- 25 -
On each policy anniversary, the PTO required AIG to compute
an "Experience Cost", defined as COI charges collected from
petitioner during the preceding year, less a 2-percent AIG
retention fee, less the net amount for which AIG was at risk for
claims during the preceding policy year. The negotiated 2-
percent retention fee limited AIG's mortality related profit. If
the experience cost as of a policy anniversary was positive, it
was added to the CSR's value as of the policy anniversary. If
the experience cost was negative, it was subtracted from the
CSR's value. AIG credited interest to the CSR at an annual rate
of 4 percent. If, on a policy anniversary, the CSR balance
exceeded its maximum permissible level, the excess was credited
to the unrestricted policy account value. The PTO provided that
the CSR would be held by AIG on behalf of petitioner for as long
as the policies remained in force plus 1 year. At the end of the
1 year, a final accounting would be made by AIG and the balance
of any remaining reserve would be refunded to petitioner.
Petitioner was to be charged 11.06 percent interest on
amounts that it borrowed against the cash value of the policies.
Pursuant to the PTO, the portion of the policy account value that
was borrowed would earn interest at a rate not to exceed 40 basis
points25 or four-tenths of 1 percent below the amount charged on
25Each basis point equals one one-hundredth of a percent
(0.01 percent). Thus, 40 basis points is equivalent to 0.40
Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 NextLast modified: May 25, 2011