A NY variable annuity contract assesses an annual Mortality and Expense (M&E) risk charge against sub-account values. Which best describes what the M&E charge compensates the insurer for?

Why this is the answer

The M&E charge — typically 1.00%-1.40% annually of sub-account value in NY-filed contracts — is the cost the insurer charges for two risks it cannot pass through to the contract owner: (1) mortality risk (it must pay the guaranteed minimum death benefit even if sub-accounts crash, and must honor annuity-payout rates even if annuitants live longer than priced), and (2) expense risk (it cannot raise the contract's administrative-expense charges beyond the cap stated in the contract). M&E does NOT cover federal taxes (A), state premium tax (B — NY does have a premium tax but it is separate), or producer commission (D — commissions are paid from a different expense load, not labeled M&E).