By: Averitt S.B. No. 681
A BILL TO BE ENTITLED
AN ACT
relating to the standard nonforfeiture law for certain annuities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 1107, Insurance Code, as effective
June 1, 2003, is amended to read as follows:
CHAPTER 1107. STANDARD NONFORFEITURE LAW FOR CERTAIN ANNUITIES
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1107.001. APPLICABILITY OF CHAPTER. (a) This chapter
applies to an annuity contract issued on or after August 29, 1979.
(b) This chapter also applies to an annuity contract issued
by a company after a date specified in a written notice:
(1) that was filed with the State Board of Insurance
after August 29, 1977, but before August 29, 1979; and
(2) under which the company filing the notice elected
to comply before August 29, 1979, with the law codified by this
chapter.
(c) Companies shall issue, and the department shall review,
annuity contracts as follows:
(1) under Sections 1107.051-1107.054 until August 31,
2005; or
(2) under Sections 1107.055-1107.057 after September
1, 2003.
(d) Companies shall not issue annuity contracts under
Sections 1107.051–1107.054 after August 31, 2005.
Sec. 1107.002. EXEMPTIONS. (a) This chapter does not
apply to:
(1) a reinsurance contract;
(2) a group annuity contract that is purchased under a
retirement plan or plan of deferred compensation established or
maintained by an employer, including a partnership or sole
proprietorship, by an employee organization, or by both, other than
a plan that provides individual retirement accounts or individual
retirement annuities under Section 408, Internal Revenue Code of
1986, as amended;
(3) a premium deposit fund;
(4) a variable annuity contract;
(5) an investment annuity contract;
(6) an immediate annuity contract;
(7) a deferred annuity contract under which annuity
payments have begun; or
(8) a reversionary annuity contract.
(b) This chapter does not apply to a contract delivered
outside this state through an agent or other representative of the
company that issues the contract.
Sec. 1107.003. REQUIRED NONFORFEITURE PROVISIONS. (a) An
annuity contract delivered or issued for delivery in this state
must contain in substance the provisions prescribed by this section
or corresponding provisions that, in the opinion of the department,
are at least as favorable to the contract holder when payment of
considerations under the contract ceases.
(b) The annuity contract must provide that when payment of
considerations under a contract ceases, the company will grant a
paid-up annuity benefit on a plan stipulated in the contract that
has a value that complies with this chapter.
(c) An annuity contract that provides for a lump-sum
settlement at maturity or at any other time must provide that on
surrender of the contract on or before the time annuity payments
begin, the company that issues the contract shall [will] pay a cash
surrender benefit in an amount that complies with this chapter in
lieu of a paid-up annuity benefit. A company may [shall] reserve
the right to defer payment of any cash surrender benefit for a
period not to exceed [of] six months after demand for payment of the
benefit is made with surrender of the contract.
(d) An annuity contract must contain:
(1) a statement of the mortality table, if any, and
interest rates to be used to compute any minimum paid-up annuity,
cash surrender, or death benefits that are guaranteed under the
contract, together with information that is sufficient to determine
the amounts of the benefits;
(2) a statement that any paid-up annuity, cash
surrender, or death benefits available under the contract are not
less than the minimum benefits required by this state; and
(3) an explanation of the manner in which a paid-up
annuity, cash surrender, or death benefit is altered by the
existence of any additional amounts credited to the contract by the
company that issues the contract, any indebtedness to the company
on the contract, or any prior withdrawals from or partial
surrenders of the contract.
Sec. 1107.004. OPTIONAL TERMINATION PROVISION.
(a) Notwithstanding the requirements of Section 1107.003, an
annuity contract may provide that the company has the option to
terminate the contract by making a cash payment of the then present
value of that portion of the paid-up annuity benefit if:
(1) no considerations are received under the contract
for two years; and
(2) at maturity, payments on the portion of the
paid-up annuity benefit on the plan stipulated in the contract
attributable to considerations paid before that period would be
less than $20 each month.
(b) If an annuity contract contains a provision permitted
under Subsection (a):
(1) the present value of a portion of a paid-up annuity
benefit paid under that provision must be computed on the basis of
the mortality table, if any, and interest rates [rate] specified in
the contract for determining the paid-up annuity benefit; and
(2) a payment made under that provision relieves the
company of any further obligation under the contract.
Sec. 1107.005. CONTRACT DISCLOSURE THAT CERTAIN BENEFITS
NOT PROVIDED. An annuity contract that does not provide a cash
surrender benefit or that does not provide a death benefit that is
at least equal to the minimum nonforfeiture amount for the contract
under Subchapter B before annuity payments begin must include a
statement in a prominent place in the contract that those benefits
are not provided.
Sec. 1107.006. MATURITY DATE. (a) In determining the
value of benefits under Sections 1107.102, 1107.103, and 1107.104,
and subject to Subsection (b), if an annuity contract permits an
election to have annuity payments begin on optional maturity dates,
the maturity date is considered to be the latest date on which an
election is permitted by the contract.
(b) A maturity date determined under this section may not be
later than the later of:
(1) the next anniversary of the annuity contract that
follows the annuitant's 70th birthday; or
(2) the 10th anniversary of the contract.
SUBCHAPTER B. COMPUTATION OF MINIMUM NONFORFEITURE AMOUNT
Sec. 1107.051. MINIMUM NONFORFEITURE AMOUNT. The minimum
value under Subchapter C of a paid-up annuity, cash surrender, or
death benefit shall be computed on the basis of the minimum
nonforfeiture amount prescribed by this subchapter.
Sec. 1107.052. CONTRACT WITH FLEXIBLE CONSIDERATIONS.
(a) This section applies only to an annuity contract that provides
for the payment of flexible considerations.
(b) The minimum nonforfeiture amount on or before annuity
payments begin is an amount equal to the accumulation of the
prescribed percentages of the amount of net considerations paid to
the date of computation, which are accumulated at an interest rate
of three percent per year, plus any additional amount credited to
the contract by the company, less the amount of:
(1) any withdrawal from or partial surrender of the
contract made before the minimum nonforfeiture amount is computed,
accumulated at an interest rate of three percent per year; and
(2) any indebtedness to the company on the contract,
including any accrued interest due on the indebtedness.
(c) For the purposes of this section, the amount of net
consideration for a contract year may not be less than $0 and is
computed by subtracting from the amount of gross considerations
credited to the contract during that contract year:
(1) an annual contract charge of $30; and
(2) a collection charge of $1.25 for each
consideration credited to the contract during that year.
(d) Except as provided by Subsection (e), the percentage of
the amount of net consideration to be used in computing a minimum
nonforfeiture amount under Subsection (b) is:
(1) 65 percent for the first contract year; and
(2) 87.5 percent for each subsequent contract year.
(e) For a renewal contract year, the percentage of the
amount of net consideration to be used to compute a minimum
nonforfeiture amount under Subsection (b) is 65 percent of the
portion of the total amount of net consideration that exceeds by not
more than two times the sum of those portions of the amount of net
consideration in all preceding contract years for which the
percentage was 65 percent.
Sec. 1107.053. CONTRACT WITH FIXED, SCHEDULED
CONSIDERATIONS. (a) For an annuity contract that provides for the
payment of fixed, scheduled considerations, the minimum
nonforfeiture amount is computed in the same manner as the minimum
nonforfeiture amount for an annuity contract with flexible
considerations that are paid annually, except that:
(1) the amount of net consideration for a contract
year is computed using an annual contract charge equal to the lesser
of:
(A) $30; or
(B) 10 percent of the amount of the gross annual
considerations paid on the contract; and
(2) the percentage of the net consideration amount for
the first contract year to be used to compute the minimum
nonforfeiture amount is 65 percent of the amount of net
consideration for the first contract year plus 22.5 percent of the
amount by which the amount of net consideration for the first
contract year exceeds the lesser of:
(A) the amount of net consideration for the
second contract year; or
(B) the amount of net consideration for the third
contract year.
(b) The computation made under Subsection (a) must assume
that the considerations are paid annually in advance.
Sec. 1107.054. CONTRACT WITH SINGLE CONSIDERATION. For an
annuity contract that provides for the payment of a single
consideration, the minimum nonforfeiture amount is computed in the
same manner as the minimum nonforfeiture amount for a contract with
flexible considerations, except that:
(1) the net consideration amount to be used to compute
the minimum nonforfeiture amount is the amount of the gross
considerations paid under the contract less a contract charge of
$75; and
(2) the percentage of the net consideration amount to
be used to compute the minimum nonforfeiture amount is 90 percent.
Sec. 1107.055. INTEREST RATE. The interest rate used in
determining minimum nonforfeiture amounts shall be an annual rate
of interest determined as the lesser of three percent per annum and
the following, which must be specified in the contract if the
interest rate will be redetermined:
(1) the five-year Constant Maturity Treasury Rate
reported by the Federal Reserve as of a date, or average over a
period, rounded to the nearest 1/20th of one percent, specified in
the contract no longer than 15 months prior to the contract issue
date or redetermination date under Subdivision (4);
(2) reduced by 125 basis points;
(3) where the resulting interest rate is not less than
one percent; and
(4) the interest rate shall apply for an initial
period and may be redetermined for additional periods. The
redetermination date, basis, and period, if any, shall be stated in
the contract. As used in this section, basis is the date, or
average over a specified period, which produces the five-year
Constant Maturity Treasury Rate to be used at each redetermination
date.
Sec. 1107.056. ADDITIONAL INTEREST RATE ADJUSTMENTS. The
commissioner may adopt rules to provide for further adjustments to
Section 1107.055 for annuity contracts that provide substantive
participation in an equity index benefit or other benefits as
appropriate.
Sec. 1107.057. MINIMUM NONFORFEITURE AMOUNT. (a) The
minimum values as specified in Sections 1107.006 and
1107.101-1107.105 of any paid-up annuity, cash surrender, or death
benefits available under an annuity contract shall be based upon
minimum nonforfeiture amounts as defined in this section.
(b) The minimum nonforfeiture amount at any time at or prior
to the commencement of any annuity payments shall be equal to an
accumulation up to such time at rates of interest as indicated in
this subchapter of the net considerations as defined by Subsection
(c) paid prior to such time, decreased by the sum of Subdivisions
(1) through (4):
(1) any withdrawal from or partial surrender of the
contract made before the minimum nonforfeiture amount is computed,
accumulated at an interest rate as indicated in this subchapter;
(2) an annual contract charge of $50, accumulated at
rates of interest as indicated in this subchapter;
(3) premium tax paid, if any, by the company, and not
subsequently credited back to the company, for the contract,
accumulated at rates of interest as indicated in this subchapter;
and
(4) any indebtedness to the company on the contract,
including any accrued interest due on the indebtedness.
(c) For the purposes of this section, the amount of net
consideration for a contract year shall be an amount equal to 87.5
percent of the gross considerations credited to the contract during
that contract year.
SUBCHAPTER C. VALUE OF NONFORFEITURE BENEFITS
Sec. 1107.101. PRESENT VALUE OF NONFORFEITURE BENEFITS
[PAID-UP ANNUITY BENEFIT]. (a) The present value of any paid-up
annuity benefit available under an annuity contract on the date
annuity payments are to begin may not be less than the minimum
nonforfeiture amount for that contract on that date as computed
under Subchapter B.
(b) The present value of the paid-up annuity benefit shall
be computed using the mortality table, if any, and the interest
rates [rate] specified in the contract for computing the minimum
paid-up annuity benefit guaranteed by the contract.
Sec. 1107.102. COMPUTATION OF PAID-UP ANNUITY BENEFIT UNDER
CERTAIN CONTRACTS. (a) This section applies only to an annuity
contract that does not provide a cash surrender benefit.
(b) Subject to Subsection (e), the present value of a
paid-up annuity benefit available as a nonforfeiture option before
the maturity date may not be less than the present value of the
portion of the maturity value of the paid-up annuity benefit
provided under the contract that arises from considerations paid on
the contract before the date the contract is surrendered in
exchange for or is changed to a deferred paid-up annuity.
(c) The present value of a paid-up annuity benefit under
Subsection (b) shall be:
(1) computed for the period before the maturity date
on the basis of the interest rate specified in the contract for
accumulating the net considerations paid on the contract to
determine the maturity value; and
(2) increased by any additional amount credited by the
company to the contract.
(d) Subject to Subsection (e), for an annuity contract that
does not provide a death benefit before annuity payments begin, the
present value of a paid-up annuity benefit available as a
nonforfeiture option shall be computed using the interest rate and
the mortality table specified in the contract for determining the
maturity value of the paid-up annuity benefit.
(e) The present value of a paid-up annuity benefit may not
be less than the minimum nonforfeiture amount on the date of
surrender or change.
Sec. 1107.103. COMPUTATION OF CASH SURRENDER BENEFIT.
(a) Subject to Subsection (c), the value of a cash surrender
benefit available under an annuity contract before the maturity
date may not be less than the present value on the date the contract
is surrendered of the portion of the maturity value of the paid-up
annuity benefit that arises from considerations paid under the
contract before that date and that would be provided under the
contract at maturity less an amount reflecting any withdrawals from
or partial surrenders of the contract before that date and the
amount of any indebtedness to the company on the contract,
including accrued interest due on the indebtedness, plus any
additional amount credited by the company to the contract.
(b) The present value used to compute the minimum cash
surrender benefit under Subsection (a) shall be computed using an
interest rate that is not more than one percent higher than the
interest rate specified in the contract for accumulating the net
considerations paid on the contract to determine the maturity
value.
(c) The value of a cash surrender benefit may not be less
than the minimum nonforfeiture amount on the date the contract is
surrendered.
Sec. 1107.104. COMPUTATION OF DEATH BENEFIT. The value of a
death benefit available under an annuity contract that provides a
cash surrender benefit may not be less than the value of the cash
surrender benefit.
Sec. 1107.105. COMPUTATION OF BENEFITS AVAILABLE AT TIME
OTHER THAN CONTRACT ANNIVERSARY. For an annuity contract that
requires payment of fixed, scheduled considerations, the value of a
paid-up annuity, cash surrender, or death benefit that is available
under the contract on a date other than an anniversary of the
contract date shall be computed to allow for the lapse of time and
any scheduled considerations paid after the beginning of the
contract year in which payment of considerations under the contract
ceased.
Sec. 1107.106. MINIMUM NONFORFEITURE VALUES UNDER CONTRACT
THAT PROVIDES ANNUITY AND LIFE INSURANCE BENEFITS. For a contract
that provides, by rider or by supplemental provision, both annuity
benefits and life insurance benefits that exceed the greater of the
value of the cash surrender benefit or the amount with interest of
the gross considerations paid on the contract, the minimum
nonforfeiture benefits are equal to the sum of the minimum
nonforfeiture benefits for the annuity portion of the contract and
the minimum nonforfeiture benefits, if any, for the life insurance
portion of the contract, computed as if each portion were a separate
contract.
Sec. 1107.107. COMPUTATIONS NOT AFFECTED BY ADDITIONAL
BENEFITS. (a) Notwithstanding any other provision of this
subchapter or Section 1107.006, a computation of a minimum
nonforfeiture amount or of a paid-up annuity, cash surrender, or
death benefit under this chapter may not include:
(1) any additional benefit that is:
(A) payable in the event of total and permanent
disability;
(B) payable as a reversionary annuity or deferred
reversionary annuity benefit; or
(C) payable as another policy benefit in addition
to life insurance, endowment, or annuity benefits; or
(2) the considerations paid for the additional
benefit.
(b) A paid-up benefit under an annuity contract is not
required to include an additional benefit described by Subsection
(a) unless the additional benefit separately requires:
(1) a minimum nonforfeiture amount; or
(2) a paid-up annuity, cash surrender, or death
benefit.
Sec. 1107.108. RULES. The commissioner may adopt rules to
implement the provisions of this chapter.
SECTION 2. This Act take effect immediately if it receives a
vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2003.