A foreign currency denominated policy will be constantly changing value in US dollar terms. That change on its own should not be considered a material change imo. This matters in the context of 7702A using the CVAT. For the CVAT 7702, it wouldn’t be relevant. For GPT, changes are defined in a more limited way that I don’t believe include currency fluctuations. But for 7702A, it seems to include any changes.
Not a real answer, but since the purpose behind 7702 is to limit the amount of funding in a life insurance policy to maintain some risk transfer, as long as the premiums, face amount and cash value are all denominated in the same currency, wouldn’t the funding relationships be fine?
Maybe
Adding more info years later. For the CVAT, yes, the funding relationship holds because everything is denominated under the same currency. However, the CVAT can only be used if the policy can guarantee compliance in the future. Some types of policies will do this, like a non-par policy with guaranteed cash values and death benefits, but most participating policies will not be able to make this guarantee (though interestingly enough there are some that can).
So, if we must use the GPT, then the currency fluctuations affect the value of premiums in US dollars, but seemingly not the inital death benefit that was used to establish the GLP and GSP.
If we can use the CVAT, the issue becomes 7702A compliance. It’s possible that currency fluctuations are considered material changes, as it does change the death benefit from a US dollar perspective. So you’d have material changes occuring constantly. The necessary premium requirement will push off needing to recognize the material change, possibly forever, but possibly not. So, you likely will end up with a MEC, if those fluctuations are considered material changes.
Any opinions on whether a currency fluctuation that changes the death benefit in US dollars would be considered a material change? I’d say yes, as ‘any increase’ is counted. Although, it does also say ‘under the contract’. Is the value change because of exchange rates changing considered under the contract? Perhaps not.
Bump - I would be interested to hear more about this as well.