2.1.2.2 Processing Auto Switch

This topic provides information on processing Auto Switch.

Auto Switch functionality is applicable only for Regulated contracts where Auto switch required is marked as Yes at Policy level.

Once the maximum number of unsuccessful runs for auto switch is reached during quarterly compliance checking process, the system will check the contract against Actual components and update the serial number if the contract is non compliant. If the contract is compliant against AML, then the serial number will be updated to 0.

If a policy is failed consecutively for defined number of times, then the system will run auto switch as part of the following quarter. For instance, if the maximum non-compliance count is 4, auto switch will takes place as part of 5th quarter. In such cases, auto switch process shall pickup all the contracts whose current count is more than 4 and continue with the processing of auto switch.

The system will run Policy – Reg28 Auto-Switch Generation batch to pick up all non-complaint contracts against the AML components for successive nth time i.e. maximum number of unsuccessful runs plus one, i.e N+1 times. The system will validate these contracts for Regulation 28 against rule with latest balance.

If the contract is complaint against rule maintained and latest balance then the contract will be marked as complaint and Serial Number will be updated to 0.

If the contract is not compliant against this IML and latest balance then the batch will generate Auto-Switch forcing the contract to be Regulation 28 compliant by Sell by Margin method. This Batch will also run on the same day as the current quarterly process.

You can maintain IML batch rule for Auto switch to take place. If IML batch rule is not maintained, system will mark the contract as Compliant and the Serial number will be updated as 0 and policy will be marked as Policy is compliant with IML. In IML Batch rule, each rule can have only 1 component.

While determining the latest market value, for switch transactions, both the out and in leg must be allotted before they can be included in the market value calculation. The latest available prices will be used in the calculation. The system will evaluate the computed IML component values against latest IML rule to check whether contract is compliant or not.

If the contract is compliant against IML components then the system will mark the contract as Compliant and the Serial number will be updated as 0 and will be marked as Policy is compliant with IMLs in data store as well.

If the contract is not compliant against IML, then system will take the Rule which has maximum breach. The breach is defined as the Portfolio’s IML limit less the asset limit.

The system will derive the required variable based on the Rule. It will derive the Sell% (excluding funds based on maintenance) after applying the formula.

The system will rebalance the portfolio by keeping the excluded funds values constant and by switching the amount from the eligible funds to Auto Switch fund.

The system will check to see whether the rebalanced portfolio passes Regulation 28 validation using IMLs. (Switch transaction calculated against Rule 10 must be included)

If Contract is compliant then system:

• Marks the contract as compliant by updating the serial number to 0 and update the remarks in the data store will be updated as Policy is compliant with the IMLs against this contract.
• Creates a switch transaction as per the sell amount derived from respective funds into Money Market fund.

If the contract is still not compliant, then system will repeat re-balancing steps until contract is compliant. The system will generate only one switch transaction per contract. The switch transactions will generate 2 Adjustment Transaction Types, namely, LHO (for Switch Out leg) and LHI (for Switch In leg) during this process.

The system will track all the computed variables, values etc., used in calculation of Switch generation with the iteration number for reconciliation and reporting purposes. You can also exclude funds for Reg 28 auto switch rebalancing while selecting funds in Portfolio Mapping screen.