amortization arising from the past and present dispositions of
the assets associated with the block of liabilities.

2. Identify the IMR balance and future amortization that would result if the remaining assets
associated with the block of liabilities were to be sold.

3. Define the interest-related gain/(loss), net of taxes, to be the negative of the sum of the IMR
balances determined in steps 1 and 2. The future amortization of the gain/(loss) is the negative of
the sum of the amortization determined in steps 1 and 2.

The associated assets are the assets allocable to the reinsured block of business for the purposes of
investment income allocation. If the ceding company has not been tracking the investment income of
the block, it should retrospectively identify the assets using procedures consistent with its usual
investment income allocation procedures. The associated assets are not necessarily the same as the
assets transferred as part of the transaction.

In certain circumstances, (e.g., non-economic transactions between affiliated insurers) assets are
required to be transferred at book rather than market. In this case, Step 1 above for past and present
realized gains/(losses) applies, but Step 2 above for unrealized gains/(losses) is zero.

1984 2016 National Association of Insurance Commissioners 272 L/H 2016

 In certain circumstances, e.g., modified coinsurance and coinsurance with funds withheld, assets reside
with the ceding company and the following requirements apply:

a. At treaty inception If at treaty inception the assets residing with the ceding company cover IMR
for the business reinsured and the investment income passed through each accounting period to the
reinsurer is net of amortization of this IMR, no IMR liability adjustment shall be made. Otherwise,
an IMR liability adjustment must be made (subject to the ceding companys reinsurance
materiality threshold). In this case, step 1 above for past and present realized gains/(losses) applies
but step 2 above for unrealized gains/(losses) is zero.

b. After inception, for treaties effective January 1, 1999 and later If the ceding company passes
through to the reinsurer the gains/(losses) each accounting period net of the change in IMR for
these gains/(losses), no IMR liability adjustment shall be made. Otherwise (i.e. where the ceding
company passes through to the reinsurer all gains/(losses) each accounting period without
adjustment for IMR), an IMR liability adjustment must be made each accounting period, per step 3
above, for gains/(losses) realized in that accounting period. This is done regardless of the ceding
companys reinsurance materiality threshold.

c. After inception, for treaties effective prior to January 1, 1999 The ceding company may elect to
follow Item b above, however, if this election is made it must be consistently followed for that
treaty at all future valuation dates.

The following is an illustration of the application of the rules governing the IMR treatment of
reinsurance transactions for the ceding company.

We will make the following assumptions:

A company has a block of business that it completely reinsures during 1993.

The assets currently allocable to the block for investment income allocation purposes have a
book/adjusted carrying value of $100 million and a market value of $110 million.

Some of the assets backing the block were sold during 1992 generating an interest-rate related
gain of $2 million before taxes and $1.32 million after capital gains taxes for which the IMR
amortization is:

IMR Amortization of 1992 Capital Gains

Amortization
Year ($ millions)
1992 0.202
1993 0.383
1994 0.310
1995 0.231
1996 0.144
1997 0.050
TOTAL 1.320

A portion of the original gain, $.202 million, was amortized in 1992, leaving $1.118 million to be
amortized in 1993 and later.

1984 2016 National Association of Insurance Commissioners 273 L/H 2016

 The company pays a consideration to the reinsurer of $105 million.

The company sells assets allocable to the block with a book/adjusted carrying value of $80 million
and a market value of $89 million to partially fund the payment to the reinsurer. This sale
generates a taxable gain of $9 million resulting in the payment of $3.06 million in capital gains
taxes. The after-tax gain from these 1993 sales is amortized as follows:

IMR Amortization of 1993 Capital Gains

Amortization
Year ($ millions)
1993 0.261
1994 0.570
1995 0.618
1996 0.677
1997 0.743
1998 0.808
1999 0.772
2000 0.630
2001 0.469
2002 0.291
2003 0.101
TOTAL 5.940

The remaining $19.06 million paid to the reinsurer is borrowed from other lines of business.

Assets with a book/adjusted carrying value of $20 million and a market value of $21 million from
the original block of assets allocable to the line of business remain in the companys portfolio after
the transaction is completed. If these assets were to be sold at the time of the reinsurance
transaction, they would generate a before-tax capital gain of $1 million and an after-tax capital
gain of $.66 million that would be amortized through the IMR as follows:

IMR Amortization of the Hypothetical Sale of

the Remaining Assets Allocable to the Block
Amortization
Year ($ millions)
1993 0.101
1994 0.191
1995 0.155
1996 0.116
1997 0.072
1998 0.025
TOTAL 0.660

Note that if these assets are actually sold at some point subsequent to the reinsurance transaction, the
sale price would be different from the hypothetical price to the extent that interest rates had changed
subsequent to the reinsurance transaction.

1984 2016 National Association of Insurance Commissioners 274 L/H 2016

 The block is big enough to exceed the materiality threshold.

In order to calculate the IMR amortization associated with the reinsurance of the liability, it is first
necessary to determine the IMR amortization from past, present and hypothetical asset sales of assets
allocable to the block of business.

IMR Amortization
Asset Liability
($ million) ($ million)
Past Present Total
(included in (included in (included in
Year P29 C1) P29 C2) Future Total P29 C3)
1993 .383 .261 .101 0.745 -0.745
1994 .310 .570 .191 1.071 -1.071
1995 .231 .618 .155 1.004 -1.004
1996 .144 .677 .116 0.937 -0.937
1997 .050 .743 .072 0.865 -0.865
1998 .808 .025 0.833 -0.833
1999 .772 0.772 -0.772
2000 .630 0.630 -0.630
2001 .469 0.469 -0.469
2002 .291 0.291 -0.291
2003 .101 0.101 -0.101
TOTAL 1.118 5.940 0.660 7.718 -7.718

The IMR amortization associated with the liability is displayed in the last column of the above table
and it is simply the complement of the IMR amortization associated with the past, present and
hypothetical future assets sales. The liability amortization should be entered in Column 3 of the IMR
Amortization Worksheet of the Annual Statement of the ceding company. By definition the size of the
interest-rate related gain is the total transferred to the IMR, -$7.718 million, which should be included
on Line 3 of the IMR worksheet of the ceding company as well as on the Aggregate Write-ins for
Deductions on the Summary of Operations and Analysis of Operations by Lines of Business.

Reinsurance Assumed

Assuming Company means here the counterparty to the transactions described above for the ceding
company.

The assuming company must set up an IMR liability adjustment of the same magnitude but
complementary to the adjustment recorded by the ceding company, subject to the following
requirements:

1. Where the assuming company is required to set up a deferred profit liability or deferred loss asset
and reflects zero gain/(loss) at treaty date, e.g., as for assumption reinsurance, the assuming
company must not set up an IMR liability adjustment. Regardless, for non-economic transactions
with an affiliate, the assuming company must set up the IMR liability adjustment.

2. The assuming company may offset a positive IMR adjustment, but not below zero, with any
excess of policyholder reserves initially established by the assuming company over their
re-computed values using maximum valuation interest rates based on the original issue dates of
the reinsured policies.

3. The assuming company must increase a negative IMR adjustment, but not above zero, with any
shortfall of policyholder reserves initially established by the assuming company over their
re-computed values using maximum valuation interest rates based on the original issue dates of
the reinsured policies.

1984 2016 National Association of Insurance Commissioners 275 L/H 2016

 To determine the offset of Item 2 or 3 above, the company would need to calculate policyholder
reserves on both the reported and minimum bases as of each valuation date. In lieu of this, a reporting
entity may determine the offset as of the treaty effective date, express this offset as a percentage of the
IMR adjustment and then apply this same percentage reduction or increase to the IMR adjustment at all
subsequent valuation dates. However, whichever method is used for the particular treaty must be
consistently applied at all valuation dates.

In the case of subsequent reinsurance, the retroceding reporting entity has an IMR adjustment net of
the offset of Item 2 or 3 above, whereas, the IMR transferred over is gross of this offset. The new
reinsurer would determine its own adjustment following Item 2 or 3 above.

Upon recapture or commutation of a reinsurance arrangement where the effective date of the original
arrangement was January 1, 1999 or later, the reinsurer must follow the IMR rules for reinsurance
ceded and the original insurer (company recapturing the business) must follow the IMR rules for
reinsurance assumed, as set forth above, for the portion of business recaptured. Otherwise, no IMR
adjustment is made.

Upon reinsurance assumed, recaptured or commuted from an alien insurer (i.e. not subject to IMR), an
IMR liability adjustment is required only where the assuming company, or any of its affiliates, ever
held the business and subsequently reinsured the business effective January 1, 1999 or later, and
currently holds an unamortized IMR liability adjustment for the business. In this case, the new IMR
liability adjustment must be set equal to the complement of the unamortized IMR liability
adjustment(s) currently held for the business by the assuming company or by its affiliates. An affiliate
may choose to hold the complementary offsetting amount if it holds the applicable unamortized IMR
liability adjustment, otherwise, the complementary offsetting amount must be held by the assuming
company.

Market Value Adjustments

Material gains or losses resulting from market value adjustments on policies and contracts backed by
assets that are valued at book/adjusted carrying value including the marginal tax impact, should be
captured by the IMR and amortized in a manner consistent with the determination of the market value
adjustment. A gain or loss is considered material if it is in excess of both 0.01% of liabilities and
$1,000,000. The amortization schedules should be determined in a manner consistent with the
determination of associated market value adjustment.

The amount recorded on Line 3 on account of reinsurance or market value adjustments should be
reported on the Summary of Operations and the Analysis of Operations by Lines of Business on the
Aggregate Write-ins for Deductions line.

Line 5 Current Years Amortization Released to Summary of Operations

Report the amount from the Amortization Table, Line 1, Column 4. This amount should agree with
Pages 4 and 6, Line 4. This amount reflects only the current year amortization of current and prior year
IMR gains and losses.

Line 6 Reserve as of December 31, Current Year

Record any positive or allowable negative balance in the liability line captioned Interest Maintenance
Reserve on Page 3, Line 9.4 of the General Account Statement and Line 3 of the Separate Accounts
Statement. A negative IMR balance may be recorded as a negative liability in either the General
Account or the Separate Accounts Statement of a company only to the extent that it is covered or offset
by a positive IMR liability in the other statement.

1984 2016 National Association of Insurance Commissioners 276 L/H 2016

 If there is any disallowed negative IMR balance in the General Account Statement, include the change
in the disallowed portion in Page 4, Line 41 so that the change will be appropriately charged or
credited to the Capital and Surplus Account on Page 4. If there is any disallowed negative IMR balance
in the Separate Accounts Statement, determine the change in the disallowed portion (prior year less
current year disallowed portions), and make a direct charge or credit to the surplus account for the
Change in Disallowed Interest Maintenance Reserve in the write-in line, in the Surplus Account on
Page 4 of the Separate Accounts Statement.

The following information is presented to assist in determining the proper accounting:

General Account Separate Account Net

IMR Balance IMR Balance IMR Balance

Positive Positive Positive (See rule a)

Negative Negative Negative (See rule b)
Positive Negative Positive (See rule c)
Positive Negative Negative (See rule d)
Negative Positive Positive (See rule e)
Negative Positive Negative (See rule f)

Rules:

a. If both balances are positive, then report each as a liability in its respective statement.

b. If both balances are negative, then no portion of the negative balances is allowable as a negative
liability in either statement. Report a zero for the IMR liability in each statement, and follow the
above instructions for handling disallowed negative IMR balances in each statement.

c. If the general account balance is positive, the separate accounts balance is negative and the
combined net balance is positive, then all of the negative IMR balance is allowable as a negative
liability in the Separate Accounts Statement.

d. If the general account balance is positive, the separate account balance is negative, and the
combined net balance is negative, then the negative amount not covered by the positive amount is
not allowable. Report only the allowable portion as a negative liability in the Separate Accounts
Statement, and follow the above instructions for handling the disallowed portion of negative IMR
balances in the Separate Accounts Statement.

e. If the general account balance is negative, the separate account balance is positive, and the
combined net balance is positive, then all of the negative IMR balance is allowable as a negative
liability in the General Account Statement.

f. If the general account balance is negative, the separate account balance is positive, and the
combined net balance is negative, then the negative amount not covered by the positive amount is
not allowable. Report only the allowable portion as a negative liability in the General Account
Statement, and follow the above instructions for handling the disallowed portion of negative IMR
balances in the General Account Statement.

Items Exempt from IMR Treatment

All realized interest related gains/(losses) determined on an aggregate company basis which arise from the sale of
investments required to provide cash flow to meet excess withdrawal activity as defined below will be excluded from the
IMR and will be reflected in net income.

1984 2016 National Association of Insurance Commissioners 277 L/H 2016

Withdrawable Reserves

Is the reserve or liability, net of any policy loans, associated with any policy or contract that might be subject to a withdrawal
or surrender, without a market value adjustment at the discretion of either the contract holder or plan participant?
Withdrawable reserves include the reserves associated with such things as:

Ordinary and industrial life insurance,

SPDAs and

Benefit-sensitive GICs where the associated plan allows participant withdrawals or transfers.

Effective Withdrawals

Include withdrawals and surrenders that are unscheduled and calculated without market adjustment plus the net increase in
policy loans. It also includes cash transfers to separate accounts other than transfers where premium, a deposit, or
consideration is booked into the general account and immediately transferred into the separate account.

Withdrawable Reserves and Effective Withdrawals are both calculated net of reinsurance.

Withdrawal Rate

Is the ratio of the Effective Withdrawals for the calendar year to the Withdrawable Reserves at the beginning of the year?

Threshold Withdrawal Level

Is 150% of the product of the lower of the Withdrawal Rate in the preceding or in the next preceding calendar year times the
Withdrawable Reserves at the beginning of the year.

Excess Withdrawal Activity

Is the amount by which Effective Withdrawals for the year exceeds the Threshold Withdrawal Level.

Only those investments required to provide cash flow to meet excess withdrawal conditions should be excluded from the
IMR. It is conceivable that a company might be able to identify the specific sales that are associated with the excess
withdrawal activity, in which case these sales would be excluded from the IMR. Alternatively, a pro rata portion of all sales
during the year equal to the amount of excess withdrawal activity would be excluded from the IMR.

Example Suppose a company has the following Withdrawable Reserves and Effective Withdrawals:

Withdrawable Reserves Effective

Year Beginning of Year Withdrawals

t-2 1,000 100

t-1 1,200 108
T 1,300 195

The Withdrawal Rate is 10% for the year t-2 and 9% for year t-1. The Threshold Withdrawal Level of year t is 150% of 1,300
times 9% or 175.5, and the Excess Withdrawal Activity is 19.5. Thus, if the company had assets sales in excess of 19.5, that
portion of the asset sales not in excess of 19.5 would be identified as Excessive Withdrawal Activity and the associated
capital gains and (losses) should be excluded from the IMR. If the company had asset sales of less than 19.5, all of the
associated gains or (losses) should be excluded.

1984 2016 National Association of Insurance Commissioners 278 L/H 2016

 AMORTIZATION[CRF2]

This supporting schedule calculates the amount of the Interest Maintenance Reserve to be amortized in each year.

Column 1 Reserve as of December 31, Prior Year

Enter the amount from Column 4 of the prior years schedule.

Column 2 Current Years Realized Capital Gains/(Losses) Transferred into the Reserve Net of Taxes

After a realized capital gain/(loss) has been identified as interest-related and an expected maturity date
has been determined, the Table 1 amortization chart or seriatim method should be used.

There are two prescribed methods for calculating this amortization schedule. A company can select
either the seriatim method or the grouped method for calculating IMR amortization. Although a
company is not precluded from changing methods on a prospective basis, the overriding consideration
is the reasonableness of the amortization. However, once a method is selected for a particular years
capital gains, the amortization is locked in and cannot be changed (at least not without the specific
approval of the commissioner).

Seriatim Method

The amount of each capital gain/(loss), net of capital gains tax, amortized in a given year using the
seriatim method is the excess of the amount of income which would have been reported in that year,
had the asset not been disposed of, over the amount of income which would have been reported had the
asset been repurchased at its sale price. The capital gains tax associated with each gain/(loss) should be
amortized in proportion to the amortization of the gain/(loss).

For mortgage-backed/asset-backed securities, use an amortization schedule developed using the

anticipated future cash flows of the security sold consistent with the prepayment assumptions that
would have been used to value the security had the security been purchased at its sale price.

Grouped Method

The seriatim calculation (i.e., on an asset by asset basis) is the desired approach. However, the seriatim
approach may impose an administrative burden on some companies, therefore, any company may use
the method employed by that company to amortize interest-related capital gains/(losses) among lines
of business and policyholders in accordance with the investment income allocation process as
approved by the state insurance department. Alternatively, a company may use a standard simplified
method by which the capital gains/(losses), net of capital gains tax, are grouped according to the
number of calendar years to expected maturity. The groupings will be in bands of five (5) calendar
years, except that investments with one (1) calendar year to expected maturity will be grouped
separately from those with two (2) to five (5) calendar years to expected maturity.

1984 2016 National Association of Insurance Commissioners 279 L/H 2016

 Expected Maturity Date

The presence of sinking fund payments, amortization schedules, expected prepayments, and adjustable
interest rates complicate the determination of the number of calendar years to expected maturity. The
expected maturity date is:

For fixed income instruments with fixed contractual repayment dates and amounts (including
bonds, preferred stock, callable or convertible bonds and preferred(s), the expected maturity is
defined as the contractual retirement date which produces the lowest amortization value for annual
statement purposes (lowest internal rate of return or yield to worst). Potential retirement dates
include all possible call dates, and the contractual maturity date. However, where a convertible
bond or convertible preferred stock is sold while its conversion value exceeds its book/adjusted
carrying value and the gain is included in IMR, the expected maturity date is defined as the next
conversion date. Conversion value is defined to mean the number of shares of common stock
available currently or at next conversion date, multiplied by the stocks current market price.
When the instruments contractual terms include scheduled sinking fund payments of fixed
amounts, an additional calculation of yield to average life should be included in the analysis where
average life is defined as the date at which the instrument is 50% repaid. For puttable instruments,
where the exercise option rests with the investor, expected maturity is the put or maturity date that
produces the highest internal rate of return. For Class One Bond Mutual Funds as Identified by
SVO, use one calendar year to expected maturity. For perpetual instruments, the expected maturity
is 30 years from the current date.

However, where a callable bond purchased at a premium is called or sold after the expected maturity
date, there should be no amortization of the call premium or interest-related gain/(loss). Similarly there
should be no amortization of any interest-related gain/(loss) arising if a convertible bond or preferred
stock is disposed of after the expected maturity date.

Using the grouped method, capital gains/(losses) net of capital gains tax are tabulated according to the
number of calendar years to expected maturity. The groupings are:

0 calendar years to expected maturity,

1 calendar year to expected maturity,
2 to 5 calendar years to expected maturity,
6 to 10 calendar years to expected maturity,
11 to 15 calendar years to expected maturity,
16 to 20 calendar years to expected maturity,
21 to 25 calendar years to expected maturity,
over 25 calendar years to expected maturity.

Calendar years to expected maturity means the calendar year of maturity minus the calendar year of
sale date (e.g., a bond sold in 2007 that would have matured in 2012 has five calendar years to
expected maturity).

1984 2016 National Association of Insurance Commissioners 280 L/H 2016

 For purposes of the grouped method, the following additional assumptions are applicable:

For fixed income investments, other than residential mortgages and residential mortgage
pass-throughs, without a maturity date or sinking fund schedule, a maturity date 30 years from
the current year should be used.

For mortgage-backed/asset-backed securities, use the remaining weighted average life of

principal and interest payments consistent with the prepayment assumptions that would have
been used to value the security had the security been repurchased at its sale price.

For Class One Bond Mutual Funds as Identified by the SVO, use one calendar year to
expected maturity.

NOTE: Amortization of current year gains/(losses) should be based on prior years amortization
factors until the current years table is published. Amortization of each years gains/(losses)
for future years must be based on the amortization table applicable to that year (i.e., 2006
gains/(losses) use the 2006 table, 2007 gains/(losses) use the 2007 table, etc.). Refer to
Grouped Amortization Schedule included in this section.

Column 3 Adjustment for Current Years Liability Gains/(Losses) Released From the Reserve

Report the negative of realized capital gains/(losses) that have been identified as associated with the
sale, transfer or reinsurance of a block of liabilities in accordance with the instructions for Line 3.

1984 2016 National Association of Insurance Commissioners 281 L/H 2016