S.B. 681 78(R)    BILL ANALYSIS


S.B. 681
By: Averitt
Insurance
Committee Report (Unamended)



BACKGROUND AND PURPOSE 

Currently, the law establishes the minimum non-forfeiture amount for
individual deferred annuities at three percent per annum. The
non-forfeiture provision of an annuity contract provides for a minimum
benefit in either a lump sum or installments when the annuity contract
comes due. The minimum rate of interest is one of the factors considered
in determining the minimum values that an insurer must meet. However, with
the decline in interest rates insurers are unable to find an adequate
spread between minimum non-forfeiture interest rates and market rates.
This could create a situation where certain annuities become unavailable
in the future.  S.B. 681 provides that the minimum nonforfeiture interest
rate is the lesser of three percent or a rate tied to an index.  


RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority is expressly
granted to the Commissioner of Insurance in SECTION 1 (Sections 1107.056
and 1107.108, Insurance Code) of this bill.  

ANALYSIS

SECTION 1. Amends Chapter 1107, Insurance Code, effective as of June 1,
2003, as follows:  

Sec. 1107.001. (c) Creates this subsection to require companies to issue
and the Texas Department of Insurance (TDI) to review, annuity contracts
under certain sections by a certain date.  

Sec. 1107.003. (c) Requires a company that issues a certain annuity
contract to pay a cash surrender benefit. Authorizes, rather than
requires, a company to reserve the right to defer payment of any cash
surrender benefit for a period not to exceed six months after demand.  

Sec. 1107.055. INTEREST RATE. Creates this section to require the interest
rate used in determining minimum nonforfeiture amounts to be an annual
rate of interest determined as the lesser of three percent per annum or an
alternate amount computed in a certain manner. Requires certain
information to be specified in the contract if the interest rate will be
redetermined.  

Sec. 1107.056. ADDITIONAL INTEREST RATE ADJUSTMENTS. Creates this section
to authorize the commissioner of insurance (commissioner) to adopt rules
to provide for further adjustments to Section 107.055 for annuity
contracts that provide substantive participation in an equity index
benefit or other benefits as appropriate.  

Sec. 1107.057. MINIMUM NONFORFEITURE AMOUNT. Creates this section as
follows:  

(a) Requires the minimum values as specified in Sections 1107.006,
1107.101, 1107.102, 1107.103, 1107.104, and 1107.105 of any paid-up
annuity, cash surrender or death benefits available under an annuity
contract to be based upon minimum nonforfeiture amounts as defined in this
section.  

(b) Requires the minimum nonforfeiture amount at any time at or prior to
the commencement of any annuity payments to be equal to an accumulation up
to such time at rates of interest as indicated in this subchapter of the
net considerations paid prior to such time, decreased by the  sum of
certain items.  

(c) Requires the amount of net consideration for a contract year, for the
purposes of this section, to be an amount equal to eighty-seven and
one-half percent (87.5%) of the gross considerations credited to the
contract during that contract year.  

[Reserves Sections 1107.058, rather than 1107.055, through 1107.100 for
expansion.]  

Sec. 1107.108. RULES. Creates this Section to authorize the commissioner
to adopt rules to implement the provisions of this Act.  

SECTION 2. Effective date: upon passage or September 1, 2003. 

EFFECTIVE DATE

On passage or, if the Act does not receive the necessary, the Act takes
effect September 1, 2003.